8-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) March 21, 2005 (March 20, 2005)

VERILINK CORPORATION

(Exact name of registrant as specified in its charter)

Delaware 000-28562 94-2857548

(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

11551 E. ARAPAHOE RD., SUITE 150
CENTENNIAL, CO 80112-3833

(Address of principal executive offices/Zip Code)

303.968.3000
(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

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

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

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

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

TABLE OF CONTENTS

Amendment No. 3 to the Rights Agreement

Form of Senior Secured Convertible Note

Form of Senior Secured Convertible Note

Pledge and Security Agreement

Guaranty

Securities Purchase Agreement

Form of Warrant to Purchase Common Stock

Form of Additional Investment Right

Registration Rights Agreement

Voting Agreement

Press Release

INFORMATION TO BE INCLUDED IN THE REPORT

Section 1 – Registrant’s Business and Operations

Item 1.01 Entry into a Material Definitive Agreement.

Private Placement

On March 20, 2005, Verilink Corporation (the “Company”) entered into a Securities Purchase Agreement with the investors identified on the Schedule of Buyers attached thereto, a copy of which is attached hereto as Exhibit 10.19, pursuant to which the Company has agreed to issue and sell in a private placement an aggregate of $10,000,000 in principal amount of senior secured convertible notes, warrants to purchase up to 830,563 shares of the Company’s common stock, and additional investment rights to purchase up to an aggregate of $5,000,000 in principal amount of additional senior secured convertible notes, forms of which are attached hereto as Exhibits 4.6, 10.20, 10.21 and 4.7, respectively. The private placement is expected to close on March 21, 2005. The notes to be issued at the closing and issuable upon the exercise of the additional investment rights will be initially convertible into an aggregate of 4,983,390 shares of common stock based on an initial conversion price of $3.01 per share. The warrants will be exercisable at any time on or after September 21, 2005 at an exercise price of $3.41 per share and will terminate on March 21, 2010. The conversion price of the notes and the exercise price of the warrants will be subject to weighted average anti-dilution adjustments. The notes may not be converted, and the warrants may not be exercised, into more than 20% of the number of shares or voting power of the Company’s common stock outstanding as of the closing of the financing until such conversion or exercise has been approved by the Company’s stockholders.

The notes will bear interest at a rate of six percent per annum payable in arrears for each calendar quarter on the tenth day of the succeeding calendar quarter beginning on April 10, 2005. Additionally, the notes must be repaid in $1,000,000 quarterly installments beginning on July 10, 2005 and ending October 10, 2007. Pursuant to the terms of the notes, the Company will have the option, subject to certain restrictions, to satisfy its interest and installment payment obligations under the notes by the delivery of shares of common stock at a price equal to 90% of the arithmetic average of the weighted average sale price of the common stock for the fifteen consecutive trading days ending on the fourth trading day immediately preceding the applicable interest or amortization payment date. In the event that, as of November 21, 2005, the Company has not obtained stockholder approval of the issuance of the notes, the warrants and the shares of common stock to be issued thereunder and an increase in the Company’s authorized capital of at least 10,000,000 shares of common stock, the Company will be required to make at least 50% of such interest and installment payments made after such date in cash. If, as of the end of each fiscal quarter during the period in which the notes are outstanding, the Company fails to maintain certain minimum working capital requirements, the holders of the notes may require the Company to make an additional installment payment under the notes which shall be, at the option of each holder, such holder’s pro rata portion of one of the following: (1) the difference between (A) the unpaid principal, interest and any late charges then remaining under the notes and (B) 60% of the Company’s working capital amount, as determined in accordance with the terms of the notes, (2) $2,000,000 or (3) such lesser amount if reduced in accordance with the terms of the notes.

Upon an “event of default” (as defined in the notes), the holders of the notes may require the Company to redeem all or any portion of the notes. The redemption amount shall equal the greater of (i) 120% (or 100% in the case of an event of default triggered under certain bankruptcy laws) of the unpaid principal, interest and any late charges then remaining under the notes subject to redemption or (ii) the closing sale price of the Company’s common stock on the trading day immediately prior to the date of the event of default multiplied by the number of shares of common stock issuable upon the conversion of the portion of the notes subject to redemption at the then-effective conversion price.

Under the terms of the Registration Rights Agreement entered into on March 20, 2005 in connection with the private placement, a copy of which is attached hereto as Exhibit 10.22, the Company has agreed to file, on or before May 20, 2005, a Registration Statement (the “Initial Registration Statement”) with the Securities and Exchange Commission to register the shares of its common stock issuable upon the conversion of the notes to be issued at the closing, the shares of common stock issuable upon exercise of the warrants, the shares of common stock issuable in

1.

payment of interest obligations under the notes to be issued at the closing, and any shares of stock of the Company issuable on or in exchange for such shares, which Registration Statement is required under the agreement to become effective by July 19, 2005. Additionally, following each exercise of the additional investment rights to purchase an aggregate of at least $500,000 in principal amount of the notes issuable thereunder, and upon the exercise of the last of any remaining additional investment rights, the Company is obligated to file a Registration Statement with the Securities and Exchange Commission to register the shares of its common stock issuable upon the conversion of the notes issued in connection with such exercise, plus any shares issued as payment of interest thereon, within 30 days after each such note issuance. Each such additional Registration Statement is required under the agreement to become effective within 90 days following the exercise of each applicable note. In the event that the Company fails to timely register, or maintain the effectiveness of, any Registration Statement in accordance with the terms of the Registration Rights Agreement, the Company shall be required to pay to each holder, on the date on which such failure occurs and each thirty day anniversary thereafter during which such failure is continuing, an amount in cash equal to one percent of the aggregate purchase price of such securities held by the holder included in such Registration Statement (or, in the case of a failure to timely register a sufficient number of shares of common stock under, or to maintain the effectiveness of, an effective Registration Statement, cash equal to one percent of the greater of (i) one-third of the aggregate purchase price of the securities or (ii) the purchase price only of such securities that cannot be sold as a result of such failure).

Pursuant to the terms of the notes, if at any time the “weighted average price” (as defined in the notes) of the Company’s common stock equals or exceeds 200% of the initial conversion price (as adjusted for stock splits, stock dividends, stock combinations and similar transactions) of the notes for each of any twenty consecutive trading days following the one-year anniversary of the effective date of the Initial Registration Statement, and certain other conditions are satisfied, the Company shall have the right to require the holder of each note to convert all (but not less than all) of the unpaid principal, interest and any late charges then remaining under the note plus the discounted present value of any remaining future interest payments under the note into shares of common stock at the then-applicable conversion price of the notes or, at the Company’s option solely with respect to the present value of future interest payments, cash or a combination of common stock and cash.

The Company’s obligations under the notes are secured by a lien on substantially all of the Company’s assets in favor of Portside Growth & Opportunity Fund, as collateral agent for the investors in the private placement, pursuant to the Pledge and Security Agreement entered into on March 21, 2005 by the Company in connection with the private placement, a copy of which is attached hereto as Exhibit 4.8. Additionally, Larscom Incorporated and Verilink Europe Limited, each wholly-owned subsidiaries of the Company, have guaranteed the Company’s obligations under the financing agreements pursuant to the Guaranty entered into on March 21, 2005 by the Company, Portside Growth & Opportunity Fund and such subsidiaries, a copy of which is attached hereto as Exhibit 4.9.

On March 20, 2005, in connection with the private placement, the Company entered into a voting agreement, the form of which is attached hereto as Exhibit 10.23, with each of Leigh S. Belden, a director of the Company and the Company’s President and Chief Executive Officer and Beltech, Inc., a corporation of which Mr. Belden is a Director and President. Pursuant to the terms of the voting agreement, each party has agreed to vote any shares of the Company’s capital stock held by it to, among other things, approve the Company’s issuance of all of the securities issued or issuable in connection with the private placement and approve the increase in the Company’s authorized capital of at least 10,000,000 shares of common stock.

The foregoing is a summary of the terms of the private placement and does not purport to be complete and is qualified in its entirety by reference to the full text of the financing agreements, copies of which are attached hereto and incorporated herein by reference.

Amendment to Rights Plan

In November 2001, the Company entered into a Rights Agreement with Equiserve Trust Company, N.A., the Company’s transfer agent at such time, as amended by the Rights Agent Appointment and Amendment No. 1 to Rights Agreement (appointing American Stock Transfer and Trust Company as rights agent) and the Amendment No. 2 to Rights Agreement (collectively, the “Rights Agreement”). In connection with the private placement, on March 20, 2005, the Company entered into an Amendment No. 3 to Rights Agreement with American Stock

2.

Transfer and Trust Company, a copy of which is attached hereto as Exhibit 4.2C, to provide that the notes, the warrants and the additional investment rights to be issued in connection with the private placement will not be deemed “beneficially owned” by their holders for the purposes of the Rights Agreement, including the determination of whether or not a person has become an “acquiring person” under the Rights Agreement. Under the Rights Agreement, the Company’s board of directors has express authority to amend the Rights Agreement without stockholder approval, subject to certain limitations.

The foregoing is a summary of the terms of the amendment to the Rights Agreement. Such summary does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment No. 3 to Rights Agreement, a copy of which is attached hereto and incorporated herein by reference.

Item 1.02 Termination of a Material Definitive Agreement.

In connection with the closing of the private placement described in “Item 1.01 Entry into a Material Definitive Agreement” above, which is incorporated herein by reference, the Company intends to repay, immediately upon the closing of the private placement, which is expected to occur on March 21, 2005, all amounts outstanding under the revolving line of credit with RBC Centura Bank pursuant to the Loan and Security Agreement, dated as of April 8, 2004, by and between RBC Centura Bank, the Company, V-X Acquisition Company and XEL Communications, Inc., as amended, and terminate the agreement effective upon such repayment. The payment, which we expect to be in the aggregate amount of approximately $3,500,000, will be made from the proceeds of the private placement.

The borrowings under the line of credit are subject to the availability of certain eligible accounts as defined in the Loan and Security Agreement. The agreement is scheduled to expire in April 2005 and is renewable at the bank’s option. The interest on outstanding borrowings is at a rate of 250 basis points over the 30 day London inter-bank offered rate. All of the Company’s assets, other than property subject to lease and restricted cash, are pledged as collateral securing amounts outstanding under the line of credit.

Section 2 – Financial Information

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

See “Item 1.01 Entry into a Material Definitive Agreement” above, the contents of which are incorporated herein by reference in their entirety.

Section 3 – Securities and Trading Markets

Item 3.02 Unregistered Sales of Equity Securities.

On March 20, 2005, the Company entered into an agreement to issue and sell in a private placement an aggregate of $10,000,000 in principal amount of senior secured convertible notes, warrants to purchase up to 830,563 shares of the Company’s common stock, and additional investment rights to purchase up to an aggregate of $5,000,000 in principal amount of additional senior secured convertible notes, as described in “Item 1.01 Entry into a Material Definitive Agreement” above, which is incorporated herein by reference. The closing of the private placement is expected to occur on March 21, 2005.

Kaufman Bros., L.P. acted as the Company’s exclusive placement agent for this transaction and will be paid an aggregate of 6.0% of the aggregate gross proceeds in the financing, or up to $900,000 assuming a total investment of $15,000,000.

The offering was made only to qualified institutional buyers and institutional accredited investors, as such terms are defined under the Securities Act of 1933, as amended. The notes, the warrants and the additional investment rights issued to the investors have not been registered under the Securities Act of 1933, or any state securities laws. The Company relied on the exemption from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof and Rule 506 of Regulation D promulgated thereunder. However, the company has

3.

agreed to file a registration statement for the resale of the shares of common stock issuable upon the conversion or exercise of the securities, as described in “Item 1.01 Entry into a Material Definitive Agreement” above.

Section 8 – Other Events

Item 8.01 Other Events.

Press Release

The press release announcing the private placement is attached hereto as Exhibit 99.1 and incorporated herein by reference.

Risk Factors

In light of the private placement, you should carefully consider the following risk factors related to the financing before making any investment decision with respect to the Company. Additional risks of which the Company is not yet aware or that the Company currently thinks are immaterial may also impair its business operations. If any of the events or circumstances described in the following risk factors actually occurs, the Company’s business may suffer, the trading price of its common stock could decline, and you may lose all or part of your investment.

The Company’s indebtedness and debt service obligations may adversely affect its cash flow.

Should the Company be unable to satisfy its interest and installment payment obligations under the notes by the payment of shares of common stock, the Company will be required to pay those obligations in cash. The Company expects to be able to fulfill the these obligations both from cash generated by its operations. If the Company is unable to generate sufficient cash to meet these obligations, it may have to restructure or severally limit its operations.

The Company’s indebtedness could have significant additional negative consequences, including, but not limited to:

•   requiring the dedication of a substantial portion of the Company’s expected cash flow from operations to service the indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures;

•   increasing the Company’s vulnerability to general adverse economic and industry conditions;

•   limiting the Company’s ability to obtain additional financing;

•   limiting the Company’s flexibility to plan for, or react to, changes in its business and the industry in which it competes; and

•   placing the Company at a possible competitive disadvantage to competitors with less debt obligations and competitors that have better access to capital resources.

Issuance of the shares of common stock upon conversion or repayment of senior secured convertible notes, payment of interest, and exercise of warrants will dilute the ownership interest of existing stockholders and could adversely affect the market price of the Company’s common stock.

In connection with the private placement, the Company may issue shares of common stock to the investors (i) upon conversion of some or all of the senior secured convertible notes (including notes issuable upon exercise of the additional investment rights), (ii) in satisfaction of its installment obligations under the notes, in lieu of cash payments, (iii) in satisfaction of its interest obligations under the notes, in lieu of cash payments, and (iv) upon exercise of the warrants. Any of these issuances will dilute the ownership interests of existing stockholders. Any sales in the public market of this common stock could adversely affect prevailing market prices of the common stock. In addition, the existence of these notes and warrants may encourage short selling by market participants.

4.

The senior secured convertible notes provide that upon the occurrence of various events of default and change of control transactions, the holders would be entitled to require the Company to redeem the notes for cash, which could leave the Company with little or no working capital for operations or capital expenditures.

The senior secured convertible notes allow the holders thereof to require redemption of the notes upon the occurrence of various events of default, such as the termination of trading of the Company’s common stock on the Nasdaq National Market, or specified change of control transactions. In such a situation, the Company may be required to redeem all or part of the notes, including any accrued interest and penalties, within 5 business days after receipt of a demand for such redemption. Some of the events of default include matters over which the Company may have some, little or no control. If an event of default or a change of control occurs, the Company may be unable to pay the full redemption price in cash. Even if it were able to pay the redemption price in cash, any such redemption could leave the Company with little or no working capital for its business. The Company has not established a sinking fund for payment of its obligations under the notes, nor does it anticipate doing so.

If the Company cannot obtain the required stockholder approval to issue common stock in satisfaction of its interest and installment obligations under the senior secured convertible notes, it must satisfy at least 50% of these obligations in cash.

Stockholder approval will be required for the Company to make certain interest and installment payments under the senior secured convertible notes with shares of common stock. In the event that stockholder approval is not obtained, the Company will be required to make at least 50% of such interest and installment payments in cash. Any such payments could leave the Company with insufficient working capital for its business.

Executive Officers

The Company has eliminated the position of Vice President, Human Resources and accordingly Betsy Mosgrove has departed the Company. Todd Westbrook, Vice President, Operations, has submitted his resignation effective as of April 1, 2005.

Section 9 – Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

(c) Exhibits.

4.2C	Amendment No. 3 to the Rights Agreement dated as of March 20, 2005 by and between the Company and American Stock Transfer & Trust Company.
4.6	Form of Senior Secured Convertible Note.
4.7	Form of Senior Secured Convertible Note issuable upon the exercise of the Additional Investment Rights.
4.8	Pledge and Security Agreement dated as of March 20, 2005 by and among the Company, Larscom Incorporated, Verilink Europe Limited and Portside Growth & Opportunity Fund, as collateral agent.
4.9	Guaranty dated as of March 20, 2005 by and among the Company, Larscom Incorporated, Verilink Europe Limited and Portside Growth & Opportunity Fund, as collateral agent.
10.19	Securities Purchase Agreement dated as of March 20, 2005 by and among the Company and the investors identified on the Schedule of Buyers attached thereto.
10.20	Form of Warrant to Purchase Common Stock.

5.

10.21	Form of Additional Investment Right.
10.22	Registration Rights Agreement dated as of March 20, 2005 by and among the Company and the Buyers set forth in the signature pages thereto.
10.23	Voting Agreement dated as of March 20, 2005 entered into with each of Leigh S. Belden and Beltech, Inc.
99.1	Press Release dated March 21, 2005 entitled “Verilink Corporation Closes $10 Million Financing.”

6.

SIGNATURE

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

Dated March 21, 2005
		VERILINK CORPORATION
	By:	/s/ Timothy R. Anderson
		Timothy R. Anderson
	Its:	Vice President and Chief Financial Officer

7.

EXHIBIT INDEX

Exhibit No.	Description
4.2C	Amendment No. 3 to the Rights Agreement dated as of March 20, 2005 by and between the Company and American Stock Transfer & Trust Company.
4.6	Form of Senior Secured Convertible Note.
4.7	Form of Senior Secured Convertible Note issuable upon the exercise of the Additional Investment Rights.
4.8	Pledge and Security Agreement dated as of March 20, 2005 by and among the Company, Larscom Incorporated, Verilink Europe Limited and Portside Growth & Opportunity Fund, as collateral agent.
4.9	Guaranty dated as of March 20, 2005 by and among the Company, Larscom Incorporated, Verilink Europe Limited and Portside Growth & Opportunity Fund, as collateral agent.
10.19	Securities Purchase Agreement dated as of March 20, 2005 by and among the Company and the investors identified on the Schedule of Buyers attached thereto.
10.20	Form of Warrant to Purchase Common Stock.
10.21	Form of Additional Investment Right.
10.22	Registration Rights Agreement dated as of March 20, 2005 by and among the Company and the Buyers set forth in the signature pages thereto.
10.23	Voting Agreement dated as of March 20, 2005 entered into with each of Leigh S. Belden and Beltech, Inc.
99.1	Press Release dated March 21, 2005 entitled “Verilink Corporation Closes $10 Million Financing.”

EX-4.2C

                                                                    EXHIBIT 4.2c


                       AMENDMENT NO. 3 TO RIGHTS AGREEMENT

         This Amendment No. 3 to Rights Agreement is entered into as of March
20, 2005, by and between Verilink Corporation (the "Company"), a Delaware
corporation and American Stock Transfer and Trust Company, a New York banking
corporation ("AST").

         WHEREAS, the Company entered into a Rights Agreement (the "Initial
Rights Agreement") dated as of November 29, 2001, with EquiServe Trust Company,
N.A. as Rights Agent;

         WHEREAS, the Company and AST entered into that certain Rights Agent
Appointment and Amendment No. 1 to Rights Agreement dated as of May 30, 2002,
appointing AST as Rights Agent and amending certain provisions of the Rights
Agreement, and that certain Amendment No. 2 to Rights Agreement dated as of
April 28, 2004 amending certain other provisions of the Rights Agreement (such
amendments, together with the Initial Rights Agreement, the "Rights Agreement");
and

         WHEREAS, the Company desires to further amend the Rights Agreement;

         NOW THEREFORE, in consideration of the foregoing and of other
consideration, the sufficiency of which is hereby acknowledged, the parties
agree as follows:

         1. Section 1(c) of the Rights Agreement is amended by adding the
following to the end of Section 1(c)(iii):

         In addition, notwithstanding anything to the contrary contained in this
Section 1(c), no Person shall be deemed the "Beneficial Owner" of, nor to
"beneficially own," Common Shares that may be acquired pursuant to or in payment
of the Notes, the Additional Investment Rights or the Warrants (as such terms
are defined in that certain Securities Purchase Agreement dated as of March 20,
2005 between the Company and the investors listed on the Schedule of Buyers
attached thereto).

         2. Except as expressly modified herein, the Rights Agreement shall
remain in full force and effect.

         3. These foregoing amendments shall become effective as of the close of
business, Eastern Daylight Time, on March 20, 2005. This Amendment No. 3 may be
executed in one or more counterparts, each of which shall together constitute
one and the same document.




         IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date indicated above.

                                         VERILINK CORPORATION


                                         By: /s/ Leigh S. Belden
                                             ----------------------------------
                                             Leigh S. Belden

                                         AMERICAN STOCK TRANSFER & TRUST COMPANY


                                         By: /s/ Joe Wolf
                                             ----------------------------------
                                             Joe Wolf


                                       2

EX-4.6

                                                                     EXHIBIT 4.6

                    [FORM OF SENIOR SECURED CONVERTIBLE NOTE]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, (B) AN OPINION OF
COUNSEL, REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (C) REASONABLE ASSURANCE HAVING BEEN PROVIDED TO THE COMPANY
THAT SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER IS BEING MADE PURSUANT TO RULE 144
OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE
SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(III) AND
19(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY,
THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(III) OF THIS NOTE.

                              VERILINK CORPORATION

                         SENIOR SECURED CONVERTIBLE NOTE

Issuance Date:  ______, 200_                      Principal: U.S. $_____________

            FOR VALUE RECEIVED, Verilink Corporation, a Delaware corporation
(the "COMPANY"), hereby promises to pay to the order of [BUYER] or registered
assigns ("HOLDER") the amount set out above as the Principal (as reduced
pursuant to the terms hereof pursuant to redemption, conversion or otherwise,
the "PRINCIPAL") when due, whether upon the Maturity Date (as defined below), on
any Installment Date with respect to the Installment Amount due on such
Installment Date (each, as defined herein), acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay interest
("INTEREST") on any outstanding Principal at the rate of 6.00% per annum (the
"INTEREST RATE"), from the date set out above as the Issuance Date (the
"ISSUANCE DATE") until the same becomes due and payable, whether upon an
Interest Date (as defined below), any Installment Date or the Maturity Date,
acceleration, conversion, redemption or otherwise (in each case in accordance
with the terms hereof). This Senior Secured Convertible Note (including all
Senior Secured Convertible Notes issued in exchange, transfer or replacement
hereof, this "NOTE") is one of an issue of Senior Secured Convertible Notes
issued pursuant to the Securities Purchase Agreement (as defined below)



(collectively, the "NOTES" and such other Senior Secured Convertible Notes, the
"OTHER NOTES"). Certain capitalized terms used herein are defined in Section 29.

            (1) PAYMENTS OF PRINCIPAL. On each Installment Date, the Company
shall pay to the Holder an amount equal to the Installment Amount due on such
Installment Date in accordance with Section 8. The "MATURITY DATE" shall be
March 21, 2008, as the same may be extended at the option of the Holder (i)
through the date that is fifteen (15) Business Days (or, in the case of the
Event of Default specified in Section 4(a)(ix), sixty-five (65) days) after the
cure or termination of any Event of Default (as defined in Section 4(a)) that
has occurred and is continuing on the Maturity Date (as may be extended pursuant
to this Section 1) or the termination of any event that has occurred and is
continuing on the Maturity Date (as may be extended pursuant to this Section 1)
and that with the passage of time and the failure to cure would result in an
Event of Default and (ii) through the date that is ten (10) days after the
consummation of a Change of Control in the event that a Change of Control is
publicly announced or a Change of Control Notice (as defined in Section 5(b)) is
delivered prior to the Maturity Date.

            (2) INTEREST; INTEREST RATE. Interest on this Note shall commence
accruing on the Issuance Date and shall be computed on the basis of a 365-day
year and actual days elapsed and shall be payable in arrears for each Calendar
Quarter on the tenth day of the succeeding Calendar Quarter during the period
beginning on the Issuance Date and ending on, and including, the Maturity Date
(each, an "INTEREST DATE") with the first Interest Date being July 10, 2005.
Interest shall be payable on each Interest Date, to the record holder of this
Note on the applicable Interest Date, in cash ("CASH INTEREST") or, at the
option of the Company, in shares of Common Stock ("INTEREST SHARES") or a
combination thereof, provided that the Interest which accrued during any period
may be payable in Interest Shares if, and only if, the Company delivers written
notice (each, an "INTEREST ELECTION NOTICE") of such election to each holder of
the Notes on or prior to the twentieth (20th) Trading Day prior to the Interest
Date (each, an "INTEREST NOTICE DUE DATE"); provided, further, that from and
after November 21, 2005, the Company must pay at least 50% of all Interest due
hereunder as Cash Interest, unless at such time the Stockholder Approval (as
defined in the Securities Purchase Agreement) has been obtained. Each Interest
Election Notice must specify the amount of Interest that shall be paid as Cash
Interest, if any, and the amount of Interest that shall be paid in Interest
Shares. Interest to be paid on an Interest Date in Interest Shares shall be paid
in a number of fully paid and nonassessable shares (rounded to the nearest whole
share in accordance with Section 3(a)) of Common Stock equal to the quotient of
(a) the amount of Interest payable on such Interest Date less any Cash Interest
paid and (b) the Interest Conversion Price in effect on the applicable Interest
Date. If any Interest Shares are to be paid on an Interest Date, then the
Company shall (X) provided that the Company's transfer agent (the "TRANSFER
AGENT") is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program and such action is not prohibited by applicable law
or regulation or any applicable policy of DTC, credit such aggregate number of
Interest Shares to which the Holder shall be entitled to the Holder's or its
designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the foregoing shall not apply, issue and deliver on
the applicable Interest Date, to the address set forth in the register
maintained by the Company for such purpose pursuant to the Securities Purchase
Agreement or to such address as specified by the Holder in writing to the
Company at least two Business Days prior to the applicable Interest Date, a
certificate, registered

                                      -2-



in the name of the Holder or its designee, for the number of Interest Shares to
which the Holder shall be entitled. Notwithstanding the foregoing, the Company
shall not be entitled to pay Interest in Interest Shares and shall be required
to pay such Interest in cash as Cash Interest on the applicable Interest Date
if, unless consented to in writing by the Holder, during the period commencing
on the applicable Interest Notice Due Date through the applicable Interest Date
the Equity Conditions have not been satisfied. Prior to the payment of Interest
on an Interest Date, Interest on this Note shall accrue at the Interest Rate and
be payable by way of inclusion of the Interest in the Conversion Amount in
accordance with Section 3(b)(i). Upon the occurrence and during the continuance
of an Event of Default, the Interest Rate shall be increased to twelve percent
(12%). In the event that such Event of Default is subsequently cured, the
adjustment referred to in the preceding sentence shall cease to be effective as
of the date of such cure; provided that the Interest as calculated and unpaid at
such increased rate during the continuance of such Event of Default shall
continue to apply to the extent relating to the days after the occurrence of
such Event of Default through and including the date of cure of such Event of
Default. The Company shall pay any and all taxes that may be payable with
respect to the issuance and delivery of Interest Shares; provided that the
Company shall not be required to pay any tax that may be payable in respect of
any issuance of Interest Shares to any Person other than the Holder or with
respect to any income tax due by the Holder with respect to such Interest
Shares.

            (3) CONVERSION OF NOTES. This Note shall be convertible into shares
of the Company's common stock, par value $.01 per share (the "COMMON STOCK"), on
the terms and conditions set forth in this Section 3.

                  (a) Conversion Right. Subject to the provisions of Section
3(d), at any time or times on or after the Issuance Date, the Holder shall be
entitled to convert any portion of the outstanding and unpaid Conversion Amount
(as defined below) into fully paid and nonassessable shares of Common Stock in
accordance with Section 3(c), at the Conversion Rate (as defined below). The
Company shall not issue any fraction of a share of Common Stock upon any
conversion. If the conversion would result in the issuance of a fraction of a
share of Common Stock, unless the entire balance of the Note is being converted,
the portion of the Conversion Amount that corresponds to such fraction of a
share of Common Stock shall resume the status of unpaid Principal on the Note.
If the entire balance of the Note is being converted, the Company shall round
such fraction of a share of Common Stock up to the nearest whole share. The
Company shall pay any and all taxes that may be payable with respect to the
issuance and delivery of Common Stock upon conversion of any Conversion Amount;
provided that the Company shall not be required to pay any tax that may be
payable in respect of any issuance of Common Stock to any Person other than the
converting Holder or with respect to any income tax due by the Holder with
respect to such Common Stock.

                  (b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall
be determined by dividing (x) such Conversion Amount by (y) the Conversion Price
(the "CONVERSION RATE").

                        (i) "CONVERSION AMOUNT" means the sum of (A) the portion
of the Principal to be converted, redeemed or otherwise with respect to which
this determination

                                      -3-



is being made, (B) accrued and unpaid Interest with respect to such Principal
and (C) accrued and unpaid Late Charges with respect to such Principal and
Interest.

                        (ii) "CONVERSION PRICE" means, as of any Conversion Date
(as defined below) or other date of determination, $3.01, subject to adjustment
as provided herein.

                  (c) Mechanics of Conversion.

                        (i) Optional Conversion. To convert any Conversion
Amount into shares of Common Stock on any date (a "CONVERSION DATE"), the Holder
shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior
to 11:59 p.m., New York Time, on such date, a copy of an executed notice of
conversion in the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to
the Company and (B) if required by Section 3(c)(iii), surrender this Note to a
common carrier for delivery to the Company as soon as practicable on or
following such date (or an indemnification undertaking with respect to this Note
in the case of its loss, theft or destruction). On or before the first (1st)
Business Day following the date of receipt of a Conversion Notice, the Company
shall transmit by facsimile a confirmation of receipt of such Conversion Notice
to the Holder and the Transfer Agent. On or before the second Business Day
following the date of receipt of a Conversion Notice (the "SHARE DELIVERY
DATE"), the Company shall (X) provided that the Transfer Agent is participating
in the DTC Fast Automated Securities Transfer Program and such action is not
prohibited by applicable law or regulation or any applicable policy of DTC,
credit such aggregate number of shares of Common Stock to which the Holder shall
be entitled to the Holder's or its designee's balance account with DTC through
its Deposit Withdrawal Agent Commission system or (Y) if the foregoing shall not
apply, issue and deliver to the address as specified in the Conversion Notice, a
certificate, registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder shall be entitled. If this
Note is physically surrendered for conversion as required by Section 3(c)(iii)
and the outstanding Principal of this Note is greater than the Principal portion
of the Conversion Amount being converted, then the Company shall as soon as
practicable and in no event later than three (3) Business Days after receipt of
this Note and at its own expense, issue and deliver to the holder a new Note (in
accordance with Section 19(d)) representing the outstanding Principal not
converted. The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the Conversion Date.
In the event of a partial conversion of this Note pursuant hereto, the principal
amount converted shall be deducted from the Installment Amounts relating to the
Installment Dates as set forth in the Conversion Notice.

                        (ii) Company's Failure to Timely Convert. If the Company
shall fail, other than pursuant to Section 3(d), to issue a certificate to the
Holder or credit the Holder's balance account with DTC for the number of shares
of Common Stock to which the Holder is entitled upon conversion of any
Conversion Amount on or prior to the date which is five Business Days after the
Conversion Date (a "CONVERSION FAILURE"), then (A) the Company shall pay damages
in cash to the Holder for each date of such Conversion Failure in an amount
equal to 2.0% of the product of (I) the sum of the number of shares of Common
Stock not issued to the Holder on or prior to the Share Delivery Date and to
which the Holder is entitled, and (II) the Closing Sale Price of the Common
Stock on the Share Delivery Date and (B) the Holder,

                                      -4-



upon written notice to the Company, may void its Conversion Notice with respect
to, and retain or have returned, as the case may be, any portion of this Note
that has not been converted pursuant to such Conversion Notice; provided that
the voiding of a Conversion Notice shall not affect the Company's obligations to
make any payments which have accrued prior to the date of such notice pursuant
to this Section 3(c)(ii) or otherwise. In addition to the foregoing, if within
three (3) Trading Days after the Company's receipt of the facsimile copy of a
Conversion Notice the Company shall fail to issue and deliver a certificate to
the Holder or credit the Holder's balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon such holder's
conversion of any Conversion Amount, and if on or after such Trading Day the
Holder purchases (in an open market transaction or otherwise) Common Stock to
deliver in satisfaction of a sale by the Holder of Common Stock issuable upon
such conversion that the Holder anticipated receiving from the Company (a
"BUY-IN"), then the Company shall, within three (3) Business Days after the
Holder's request and in the Holder's discretion, either (i) pay cash to the
Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
"BUY-IN PRICE"), at which point the Company's obligation to deliver such
certificate (and to issue such Common Stock) shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates
representing such Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the Conversion Date.

                        (iii) Book-Entry. Notwithstanding anything to the
contrary set forth herein, upon conversion of any portion of this Note in
accordance with the terms hereof, the Holder shall not be required to physically
surrender this Note to the Company unless (A) the full Conversion Amount
represented by this Note is being converted or (B) the Holder has provided the
Company with prior written notice (which notice may be included in a Conversion
Notice) requesting reissuance of this Note upon physical surrender of this Note.
The Holder and the Company shall maintain records showing the Principal,
Interest and Late Charges converted and the dates of such conversions or shall
use such other method, reasonably satisfactory to the Holder and the Company, so
as not to require physical surrender of this Note upon conversion.

                        (iv) Pro Rata Conversion; Disputes. In the event that
the Company receives a Conversion Notice from more than one holder of Notes for
the same Conversion Date and the Company can convert some, but not all, of such
portions of the Notes submitted for conversion, the Company, subject to Section
3(d), shall convert from each holder of Notes electing to have Notes converted
on such date a pro rata amount of such holder's portion of its Notes submitted
for conversion based on the principal amount of Notes submitted for conversion
on such date by such holder relative to the aggregate principal amount of all
Notes submitted for conversion on such date. In the event of a dispute as to the
number of shares of Common Stock issuable to the Holder in connection with a
conversion of this Note, the Company shall issue to the Holder the number of
shares of Common Stock not in dispute and resolve such dispute in accordance
with Section 24. The failure to issue to the Holder the number of shares of
Common Stock in dispute shall not be a Conversion Failure.

                  (d) Limitations on Conversions.

                                      -5-



                        (i) Beneficial Ownership. The Company shall not effect
any conversion of this Note, and the Holder of this Note shall not have the
right to convert any portion of this Note pursuant to Section 3(a), to the
extent that after giving effect to such conversion, the Holder (together with
the Holder's affiliates) would beneficially own in excess of 4.99% (the "MAXIMUM
PERCENTAGE") of the number of shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Note with respect to which the determination of such sentence
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (A) conversion of the remaining, nonconverted portion of
this Note beneficially owned by the Holder or any of its affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any Other Notes or
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of this
Section 3(d)(i), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes
of this Section 3(d)(i), in determining the number of outstanding shares of
Common Stock, the Holder may rely on the number of outstanding shares of Common
Stock as reflected in (x) the Company's most recent Form 10-Q or Form 8-K, as
the case may be, (y) a more recent public announcement by the Company or (z) any
other notice by the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding. For any reason at any time, upon the written
or oral request of the Holder, the Company shall within one Business Day confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Company, including this Note, by the Holder or its affiliates since the date
as of which such number of outstanding shares of Common Stock was reported. By
written notice to the Company, the Holder may increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% specified in such
notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of Notes.

                        (ii) Principal Market Regulation. The Company shall not
be obligated to issue any shares of Common Stock upon conversion of this Note if
the issuance of such shares of Common Stock would exceed the aggregate number of
shares of Common Stock which the Company may issue upon conversion or exercise,
as applicable, of the Notes and Warrants and the payment of Interest in Interest
Shares without breaching the Company's obligations under the rules or
regulations of the Principal Market (the "EXCHANGE CAP"), except that such
limitation shall not apply in the event that the Company (A) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market for issuances of Common Stock in excess of such amount or (B)
obtains a written opinion from outside counsel to the Company that such approval
is not required, which opinion shall be reasonably satisfactory to the Required
Holders. Until such approval or written opinion is obtained, no purchaser of the
Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS") shall be
issued in the aggregate, upon conversion or exercise, as applicable, of Notes or
Warrants or the payment of Interest in Interest Shares, shares of Common Stock
(as adjusted for stock splits,

                                      -6-



stock dividends, stock combinations and other similar transactions) in an amount
greater than the product of the Exchange Cap multiplied by a fraction, the
numerator of which is the principal amount of Notes issued to the Purchasers
pursuant to the Securities Purchase Agreement on the Closing Date and the
denominator of which is the aggregate principal amount of all Notes issued to
the Purchasers pursuant to the Securities Purchase Agreement on the Closing Date
(with respect to each Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event
that any Purchaser shall sell or otherwise transfer any of such Purchaser's
Notes, the transferee shall be allocated a pro rata portion of such Purchaser's
Exchange Cap Allocation, and the restrictions of the prior sentence shall apply
to such transferee with respect to the portion of the Exchange Cap Allocation
allocated to such transferee. In the event that any holder of Notes shall
convert all of such holder's Notes into a number of shares of Common Stock
which, in the aggregate, is less than such holder's Exchange Cap Allocation,
then the difference between such holder's Exchange Cap Allocation and the number
of shares of Common Stock actually issued to such holder shall be allocated to
the respective Exchange Cap Allocations of the remaining holders of Notes on a
pro rata basis in proportion to the aggregate principal amount of the Notes then
held by each such holder.

            (4) RIGHTS UPON EVENT OF DEFAULT.

                  (a) Event of Default. Each of the following events shall
constitute an "EVENT OF DEFAULT":

                        (i) the failure of the applicable Registration Statement
required to be filed pursuant to the Registration Rights Agreement to be
declared effective by the SEC on or prior to the date that is sixty (60) days
after the applicable Effectiveness Deadline (as defined in the Registration
Rights Agreement), or, while the applicable Registration Statement is required
to be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the applicable Registration Statement lapses for
any reason (including, without limitation, the issuance of a stop order) or is
unavailable to any holder of the Notes for sale of all of such holder's
Registrable Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of ten (10) consecutive days or for
more than an aggregate of thirty (30) days in any 365-day period (other than
days during an Allowable Grace Period (as defined in the Registration Rights
Agreement));

                        (ii) the suspension from trading or failure of the
Common Stock to be listed on an Eligible Market for a period of five (5)
consecutive days or for more than an aggregate of ten (10) days in any 365-day
period;

                        (iii) the Company's (A) failure to cure a Conversion
Failure by delivery of the required number of shares of Common Stock within ten
(10) Business Days after the applicable Conversion Date or (B) notice, written
or oral, to any holder of the Notes, including by way of public announcement or
through any of its agents, at any time, of its intention not to comply with a
request for conversion of any Notes into shares of Common Stock that is tendered
in accordance with the provisions of the Notes, other than pursuant to Section
3(d);

                                      -7-



                        (iv) at any time following the tenth (10th) consecutive
Business Day that the Holder's Authorized Share Allocation is less than the
number of shares of Common Stock that the Holder would be entitled to receive
upon a conversion of the full Conversion Amount of this Note (without regard to
any limitations on conversion set forth in Section 3(d) or otherwise);

                        (v) (A) the Company's failure to pay to the Holder any
amount of Principal, when and as due under this Note (including, without
limitation, the Company's failure to pay any redemption payments) or (B) the
Company's failure to pay to the Holder any other amounts when due and as due
under any Transaction Document (as defined in the Securities Purchase Agreement)
or any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby and thereby to which the
Holder is a party, if such failure continues for a period of at least five (5)
Business Days;

                        (vi) (A) any payment default or other default occurs
under any Indebtedness (as defined in Section 3(s) of the Securities Purchase
Agreement) of the Company or any of its Subsidiaries (as defined in Section 3(a)
of the Securities Purchase Agreement) (other than the Alabama Mortgage) that
results in a redemption of or acceleration prior to maturity of $250,000 or more
of such Indebtedness in the aggregate, (B) any material default occurs under any
Indebtedness of the Company (other than the Alabama Mortgage) or any of its
Subsidiaries having an aggregate outstanding balance in excess of $250,000 and
such default continues uncured for more than ten (10) Business Days, other than,
in each case (A) and (B) above, a default with respect to any Other Notes, or
(C) any "event of default" occurs under the Alabama Mortgage;

                        (vii) the Company or any of its Subsidiaries, pursuant
to or within the meaning of Title 11, U.S. Code, or any similar Federal, foreign
or state law for the relief of debtors (collectively, "BANKRUPTCY LAW"), (A)
commences a voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment of a
receiver, trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D)
makes a general assignment for the benefit of its creditors or (E) admits in
writing that it is generally unable to pay its debts as they become due;

                        (viii) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that (A) is for relief against the Company or
any of its Subsidiaries in an involuntary case, (B) appoints a Custodian of the
Company or any of its Subsidiaries or (C) orders the liquidation of the Company
or any of its Subsidiaries;

                        (ix) a final judgment or judgments for the payment of
money aggregating in excess of $2,000,000 are rendered against the Company or
any of its Subsidiaries and which judgments are not, within sixty (60) days
after the entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within sixty (60) days after the expiration of such stay; provided,
however, that any judgment which is covered by insurance or an indemnity from a
credit worthy party shall not be included in calculating the $2,000,000 amount
set forth above so long as the Company provides the Holder a written statement
from such insurer or indemnity provider (which written statement shall be
reasonably satisfactory to the Holder) to the effect that

                                      -8-



such judgment is covered by insurance or an indemnity and the Company will
receive the proceeds of such insurance or indemnity within thirty (30) days of
the issuance of such judgment;

                        (x) the Company breaches in any material respect any
representation, warranty, covenant or other term or condition of any Transaction
Document, except, in the case of a breach of a covenant or other term or
condition of any Transaction Document which is curable, only if such breach
continues for a period of at least ten (10) consecutive Business Days;

                        (xi) any breach or failure in any respect to comply with
Section 15 of this Note or Section 8(b) of the Securities Purchase Agreement; or

                        (xii) any Event of Default (as defined in the Other
Notes) occurs with respect to any Other Notes.

                  (b) Redemption Right. Promptly after the occurrence of an
Event of Default with respect to this Note or any Other Note, the Company shall
deliver written notice thereof via facsimile and overnight courier (an "EVENT OF
DEFAULT NOTICE") to the Holder. At any time after the earlier of the Holder's
receipt of an Event of Default Notice and the Holder becoming aware of an Event
of Default and prior to sixty (60) days after written notice from the Company to
the Holder that such Event of Default is cured (which written notice shall
provide satisfactory evidence that such Event of Default has actually been
cured), the Holder may require the Company to redeem all or any portion of this
Note by delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION
NOTICE") to the Company, which Event of Default Redemption Notice shall indicate
the portion of this Note the Holder is electing to redeem. Each portion of this
Note subject to redemption by the Company pursuant to this Section 4(b) shall be
redeemed by the Company at a price equal to the greater of (i) the product of
(x) the Conversion Amount to be redeemed and (y) the Redemption Premium and (ii)
the product of (A) the Conversion Rate with respect to such Conversion Amount in
effect at such time as the Holder delivers an Event of Default Redemption Notice
and (B) the Closing Sale Price of the Common Stock on the date immediately
preceding such Event of Default (the "EVENT OF DEFAULT REDEMPTION PRICE").
Redemptions required by this Section 4(b) shall be made in accordance with the
provisions of Section 13. In the event of a partial redemption of this Note
pursuant hereto, the principal amount redeemed shall be deducted from the
Installment Amounts relating to the applicable Installment Dates as set forth in
the Event of Default Redemption Notice.

            (5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

                  (a) Assumption. The Company shall not enter into or be party
to a Fundamental Transaction unless (i) the Successor Entity (if other than the
Company) assumes in writing all of the obligations of the Company under this
Note and the other Transaction Documents in accordance with the provisions of
this Section 5(a) pursuant to written agreements in form and substance
reasonably satisfactory to the Required Holders and approved by the Required
Holders prior to such Fundamental Transaction, including agreements to deliver
to each holder of Notes in exchange for such Notes a security of the Successor
Entity evidenced by

                                      -9-



a written instrument substantially similar in form and substance to the Notes,
including, without limitation, having a principal amount and interest rate equal
to the principal amounts and the interest rates of the Notes held by such holder
and having similar ranking to the Notes, and satisfactory to the Required
Holders and (ii) the Successor Entity (including its Parent Entity) is a
publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market. Upon the occurrence of any Fundamental
Transaction, the Successor Entity (if other than the Company) shall succeed to,
and be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note referring to the "Company" shall refer
instead to the Successor Entity), and may exercise every right and power of the
Company and shall assume all of the obligations of the Company under this Note
with the same effect as if such Successor Entity had been named as the Company
herein. Upon consummation of the Fundamental Transaction, the Successor Entity
(if other than the Company) shall deliver to the Holder confirmation that there
shall be issued upon conversion or redemption of this Note at any time after the
consummation of the Fundamental Transaction, in lieu of the shares of the
Company's Common Stock (or other securities, cash, assets or other property)
purchasable upon the conversion or redemption of the Notes prior to such
Fundamental Transaction, such shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had this Note been converted immediately prior
to such Fundamental Transaction, as adjusted in accordance with the provisions
of this Note. The provisions of this Section shall apply similarly and equally
to successive Fundamental Transactions and shall be applied without regard to
any limitations on the conversion or redemption of this Note.

                  (b) Redemption Right. No sooner than fifteen (15) days nor
later than ten (10) days prior to the consummation of a Change of Control, but
not prior to the public announcement of such Change of Control, the Company
shall deliver written notice thereof via facsimile and overnight courier to the
Holder (a "CHANGE OF CONTROL NOTICE"). At any time during the period beginning
after the Holder's receipt of a Change of Control Notice and ending on the date
of the consummation of such Change of Control (or, in the event a Change of
Control Notice is not delivered at least ten (10) days prior to a Change of
Control, at any time on or after the date which is ten (10) days prior to a
Change of Control and ending ten (10) days after the consummation of such Change
of Control), the Holder may require the Company to redeem all or any portion of
this Note by delivering written notice thereof ("CHANGE OF CONTROL REDEMPTION
NOTICE") to the Company, which Change of Control Redemption Notice shall
indicate the Conversion Amount the Holder is electing to redeem. The portion of
this Note subject to redemption pursuant to this Section 5 shall be redeemed by
the Company at a price equal to the greater of (i) the product of (x) the
Conversion Amount being redeemed and (y) the quotient determined by dividing (A)
the Closing Sale Price of the Common Stock immediately following the public
announcement of such proposed Change of Control by (B) the Conversion Price and
(ii) 105% of the Conversion Amount being redeemed from the Issuance Date until
six months from the Issuance Date, 110% of the Conversion Amount being redeemed
from the end of such six month period until the first anniversary of the
Issuance Date, and 120% of the Conversion Amount being redeemed thereafter (the
"CHANGE OF CONTROL REDEMPTION PRICE"). Redemptions required by this Section 5
shall be made in accordance with the provisions of Section 13 only if such
Change of Control is consummated and shall have priority to payments to
stockholders in connection with a Change of Control. Notwithstanding anything to
the contrary

                                      -10-



in this Section 5, but subject to Section 3(d), until the Change of Control
Redemption Price (together with any interest thereon) is paid in full, the
Conversion Amount submitted for redemption under this Section 5(c) (together
with any interest thereon) may be converted, in whole or in part, by the Holder
into Common Stock pursuant to Section 3. In the event of a partial redemption of
this Note pursuant hereto, the principal amount redeemed shall be deducted from
the Installment Amounts relating to the applicable Installment Dates as set
forth in the Change of Control Redemption Notice.

            (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE
EVENTS.

                  (a) Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "PURCHASE RIGHTS"), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right
to receive upon a conversion of this Note, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.

                  (b) Other Corporate Events. In addition to and not in
substitution for any other rights hereunder, prior to the consummation of any
Fundamental Transaction pursuant to which holders of shares of Common Stock are
entitled to receive securities or other assets with respect to or in exchange
for shares of Common Stock (a "CORPORATE EVENT"), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right
to receive upon a conversion of this Note, as applicable, (i) in addition to the
shares of Common Stock receivable upon such conversion, such securities or other
assets to which the Holder would have been entitled with respect to such shares
of Common Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a conversion rate for such consideration commensurate with
the Conversion Rate. Provision made pursuant to the preceding sentence shall be
in a form and substance reasonably satisfactory to the Required Holders. The
provisions of this Section shall apply similarly and equally to successive
Corporate Events and shall be applied without regard to any limitations on the
conversion or redemption of this Note.

            (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

                  (a) Adjustment of Conversion Price upon Issuance of Common
Stock. If and whenever on or after the Subscription Date, the Company issues or
sells, or in accordance

                                      -11-



with this Section 7(a) is deemed to have issued or sold, any shares of Common
Stock (including the issuance or sale of shares of Common Stock owned or held by
or for the account of the Company, but excluding shares of Common Stock deemed
to have been issued or sold by the Company in connection with any Excluded
Security) for a consideration per share less than a price (the "APPLICABLE
PRICE") equal to the Conversion Price in effect immediately prior to such issue
or sale (the foregoing a "DILUTIVE ISSUANCE"), then immediately after such
Dilutive Issuance, the Conversion Price then in effect shall be reduced to an
amount equal to the product of (A) the Conversion Price in effect immediately
prior to such Dilutive Issuance and (B) the quotient determined by dividing (1)
the sum of (I) the product derived by multiplying the Conversion Price in effect
immediately prior to such Dilutive Issuance and the number of shares of Common
Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus (II)
the consideration, if any, received by the Company upon such Dilutive Issuance,
by (2) the product derived by multiplying (I) the Conversion Price in effect
immediately prior to such Dilutive Issuance by (II) the number of shares of
Common Stock Deemed Outstanding immediately after such Dilutive Issuance. For
purposes of determining the adjusted Conversion Price under this Section 7(a),
the following shall be applicable:

                        (i) Issuance of Options. If the Company in any manner
grants or sells any Options and the lowest price per share for which one share
of Common Stock is issuable upon the exercise of any such Option or upon
exercise of such Option and conversion or exchange or exercise of any
Convertible Securities issuable upon exercise of such Option is less than the
Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 7(a)(i), the "lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion or exchange
or exercise of any Convertible Securities issuable upon exercise of such Option"
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share of Common
Stock upon granting or sale of the Option, upon exercise of the Option and upon
conversion or exchange or exercise of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of such
Common Stock upon conversion or exchange or exercise of such Convertible
Securities.

                        (ii) Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible Securities and the lowest price
per share for which one share of Common Stock is issuable upon such conversion
or exchange or exercise thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this Section 7(a)(ii),
the "price per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange or exercise of such
Convertible Security. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Stock upon conversion or exchange
or exercise of such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon

                                      -12-



exercise of any Options for which adjustment of the Conversion Price had been or
are to be made pursuant to other provisions of this Section 7(a), no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.

                        (iii) Change in Option Price or Rate of Conversion. If
the purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable or exercisable for Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 7(a)(iii), if
the terms of any Option or Convertible Security that was outstanding as of the
Subscription Date are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change. No adjustment shall be
made pursuant to this Section 7(a)(iii) if such adjustment would result in an
increase of the Conversion Price then in effect.

                        (iv) Calculation of Consideration Received. In case any
Option is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Company will be the Closing Sale Price of such
securities on the date of receipt. If any Common Stock, Options or Convertible
Securities are issued to the shareholders of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of net
assets and business of the non-surviving entity, calculated on a going concern
basis, as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined jointly by the Company and the Required
Holders. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "VALUATION EVENT"),
the fair value of such consideration will be determined within five (5) Business
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Required Holders.
The determination of such appraiser shall be deemed binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be borne
one-half by the Company and one-half by the Holders. The consideration received
by the Company need not be calculated for shares of Common Stock that are issued
or sold or deemed issued or sold to the extent they constitute Excluded
Securities.

                                      -13-



                        (v) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

                  (b) Adjustment of Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time on or after the
Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company at any time on or after the Subscription Date combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.

                  (c) Other Events. If any event occurs of the type contemplated
by the provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

            (8) COMPANY INSTALLMENT CONVERSION OR REDEMPTION.

                  (a) General. On each applicable Installment Date, the Company
shall pay to the Holder of this Note the Installment Amount as of such
Installment Date by the combination of any of the following, but subject to and
in accordance with the terms of this Section 8, (i) provided that during the
period commencing with the Company Installment Notice (as defined below) through
the applicable Installment Date, the Equity Conditions have been satisfied (or
waived in writing by the Holder, provided that the Holder may not waive the
provisions of Section 3(d)(ii)), requiring the conversion of a portion of the
applicable Installment Amount, in whole or in part, in accordance with this
Section 8 (a "COMPANY CONVERSION"), and/or (ii) redeeming the applicable
Installment Amount, in whole or in part, in accordance with this Section 8 (a
"COMPANY REDEMPTION"); provided that all of the outstanding applicable
Installment Amount as of each such Installment Date must be converted and/or
redeemed by the Company on the applicable Installment Date, subject to the
provisions of this Section 8. From and after November 21, 2005, the Company may
not elect to pay more than 50% of the applicable Installment Amount on each
Installment Date by way of a Company Conversion unless at such time the
Stockholder Approval has been obtained. On or prior to the date which is the
twentieth (20th) Trading Day prior to each Installment Date (each, an
"INSTALLMENT NOTICE DUE DATE"), or as required by the last sentence of Section
8(d), the Company shall deliver written notice (each, a "COMPANY INSTALLMENT
NOTICE"), to the Holder which Company Installment Notice shall state (i) the
portion, if any, of the applicable Installment Amount which

                                      -14-



the Company elects to convert pursuant to a Company Conversion, which amount
when added to the Company Redemption Amount must equal the applicable
Installment Amount (the "COMPANY CONVERSION AMOUNT"), (ii) the portion, if any,
of the applicable Installment Amount which the Company elects to redeem pursuant
to a Company Redemption (the "COMPANY REDEMPTION AMOUNT"), which amount when
added to the Company Conversion Amount must equal the applicable Installment
Amount and (iii) if the Company has elected, in whole or in part, a Company
Conversion, then the Company Installment Notice shall certify that the Equity
Conditions have been satisfied as of the date of the Company Installment Notice.
Each Company Installment Notice shall be irrevocable. If the Company does not
timely deliver a Company Installment Notice in accordance with this Section 8,
then the Company shall be deemed to have delivered an irrevocable Company
Installment Notice electing a Company Conversion and shall be deemed to have
certified that the Equity Conditions in connection with any such conversion have
been satisfied. Except as expressly provided in this Section 8(a), the Company
shall redeem and convert the applicable Installment Amount of this Note pursuant
to this Section 8 and the corresponding Installment Amounts of the Other Notes
pursuant to the corresponding provisions of the Other Notes in the same ratio of
the Installment Amount being redeemed and converted hereunder. The Company
Redemption Amount shall be redeemed in accordance with Section 8(b) and the
Company Conversion Amount (whether set forth in the Company Installment Notice
or by operation of this Section 8) shall be converted in accordance with Section
8(c). Notwithstanding the foregoing, unless the Company is given notice to the
contrary by the Holder, if the arithmetic average of the Weighted Average Price
of the Common Stock during the applicable Company Conversion Measuring Period
(as defined in Section 29 below) is greater than the Conversion Price, then the
Company shall be deemed to have elected a Company Conversion in the Company
Installment Notice as to the entire applicable Installment Amount.

                  (b) Mechanics of Company Redemption. If the Company elects a
Company Redemption in accordance with Section 8(a), then the Company Redemption
Amount, if any, which is to be paid to the Holder on the applicable Installment
Date shall be redeemed by the Company on such Installment Date, and the Company
shall pay to the Holder on such Installment Date, by wire transfer of
immediately available funds in accordance with Section 25(b), an amount in cash
(the "COMPANY INSTALLMENT REDEMPTION PRICE") equal to 100% of the Company
Redemption Amount. If the Company fails to redeem the Company Redemption Amount
on the applicable Installment Date by payment of the Company Installment
Redemption Price on such date, then at the option of the Holder designated in
writing to the Company (any such designation, a "CONVERSION NOTICE" for purposes
of this Note), the Holder may require the Company to convert all or any part of
the Company Redemption Amount at the Company Conversion Price. Conversions
required by this Section 8(b) shall be made in accordance with the provisions of
Section 3(c). Notwithstanding anything to the contrary in this Section 8(b), but
subject to Section 3(d), until the Company Installment Redemption Price
(together with any interest thereon) is paid in full, the Company Redemption
Amount (together with any interest thereon) may be converted, in whole or in
part, by the Holder into Common Stock pursuant to Section 3. In the event the
Holder elects to convert all or any portion of the Company Redemption Amount
prior to the applicable Installment Date as set forth in the immediately
preceding sentence, the Company Redemption Amount so converted shall be deducted
from the Installment Amount to be paid on such Installment Date.

                                      -15-



                  (c) Mechanics of Company Conversion. Subject to Section 3(d),
if the Company delivers a Company Installment Notice and elects, or is deemed to
have elected, in whole or in part, a Company Conversion in accordance with
Section 8(a), then the applicable Company Conversion Amount, if any, which
remains outstanding shall be converted as of the applicable Installment Date by
converting on such Installment Date such Company Conversion Amount at the
Company Conversion Price; provided that the Equity Conditions have been
satisfied (or waived in writing by the Holder) on such Installment Date. If the
Equity Conditions are not satisfied (or waived in writing by the Holder) on such
Installment Date, then at the option of the Holder designated in writing to the
Company, the Holder may require the Company to do any one or more of the
following: (i) the Company shall redeem all or any part designated by the Holder
of the unconverted Company Conversion Amount (such designated amount is referred
to as the "FIRST REDEMPTION AMOUNT") on such Installment Date and the Company
shall pay to the Holder on such Installment Date, by wire transfer of
immediately available funds, an amount in cash equal to 120% of such First
Redemption Amount, or (ii) the Company Conversion shall be null and void with
respect to all or any part designated by the Holder of the unconverted Company
Conversion Amount and the Holder shall be entitled to all the rights of a holder
of this Note with respect to such amount of the Company Conversion Amount;
provided, however, that the Conversion Price for such unconverted Company
Conversion Amount shall thereafter be adjusted to equal the lesser of (A) the
Company Conversion Price as in effect on the date on which the Holder voided the
Company Conversion and (B) the Company Conversion Price as in effect on the date
on which the Holder delivers a Conversion Notice relating thereto. If the
Company fails to redeem any First Redemption Amount on or before the applicable
Installment Date by payment of such amount on the applicable Installment Date,
then the Holder shall have the rights set forth in Section 13(a) as if the
Company failed to pay the applicable Company Redemption Price and all other
rights under this Note (including, without limitation, such failure constituting
an Event of Default described in Section 4(a)(v)). Notwithstanding anything to
the contrary in this Section 8(c), but subject to 3(d), until the Company
delivers Common Stock representing the Company Conversion Amount to the Holder,
the Company Conversion Amount may be converted by the Holder into Common Stock
pursuant to Section 3. In the event the Holder elects to convert the Company
Conversion Amount prior to the applicable Installment Date as set forth in the
immediately preceding sentence, the Company Conversion Amount so converted shall
be deducted from the Installment Amount to be paid on such Installment Date.

                  (d) Special Installment Amounts. The Company shall announce
its operating results (the "OPERATING RESULTS") for each Fiscal Quarter no later
than the thirtieth (30th) day after the end of each Fiscal Quarter and such
announcement shall include the amount of the Company's Tested Working Capital.
In addition, if at the end of the Fiscal Quarter the Company's Tested Working
Capital is less than the Target Working Capital (a "WORKING CAPITAL
DEFICIENCY"), the Company shall make publicly available (as part of the
Operating Results announcement or, contemporaneously, on a Current Report on
Form 8-K or otherwise) the fact that the Company's obligation to pay Special
Installment Amounts has been triggered. On the date of such announcement (the
"ANNOUNCEMENT DATE"), the Company shall also provide to the Holders a
certification (a "WORKING CAPITAL CERTIFICATION") as to the amount of the Tested
Working Capital as of the end of the Fiscal Quarter to which such Operating
Results relate. If at the end of any Fiscal Quarter a Working Capital Deficiency
exists, the Company shall, on the Announcement Date, also provide to the Holder
a notice (each such notice, a "WORKING CAPITAL DEFICIENCY NOTICE") stating the
amount of such Working Capital Deficiency.

                                      -16-



At any time during the period beginning after the Holder's receipt of a Working
Capital Deficiency Notice (or, in the event that the Company does not deliver
such Working Capital Deficiency Notice, at any time designated by the Holder)
and ending seven (7) Business Days thereafter (the "SPECIAL INSTALLMENT NOTICE
DUE DATE"), the Holder may require the Company to pay, on each Special
Installment Date, a Special Installment Amount in the form of a Company
Redemption or, at the Company's option if applicable, a Company Conversion (or a
combination thereof) in accordance with the provisions of this Section 8 by
delivering written notice thereof (a "SPECIAL INSTALLMENT NOTICE") to the
Company which Special Installment Notice shall state the amount of the Special
Installment Amount due on the applicable Special Installment Date. Within two
(2) Trading Days of receipt of a Special Installment Notice, the Company shall
provide to the Holder a Company Installment Notice in accordance with Section
8(a).

            (9) COMPANY'S RIGHT OF MANDATORY CONVERSION.

            (a) Mandatory Conversion. If at any time from and after the one-year
anniversary of the Effective Date (as defined in the Registration Rights
Agreement) (the "MANDATORY CONVERSION ELIGIBILITY DATE"), (i) the Weighted
Average Price of the Common Stock equals or exceeds 200% of the Conversion Price
(subject to appropriate adjustments for stock splits, stock dividends, stock
combinations and other similar transactions after the Subscription Date) for
each of any twenty (20) consecutive Trading Days following the Mandatory
Conversion Eligibility Date (the "MANDATORY CONVERSION MEASURING PERIOD") and
(ii) the Equity Conditions shall have been satisfied (or waived in writing by
the Holder, provided that the Holder may not waive the provisions of Section
3(d)(ii)), during the period commencing on the Mandatory Conversion Notice Date
through the applicable Mandatory Conversion Date (each, as defined below), the
Company shall have the right to require the Holder to convert all, but not less
than all, of the Conversion Amount then remaining under this Note plus the
Present Value of Interest as designated in the Mandatory Conversion Notice (as
defined below) into fully paid, validly issued and nonassessable shares of
Common Stock in accordance with Section 3(c) hereof at the Conversion Rate as of
the Mandatory Conversion Date (as defined below) (a "MANDATORY CONVERSION") or,
at the Company's option and solely with respect to the Present Value of
Interest, cash or a combination of Common Stock and cash. The Company may
exercise its right to require conversion under this Section 9(a), by delivering
within not more than two (2) Trading Days following the end of such Mandatory
Conversion Measuring Period a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of Notes and the Transfer
Agent (the "MANDATORY CONVERSION NOTICE" and the date all of the holders
received such notice by facsimile is referred to as the "MANDATORY CONVERSION
NOTICE DATE"). The Mandatory Conversion Notice shall be irrevocable. The
Mandatory Conversion Notice shall state (i) the Trading Day selected for the
Mandatory Conversion in accordance with Section 9(a), which Trading Day shall be
at least twenty (20) Business Days but not more than sixty (60) Business Days
following the Mandatory Conversion Notice Date (the "MANDATORY CONVERSION
DATE"), (ii) the aggregate Conversion Amount of the Notes subject to mandatory
conversion from all of the holders of the Notes pursuant to this Section 9 (and
analogous provisions under the Other Notes), (iii) the number of shares of
Common Stock to be issued to, and the Present Value of Interest to be paid to,
such Holder on the Mandatory Conversion Date and (iv) the portion, if any, of
the Present Value of Interest that shall be paid in cash and the portion, if
any, that shall be paid in Common Stock.

                                      -17-



            (b) Pro Rata Conversion Requirement. If the Company elects to cause
a conversion of any Conversion Amount of this Note pursuant to Section 9(a),
then it must simultaneously take the same action in the same proportion with
respect to the Other Notes. All Conversion Amounts converted by the Holder after
the Mandatory Conversion Notice Date shall reduce the Conversion Amount of this
Note required to be converted on the Mandatory Conversion Date. If the Company
has elected a Mandatory Conversion, the mechanics of conversion set forth in
Section 3(c) shall apply, to the extent applicable, as if the Company and the
Transfer Agent had received from the Holder on the Mandatory Conversion Date a
Conversion Notice with respect to the Conversion Amount being converted pursuant
to the Mandatory Conversion.

            (10) SECURITY. This Note and the Other Notes are secured to the
extent and in the manner set forth in the Security Documents (as defined in the
Securities Purchase Agreement).

            (11) NONCIRCUMVENTION. The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger, scheme
of arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note.

            (12) RESERVATION OF AUTHORIZED SHARES.

                  (a) Reservation. The Company shall initially reserve out of
its authorized and unissued Common Stock at least 8,144,109 shares of Common
Stock for all of the Notes. So long as any of the Notes are outstanding, the
Company shall take all action necessary to reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Notes, 150% of the number of shares of Common Stock as shall
from time to time be necessary to effect the conversion of all of the Notes then
outstanding pursuant to Sections 2 and 3 (without regard to any limitations on
conversions) (the "REQUIRED RESERVE AMOUNT"). The amount required to be reserved
shall be reduced by the number of shares of Common Stock issued upon conversion
of the Notes. The initial number of shares of Common Stock reserved for
conversions of the Notes and each increase in the number of shares so reserved
shall be allocated pro rata among the holders of the Notes based on the
principal amount of the Notes held by each holder at the Closing (as defined in
the Securities Purchase Agreement) or increase in the number of reserved shares,
as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event that a
holder shall sell or otherwise transfer any of such holder's Notes, each
transferee shall be allocated a pro rata portion of such holder's Authorized
Share Allocation. Any shares of Common Stock reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.

                  (b) Insufficient Authorized Shares. If at any time while any
of the Notes remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon conversion of the

                                      -18-



Notes at least a number of shares of Common Stock equal to the Required Reserve
Amount (an "AUTHORIZED SHARE FAILURE"), then the Company shall immediately take
all action necessary to increase the Company's authorized shares of Common Stock
to an amount sufficient to allow the Company to reserve the Required Reserve
Amount for the Notes then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than sixty (60) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its
reasonable best efforts to solicit its stockholders' approval of such increase
in authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal.

            (13) HOLDER'S REDEMPTIONS.

                  (a) Mechanics. The Company shall deliver the applicable Event
of Default Redemption Price to the Holder within five (5) Business Days after
the Company's receipt of the Holder's Event of Default Redemption Notice. If the
Holder has submitted a Change of Control Redemption Notice in accordance with
Section 5(b), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder by the later of (i) consummation of the Change of
Control or (ii) five (5) Business Days after the Company's receipt of such
notice. The Company shall deliver the applicable Company Installment Redemption
Price to the Holder on the applicable Installment Date. In the event of a
redemption of less than all of the Conversion Amount of this Note, the Company
shall promptly cause to be issued and delivered to the Holder a new Note (in
accordance with Section 19(d)) representing the outstanding Principal which has
not been redeemed. In the event that the Company does not pay the applicable
Redemption Price to the Holder within the time period required, at any time
thereafter and until the Company pays such unpaid Redemption Price in full, the
Holder shall have the option, in lieu of redemption, to require the Company to
promptly return to the Holder all or any portion of this Note representing the
Conversion Amount that was submitted for redemption and for which the applicable
Redemption Price (together with any Late Charges thereon) has not been paid.
Upon the Company's receipt of such notice, (x) the Redemption Notice shall be
null and void with respect to such Conversion Amount, (y) the Company shall
immediately return this Note, or issue a new Note (in accordance with Section
19(d)) to the Holder representing such Conversion Amount and (z) the Conversion
Price of this Note or such new Notes shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the Redemption Notice is
voided and (B) the lowest Closing Bid Price of the Common Stock during the
period beginning on and including the date on which the Redemption Notice is
delivered to the Company and ending on and including the date on which the
Redemption Notice is voided. The Holder's delivery of a notice voiding a
Redemption Notice and exercise of its rights following such notice shall not
affect the Company's obligations to make any payments of Late Charges which have
accrued prior to the date of such notice with respect to the Conversion Amount
subject to such notice.

                  (b) Redemption by Other Holders. Upon the Company's receipt of
notice from any of the holders of the Other Notes for redemption or repayment as
a result of an event or occurrence substantially similar to the events or
occurrences described in Section 4(b) or Section

                                      -19-



5(b) (each, an "OTHER REDEMPTION NOTICE"), the Company shall immediately forward
to the Holder by facsimile a copy of such notice. If the Company receives a
Redemption Notice and one or more Other Redemption Notices, during the seven (7)
Business Day period beginning on and including the date which is three (3)
Business Days prior to the Company's receipt of the Holder's Redemption Notice
and ending on and including the date which is three (3) Business Days after the
Company's receipt of the Holder's Redemption Notice and the Company is unable to
redeem all principal, interest and other amounts designated in such Redemption
Notice and such Other Redemption Notices received during such seven (7) Business
Day period, then the Company shall redeem a pro rata amount from each holder of
the Notes (including the Holder) based on the principal amount of the Notes
submitted for redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such seven Business Day
period.

            (14) VOTING RIGHTS. The Holder shall have no voting rights as the
holder of this Note, except as required by law, including, but not limited to,
the General Corporation Law of the State of Delaware, and as expressly provided
in this Note.

            (15) COVENANTS. The following covenants shall apply so long as this
Note is outstanding, but not thereafter:

                  (a) Rank. This Note shall be a senior secured obligation of
the Company and, together with the Other Notes and the Alabama Mortgage, shall
constitute the only senior Indebtedness of the Company secured by a consensual
lien granted by the Company (other than certain capital lease obligations
entered into prior to December 31, 2004 whose outstanding balance did not exceed
$150,000 as of March 8, 2005).

                  (b) Incurrence of Indebtedness. The Company shall not, and the
Company shall not permit any of its Subsidiaries to, directly or indirectly,
incur or guarantee, assume or suffer to exist any Indebtedness, other than (i)
the Indebtedness evidenced by this Note and the Other Notes and (ii) Permitted
Indebtedness.

                  (c) Existence of Liens. The Company shall not, and the Company
shall not permit any of its Subsidiaries to, directly or indirectly, allow or
suffer to exist any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract
rights) owned by the Company or any of its Subsidiaries (collectively, "LIENS")
other than Permitted Liens.

                  (d) Restricted Payments. The Company shall not, and the
Company shall not permit any of its Subsidiaries to, directly or indirectly,
redeem, defease, repurchase, repay or make any payments in respect of, by the
payment of cash or cash equivalents (in whole or in part, whether by way of open
market purchases, tender offers, private transactions or otherwise), all or any
portion of any Permitted Indebtedness (other than the Alabama Mortgage) whether
by way of payment in respect of principal of (or premium, if any) or interest on
such Indebtedness if at the time such payment is due or is otherwise made or,
after giving effect to such payment, an event constituting, or that with the
passage of time and without being cured would constitute, an Event of Default
has occurred and is continuing; provided, that, notwithstanding the foregoing,
no principal (or any portion thereof) of any Subordinated Indebtedness may be
paid (whether upon maturity, redemption, acceleration or otherwise) so long as
this Note is outstanding.

                                      -20-



            (16) PARTICIPATION. The Holder, as the holder of this Note, shall be
entitled to receive such dividends paid and distributions made to the holders of
Common Stock to the same extent as if the Holder had converted this Note into
Common Stock (without regard to any limitations on conversion herein or
elsewhere) and had held such shares of Common Stock on the record date for such
dividends and distributions. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.

            (17) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The written
agreement of the Company and either (i) the affirmative vote at a meeting duly
called for such purpose or (ii) the written consent without a meeting of the
Required Holders shall be required for any change or amendment to this Note or
the Other Notes.

            (18) TRANSFER; REGISTERED HOLDER AS OWNER.

                  (a) Transfer by Holder. This Note and any shares of Common
Stock issued upon conversion of this Note may be offered, sold, assigned or
transferred by the Holder without the consent of the Company, subject only to
the provisions of Section 2(f) of the Securities Purchase Agreement. Each Person
to whom this Note is sold, assigned or transferred by the Holder shall provide
to the Company true and accurate information as to such Person comparable to
that contained in columns (1), (2) and (7) of the Schedule of Buyers attached to
the Securities Purchase Agreement and as to the jurisdiction of residence of
such Person.

                  (b) Registered Holder as Owner. The Company shall be entitled
to treat the registered Holder of this Note as the absolute owner hereof and
shall incur no liability for the issuance of Common Stock or for other action
taken hereunder in good faith based upon such ownership until such time as a
written assignment of this Note is effected by such registered owner, which
assignment has been delivered to the Company and satisfies the requirements of
Sections 18(a) and 19(a) hereof.

            (19) REISSUANCE OF THIS NOTE.

                  (a) Transfer. If this Note is to be transferred, the Holder
shall surrender this Note to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Note (in accordance with
Section 19(d)), registered as the Holder may request, representing the
outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Note (in accordance
with Section 19(d)) to the Holder representing the outstanding Principal not
being transferred. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of Section 3(c)(iii)
following conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note.

                  (b) Lost, Stolen or Mutilated Note. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and

                                      -21-



cancellation of this Note, the Company shall execute and deliver to the Holder a
new Note (in accordance with Section 19(d)) representing the outstanding
Principal.

                  (c) Note Exchangeable for Different Denominations. This Note
is exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Note or Notes (in accordance with Section 19(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.

                  (d) Issuance of New Notes. Whenever the Company is required to
issue a new Note pursuant to the terms of this Note, such new Note (i) shall be
of like tenor with this Note, (ii) shall represent, as indicated on the face of
such new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 19(a) or Section 19(c), the Principal
designated by the Holder which, when added to the principal represented by the
other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note, which is the same as the Issuance Date of this Note, (iv)
shall have the same rights and conditions as this Note, and (v) shall represent
accrued and unpaid Interest and Late Charges on the Principal and Interest of
this Note, from the Issuance Date.

            (20) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note and any of the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

            (21) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this
Note is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
but not limited to, attorneys' fees and disbursements.

                                      -22-



            (22) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed against
any person as the drafter hereof. The headings of this Note are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Note.

            (23) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.

            (24) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Closing Bid Price, the Closing Sale Price or the Weighted
Average Price or the arithmetic calculation of the Conversion Rate or the
Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within one (1) Business Day of receipt, or
deemed receipt, of the Conversion Notice or Redemption Notice or other event
giving rise to such dispute, as the case may be, to the Holder. If the Holder
and the Company are unable to agree upon such determination or calculation
within one (1) Business Day of such disputed determination or arithmetic
calculation being submitted to the Holder, then the Company shall, within one
Business Day submit via facsimile (a) the disputed determination of the Closing
Bid Price, the Closing Sale Price or the Weighted Average Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or
the Redemption Price to the Company's independent, outside accountant. The
Company, at the Company's expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than five (5)
Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.

            (25) NOTICES; PAYMENTS.

                  (a) Notices. Whenever notice is required to be given under
this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least twenty (20)
days prior to the date on which the Company closes its books or takes a record
(A) with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any pro rata subscription offer to holders of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder.

                  (b) Payments. Whenever any payment of cash is to be made by
the Company to any Person pursuant to this Note, such payment shall be made in
lawful money of

                                      -23-



the United States of America by a check drawn on the account of the Company and
sent via overnight courier service to such Person at such address as previously
provided to the Company in writing (which address, in the case of each of the
Purchasers, shall initially be as set forth on the Schedule of Buyers attached
to the Securities Purchase Agreement); provided that the Holder may elect to
receive a payment of cash via wire transfer of immediately available funds by
providing the Company with prior written notice setting out such request and the
Holder's wire transfer instructions. Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day and, in
the case of any Interest Date which is not the date on which this Note is paid
in full, the extension of the due date thereof shall not be taken into account
for purposes of determining the amount of Interest due on such date. Any amount
of Principal or other amounts due under the Transaction Documents, other than
Interest, which is not paid when due shall result in a late charge being
incurred and payable by the Company in an amount equal to interest on such
amount at the rate of twelve percent (12%) per annum from the date such amount
was due until the same is paid in full ("LATE CHARGE").

            (26) CANCELLATION. After all Principal, accrued Interest and other
amounts at any time owed on this Note have been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

            (27) WAIVER OF NOTICE. To the extent permitted by law, the Company
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note and the Securities Purchase Agreement.

            (28) GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York.

            (29) CERTAIN DEFINITIONS. For purposes of this Note, the following
terms shall have the following meanings:

                  (a) "ADDITIONAL INVESTMENT RIGHTS" has the meaning ascribed to
such term in the Securities Purchase Agreement and shall include additional
investment rights issued in exchange therefor.

                  (b) "ALABAMA MORTGAGE" means the mortgages made by the Company
in favor of Regions Bank in connection with the real property located in the
Cummings Research Park West in Huntsville, Madison County, Alabama, and with the
outstanding loan amounts secured by these mortgages not being in the aggregate
in excess of $3,500,000 as of the Subscription Date; provided, however, that
such mortgages and loans shall not be amended, restated, renewed, refunded,
refinanced or otherwise extended and the outstanding principal amount shall not
be increased after the Subscription Date without the consent of the Required
Holders.

                                      -24-



                  (c) "APPROVED STOCK PLAN" means any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any consultant, employee,
officer or director for services provided to the Company.

                  (d) "BLOOMBERG" means Bloomberg Financial Markets.

                  (e) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

                  (f) "CALENDAR QUARTER" means each of: the period beginning on
and including January 1 and ending on and including March 31; the period
beginning on and including April 1 and ending on and including June 30; the
period beginning on and including July 1 and ending on and including September
30; and the period beginning on and including October 1 and ending on and
including December 31.

                  (g) "CHANGE OF CONTROL" means any Fundamental Transaction
other than (A) a Fundamental Transaction in which holders of the Company's
capital stock having voting power immediately prior to the Fundamental
Transaction continue after the Fundamental Transaction to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company.

                  (h) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 24. All
such determinations to be appropriately adjusted for any

                                      -25-



stock dividend, stock split, stock combination or other similar transaction
during the applicable calculation period.

                  (i) "CLOSING DATE" shall have the meaning set forth in the
Securities Purchase Agreement, which date is the date the Company initially
issued Notes pursuant to the terms of the Securities Purchase Agreement.

                  (j) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
Common Stock owned or held by or for the account of the Company or issuable upon
conversion or exercise, as applicable, of the Notes and the Warrants.

                  (k) "COMPANY CONVERSION PRICE" means, the lower of (i) (x)
with respect to any Scheduled Installment Date, that price which shall be
computed as 90% of the arithmetic average of the Weighted Average Price of the
Common Stock on each of the fifteen (15) consecutive Trading Days commencing two
(2) Trading Days after the Installment Notice Due Date and ending on the fourth
(4th) Trading Day immediately preceding the applicable Installment Date or (y)
with respect to any Special Installment Date, that price which shall be computed
as 90% of the arithmetic average of the Weighted Average Price of the Common
Stock during each of the fifteen (15) Trading Days of the fifteen (15)
consecutive Trading Day period commencing three (3) Trading Days after delivery
of the Special Installment Notice (each such period referred to in clause (x) or
(y), a "COMPANY CONVERSION MEASURING PERIOD") and (ii) the applicable Conversion
Price. All such determinations to be appropriately adjusted for any stock split,
stock dividend, stock combination or other similar transaction that
proportionately decreases or increases the Common Stock the applicable such
Company Conversion Measuring Period.

                  (l) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.

                  (m) "ELIGIBLE MARKET" means the Principal Market, The New York
Stock Exchange, Inc., the American Stock Exchange or The Nasdaq SmallCap Market.

                  (n) "EQUITY CONDITIONS" means each of the following
conditions: (i) on each day during the period beginning one (1) month prior to
the applicable date of determination and ending on and including the applicable
date of determination, either (x) the Registration Statement filed pursuant to
the Registration Rights Agreement shall be effective and available for the
resale of all remaining Registrable Securities in accordance with the terms of
the Registration Rights Agreement and there shall not have been any Grace
Periods (as defined in the Registration Rights Agreement) or (y) all shares of
Common Stock issuable upon conversion of the Notes and exercise of the Warrants
shall be eligible for sale without restriction and without the need for
registration under any applicable federal or state securities laws; (ii) on each
day during the period beginning three (3) months prior to the applicable date of
determination and ending on and including the applicable date of determination
(the "EQUITY CONDITIONS

                                      -26-



MEASURING PERIOD"), the Common Stock is designated for quotation on the
Principal Market and shall not have been suspended from trading on such exchange
or market (other than suspensions of not more than two (2) days and occurring
prior to the applicable date of determination due to business announcements by
the Company) nor shall delisting or suspension by such exchange or market been
threatened or pending either (A) in writing by such exchange or market or (B) by
falling below the then effective minimum listing maintenance requirements of
such exchange or market; (iii) during the one (1) year period ending on and
including the date immediately preceding the applicable date of determination,
the Company shall have delivered any Conversion Shares to be delivered upon
conversion of the Notes and Warrant Shares upon exercise of the Warrants to the
holders on a timely basis as set forth in Section 2(c)(ii) hereof (and analogous
provisions under the Other Notes) and Sections 2(a) of the Warrants and Notes
upon exercise of the Additional Investment Rights; (iv) during the Equity
Conditions Measuring Period any applicable shares of Common Stock to be issued
in connection with the event requiring determination may be issued in full
without violating Section 3(d) hereof and the rules or regulations of the
Principal Market; (v) during the Equity Conditions Measuring Period, the Company
shall not have failed to timely make any payments within five (5) Business Days
of when such payment is due pursuant to any Transaction Document; (vi) during
the Equity Conditions Measuring Period, there shall not have occurred either (A)
the public announcement of a pending, proposed or intended Fundamental
Transaction which has not been abandoned, terminated or consummated, or (B) an
Event of Default or (vii) during the period commencing on the Interest Notice
Due Date, the Installment Notice Due Date, the Special Installment Notice Due
Date or the Mandatory Conversion Notice Date, as applicable, and ending on the
Interest Date, the Installment Date, the Special Installment Date or the
Mandatory Conversion Date, as applicable, an event that with the passage of time
or giving of notice would constitute an Event of Default; (viii) on the
applicable date of determination, the Company shall have no knowledge of any
fact that would cause (x) the Registration Statements required pursuant to the
Registration Rights Agreement not to be effective and available for the resale
of all remaining Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (y) any shares of Common Stock issuable upon
conversion of the Notes and shares of Common Stock issuable upon exercise of the
Warrants not to be eligible for sale without restriction pursuant to Rule 144(k)
and any applicable state securities laws; and (ix) during the Equity Conditions
Measuring Period, the Company otherwise shall have been in material compliance
with and shall not have materially breached any provision, covenant,
representation or warranty of any Transaction Document.

                  (o) "EXCLUDED SECURITIES" means any Common Stock issued or
issuable: (i) in connection with any Approved Stock Plan; (ii) upon conversion
of the Notes or the exercise of the Warrants, including Common Stock issued upon
a Company Conversion; (iii) pursuant to a bona fide firm commitment underwritten
public offering with a nationally recognized underwriter which generates gross
proceeds to the Company in excess of $20,000,000 (other than an "at-the-market
offering" as defined in Rule 415(a)(4) under the 1933 Act and "equity lines");
(iv) in connection with the payment of any Interest Shares on the Notes; (v) in
connection with any acquisition by the Company, whether through an acquisition
of stock or a merger of any business, assets or technologies the primary purpose
of which is not to raise equity capital; and (vi) upon conversion of any Options
or Convertible Securities which are outstanding on the day immediately preceding
the Subscription Date, provided that the terms of such Options

                                      -27-



or Convertible Securities are not amended, modified or changed on or after the
Subscription Date.

                  (p) "FISCAL QUARTER" means each of the fiscal quarters adopted
by the Company for financial reporting purposes that correspond to the Company's
fiscal year that ends on the Friday nearest to June 30, or such other fiscal
quarter adopted by the Company for financial reporting purposes in accordance
with GAAP.

                  (q) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by the holders of more than the 50% of the outstanding
shares of Common Stock (not including any shares of Common Stock held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (iv)
consummate a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock.

                  (r) "GAAP" means United States generally accepted accounting
principles, consistently applied.

                  (s) "HOLDER PRO RATA AMOUNT" means a fraction (i) the
numerator of which is the Principal amount of this Note on the Closing Date and
(ii) the denominator of which is the aggregate principal amount of all Notes
issued to the initial purchasers pursuant to the Securities Purchase Agreement
on the Closing Date.

                  (t) "INSTALLMENT AMOUNT" means (a) with respect to any
Scheduled Installment Date, the Scheduled Installment Amount with respect to
such date and (b) with respect to any Special Installment Date, the Special
Installment Amount with respect to such date. In the event the Holder shall sell
or otherwise transfer any portion of this Note, the transferee shall be
allocated a pro rata portion of the each unpaid Scheduled Installment Amount and
Special Installment Amount hereunder.

                  (u) "INSTALLMENT DATE" means (a) each Scheduled Installment
Date, and (b) each Special Installment Date.

                  (v) "INTEREST CONVERSION PRICE" means, with respect to any
Interest Date, that price which shall be computed as 90% of the arithmetic
average of the Weighted Average Price of the Common Stock on each of the fifteen
(15) consecutive Trading Days commencing two (2) Trading Days after the Interest
Notice Due Date and ending on the fourth (4th) Trading Day immediately preceding
the applicable Interest Date (each, an "INTEREST MEASURING

                                      -28-



PERIOD"). All such determinations to be appropriately adjusted for any stock
split, stock dividend, stock combination or other similar transaction during
such period.

                  (w) "MATERIAL SUBSIDIARY" means any Subsidiary (as defined in
the Securities Purchase Agreement) that is a "significant subsidiary" within the
meaning of Regulation S-X adopted by the Securities and Exchange Commission.

                  (x) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.

                  (y) "OUTSTANDING AMOUNT" means, at any date, the sum of (i)
the then outstanding Principal, (ii) accrued and unpaid Interest with respect to
such Principal and (iii) accrued and unpaid Late Charges with respect to such
Principal and Interest.

                  (z) "PARENT ENTITY" of a Person means an entity that, directly
or indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market, or, if
there is more than one such Person or Parent Entity, the Person or Parent Entity
with the largest public market capitalization as of the date of consummation of
the Fundamental Transaction.

                  (aa) "PERMITTED INDEBTEDNESS" means (A) the Alabama Mortgage,
(B) the XEL Notes, (C) Indebtedness incurred by the Company that is made
expressly subordinate in right of payment to the Indebtedness evidenced by this
Note, as reflected in a written agreement reasonably acceptable to the Holder
and approved by the Holder in writing, and which Indebtedness does not provide
at any time for (1) the payment, prepayment, repayment, repurchase or
defeasance, directly or indirectly, of any principal or premium, if any, thereon
until ninety-one (91) days after the Maturity Date or later and (2) total
interest and fees at a rate in excess of six percent (6%) per annum (any such
Indebtedness, the "SUBORDINATED INDEBTEDNESS"), (D) Indebtedness secured by
Permitted Liens, (E) Indebtedness to trade creditors incurred in the ordinary
course of business, and (F) extensions, refinancings and renewals of any items
of Permitted Indebtedness (other than the Alabama Mortgage and the XEL Notes),
provided that the principal amount is not increased or the terms modified to
impose more burdensome terms upon the Company or its Subsidiary, as the case may
be.

                  (bb) "PERMITTED LIENS" means (i) any Lien for taxes not yet
due or delinquent or being contested in good faith by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP, (ii)
any statutory Lien arising in the ordinary course of business by operation of
law with respect to a liability that is not yet due or delinquent, (iii) any
Lien created by operation of law, such as materialmen's liens, mechanics' liens
and other similar liens, arising in the ordinary course of business with respect
to a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) the Alabama Mortgage, (v) Liens
securing the Company's obligations under the Notes, (vi) Liens (A) upon or in
any equipment (as defined in the Security Agreement) acquired or held by the
Company or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition or lease of such equipment, or (B) existing on such equipment at the
time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds

                                      -29-



of such equipment, (vii) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (i) and (vi) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase, (viii) leases or subleases and licenses and
sublicenses granted to others in the ordinary course of business, not
interfering in any material respect with the business of the Company and its
Subsidiaries taken as a whole, (ix) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payments of custom duties in
connection with the importation of goods and (x) Liens arising from judgments,
decrees or attachments in circumstances not constituting an Event of Default
under Section 4(a)(ix).

                  (cc) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.

                  (dd) "PRESENT VALUE OF INTEREST" means the amount of any
interest that, but for a Mandatory Conversion, would have accrued under this
Note at the Interest Rate for the period from the Mandatory Conversion Date
through the Maturity Date discounted to the present value of such interest using
a discount rate equal to six percent (6%).

                  (ee) "PRINCIPAL MARKET" means the Nasdaq National Market.

                  (ff) "REDEMPTION PREMIUM" means (i) in the case of the Events
of Default described in Section 4(a)(i) - (vi) and (ix) - (xii), 120% or (ii) in
the case of the Events of Default described in Section 4(a)(vii) - (viii), 100%.

                  (gg) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement dated as of the Subscription Date by and among the
Company and the initial holders of the Notes relating to, among other things,
the registration of the resale of the Common Stock issuable upon conversion of
the Notes and exercise of the Warrants.

                  (hh) "REQUIRED HOLDERS" means the holders of Notes
representing at least a majority of the aggregate principal amount of the Notes
then outstanding.

                  (ii) "SCHEDULED INSTALLMENT AMOUNT" means, with respect to any
Scheduled Installment Date, the lesser of (i) the product of (A) $1,000,000,
multiplied by (B) the Holder Pro Rata Amount and (ii) the Principal amount (plus
any accrued and unpaid interest thereon) under this Note as of such Installment
Date, as any such Scheduled Installment Amount may be reduced pursuant to the
terms of this Note, whether upon conversion, redemption or otherwise. For the
avoidance of doubt, any accrued and unpaid interest which may be paid pursuant
to this definition shall be deducted from the total interest to be paid on any
subsequent Interest Payment Date.

                  (jj) "SCHEDULED INSTALLMENT DATE" means the tenth day of each
of the ten (10) consecutive Calendar Quarters commencing on July 10, 2005 and
ending on October 10, 2007.

                                      -30-



                  (kk) "SEC" means the United States Securities and Exchange
Commission.

                  (ll) "SECURITIES PURCHASE AGREEMENT" means that certain
securities purchase agreement dated as of the Subscription Date by and among the
Company and the initial holders of the Notes pursuant to which the Company
issued the Notes.

                  (mm) "SPECIAL INSTALLMENT AMOUNT" means, with respect to any
Special Installment Date, at the option of the Holder, an amount equal to one of
the following: (i) the difference between (A) the Outstanding Amount and (B) the
product of (1) 60% of the Tested Working Capital multiplied by (2) the Holder
Pro Rata Amount, (ii) the product of (A) $2,000,000 multiplied by (B) the Holder
Pro Rata Amount, or (iii) any amount that is less than the amounts set forth in
clauses (i) and (ii) hereof, in each case as any such Special Installment Amount
may be reduced pursuant to the terms of this Note, whether upon conversion,
redemption or otherwise.

                  (nn) "SPECIAL INSTALLMENT DATE" means the date that is twenty
(20) Trading Days after the receipt by the Company of a Special Installment
Notice. In the event that the day specified herein shall be prior to the end of
the applicable Company Conversion Period, the Special Installment Date shall be
the third (3rd) day following the end of such period.

                  (oo) "SUBSCRIPTION DATE" means March 20, 2005.

                  (pp) "SUCCESSOR ENTITY" means the Person, which may be the
Company, formed by, resulting from or surviving any Fundamental Transaction or
the Person with which such Fundamental Transaction shall have been made,
provided that if such Person is not a publicly traded entity whose common stock
or equivalent equity security is quoted or listed for trading on an Eligible
Market, Successor Entity shall mean such Person's Parent Entity.

                  (qq) "TARGET WORKING CAPITAL" means, at any date, an amount
equal to the sum of (i) $8,000,000 plus (ii) 80% of the aggregate principal
amount of any Notes purchased pursuant to the exercise of any Additional
Investment Rights.

                  (rr) "TESTED WORKING CAPITAL" means, at any date, an amount
equal to the following amounts shown or reflected on the Company's consolidated
balance sheet as of such date (i) the aggregate amount of all rights to payment
for goods sold or leased or services provided, less discounts, returns and
allowances plus (ii) the aggregate amount of cash and cash equivalents (not
including restricted cash) and short term investments, in each case only to the
extent such cash, cash equivalents and short term investments are on deposit in
each "Deposit Account" at United States banks pledged to the "Collateral Agent"
and constituting "Collateral" under (and as such terms and defined in the
"Pledge and Security Agreement" (as defined in the Securities Purchase
Agreement) minus (iii) the aggregate amount owed to all trade creditors in the
ordinary course of business.

                  (ss) "TRADING DAY" means any day on which the Common Stock is
traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities exchange
or securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which

                                      -31-



the Common Stock is scheduled to trade on such exchange or market for less than
4.5 hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York Time).

                  (tt) "WARRANTS" has the meaning ascribed to such term in the
Securities Purchase Agreement, and shall include all warrants issued in exchange
therefor or replacement thereof.

                  (uu) "WEIGHTED AVERAGE PRICE" means, for any security as of
any date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other time as
the Principal Market publicly announces is the official close of trading) as
reported by Bloomberg through its "Volume at Price" functions, or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such market publicly announces is the official open of
trading), and ending at 4:00:00 p.m., New York Time (or such other time as such
market publicly announces is the official close of trading) as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the "pink sheets" by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Weighted Average Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Weighted Average Price of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 24. All such
determinations to be appropriately adjusted for any stock dividend, stock split,
stock combination or other similar transaction during the applicable calculation
period.

                  (vv) "XEL NOTES" means the convertible promissory notes in the
original aggregate principal amount of $10,480,000 due February 5, 2006 issued
in connection with the acquisition by the Company of XEL Communications, Inc.
and having an outstanding principal balance in the aggregate not in excess of
$2,900,000 as of the Subscription Date; provided, however, that such notes shall
not be amended, restated, renewed, refunded, refinanced or otherwise extended
and the outstanding principal balance shall not be increased after the
Subscription Date without the consent of the Required Holders.

                            [Signature Page Follows]

                                      -32-



            IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the Issuance Date set out above.

                                           VERILINK CORPORATION

                                           By: _________________________________
                                               Name:
                                               Title:



                                    EXHIBIT I

                              VERILINK CORPORATION
                                CONVERSION NOTICE

Reference is made to the Senior Secured Convertible Note (the "NOTE") issued to
the undersigned by Verilink Corporation (the "COMPANY"). In accordance with and
pursuant to the Note, the undersigned hereby elects to convert the Conversion
Amount (as defined in the Note) of the Note indicated below into shares of
Common Stock par value $.01 per share (the "COMMON STOCK") of the Company, as of
the date specified below.

      Date of Conversion: ______________________________________________________

      Aggregate Conversion Amount to be converted: _____________________________

Please confirm the following information:

      Conversion Price: ________________________________________________________

      Number of shares of Common Stock to
      be issued ("CONVERSION SHARES"): _________________________________________

Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:

      Issue to: ________________________________________________________________

                ________________________________________________________________

                ________________________________________________________________

      Facsimile Number: ________________________________________________________

      Authorization: ___________________________________________________________

            By: ________________________________________________________________

                  Title: _______________________________________________________

Dated: _________________________________________________________________________

      Account Number: __________________________________________________________
       (if electronic book entry transfer)

      Transaction Code Number: _________________________________________________
       (if electronic book entry transfer)



The undersigned confirms that the Conversion Shares have been sold in compliance
with the applicable Registration Statement (as defined in the Registration
Rights Agreement) relative to the registration for resale of such Conversion
Shares.

      Yes ___     No ___

Date: _______________ __, ______

________________________________
   Name of Registered Holder

By: ____________________________
    Name:
    Title:



                                 ACKNOWLEDGMENT

            The Company hereby acknowledges this Conversion Notice and hereby
directs American Stock Transfer and Trust Company to issue the above indicated
number of shares of Common Stock in accordance with the Transfer Agent
Instructions dated March 21, 2005 from the Company and acknowledged and agreed
to by American Stock Transfer and Trust Company.

                                           VERILINK CORPORATION

                                           By: _________________________________
                                               Name:
                                               Title:

EX-4.7

                                                                     EXHIBIT 4.7

                    [FORM OF SENIOR SECURED CONVERTIBLE NOTE]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, (B) AN OPINION OF
COUNSEL, REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (C) REASONABLE ASSURANCE HAVING BEEN PROVIDED TO THE COMPANY
THAT SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER IS BEING MADE PURSUANT TO RULE 144
OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE
SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(C)(III) AND
19(A) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY,
THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(C)(III) OF THIS NOTE.

                              VERILINK CORPORATION

                         SENIOR SECURED CONVERTIBLE NOTE

Issuance Date:  ______, 200_                      Principal: U.S. $_____________

            FOR VALUE RECEIVED, Verilink Corporation, a Delaware corporation
(the "COMPANY"), hereby promises to pay to the order of [BUYER] or registered
assigns ("HOLDER") the amount set out above as the Principal (as reduced
pursuant to the terms hereof pursuant to redemption, conversion or otherwise,
the "PRINCIPAL") when due, whether upon the Maturity Date (as defined below), on
any Installment Date with respect to the Installment Amount due on such
Installment Date (each, as defined herein), acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay interest
("INTEREST") on any outstanding Principal at the rate of 6.00% per annum (the
"INTEREST RATE"), from the date set out above as the Issuance Date (the
"ISSUANCE DATE") until the same becomes due and payable, whether upon an
Interest Date (as defined below), any Installment Date or the Maturity Date,
acceleration, conversion, redemption or otherwise (in each case in accordance
with the terms hereof). This Senior Secured Convertible Note (including all
Senior Secured Convertible Notes issued in exchange, transfer or replacement
hereof, this "NOTE") is one of an issue of Senior Secured Convertible Notes
issued pursuant to the Securities Purchase Agreement (as defined below)



(collectively, the "NOTES" and such other Senior Secured Convertible Notes, the
"OTHER NOTES"). Certain capitalized terms used herein are defined in Section 29.

            (1) PAYMENTS OF PRINCIPAL. On each Installment Date, the Company
shall pay to the Holder an amount equal to the Installment Amount due on such
Installment Date in accordance with Section 8. The "MATURITY DATE" shall be
March 21, 2008, as the same may be extended at the option of the Holder (i)
through the date that is fifteen (15) Business Days (or, in the case of the
Event of Default specified in Section 4(a)(ix), sixty-five (65) days) after the
cure or termination of any Event of Default (as defined in Section 4(a)) that
has occurred and is continuing on the Maturity Date (as may be extended pursuant
to this Section 1) or the termination of any event that has occurred and is
continuing on the Maturity Date (as may be extended pursuant to this Section 1)
and that with the passage of time and the failure to cure would result in an
Event of Default and (ii) through the date that is ten (10) days after the
consummation of a Change of Control in the event that a Change of Control is
publicly announced or a Change of Control Notice (as defined in Section 5(b)) is
delivered prior to the Maturity Date.

            (2) INTEREST; INTEREST RATE. Interest on this Note shall commence
accruing on the Issuance Date and shall be computed on the basis of a 365-day
year and actual days elapsed and shall be payable in arrears for each Calendar
Quarter on the tenth day of the succeeding Calendar Quarter during the period
beginning on the Issuance Date and ending on, and including, the Maturity Date
(each, an "INTEREST DATE") with the first Interest Date being July 10, 2005.
Interest shall be payable on each Interest Date, to the record holder of this
Note on the applicable Interest Date, in cash ("CASH INTEREST") or, at the
option of the Company, in shares of Common Stock ("INTEREST SHARES") or a
combination thereof, provided that the Interest which accrued during any period
may be payable in Interest Shares if, and only if, the Company delivers written
notice (each, an "INTEREST ELECTION NOTICE") of such election to each holder of
the Notes on or prior to the twentieth (20th) Trading Day prior to the Interest
Date (each, an "INTEREST NOTICE DUE DATE"); provided, further, that from and
after November 21, 2005, the Company must pay at least 50% of all Interest due
hereunder as Cash Interest, unless at such time the Stockholder Approval (as
defined in the Securities Purchase Agreement) has been obtained. Each Interest
Election Notice must specify the amount of Interest that shall be paid as Cash
Interest, if any, and the amount of Interest that shall be paid in Interest
Shares. Interest to be paid on an Interest Date in Interest Shares shall be paid
in a number of fully paid and nonassessable shares (rounded to the nearest whole
share in accordance with Section 3(a)) of Common Stock equal to the quotient of
(a) the amount of Interest payable on such Interest Date less any Cash Interest
paid and (b) the Interest Conversion Price in effect on the applicable Interest
Date. If any Interest Shares are to be paid on an Interest Date, then the
Company shall (X) provided that the Company's transfer agent (the "TRANSFER
AGENT") is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program and such action is not prohibited by applicable law
or regulation or any applicable policy of DTC, credit such aggregate number of
Interest Shares to which the Holder shall be entitled to the Holder's or its
designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (Y) if the foregoing shall not apply, issue and deliver on
the applicable Interest Date, to the address set forth in the register
maintained by the Company for such purpose pursuant to the Securities Purchase
Agreement or to such address as specified by the Holder in writing to the
Company at least two Business Days prior to the applicable Interest Date, a
certificate, registered

                                      -2-


in the name of the Holder or its designee, for the number of Interest Shares to
which the Holder shall be entitled. Notwithstanding the foregoing, the Company
shall not be entitled to pay Interest in Interest Shares and shall be required
to pay such Interest in cash as Cash Interest on the applicable Interest Date
if, unless consented to in writing by the Holder, during the period commencing
on the applicable Interest Notice Due Date through the applicable Interest Date
the Equity Conditions have not been satisfied. Prior to the payment of Interest
on an Interest Date, Interest on this Note shall accrue at the Interest Rate and
be payable by way of inclusion of the Interest in the Conversion Amount in
accordance with Section 3(b)(i). Upon the occurrence and during the continuance
of an Event of Default, the Interest Rate shall be increased to twelve percent
(12%). In the event that such Event of Default is subsequently cured, the
adjustment referred to in the preceding sentence shall cease to be effective as
of the date of such cure; provided that the Interest as calculated and unpaid at
such increased rate during the continuance of such Event of Default shall
continue to apply to the extent relating to the days after the occurrence of
such Event of Default through and including the date of cure of such Event of
Default. The Company shall pay any and all taxes that may be payable with
respect to the issuance and delivery of Interest Shares; provided that the
Company shall not be required to pay any tax that may be payable in respect of
any issuance of Interest Shares to any Person other than the Holder or with
respect to any income tax due by the Holder with respect to such Interest
Shares.

            (3) CONVERSION OF NOTES. This Note shall be convertible into shares
of the Company's common stock, par value $.01 per share (the "COMMON STOCK"), on
the terms and conditions set forth in this Section 3.

                  (a) Conversion Right. Subject to the provisions of Section
3(d), at any time or times on or after the Issuance Date, the Holder shall be
entitled to convert any portion of the outstanding and unpaid Conversion Amount
(as defined below) into fully paid and nonassessable shares of Common Stock in
accordance with Section 3(c), at the Conversion Rate (as defined below). The
Company shall not issue any fraction of a share of Common Stock upon any
conversion. If the conversion would result in the issuance of a fraction of a
share of Common Stock, unless the entire balance of the Note is being converted,
the portion of the Conversion Amount that corresponds to such fraction of a
share of Common Stock shall resume the status of unpaid Principal on the Note.
If the entire balance of the Note is being converted, the Company shall round
such fraction of a share of Common Stock up to the nearest whole share. The
Company shall pay any and all taxes that may be payable with respect to the
issuance and delivery of Common Stock upon conversion of any Conversion Amount;
provided that the Company shall not be required to pay any tax that may be
payable in respect of any issuance of Common Stock to any Person other than the
converting Holder or with respect to any income tax due by the Holder with
respect to such Common Stock.

                  (b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall
be determined by dividing (x) such Conversion Amount by (y) the Conversion Price
(the "CONVERSION RATE").

                        (i) "CONVERSION AMOUNT" means the sum of (A) the portion
of the Principal to be converted, redeemed or otherwise with respect to which
this determination

                                      -3-


is being made, (B) accrued and unpaid Interest with respect to such Principal
and (C) accrued and unpaid Late Charges with respect to such Principal and
Interest.

                        (ii) "CONVERSION PRICE" means, as of any Conversion Date
(as defined below) or other date of determination, $3.01, subject to adjustment
as provided herein.

                  (c) Mechanics of Conversion.

                        (i) Optional Conversion. To convert any Conversion
Amount into shares of Common Stock on any date (a "CONVERSION DATE"), the Holder
shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior
to 11:59 p.m., New York Time, on such date, a copy of an executed notice of
conversion in the form attached hereto as Exhibit I (the "CONVERSION NOTICE") to
the Company and (B) if required by Section 3(c)(iii), surrender this Note to a
common carrier for delivery to the Company as soon as practicable on or
following such date (or an indemnification undertaking with respect to this Note
in the case of its loss, theft or destruction). On or before the first (1st)
Business Day following the date of receipt of a Conversion Notice, the Company
shall transmit by facsimile a confirmation of receipt of such Conversion Notice
to the Holder and the Transfer Agent. On or before the second Business Day
following the date of receipt of a Conversion Notice (the "SHARE DELIVERY
DATE"), the Company shall (X) provided that the Transfer Agent is participating
in the DTC Fast Automated Securities Transfer Program and such action is not
prohibited by applicable law or regulation or any applicable policy of DTC,
credit such aggregate number of shares of Common Stock to which the Holder shall
be entitled to the Holder's or its designee's balance account with DTC through
its Deposit Withdrawal Agent Commission system or (Y) if the foregoing shall not
apply, issue and deliver to the address as specified in the Conversion Notice, a
certificate, registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder shall be entitled. If this
Note is physically surrendered for conversion as required by Section 3(c)(iii)
and the outstanding Principal of this Note is greater than the Principal portion
of the Conversion Amount being converted, then the Company shall as soon as
practicable and in no event later than three (3) Business Days after receipt of
this Note and at its own expense, issue and deliver to the holder a new Note (in
accordance with Section 19(d)) representing the outstanding Principal not
converted. The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the Conversion Date.
In the event of a partial conversion of this Note pursuant hereto, the principal
amount converted shall be deducted from the Installment Amounts relating to the
Installment Dates as set forth in the Conversion Notice.

                        (ii) Company's Failure to Timely Convert. If the Company
shall fail, other than pursuant to Section 3(d), to issue a certificate to the
Holder or credit the Holder's balance account with DTC for the number of shares
of Common Stock to which the Holder is entitled upon conversion of any
Conversion Amount on or prior to the date which is five Business Days after the
Conversion Date (a "CONVERSION FAILURE"), then (A) the Company shall pay damages
in cash to the Holder for each date of such Conversion Failure in an amount
equal to 2.0% of the product of (I) the sum of the number of shares of Common
Stock not issued to the Holder on or prior to the Share Delivery Date and to
which the Holder is entitled, and (II) the Closing Sale Price of the Common
Stock on the Share Delivery Date and (B) the Holder,

                                      -4-


upon written notice to the Company, may void its Conversion Notice with respect
to, and retain or have returned, as the case may be, any portion of this Note
that has not been converted pursuant to such Conversion Notice; provided that
the voiding of a Conversion Notice shall not affect the Company's obligations to
make any payments which have accrued prior to the date of such notice pursuant
to this Section 3(c)(ii) or otherwise. In addition to the foregoing, if within
three (3) Trading Days after the Company's receipt of the facsimile copy of a
Conversion Notice the Company shall fail to issue and deliver a certificate to
the Holder or credit the Holder's balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon such holder's
conversion of any Conversion Amount, and if on or after such Trading Day the
Holder purchases (in an open market transaction or otherwise) Common Stock to
deliver in satisfaction of a sale by the Holder of Common Stock issuable upon
such conversion that the Holder anticipated receiving from the Company (a
"BUY-IN"), then the Company shall, within three (3) Business Days after the
Holder's request and in the Holder's discretion, either (i) pay cash to the
Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
"BUY-IN PRICE"), at which point the Company's obligation to deliver such
certificate (and to issue such Common Stock) shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates
representing such Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the Conversion Date.

                        (iii) Book-Entry. Notwithstanding anything to the
contrary set forth herein, upon conversion of any portion of this Note in
accordance with the terms hereof, the Holder shall not be required to physically
surrender this Note to the Company unless (A) the full Conversion Amount
represented by this Note is being converted or (B) the Holder has provided the
Company with prior written notice (which notice may be included in a Conversion
Notice) requesting reissuance of this Note upon physical surrender of this Note.
The Holder and the Company shall maintain records showing the Principal,
Interest and Late Charges converted and the dates of such conversions or shall
use such other method, reasonably satisfactory to the Holder and the Company, so
as not to require physical surrender of this Note upon conversion.

                        (iv) Pro Rata Conversion; Disputes. In the event that
the Company receives a Conversion Notice from more than one holder of Notes for
the same Conversion Date and the Company can convert some, but not all, of such
portions of the Notes submitted for conversion, the Company, subject to Section
3(d), shall convert from each holder of Notes electing to have Notes converted
on such date a pro rata amount of such holder's portion of its Notes submitted
for conversion based on the principal amount of Notes submitted for conversion
on such date by such holder relative to the aggregate principal amount of all
Notes submitted for conversion on such date. In the event of a dispute as to the
number of shares of Common Stock issuable to the Holder in connection with a
conversion of this Note, the Company shall issue to the Holder the number of
shares of Common Stock not in dispute and resolve such dispute in accordance
with Section 24. The failure to issue to the Holder the number of shares of
Common Stock in dispute shall not be a Conversion Failure.

                  (d) Limitations on Conversions.

                                      -5-


                        (i) Beneficial Ownership. The Company shall not effect
any conversion of this Note, and the Holder of this Note shall not have the
right to convert any portion of this Note pursuant to Section 3(a), to the
extent that after giving effect to such conversion, the Holder (together with
the Holder's affiliates) would beneficially own in excess of 4.99% (the "MAXIMUM
PERCENTAGE") of the number of shares of Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Note with respect to which the determination of such sentence
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (A) conversion of the remaining, nonconverted portion of
this Note beneficially owned by the Holder or any of its affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any Other Notes or
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of this
Section 3(d)(i), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes
of this Section 3(d)(i), in determining the number of outstanding shares of
Common Stock, the Holder may rely on the number of outstanding shares of Common
Stock as reflected in (x) the Company's most recent Form 10-Q or Form 8-K, as
the case may be, (y) a more recent public announcement by the Company or (z) any
other notice by the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding. For any reason at any time, upon the written
or oral request of the Holder, the Company shall within one Business Day confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Company, including this Note, by the Holder or its affiliates since the date
as of which such number of outstanding shares of Common Stock was reported. By
written notice to the Company, the Holder may increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% specified in such
notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of Notes.

                        (ii) Principal Market Regulation. The Company shall not
be obligated to issue any shares of Common Stock upon conversion of this Note if
the issuance of such shares of Common Stock would exceed the aggregate number of
shares of Common Stock which the Company may issue upon conversion or exercise,
as applicable, of the Notes and Warrants and the payment of Interest in Interest
Shares without breaching the Company's obligations under the rules or
regulations of the Principal Market (the "EXCHANGE CAP"), except that such
limitation shall not apply in the event that the Company (A) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market for issuances of Common Stock in excess of such amount or (B)
obtains a written opinion from outside counsel to the Company that such approval
is not required, which opinion shall be reasonably satisfactory to the Required
Holders. Until such approval or written opinion is obtained, no purchaser of the
Notes pursuant to the Securities Purchase Agreement (the "PURCHASERS") shall be
issued in the aggregate, upon conversion or exercise, as applicable, of Notes or
Warrants or the payment of Interest in Interest Shares, shares of Common Stock
(as adjusted for stock splits,

                                      -6-


stock dividends, stock combinations and other similar transactions) in an amount
greater than the product of the Exchange Cap multiplied by a fraction, the
numerator of which is the principal amount of Notes issued to the Purchasers
pursuant to the Securities Purchase Agreement on the Closing Date and the
denominator of which is the aggregate principal amount of all Notes issued to
the Purchasers pursuant to the Securities Purchase Agreement on the Closing Date
(with respect to each Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event
that any Purchaser shall sell or otherwise transfer any of such Purchaser's
Notes, the transferee shall be allocated a pro rata portion of such Purchaser's
Exchange Cap Allocation, and the restrictions of the prior sentence shall apply
to such transferee with respect to the portion of the Exchange Cap Allocation
allocated to such transferee. In the event that any holder of Notes shall
convert all of such holder's Notes into a number of shares of Common Stock
which, in the aggregate, is less than such holder's Exchange Cap Allocation,
then the difference between such holder's Exchange Cap Allocation and the number
of shares of Common Stock actually issued to such holder shall be allocated to
the respective Exchange Cap Allocations of the remaining holders of Notes on a
pro rata basis in proportion to the aggregate principal amount of the Notes then
held by each such holder.

            (4) RIGHTS UPON EVENT OF DEFAULT.

                  (a) Event of Default. Each of the following events shall
constitute an "EVENT OF DEFAULT":

                        (i) the failure of the applicable Registration Statement
required to be filed pursuant to the Registration Rights Agreement to be
declared effective by the SEC on or prior to the date that is sixty (60) days
after the applicable Effectiveness Deadline (as defined in the Registration
Rights Agreement), or, while the applicable Registration Statement is required
to be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the applicable Registration Statement lapses for
any reason (including, without limitation, the issuance of a stop order) or is
unavailable to any holder of the Notes for sale of all of such holder's
Registrable Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of ten (10) consecutive days or for
more than an aggregate of thirty (30) days in any 365-day period (other than
days during an Allowable Grace Period (as defined in the Registration Rights
Agreement));

                        (ii) the suspension from trading or failure of the
Common Stock to be listed on an Eligible Market for a period of five (5)
consecutive days or for more than an aggregate of ten (10) days in any 365-day
period;

                        (iii) the Company's (A) failure to cure a Conversion
Failure by delivery of the required number of shares of Common Stock within ten
(10) Business Days after the applicable Conversion Date or (B) notice, written
or oral, to any holder of the Notes, including by way of public announcement or
through any of its agents, at any time, of its intention not to comply with a
request for conversion of any Notes into shares of Common Stock that is tendered
in accordance with the provisions of the Notes, other than pursuant to Section
3(d);

                                      -7-


                        (iv) at any time following the tenth (10th) consecutive
Business Day that the Holder's Authorized Share Allocation is less than the
number of shares of Common Stock that the Holder would be entitled to receive
upon a conversion of the full Conversion Amount of this Note (without regard to
any limitations on conversion set forth in Section 3(d) or otherwise);

                        (v) (A) the Company's failure to pay to the Holder any
amount of Principal, when and as due under this Note (including, without
limitation, the Company's failure to pay any redemption payments) or (B) the
Company's failure to pay to the Holder any other amounts when due and as due
under any Transaction Document (as defined in the Securities Purchase Agreement)
or any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby and thereby to which the
Holder is a party, if such failure continues for a period of at least five (5)
Business Days;

                        (vi) (A) any payment default or other default occurs
under any Indebtedness (as defined in Section 3(s) of the Securities Purchase
Agreement) of the Company or any of its Subsidiaries (as defined in Section 3(a)
of the Securities Purchase Agreement) (other than the Alabama Mortgage) that
results in a redemption of or acceleration prior to maturity of $250,000 or more
of such Indebtedness in the aggregate, (B) any material default occurs under any
Indebtedness of the Company (other than the Alabama Mortgage) or any of its
Subsidiaries having an aggregate outstanding balance in excess of $250,000 and
such default continues uncured for more than ten (10) Business Days, other than,
in each case (A) and (B) above, a default with respect to any Other Notes, or
(C) any "event of default" occurs under the Alabama Mortgage;

                        (vii) the Company or any of its Subsidiaries, pursuant
to or within the meaning of Title 11, U.S. Code, or any similar Federal, foreign
or state law for the relief of debtors (collectively, "BANKRUPTCY LAW"), (A)
commences a voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment of a
receiver, trustee, assignee, liquidator or similar official (a "CUSTODIAN"), (D)
makes a general assignment for the benefit of its creditors or (E) admits in
writing that it is generally unable to pay its debts as they become due;

                        (viii) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that (A) is for relief against the Company or
any of its Subsidiaries in an involuntary case, (B) appoints a Custodian of the
Company or any of its Subsidiaries or (C) orders the liquidation of the Company
or any of its Subsidiaries;

                        (ix) a final judgment or judgments for the payment of
money aggregating in excess of $2,000,000 are rendered against the Company or
any of its Subsidiaries and which judgments are not, within sixty (60) days
after the entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within sixty (60) days after the expiration of such stay; provided,
however, that any judgment which is covered by insurance or an indemnity from a
credit worthy party shall not be included in calculating the $2,000,000 amount
set forth above so long as the Company provides the Holder a written statement
from such insurer or indemnity provider (which written statement shall be
reasonably satisfactory to the Holder) to the effect that

                                      -8-


such judgment is covered by insurance or an indemnity and the Company will
receive the proceeds of such insurance or indemnity within thirty (30) days of
the issuance of such judgment;

                        (x) the Company breaches in any material respect any
representation, warranty, covenant or other term or condition of any Transaction
Document, except, in the case of a breach of a covenant or other term or
condition of any Transaction Document which is curable, only if such breach
continues for a period of at least ten (10) consecutive Business Days;

                        (xi) any breach or failure in any respect to comply with
Section 15 of this Note or Section 8(b) of the Securities Purchase Agreement; or

                        (xii) any Event of Default (as defined in the Other
Notes) occurs with respect to any Other Notes.

                  (b) Redemption Right. Promptly after the occurrence of an
Event of Default with respect to this Note or any Other Note, the Company shall
deliver written notice thereof via facsimile and overnight courier (an "EVENT OF
DEFAULT NOTICE") to the Holder. At any time after the earlier of the Holder's
receipt of an Event of Default Notice and the Holder becoming aware of an Event
of Default and prior to sixty (60) days after written notice from the Company to
the Holder that such Event of Default is cured (which written notice shall
provide satisfactory evidence that such Event of Default has actually been
cured), the Holder may require the Company to redeem all or any portion of this
Note by delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION
NOTICE") to the Company, which Event of Default Redemption Notice shall indicate
the portion of this Note the Holder is electing to redeem. Each portion of this
Note subject to redemption by the Company pursuant to this Section 4(b) shall be
redeemed by the Company at a price equal to the greater of (i) the product of
(x) the Conversion Amount to be redeemed and (y) the Redemption Premium and (ii)
the product of (A) the Conversion Rate with respect to such Conversion Amount in
effect at such time as the Holder delivers an Event of Default Redemption Notice
and (B) the Closing Sale Price of the Common Stock on the date immediately
preceding such Event of Default (the "EVENT OF DEFAULT REDEMPTION PRICE").
Redemptions required by this Section 4(b) shall be made in accordance with the
provisions of Section 13. In the event of a partial redemption of this Note
pursuant hereto, the principal amount redeemed shall be deducted from the
Installment Amounts relating to the applicable Installment Dates as set forth in
the Event of Default Redemption Notice.

            (5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

                  (a) Assumption. The Company shall not enter into or be party
to a Fundamental Transaction unless (i) the Successor Entity (if other than the
Company) assumes in writing all of the obligations of the Company under this
Note and the other Transaction Documents in accordance with the provisions of
this Section 5(a) pursuant to written agreements in form and substance
reasonably satisfactory to the Required Holders and approved by the Required
Holders prior to such Fundamental Transaction, including agreements to deliver
to each holder of Notes in exchange for such Notes a security of the Successor
Entity evidenced by

                                      -9-


a written instrument substantially similar in form and substance to the Notes,
including, without limitation, having a principal amount and interest rate equal
to the principal amounts and the interest rates of the Notes held by such holder
and having similar ranking to the Notes, and satisfactory to the Required
Holders and (ii) the Successor Entity (including its Parent Entity) is a
publicly traded corporation whose common stock is quoted on or listed for
trading on an Eligible Market. Upon the occurrence of any Fundamental
Transaction, the Successor Entity (if other than the Company) shall succeed to,
and be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note referring to the "Company" shall refer
instead to the Successor Entity), and may exercise every right and power of the
Company and shall assume all of the obligations of the Company under this Note
with the same effect as if such Successor Entity had been named as the Company
herein. Upon consummation of the Fundamental Transaction, the Successor Entity
(if other than the Company) shall deliver to the Holder confirmation that there
shall be issued upon conversion or redemption of this Note at any time after the
consummation of the Fundamental Transaction, in lieu of the shares of the
Company's Common Stock (or other securities, cash, assets or other property)
purchasable upon the conversion or redemption of the Notes prior to such
Fundamental Transaction, such shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had this Note been converted immediately prior
to such Fundamental Transaction, as adjusted in accordance with the provisions
of this Note. The provisions of this Section shall apply similarly and equally
to successive Fundamental Transactions and shall be applied without regard to
any limitations on the conversion or redemption of this Note.

                  (b) Redemption Right. No sooner than fifteen (15) days nor
later than ten (10) days prior to the consummation of a Change of Control, but
not prior to the public announcement of such Change of Control, the Company
shall deliver written notice thereof via facsimile and overnight courier to the
Holder (a "CHANGE OF CONTROL NOTICE"). At any time during the period beginning
after the Holder's receipt of a Change of Control Notice and ending on the date
of the consummation of such Change of Control (or, in the event a Change of
Control Notice is not delivered at least ten (10) days prior to a Change of
Control, at any time on or after the date which is ten (10) days prior to a
Change of Control and ending ten (10) days after the consummation of such Change
of Control), the Holder may require the Company to redeem all or any portion of
this Note by delivering written notice thereof ("CHANGE OF CONTROL REDEMPTION
NOTICE") to the Company, which Change of Control Redemption Notice shall
indicate the Conversion Amount the Holder is electing to redeem. The portion of
this Note subject to redemption pursuant to this Section 5 shall be redeemed by
the Company at a price equal to the greater of (i) the product of (x) the
Conversion Amount being redeemed and (y) the quotient determined by dividing (A)
the Closing Sale Price of the Common Stock immediately following the public
announcement of such proposed Change of Control by (B) the Conversion Price and
(ii) 105% of the Conversion Amount being redeemed from the Issuance Date until
six months from the Issuance Date, 110% of the Conversion Amount being redeemed
from the end of such six month period until the first anniversary of the
Issuance Date, and 120% of the Conversion Amount being redeemed thereafter (the
"CHANGE OF CONTROL REDEMPTION PRICE"). Redemptions required by this Section 5
shall be made in accordance with the provisions of Section 13 only if such
Change of Control is consummated and shall have priority to payments to
stockholders in connection with a Change of Control. Notwithstanding anything to
the contrary

                                      -10-


in this Section 5, but subject to Section 3(d), until the Change of Control
Redemption Price (together with any interest thereon) is paid in full, the
Conversion Amount submitted for redemption under this Section 5(c) (together
with any interest thereon) may be converted, in whole or in part, by the Holder
into Common Stock pursuant to Section 3. In the event of a partial redemption of
this Note pursuant hereto, the principal amount redeemed shall be deducted from
the Installment Amounts relating to the applicable Installment Dates as set
forth in the Change of Control Redemption Notice.

            (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE
EVENTS.

                  (a) Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "PURCHASE RIGHTS"), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right
to receive upon a conversion of this Note, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.

                  (b) Other Corporate Events. In addition to and not in
substitution for any other rights hereunder, prior to the consummation of any
Fundamental Transaction pursuant to which holders of shares of Common Stock are
entitled to receive securities or other assets with respect to or in exchange
for shares of Common Stock (a "CORPORATE EVENT"), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right
to receive upon a conversion of this Note, as applicable, (i) in addition to the
shares of Common Stock receivable upon such conversion, such securities or other
assets to which the Holder would have been entitled with respect to such shares
of Common Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a conversion rate for such consideration commensurate with
the Conversion Rate. Provision made pursuant to the preceding sentence shall be
in a form and substance reasonably satisfactory to the Required Holders. The
provisions of this Section shall apply similarly and equally to successive
Corporate Events and shall be applied without regard to any limitations on the
conversion or redemption of this Note.

            (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

                  (a) Adjustment of Conversion Price upon Issuance of Common
Stock. If and whenever on or after the Subscription Date, the Company issues or
sells, or in accordance

                                      -11-


with this Section 7(a) is deemed to have issued or sold, any shares of Common
Stock (including the issuance or sale of shares of Common Stock owned or held by
or for the account of the Company, but excluding shares of Common Stock deemed
to have been issued or sold by the Company in connection with any Excluded
Security) for a consideration per share less than a price (the "APPLICABLE
PRICE") equal to the Conversion Price in effect immediately prior to such issue
or sale (the foregoing a "DILUTIVE ISSUANCE"), then immediately after such
Dilutive Issuance, the Conversion Price then in effect shall be reduced to an
amount equal to the product of (A) the Conversion Price in effect immediately
prior to such Dilutive Issuance and (B) the quotient determined by dividing (1)
the sum of (I) the product derived by multiplying the Conversion Price in effect
immediately prior to such Dilutive Issuance and the number of shares of Common
Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus (II)
the consideration, if any, received by the Company upon such Dilutive Issuance,
by (2) the product derived by multiplying (I) the Conversion Price in effect
immediately prior to such Dilutive Issuance by (II) the number of shares of
Common Stock Deemed Outstanding immediately after such Dilutive Issuance. For
purposes of determining the adjusted Conversion Price under this Section 7(a),
the following shall be applicable:

                        (i) Issuance of Options. If the Company in any manner
grants or sells any Options and the lowest price per share for which one share
of Common Stock is issuable upon the exercise of any such Option or upon
exercise of such Option and conversion or exchange or exercise of any
Convertible Securities issuable upon exercise of such Option is less than the
Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 7(a)(i), the "lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion or exchange
or exercise of any Convertible Securities issuable upon exercise of such Option"
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share of Common
Stock upon granting or sale of the Option, upon exercise of the Option and upon
conversion or exchange or exercise of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of such
Common Stock upon conversion or exchange or exercise of such Convertible
Securities.

                        (ii) Issuance of Convertible Securities. If the Company
in any manner issues or sells any Convertible Securities and the lowest price
per share for which one share of Common Stock is issuable upon such conversion
or exchange or exercise thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this Section 7(a)(ii),
the "price per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange or exercise of such
Convertible Security. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Stock upon conversion or exchange
or exercise of such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon

                                      -12-


exercise of any Options for which adjustment of the Conversion Price had been or
are to be made pursuant to other provisions of this Section 7(a), no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.

                        (iii) Change in Option Price or Rate of Conversion. If
the purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable or exercisable for Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 7(a)(iii), if
the terms of any Option or Convertible Security that was outstanding as of the
Subscription Date are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change. No adjustment shall be
made pursuant to this Section 7(a)(iii) if such adjustment would result in an
increase of the Conversion Price then in effect.

                        (iv) Calculation of Consideration Received. In case any
Option is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Company will be the Closing Sale Price of such
securities on the date of receipt. If any Common Stock, Options or Convertible
Securities are issued to the shareholders of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of net
assets and business of the non-surviving entity, calculated on a going concern
basis, as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined jointly by the Company and the Required
Holders. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "VALUATION EVENT"),
the fair value of such consideration will be determined within five (5) Business
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Required Holders.
The determination of such appraiser shall be deemed binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be borne
one-half by the Company and one-half by the Holders. The consideration received
by the Company need not be calculated for shares of Common Stock that are issued
or sold or deemed issued or sold to the extent they constitute Excluded
Securities.

                                      -13-


                        (v) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

                        (vi) This Note Deemed Outstanding. If during the period
beginning on and including the Subscription Date and ending on the date
immediately preceding the Issuance Date, the Company entered into, or in
accordance with Section 7(a) would have been deemed to have entered into (had
this Note been outstanding at such time), any Dilutive Issuance, then solely for
purposes of determining any adjustment under this Section 7(a) as a result of
such Dilutive Issuance or deemed Dilutive Issuance, this Note shall be deemed to
have been outstanding at the time of each such Dilutive Issuance or deemed
Dilutive Issuance.

                  (b) Adjustment of Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time on or after the
Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company at any time on or after the Subscription Date combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.

                  (c) Other Events. If any event occurs of the type contemplated
by the provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

            (8) COMPANY INSTALLMENT CONVERSION OR REDEMPTION.

                  (a) General. On each applicable Installment Date, the Company
shall pay to the Holder of this Note the Installment Amount as of such
Installment Date by the combination of any of the following, but subject to and
in accordance with the terms of this Section 8, (i) provided that during the
period commencing with the Company Installment Notice (as defined below) through
the applicable Installment Date, the Equity Conditions have been satisfied (or
waived in writing by the Holder, provided that the Holder may not waive the
provisions of Section 3(d)(ii)), requiring the conversion of a portion of the
applicable Installment Amount, in whole or in part, in accordance with this
Section 8 (a "COMPANY CONVERSION"), and/or (ii) redeeming the applicable
Installment Amount, in whole or in part, in accordance with this Section 8 (a
"COMPANY REDEMPTION"); provided that all of the outstanding applicable
Installment Amount as of each such Installment Date must be converted and/or
redeemed by the

                                      -14-


Company on the applicable Installment Date, subject to the provisions of this
Section 8. From and after November 21, 2005, the Company may not elect to pay
more than 50% of the applicable Installment Amount by way of a Company
Conversion unless at such time the Stockholder Approval has been obtained. As
required by the last sentence of Section 8(d), the Company shall deliver written
notice (each, a "COMPANY INSTALLMENT NOTICE"), to the Holder which Company
Installment Notice shall state (i) the portion, if any, of the applicable
Installment Amount which the Company elects to convert pursuant to a Company
Conversion, which amount when added to the Company Redemption Amount must equal
the applicable Installment Amount (the "COMPANY CONVERSION AMOUNT"), (ii) the
portion, if any, of the applicable Installment Amount which the Company elects
to redeem pursuant to a Company Redemption (the "COMPANY REDEMPTION AMOUNT"),
which amount when added to the Company Conversion Amount must equal the
applicable Installment Amount and (iii) if the Company has elected, in whole or
in part, a Company Conversion, then the Company Installment Notice shall certify
that the Equity Conditions have been satisfied as of the date of the Company
Installment Notice. Each Company Installment Notice shall be irrevocable. If the
Company does not timely deliver a Company Installment Notice in accordance with
this Section 8, then the Company shall be deemed to have delivered an
irrevocable Company Installment Notice electing a Company Conversion and shall
be deemed to have certified that the Equity Conditions in connection with any
such conversion have been satisfied. Except as expressly provided in this
Section 8(a), the Company shall redeem and convert the applicable Installment
Amount of this Note pursuant to this Section 8 and the corresponding Installment
Amounts of the Other Notes pursuant to the corresponding provisions of the Other
Notes in the same ratio of the Installment Amount being redeemed and converted
hereunder. The Company Redemption Amount shall be redeemed in accordance with
Section 8(b) and the Company Conversion Amount (whether set forth in the Company
Installment Notice or by operation of this Section 8) shall be converted in
accordance with Section 8(c). Notwithstanding the foregoing, unless the Company
is given notice to the contrary by the Holder, if the arithmetic average of the
Weighted Average Price of the Common Stock during the applicable Company
Conversion Measuring Period (as defined in Section 29 below) is greater than the
Conversion Price, then the Company shall be deemed to have elected a Company
Conversion in the Company Installment Notice as to the entire applicable
Installment Amount.

                  (b) Mechanics of Company Redemption. If the Company elects a
Company Redemption in accordance with Section 8(a), then the Company Redemption
Amount, if any, which is to be paid to the Holder on the applicable Installment
Date shall be redeemed by the Company on such Installment Date, and the Company
shall pay to the Holder on such Installment Date, by wire transfer of
immediately available funds in accordance with Section 25(b), an amount in cash
(the "COMPANY INSTALLMENT REDEMPTION PRICE") equal to 100% of the Company
Redemption Amount. If the Company fails to redeem the Company Redemption Amount
on the applicable Installment Date by payment of the Company Installment
Redemption Price on such date, then at the option of the Holder designated in
writing to the Company (any such designation, a "CONVERSION NOTICE" for purposes
of this Note), the Holder may require the Company to convert all or any part of
the Company Redemption Amount at the Company Conversion Price. Conversions
required by this Section 8(b) shall be made in accordance with the provisions of
Section 3(c). Notwithstanding anything to the contrary in this Section 8(b), but
subject to Section 3(d), until the Company Installment Redemption Price
(together with any interest thereon) is paid in full, the Company Redemption
Amount (together with any interest

                                      -15-


thereon) may be converted, in whole or in part, by the Holder into Common Stock
pursuant to Section 3. In the event the Holder elects to convert all or any
portion of the Company Redemption Amount prior to the applicable Installment
Date as set forth in the immediately preceding sentence, the Company Redemption
Amount so converted shall be deducted from the Installment Amount to be paid on
such Installment Date.

                  (c) Mechanics of Company Conversion. Subject to Section 3(d),
if the Company delivers a Company Installment Notice and elects, or is deemed to
have elected, in whole or in part, a Company Conversion in accordance with
Section 8(a), then the applicable Company Conversion Amount, if any, which
remains outstanding shall be converted as of the applicable Installment Date by
converting on such Installment Date such Company Conversion Amount at the
Company Conversion Price; provided that the Equity Conditions have been
satisfied (or waived in writing by the Holder) on such Installment Date. If the
Equity Conditions are not satisfied (or waived in writing by the Holder) on such
Installment Date, then at the option of the Holder designated in writing to the
Company, the Holder may require the Company to do any one or more of the
following: (i) the Company shall redeem all or any part designated by the Holder
of the unconverted Company Conversion Amount (such designated amount is referred
to as the "FIRST REDEMPTION AMOUNT") on such Installment Date and the Company
shall pay to the Holder on such Installment Date, by wire transfer of
immediately available funds, an amount in cash equal to 120% of such First
Redemption Amount, or (ii) the Company Conversion shall be null and void with
respect to all or any part designated by the Holder of the unconverted Company
Conversion Amount and the Holder shall be entitled to all the rights of a holder
of this Note with respect to such amount of the Company Conversion Amount;
provided, however, that the Conversion Price for such unconverted Company
Conversion Amount shall thereafter be adjusted to equal the lesser of (A) the
Company Conversion Price as in effect on the date on which the Holder voided the
Company Conversion and (B) the Company Conversion Price as in effect on the date
on which the Holder delivers a Conversion Notice relating thereto. If the
Company fails to redeem any First Redemption Amount on or before the applicable
Installment Date by payment of such amount on the applicable Installment Date,
then the Holder shall have the rights set forth in Section 13(a) as if the
Company failed to pay the applicable Company Redemption Price and all other
rights under this Note (including, without limitation, such failure constituting
an Event of Default described in Section 4(a)(v)). Notwithstanding anything to
the contrary in this Section 8(c), but subject to 3(d), until the Company
delivers Common Stock representing the Company Conversion Amount to the Holder,
the Company Conversion Amount may be converted by the Holder into Common Stock
pursuant to Section 3. In the event the Holder elects to convert the Company
Conversion Amount prior to the applicable Installment Date as set forth in the
immediately preceding sentence, the Company Conversion Amount so converted shall
be deducted from the Installment Amount to be paid on such Installment Date.

                  (d) Special Installment Amounts. The Company shall announce
its operating results (the "OPERATING RESULTS") for each Fiscal Quarter no later
than the thirtieth (30th) day after the end of each Fiscal Quarter and such
announcement shall include the amount of the Company's Tested Working Capital.
In addition, if at the end of the Fiscal Quarter the Company's Tested Working
Capital is less than the Target Working Capital (a "WORKING CAPITAL
DEFICIENCY"), the Company shall make publicly available (as part of the
Operating Results announcement or, contemporaneously, on a Current Report on
Form 8-K or otherwise) the fact that the Company's obligation to pay Special
Installment Amounts has been triggered.

                                      -16-


On the date of such announcement (the "ANNOUNCEMENT DATE"), the Company shall
also provide to the Holders a certification (a "WORKING CAPITAL CERTIFICATION")
as to the amount of the Tested Working Capital as of the end of the Fiscal
Quarter to which such Operating Results relate. If at the end of any Fiscal
Quarter a Working Capital Deficiency exists, the Company shall, on the
Announcement Date, also provide to the Holder a notice (each such notice, a
"WORKING CAPITAL DEFICIENCY NOTICE") stating the amount of such Working Capital
Deficiency. At any time during the period beginning after the Holder's receipt
of a Working Capital Deficiency Notice (or, in the event that the Company does
not deliver such Working Capital Deficiency Notice, at any time designated by
the Holder) and ending seven (7) Business Days thereafter (the "SPECIAL
INSTALLMENT NOTICE DUE DATE"), the Holder may require the Company to pay, on
each Special Installment Date, a Special Installment Amount in the form of a
Company Redemption or, at the Company's option if applicable, a Company
Conversion (or a combination thereof) in accordance with the provisions of this
Section 8 by delivering written notice thereof (a "SPECIAL INSTALLMENT NOTICE")
to the Company which Special Installment Notice shall state the amount of the
Special Installment Amount due on the applicable Special Installment Date.
Within two (2) Trading Days of receipt of a Special Installment Notice, the
Company shall provide to the Holder a Company Installment Notice in accordance
with Section 8(a).

            (9) COMPANY'S RIGHT OF MANDATORY CONVERSION.

            (a) Mandatory Conversion. If at any time from and after the one-year
anniversary of the Effective Date (as defined in the Registration Rights
Agreement) (the "MANDATORY CONVERSION ELIGIBILITY DATE"), (i) the Weighted
Average Price of the Common Stock equals or exceeds 200% of the Conversion Price
(subject to appropriate adjustments for stock splits, stock dividends, stock
combinations and other similar transactions after the Subscription Date) for
each of any twenty (20) consecutive Trading Days following the Mandatory
Conversion Eligibility Date (the "MANDATORY CONVERSION MEASURING PERIOD") and
(ii) the Equity Conditions shall have been satisfied (or waived in writing by
the Holder, provided that the Holder may not waive the provisions of Section
3(d)(ii)), during the period commencing on the Mandatory Conversion Notice Date
through the applicable Mandatory Conversion Date (each, as defined below), the
Company shall have the right to require the Holder to convert all, but not less
than all, of the Conversion Amount then remaining under this Note plus the
Present Value of Interest as designated in the Mandatory Conversion Notice (as
defined below) into fully paid, validly issued and nonassessable shares of
Common Stock in accordance with Section 3(c) hereof at the Conversion Rate as of
the Mandatory Conversion Date (as defined below) (a "MANDATORY CONVERSION") or,
at the Company's option and solely with respect to the Present Value of
Interest, cash or a combination of Common Stock and cash. The Company may
exercise its right to require conversion under this Section 9(a), by delivering
within not more than two (2) Trading Days following the end of such Mandatory
Conversion Measuring Period a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of Notes and the Transfer
Agent (the "MANDATORY CONVERSION NOTICE" and the date all of the holders
received such notice by facsimile is referred to as the "MANDATORY CONVERSION
NOTICE DATE"). The Mandatory Conversion Notice shall be irrevocable. The
Mandatory Conversion Notice shall state (i) the Trading Day selected for the
Mandatory Conversion in accordance with Section 9(a), which Trading Day shall be
at least twenty (20) Business Days but not more than sixty (60) Business Days
following the Mandatory Conversion Notice Date (the "MANDATORY CONVERSION
DATE"), (ii) the aggregate Conversion Amount of the Notes subject to

                                      -17-


mandatory conversion from all of the holders of the Notes pursuant to this
Section 9 (and analogous provisions under the Other Notes), (iii) the number of
shares of Common Stock to be issued to, and the Present Value of Interest to be
paid to, such Holder on the Mandatory Conversion Date and (iv) the portion, if
any, of the Present Value of Interest that shall be paid in cash and the
portion, if any, that shall be paid in Common Stock.

            (b) Pro Rata Conversion Requirement. If the Company elects to cause
a conversion of any Conversion Amount of this Note pursuant to Section 9(a),
then it must simultaneously take the same action in the same proportion with
respect to the Other Notes. All Conversion Amounts converted by the Holder after
the Mandatory Conversion Notice Date shall reduce the Conversion Amount of this
Note required to be converted on the Mandatory Conversion Date. If the Company
has elected a Mandatory Conversion, the mechanics of conversion set forth in
Section 3(c) shall apply, to the extent applicable, as if the Company and the
Transfer Agent had received from the Holder on the Mandatory Conversion Date a
Conversion Notice with respect to the Conversion Amount being converted pursuant
to the Mandatory Conversion.

            (10) SECURITY. This Note and the Other Notes are secured to the
extent and in the manner set forth in the Security Documents (as defined in the
Securities Purchase Agreement).

            (11) NONCIRCUMVENTION. The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger, scheme
of arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note.

            (12) RESERVATION OF AUTHORIZED SHARES.

                  (a) Reservation. The Company shall initially reserve out of
its authorized and unissued Common Stock at least 8,144,109 shares of Common
Stock for all of the Notes. So long as any of the Notes are outstanding, the
Company shall take all action necessary to reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Notes, 150% of the number of shares of Common Stock as shall
from time to time be necessary to effect the conversion of all of the Notes then
outstanding pursuant to Sections 2 and 3 (without regard to any limitations on
conversions) (the "REQUIRED RESERVE AMOUNT"). The amount required to be reserved
shall be reduced by the number of shares of Common Stock issued upon conversion
of the Notes. The initial number of shares of Common Stock reserved for
conversions of the Notes and each increase in the number of shares so reserved
shall be allocated pro rata among the holders of the Notes based on the
principal amount of the Notes held by each holder at the Closing (as defined in
the Securities Purchase Agreement) or increase in the number of reserved shares,
as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event that a
holder shall sell or otherwise transfer any of such holder's Notes, each
transferee shall be allocated a pro rata portion of such holder's Authorized
Share Allocation. Any shares of Common Stock reserved and allocated to any
Person which

                                      -18-


ceases to hold any Notes shall be allocated to the remaining holders of Notes,
pro rata based on the principal amount of the Notes then held by such holders.

                  (b) Insufficient Authorized Shares. If at any time while any
of the Notes remain outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon conversion of the Notes at least a number of shares of
Common Stock equal to the Required Reserve Amount (an "AUTHORIZED SHARE
FAILURE"), then the Company shall immediately take all action necessary to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for the Notes then
outstanding. Without limiting the generality of the foregoing sentence, as soon
as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its reasonable best efforts to
solicit its stockholders' approval of such increase in authorized shares of
Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.

            (13) HOLDER'S REDEMPTIONS.

                  (a) Mechanics. The Company shall deliver the applicable Event
of Default Redemption Price to the Holder within five (5) Business Days after
the Company's receipt of the Holder's Event of Default Redemption Notice. If the
Holder has submitted a Change of Control Redemption Notice in accordance with
Section 5(b), the Company shall deliver the applicable Change of Control
Redemption Price to the Holder by the later of (i) consummation of the Change of
Control or (ii) five (5) Business Days after the Company's receipt of such
notice. The Company shall deliver the applicable Company Installment Redemption
Price to the Holder on the applicable Installment Date. In the event of a
redemption of less than all of the Conversion Amount of this Note, the Company
shall promptly cause to be issued and delivered to the Holder a new Note (in
accordance with Section 19(d)) representing the outstanding Principal which has
not been redeemed. In the event that the Company does not pay the applicable
Redemption Price to the Holder within the time period required, at any time
thereafter and until the Company pays such unpaid Redemption Price in full, the
Holder shall have the option, in lieu of redemption, to require the Company to
promptly return to the Holder all or any portion of this Note representing the
Conversion Amount that was submitted for redemption and for which the applicable
Redemption Price (together with any Late Charges thereon) has not been paid.
Upon the Company's receipt of such notice, (x) the Redemption Notice shall be
null and void with respect to such Conversion Amount, (y) the Company shall
immediately return this Note, or issue a new Note (in accordance with Section
19(d)) to the Holder representing such Conversion Amount and (z) the Conversion
Price of this Note or such new Notes shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the Redemption Notice is
voided and (B) the lowest Closing Bid Price of the Common Stock during the
period beginning on and including the date on which the Redemption Notice is
delivered to the Company and ending on and including the date on which the
Redemption Notice is voided. The Holder's delivery of a notice voiding a
Redemption Notice and exercise of its rights following such notice shall not
affect the Company's obligations to make any payments of

                                      -19-


Late Charges which have accrued prior to the date of such notice with respect to
the Conversion Amount subject to such notice.

                  (b) Redemption by Other Holders. Upon the Company's receipt of
notice from any of the holders of the Other Notes for redemption or repayment as
a result of an event or occurrence substantially similar to the events or
occurrences described in Section 4(b) or Section 5(b) (each, an "OTHER
REDEMPTION NOTICE"), the Company shall immediately forward to the Holder by
facsimile a copy of such notice. If the Company receives a Redemption Notice and
one or more Other Redemption Notices, during the seven (7) Business Day period
beginning on and including the date which is three (3) Business Days prior to
the Company's receipt of the Holder's Redemption Notice and ending on and
including the date which is three (3) Business Days after the Company's receipt
of the Holder's Redemption Notice and the Company is unable to redeem all
principal, interest and other amounts designated in such Redemption Notice and
such Other Redemption Notices received during such seven (7) Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Notes (including the Holder) based on the principal amount of the Notes
submitted for redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such seven Business Day
period.

            (14) VOTING RIGHTS. The Holder shall have no voting rights as the
holder of this Note, except as required by law, including, but not limited to,
the General Corporation Law of the State of Delaware, and as expressly provided
in this Note.

            (15) COVENANTS. The following covenants shall apply so long as this
Note is outstanding, but not thereafter:

                  (a) Rank. This Note shall be a senior secured obligation of
the Company and, together with the Other Notes and the Alabama Mortgage, shall
constitute the only senior Indebtedness of the Company secured by a consensual
lien granted by the Company (other than certain capital lease obligations
entered into prior to December 31, 2004 whose outstanding balance did not exceed
$150,000 as of March 8, 2005).

                  (b) Incurrence of Indebtedness. The Company shall not, and the
Company shall not permit any of its Subsidiaries to, directly or indirectly,
incur or guarantee, assume or suffer to exist any Indebtedness, other than (i)
the Indebtedness evidenced by this Note and the Other Notes and (ii) Permitted
Indebtedness.

                  (c) Existence of Liens. The Company shall not, and the Company
shall not permit any of its Subsidiaries to, directly or indirectly, allow or
suffer to exist any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract
rights) owned by the Company or any of its Subsidiaries (collectively, "LIENS")
other than Permitted Liens.

                  (d) Restricted Payments. The Company shall not, and the
Company shall not permit any of its Subsidiaries to, directly or indirectly,
redeem, defease, repurchase, repay or make any payments in respect of, by the
payment of cash or cash equivalents (in whole or in part, whether by way of open
market purchases, tender offers, private transactions or otherwise), all or any
portion of any Permitted Indebtedness (other than the Alabama Mortgage) whether
by

                                      -20-


way of payment in respect of principal of (or premium, if any) or interest on
such Indebtedness if at the time such payment is due or is otherwise made or,
after giving effect to such payment, an event constituting, or that with the
passage of time and without being cured would constitute, an Event of Default
has occurred and is continuing; provided, that, notwithstanding the foregoing,
no principal (or any portion thereof) of any Subordinated Indebtedness may be
paid (whether upon maturity, redemption, acceleration or otherwise) so long as
this Note is outstanding.

            (16) PARTICIPATION. The Holder, as the holder of this Note, shall be
entitled to receive such dividends paid and distributions made to the holders of
Common Stock to the same extent as if the Holder had converted this Note into
Common Stock (without regard to any limitations on conversion herein or
elsewhere) and had held such shares of Common Stock on the record date for such
dividends and distributions. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.

            (17) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The written
agreement of the Company and either (i) the affirmative vote at a meeting duly
called for such purpose or (ii) the written consent without a meeting of the
Required Holders shall be required for any change or amendment to this Note or
the Other Notes.

            (18) TRANSFER; REGISTERED HOLDER AS OWNER.

                  (a) Transfer by Holder. This Note and any shares of Common
Stock issued upon conversion of this Note may be offered, sold, assigned or
transferred by the Holder without the consent of the Company, subject only to
the provisions of Section 2(f) of the Securities Purchase Agreement. Each Person
to whom this Note is sold, assigned or transferred by the Holder shall provide
to the Company true and accurate information as to such Person comparable to
that contained in columns (1), (2) and (7) of the Schedule of Buyers attached to
the Securities Purchase Agreement and as to the jurisdiction of residence of
such Person.

                  (b) Registered Holder as Owner. The Company shall be entitled
to treat the registered Holder of this Note as the absolute owner hereof and
shall incur no liability for the issuance of Common Stock or for other action
taken hereunder in good faith based upon such ownership until such time as a
written assignment of this Note is effected by such registered owner, which
assignment has been delivered to the Company and satisfies the requirements of
Sections 18(a) and 19(a) hereof.

            (19) REISSUANCE OF THIS NOTE.

                  (a) Transfer. If this Note is to be transferred, the Holder
shall surrender this Note to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Note (in accordance with
Section 19(d)), registered as the Holder may request, representing the
outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Note (in accordance
with Section 19(d)) to the Holder representing the outstanding Principal not
being transferred. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of Section 3(c)(iii)
following conversion or redemption of any portion of this Note,

                                      -21-


the outstanding Principal represented by this Note may be less than the
Principal stated on the face of this Note.

                  (b) Lost, Stolen or Mutilated Note. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Note, the Company shall execute and deliver to the Holder a new Note (in
accordance with Section 19(d)) representing the outstanding Principal.

                  (c) Note Exchangeable for Different Denominations. This Note
is exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Note or Notes (in accordance with Section 19(d) and in
principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.

                  (d) Issuance of New Notes. Whenever the Company is required to
issue a new Note pursuant to the terms of this Note, such new Note (i) shall be
of like tenor with this Note, (ii) shall represent, as indicated on the face of
such new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 19(a) or Section 19(c), the Principal
designated by the Holder which, when added to the principal represented by the
other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note, which is the same as the Issuance Date of this Note, (iv)
shall have the same rights and conditions as this Note, and (v) shall represent
accrued and unpaid Interest and Late Charges on the Principal and Interest of
this Note, from the Issuance Date.

            (20) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note and any of the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

            (21) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this
Note is placed in the hands of an attorney for collection or enforcement or is

                                      -22-


collected or enforced through any legal proceeding or the Holder otherwise takes
action to collect amounts due under this Note or to enforce the provisions of
this Note or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action or in connection with
such bankruptcy, reorganization, receivership or other proceeding, including,
but not limited to, attorneys' fees and disbursements.

            (22) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed against
any person as the drafter hereof. The headings of this Note are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Note.

            (23) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.

            (24) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Closing Bid Price, the Closing Sale Price or the Weighted
Average Price or the arithmetic calculation of the Conversion Rate or the
Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within one (1) Business Day of receipt, or
deemed receipt, of the Conversion Notice or Redemption Notice or other event
giving rise to such dispute, as the case may be, to the Holder. If the Holder
and the Company are unable to agree upon such determination or calculation
within one (1) Business Day of such disputed determination or arithmetic
calculation being submitted to the Holder, then the Company shall, within one
Business Day submit via facsimile (a) the disputed determination of the Closing
Bid Price, the Closing Sale Price or the Weighted Average Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or
the Redemption Price to the Company's independent, outside accountant. The
Company, at the Company's expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than five (5)
Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.

            (25) NOTICES; PAYMENTS.

                  (a) Notices. Whenever notice is required to be given under
this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least twenty (20)
days prior to the date on which the Company closes its

                                      -23-


books or takes a record (A) with respect to any dividend or distribution upon
the Common Stock, (B) with respect to any pro rata subscription offer to holders
of Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder.

                  (b) Payments. Whenever any payment of cash is to be made by
the Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the Purchasers, shall initially be as set forth on the Schedule
of Buyers attached to the Securities Purchase Agreement); provided that the
Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder's wire transfer instructions. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is
a Business Day and, in the case of any Interest Date which is not the date on
which this Note is paid in full, the extension of the due date thereof shall not
be taken into account for purposes of determining the amount of Interest due on
such date. Any amount of Principal or other amounts due under the Transaction
Documents, other than Interest, which is not paid when due shall result in a
late charge being incurred and payable by the Company in an amount equal to
interest on such amount at the rate of twelve percent (12%) per annum from the
date such amount was due until the same is paid in full ("LATE CHARGE").

            (26) CANCELLATION. After all Principal, accrued Interest and other
amounts at any time owed on this Note have been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

            (27) WAIVER OF NOTICE. To the extent permitted by law, the Company
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note and the Securities Purchase Agreement.

            (28) GOVERNING LAW. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York.

            (29) CERTAIN DEFINITIONS. For purposes of this Note, the following
terms shall have the following meanings:

                  (a) "ADDITIONAL INVESTMENT RIGHTS" has the meaning ascribed to
such term in the Securities Purchase Agreement and shall include additional
investment rights issued in exchange therefor.

                                      -24-


                  (b) "ALABAMA MORTGAGE" means the mortgages made by the Company
in favor of Regions Bank in connection with the real property located in the
Cummings Research Park West in Huntsville, Madison County, Alabama, and with the
outstanding loan amounts secured by these mortgages not being in the aggregate
in excess of $3,500,000 as of the Subscription Date; provided, however, that
such mortgages and loans shall not be amended, restated, renewed, refunded,
refinanced or otherwise extended and the outstanding principal amount shall not
be increased after the Subscription Date without the consent of the Required
Holders.

                  (c) "APPROVED STOCK PLAN" means any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any consultant, employee,
officer or director for services provided to the Company.

                  (d) "BLOOMBERG" means Bloomberg Financial Markets.

                  (e) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

                  (f) "CALENDAR QUARTER" means each of: the period beginning on
and including January 1 and ending on and including March 31; the period
beginning on and including April 1 and ending on and including June 30; the
period beginning on and including July 1 and ending on and including September
30; and the period beginning on and including October 1 and ending on and
including December 31.

                  (g) "CHANGE OF CONTROL" means any Fundamental Transaction
other than (A) a Fundamental Transaction in which holders of the Company's
capital stock having voting power immediately prior to the Fundamental
Transaction continue after the Fundamental Transaction to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company.

                  (h) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for

                                      -25-


such security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If
the Closing Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Sale Price, as the case may be, of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved pursuant to
Section 24. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during the
applicable calculation period.

                  (i) "CLOSING DATE" shall have the meaning set forth in the
Securities Purchase Agreement, which date is the date the Company initially
issued Notes pursuant to the terms of the Securities Purchase Agreement.

                  (j) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 7(a)(i) and 7(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
Common Stock owned or held by or for the account of the Company or issuable upon
conversion or exercise, as applicable, of the Notes and the Warrants.

                  (k) "COMPANY CONVERSION PRICE" means, as of any date of
determination, that price which shall be the lower of (i) the price computed as
90% of the arithmetic average of the Weighted Average Price of the Common Stock
during each of the fifteen (15) Trading Days of the fifteen (15) consecutive
Trading Day period commencing three (3) Trading Days after delivery of the
Special Installment Notice (each, a "COMPANY CONVERSION MEASURING PERIOD") and
(ii) the applicable Conversion Price. All such determinations to be
appropriately adjusted for any stock split, stock dividend, stock combination or
other similar transaction that proportionately decreases or increases the Common
Stock during such Company Conversion Measuring Period.

                  (l) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.

                  (m) "ELIGIBLE MARKET" means the Principal Market, The New York
Stock Exchange, Inc., the American Stock Exchange or The Nasdaq SmallCap Market.

                  (n) "EQUITY CONDITIONS" means each of the following
conditions: (i) on each day during the period beginning one (1) month prior to
the applicable date of determination and ending on and including the applicable
date of determination, either (x) the Registration Statement filed pursuant to
the Registration Rights Agreement shall be effective and available for the
resale of all remaining Registrable Securities in accordance with the terms of
the Registration Rights Agreement and there shall not have been any Grace
Periods (as defined in the Registration Rights Agreement) or (y) all shares of
Common Stock issuable upon conversion of the Notes and exercise of the Warrants
shall be eligible for sale without restriction and without

                                      -26-


the need for registration under any applicable federal or state securities laws;
(ii) on each day during the period beginning three (3) months prior to the
applicable date of determination and ending on and including the applicable date
of determination (the "EQUITY CONDITIONS MEASURING PERIOD"), the Common Stock is
designated for quotation on the Principal Market and shall not have been
suspended from trading on such exchange or market (other than suspensions of not
more than two (2) days and occurring prior to the applicable date of
determination due to business announcements by the Company) nor shall delisting
or suspension by such exchange or market been threatened or pending either (A)
in writing by such exchange or market or (B) by falling below the then effective
minimum listing maintenance requirements of such exchange or market; (iii)
during the one (1) year period ending on and including the date immediately
preceding the applicable date of determination, the Company shall have delivered
any Conversion Shares to be delivered upon conversion of the Notes and Warrant
Shares upon exercise of the Warrants to the holders on a timely basis as set
forth in Section 2(c)(ii) hereof (and analogous provisions under the Other
Notes) and Sections 2(a) of the Warrants and Notes upon exercise of the
Additional Investment Rights; (iv) during the Equity Conditions Measuring Period
any applicable shares of Common Stock to be issued in connection with the event
requiring determination may be issued in full without violating Section 3(d)
hereof and the rules or regulations of the Principal Market; (v) during the
Equity Conditions Measuring Period, the Company shall not have failed to timely
make any payments within five (5) Business Days of when such payment is due
pursuant to any Transaction Document; (vi) during the Equity Conditions
Measuring Period, there shall not have occurred either (A) the public
announcement of a pending, proposed or intended Fundamental Transaction which
has not been abandoned, terminated or consummated, or (B) an Event of Default or
(vii) during the period commencing on the Interest Notice Due Date, the Special
Installment Notice Due Date or the Mandatory Conversion Notice Date, as
applicable, and ending on the Interest Date, the Special Installment Date or the
Mandatory Conversion Date, as applicable, an event that with the passage of time
or giving of notice would constitute an Event of Default; (viii) on the
applicable date of determination, the Company shall have no knowledge of any
fact that would cause (x) the Registration Statements required pursuant to the
Registration Rights Agreement not to be effective and available for the resale
of all remaining Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (y) any shares of Common Stock issuable upon
conversion of the Notes and shares of Common Stock issuable upon exercise of the
Warrants not to be eligible for sale without restriction pursuant to Rule 144(k)
and any applicable state securities laws; and (ix) during the Equity Conditions
Measuring Period, the Company otherwise shall have been in material compliance
with and shall not have materially breached any provision, covenant,
representation or warranty of any Transaction Document.

                  (o) "EXCLUDED SECURITIES" means any Common Stock issued or
issuable: (i) in connection with any Approved Stock Plan; (ii) upon conversion
of the Notes or the exercise of the Warrants, including Common Stock issued upon
a Company Conversion; (iii) pursuant to a bona fide firm commitment underwritten
public offering with a nationally recognized underwriter which generates gross
proceeds to the Company in excess of $20,000,000 (other than an "at-the-market
offering" as defined in Rule 415(a)(4) under the 1933 Act and "equity lines");
(iv) in connection with the payment of any Interest Shares on the Notes; (v) in
connection with any acquisition by the Company, whether through an acquisition
of stock or a merger of any business, assets or technologies the primary purpose
of which is not to raise equity capital; and (vi) upon conversion of any Options
or Convertible Securities which are outstanding

                                      -27-


on the day immediately preceding the Subscription Date, provided that the terms
of such Options or Convertible Securities are not amended, modified or changed
on or after the Subscription Date.

                  (p) "FISCAL QUARTER" means each of the fiscal quarters adopted
by the Company for financial reporting purposes that correspond to the Company's
fiscal year that ends on the Friday nearest to June 30, or such other fiscal
quarter adopted by the Company for financial reporting purposes in accordance
with GAAP.

                  (q) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by the holders of more than the 50% of the outstanding
shares of Common Stock (not including any shares of Common Stock held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (iv)
consummate a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock.

                  (r) "GAAP" means United States generally accepted accounting
principles, consistently applied.

                  (s) "HOLDER PRO RATA AMOUNT" means a fraction (i) the
numerator of which is the Principal amount of this Note on the Closing Date and
(ii) the denominator of which is the aggregate principal amount of all Notes
issued to the initial purchasers pursuant to the Securities Purchase Agreement
on the Closing Date.

                  (t) "INSTALLMENT AMOUNT" means the Special Installment Amount
with respect to any Special Installment Date. In the event the Holder shall sell
or otherwise transfer any portion of this Note, the transferee shall be
allocated a pro rata portion of the each unpaid Installment Amount hereunder.

                  (u) "INSTALLMENT DATE" means each Special Installment Date.

                  (v) "INTEREST CONVERSION PRICE" means, with respect to any
Interest Date, that price which shall be computed as 90% of the arithmetic
average of the Weighted Average Price of the Common Stock on each of the fifteen
(15) consecutive Trading Days commencing two (2) Trading Days after the Interest
Notice Due Date and ending on the fourth (4th) Trading Day immediately preceding
the applicable Interest Date (each, an "INTEREST MEASURING PERIOD"). All such
determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination or other similar transaction during such period.

                                      -28-


                  (w) "MATERIAL SUBSIDIARY" means any Subsidiary (as defined in
the Securities Purchase Agreement) that is a "significant subsidiary" within the
meaning of Regulation S-X adopted by the Securities and Exchange Commission.

                  (x) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.

                  (y) "OUTSTANDING AMOUNT" means, at any date, the sum of (i)
the then outstanding Principal, (ii) accrued and unpaid Interest with respect to
such Principal and (iii) accrued and unpaid Late Charges with respect to such
Principal and Interest.

                  (z) "PARENT ENTITY" of a Person means an entity that, directly
or indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market, or, if
there is more than one such Person or Parent Entity, the Person or Parent Entity
with the largest public market capitalization as of the date of consummation of
the Fundamental Transaction.

                  (aa) "PERMITTED INDEBTEDNESS" means (A) the Alabama Mortgage,
(B) the XEL Notes, (C) Indebtedness incurred by the Company that is made
expressly subordinate in right of payment to the Indebtedness evidenced by this
Note, as reflected in a written agreement reasonably acceptable to the Holder
and approved by the Holder in writing, and which Indebtedness does not provide
at any time for (1) the payment, prepayment, repayment, repurchase or
defeasance, directly or indirectly, of any principal or premium, if any, thereon
until ninety-one (91) days after the Maturity Date or later and (2) total
interest and fees at a rate in excess of six percent (6%) per annum (any such
Indebtedness, the "SUBORDINATED INDEBTEDNESS"), (D) Indebtedness secured by
Permitted Liens, (E) Indebtedness to trade creditors incurred in the ordinary
course of business, and (F) extensions, refinancings and renewals of any items
of Permitted Indebtedness (other than the Alabama Mortgage and the XEL Notes),
provided that the principal amount is not increased or the terms modified to
impose more burdensome terms upon the Company or its Subsidiary, as the case may
be.

                  (bb) "PERMITTED LIENS" means (i) any Lien for taxes not yet
due or delinquent or being contested in good faith by appropriate proceedings
for which adequate reserves have been established in accordance with GAAP, (ii)
any statutory Lien arising in the ordinary course of business by operation of
law with respect to a liability that is not yet due or delinquent, (iii) any
Lien created by operation of law, such as materialmen's liens, mechanics' liens
and other similar liens, arising in the ordinary course of business with respect
to a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (iv) the Alabama Mortgage, (v) Liens
securing the Company's obligations under the Notes, (vi) Liens (A) upon or in
any equipment (as defined in the Security Agreement) acquired or held by the
Company or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition or lease of such equipment, or (B) existing on such equipment at the
time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment, (vii) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (i) and (vi) above, provided that any extension, renewal or replacement
Lien shall be limited to the property encumbered by

                                      -29-


the existing Lien and the principal amount of the Indebtedness being extended,
renewed or refinanced does not increase, (viii) leases or subleases and licenses
and sublicenses granted to others in the ordinary course of business, not
interfering in any material respect with the business of the Company and its
Subsidiaries taken as a whole, (ix) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payments of custom duties in
connection with the importation of goods and (x) Liens arising from judgments,
decrees or attachments in circumstances not constituting an Event of Default
under Section 4(a)(ix).

                  (cc) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.

                  (dd) "PRESENT VALUE OF INTEREST" means the amount of any
interest that, but for a Mandatory Conversion, would have accrued under this
Note at the Interest Rate for the period from the Mandatory Conversion Date
through the Maturity Date discounted to the present value of such interest using
a discount rate equal to six percent (6%).

                  (ee) "PRINCIPAL MARKET" means the Nasdaq National Market.

                  (ff) "REDEMPTION PREMIUM" means (i) in the case of the Events
of Default described in Section 4(a)(i) - (vi) and (ix) - (xii), 120% or (ii) in
the case of the Events of Default described in Section 4(a)(vii) - (viii), 100%.

                  (gg) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement dated as of the Subscription Date by and among the
Company and the initial holders of the Notes relating to, among other things,
the registration of the resale of the Common Stock issuable upon conversion of
the Notes and exercise of the Warrants.

                  (hh) "REQUIRED HOLDERS" means the holders of Notes
representing at least a majority of the aggregate principal amount of the Notes
then outstanding.

                  (ii) "SEC" means the United States Securities and Exchange
Commission.

                  (jj) "SECURITIES PURCHASE AGREEMENT" means that certain
securities purchase agreement dated as of the Subscription Date by and among the
Company and the initial holders of the Notes pursuant to which the Company
issued the Notes.

                  (kk) "SPECIAL INSTALLMENT AMOUNT" means, with respect to any
Special Installment Date, at the option of the Holder, an amount equal to one of
the following: (i) the difference between (A) the Outstanding Amount and (B) the
product of (1) 60% of the Tested Working Capital multiplied by (2) the Holder
Pro Rata Amount, (ii) the product of (A) $2,000,000 multiplied by (B) the Holder
Pro Rata Amount, or (iii) any amount that is less than the amounts set forth in
clauses (i) and (ii) hereof, in each case as any such Special Installment Amount
may be reduced pursuant to the terms of this Note, whether upon conversion,
redemption or otherwise.

                  (ll) "SPECIAL INSTALLMENT DATE" means the date that is twenty
(20) Trading Days after the receipt by the Company of a Special Installment
Notice. In the event that the day

                                      -30-


specified herein shall be prior to the end of the applicable Company Conversion
Period, the Special Installment Date shall be the third (3rd) day following the
end of such period.

                  (mm) "SUBSCRIPTION DATE" means March 20, 2005.

                  (nn) "SUCCESSOR ENTITY" means the Person, which may be the
Company, formed by, resulting from or surviving any Fundamental Transaction or
the Person with which such Fundamental Transaction shall have been made,
provided that if such Person is not a publicly traded entity whose common stock
or equivalent equity security is quoted or listed for trading on an Eligible
Market, Successor Entity shall mean such Person's Parent Entity.

                  (oo) "TARGET WORKING CAPITAL" means, at any date, an amount
equal to the sum of (i) $8,000,000 plus (ii) 80% of the aggregate principal
amount of any Notes purchased pursuant to the exercise of any Additional
Investment Rights.

                  (pp) "TESTED WORKING CAPITAL" means, at any date, an amount
equal to the following amounts shown or reflected on the Company's consolidated
balance sheet as of such date (i) the aggregate amount of all rights to payment
for goods sold or leased or services provided, less discounts, returns and
allowances plus (ii) the aggregate amount of cash and cash equivalents (not
including restricted cash) and short term investments, in each case only to the
extent such cash, cash equivalents and short term investments are on deposit in
each "Deposit Account" at United States banks pledged to the "Collateral Agent"
and constituting "Collateral" under (and as such terms and defined in the
"Pledge and Security Agreement" (as defined in the Securities Purchase
Agreement) minus (iii) the aggregate amount owed to all trade creditors in the
ordinary course of business.

                  (qq) "TRADING DAY" means any day on which the Common Stock is
traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities exchange
or securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York Time).

                  (rr) "WARRANTS" has the meaning ascribed to such term in the
Securities Purchase Agreement, and shall include all warrants issued in exchange
therefor or replacement thereof.

                  (ss) "WEIGHTED AVERAGE PRICE" means, for any security as of
any date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other time as
the Principal Market publicly announces is the official close of trading) as
reported by Bloomberg through its "Volume at Price" functions, or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the

                                      -31-


electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York Time (or such other time as such market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
Time (or such other time as such market publicly announces is the official close
of trading) as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.). If the Weighted Average
Price cannot be calculated for a security on a particular date on any of the
foregoing bases, the Weighted Average Price of such security on such date shall
be the fair market value as mutually determined by the Company and the Holder.
If the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved pursuant to Section 24. All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

                  (tt) "XEL NOTES" means the convertible promissory notes in the
original aggregate principal amount of $10,480,000 due February 5, 2006 issued
in connection with the acquisition by the Company of XEL Communications, Inc.
and having an outstanding principal balance in the aggregate not in excess of
$2,900,000 as of the Subscription Date; provided, however, that such notes shall
not be amended, restated, renewed, refunded, refinanced or otherwise extended
and the outstanding principal balance shall not be increased after the
Subscription Date without the consent of the Required Holders.

                            [Signature Page Follows]

                                      -32-


            IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the Issuance Date set out above.

                                             VERILINK CORPORATION

                                             By:________________________________
                                                Name:
                                                Title:



                                    EXHIBIT I

                              VERILINK CORPORATION
                                CONVERSION NOTICE

Reference is made to the Senior Secured Convertible Note (the "NOTE") issued to
the undersigned by Verilink Corporation (the "COMPANY"). In accordance with and
pursuant to the Note, the undersigned hereby elects to convert the Conversion
Amount (as defined in the Note) of the Note indicated below into shares of
Common Stock par value $.01 per share (the "COMMON STOCK") of the Company, as of
the date specified below.

      Date of Conversion: ______________________________________________________

      Aggregate Conversion Amount to be converted: _____________________________

Please confirm the following information:

      Conversion Price: ________________________________________________________

      Number of shares of Common Stock to
      be issued ("CONVERSION SHARES"): _________________________________________

Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:

      Issue to: ________________________________________________________________

                ________________________________________________________________

                ________________________________________________________________

      Facsimile Number: ________________________________________________________

      Authorization: ___________________________________________________________

            By: ________________________________________________________________

                Title: _________________________________________________________

      Dated: ___________________________________________________________________

           Account Number: _____________________________________________________
           (if electronic book entry transfer)

           Transaction Code Number: ____________________________________________
           (if electronic book entry transfer)



The undersigned confirms that the Conversion Shares have been sold in compliance
with the applicable Registration Statement (as defined in the Registration
Rights Agreement) relative to the registration for resale of such Conversion
Shares.

      Yes ______        No_______

Date: _______________ __, ______

___________________________________
Name of Registered Holder

By: ________________________
    Name:
    Title:



                                 ACKNOWLEDGMENT

            The Company hereby acknowledges this Conversion Notice and hereby
directs American Stock Transfer and Trust Company to issue the above indicated
number of shares of Common Stock in accordance with the Transfer Agent
Instructions dated March 21, 2005 from the Company and acknowledged and agreed
to by American Stock Transfer and Trust Company.

                                                VERILINK CORPORATION

                                                By:_____________________________
                                                   Name:
                                                   Title:

EX-4.8

                                                                     EXHIBIT 4.8

                          PLEDGE AND SECURITY AGREEMENT

            PLEDGE AND SECURITY AGREEMENT, dated as of March 21, 2005 (this
"AGREEMENT") made by VERILINK CORPORATION, a Delaware corporation ("VRLK") and
each of its existing "Subsidiaries" (as defined in the Securities Purchase
Agreement defined below) named on the signature pages hereto (collectively, the
"EXISTING SUBSIDIARIES") and each other Subsidiary of VRLK hereafter becoming
party hereto (together with VRLK and the Existing Subsidiaries, each a "GRANTOR"
and, collectively, the "GRANTORS"), in favor of PORTSIDE GROWTH & OPPORTUNITY
FUND, a company organized under the laws of the Cayman Islands, in its capacity
as collateral agent (in such capacity, the "COLLATERAL AGENT") for the "Buyers"
(as defined below) party to the Securities Purchase Agreement, dated as of even
date herewith (as amended, restated, supplemented or otherwise modified from
time to time, the "SECURITIES PURCHASE AGREEMENT").

                                   WITNESSETH:

            WHEREAS, VRLK and each party listed as a "Buyer" on the Schedule of
Buyers attached thereto (collectively, the "BUYERS") are parties to the
Securities Purchase Agreement, pursuant to which VRLK shall be required to sell,
and the Buyers shall purchase or have the right to purchase, the Notes (as
defined therein);

            WHEREAS, it is a condition precedent to the Buyers entering into the
Securities Purchase Agreement that each Grantor shall have executed and
delivered to the Collateral Agent this Agreement providing for the grant to the
Collateral Agent for the benefit of the Buyers of a security interest in all of
such Grantor's Collateral (as defined herein) to secure all of VRLK's
obligations under the Securities Purchase Agreement and the Notes issued
pursuant thereto;

            WHEREAS, each of the Existing Subsidiaries is a wholly-owned
Subsidiary of VRLK and will derive substantial benefits from the execution of
the Securities Purchase Agreement;

            WHEREAS, each of the Existing Subsidiaries, VRLK and each other
Grantor are or will be mutually dependent on each other in the conduct of their
respective businesses as an integrated operation, with the credit needed from
time to time by one often being provided through financing obtained by the other
and the ability to obtain such financing being dependent on the successful
operations of each of the Existing Subsidiaries, VRLK and each other Grantor;

            WHEREAS, it is a condition precedent to the Buyers entering into the
Securities Purchase Agreement that each of the Existing Subsidiaries shall have
executed and delivered to the Collateral Agent the "Guaranty" with respect to
the obligations of VRLK under the Securities Purchase Agreement and the Notes
(as amended, restated or otherwise modified from time to time, the "GUARANTY"),
and this Agreement providing for the grant to the Collateral Agent for the
benefit of the Buyers of a security interest in all personal property of each of
the Existing Subsidiaries to secure its obligations under the Transaction
Documents, and that each future domestic and material foreign Subsidiary of VRLK
become a party to the Guaranty and this Agreement; and



            WHEREAS, each of the Existing Subsidiaries and each other Grantor
has determined that the execution, delivery and performance of this Agreement
and the Guaranty directly benefits, and are in the best interest of VRLK; and

            NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Buyers to perform under the Securities
Purchase Agreement, each Grantor agrees with the Collateral Agent, for the
benefit of the Buyers, as follows:

            SECTION 1. Definitions.

            (a) Reference is hereby made to the Securities Purchase Agreement
and the Notes for a statement of the terms thereof. All terms used in this
Agreement and the recitals hereto which are defined in the Securities Purchase
Agreement, the Notes or in Articles 8 or 9 of the Uniform Commercial Code (the
"CODE") as in effect from time to time in the State of New York, and which are
not otherwise defined herein shall have the same meanings herein as set forth
therein; provided that terms used herein which are defined in the Code as in
effect in the State of New York on the date hereof shall continue to have the
same meaning notwithstanding any replacement or amendment of such statute except
as the Collateral Agent may otherwise determine.

            (b) The following terms shall have the respective meanings provided
for in the Code: "Accounts", "Cash Proceeds", "Chattel Paper", "Commercial Tort
Claim", "Commodity Account", "Commodity Contracts", "Deposit Account",
"Documents", "Equipment", "Fixtures", "General Intangibles", "Goods",
"Instruments", "Inventory", "Investment Property", "Letter-of-Credit Rights",
"Noncash Proceeds", "Payment Intangibles", "Proceeds", "Promissory Notes",
"Security", "Record", "Security Account", "Software", and "Supporting
Obligations".

            (c) As used in this Agreement, the following terms shall have the
respective meanings indicated below, such meanings to be applicable equally to
both the singular and plural forms of such terms:

            "COPYRIGHT LICENSES" means all licenses, contracts or other
agreements, whether written or oral, naming any Grantor as licensee or licensor
and providing for the grant of any right to use or sell any works covered by any
copyright (including, without limitation, all Copyright Licenses set forth in
Schedule II hereto).

            "COPYRIGHTS" means all domestic and foreign copyrights, whether
registered or not, including, without limitation, all copyright rights
throughout the universe (whether now or hereafter arising) in any and all media
(whether now or hereafter developed), in and to all original works of authorship
fixed in any tangible medium of expression, acquired or used by any Grantor
(including, without limitation, all copyrights described in Schedule II hereto),
all applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Copyright Office or in any similar office or agency of the United States or any
other country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or renewals
thereof.

            "EVENT OF DEFAULT" shall have the meaning set forth in the Notes.

                                      -2-


            "INSOLVENCY PROCEEDING" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code (Chapter 11 of Title 11 of
the United States Code) or under any other bankruptcy or insolvency law,
assignments for the benefit of creditors, formal or informal moratoria,
compositions, or extensions generally with creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.

            "INTELLECTUAL PROPERTY" means the Copyrights, Trademarks and
Patents.

            "LICENSES" means the Copyright Licenses, the Trademark Licenses and
the Patent Licenses.

            "LIEN" means any mortgage, deed of trust, pledge, lien (statutory or
otherwise), security interest, charge or other encumbrance or security or
preferential arrangement of any nature, including, without limitation, any
conditional sale or title retention arrangement, any capitalized lease and any
assignment, deposit arrangement or financing lease intended as, or having the
effect of, security.

            "PATENT LICENSES" means all licenses, contracts or other agreements,
whether written or oral, naming any Grantor as licensee or licensor and
providing for the grant of any right to manufacture, use or sell any invention
covered by any Patent (including, without limitation, all Patent Licenses set
forth in Schedule II hereto).

            "PATENTS" means all domestic and foreign letters patent, design
patents, utility patents, industrial designs, inventions, trade secrets, ideas,
concepts, methods, techniques, processes, proprietary information, technology,
know-how, formulae, rights of publicity and other general intangibles of like
nature, now existing or hereafter acquired (including, without limitation, all
domestic and foreign letters patent, design patents, utility patents, industrial
designs, inventions, trade secrets, ideas, concepts, methods, techniques,
processes, proprietary information, technology, know-how and formulae described
in Schedule II hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Patent and Trademark Office, or in any similar office or
agency of the United States or any other country or any political subdivision
thereof), and all reissues, divisions, continuations, continuations in part and
extensions or renewals thereof.

            "TRADEMARK LICENSES" means all licenses, contracts or other
agreements, whether written or oral, naming any Grantor as licensor or licensee
and providing for the grant of any right concerning any Trademark, together with
any goodwill connected with and symbolized by any such trademark licenses,
contracts or agreements and the right to prepare for sale or lease and sell or
lease any and all Inventory now or hereafter owned by any Grantor and now or
hereafter covered by such licenses (including, without limitation, all Trademark
Licenses described in Schedule II hereto).

            "TRADEMARKS" means all domestic and foreign trademarks, service
marks, collective marks, certification marks, trade names, business names,
d/b/a's, Internet domain names, trade styles, designs, logos and other source or
business identifiers and all general intangibles of like nature, now or
hereafter owned, adopted, acquired or used by any Grantor

                                      -3-


(including, without limitation, all domestic and foreign trademarks, service
marks, collective marks, certification marks, trade names, business names,
d/b/a's, Internet domain names, trade styles, designs, logos and other source or
business identifiers described in Schedule II hereto), all applications,
registrations and recordings thereof (including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
state thereof or any other country or any political subdivision thereof), and
all reissues, extensions or renewals thereof, together with all goodwill of the
business symbolized by such marks and all customer lists, formulae and other
Records of any Grantor relating to the distribution of products and services in
connection with which any of such marks are used.

            SECTION 2. Grant of Security Interest. As collateral security for
all of the "Obligations" (as defined in Section 3 hereof), each Grantor hereby
pledges and assigns to the Collateral Agent, and grants to the Collateral Agent
for the benefit of the Buyers, a continuing security interest in, all personal
property of such Grantor, wherever located and whether now or hereafter existing
and whether now owned or hereafter acquired, of every kind and description,
tangible or intangible (collectively, the "COLLATERAL"), including, without
limitation, the following:

            (a) all Accounts;

            (b) all Chattel Paper (whether tangible or electronic);

            (c) the Commercial Tort Claims specified on Schedule VI hereto;

            (d) all Deposit Accounts (including, without limitation, the Cash
Collateral Account), all cash, and all other property from time to time
deposited therein and the monies and property in the possession or under the
control of the Collateral Agent or any Buyer or any affiliate, representative,
agent or correspondent of the Collateral Agent or any Buyer;

            (e) all Documents;

            (f) all Equipment;

            (g) all Fixtures;

            (h) all General Intangibles (including, without limitation, all
Payment Intangibles);

            (i) all Goods;

            (j) all Instruments (including, without limitation, Promissory Notes
and each certificated Security);

            (k) all Inventory;

            (l) all Investment Property;

                                      -4-


            (m) all Copyrights, Patents and Trademarks, and all Licenses;

            (n) all Letter-of-Credit Rights;

            (o) all Supporting Obligations;

            (p) all other tangible and intangible personal property of such
Grantor (whether or not subject to the Code), including, without limitation, all
bank and other accounts and all cash and all investments therein, all proceeds,
products, offspring, accessions, rents, profits, income, benefits, substitutions
and replacements of and to any of the property of such Grantor described in the
preceding clauses of this Section 2 (including, without limitation, any proceeds
of insurance thereon and all causes of action, claims and warranties now or
hereafter held by such Grantor in respect of any of the items listed above), and
all books, correspondence, files and other Records, including, without
limitation, all tapes, disks, cards, Software, data and computer programs in the
possession or under the control of such Grantor or any other Person from time to
time acting for such Grantor that at any time evidence or contain information
relating to any of the property described in the preceding clauses of this
Section 2 or are otherwise necessary or helpful in the collection or realization
thereof; and

            (q) all Proceeds, including all Cash Proceeds and Noncash Proceeds,
and products of any and all of the foregoing Collateral;

in each case howsoever such Grantor's interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise).

Notwithstanding anything contained in this Agreement to the contrary, the term
"Collateral" shall not include any rights or interest in any contract, lease,
permit, license, charter or license agreement covering real or personal property
of any Grantor if under the terms of such contract, lease, permit, license,
charter or license agreement, or applicable law with respect thereto, the valid
grant of a security interest or lien therein is prohibited as a matter of law or
under the terms of such contract, lease, permit, license, charter or license
agreement and such prohibition has not been waived or the consent of the other
party to such contract, lease, permit, license, charter or license agreement has
not been obtained; provided, that, the foregoing exclusions shall in no way be
construed (A) to apply if any described prohibition is unenforceable under
Section 9-406, 9-407, or 9-408 of the Code or other applicable law, or (B) to
limit, impair, or otherwise affect the Collateral Agents' continuing security
interests in and liens upon any rights or interests of any Grantor in or to (x)
monies due or to become due under any described contract, lease, permit,
license, charter or license agreement (including any Accounts), or (y) any
proceeds from the sale, license, lease, or other dispositions of any such
contract, lease, permit, license, charter, license agreement, or stock.

            SECTION 3. Security for Obligations. The security interest created
hereby in the Collateral constitutes continuing collateral security for all of
the following obligations, whether now existing or hereafter incurred
(collectively, the "OBLIGATIONS"):

            (a) (i) the payment by VRLK, as and when due and payable (by
scheduled maturity, required prepayment, acceleration, demand or otherwise), of
all amounts from time to

                                      -5-


time owing by it in respect of the Securities Purchase Agreement, the Notes and
the other "Transaction Documents" (as defined in the Securities Purchase
Agreement), and (ii) the payment by each of the Existing Subsidiaries and each
other Grantor other than VRLK as and when due and payable of all "Guaranteed
Obligations" under (as defined in) the Guaranty, including, without limitation,
(A) all principal of and interest on the Notes (including, without limitation,
all interest that accrues after the commencement of any Insolvency Proceeding of
any Grantor, whether or not the payment of such interest is unenforceable or is
not allowable due to the existence of such Insolvency Proceeding), and (B) all
fees, commissions, expense reimbursements, indemnifications and all other
amounts due or to become due under any of the Transaction Documents; and

            (b) the due performance and observance by each Grantor of all of its
other obligations from time to time existing in respect of any of the
Transaction Documents for so long as the Notes are outstanding.

            SECTION 4. Representations and Warranties. Each Grantor represents
and warrants as follows:

            (a) Schedule I hereto sets forth (i) the exact legal name of such
Grantor, and (ii) the organizational identification number of such Grantor or
states that no such organizational identification number exists.

            (b) There is no pending or written notice threatening any action,
suit, proceeding or claim affecting such Grantor before any governmental
authority or any arbitrator, or any order, judgment or award by any governmental
authority or arbitrator, that may adversely affect the grant by such Grantor, or
the perfection, of the security interest purported to be created hereby in the
Collateral, or the exercise by the Collateral Agent of any of its rights or
remedies hereunder.

            (c) All Federal, state and local tax returns and other reports
required by applicable law to be filed by such Grantor have been filed, or
extensions have been obtained, and all taxes, assessments and other governmental
charges imposed upon such Grantor or any property of such Grantor (including,
without limitation, all federal income and social security taxes on employees'
wages) and which have become due and payable on or prior to the date hereof have
been paid, except to the extent contested in good faith by proper proceedings
which stay the imposition of any penalty, fine or Lien resulting from the
non-payment thereof and with respect to which adequate reserves have been set
aside for the payment thereof in accordance with generally accepted accounting
principles consistently applied ("GAAP").

            (d) All Equipment, Fixtures, Goods and Inventory of such Grantor now
existing are, and all Equipment, Fixtures, Goods and Inventory of such Grantor
hereafter existing will be, located and/or based at the addresses specified
therefor in Schedule III hereto, except that such Grantor will give the
Collateral Agent not less than 30 days' prior written notice of any change of
the location of any such Collateral, other than to locations set forth on
Schedule III and with respect to which the Collateral Agent has filed financing
statements and otherwise fully perfected its Liens thereon. Such Grantor's chief
place of business and chief executive office, the place where such Grantor keeps
its Records concerning Accounts and all originals of all Chattel

                                      -6-


Paper are located at the addresses specified therefor in Schedule III hereto.
None of the Accounts is evidenced by Promissory Notes or other Instruments. Set
forth in Schedule IV hereto is a complete and accurate list, as of the date of
this Agreement, of (i) each Promissory Note, Security and other Instrument owned
by each Grantor and (ii) each Deposit Account, Securities Account and
Commodities Account of each Grantor, together with the name and address of each
institution at which each such Account is maintained, the account number for
each such Account and a description of the purpose of each such Account. Set
forth in Schedule II hereto is a complete and correct list of (i) each trade
name used by each Grantor and (ii) the name of, and each trade name used by,
each person from which such Grantor has acquired any substantial part of the
Collateral.

            (e) Such Grantor has delivered to the Collateral Agent complete and
correct copies of each License, if any, described in Schedule II hereto,
including all schedules and exhibits thereto, which represents all of the
material Licenses existing on the date of this Agreement. Each such License sets
forth the entire agreement and understanding of the parties thereto relating to
the subject matter thereof, and there are no other agreements, arrangements or
understandings, written or oral, relating to the matters covered thereby or the
rights of such Grantor or any of its affiliates in respect thereof. Each
material License now existing is, and any material License entered into in the
future will be, the legal, valid and binding obligation of the parties thereto,
enforceable against such parties in accordance with its terms. No default under
any material License by any such party has occurred, nor does any defense,
offset, deduction or counterclaim exist thereunder in favor of any such party.

            (f) Such Grantor owns and controls, or otherwise possesses adequate
rights to use, all material Trademarks, Patents and Copyrights, which are the
only trademarks, patents, copyrights, inventions, trade secrets, proprietary
information and technology, know-how, formulae, rights of publicity necessary to
conduct its business in substantially the same manner as conducted as of the
date hereof. Schedule II hereto sets forth a true and complete list of all
registered Copyrights and Trademarks, issued Patents and Licenses owned or used
by such Grantor as of the date hereof. To the best knowledge of each Grantor,
all such scheduled Intellectual Property of such Grantor is subsisting and in
full force and effect, has not been adjudged invalid or unenforceable, is valid
and enforceable and has not been abandoned in whole or in part. Except as set
forth in Schedule II, no such scheduled Intellectual Property is the subject of
any licensing or franchising agreement. Such Grantor has no knowledge of any
conflict with the rights of others to any Intellectual Property and, to the best
knowledge of such Grantor, such Grantor is not now infringing or in conflict
with any such rights of others in any material respect, and to the best
knowledge of such Grantor, no other Person is now infringing or in conflict in
any material respect with any such properties, assets and rights owned or used
by such Grantor. Such Grantor has not received any notice that it is violating
or has violated the trademarks, patents, copyrights, inventions, trade secrets,
proprietary information and technology, know-how, formulae, rights of publicity
or other Intellectual Property rights of any third party.

            (g) Such Grantor is and will be at all times the sole and exclusive
owner of, or otherwise has and will have adequate rights in, the Collateral free
and clear of any Liens, except for Permitted Liens (as defined in the Notes) on
any Collateral. No effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any

                                      -7-


recording or filing office except (A) such as may have been filed in favor of
the Collateral Agent relating to this Agreement, and (B) such as may have been
filed to perfect any Permitted Liens.

            (h) The exercise by the Collateral Agent of any of its rights and
remedies hereunder will not contravene any material law or any material
contractual restriction binding on or otherwise affecting such Grantor or any of
its properties and will not result in or require the creation of any Lien, upon
or with respect to any of its properties.

            (i) Under laws applicable in the United States, no authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or other regulatory body or any other Person, is required for (i) the
grant by such Grantor, or the perfection, of the security interest purported to
be created hereby in the Collateral, or (ii) the exercise by the Collateral
Agent of any of its rights and remedies hereunder, except (A) for the filing
under the Uniform Commercial Code as in effect in the applicable jurisdiction of
the financing statements, all of which financing statements, have been duly
filed and are in full force and effect, (B) with respect to the perfection of
the security interest created hereby in the Intellectual Property, for the
recording of the appropriate Grant of Security Interest with respect to
registered Copyrights, if any, substantially in the form of Exhibit A hereto, in
the United States Copyright Office, and (C) with respect to the perfection of
the security interest created hereby in foreign Intellectual Property and
Licenses, for registrations and filings in jurisdictions located outside of the
United States and covering rights in such jurisdictions relating to the
Intellectual Property and Licenses.

            (j) Under laws applicable in the United States, this Agreement
creates in favor of the Collateral Agent for the benefit of the Buyers, a legal,
valid and enforceable security interest in the Collateral, as security for the
Obligations. The Collateral Agent's having possession of all Instruments and
cash constituting Collateral from time to time, the recording of the appropriate
Grant of Security Interest executed pursuant hereto in the United States Patent
and Trademark Office and the United States Copyright Office, as applicable, and
the filing of the financing statements and the other filings and recordings, as
applicable, described in Schedule V hereto and, with respect to the Intellectual
Property hereafter existing and not covered by an appropriate Grant of Security
Interest, the recording in the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, of appropriate instruments of
assignment, result in the perfection of such security interests. Such security
interests are, or in the case of Collateral in which such Grantor obtains rights
after the date hereof, will be, perfected, first priority security interests,
subject only to Permitted Liens and the recording of such instruments of
assignment. Such recordings and filings and all other action necessary or
desirable to perfect and protect such security interest have been duly taken,
except for the Collateral Agent's having possession of Instruments and cash
constituting Collateral after the date hereof and the other filings and
recordations described in Section 4(i) hereof.

            (k) As of the date hereof, such Grantor does not hold any Commercial
Tort Claims nor is aware of any such pending claims, except for such claims
described in Schedule VI.

            (l) Each of the Existing Subsidiaries is a wholly owned Subsidiary
of VRLK. As of the date hereof, (i) each of VRLK's domestic Subsidiaries in
existence as of the date hereof (other than the domestic Existing Subsidiaries)
are inactive and have no assets, operations or

                                      -8-


income and (ii) the foreign Existing Subsidiaries are the only material foreign
Subsidiaries of VRLK.

            (m) No Grantor owns any individual motor vehicle having an original
purchase price of $50,000 or more, and the aggregate purchase price of all motor
vehicles owned by all of the Grantors is less than $250,000.

            SECTION 5. Covenants as to the Collateral. So long as any of the
Obligations shall remain outstanding, unless the Collateral Agent shall
otherwise consent in writing:

            (a) Further Assurances. Each Grantor will at its expense, at any
time and from time to time, promptly execute and deliver all further instruments
and documents and take all further action that the Collateral Agent may
reasonably request in order to: (i) perfect and protect any domestic and any
material foreign security interest purported to be created hereby under the laws
applicable in the United States or the laws of any other applicable foreign
jurisdiction (including, without limitation, providing applicable opinions of
counsel); (ii) enable the Collateral Agent to exercise and enforce its rights
and remedies hereunder in respect of any domestic or material foreign
Collateral; or (iii) otherwise effect the purposes of this Agreement, including,
without limitation: (A) marking conspicuously all Chattel Paper and each License
and, at the request of the Collateral Agent, each of its Records pertaining to
any domestic or material foreign Collateral with a legend, in form and substance
satisfactory to the Collateral Agent, indicating that such Chattel Paper,
License or Collateral is subject to the security interest created hereby, (B)
delivering and pledging to the Collateral Agent hereunder each Promissory Note,
Security, Chattel Paper or other Instrument constituting domestic or material
foreign Collateral, now or hereafter owned by such Grantor, duly endorsed and
accompanied by executed instruments of transfer or assignment, all in form and
substance satisfactory to the Collateral Agent, (C) executing and filing (to the
extent, if any, that such Grantor's signature is required thereon) or
authenticating the filing of, such financing or continuation statements, or
amendments thereto, as may be necessary or desirable or that the Collateral
Agent may request in order to perfect and preserve the security interest in any
domestic or material foreign Collateral purported to be created hereby, (D)
furnishing to the Collateral Agent from time to time statements and schedules
further identifying and describing the Collateral and such other reports in
connection with any domestic or material foreign Collateral in each case as the
Collateral Agent may reasonably request, all in reasonable detail, (E) if any
domestic or material foreign Collateral shall be in the possession of a third
party, notifying such Person of the Collateral Agent's security interest created
hereby and obtaining a written acknowledgment from such Person that such Person
holds possession of such Collateral for the benefit of the Collateral Agent,
which such written acknowledgement shall be in form and substance reasonably
satisfactory to the Collateral Agent, (F) if at any time after the date hereof,
such Grantor acquires or holds any Commercial Tort Claim constituting domestic
or material foreign Collateral, promptly notifying the Collateral Agent in a
writing signed by such Grantor setting forth a brief description of such
Commercial Tort Claim and granting to the Collateral Agent a security interest
therein and in the proceeds thereof, which writing shall incorporate the
provisions hereof and shall be in form and substance satisfactory to the
Collateral Agent, (G) upon the acquisition after the date hereof by such Grantor
of any motor vehicle or other Equipment constituting domestic or material
foreign Collateral with a purchase price of $50,000 or more subject to a
certificate of title or ownership (other than a motor vehicle or Equipment that
is subject to a

                                      -9-


purchase money security interest), notifying the Collateral Agent promptly
thereof and, upon the Collateral Agent's request, causing the Collateral Agent
to be listed as the lienholder on such certificate of title or ownership and
delivering evidence of the same to the Collateral Agent in accordance with the
Securities Purchase Agreement; and (H) taking all actions required by any
earlier versions of the Uniform Commercial Code or by other law, as applicable,
in any relevant Uniform Commercial Code jurisdiction, or by other law as
applicable in any foreign jurisdiction with respect to any and all domestic and
material foreign Collateral.

            (b) Location of Equipment and Inventory. Each Grantor will keep the
Equipment and Inventory at the locations specified therefor in Section 4(d)
hereof or, upon not less than thirty (30) days' prior written notice to the
Collateral Agent accompanied by a new Schedule III hereto indicating each new
location of the Equipment and Inventory, at such other locations in the United
States. Upon the reasonable written request of the Collateral Agent, each
Grantor shall use its reasonable best efforts to obtain written access
agreements, in form and substance reasonably satisfactory to the Collateral
Agent, providing access to Collateral located on any premises not owned by a
Grantor in order to remove such Collateral from such premises during an Event of
Default.

            (c) Condition of Equipment. Each Grantor will maintain or cause the
Equipment (necessary or useful to its business) to be maintained and preserved
in good condition, repair and working order, ordinary wear and tear excepted,
and will forthwith, or in the case of any loss or damage to any Equipment of
such Guarantor within a commercially reasonable time after the occurrence
thereof, make or cause to be made all repairs, replacements and other
improvements in connection therewith which are necessary or desirable,
consistent with past practice, or which the Collateral Agent may request to such
end. Such Grantor will promptly furnish to the Collateral Agent a statement
describing in reasonable detail any such loss or damage in excess of $250,000 to
any Equipment.

            (d) Taxes, Etc. Each Grantor agrees to pay promptly when due all
property and other taxes, assessments and governmental charges or levies imposed
upon, and all claims (including claims for labor, materials and supplies)
against, the Equipment and Inventory, except to the extent the validity thereof
is being contested in good faith by proper proceedings which stay the imposition
of any penalty, fine or Lien resulting from the non-payment thereof and with
respect to which adequate reserves in accordance with GAAP have been set aside
for the payment thereof.

            (e) Insurance.

                  (i) Each Grantor will, at its own expense, maintain insurance
(including, without limitation, commercial general liability, hazard, rent,
business interruption and property insurance) with respect to all of its
properties, including, without limitation, its Equipment and Inventory and all
real properties leased or owned by it in such amounts, against such risks, in
such form and with responsible and reputable insurance companies or associations
as is required by any governmental authority having jurisdiction with respect
thereto or as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated and in any event, in amount,
adequacy and scope reasonably satisfactory to the Collateral Agent. Each such
policy for liability insurance shall provide for all losses to be paid

                                     -10-


on behalf of the Collateral Agent and such Grantor as their respective interests
may appear, and each policy for property damage insurance shall provide for all
losses to be adjusted with, and paid directly to, the Collateral Agent. Each
such policy shall in addition (A) name the Collateral Agent as an additional
insured party thereunder (without any representation or warranty by or
obligation upon the Collateral Agent) as their interests may appear, (B) contain
an agreement by the insurer that any loss thereunder shall be payable to the
Collateral Agent on its own account during the continuance of an Event of
Default, notwithstanding any action, inaction or breach of representation or
warranty by such Grantor, (C) provide that there shall be no recourse against
the Collateral Agent for payment of premiums or other amounts with respect
thereto, and (D) provide that at least 30 days' prior written notice of
cancellation, lapse, expiration or other adverse change shall be given to the
Collateral Agent by the insurer. Such Grantor will, if so requested by the
Collateral Agent, deliver to the Collateral Agent original or duplicate policies
of such insurance and, as often as the Collateral Agent may reasonably request,
a report of a reputable insurance broker with respect to such insurance. Such
Grantor will also, at the request of the Collateral Agent, execute and deliver
instruments of assignment of such insurance policies and cause the respective
insurers to acknowledge notice of such assignment.

                  (ii) Reimbursement under any liability insurance maintained by
a Grantor pursuant to this Section 5(e) may be paid directly to the Person who
shall have incurred liability covered by such insurance. In the case of any loss
involving damage to Equipment or Inventory, any proceeds of insurance maintained
by a Grantor pursuant to this Section 5(e) shall be paid to the Collateral Agent
(except as to which paragraph (iii) of this Section 5(e) is not applicable),
such Grantor will make or cause to be made the necessary repairs to or
replacements of such Equipment or Inventory, and any proceeds of insurance
maintained by such Grantor pursuant to this Section 5(e) shall be paid by the
Collateral Agent to such Grantor as reimbursement for the costs of such repairs
or replacements.

                  (iii) Upon the occurrence and during the continuance of an
Event of Default, all insurance payments in respect of such Equipment or
Inventory shall be paid to the Collateral Agent and applied as specified in
Section 7(b) hereof.

            (f) Provisions Concerning the Accounts and the Licenses.

                  (i) Each Grantor will (A) give the Collateral Agent at least
30 days' prior written notice of any change in such Grantor's name, identity or
organizational structure, or its jurisdiction of incorporation as set forth in
Section 4(b) hereto, (B) immediately notify the Collateral Agent upon obtaining
an organizational identification number, if on the date hereof such Grantor did
not have such identification number, and (C) keep adequate records concerning
the Accounts and Chattel Paper and permit representatives of the Collateral
Agent during normal business hours on reasonable notice to such Grantor, to
inspect and make abstracts from such Records and Chattel Paper.

                  (ii) Each Grantor will, except as otherwise provided in this
subsection (f), continue to collect, at its own expense, all amounts due or to
become due under the Accounts. In connection with such collections, such Grantor
may (and, during the continuance of an Event of Default, at the Collateral
Agent's direction, will) take such action as such Grantor or the Collateral
Agent may deem necessary or advisable to enforce collection or

                                     -11-


performance of the Accounts; provided, however, that the Collateral Agent shall
have the right at any time, upon the occurrence and during the continuance of an
Event of Default, to notify the account debtors or obligors under any Accounts
of the assignment of such Accounts to the Collateral Agent and to direct such
account debtors or obligors to make payment of all amounts due or to become due
to such Grantor thereunder directly to the Collateral Agent or its designated
agent and, upon such notification and at the expense of such Grantor and to the
extent permitted by law, to enforce collection of any such Accounts and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as such Grantor might have done. After receipt by a
Grantor of a notice from the Collateral Agent that the Collateral Agent has
notified, intends to notify, or has enforced or intends to enforce a Grantor's
rights against the account debtors or obligors under any Accounts as referred to
in the proviso to the immediately preceding sentence, (A) all amounts and
proceeds (including Instruments) received by such Grantor in respect of the
Accounts shall be received in trust for the benefit of the Collateral Agent
hereunder, shall be segregated from other funds of such Grantor and shall be
forthwith paid over to the Collateral Agent in the same form as so received
(with any necessary endorsement) to be held as cash collateral and applied as
specified in Section 7(b) hereof, and (B) such Grantor will not adjust, settle
or compromise the amount or payment of any Account or release wholly or partly
any account debtor or obligor thereof or allow any credit or discount thereon.
In addition, upon the occurrence and during the continuance of an Event of
Default, the Collateral Agent may (in its sole and absolute discretion) direct
any or all of the banks and financial institutions with which such Grantor
either maintains a Deposit Account or a lockbox or deposits the proceeds of any
Accounts to send immediately to the Collateral Agent by wire transfer (to such
account as the Collateral Agent shall specify, or in such other manner as the
Collateral Agent shall direct) all or a portion of such securities, cash,
investments and other items held by such institution. Any such securities, cash,
investments and other items so received by the Collateral Agent shall (in the
sole and absolute discretion of the Collateral Agent) be held as additional
Collateral for the Obligations or distributed in accordance with Section 7
hereof.

                  (iii) Upon the occurrence and during the continuance of any
breach or default under any material License referred to in Schedule II hereto
by any party thereto other than a Grantor, the Grantor party thereto will,
promptly after obtaining knowledge thereof, give the Collateral Agent written
notice of the nature and duration thereof, specifying what action, if any, it
has taken and proposes to take with respect thereto and thereafter will take
reasonable steps to protect and preserve its rights and remedies in respect of
such breach or default, or will obtain or acquire an appropriate substitute
License.

                  (iv) During the continuance of an Event of Default, each
Grantor will, at its expense, promptly deliver to the Collateral Agent a copy of
each notice or other communication received by it by which any other party to
any material License referred to in Schedule II hereto purports to exercise any
of its rights or affect any of its obligations thereunder, together with a copy
of any reply by such Grantor thereto.

                  (v) Each Grantor will exercise promptly and diligently each
and every right which it may have under each material License (other than any
right of termination) and will duly perform and observe in all respects all of
its obligations under each material License and will take all action reasonably
necessary to maintain such Licenses in full force and effect. During the
continuance of an Event of Default, no Grantor will, without the prior written
consent

                                     -12-


of the Collateral Agent, cancel, terminate, amend or otherwise modify in any
respect, or waive any provision of, any material License referred to in Schedule
II hereto.

            (g) Transfers and Other Liens.

                  (i) No Grantor will sell, assign (by operation of law or
otherwise), lease, license, exchange or otherwise transfer or dispose of any of
the Collateral, except (A) Inventory in the ordinary course of business, (B)
licenses and similar arrangements for the use of property in the ordinary course
of business, and (C) worn-out or obsolete assets not necessary to the business.

                  (ii) No Grantor will create, suffer to exist or grant any Lien
upon or with respect to any Collateral other than a Permitted Lien.

            (h) Intellectual Property.

                  (i) If applicable, each Grantor (A) has duly executed and
delivered the applicable Grant of Security Interest in the form attached hereto
as Exhibit A and (B) shall, upon the reasonable written request of the
Collateral Agent, execute and deliver the applicable Grant of Security Interest
in the forms attached hereto as Exhibit B and Exhibit C. Each Grantor (either
itself or through licensees) will, and will cause each licensee thereof to, take
all action reasonably necessary to maintain all of the Intellectual Property in
full force and effect, including, without limitation, using the proper statutory
notices and markings and using the Trademarks on each applicable trademark class
of goods in order to so maintain the Trademarks in full force and free from any
claim of abandonment for non-use, and such Grantor will not (nor permit any
licensee thereof to) do any act or knowingly omit to do any act whereby any
Intellectual Property may become invalidated; provided, however, that so long as
no Event of Default has occurred and is continuing, such Grantor shall not have
an obligation to use or to maintain any Intellectual Property (A) that relates
solely to any product or work, that has been, or is in the process of being,
discontinued, abandoned or terminated, (B) that is being replaced with
Intellectual Property substantially similar to the Intellectual Property that
may be abandoned or otherwise become invalid, so long as the failure to use or
maintain such Intellectual Property does not materially adversely affect the
validity of such replacement Intellectual Property and so long as such
replacement Intellectual Property is subject to the Lien created by this
Agreement or (C) that is substantially the same as another Intellectual Property
that is in full force, so long the failure to use or maintain such Intellectual
Property does not materially adversely affect the validity of such replacement
Intellectual Property and so long as such other Intellectual Property is subject
to the Lien and security interest created by this Agreement. Each Grantor will
cause to be taken all necessary steps in any proceeding before the United States
Patent and Trademark Office and the United States Copyright Office or any
similar office or agency in any other country or political subdivision thereof
to maintain each registration of the Intellectual Property (other than the
Intellectual Property described in the proviso to the immediately preceding
sentence), including, without limitation, filing of renewals, affidavits of use,
affidavits of incontestability and opposition, interference and cancellation
proceedings and payment of maintenance fees, filing fees, taxes or other
governmental fees. If any Intellectual Property (other than Intellectual
Property described in the proviso to the first sentence of subsection (i) of
this clause (h)) is infringed, misappropriated, diluted or otherwise violated in
any material respect by a third party, such

                                     -13-


Grantor shall (x) upon learning of such infringement, misappropriation, dilution
or other violation, promptly notify the Collateral Agent, and (y) to the extent
such Grantor shall reasonably deem appropriate under the circumstances, promptly
sue for infringement, misappropriation, dilution or other violation, seek
injunctive relief where appropriate and recover any and all damages for such
infringement, misappropriation, dilution or other violation, or take such other
actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property. Each Grantor shall furnish
to the Collateral Agent from time to time upon its request statements and
schedules further identifying and describing the Intellectual Property and
Licenses and such other reports in connection with the Intellectual Property and
Licenses as the Collateral Agent may reasonably request, all in reasonable
detail and promptly upon request of the Collateral Agent, following receipt by
the Collateral Agent of any such statements, schedules or reports, such Grantor
shall modify this Agreement by amending Schedule II hereto, as the case may be,
to include any registered or other material Intellectual Property and Licenses,
as the case may be, which becomes part of the Collateral under this Agreement
and shall execute and authenticate such documents and do such acts as shall be
necessary or, in the reasonable judgment of the Collateral Agent, desirable to
subject such Intellectual Property and Licenses to the Lien and security
interest created by this Agreement. Notwithstanding anything herein to the
contrary, upon the occurrence and during the continuance of an Event of Default,
such Grantor may not abandon or otherwise permit any Intellectual Property to
become invalid without the prior written consent of the Collateral Agent, and if
any Intellectual Property is infringed, misappropriated, diluted or otherwise
violated in any material respect by a third party, such Grantor will take such
action as the Collateral Agent shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property.

                  (ii) In no event shall a Grantor, either itself or through any
agent, employee, licensee or designee, file an application for the registration
of any Trademark (or any Statement of Use with respect to any intent to use any
Trademark application) or Copyright or the issuance of any Patent with the
United States Patent and Trademark Office or the United States Copyright Office,
as applicable, or in any similar office or agency of the United States or any
country or any political subdivision thereof unless it gives the Collateral
Agent prior written notice thereof. Upon request of the Collateral Agent, each
Grantor shall execute, authenticate and deliver any and all assignments,
agreements, instruments, documents and papers as the Collateral Agent may
reasonably request to evidence the Collateral Agent's security interest
hereunder in such Intellectual Property and the General Intangibles of such
Grantor relating thereto or represented thereby, and such Grantor hereby
appoints the Collateral Agent its attorney-in-fact to execute and/or
authenticate and file all such writings for the foregoing purposes, all acts of
such attorney being hereby ratified and confirmed, and such power (being coupled
with an interest) shall be irrevocable until the indefeasible payment in full in
cash of all of the Obligations in full and the termination of each of the
Transaction Documents.

            (i) Deposit, Commodities and Securities Accounts. Within 30 days of
Closing, each Grantor shall cause each bank and other financial institution with
an account referred to in Schedule IV hereto to execute and deliver to the
Collateral Agent a control agreement, in form and substance reasonably
satisfactory to the Collateral Agent, duly executed by such Grantor and such
bank or financial institution, or enter into other arrangements in form and
substance satisfactory to the Collateral Agent, pursuant to which such
institution shall irrevocably agree, inter alia, that (i) it will comply at any
time with the instructions originated by

                                     -14-


the Collateral Agent to such bank or financial institution directing the
disposition of cash, Commodity Contracts, securities, Investment Property and
other items from time to time credited to such account, without further consent
of such Grantor, which instructions the Collateral Agent will not give to such
bank or other financial institution in the absence of a continuing Event of
Default, (ii) all cash, Commodity Contracts, securities, Investment Property and
other items of such Grantor deposited with such institution shall be subject to
a perfected, first priority security interest in favor of the Collateral Agent
(iii) any right of set off, banker's Lien or other similar Lien, security
interest or encumbrance shall be fully waived as against the Collateral Agent
(except for customary fees and/or the amount of any loss to such financial
institution or bank for the face amount of check, draft, wire transfer or
similar instrument), and (iv) upon receipt of written notice from the Collateral
Agent during the continuance of an Event of Default, such bank or financial
institution shall immediately send to the Collateral Agent by wire transfer (to
such account as the Collateral Agent shall specify, or in such other manner as
the Collateral Agent shall direct) all such cash, the value of any Commodity
Contracts, securities, Investment Property and other items held by it. Without
the prior written consent of the Collateral Agent, such Grantor shall not make
or maintain any Deposit Account, Commodity Account or Securities Account except
for the accounts set forth in Schedule IV hereto. The provisions of this
paragraph 5(i) shall not apply to (i) Deposit Accounts for which the Collateral
Agent is the depositary, (ii) Deposit Accounts specially and exclusively used
for payroll, payroll taxes and other employee wage and benefit payments to or
for the benefit of a Grantor's salaried employees, and (iii) any Deposit Account
which individually does not at any time have a balance of more than $1,000.

            (j) Motor Vehicles.

                  (i) Upon the Collateral Agent's written request, each Grantor
shall deliver to the Collateral Agent originals of the certificates of title or
ownership for all motor vehicles owned by it with the Collateral Agent listed as
lienholder, for the benefit of the Buyers with respect to (A) any such
individual motor vehicle having an original purchase price of 50,000 or more, or
(B) all such motor vehicles, if the aggregate purchase price thereof is $250,000
or more.

                  (ii) Each Grantor hereby appoints the Collateral Agent as its
attorney-in-fact, effective the date hereof and terminating upon the termination
of this Agreement, for the purpose of (A) executing on behalf of such Grantor
title or ownership applications for filing with appropriate state agencies to
enable such motor vehicles now owned or hereafter acquired by such Grantor to be
retitled and the Collateral Agent listed as lienholder thereof, (B) filing such
applications with such state agencies, and (C) executing such other documents
and instruments on behalf of, and taking such other action in the name of, such
Grantor as the Collateral Agent may deem necessary or advisable to accomplish
the purposes hereof (including, without limitation, for the purpose of creating
in favor of the Collateral Agent a perfected Lien on such motor vehicles and
exercising the rights and remedies of the Collateral Agent hereunder). This
appointment as attorney-in-fact is coupled with an interest and is irrevocable
until all of the Obligations are indefeasibly paid in full in cash and after all
Transaction Documents have been terminated.

                                     -15-


                  (iii) Any certificates of title or ownership delivered
pursuant to the terms hereof shall be accompanied by odometer statements for
each motor vehicle covered thereby.

                  (iv) So long as no Event of Default shall have occurred and be
continuing, upon the request of such Grantor, the Collateral Agent shall execute
and deliver to such Grantor such instruments as such Grantor shall reasonably
request to remove the notation of the Collateral Agent as lienholder on any
certificate of title for any such motor vehicle; provided, however, that any
such instruments shall be delivered, and the release effective, only upon
receipt by the Collateral Agent of a certificate from such Grantor stating that
such motor vehicle is to be sold or has suffered a casualty loss (with title
thereto passing to the casualty insurance company therefor in settlement of the
claim for such loss) and the amount that such Grantor will receive as sale
proceeds or insurance proceeds. Any proceeds of such sale or casualty loss shall
be paid to the Collateral Agent hereunder immediately upon receipt, to be
applied to the Obligations then outstanding.

            (k) Control. Each Grantor hereby agrees to take any or all action
that may be necessary or desirable or that the Collateral Agent may request in
order for the Collateral Agent to obtain control in accordance with Sections
9-104 - 9-107 of the Code with respect to the following Collateral: (i) Deposit
Accounts, (ii) Electronic Chattel Paper, (iii) Investment Property, and (iv)
Letter-of-Credit Rights.

            (l) Inspection and Reporting. Each Grantor shall permit the
Collateral Agent, or any agent or representatives thereof or such professionals
or other Persons as the Collateral Agent may designate, not more than once a
year in the absence of an Event of Default, (i) to examine and make copies of
and abstracts from such Grantor's records and books of account, (ii) to visit
and inspect its properties, (iii) to verify materials, leases, Instruments,
Accounts, Inventory and other assets of such Grantor from time to time, (iii) to
conduct audits, physical counts, appraisals and/or valuations, examinations at
the locations of such Grantor. Each Grantor shall also permit the Collateral
Agent, or any agent or representatives thereof or such professionals or other
Persons as the Collateral Agent may designate to discuss such Grantor's affairs,
finances and accounts with any of its directors, officers, managerial employees,
independent accountants or any of its other representatives.

            (m) Future Subsidiaries. If any of VRLK's domestic Subsidiaries in
existence as of the date hereof (other than the domestic Existing Subsidiaries)
ever become active or have assets, operations or income, or if VRLK or any other
Grantor shall hereafter own, create or acquire any other domestic or material
foreign Subsidiary that is not a Grantor hereunder or a party to the Guaranty,
then, VRLK or such other Grantor shall promptly notify the Collateral Agent
thereof and, upon the Collateral Agent's request, VRLK or such other such
Grantor shall cause such Subsidiary to become a party to the Guaranty as an
additional "Guarantor" thereunder and a party to this Agreement as an additional
"Grantor" hereunder, and to duly execute and/or deliver such opinions of counsel
and other documents, in form and substance reasonably acceptable to the
Collateral Agent, as the Collateral Agent shall reasonably request with respect
thereto.

                                     -16-


            SECTION 6. Additional Provisions Concerning the Collateral.

            (a) Each Grantor hereby (i) authorizes the Collateral Agent at any
time and from time to time to file one or more Uniform Commercial Code financing
or continuation statements and amendments thereto that describe the Collateral
as "all assets" or words of similar effect and that contain any other
information required by Part 5 of Article 9 of the Code for the sufficiency or
filing office acceptance of any financing statement, continuation statement or
amendment, including, without limitation, whether such Grantor is an
organization, the type of organization and any organization number issued to
such Grantor and (ii) ratifies such authorization to the extent that the
Collateral Agent has filed any such financing or continuation statements, or
amendments thereto, prior to the date hereof. A photocopy or other reproduction
of this Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law.

            (b) Each Grantor hereby irrevocably appoints the Collateral Agent as
its attorney-in-fact and proxy, with full authority in the place and stead of
such Grantor and in the name of such Grantor or otherwise, from time to time in
the Collateral Agent's discretion, so long as an Event of Default shall have
occurred and is continuing, to take any action and to execute any instrument
which the Collateral Agent may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of such Grantor under Section
5 hereof), including, without limitation, (i) to obtain and adjust insurance
required to be paid to the Collateral Agent pursuant to Section 5(e) hereof,
(ii) to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in respect of
any Collateral, (iii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper in connection with clause (i) or (ii)
above, (iv) to file any claims or take any action or institute any proceedings
which the Collateral Agent may deem necessary or desirable for the collection of
any Collateral or otherwise to enforce the rights of the Collateral Agent and
the Buyers with respect to any Collateral, and (v) to execute assignments,
licenses and other documents to enforce the rights of the Collateral Agent and
the Buyers with respect to any Collateral. This power is coupled with an
interest and is irrevocable until all of the Obligations are indefeasibly paid
in full in cash.

            (c) For the purpose of enabling the Collateral Agent to exercise
rights and remedies hereunder, at such time as the Collateral Agent shall be
lawfully entitled to exercise such rights and remedies, and for no other
purpose, each Grantor hereby grants to the Collateral Agent, to the extent
assignable, an irrevocable, non-exclusive license (exercisable without payment
of royalty or other compensation to such Grantor) to use, assign, license or
sublicense any Intellectual Property constituting Collateral now owned or
hereafter acquired by such Grantor, wherever the same may be located, including
in such license reasonable access to all media in which any of the licensed
items may be recorded or stored and to all computer programs used for the
compilation or printout thereof; provided however, that the Collateral Agent
shall not use, assign, license or sublicense any such Intellectual Property
unless an Event of Default has occurred and is continuing. Notwithstanding
anything contained herein to the contrary, but subject to the provisions of the
Securities Purchase Agreement that limit the right of such Grantor to dispose of
its property and Section 5(h) hereof, so long as no Event of Default shall have
occurred and be continuing, such Grantor may exploit, use, enjoy, protect,
license, sublicense, assign, sell, dispose of or take other actions with respect
to the Intellectual Property

                                     -17-


in the ordinary course of its business. In furtherance of the foregoing, unless
an Event of Default shall have occurred and be continuing, the Collateral Agent
shall from time to time, upon the request of a Grantor, execute and deliver any
instruments, certificates or other documents, in the form so requested, which
such Grantor shall have certified are appropriate (in such Grantor's judgment)
to allow it to take any action permitted above (including relinquishment of the
license provided pursuant to this clause (c) as to any Intellectual Property).
Further, upon the indefeasible payment in full in cash of all of the
Obligations, the Collateral Agent (subject to Section 10(e) hereof) shall
release and reassign to such Grantor all of the Collateral Agent's right, title
and interest in and to the Intellectual Property, and the Licenses, all without
recourse, representation or warranty whatsoever. The exercise of rights and
remedies hereunder by the Collateral Agent shall not terminate the rights of the
holders of any licenses or sublicenses theretofore granted by such Grantor in
accordance with the second sentence of this clause (c). Each Grantor hereby
releases the Collateral Agent from any claims, causes of action and demands at
any time arising out of or with respect to any actions taken or omitted to be
taken by the Collateral Agent under the powers of attorney granted herein other
than actions taken or omitted to be taken through the Collateral Agent's gross
negligence or willful misconduct, as determined by a final determination of a
court of competent jurisdiction.

            (d) If a Grantor fails to perform any agreement contained herein,
the Collateral Agent may itself perform, or cause performance of, such agreement
or obligation, in the name of such Grantor or the Collateral Agent, and the
expenses of the Collateral Agent incurred in connection therewith shall be
payable by such Grantor pursuant to Section 8 hereof and shall be secured by the
Collateral.

            (e) The powers conferred on the Collateral Agent hereunder are
solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Collateral Agent shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral.

            (f) Anything herein to the contrary notwithstanding (i) each Grantor
shall remain liable under the Licenses and otherwise with respect to any of the
Collateral to the extent set forth therein to perform all of its obligations
thereunder to the same extent as if this Agreement had not been executed, (ii)
the exercise by the Collateral Agent of any of its rights hereunder shall not
release such Grantor from any of its obligations under the Licenses or otherwise
in respect of the Collateral, and (iii) the Collateral Agent shall not have any
obligation or liability by reason of this Agreement under the Licenses or with
respect to any of the other Collateral, nor shall the Collateral Agent be
obligated to perform any of the obligations or duties of such Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.

            SECTION 7. Remedies Upon Event of Default. If any Event of Default
shall have occurred and be continuing:

            (a) The Collateral Agent may exercise in respect of the Collateral,
in addition to any other rights and remedies provided for herein or otherwise
available to it, all of the rights and

                                     -18-


remedies of a secured party upon default under the Code (whether or not the Code
applies to the affected Collateral), and also may (i) take absolute control of
the Collateral, including, without limitation, transfer into the Collateral
Agent's name or into the name of its nominee or nominees (to the extent the
Collateral Agent has not theretofore done so) and thereafter receive, for the
benefit of the Collateral Agent, all payments made thereon, give all consents,
waivers and ratifications in respect thereof and otherwise act with respect
thereto as though it were the outright owner thereof, (ii) require each Grantor
to, and each Grantor hereby agrees that it will at its expense and upon request
of the Collateral Agent forthwith, assemble all or part of its respective
Collateral as directed by the Collateral Agent and make it available to the
Collateral Agent at a place or places to be designated by the Collateral Agent
that is reasonably convenient to both parties, and the Collateral Agent may
enter into and occupy any premises owned or leased by such Grantor where the
Collateral or any part thereof is located or assembled for a reasonable period
in order to effectuate the Collateral Agent's rights and remedies hereunder or
under law, without obligation to such Grantor in respect of such occupation, and
(iii) without notice except as specified below and without any obligation to
prepare or process the Collateral for sale, (A) sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the
Collateral Agent's offices or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the
Collateral Agent may deem commercially reasonable and/or (B) lease, license or
dispose of the Collateral or any part thereof upon such terms as the Collateral
Agent may deem commercially reasonable. Each Grantor agrees that, to the extent
notice of sale or any other disposition of its respective Collateral shall be
required by law, at least ten (10) days' notice to such Grantor of the time and
place of any public sale or the time after which any private sale or other
disposition of its respective Collateral is to be made shall constitute
reasonable notification. The Collateral Agent shall not be obligated to make any
sale or other disposition of any Collateral regardless of notice of sale having
been given. The Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. Each Grantor hereby waives any claims against the Collateral Agent
and the Buyers arising by reason of the fact that the price at which its
respective Collateral may have been sold at a private sale was less than the
price which might have been obtained at a public sale or was less than the
aggregate amount of the Obligations, even if the Collateral Agent accepts the
first offer received and does not offer such Collateral to more than one
offeree, and waives all rights that such Grantor may have to require that all or
any part of such Collateral be marshalled upon any sale (public or private)
thereof. Each Grantor hereby acknowledges that (i) any such sale of its
respective Collateral by the Collateral Agent shall be made without warranty,
(ii) the Collateral Agent may specifically disclaim any warranties of title,
possession, quiet enjoyment or the like, and (iii) such actions set forth in
clauses (i) and (ii) above shall not adversely effect the commercial
reasonableness of any such sale of Collateral. In addition to the foregoing, (1)
upon written notice to any Grantor from the Collateral Agent, such Grantor shall
cease any use of the Intellectual Property or any trademark, patent or copyright
similar thereto for any purpose described in such notice; (2) the Collateral
Agent may, at any time and from time to time, upon 10 days' prior notice to such
Grantor, license, whether general, special or otherwise, and whether on an
exclusive or non-exclusive basis, any of the Intellectual Property, throughout
the universe for such term or terms, on such conditions, and in such manner, as
the Collateral Agent shall in its sole discretion determine; and (3) the
Collateral Agent may, at any time, pursuant to the authority granted in

                                     -19-


Section 6 hereof (such authority being effective upon the occurrence and during
the continuance of an Event of Default), execute and deliver on behalf of such
Grantor, one or more instruments of assignment of the Intellectual Property (or
any application or registration thereof), in form suitable for filing, recording
or registration in any country.

            (b) Any cash held by the Collateral Agent (or its agents or
designee) as Collateral and all Cash Proceeds received by the Collateral Agent
in respect of any sale of or collection from, or other realization upon, all or
any part of the Collateral may, in the discretion of the Collateral Agent, be
held by the Collateral Agent as collateral for, and/or then or at any time
thereafter applied (after payment of any amounts payable to the Collateral Agent
pursuant to Section 8 hereof) in whole or in part by the Collateral Agent
against, all or any part of the Obligations in such order as the Collateral
Agent shall elect, consistent with the provisions of the Securities Purchase
Agreement. Any surplus of such cash or Cash Proceeds held by the Collateral
Agent and remaining after the indefeasible payment in full in cash of all of the
Obligations shall be paid over to whomsoever shall be lawfully entitled to
receive the same or as a court of competent jurisdiction shall direct.

            (c) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Collateral Agent
and the Buyers are legally entitled, such each shall be liable for the
deficiency, together with interest thereon at the highest rate specified in any
of the applicable Transaction Documents for interest on overdue principal
thereof or such other rate as shall be fixed by applicable law, together with
the costs of collection and the reasonable fees, costs, expenses and other
client charges of any attorneys employed by the Collateral Agent to collect such
deficiency.

            (d) Each Grantor hereby acknowledges that if the Collateral Agent
complies with any applicable state, provincial, or federal law requirements in
connection with a disposition of the Collateral, such compliance will not
adversely affect the commercial reasonableness of any sale or other disposition
of the Collateral.

            (e) The Collateral Agent shall not be required to marshal any
present or future collateral security (including, but not limited to, this
Agreement and the Collateral) for, or other assurances of payment of, the
Obligations or any of them or to resort to such collateral security or other
assurances of payment in any particular order, and all of the Collateral Agent's
rights hereunder and in respect of such collateral security and other assurances
of payment shall be cumulative and in addition to all other rights, however
existing or arising. To the extent that each Grantor lawfully may, such Grantor
hereby agrees that it will not invoke any law relating to the marshalling of
collateral which might cause delay in or impede the enforcement of the
Collateral Agent's rights under this Agreement or under any other instrument
creating or evidencing any of the Obligations or under which any of the
Obligations is outstanding or by which any of the Obligations is secured or
payment thereof is otherwise assured, and, to the extent that it lawfully may,
such Grantor hereby irrevocably waives the benefits of all such laws.

            SECTION 8. Indemnity and Expenses.

            (a) Each Grantor agrees, jointly and severally, to defend, protect,
indemnify and hold the Collateral Agent and each of the Buyers, jointly and
severally, harmless from and

                                     -20-


against any and all claims, damages, losses, liabilities, obligations,
penalties, fees, costs and expenses (including, without limitation, reasonable
legal fees, costs, expenses, and disbursements of such Person's counsel) to the
extent that they arise out of or otherwise result from this Agreement
(including, without limitation, enforcement of this Agreement), except to the
extent that such claims, losses or liabilities resulting solely and directly
from such Person's gross negligence or willful misconduct, as determined by a
final judgment of a court of competent jurisdiction.

            (b) Each Grantor agrees, jointly and severally, to upon demand pay
to the Collateral Agent the amount of any and all costs and expenses, including
the reasonable fees, costs, expenses and disbursements of counsel for the
Collateral Agent and of any experts and agents (including, without limitation,
any collateral trustee which may act as agent of the Collateral Agent), which
the Collateral Agent may incur in connection with (i) the preparation,
negotiation, execution, delivery, recordation, administration, amendment, waiver
or other modification or termination of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any Collateral, (iii) the exercise or enforcement of any of
the rights of the Collateral Agent hereunder, or (iv) the failure by any Grantor
to perform or observe any of the provisions hereof.

            SECTION 9. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing and shall be mailed (by certified
mail, postage prepaid and return receipt requested), telecopied or delivered, if
to a Grantor at its address specified on the signature pages hereto and if to
the Collateral Agent to it, at its address specified on the signature pages
hereto; or as to any such Person, at such other address as shall be designated
by such Person in a written notice to such other Person complying as to delivery
with the terms of this Section 9. All such notices and other communications
shall be effective (a) if sent by certified mail, return receipt requested, when
received or three days after deposited in the mails, whichever occurs first, (b)
if telecopied, when transmitted (during normal business hours) and confirmation
is received, otherwise, the day after the notice was transmitted if confirmation
is received, or (c) if delivered, upon delivery.

            SECTION 10. Miscellaneous.

            (a) No amendment of any provision of this Agreement shall be
effective unless it is in writing and signed by each Grantor and the Collateral
Agent, and no waiver of any provision of this Agreement, and no consent to any
departure by a Grantor therefrom, shall be effective unless it is in writing and
signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

            (b) No failure on the part of the Collateral Agent to exercise, and
no delay in exercising, any right hereunder or under any of the other
Transaction Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The rights and remedies of the
Collateral Agent or any Buyer provided herein and in the other Transaction
Documents are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided by law. The rights of the Collateral Agent or any
Buyer under any of the other Transaction Documents

                                     -21-


against any party thereto are not conditional or contingent on any attempt by
such Person to exercise any of its rights under any of the other Transaction
Documents against such party or against any other Person, including but not
limited to, any Grantor.

            (c) Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.

            (d) This Agreement shall create a continuing security interest in
the Collateral and shall (i) remain in full force and effect until the
indefeasible payment in full in cash of the Obligations, and (ii) be binding on
each Grantor and all other Persons who become bound as debtor to this Agreement
in accordance with Section 9-203(d) of the Code and shall inure, together with
all rights and remedies of the Collateral Agent and the Buyers hereunder, to the
benefit of the Collateral Agent and the Buyers and their respective permitted
successors, transferees and assigns. Without limiting the generality of clause
(ii) of the immediately preceding sentence, without notice to any Grantor, the
Collateral Agent and the Buyers may assign or otherwise transfer their rights
and obligations under this Agreement and any of the other Transaction Documents,
to any other Person and such other Person shall thereupon become vested with all
of the benefits in respect thereof granted to the Collateral Agent and the
Buyers herein or otherwise. Upon any such assignment or transfer, all references
in this Agreement to the Collateral Agent or any such Buyer shall mean the
assignee of the Collateral Agent or such Buyer. None of the rights or
obligations of any Grantor hereunder may be assigned or otherwise transferred
without the prior written consent of the Collateral Agent, and any such
assignment or transfer without the consent of the Collateral Agent shall be null
and void.

            (e) Upon the indefeasible payment in full in cash of the
Obligations, (i) this Agreement and the security interests created hereby shall
terminate and all rights to the Collateral shall revert to the respective
Grantor that granted such security interests hereunder, and (ii) the Collateral
Agent will, upon such Grantor's request and at such Grantor's expense, (A)
return to such Grantor such of the Collateral as shall not have been sold or
otherwise disposed of or applied pursuant to the terms hereof, and (B) execute
and deliver to such Grantor such documents as such Grantor shall reasonably
request to evidence such termination, all without any representation, warranty
or recourse whatsoever.

            (f) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND
PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF
THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK.

            (g) ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY DOCUMENT RELATED THERETO MAY BE BROUGHT IN THE COURTS OF THE
STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR

                                     -22-


THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND
APPELLATE COURTS THEREOF, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH
GRANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH GRANTOR HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY SUCH ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS
IS DEEMED APPROPRIATE BY THE COURT.

            (h) EACH GRANTOR AND (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS
AGREEMENT) THE COLLATERAL AGENT WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE
PARTIES HERETO.

            (i) Each Grantor irrevocably consents to the service of process of
any of the aforesaid courts in any such action, suit or proceeding by the
mailing of copies thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to such Grantor at its address provided
herein, such service to become effective 10 days after such mailing.

            (j) Nothing contained herein shall affect the right of the
Collateral Agent to serve process in any other manner permitted by law or
commence legal proceedings or otherwise proceed against any Grantor or any
property of such Grantor in any other jurisdiction.

            (k) Each Grantor irrevocably and unconditionally waives any right it
may have to claim or recover in any legal action, suit or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.

            (l) Section headings herein are included for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.

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

            (n) All of the obligations of the Grantors hereunder are joint and
several. The Collateral Agent may, in its sole and absolute discretion, enforce
the provisions hereof against any of the Grantors and shall not be required to
proceed against all Grantors jointly or seek payment from the Grantors ratably.
In addition, the Collateral Agent may, in its sole and absolute discretion,
select the Collateral of any one or more of the Grantors for sale or

                                     -23-


application to the Obligations, without regard to the ownership of such
Collateral, and shall not be required to make such selection ratably from the
Collateral owned by all of the Grantors. The release or discharge of any Grantor
by the Collateral Agent shall not release or discharge any other Grantor from
the obligations of such Person hereunder.

            (o) Notwithstanding anything to the contrary herein, VRLK's
obligations hereunder and under the other Transaction Documents are subject to
the prior performance of any conflicting obligation under the documents
evidencing the Alabama Mortgage to the extent (but only to the extent) that
performance of such obligation hereunder or thereunder at such time would be
precluded by VRLK's prior satisfaction of the obligations under such documents;
provided, however, that such preclusion shall not be deemed to relieve any such
obligations which shall be duly performed as soon as practicable thereafter.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                     -24-


            IN WITNESS WHEREOF, each Grantor has caused this Agreement to be
executed and delivered by its officer thereunto duly authorized, as of the date
first above written.

                                 VERILINK CORPORATION

                                 By: /s/ Leigh S. Belden
                                    --------------------------------
                                    Name:  Leigh S. Belden
                                    Title: President & CEO
                                    Address: 11551 E. Arapahoe Rd., Suite 150,
                                             Centennial, Colorado 80112

                                 LARSCOM INCORPORATED

                                 By: /s/ Leigh S. Belden
                                    --------------------------------
                                    Name:  Leigh S. Belden
                                    Title: President
                                    Address: 39745 Eureka Drive
                                             Newark, CA 94560

                                 VERILINK EUROPE LIMITED

                                 By: /s/ Leigh S. Belden
                                    --------------------------------
                                    Name:  Leigh S. Belden
                                    Title: Director
                                    Address: 8 Lincoln's Inn Fields
                                             London WC2A 3 BP
                                             United Kingdom


ACCEPTED BY:

PORTSIDE GROWTH & OPPORTUNITY FUND,
as Collateral Agent

By: /s/ Marran Ogilvie
   ---------------------------------------
Name:  Marran Ogilvie
Title: Partner
Address: c/o Ramius Capital Group, L.L.C.
             666 Third Avenue, 26th Floor
             New York, New York  10017
             Attention: Jeffrey Smith



                                                                     EXHIBIT 4.8

                                   SCHEDULE I

          LEGAL NAMES; ORGANIZATIONAL IDENTIFICATION NUMBERS; STATES OR
                          JURISDICTION OF ORGANIZATION



                                   SCHEDULE II

                 INTELLECTUAL PROPERTY AND LICENSES; TRADE NAMES



                                  SCHEDULE III

                              LOCATIONS OF GRANTORS



                                   SCHEDULE IV

       PROMISSORY NOTES, SECURITIES, DEPOSIT ACCOUNTS, SECURITIES ACCOUNTS
                            AND COMMODITIES ACCOUNTS



                                   SCHEDULE V



                                   SCHEDULE VI

                             COMMERCIAL TORT CLAIMS



                                                                       EXHIBIT A

                     GRANT OF SECURITY INTEREST IN COPYRIGHT

            WHEREAS, ____________________ ("Grantor") holds all right, title and
interest in the copyrights listed on Schedule A attached hereto, which
copyrights are issued or applied for in the United States Copyright Office (the
"Copyrights");

            WHEREAS, the Grantor has entered into a Security Agreement, dated
March 20, 2005 (as amended, restated, supplemented or as otherwise modified or
replaced from time to time, the "Security Agreement"), in favor of Portside
Growth & Opportunity Fund, as collateral agent for certain purchasers (in such
capacity, together with any successors and assigns, the "Grantee");

            WHEREAS, pursuant to the Security Agreement, the Grantor has
assigned to the Grantee, and granted to the Grantee for the benefit of the
lenders, a continuing security interest in all right, title and interest of
Grantors in, to and under the Copyrights, and the applications and registrations
thereof, and all proceeds thereof, including, without limitation, any and all
causes of action which may exist by reason of infringement thereof and any and
all damages arising from past, present and future violations thereof (the
"Copyright Collateral"), to secure the payment, performance and observance of
the Obligations (as such term is defined in the Security Agreement);

            NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Grantor does hereby pledge,
convey, sell, assign, transfer and set over unto the Grantee and grants to the
Grantee for the benefit of the lenders a continuing security interest in the
Copyright Collateral to secure the prompt payment, performance and observance of
the Obligations.

            The Grantor does hereby further acknowledge and affirm that the
rights and remedies of the Grantee with respect to the Copyright Collateral are
more fully set forth in the Security Agreement, the terms and provisions of
which are hereby incorporated herein by reference as if fully set forth herein.

                  [Remainder of page intentionally left blank]



            IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly
executed by its officer thereunto duly authorized as of _____________ __, 20__.

                                         [GRANTOR]

                                         By:____________________________________

                                            Name:
                                            Title:

                                       2


                          CERTIFICATE OF ACKNOWLEDGMENT

STATE OF _______________________

                                    ss.:

COUNTY OF_______________________

            On this ____ day of _________________ 2005, before me, the
undersigned, personally appeared ___________________________________, personally
known to me or proved to me on the basis of satisfactory evidence to be the
individual whose name is subscribed to the within instrument and acknowledged to
me that he/she executed the same in his/her capacity, and that by his/her
signature on the instrument, the individual, or the person upon behalf of which
the individual acted, executed the instrument.

                                                  ______________________________
                                                  [NOTARY SEAL]



                                   SCHEDULE A




                                                                       EXHIBIT B

                      GRANT OF SECURITY INTEREST IN PATENTS

            WHEREAS, ____________________ ("Grantor") holds all right, title and
interest in the letter patents, design patents and utility patents listed on
Schedule A attached hereto, which patents are issued or applied for in the
United States Patent and Trademark Office (the "Patents");

            WHEREAS, the Grantor has entered into a Security Agreement, dated
March 20, 2005 (as amended, restated, supplemented or as otherwise modified or
replaced from time to time, the "Security Agreement"), in favor of Portside
Growth & Opportunity Fund, as collateral agent for certain purchasers (in such
capacity, together with any successors and assigns, the "Grantee");

            WHEREAS, pursuant to the Security Agreement, the Grantor has
assigned to the Grantee, and granted to the Grantee for the benefit of the
lenders, a continuing security interest in all right, title and interest of the
Grantor in, to and under the Patents and the applications and registrations
thereof, and all proceeds thereof, including, without limitation, any and all
causes of action which may exist by reason of infringement thereof and any and
all damages arising from past, present and future violations thereof (the
"Patent Collateral"), to secure the payment, performance and observance of the
Obligations (as defined in the Security Agreement);

            NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Grantor does hereby pledge,
convey, sell, assign, transfer and set over unto the Grantee and grants to the
Grantee for the benefit of the lenders a continuing security interest in the
Patent Collateral to secure the prompt payment, performance and observance of
the Obligations.

            The Grantor does hereby further acknowledge and affirm that the
rights and remedies of the Grantee with respect to the Patent Collateral are
more fully set forth in the Security Agreement, the terms and provisions of
which are hereby incorporated herein by reference as if fully set forth herein.

                  [Remainder of page intentionally left blank]



            IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly
executed by its officer thereunto duly authorized as of _____________ __, 20__.

                                         [GRANTOR]

                                         By:____________________________________

                                            Name:

                                            Title:

                                        2


                          CERTIFICATE OF ACKNOWLEDGMENT

STATE OF _______________________

                                      ss.:

COUNTY OF ______________________

            On this ____ day of _________________ 2005, before me, the
undersigned, personally appeared ___________________________________, personally
known to me or proved to me on the basis of satisfactory evidence to be the
individual whose name is subscribed to the within instrument and acknowledged to
me that he/she executed the same in his/her capacity, and that by his/her
signature on the instrument, the individual, or the person upon behalf of which
the individual acted, executed the instrument.

                                           _____________________________________
                                           [NOTARY SEAL]



                                   SCHEDULE A


                                                                       EXHIBIT C

                    GRANT OF SECURITY INTEREST IN TRADEMARKS

            WHEREAS, ____________________ ("Grantor") has adopted, used and is
using, and holds all right, title and interest in and to, the trademarks and
service marks listed on Schedule A attached hereto, which trademarks and service
marks are registered or applied for in the United States Patent and Trademark
Office (the "Trademarks");

            WHEREAS, the Grantor has entered into a Security Agreement, dated
March 20, 2005 (as amended, restated, supplemented or as otherwise modified or
replaced from time to time, the "Security Agreement"), in favor of Portside
Growth & Opportunity Fund, as collateral agent for certain purchasers (in such
capacity, together with any successors and assigns, the "Grantee");

            WHEREAS, pursuant to the Security Agreement, the Grantor has
assigned to the Grantee, and granted to the Grantee for the benefit of the
lenders, a continuing security interest in all right, title and interest of the
Grantor in, to and under the Trademarks, together with, among other things, the
good-will of the business symbolized by the Trademarks and the applications (but
excluding in all cases all intent-to-use United States trademark applications
for which an amendment to allege use or statement of use has not been filed
under 15 U.S.C. Section 1051(c) or 15 U.S.C. Section 1051(d), respectively, or
if filed, has not been deemed in conformance with 15 U.S.C. Section 1051(a) or
examined and accepted, respectively, by the United States Patent and Trademark
Office provided that upon such filing and acceptance, such intent-to-use
applications shall be included in the definition of Trademark) and registrations
thereof, and all proceeds thereof, including, without limitation, any and all
causes of action which may exist by reason of infringement thereof and any and
all damages arising from past, present and future violations thereof (the
"Trademark Collateral"), to secure the payment, performance and observance of
the Obligations (as defined in the Security Agreement);

            NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Grantor does hereby pledge,
convey, sell, assign, transfer and set over unto the Grantee and grants to the
Grantee for the benefit of the lenders a continuing security interest in the
Trademark Collateral to secure the prompt payment, performance and observance of
the Obligations.

            The Grantor does hereby further acknowledge and affirm that the
rights and remedies of the Grantee with respect to the Trademark Collateral are
more fully set forth in the Security Agreement, the terms and provisions of
which are hereby incorporated herein by reference as if fully set forth herein.

                  [Remainder of page intentionally left blank]



            IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly
executed by its officer thereunto duly authorized as of _____________ __, 20__.

                                        [GRANTOR]

                                        By:_____________________________________

                                           Name:

                                           Title:

                                        2


                          CERTIFICATE OF ACKNOWLEDGMENT

STATE OF ______________________

                                        ss.:

COUNTY OF _____________________

            On this ____ day of _________________ 2005, before me, the
undersigned, personally appeared ___________________________________, personally
known to me or proved to me on the basis of satisfactory evidence to be the
individual whose name is subscribed to the within instrument and acknowledged to
me that he/she executed the same in his/her capacity, and that by his/her
signature on the instrument, the individual, or the person upon behalf of which
the individual acted, executed the instrument.

                                      __________________________________________
                                      [NOTARY SEAL]



                                   SCHEDULE A

EX-4.9

                                                                     EXHIBIT 4.9

                                    GUARANTY

            GUARANTY, dated as of March 21, 2005 (this "Guaranty"), made by each
of the existing "Subsidiaries" (as defined in the Securities Purchase Agreement
defined below) of VERILINK CORPORATION, a Delaware corporation (the "PARENT" or
"VRLK") named on the signature pages hereto (collectively, the "EXISTING
SUBSIDIARIES") and each other Subsidiary of VRLK hereafter becoming party hereto
(together with the Existing Subsidiaries, each a "GUARANTOR" and, collectively,
the "GUARANTORS"), in favor of PORTSIDE GROWTH & OPPORTUNITY FUND, a company
organized under the laws of the Cayman Islands, in its capacity as collateral
agent (in such capacity, the "COLLATERAL AGENT") on behalf of the "Buyers" (as
defined below) party to the Securities Purchase Agreement, dated as of even date
herewith (as amended, restated, supplemented or otherwise modified from time to
time, the "SECURITIES PURCHASE AGREEMENT").

                                   WITNESSETH:

            WHEREAS, the Parent and each party listed as a "Buyer" on the
Schedule of Buyers attached thereto are parties to a Securities Purchase
Agreement;

            WHEREAS, the Parent and the Existing Subsidiaries have each executed
and delivered a Pledge and Security Agreement dated as of even date herewith, in
favor of the Collateral Agent (as amended, restated or otherwise modified from
time to time, the "SECURITY AGREEMENT");

            WHEREAS, it is a condition precedent to the Buyers' obligation under
the Securities Purchase Agreement that each of the Existing Subsidiaries execute
and deliver to the Collateral Agent a guaranty guaranteeing all of the
obligations of the Parent thereunder, and that each future domestic Subsidiary
or material foreign Subsidiary of the Parent become a party to this Guaranty and
the Security Agreement; and

            WHEREAS, each Guarantor has determined that its execution, delivery
and performance of this Guaranty directly benefit, and are within the corporate
purposes and in the best interests of, such Guarantor;

            NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Buyers to perform under the Securities
Purchase Agreement, each Guarantor hereby agrees with the Collateral Agent as
follows:

            SECTION 1. Definitions. Reference is hereby made to the Securities
Purchase Agreement and the "Notes" (as defined therein) issued pursuant thereto
(as such Notes may be amended, restated, replaced or otherwise modified from
time to time in accordance with the terms thereof, collectively, the "NOTES")
for a statement of the terms thereof. All terms used in this Guaranty, which are
defined in the Security Agreement, the Securities Purchase Agreement or the
Notes and not otherwise defined herein, shall have the same meanings herein as
set forth therein.



            SECTION 2. Guaranty. Each Guarantor hereby unconditionally and
irrevocably, jointly and severally, guarantees the punctual payment, as and when
due and payable, by stated maturity or otherwise, of all Obligations of the
Parent from time to time owing by it in respect of the Securities Purchase
Agreement, the Notes and the other "TRANSACTION DOCUMENTS" (as such term is
defined in the Securities Purchase Agreement), including, without limitation,
all interest that accrues after the commencement of any Insolvency Proceeding of
the Parent or any Guarantor, whether or not the payment of such interest is
unenforceable or is not allowable due to the existence of such Insolvency
Proceeding), and all fees, commissions, expense reimbursements, indemnifications
and all other amounts due or to become due under any of the Transaction
Documents (such obligations, to the extent not paid by the Parent, being the
"GUARANTEED OBLIGATIONS"), and agrees to pay any and all expenses (including
reasonable counsel fees and expenses) reasonably incurred by the Collateral
Agent and the Buyers in enforcing any rights under this Guaranty. Without
limiting the generality of the foregoing, each Guarantor's liability hereunder
shall extend to all amounts that constitute part of the Guaranteed Obligations
and would be owed by the Parent to the Collateral Agent and the Buyers under the
Securities Purchase Agreement, the Notes and the other Transaction Documents but
for the fact that they are unenforceable or not allowable due to the existence
of an Insolvency Proceeding involving any Guarantor or the Parent (each, a
"TRANSACTION PARTY").

            SECTION 3. Guaranty Absolute; Continuing Guaranty; Assignments.

            (a) Each Guarantor, jointly and severally, guarantees that the
Guaranteed Obligations will be paid strictly in accordance with the terms of the
Transaction Documents, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Collateral Agent or the Buyers with respect thereto. The
obligations of each Guarantor under this Guaranty are independent of the
Guaranteed Obligations, and a separate action or actions may be brought and
prosecuted against any Guarantor to enforce such obligations, irrespective of
whether any action is brought against any Transaction Party or whether any
Transaction Party is joined in any such action or actions. The liability of each
Guarantor under this Guaranty shall be irrevocable, absolute and unconditional
irrespective of, and each Guarantor hereby irrevocably waives any defenses it
may now or hereafter have in any way relating to, any or all of the following:

                  (i) any lack of validity or enforceability of any Transaction
Document or any agreement or instrument relating thereto;

                  (ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Guaranteed Obligations, or any other
amendment or waiver of or any consent to departure from any Transaction
Document, including, without limitation, any increase in the Guaranteed
Obligations resulting from the extension of additional credit to any Transaction
Party or otherwise;

                  (iii) any taking, exchange, release or non-perfection of any
Collateral, or any taking, release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the Guaranteed Obligations;

                                       -2-


                  (iv) any change, restructuring or termination of the
corporate, limited liability company or partnership structure or existence of
any Transaction Party; or

                  (v) any other circumstance (including any statute of
limitations) or any existence of or reliance on any representation by the
Collateral Agent or the Buyers that might otherwise constitute a defense
available to, or a discharge of, any Transaction Party or any other guarantor or
surety.

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by the Collateral Agent, the Buyers or any other
Person upon the insolvency, bankruptcy or reorganization of any Transaction
Party or otherwise, all as though such payment had not been made.

            (b) This Guaranty is a continuing guaranty and shall (i) remain in
full force and effect until the indefeasible cash payment in full of the
Guaranteed Obligations and all other amounts payable under this Guaranty and
shall not terminate for any reason prior to the Maturity Date and (ii) be
binding upon each Guarantor and its respective successors and assigns. This
Guaranty shall inure to the benefit of and be enforceable by the Collateral
Agent, the Buyers and their successors, pledgees, transferees and assigns.
Without limiting the generality of the foregoing sentence, any Buyer may pledge,
assign or otherwise transfer all or any portion of its rights and obligations
under any Transaction Document to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to such
Buyer herein or otherwise, in each case as provided in the Securities Purchase
Agreement.

            SECTION 4. Waivers. Each Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Guaranty and any requirement that the Collateral
Agent or the Buyers exhaust any right or take any action against any Transaction
Party or any other Person or any Collateral. Each Guarantor acknowledges that it
will receive direct and indirect benefits from the financing arrangements
contemplated herein and that the waiver set forth in this Section 4 is knowingly
made in contemplation of such benefits. Each Guarantor hereby waives any right
to revoke this Guaranty, and acknowledges that this Guaranty is continuing in
nature and applies to all Guaranteed Obligations, whether existing now or in the
future.

            SECTION 5. Subrogation. No Guarantor may exercise any rights that it
may now or hereafter acquire against any Transaction Party or any other
guarantor that arise from the existence, payment, performance or enforcement of
such Guarantor's obligations under this Guaranty, including, without limitation,
any right of subrogation, reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or remedy of the
Collateral Agent and the Buyers against any Transaction Party or any other
guarantor or any Collateral, whether or not such claim, remedy or right arises
in equity or under contract, statute or common law, including, without
limitation, the right to take or receive from any Transaction Party or any other
guarantor, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security solely on account of such claim, remedy or
right, unless and until all of the Guaranteed Obligations and all other amounts
payable under this Guaranty shall have indefeasibly been paid in full in cash.
If any amount shall be paid to any Guarantor in

                                       -3-


violation of the immediately preceding sentence at any time prior to the later
of the payment in full in cash of the Guaranteed Obligations and all other
amounts payable under this Guaranty, such amount shall be held in trust for the
benefit of the Collateral Agent and the Buyers and shall forthwith be paid to
the Collateral Agent and the Buyers to be credited and applied to the Guaranteed
Obligations and all other amounts payable under this Guaranty, whether matured
or unmatured, in accordance with the terms of the Transaction Document, or to be
held as Collateral for any Guaranteed Obligations or other amounts payable under
this Guaranty thereafter arising. If (a) any Guarantor shall make payment to the
Collateral Agent and the Buyers of all or any part of the Guaranteed
Obligations, and (b) all of the Guaranteed Obligations and all other amounts
payable under this Guaranty shall indefeasibly be paid in full in cash, the
Collateral Agent and the Buyers will, at such Guarantor's request and expense,
execute and deliver to such Guarantor appropriate documents, without recourse
and without representation or warranty, necessary to evidence the transfer by
subrogation to such Guarantor of an interest in the Guaranteed Obligations
resulting from such payment by such Guarantor.

            SECTION 6. Representations, Warranties and Covenants. Each Guarantor
hereby represents and warrants as follows:

            (a) Except as set forth in Schedule 6(a), such Guarantor: (i) is an
entity, duly organized, validly existing and in good standing (or such other
similar concept) under the laws of the jurisdiction of its organization as set
forth on the first page hereof; (ii) has all requisite power and authority to
conduct its business as now conducted and as presently contemplated and to
execute and deliver this Guaranty and each other Transaction Document to which
such Guarantor is a party, and to consummate the transactions contemplated
hereby and thereby; and (iii) is duly qualified to do business and is in good
standing (or such other similar concept) in each jurisdiction in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary, except to the extent that the
failure to be so qualified or be in good standing would not have a Material
Adverse Effect.

            (b) The execution, delivery and performance by such Guarantor of
this Guaranty and each other Transaction Document to which such Guarantor is a
party: (i) have been duly authorized by all necessary action; (ii) do not and
will not contravene its charter or by-laws (or other applicable constitutive
documents), its limited liability company or operating agreement or its
certificate of partnership or partnership agreement, as applicable, or any
applicable law or any contractual restriction binding on or otherwise affecting
such Guarantor or its properties; (iii) do not and will not result in or require
the creation of any lien (other than pursuant to any Transaction Document) upon
or with respect to any of its properties; and (iv) do not and will not result in
any default, noncompliance, suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to it or
its operations or any of its properties, except in the case of this clause (iv),
for such any such default, noncompliance, suspension, revocation, impairment,
forfeiture or nonrenewal as would not be reasonably expected to have a Material
Adverse Effect.

            (c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority is required in connection with the
due execution, delivery and performance by such Guarantor of this Guaranty or
any of the other Transaction Documents to which such Guarantor is a party,
except for the filing of any financing statements on Form UCC-

                                       -4-


1 or such other registrations, filings or recordings as may be necessary to
perfect the lien purported to be created by any Transaction Documents to which
such Guarantor is a party.

            (d) Each of this Guaranty and the other Transaction Documents to
which such Guarantor is or will be a party, when delivered, will be, a legal,
valid and binding obligation of such Guarantor, enforceable against such
Guarantor in accordance with its terms, except as may be limited by general
principles of equity or by applicable bankruptcy, insolvency, reorganization,
moratorium, suretyship or other similar laws and to the extent that the
enforceability of the indemnification provisions herein or therein may be
limited by applicable laws.

            (e) There is no pending or, to the best knowledge of such Guarantor,
threatened action, suit or proceeding affecting such Guarantor or to which any
of the properties of such Guarantor is subject, before any court or other
governmental authority or any arbitrator that (i) if adversely determined, could
have a Material Adverse Effect or (ii) relates to this Guaranty or any of the
other Transaction Documents to which such Guarantor is a party or any
transaction contemplated hereby or thereby.

            (f) Such Guarantor: (i) has read and understands the terms and
conditions of the Securities Purchase Agreement and the other Transaction
Documents; and (ii) now has and will continue to have independent means of
obtaining information concerning the affairs, financial condition and business
of the Parent and the other Transaction Parties, and has no need of, or right to
obtain from the Collateral Agent or any Buyer, any credit or other information
concerning the affairs, financial condition or business of the Parent or the
other Transaction Parties that may come under the control of the Collateral
Agent or any Buyer.

            (g) Such Guarantor covenants and agrees that until indefeasible full
and final payment of the Guaranteed Obligations, it will comply in all material
respects with each of the covenants (except to the extent applicable only to a
public company, or applicable to VRLK as the parent company of such Guarantor),
which are set forth in Section 4 of the Securities Purchase Agreement as if such
Guarantor were a party thereto.

            (h) Such Guarantor covenants and agrees that it will remedy any
exceptions to Section 6(a) hereto (as set forth in Schedule 6(a) hereto) within
10 days of Closing (as such term is defined in the Securities Purchase
Agreement).

            SECTION 7. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Collateral Agent or any Buyer may, and
is hereby authorized to, at any time and from time to time, without notice to
any Guarantor (any such notice being expressly waived by each Guarantor) and to
the fullest extent permitted by law, set-off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by the Collateral Agent or any Buyer to or
for the credit or the account of any Guarantor against any and all obligations
of any Guarantor now or hereafter existing under this Guaranty or any other
Transaction Document, irrespective of whether or not the Collateral Agent or any
Buyer shall have made any demand under this Guaranty or any other Transaction
Document and although such obligations may be contingent or unmatured. The
Collateral Agent and each Buyer agrees to notify the relevant Guarantor

                                       -5-


promptly after any such set-off and application made by the Collateral Agent or
such Buyer, provided that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of the Collateral Agent and
the Buyers under this Section 7 are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Collateral
Agent and the Buyers may have under this Guaranty or any other Transaction
Document in law or otherwise.

            SECTION 8. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing and shall be mailed, telecopied or
delivered, if to any Guarantor, to it at its address set forth on the signature
page hereto, or if to the Collateral Agent, to it at its address set forth in
the Securities Purchase Agreement; or as to either such Person at such other
address as shall be designated by such Person in a written notice to such other
Person complying as to delivery with the terms of this Section 8. All such
notices and other communications shall be effective (i) if mailed (by certified
mail, postage prepaid and return receipt requested), when received or three
Business Days after deposited in the mails, whichever occurs first; (ii) if
telecopied, when transmitted and confirmation is received, provided same is on a
Business Day and, if not, on the next Business Day; or (iii) if delivered, upon
delivery, provided same is on a Business Day and, if not, on the next Business
Day.

            SECTION 9. CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE.
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY OR ANY OTHER
TRANSACTION DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN
THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH
GUARANTOR HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH GUARANTOR HEREBY
IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS
AGENT FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING AND
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, AT ITS ADDRESS
FOR NOTICES AS SET FORTH ON THE SIGNATURE PAGE HERETO AND TO THE SECRETARY OF
STATE OF THE STATE OF NEW YORK, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS
AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE COLLATERAL
AGENT AND THE BUYERS TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY GUARANTOR IN
ANY OTHER JURISDICTION. EACH GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY
GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER

                                       -6-


THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH GUARANTOR
HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
GUARANTY AND THE OTHER TRANSACTION DOCUMENTS.

            SECTION 10. WAIVER OF JURY TRIAL, ETC. EACH GUARANTOR HEREBY WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
CONCERNING ANY RIGHTS UNDER THIS GUARANTY OR THE OTHER TRANSACTION DOCUMENTS, OR
UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT
DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION
WITH THIS GUARANTY OR THE OTHER TRANSACTION DOCUMENTS, AND AGREES THAT ANY SUCH
ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY. EACH GUARANTOR CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR
ATTORNEY OF THE COLLATERAL AGENT OR ANY BUYER HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE COLLATERAL AGENT OR ANY BUYER WOULD NOT, IN THE EVENT OF ANY
ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. EACH
GUARANTOR HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE COLLATERAL AGENT AND THE BUYERS ENTERING INTO THIS GUARANTY.

            SECTION 11. Taxes.

            (a) All payments made by any Guarantor hereunder or under any other
Transaction Document shall be made in accordance with the terms of the
Securities Purchase Agreement and shall be made without set-off, counterclaim,
deduction or other defense. All such payments shall be made free and clear of
and without deduction for any present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding taxes imposed on the net income of the Buyers by the jurisdiction in
which such Buyer is organized or where it has its principal lending office (all
such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities, collectively or individually, "TAXES"). If any Guarantor shall be
required to deduct or to withhold any Taxes from or in respect of any amount
payable hereunder or under any other Transaction Document;

                  (i) the amount so payable shall be increased to the extent
      necessary so that after making all required deductions and withholdings
      (including Taxes on amounts payable to the Collateral Agent or the Buyers
      pursuant to this sentence) the Collateral Agent or the Buyers receive an
      amount equal to the sum they would have received had no such deduction or
      withholding been made,

                  (ii) such Guarantor shall make such deduction or withholding,

                  (iii) such Guarantor shall pay the full amount deducted or
      withheld to the relevant taxation authority in accordance with applicable
      law, and

                                       -7-


                  (iv) as promptly as possible thereafter, such Guarantor shall
      send the Collateral Agent and the Buyers an official receipt (or, if an
      official receipt is not available, such other documentation as shall be
      satisfactory to the Collateral Agent or the Buyers, as the case may be)
      showing payment. In addition, such Guarantor agrees to pay any present or
      future taxes, charges or similar levies which arise from any payment made
      hereunder or from the execution, delivery, performance, recordation or
      filing of, or otherwise with respect to, this Guaranty or any other
      Transaction Document other than any present or future stamp or documentary
      taxes or any other excise or property taxes, charges or similar levies
      that arise from any payment made hereunder or from the execution, delivery
      or registration of, or otherwise with respect to, this Guaranty or any
      other Transaction Document (collectively, "OTHER TAXES").

            (b) Each Guarantor hereby, jointly and severally, indemnifies and
agrees to hold the Collateral Agent and the Buyers harmless from and against
Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable under this Section 11) paid by
the Collateral Agent or any Buyer and any liability (including penalties,
interest and expenses for nonpayment, late payment or otherwise) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be paid within 30 days
from the date on which the Collateral Agent or any Buyer makes written demand
therefor, which demand shall identify the nature and amount of Taxes or Other
Taxes.

            (c) If any Guarantor fails to perform any of its obligations under
this Section 11, each Guarantor shall, jointly and severally, indemnify the
Collateral Agent and the Buyers for any taxes, interest or penalties that may
become payable as a result of any such failure. The obligations of the Parent
under this Section 11 shall survive the termination of this Guaranty and the
payment of the Obligations and all other amounts payable hereunder.

            SECTION 12. Miscellaneous.

            (a) Each Guarantor will make each payment hereunder in lawful money
of the United States of America and in immediately available funds to the
Collateral Agent, for the benefit of the Buyers, at such address specified by
the Collateral Agent from time to time by notice to such Guarantor.

            (b) No amendment or waiver of any provision of this Guaranty and no
consent to any departure by any Guarantor therefrom shall in any event be
effective unless the same shall be in writing and signed by such Guarantor and
the Collateral Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.

            (c) No failure on the part of the Collateral Agent or any Buyer to
exercise, and no delay in exercising, any right hereunder or under any other
Transaction Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any right hereunder or under any Transaction Document
preclude any other or further exercise thereof or the exercise of any other
right. The rights and remedies of the Collateral Agent and the Buyers provided
herein and in the other Transaction Documents are cumulative and are in addition
to, and not exclusive

                                       -8-


of, any rights or remedies provided by law. The rights of the Collateral Agent
and the Buyers under any Transaction Document against any party thereto are not
conditional or contingent on any attempt by the Collateral Agent and the Buyers
to exercise any of their rights under any other Transaction Document against
such party or against any other Person.

            (d) Any provision of this Guaranty that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.

            (e) This Guaranty shall (i) be binding on each Guarantor and its
respective successors and assigns, and (ii) inure, together with all rights and
remedies of the Collateral Agent and the Buyers hereunder, to the benefit of the
Collateral Agent and the Buyers and their respective successors, transferees and
assigns. Without limiting the generality of clause (ii) of the immediately
preceding sentence, any Buyer may assign or otherwise transfer its rights and
obligations under the Securities Purchase Agreement or any other Transaction
Document to any other Person, and such other Person shall thereupon become
vested with all of the benefits in respect thereof granted to the Buyers herein
or otherwise. Each Guarantor agrees that each participant shall be entitled to
the benefits of Section 11 with respect to its participation in any portion of
the Notes as if it was a Buyer. None of the rights or obligations of any
Guarantor hereunder may be assigned or otherwise transferred without the prior
written consent of the Collateral Agent.

            (f) This Guaranty and the other Transaction Documents represent the
entire agreement of each Guarantor, the Collateral Agent and the Buyers with
respect to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Collateral Agent or any Buyer relative to
the subject matter thereof not expressly set forth or referred to herein or in
the other Transaction Documents.

            (g) Section headings herein are included for convenience of
reference only and shall not constitute a part of this Guaranty for any other
purpose.

            (h) THIS GUARANTY AND THE OTHER TRANSACTION DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER TRANSACTION DOCUMENT) SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO
CONFLICT OF LAW PRINCIPLES.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                       -9-


            IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed by an officer thereunto duly authorized, as of the date first above
written.

                             LARSCOM INCORPORATED

                             By: /s/ Leigh S. Belden
                                --------------------------------
                                Name:  Leigh S. Belden
                                Title: President
                                Address: 39745 Eureka Drive
                                         Newark, CA 94560

                             VERILINK EUROPE LIMITED

                             By: /s/ Leigh S. Belden
                                --------------------------------
                                Name:  Leigh S. Belden
                                Title: Director
                                Address: 8 Lincoln's Inn Fields
                                         London WC2A 3BP
                                         United Kingdom


                                  SCHEDULE 6(a)

                           EXCEPTIONS TO GOOD STANDING

EX-10.19

                                                                   EXHIBIT 10.19

                          SECURITIES PURCHASE AGREEMENT

      SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of March 20,
2005, by and among Verilink Corporation, a Delaware corporation, with
headquarters located at 11551 E. Arapahoe Rd., Suite 150, Centennial, Colorado
80112 (the "COMPANY"), and the investors listed on the Schedule of Buyers
attached hereto (individually, a "BUYER" and collectively, the "BUYERS").

      WHEREAS:

      A. The Company and each Buyer is executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and Rule 506 of
Regulation D ("REGULATION D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.

      B. The Company has authorized a new series of senior secured convertible
notes of the Company, which notes shall be convertible into the Company's common
stock, $.01 par value per share (the "COMMON STOCK"), in accordance with the
terms of such notes.

      C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement, (i) that aggregate principal
amount of notes, in substantially the form attached hereto as Exhibit A (as
amended or modified from time to time, collectively, the "INITIAL NOTES"), set
forth opposite such Buyer's name in column (3) on the Schedule of Buyers (which
aggregate amount for all Buyers shall be $10,000,000) (as converted,
collectively, the "INITIAL CONVERSION SHARES"), (ii) warrants, in substantially
the form attached hereto as Exhibit B (the "WARRANTS"), to acquire up to that
number of additional shares of Common Stock set forth opposite such Buyer's name
in column (4) of the Schedule of Buyers (as exercised, collectively, the
"WARRANT SHARES") and (iii) a right, in substantially the form attached hereto
as Exhibit C (the "ADDITIONAL INVESTMENT RIGHTS"), to acquire up to that
principal amount of additional notes, in substantially the form attached hereto
as Exhibit D (as amended or modified from time to time, collectively, the
"ADDITIONAL NOTES" and together with the Initial Notes and any senior secured
convertible notes issued in replacement of the Initial Notes or the Additional
Notes in accordance with the terms thereof, the "NOTES"), set forth opposite
such Buyer's name in column (5) on the Schedule of Buyers (such Additional Notes
as converted, the "ADDITIONAL CONVERSION SHARES" and together with the Initial
Conversion Shares, the "CONVERSION SHARES").

      D. The Notes bear interest that, at the option of the Company, subject to
certain conditions, may be paid in shares of Common Stock (the "INTEREST
SHARES").

      E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit E (as amended or modified
from time to time in accordance with its terms, the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Conversion Shares, the Warrant Shares
and



the Interest Shares under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.

      F. The Notes, the Conversion Shares, the Interest Shares, the Warrants,
the Warrant Shares and the Additional Investment Rights collectively are
referred to herein as the "SECURITIES".

      G. Except as otherwise set forth herein, the Notes will be (i) senior to
all outstanding and future indebtedness of the Company, (ii) secured by a
perfected security interest in all of the assets of the Company and in all of
the assets of the "EXISTING SUBSIDIARIES" as evidenced by (and as defined in)
the Pledge and Security Agreement in favor of Portside Growth & Opportunity
Fund, a company organized under the laws of the Cayman Islands, in its capacity
as collateral agent (in such capacity, the "SENIOR AGENT") for the Buyers hereto
and for the other holders of the Securities, in the form attached hereto as
Exhibit F (as amended or modified from time to time, the "PLEDGE AND SECURITY
AGREEMENT"), which security interest shall be senior to all other security
interests therein, and (iii) guaranteed by the Guarantee of each of the Existing
Subsidiaries, in the form attached hereto as Exhibit G (such Guaranty, together
with the Pledge and Security Agreement, as each may amended or modified from
time to time, collectively, the "SECURITY DOCUMENTS").

      NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

      1. PURCHASE AND SALE OF NOTES, WARRANTS AND ADDITIONAL INVESTMENT RIGHTS.

            (a) Purchase of Notes, Warrants and Additional Investment Rights.

                  (i) Subject to the satisfaction (or waiver) of the conditions
set forth in Sections 7 and 8(a) below, the Company shall issue and sell to each
Buyer, and each Buyer severally, but not jointly, agrees to purchase from the
Company on the Closing Date (as defined below), (A) one or more Notes with an
aggregate principal amount as is set forth opposite such Buyer's name in column
(3) on the Schedule of Buyers, (B) one or more Warrants to acquire up to that
number of Warrant Shares as is set forth opposite such Buyer's name in column
(4) on the Schedule of Buyers and (C) Additional Investment Rights to acquire up
to that principal amount of Additional Notes as is set forth opposite such
Buyer's name in column (5) on the Schedule of Buyers (the "CLOSING").

                  (ii) Closing. The date and time of the Closing (the "CLOSING
DATE") shall be 10:00 a.m., New York City time, on the date hereof (or such
later date as is mutually agreed to by the Company and each Buyer) after
notification of satisfaction (or waiver) of the conditions to the Closing set
forth in Sections 7 and 8(a) below at the offices of Schulte Roth & Zabel LLP,
919 Third Avenue, New York, New York 10022. Upon purchase of Additional
Investment Rights at the Closing, each Buyer shall be deemed to have agreed
expressly to its obligations with respect to Mandatory Funding (as defined in
the Additional Investment Right issued to it).

                  (iii) Purchase Price. The aggregate purchase price for the
Notes, the Warrants and the Additional Investment Rights to be purchased by each
Buyer at the Closing

                                      -2-


(the "PURCHASE PRICE") shall be the amount set forth opposite such Buyer's name
in column (6) of the Schedule of Buyers. Each Buyer shall pay $1.00 for each
$1.00 of principal amount of Initial Notes and related Warrants and Additional
Investment Rights to be purchased by such Buyer at the Closing.

            (b) Form of Payment. On the Closing Date, (i) each Buyer shall pay
its Purchase Price to the Company for the Initial Notes, the Warrants and the
Additional Investment Rights to be issued and sold to such Buyer at the Closing,
by wire transfer of immediately available funds in accordance with the Company's
written wire instructions, and (ii) the Company shall deliver to each Buyer (A)
the Initial Notes (allocated in the principal amounts as such Buyer shall
request) which such Buyer is then purchasing, (B) the Warrants (allocated in the
amounts as such Buyer shall request) such Buyer is purchasing and (C) the
Additional Investment Rights (allocated in the amounts as such Buyer shall
request) such Buyer is purchasing, in each case duly executed on behalf of the
Company and registered in the name of such Buyer or its designee.

      2. BUYER'S REPRESENTATIONS AND WARRANTIES.

            Each Buyer represents and warrants with respect to only itself that:

            (a) No Sale or Distribution. Such Buyer is acquiring the Notes, the
Warrants and the Additional Investment Rights, and upon conversion of the Notes
and exercise of the Warrants and Additional Investment Rights will acquire the
Conversion Shares issuable upon conversion of the Notes, the Warrant Shares
issuable upon exercise of the Warrants and the Additional Notes issuable upon
exercise of the Additional Investment Rights, for its own account and not with a
view towards, or for resale in connection with, the sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, such Buyer does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
Such Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person (as defined in Section 3(s)) to
distribute any of the Securities.

            (b) Accredited Investor / Qualified Institutional Buyer Status. Such
Buyer is an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D that is an institution and to the extent indicated in the Schedule
of Buyers, a "qualified institutional buyer" as that term is defined in Rule
144A of the Securities Act.

            (c) Non-Affiliate Status. Such Buyer is not an affiliate of the
Company or of any other Buyer and is not acting in concert with any other Person
in regard to the purchase of Notes, Warrants and Additional Investment Rights or
otherwise in respect of the Company. Such Buyer's investment in Notes, Warrants
and Additional Investment Rights is not for the purpose of acquiring, directly
or indirectly, control of, and it has not intent to acquire or exercise control
or, the Company or to influence the decisions or policies of the Board of
Directors of the Company.

                                      -3-


            (d) Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

            (e) Information. Such Buyer and its advisors, if any, have been
furnished with or provided with access to all materials relating to the
business, finances and operations of the Company and materials relating to the
offer and sale of the Securities that have been requested by such Buyer. Such
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained herein. Such Buyer
understands that its investment in the Securities involves a high degree of risk
and is able to afford a complete loss of such investment. Such Buyer has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.

            (f) No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

            (g) Transfer or Resale. Such Buyer understands that: (i) the
Securities have not been and, except as provided in the Registration Rights
Agreement are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, reasonably acceptable to the Company, to the
effect that such Securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C)
such Securities are sold, assigned or transferred pursuant to Rule 144 or Rule
144A promulgated under the 1933 Act, as amended (or a successor rule thereto)
(collectively, "RULE 144"); (ii) any sale of the Securities made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144 and further,
if Rule 144 is not applicable, any resale of the Securities under circumstances
in which the seller (or the Person through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the 1933 Act) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) except as provided in the
Registration Rights Agreement, neither the Company nor any other Person is under
any obligation to register the Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.

            (h) Legends. Such Buyer understands that the certificates or other
instruments representing the Notes, Warrants and Additional Investment Rights
and the stock certificates representing the Conversion Shares and the Warrant
Shares, except as set forth below, shall bear

                                      -4-


any legend as required by the "blue sky" laws of any state and a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):

            [NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
            CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
            [CONVERTIBLE] [EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY
            THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT
            OF 1933, AS AMENDED (THE :SECURITIES ACT"), OR APPLICABLE STATE
            SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
            TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE
            REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT,
            (B) AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE COMPANY,
            THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (C) REASONABLE
            ASSURANCE HAVING BEEN PROVIDED TO THE COMPANY THAT SUCH OFFER, SALE,
            ASSIGNMENT OR TRANSFER IS BEING MADE PURSUANT TO RULE 144 OR RULE
            144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
            MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
            OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the transferee of the Securities, if, unless
otherwise required by state securities laws, (i) the sale of such Securities has
been registered for resale under the 1933 Act; provided, that the holder of
Securities shall be required to provide appropriate evidence that such sale was
effected under the related registration statement, (ii) in connection with a
sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, reasonably acceptable to the Company, to the effect that
such sale, assignment or transfer of the Securities is being made pursuant to an
exemption from the registration requirements the 1933 Act, or (iii) such holder
provides the Company with reasonable assurance that the Securities are being
sold, assigned or transferred pursuant to Rule 144 or Rule 144A.

            (i) Validity; Enforcement. This Agreement, the Registration Rights
Agreement and the Security Documents to which such Buyer is a party have been
duly and validly authorized, executed and delivered on behalf of such Buyer and
shall constitute the legal, valid and binding obligations of such Buyer
enforceable against such Buyer in accordance with their respective terms, except
as such enforceability may be limited by general principles of equity or to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.

            (j) No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement, the Registration Rights Agreement and the Security
Documents to which such Buyer

                                      -5-


is a party and the consummation by such Buyer of the transactions contemplated
hereby and thereby will not (i) result in a violation of the organizational
documents of such Buyer or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Buyer is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable to
such Buyer, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.

            (k) Residency. Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.

      3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

            The Company represents and warrants to each of the Buyers that:

            (a) Organization and Qualification. Except as set forth on Schedule
3(a), the Company and its "SUBSIDIARIES" (which for purposes of this Agreement
means any entity in which the Company, directly or indirectly, owns 50% or more
of the outstanding capital stock or holds an equity or similar interest
representing 50% or more of the outstanding equity or similar interest of such
entity) are entities duly organized and validly existing and, to the extent
legally applicable, in good standing under the laws of the jurisdiction in which
they are formed, and have the requisite power and authority to own their
properties and to carry on their business as now being conducted. Except as set
forth on Schedule 3(a), each of the Company and its Subsidiaries is duly
qualified as a foreign entity to do business and, to the extent legally
applicable, is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. As used in this
Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse effect on the
business, properties, assets, operations, results of operations or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole,
or on the transactions contemplated hereby and in the Security Documents or by
the agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Company does
not hold any equity or similar interest in any entity except as set forth on
Schedule 3(a).

            (b) Authorization; Enforcement; Validity. The Company has the
requisite power and authority to enter into and perform its obligations under
this Agreement, the Notes, the Registration Rights Agreement, the Security
Documents, the Irrevocable Transfer Agent Instructions (as defined in Section
5(b)), the Warrants, the Additional Investment Rights and the Voting Agreement
(as defined in Section 4(q)) (collectively, the "TRANSACTION DOCUMENTS") and to
issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Notes, the Warrants and the
Additional Investment Rights, the reservation for issuance and

                                      -6-


the issuance of the Conversion Shares issuable upon conversion of the Notes, the
reservation for issuance and issuance of Warrant Shares issuable upon exercise
of the Warrants, and the granting of a security interest in the Collateral (as
defined in the Security Documents) have been duly authorized by the Company's
Board of Directors and, other than the filings specified in Section 3(e) or as
otherwise contemplated herein or in the Transaction Documents, no further
consent or authorization is required by the Company, its Board of Directors or
its stockholders. This Agreement and the other Transaction Documents of even
date herewith have been duly executed and delivered by the Company, and
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except (i) as
such enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies, and (ii) to the extent that the enforceability of the
indemnification provisions herein or therein may be limited by applicable laws.
As of the date of issuance of any Additional Notes, such Additional Notes shall
have been duly executed and delivered by the Company, and shall constitute the
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except (i) as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditor's
rights and remedies, and (ii) to the extent that the enforceability of the
indemnification provisions herein or therein may be limited by applicable laws.

            (c) Issuance of Securities. The issuance of the Notes, the Warrants
and the Additional Investment Rights are duly authorized and, upon issuance in
accordance with the terms hereof and the Transaction Documents, will be free
from all taxes, liens and charges with respect to the issue thereof. As of the
Closing, at least 9,182,979 shares of Common Stock shall have been duly
authorized and reserved for issuance as Interest Shares and as shares issuable
upon conversion of the Notes or exercise of the Warrants. Upon issuance or
conversion in accordance with the Notes or exercise in accordance with the
Warrants, as the case may be, the Interest Shares, the Conversion Shares and the
Warrant Shares, respectively, will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock; provided, however, that such
Conversion Shares and Warrants Shares may be subject to restrictions on transfer
under state and/or federal securities laws. Assuming the accuracy of each of the
representations and warranties set forth in Section 2 of this Agreement, the
offer and issuance by the Company of the Securities is exempt from registration
under the 1933 Act.

            (d) No Conflicts. Except as set forth on Schedule 3(d), the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Notes, the Warrants
and the Additional Investment Rights, the granting of a security interest in the
Collateral (as defined in the Security Documents) and reservation for issuance
and issuance of the Interest Shares, the Conversion Shares and the Warrant
Shares) will not (i) result in a violation of any certificate of incorporation,
certificate of formation, any certificate of designations or other constituent
documents of the Company or any of its Subsidiaries or bylaws of the Company or
any of its Subsidiaries or (ii) conflict with, or

                                      -7-


constitute a default (or an event which with notice or lapse of time or both
would become a default) in any material respect under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Nasdaq National Market
(the "PRINCIPAL MARKET")) applicable to the Company or any of its Subsidiaries
or by which any property or asset of the Company or any of its Subsidiaries is
bound or affected, except, in the case of clause (iii), for such violations as
would not be reasonably expected to have a Material Adverse Effect.

            (e) Consents. The Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof, except as contemplated herein and except for
the following consents, authorizations, orders, filings and registrations (none
of which, other than in clause (iii), is required to be filed or obtained before
the Closing): (i) the filing of appropriate UCC financing statements with the
appropriate states and authorities pursuant to the Pledge and Security
Agreement, (ii) the filing with the SEC of one or more Registration Statements
in accordance with the requirements of the Registration Rights Agreement and
(iii) the filing of a listing application for the Conversion Shares, Interest
Shares and Warrant Shares with the Principal Market, which shall be done
pursuant to the rules of the Principal Market. The Company and its Subsidiaries
are unaware of any facts or circumstances that might prevent the Company from
obtaining or effecting any of the registration, application or filings pursuant
to the preceding sentence. The Company is not in violation of the listing
requirements of the Principal Market and has no knowledge of any facts that
would reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.

            (f) Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that no Buyer is acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby, and any advice given by a Buyer or
any of its representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to such Buyer's purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.

            (g) No General Solicitation; Placement Agent's Fees. Neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company acknowledges that it has engaged Kaufman Bros., L.P. as
placement agent (the "AGENT") in connection with the sale of the Securities.
Other than the Agent, the Company has not engaged any placement agent or other
agent in connection with the sale of the Securities.

                                      -8-


            (h) No Integrated Offering. None of the Company, its Subsidiaries,
any of their affiliates, and any Person acting on 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 require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated.

            (i) Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and the Notes and its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement and the Warrants is, in each
case, absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company.

            (j) Application of Takeover Protections; Rights Agreement. The
Company and its board of directors 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 Certificate of Incorporation
or the laws of the jurisdiction of its formation which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities. Except as set forth on
Schedule 3(j), the Company has not adopted a stockholder rights plan or similar
arrangement relating to accumulations of beneficial ownership of Common Stock or
a change in control of the Company.

            (k) SEC Documents; Financial Statements. Except as set forth on
Schedule 3(k), during the twelve (12) month prior to the date hereof, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements, notes and schedules thereto and documents (other than
exhibits) incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). The Company has made available to the Buyers or their
respective representatives true, correct and complete copies of the SEC
Documents not available on the EDGAR system (other than any correspondence filed
by the Company with the SEC, including without limitation, any confidential
treatment requests). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
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. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting

                                      -9-


requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).

            (l) Absence of Certain Changes. Except as disclosed in Schedule
3(l), since July 2, 2004, there has been no material adverse change and no
material adverse development in the business, properties, operations, condition
(financial or otherwise) or results of operations of the Company or its
Subsidiaries. Except as disclosed in Schedule 3(l), since July 2, 2004, the
Company has not (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, in excess of $100,000 outside of the ordinary
course of business or (iii) had capital expenditures, individually or in the
aggregate, in excess of $500,000. The Company has not taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact that would reasonably
lead a creditor to do so. Except as disclosed in Schedule 3(l), the Company and
its Subsidiaries, individually and on a consolidated basis, are not as of the
date hereof, and after giving effect to the transactions contemplated hereby to
occur at the Closing, will not be Insolvent (as defined below). For purposes of
this Section 3(l), "Insolvent" means, with respect to any Person (as defined in
Section 3(s)), (i) the present fair saleable value of such Person's assets is
less than the amount required to pay such Person's total Indebtedness (as
defined in Section 3(s)), (ii) the Company is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.

            (m) No Undisclosed Events, Liabilities, Developments or
Circumstances. Other than as to the transactions set forth in the Transaction
Documents, no event, liability, development or circumstance has occurred or
exists, or is contemplated to occur with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1 filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.

            (n) Conduct of Business; Regulatory Permits. Neither the Company nor
its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation or Bylaws or their organizational charter or
certificate of incorporation or bylaws, respectively. Neither the Company nor
any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries in respect of the conduct of its business or the ownership of its
properties, except for possible violations which would not, individually or in
the aggregate, have a Material Adverse Effect. Without limiting the generality
of the foregoing, the Company is not in violation of any of the

                                      -10-


rules, regulations or requirements of the Principal Market and has no knowledge
of any facts or circumstances that would reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the foreseeable
future. Since December 31, 2003, (i) the Common Stock has been designated for
quotation on the Principal Market, (ii) trading in the Common Stock has not been
suspended by the SEC or the Principal Market and (iii) the Company has received
no communication, written or oral, from the SEC or the Principal Market
regarding the suspension or delisting of the Common Stock from the Principal
Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, except where the failure to
possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.

            (o) Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

            (p) Sarbanes-Oxley Act. The Company is in compliance with any and
all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective
as of the date hereof, and any and all applicable rules and regulations
promulgated by the SEC thereunder that are effective as of the date hereof,
except where such noncompliance would not have, individually or in the
aggregate, a Material Adverse Effect.

            (q) Transactions With Affiliates. Except as set forth in the SEC
Documents filed at least two days prior to the date hereof and other than the
grant of stock incentives issued pursuant to employee benefit plans disclosed in
the SEC Documents, none of the officers, directors or employees of the Company
is presently a party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services as employees, officers or
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 such
officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.

            (r) Equity Capitalization. The capitalization of the Company is as
described in the SEC Documents. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. Except as disclosed in Schedule
3(r): (i) none of the Company's share capital is subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or permitted by
the Company; (ii) other than pursuant to employee benefit plans disclosed in the
SEC Documents, there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or

                                      -11-


commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional share capital of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its Subsidiaries; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness (as defined in Section 3(s)) of
the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (vi) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's or
its Subsidiaries' respective businesses since September 30, 2004 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect. The Company has made available to the Buyer true, correct and complete
copies of the Company's Certificate of Incorporation, as amended and as in
effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), and the
Company's Bylaws, as amended and as in effect on the date hereof (the "BYLAWS"),
and the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof in
respect thereto.

            (s) Indebtedness and Other Contracts. Except as disclosed in
Schedule 3(s), neither the Company nor any of its Subsidiaries (i) has any
outstanding Indebtedness (as defined below), (ii) is a party to any contract,
agreement or instrument, the reasonably foreseeable violation of which, or
reasonably foreseeable default under which, by the other party(ies) to such
contract, agreement or instrument could reasonably be expected to result in a
Material Adverse Effect, (iii) is in violation of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company's officers, has or is expected to have a Material
Adverse Effect. For purposes of this Agreement: (x) "INDEBTEDNESS" of any Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) "capital leases" in
accordance with generally accepted accounting principals (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by

                                      -12-


notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; (y) "CONTINGENT OBLIGATION" means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto; and
(z) "PERSON" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.

            (t) Absence of Litigation. Except as set forth in Schedule 3(t),
there is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company, the Common Stock or any of the Company's
Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or
directors in their capacities as such that if determined adversely to the
Company could, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.

            (u) Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has, in the previous twelve
(12) months, been refused any insurance coverage sought or applied for and
neither the Company nor any such 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 at a cost that would not have a Material
Adverse Effect.

            (v) Employee Relations. (i) Except as disclosed in the SEC Documents
or in Schedule 3(v), neither the Company nor any of its Subsidiaries is a party
to any collective bargaining agreement or employs any member of a union. Except
as disclosed in Schedule 3(v), no executive officer of the Company (as defined
in Rule 501(f) of the 1933 Act) has notified the Company that such officer
intends to leave the Company or otherwise terminate such officer's

                                      -13-



employment with the Company or, to the knowledge of the Company, is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any material liability with
respect to any of the foregoing matters.

                  (ii) The Company and its Subsidiaries are in compliance with
all federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.

            (w) Title. Except as set forth on Schedule 3(w), the Company and its
Subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.

            (x) Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, service marks
and all applications and registrations therefor, trade names, patents, patent
rights, copyrights, original works of authorship, inventions, trade secrets and
other intellectual property rights ("INTELLECTUAL PROPERTY RIGHTS") necessary to
conduct their respective businesses as now conducted. Except as set forth in
Schedule 3(x), none of the Company's registered, or applied for, Intellectual
Property Rights have expired or terminated or have been abandoned, or are
expected to expire or terminate or expected to be abandoned, within three years
from the date of this Agreement except where the expiration or termination would
not reasonably be expected to have a Material Adverse Effect. The Company does
not have any knowledge of any infringement by the Company or its Subsidiaries of
Intellectual Property Rights of others. There is no claim, action or proceeding
being made or brought, or to the knowledge of the Company, being threatened in
writing, against the Company or its Subsidiaries regarding its Intellectual
Property Rights. The Company is unaware of any facts or circumstances which
might give rise to any of the foregoing infringements or claims, actions or
proceedings. The Company and its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
Intellectual Property Rights.

            (y) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to

                                      -14-


so comply could be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect. The term "ENVIRONMENTAL LAWS" means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

            (z) Alabama Mortgage. As of the date hereof, the outstanding loan
amounts secured by the Alabama Mortgage (as defined in the Notes) is in the
aggregate, not in excess of $3,500,000.

            (aa) No Outstanding Default. After using portion of the proceeds
from the sale of the Securities to repay all amounts outstanding or otherwise
owing to RBC Centura Bank, neither the Company nor any of its Subsidiaries shall
be in default under any material agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party.

            (bb) Subsidiary Rights. The Company or one of its Subsidiaries has
the unrestricted right to vote, and (subject to limitations imposed by
applicable law) to receive dividends and distributions on, all capital
securities of its Subsidiaries as owned by the Company or such Subsidiary.

            (cc) Tax Status. Except as set forth in Schedule 3(cc), the Company
and each of its Subsidiaries (i) has made or filed all foreign, federal and
state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply where, in each of
the foregoing clauses (i), (ii) and (iii), the failure to do so could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. There are no unpaid taxes in any material amount claimed to be
due by the taxing authority of any jurisdiction, and the Company knows of no
basis for any such claim.

            (dd) Internal Accounting and Disclosure Controls. The Company and
each of its Subsidiaries maintain a system of internal accounting controls
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 generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. The

                                      -15-


Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-14 under the 1934 Act) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed in to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is accumulated and communicated to the Company's management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure.

            (ee) Off Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in its Exchange Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.

            (ff) Ranking of Notes. Except as disclosed in Schedule 3(ff), no
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.

            (gg) Form S-3 Eligibility. The Company is currently eligible to
register the Conversion Shares, the Warrant Shares and the Interest Shares for
resale by the Buyers using Form S-3 promulgated under the 1933 Act.

            (hh) 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 Securities, (ii) sold, bid for, purchased, or paid any compensation
for soliciting purchases of, any of the Securities, or (iii) paid or agreed to
pay to any person any compensation for soliciting another to purchase any other
securities of the Company.

            (ii) Disclosure. Other than as to the transactions set forth in the
Transaction Documents which will be publicly disclosed as part of the Form 8-K
Filing (as defined below), the Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Buyers or their agents or
counsel with any information that constitutes material, nonpublic information.
The Company understands and confirms that each of the Buyers will rely on the
foregoing representations in effecting transactions in securities of the
Company. All disclosure provided to the Buyers regarding the Company, its
business and the transactions contemplated hereby, including the Disclosure
Schedule delivered to the Buyers in connection with this Agreement, is true and
correct and does 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 the light of the circumstances under which they were made, not misleading.
Except as set forth in Schedule 3(ii), each press release issued by the Company
during the twelve (12) months preceding the date of this Agreement did not at
the time of release contain any untrue statement of a material fact or omit 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. No event or circumstance has occurred or information
exists with respect to the Company or any of its

                                      -16-


Subsidiaries or its or their business, properties, operations or financial
conditions, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed.

            (jj) Acknowledgement Regarding Buyers' Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding, but subject
to compliance by the Buyers with applicable law, it is understood and
acknowledged by the Company (i) that none of the Buyers have been asked to
agree, nor has any Buyer 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 Securities for any specified
term; (ii) that past or future open market or other transactions by any Buyer,
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 Buyer, and counter parties in "derivative" transactions to which
any such Buyer is a party, directly or indirectly, presently may have a "short"
position in the Common Stock, and (iv) that each Buyer 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 Buyers may engage in hedging activities at various times during
the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Conversion Shares and Interest Shares
deliverable with respect to Securities are being determined 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.

      4. COVENANTS.

            (a) Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 7
and 8 of this Agreement.

            (b) Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date. The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following the Closing Date; provided,
however, that the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or to consent to general service of process in any
such jurisdiction.

            (c) Reporting Status. Until the date on which the Investors (as
defined in the Registration Rights Agreement) no longer hold any Conversion
Shares, Warrant Shares and Interest Shares and none of the Notes, Warrants or
Additional Investment Rights is outstanding (the "REPORTING PERIOD"), and other
than in accordance with the Notes, Warrants and the

                                      -17-


Additional Investment Rights, the Company shall timely file all reports required
to be filed with the SEC pursuant to the 1934 Act, and the Company shall
continue to timely file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would otherwise no longer require such filings;
provided, that each Investor shall upon request of the Company notify the
Company if such Investor holds any Securities, and the Company shall be entitled
to conclude that no Securities are so held unless notice that Securities are so
held has been provided to the Company within 30 days of such request.

            (d) Use of Proceeds. The Company will use the proceeds from the sale
of the Securities to repay all amounts outstanding or otherwise owing to RBC
Centura Bank and for working capital purposes. The Company will not use the
proceeds from the sale of the Securities for the (i) repayment of any other
outstanding Indebtedness of the Company or any of its Subsidiaries or (ii)
redemption or repurchase of any of its equity securities.

            (e) Financial Information. The Company agrees to send the following
to each Investor during the Reporting Period, unless the following are filed
with the SEC through EDGAR and are available to the public through the EDGAR
system (i) within one (1) Business Day after the filing thereof with the SEC, a
copy of its Annual Reports on Form 10-K its Quarterly Reports on Form 10-Q, any
Current Reports on Form 8-K and any registration statements (other than on Form
S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company or
any of its Subsidiaries, and (iii) copies of any notices and other information
made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders; provided, however, that the Company shall have no obligation
hereunder to provide copies of any correspondence filed with the SEC, including,
without limitation, any confidential treatment requests. For purposes of this
Agreement, "BUSINESS DAY" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.

            (f) Listing. The Company shall promptly secure the listing of all of
the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system, if any,
upon which the Common Stock is then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed and in accordance with the Notes, Warrants and Additional
Investment Rights, such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. The Company shall
maintain the Common Stocks' authorization for quotation on the Principal Market;
provided, however, that the Company makes no covenant regarding applicable
listing standards based the trading price of the Common Stock. Neither the
Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common Stock
on the Principal Market. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(f).

            (g) Fees. Subject to Section 9 below, the Company shall promptly pay
an expense allowance to Portside Growth & Opportunity Fund (a Buyer) or its
designee(s) (in addition to any other expense amounts paid to any Buyer prior to
the date of this Agreement) to cover expenses reasonably incurred by Portside
Growth & Opportunity Fund or any

                                      -18-


professionals engaged by Portside Growth & Opportunity Fund in relation (i) to
due diligence and investment documentation, in an amount not to exceed $120,000
(in addition to any other expense amounts paid to any Buyer prior to the date of
this Agreement), which amount shall be withheld by such Buyer from its Purchase
Price at the Closing and (ii) to the post-Closing items in connection with
Section 8(b) hereof, in an amount not to exceed $25,000. The Company shall also
reimburse Portside Growth & Opportunity Fund for the costs of performing UCC,
tax and judgment lien searches and searches with the United States Patent and
Trademark Office, in an amount not to exceed $3,000, which costs shall not be
deducted from the expense reimbursement set forth in the immediately preceding
sentence. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or broker's commissions (other than for
Persons engaged by any Buyer) relating to or arising out of the transactions
contemplated hereby, including, without limitation, any fees or commissions
payable to the Agent (collectively, the "COMMISSIONS"). The Company shall pay,
and hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney's fees and out-of-pocket expenses)
arising in connection with any claim relating to any Commissions. Except as
otherwise set forth in the Transaction Documents, each party to this Agreement
shall bear its own expenses in connection with the sale of the Securities to the
Buyers.

            (h) Pledge of Securities. The Company acknowledges and agrees that,
subject to applicable state and federal securities laws, the Securities may be
pledged by an Investor (as defined in the Registration Rights Agreement) in
connection with a bona fide margin agreement or other loan or financing
arrangement that is secured by the Securities. The pledge of Securities shall
not be deemed to be a transfer, sale or assignment of the Securities hereunder,
and no Investor effecting a pledge of Securities shall be required to provide
the Company with any notice thereof or otherwise make any delivery to the
Company pursuant to this Agreement or any other Transaction Document, including,
without limitation, Section 2(g) hereof; provided that an Investor and its
pledgee shall be required to comply with the provisions of Section 2(g) hereof
in order to effect a sale, transfer or assignment of Securities to such pledgee.
The Company hereby agrees to execute and deliver such documentation as a pledgee
of the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by an Investor.

            (i) Disclosure of Transactions and Other Material Information. On or
before 8:30 a.m., New York time, ON the first Business Day following the date of
this Agreement, the Company shall file a Current Report on Form 8-K describing
the terms of the transactions contemplated by the Transaction Documents in the
form required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement, the form of each of the Notes,
the form of Warrant, the form of Additional Investment Right, the Registration
Rights Agreement, the Voting Agreement and the Security Documents) as exhibits
to such filing (including all attachments, the "8-K FILING"). From and after the
filing of the 8-K Filing with the SEC, no Buyer shall be in possession of any
material, nonpublic information received from the Company, any of its
Subsidiaries or any of its respective officers, directors, employees or agents,
that is not disclosed in the 8-K Filing. The Company shall not, and shall cause
each of its Subsidiaries and its and each of their respective officers,
directors, employees and agents, not to, provide any Buyer with any material,
nonpublic information regarding the Company or any of its Subsidiaries from and
after the filing of the 8-K Filing with the SEC without the express written
consent of such Buyer. If a Buyer has, or believes it has, received

                                      -19-


any such material, nonpublic information regarding the Company or any of its
Subsidiaries, it shall provide the Company with written notice thereof. The
Company shall, within five (5) Trading Days of receipt of such notice, make
public disclosure of any such material, nonpublic information. In the event of a
breach of the foregoing covenant by the Company, any of its Subsidiaries, or any
of its or their respective officers, directors, employees and agents, in
addition to any other remedy provided herein or in the Transaction Documents, a
Buyer shall have the right to make a public disclosure, in the form of a press
release, public advertisement or otherwise, of such material, nonpublic
information without the prior approval by the Company, its Subsidiaries, or any
of its or their respective officers, directors, employees or agents. No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, stockholders or agents for any
such disclosure. Subject to the foregoing, neither the Company nor any Buyer
shall issue any press releases or any other public statements with respect to
the transactions contemplated hereby; provided, however, that the Company shall
be entitled, without the prior approval of any Buyer, to make any press release
or other public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith or (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release).

            (j) Restriction on Redemption and Cash Dividends. So long as any
Notes or Additional Investment Rights are outstanding, the Company shall not,
directly or indirectly, redeem, or declare or pay any cash dividend or
distribution on, the Common Stock without the prior express written consent of
the holders of Notes representing not less than a majority of the aggregate
principal amount of the then outstanding Notes (the "REQUIRED HOLDERS").

            (k) Additional Registration Statements. Until the date that the
Registration Statement (as defined in the Registration Rights Agreement) is
first declared effective by the SEC (the "EFFECTIVE DATE"), the Company shall
not file a registration statement under the 1933 Act relating to securities that
are not the Securities.

            (l) No Integrated Offering. None of the Company, its Subsidiaries,
their affiliates and any Person acting on their behalf will take any action or
steps referred to in Section 3(h) that would require registration of any of the
Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.

            (m) Additional Notes; Variable Securities; Dilutive Issuances. So
long as any Buyer beneficially owns any Securities, the Company will not issue
any Notes other than to the Buyers as contemplated hereby and the Company shall
not issue any other securities that would cause a breach or default under the
Notes. For so long as any Notes, Additional Investment Rights or Warrants remain
outstanding, the Company shall not, without the written consent of the Required
Holders, in any manner, issue or sell any rights, warrants or options to
subscribe for or purchase Common Stock or directly or indirectly convertible
into or exchangeable or exercisable for Common Stock at a price which varies or
may vary with the market price of the Common Stock, including by way of one or
more reset(s) to any fixed price unless the conversion, exchange or exercise
price of any such security cannot be less than the then applicable Conversion
Price (as defined in the Notes) with respect to the Common Stock into which any
Note is convertible or the then applicable Exercise Price (as defined in the
Warrants)

                                      -20-


with respect to the Common Stock into which any Warrant is exercisable. For so
long as any Notes, Warrants or Additional Investment Rights remain outstanding,
the Company shall not, without the written consent of the Required Holders, in
any manner, enter into or affect any Dilutive Issuance (as defined in the Notes)
if the effect of such Dilutive Issuance is to cause the Company to be required
to issue upon conversion of any Note or exercise of any Warrant any shares of
Common Stock in excess of that number of shares of Common Stock which the
Company may issue upon conversion of the Notes, including the Additional Notes,
and exercise of the Warrants without breaching the Company's obligations under
the rules or regulations of the Principal Market.

            (n) Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes, the
Warrants and the Additional Investment Rights.

            (o) Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, after the Closing Date, 150% of the number of Interest Shares issuable
pursuant to the terms of the Notes (assuming that all principal payments on such
Notes are made in a timely fashion and that the Notes are not redeemed or
converted before maturity, that all interest payments on such Notes are made in
Interest Shares and that the number of Interest Shares is determined based on
the Interest Conversion Price (as defined in the Notes), as of the trading date
immediately preceding the applicable date of determination), shares of Common
Stock issuable upon conversion of all of the Notes (including the Additional
Notes) and shares of Common Stock issuable upon exercise of the Warrants.

            (p) Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.

            (q) Additional Issuances of Securities.

                  (i) For purposes of this Section 4(q), the following
definitions shall apply.

                        (1) "CONVERTIBLE SECURITIES" means any stock or
      securities (other than Options) convertible into or exercisable or
      exchangeable for shares of Common Stock.

                        (2) "OPTIONS" means any rights, warrants or options to
      subscribe for or purchase shares of Common Stock or Convertible
      Securities.

                        (3) "COMMON STOCK EQUIVALENTS" means, collectively,
      Options and Convertible Securities.

                  (ii) From the date hereof until the date that is 90 Trading
Days (as defined in the Notes) following the Effective Date (as defined in the
Registration Rights

                                      -21-


Agreement) (the "TRIGGER DATE"), the Company will not, directly or indirectly,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition of) any of
its or its Subsidiaries' equity or equity equivalent securities, including
without limitation any debt, preferred stock or other instrument or security
that is, at any time during its life and under any circumstances, convertible
into or exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents, except for Excluded Securities (as defined in the Notes) (any such
offer, sale, grant, disposition or announcement being referred to as a
"SUBSEQUENT PLACEMENT").

                  (iii) From the Trigger Date until the two year anniversary of
the Closing Date, the Company will not, directly or indirectly, effect any
Subsequent Placement unless the Company shall have first complied with this
Section 4(q)(iii).

                        (1) The Company shall deliver to each Buyer a written
      notice (the "OFFER NOTICE") of any proposed or intended issuance or sale
      or exchange (the "OFFER") of the securities being offered (the "OFFERED
      SECURITIES") in a Subsequent Placement, which Offer Notice shall (w)
      identify and describe the Offered Securities, (x) describe the price and
      other terms upon which they are to be issued, sold or exchanged, and the
      number or amount of the Offered Securities to be issued, sold or
      exchanged, (y) identify the persons or entities (if known) to which or
      with which the Offered Securities are to be offered, issued, sold or
      exchanged and (z) offer to issue and sell to or exchange with such Buyers
      a pro rata portion of 30% of the Offered Securities allocated among such
      Buyers (a) based on such Buyer's pro rata portion of the aggregate
      principal amount of Notes purchased hereunder (the "BASIC AMOUNT"), and
      (b) with respect to each Buyer that elects to purchase its Basic Amount,
      any additional portion of the Offered Securities attributable to the Basic
      Amounts of other Buyers as such Buyer shall indicate it will purchase or
      acquire should the other Buyers subscribe for less than their Basic
      Amounts (the "UNDERSUBSCRIPTION AMOUNT").

                        (2) To accept an Offer, in whole or in part, such Buyer
      must deliver a written notice to the Company prior to the end of the tenth
      (10th) Business Day after such Buyer's receipt of the Offer Notice (the
      "OFFER PERIOD"), setting forth the portion of such Buyer's Basic Amount
      that such Buyer elects to purchase and, if such Buyer shall elect to
      purchase all of its Basic Amount, the Undersubscription Amount, if any,
      that such Buyer elects to purchase (in either case, the "NOTICE OF
      ACCEPTANCE"). If the Basic Amounts subscribed for by all Buyers are less
      than the total of all of the Basic Amounts, then each Buyer who has set
      forth an Undersubscription Amount in its Notice of Acceptance shall be
      entitled to purchase, in addition to the Basic Amounts subscribed for, the
      Undersubscription Amount it has subscribed for; provided, however, that if
      the Undersubscription Amounts subscribed for exceed the difference between
      the total of all the Basic Amounts and the Basic Amounts subscribed for
      (the "AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each Buyer who has subscribed
      for any Undersubscription Amount shall be entitled to purchase only that
      portion of the Available Undersubscription Amount as the Basic Amount of
      such Buyer bears to the total Basic Amounts of all Buyers that have
      subscribed for Undersubscription Amounts, subject to rounding by the
      Company to the extent its deems reasonably necessary.

                                      -22-


                        (3) The Company shall have ten (10) Business Days from
      the expiration of the Offer Period above to offer, issue, sell or exchange
      all or any part of such Offered Securities as to which a Notice of
      Acceptance has not been given by the Buyers (the "REFUSED SECURITIES"),
      but only to the offerees described in the Offer Notice (if so described
      therein) and only upon terms and conditions (including, without
      limitation, unit prices and interest rates) that are not more favorable to
      the acquiring person or persons or less favorable to the Company than
      those set forth in the Offer Notice.

                        (4) In the event the Company shall propose to sell less
      than all the Refused Securities (any such sale to be in the manner and on
      the terms specified in Section 4(q)(iii)(3) above), then each Buyer may,
      at its sole option and in its sole discretion, reduce the number or amount
      of the Offered Securities specified in its Notice of Acceptance to an
      amount that shall be not less than the number or amount of the Offered
      Securities that such Buyer elected to purchase pursuant to Section
      4(q)(iii)(2) above multiplied by a fraction, (i) the numerator of which
      shall be the number or amount of Offered Securities the Company actually
      proposes to issue, sell or exchange (including Offered Securities to be
      issued or sold to Buyers pursuant to Section 4(q)(iii)(3) above prior to
      such reduction) and (ii) the denominator of which shall be the original
      amount of the Offered Securities. In the event that any Buyer so elects to
      reduce the number or amount of Offered Securities specified in its Notice
      of Acceptance, the Company may not issue, sell or exchange more than the
      reduced number or amount of the Offered Securities unless and until such
      securities have again been offered to the Buyers in accordance with
      Section 4(q)(iii)(1) above.

                        (5) Upon the closing of the issuance, sale or exchange
      of all or less than all of the Refused Securities, the Buyers shall
      acquire from the Company, and the Company shall issue to the Buyers, the
      number or amount of Offered Securities specified in the Notices of
      Acceptance, as reduced pursuant to Section 4(q)(iii)(4) above if the
      Buyers have so elected, upon the terms and conditions specified in the
      Offer. The purchase by the Buyers of any Offered Securities is subject in
      all cases to the preparation, execution and delivery by the Company and
      the Buyers of a purchase agreement relating to such Offered Securities
      reasonably satisfactory in form and substance to the Buyers and their
      respective counsel.

                        (6) Any Offered Securities not acquired by the Buyers or
      other persons in accordance with Section 4(q)(iii)(4) above may not be
      issued, sold or exchanged until they are again offered to the Buyers under
      the procedures specified in this Agreement.

                  (iv) The restrictions contained in subsections (ii) and (iii)
of this Section 4(q) shall not apply in connection with the issuance of any
Excluded Securities (as defined in the Notes).

            (r) Stockholder Approval. The Company shall provide each stockholder
entitled to vote at a special or annual meeting of stockholders of the Company
(the "STOCKHOLDER MEETING"), which shall be promptly called and held not later
than November 21, 2005 (the

                                      -23-


"STOCKHOLDER MEETING DEADLINE"), a proxy statement, substantially in the form
which has been previously reviewed by the Buyers and a counsel of their choice,
soliciting each such stockholder's affirmative vote at the Stockholder Meeting
for approval of resolutions providing for (i) the Company's issuance of all of
the Securities as described in the Transaction Documents in accordance with
applicable law and the rules and regulations of the Principal Market and (ii)
the increase in the Company's authorized capital by at least 10,000,000 shares
of Common Stock (such affirmative approval of the matters set forth in (i) and
(ii) of this Section 4(r) collectively being referred to herein as the
"STOCKHOLDER APPROVAL"), and the Company shall use its reasonable best efforts
to solicit its stockholders' approval of such resolutions (which reasonable
efforts shall include, in the Company's sole discretion, the requirement to hire
a reputable proxy solicitor) and use its reasonable best efforts to cause the
Board of Directors of the Company to recommend to the stockholders that they
approve such resolutions. The Company shall be obligated to seek to obtain the
Stockholder Approval by the Stockholder Meeting Deadline. If, despite the
Company's best efforts the Stockholder Approval is not obtained on or prior to
the Stockholder Meeting Deadline, the Company shall cause an additional
Stockholder Meeting to be held each calendar quarter thereafter until such
Stockholder Approval is obtained.

            (s) Voting Agreement. The Company shall use its reasonable best
efforts to effectuate the transactions contemplated by the Voting Agreement,
substantially in the form attached hereto as Exhibit H, executed by the Company
and each of Leigh S. Belden and Beltech, Inc. (the "VOTING AGREEMENT").

            (t) Sale of Alabama Building. Upon any sale, transfer or other
disposition of the Company's real property located in Alabama subject to the
Alabama Mortgage, the Company shall establish with a bank acceptable to the
Senior Agent (the "CASH COLLATERAL BANK") a deposit account (together with all
monies on deposit in such deposit account and all certificates and instruments,
if any, representing or evidencing such deposit account, the "CASH COLLATERAL
ACCOUNT") into which the Company shall place One Million Dollars ($1,000,000),
and shall cause the Cash Collateral Bank to enter to an account control
agreement with the Senior Agent, in a form reasonably acceptable to the Senior
Agent. The Cash Collateral Account shall at all times be under the dominion and
control of the Senior Agent. Upon the request of the Senior Agent, the Company
shall also execute and deliver such other customary agreements and instruments
necessary to grant the Buyers a first priority perfected security interest in
the Cash Collateral Account to secure the Notes. The Company agrees that it
shall not permit the Cash Collateral Account to be subject to any lien, pledge,
charge, security interest or other encumbrance other than as provided in the
immediately preceding sentence. The Cash Collateral Account will become
unrestricted when less than $4,000,000 in principal amount of Notes is
outstanding.

      5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

            (a) Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Notes, the Warrants and
the Additional Investment Rights, in which the Company shall record the name and
address of the Person in whose name the Notes, the Warrants and Additional
Investment Rights have been issued (including the name and address of each
transferee), the principal amount of Notes held by such Person, the number of
Interest

                                      -24-


Shares issuable pursuant to the terms of the Notes, Conversion Shares issuable
upon conversion of the Notes and Warrant Shares issuable upon exercise of the
Warrants held by such Person. The Company shall keep the register open and
available at all times during business hours for inspection of any Buyer or its
legal representatives.

            (b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company ("DTC"), registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares, the Interest Shares, if any,
and the Warrant Shares issued at the Closing or upon conversion of the Notes or
exercise of the Warrants in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Notes or exercise of the Warrants in
the form of Exhibit I attached hereto (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and
stop transfer instructions to give effect to Section 2(h) hereof, will be given
by the Company to its transfer agent, and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents. If a Buyer
effects a sale, assignment or transfer of the Securities in accordance with
Section 2(g), the Company shall permit the transfer and shall promptly instruct
its transfer agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment, unless such
transfer is prohibited by applicable law. In the event that such sale,
assignment or transfer involves Conversion Shares, Interest Shares or Warrant
Shares sold, assigned or transferred pursuant to an effective registration
statement or pursuant to Rule 144 with appropriate confirmation of this fact,
the transfer agent shall issue such Securities to the Buyer, assignee or
transferee, as the case may be, without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5(b) will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5(b), that a Buyer shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.

      6. COLLATERAL AGENT

            Portside Growth & Opportunity Fund is hereby appointed the
Collateral Agent hereunder and under the other Security Documents and each Buyer
hereby authorizes the Collateral Agent (and its officers, directors, employees
and agents) to take such action on such Buyer's behalf in accordance with the
terms hereof and thereof. The Collateral Agent shall not have, by reason hereof
or any of the other Security Documents, a fiduciary relationship in respect of
any Buyer. Neither the Collateral Agent nor any of its officers, directors,
employees and agents shall have any liability to any Buyer for any action taken
or omitted to be taken in connection hereof or any other Security Document
except to the extent caused by its own gross negligence or willful misconduct,
and each Buyer agrees to defend, protect, indemnify and hold harmless the
Collateral Agent and all of its officers, directors, employees and agents
(collectively, the "COLLATERAL INDEMNITEES") from and against any losses,
damages, liabilities,

                                      -25-


obligations, penalties, actions, judgments, suits, fees, costs and expenses
(including, without limitation, reasonable attorneys' fees, costs and expenses)
incurred by such Collateral Indemnitee, whether direct, indirect or
consequential, arising from or in connection with the performance by such
Collateral Indemnitee of the duties and obligations of Collateral Agent pursuant
hereto or any of the Security Documents.

      7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

            Closing Date. The obligation of the Company hereunder to issue and
sell the Notes, the related Warrants and the related Additional Investment
Rights to each Buyer at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:

                  (i) Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.

                  (ii) Such Buyer and each other Buyer shall have delivered to
the Company the Purchase Price (less, in the case of Portside Growth &
Opportunity Fund, the amounts withheld pursuant to Section 4(g)) for the Notes
and the related Warrants and Additional Investment Rights being purchased by
such Buyer at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.

                  (iii) The representations and warranties of such Buyer shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.

      8. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

            (a) Closing Date. The obligation of each Buyer hereunder to purchase
the Notes and the related Warrants and Additional Investment Rights at the
Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion
by providing the Company with prior written notice thereof:

                  (i) The Company and, to the extent it is a party thereto, each
of its Existing Subsidiaries, shall have duly executed and delivered to such
Buyer: (A) the Initial Notes (in such principal amounts as such Buyer shall
request) being purchased by such Buyer at the Closing pursuant to this
Agreement, (B) the Warrants (in such amounts as such Buyer shall request) being
purchased by such Buyer at the Closing pursuant to this Agreement; (C) the
Additional Investment Rights (in such amounts as such Buyer shall request) being
purchased by such Buyer at the Closing pursuant to this Agreement: (D) the
Pledge and Security Agreement; (E) the Guaranty, and (F) each of the other
Transaction Documents.

                                      -26-


                  (ii) The Voting Agreement shall have been executed and
delivered to such Buyer by the Company and each of Leigh S. Belden and Beltech,
Inc.

                  (iii) Such Buyer shall have received the opinion of Cooley
Godward LLP, the Company's outside counsel, dated as of the Closing Date, in
substantially the form of Exhibit J attached hereto.

                  (iv) The Company shall have delivered to such Buyer a copy of
the Irrevocable Transfer Agent Instructions, in the form of Exhibit I attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.

                  (v) The Company shall have delivered to such Buyer a
certificate evidencing the formation and good standing of the Company and
Verilink Europe Limited in such entity's jurisdiction of formation issued by the
Secretary of State (or comparable office) of such jurisdiction, as of a date
within 10 days of the Closing Date.

                  (vi) The Company shall have delivered to such Buyer a
certificate evidencing the Company's qualification as a foreign corporation and
good standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business and is required to qualify
to do business as a foreign corporation, where such failure to so qualify would
have a Material Adverse Effect on the Company or its Subsidiaries, as of a date
within 10 days of the Closing Date.

                  (vii) The Company shall have delivered to such Buyer a
certified copy of the Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten (10) days of the Closing Date.

                  (viii) The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company and dated as of the
Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted
by the Company's Board of Directors in a form reasonably acceptable to such
Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as in
effect at the Closing, in the form attached hereto as Exhibit K.

                  (ix) The representations and warranties of the Company shall
be true and correct in all material respects (except for those representations
and warranties that are qualified by materiality or Material Adverse Effect,
which shall be true and correct in all respects) as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form attached hereto
as Exhibit L.

                                      -27-


                  (x) The Company shall have delivered to such Buyer a letter
from the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Closing Date.

                  (xi) The Common Stock (i) shall be designated for quotation or
listed on the Principal Market and (ii) shall not have been suspended, as of the
Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, as of the Closing Date, either (A) in writing by the SEC or the
Principal Market or (B) by falling below the minimum listing maintenance
requirements of the Principal Market.

                  (xii) The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary for the sale
of the Securities. Without limiting the generality of the foregoing, the Company
shall also have obtained the consent or waiver of Regions Bank, with respect to
the granting of junior real estate mortgage to secure the Notes, on its building
and property in Cummings Research Park at 950 Explorer Boulevard, Huntsville,
Alabama to the Senior Agent, which shall be junior in priority to Regions Bank's
existing mortgages, with such other agreements as the Buyers shall reasonably
require to ensure that the Buyers enjoy full rights with respect to the
Collateral, evidence of which shall have been provided to the Buyers.

                  (xiii) In accordance with the terms of the Security Documents,
the Company and the shall have delivered to the Agent (as defined in the Pledge
and Security Agreement) certificates, if issued, representing the shares of
capital stock of its Subsidiaries pledged under the Pledge and Security
Agreement, along with duly executed blank stock powers.

                  (xiv) A pay-off letter in form and substance satisfactory to
the Senior Agent from RBC Centura Bank.

                  (xv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as such
Buyer or its counsel may reasonably request.

            (b) Conditions Subsequent to the Closing. The Company shall deliver
to the Buyers not later than thirty (30) days following the Closing Date:

                  (i) such depository account, blocked account, lockbox account
and similar agreements and other documents, each in form and substance
reasonably satisfactory to the Senior Agent, as the Senior Agent may request
with respect to the cash management system of the Company and the Existing
Subsidiaries.

                  (ii) a mortgage, in form and substance reasonably satisfactory
to the Buyers, covering all of the Company's right, title and interest in and to
the real property located in the Cummings Research Park West in Huntsville,
Madison County, Alabama, together with all improvements located thereon
(collectively, the "PROPERTY"), duly executed by the Company (the "NEW
MORTGAGE"), subject only to the items set forth on Schedule 8(b), together with,
at the request of the Buyers, a current title search report, a title insurance
policy, evidence of insurance, a current survey of the Property, and a current
appraisal of the Property;

                                      -28-


                  (iii) UCC-1 Financing Statements naming the Buyers as secured
parties covering all fixtures, furniture, furnishings, equipment, machinery,
goods, general intangibles, money, insurance proceeds, contract rights, option
rights, inventory, all refundable, returnable or reimbursable fees, deposits or
other funds or evidences of credit or indebtedness deposited by or on behalf of
the Company with any governmental agencies, boards, corporations, providers of
utility services, public or private, including all refundable, returnable or
reimbursable tap fees, utility deposits, commitment fees and development costs,
and all other personal property of any kind or character, which are now or
hereafter located or to be located upon, within or about the Property, or which
are or may be used in or related to the planning, development, financing or
operation of the Property, together with all accessories, replacements and
substitutions thereto or therefor and the proceeds thereof;

                  (iv) all required consents to or approvals of the execution
and delivery by the Company of the New Mortgage, including, without limitation,
the written consent of (i) Regions Bank, and (ii) The Industrial Development
Board of the City of Huntsville;

                  (v) the opinion of local Alabama counsel for the Company,
addressed to each Buyer, with respect to the enforceability and perfection of
the New Mortgage and any related fixture filings in form and substance
reasonably satisfactory to the Buyers;

                  (vi) the opinion of counsel to the Company, addressed to each
Buyer, as to due authorization, execution and delivery of the New Mortgage by
the Company in form and substance reasonably satisfactory to the Buyers; and

                  (vii) any other instruments, documents or information that the
Buyers may reasonably deem necessary to create a valid second and subsisting
lien on the Property, each in scope, form and substance reasonably satisfactory
to the Buyers.

            (c) Good Standing. The Company shall deliver to the Buyers not later
than fifteen (15) days following the Closing Date: (i) a certificate evidencing
the incorporation and good standing of Larscom Incorporated ("LARSCOM") issued
by the Secretary of State of the State of Delaware as of a date within 10 days
of the Closing Date and (ii) a certificate evidencing the qualification of
Larscom as a foreign corporation and good standing issued by the Secretary of
State (or comparable office) of each jurisdiction in which Larscom conducts
business and is required to qualify to do business as a foreign corporation,
where such failure to so qualify would have a Material Adverse Effect on
Larscom, as of a date within 10 days of the Closing Date.

            (d) UCC-3. Promptly, and in any event, within three (3) days after
the Closing Date, the Company shall deliver to the Senior Agent evidence that
the UCC-3s terminating all UCC-1s filed with resect to the security interests in
favor of RBC Centura Bank have been duly submitted for filing.

            (e) Copyrights. Promptly, and in any event, within three (3) days
after the Closing Date, the Company shall deliver to the Senior Agent the
necessary assignment documentation such that the Senior Agent may record the
grant of security interest with respect to registered Copyrights (as defined in
the Pledge and Security Agreement) in the United States Copyright Office.

      9. TERMINATION.

            In the event that the Closing shall not have occurred with respect
to a Buyer on or before five (5) Business Days from the date hereof due to the
Company's or such Buyer's failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the nonbreaching party's failure

                                      -29-


to waive such unsatisfied condition(s)), the nonbreaching party shall have the
option to terminate this Agreement with respect to such breaching party at the
close of business on such date without liability of any party to any other
party; provided, however, this if this Agreement is terminated pursuant to this
Section 9, the Company shall remain obligated to reimburse the non-breaching
Buyers for the expenses described in Section 4(g) above.

      10. MISCELLANEOUS.

            (a) Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and 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, 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 brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. 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 to such
party at the address for such 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. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

            (b) Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which 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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

            (c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

            (d) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.

            (e) Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and Persons acting

                                      -30-


on their behalf with respect to the matters discussed herein, and this Agreement
and the instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the holders of at least a
majority of the aggregate number of Registrable Securities issued and issuable
hereunder, and any amendment to this Agreement made in conformity with the
provisions of this Section 10(e) shall be binding on all Buyers and holders of
Securities, as applicable. No provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the applicable Securities then outstanding. 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 also is offered to all of the parties to the Transaction
Documents, holders of Notes, holders of the Warrants or holders of the
Additional Investment Rights, as the case may be. The Company has not, directly
or indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.

            (f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:

                  If to the Company:

                         Verilink Corporation
                         11551 E. Arapahoe Rd., Suite 150
                         Centennial, Colorado 80112
                         Telephone: (303) 968-3000
                         Facsimile: (303) 968-3005
                         Attention: Chief Financial Officer

                         Copy (which shall not constitute valid notice) to:

                         Cooley Godward LLP
                         380 Interlocken Crescent, Suite 900
                         Broomfield, CO 80021
                         Telephone: (720) 566-4000
                         Facsimile: (720) 566-4099
                         Attention: Brent D. Fassett, Esq.

                                      -31-


                  If to the Transfer Agent:

                         American Stock Transfer & Trust Company
                         Operations Center
                         6201 15th Avenue
                         Brooklyn, New York 11219
                         Telephone: (718) 921-8145
                         Facsimile: (718) 921-8116
                         Attention: Office of General Counsel

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers,

      with a copy (for informational purposes only) to:

            Schulte Roth & Zabel LLP
            919 Third Avenue
            New York, New York  10022
            Telephone: (212) 756-2000
            Facsimile: (212) 593-5955
            Attention: Eleazer N. Klein, Esq.

or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by an overnight courier service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from an overnight courier
service in accordance with clause (i), (ii) or (iii) above, respectively.

            (g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes, the Warrants or the Additional Investment
Rights. The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the holders of at least a
majority of the aggregate number of Registrable Securities issued and issuable
hereunder, including by way of a Fundamental Transaction (unless the Company is
in compliance with the applicable provisions governing Fundamental Transactions
set forth in the Notes, the Warrants and the Additional Investment Rights). A
Buyer may assign some or all of its rights hereunder without the consent of the
Company in connection with a transfer by such Buyer of any of the Securities, in
which event such assignee shall be deemed to be a Buyer hereunder with respect
to such assigned rights.

            (h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.

                                      -32-


            (i) Survival. Unless this Agreement is terminated under Section 9,
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and
9 shall survive the Closing. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.

            (j) Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

            (k) Indemnification. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "INDEMNITEES")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
material inaccuracy in any representation or warranty made by the Company in the
Transaction Documents or any inaccuracy in any representation or warranty in the
Transaction Documents that is qualified by materiality or Material Adverse
Effect, (b) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or (c) any cause of action, suit or claim
brought or made against such Indemnitee by a third party (including for these
purposes a derivative action brought on behalf of the Company) and arising out
of or resulting from (i) the execution, delivery, performance or enforcement of
the Transaction Documents, (ii) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Securities, or (iii) the status of such Buyer or holder of the Securities as
an investor in the Company pursuant to the transactions contemplated by the
Transaction Documents; provided that indemnification pursuant to this clause
(iii) shall not be available to the extent arising primarily from such Buyer's
fraud, gross negligence, willful misconduct or breach of representation,
warranty or covenant made by such Buyer in any Transaction Document. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities that is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 10(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.

            (l) No Strict Construction. 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.

                                      -33-


            (m) Remedies. Each Buyer and each holder of the Securities shall
have all rights and remedies set forth in the Transaction Documents and all
rights and remedies which such holders have been granted at any time under any
other agreement or contract and all of the rights which such holders have under
any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or
other security), to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.

            (n) Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer 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 Buyer 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.

            (o) Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights hereunder
or 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, foreign, 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.

            (p) Independent Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with respect to such obligations or
the transactions contemplated by the Transaction Documents and the Company
acknowledges that the Buyers are not acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Documents. Each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be

                                      -34-


necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.

                            [SIGNATURE PAGE FOLLOWS]

                                      -35-


      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

                                              COMPANY:

                                              VERILINK CORPORATION

                                              By: /s/ Leigh S. Belden
                                                 -------------------------------
                                                  Name:  Leigh S. Belden
                                                  Title: President and CEO

                [Signature Page to Securities Purchase Agreement]



      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

                                              BUYER:

                                              PORTSIDE GROWTH &
                                              OPPORTUNITY FUND

                                              By: /s/ Jeffrey Smith
                                                 -------------------------------
                                                  Name:  Jeffrey Smith
                                                  Title: Authorized Signatory

                [Signature Page to Securities Purchase Agreement]



      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

                                              BUYER:

                                              SMITHFIELD FIDUCIARY LLC

                                              By: /s/ Adam J. Chill
                                                 -------------------------------
                                                  Name: Adam J. Chill
                                                  Title: Authorized Signatory

                [Signature Page to Securities Purchase Agreement]



      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

                                              BUYER:

                                              D.B. ZWIRN SPECIAL OPPORTUNITIES
                                              FUND, L.P.

                                              By: D.B. Zwirn and Co., L.P.

                                              By: /s/ David Proshan
                                                 -------------------------------
                                                  Name:  David Proshan
                                                  Title: General Counsel

                [Signature Page to Securities Purchase Agreement]



      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

                                              BUYER:

                                              PROVIDENT PREMIER MASTER
                                              FUND, LTD.

                                              By: /s/ Steven W. Winters
                                                 -------------------------------
                                                  Name:  Steven W. Winters
                                                  Title: Attorney-In-Fact

                [Signature Page to Securities Purchase Agreement]



      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

                                           BUYER:

                                           LANGLEY PARTNERS, L.P.

                                           By: Langley Capital, LLC, its General
                                                Partner

                                           By: /s/ Jeffrey Thorp
                                              --------------------------------
                                                Name: Jeffrey Thorp
                                                Title: Managing Member

                [Signature Page to Securities Purchase Agreement]



      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

                                             BUYER:

                                             JGB CAPITAL L.P.

                                             By: JGB Management Inc., as General
                                                  Partner

                                             By: /s/ Brett Cohen
                                                -------------------------------
                                                 Name: Brett Cohen
                                                 Title: President

                [Signature Page to Securities Purchase Agreement]


                               SCHEDULE OF BUYERS



        (1)                          (2)                       (3)             (4)             (5)            (6)

                                                                                             MAXIMUM
                                                                                            AGGREGATE
                                                            AGGREGATE                       PRINCIPAL
                                                            PRINCIPAL                        AMOUNT OF
                                  ADDRESS AND               AMOUNT OF        NUMBER OF      ADDITIONAL
        BUYER                  FACSIMILE NUMBER           INITIAL NOTES   WARRANT SHARES      NOTES      PURCHASE PRICE
- --------------------  ----------------------------------  -------------   --------------    ----------   --------------
                                                                                          
PORTSIDE GROWTH &     c/o Ramius Capital Group, L.L.C.      $4,000,000        332,226      $2,000,000      $4,000,000
OPPORTUNITY FUND      666 Third Avenue, 26th Floor
                      New York, New York 10017
                      Attention: Jeffrey Smith
                                 Michael Neidell
                      Facsimile: (212) 845-7999
                      Telephone: (212) 845-7955
                      Residence: Cayman Islands

SMITHFIELD FIDUCIARY  c/o Highbridge Capital Management,    $1,000,000         83,056      $  500,000      $1,000,000
LLC                   LLC
                      9 West 57th Street, 27th Floor
                      New York, New York  10019
                      Attention: Ari J. Storch
                                  Adam J. Chill
                      Facsimile: (212) 751-0755
                      Telephone: (212) 287-4720
                      Residence: Cayman Islands

D.B. ZWIRN SPECIAL    D.B. Zwirn & Co., L.P.                $1,000,000         83,056      $  500,000      $1,000,000
OPPORTUNITIES FUND,   745 Fifth Ave.
L.P.                  18th Floor
                      New York, New York
                      10151
                      Attention: Daniel B. Zwirn
                                 Perry A. Gruss
                      Telephone: 646-720-9101
                      Facsimile: 646-344-4743
                      Residence: Delaware


        (1)                           (7)                          (8)

                                                                QUALIFIED
                         LEGAL REPRESENTATIVE'S ADDRESS       INSTITUTIONAL
        BUYER                 AND FACSIMILE NUMBER                BUYER
- --------------------    -------------------------------       -------------
                                                        
PORTSIDE GROWTH &       Schulte Roth & Zabel LLP                  Yes
OPPORTUNITY FUND        919 Third Avenue
                        New York, New York 10022
                        Attention: Eleazer Klein, Esq.
                        Facsimile: (212) 593-5955
                        Telephone: (212) 756-2376

SMITHFIELD FIDUCIARY                                              Yes
LLC

ZWIRN SPECIAL                                                     Yes
OPPORTUNITIES FUND,
L.P.




                                                                                                       
PROVIDENT PREMIER     c/o Gemini Investment Strategies,     $1,000,000         83,056       $  500,000     $1,000,000    Yes
                      LLC
MASTER                35 Waterview Boulevard
FUND, LTD.            Parsippany, NJ 07054
                      Attention: Steven Winters
                      Facsimile: (973) 404-1360
                      Telephone: (973) 404-1350
                      Residence: Cayman Islands

LANGLEY PARTNERS,     c/o Langley Capital, LLC              $1,000,000         83,056       $  500,000     $1,000,000    Yes
 L.P.                 535 Madison Avenue, 7th Floor
                      New York, NY 10022
                      Attention: Jeffrey Thorp
                      Facsimile: (212) 208-2971
                      Telephone: (212) 850-7528
                      Residence: Delaware

JGB CAPITAL L.P.      660 Madison, 21st floor               $2,000,000        166,113       $1,000,000     $2,000,000    No
                      New York, NY 10021
                      Attention: Brett Cohen
                      Facsimile: (212) 253-4093
                      Telephone: (212) 355-5771
                      Residence: Delaware





                                    EXHIBITS

Exhibit A  Form of Initial Notes
Exhibit B  Form of Warrants
Exhibit C  Form of Additional Investment Rights
Exhibit D  Form of Additional Notes
Exhibit E  Registration Rights Agreement
Exhibit F  Form of Pledge and Security Agreement
Exhibit G  Form of Guarantee
Exhibit H  Form of Voting Agreement
Exhibit I  Irrevocable Transfer Agent Instructions
Exhibit J  Form of Outside Company Counsel Opinion
Exhibit K  Form of Secretary's Certificate
Exhibit L  Form of Officer's Certificate

EX-10.20

                                                                   EXHIBIT 10.20

                                [FORM OF WARRANT]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, (B) AN OPINION OF
COUNSEL, REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (C) REASONABLE ASSURANCE HAVING BEEN PROVIDED TO THE COMPANY
THAT SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER IS BEING MADE PURSUANT TO RULE 144
OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

                              VERILINK CORPORATION

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.:___________
Number of Shares of Common Stock:_____________
Date of Issuance: March 21, 2005 ("ISSUANCE DATE")

            Verilink Corporation, a Delaware corporation (the "COMPANY"), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, [BUYERS], the registered holder hereof or its
permitted assigns (the "HOLDER"), is entitled, subject to the terms set forth
below, to purchase from the Company, at the Exercise Price (as defined below)
then in effect, upon surrender of this Warrant to Purchase Common Stock
(including any Warrants to Purchase Common Stock issued in exchange, transfer or
replacement hereof, the "WARRANT"), at any time or times on or after September
21, 2005 but not after 11:59 p.m., New York Time, on the Expiration Date (as
defined below), ______________ (_____________)(1) fully paid nonassessable
shares of Common Stock (as defined below) (the "WARRANT SHARES"). Except as
otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 15. This Warrant is one of the Warrants to
Purchase Common Stock (the "SPA WARRANTS") issued pursuant to Section 1 of that
certain Securities Purchase Agreement, dated as of March 20, 2005 (the
"SUBSCRIPTION DATE"), by and among the Company and the investors (the "BUYERS")
referred to therein (the "SECURITIES PURCHASE AGREEMENT").

- -----------------------
(1) Insert number of shares equal to (x) 25% of the principal amount of Initial
Notes issued to the Holder pursuant to the Securities Purchase Agreement divided
by (y) $3.01.



            1. EXERCISE OF WARRANT.

                  (a) Mechanics of Exercise. Subject to the terms and conditions
hereof (including, without limitation, the limitations set forth in Section
1(f)), this Warrant may be exercised by the Holder on any day on or after
September 21, 2005 in whole or in part, by (i) delivery of a written notice, in
the form attached hereto as Exhibit A (the "EXERCISE NOTICE"), of the Holder's
election to exercise this Warrant, (ii) (A) payment to the Company of an amount
equal to the applicable Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (the "AGGREGATE EXERCISE
PRICE") in cash or wire transfer of immediately available funds or (B) by
notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required
to deliver the original Warrant in order to effect the exercise hereunder.
Execution and delivery of the Exercise Notice with respect to less than all of
the Warrant Shares shall have the same effect as cancellation of the original
Warrant and issuance of a new Warrant evidencing the right to purchase the
remaining number of Warrant Shares. On or before the first Business Day
following the date on which the Company has received each of the Exercise Notice
and the Aggregate Exercise Price (or notice of a Cashless Exercise) (the
"EXERCISE DELIVERY DOCUMENTS"), the Company shall transmit by facsimile an
acknowledgment of confirmation of receipt of the Exercise Delivery Documents to
the Holder and the Company's transfer agent (the "TRANSFER AGENT"). On or before
the third Business Day following the date on which the Company has received all
of the Exercise Delivery Documents (the "SHARE DELIVERY DATE"), the Company
shall (X) provided that the Transfer Agent is participating in The Depository
Trust Company ("DTC") Fast Automated Securities Transfer Program and such action
is not prohibited by applicable law or regulation or any applicable policy of
DTC, upon the request of the Holder, credit such aggregate number of shares of
Common Stock to which the Holder is entitled pursuant to such exercise to the
Holder's or its designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system, or (Y) if the foregoing shall not apply,
issue and dispatch by overnight courier to the address as specified in the
Exercise Notice, a certificate, registered in the Company's share register in
the name of the Holder or its designee, for the number of shares of Common Stock
to which the Holder is entitled pursuant to such exercise. Upon delivery of the
Exercise Delivery Documents, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date of delivery
of the certificates evidencing such Warrant Shares. If this Warrant is delivered
to the Company in connection with any exercise pursuant to this Section 1(a) and
the number of Warrant Shares represented by this Warrant submitted for exercise
is greater than the number of Warrant Shares being acquired upon an exercise,
then the Company shall as soon as practicable and in no event later than five
Business Days after the Share Delivery Date and at its own expense, issue a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
number of Warrant Shares purchasable immediately prior to such exercise under
this Warrant, less the number of Warrant Shares with respect to which this
Warrant is exercised. No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock to
be issued shall be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant; provided that the Company shall
not be required to pay any tax that may be payable in respect of any issuance
and delivery of Warrant Shares to any Person other than the Holder or with
respect to any income tax due by the Holder with respect to such Warrant Shares.

                                      -2-


                  (b) Exercise Price. For purposes of this Warrant, "EXERCISE
PRICE" means $3.41, subject to adjustment as provided herein.

                  (c) Company's Failure to Timely Deliver Securities. If the
Company shall fail for any reason or for no reason to issue to the Holder on or
before the Share Delivery Date, a certificate for the number of shares of Common
Stock to which the Holder is entitled and register such shares of Common Stock
on the Company's share register or to credit the Holder's balance account with
DTC for such number of shares of Common Stock to which the Holder is entitled
upon the Holder's exercise of this Warrant, then, in addition to all other
remedies available to the Holder, the Company shall pay in cash to the Holder on
each day after such Share Delivery Date that the issuance of such shares of
Common Stock is not timely effected an amount equal to 2.0% of the product of
(A) the sum of the number of shares of Common Stock not issued to the Holder on
a timely basis and to which the Holder is entitled and (B) the Closing Sale
Price of the shares of Common Stock on the trading day immediately preceding the
last possible date which the Company could have issued such shares of Common
Stock to the Holder without violating Section 1(a). In addition to the
foregoing, if on or before the Share Delivery Date the Company shall fail to
issue and deliver a certificate to the Holder and register such shares of Common
Stock on the Company's share register or credit the Holder's balance account
with DTC for the number of shares of Common Stock to which the Holder is
entitled upon such holder's exercise hereunder, and if on or after such Share
Delivery Date the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
shares of Common Stock issuable upon such exercise that the Holder anticipated
receiving from the Company (a "BUY-IN"), then the Company shall, within three
Business Days after the Holder's request and in the Holder's discretion, either
(i) pay cash to the Holder in an amount equal to the Holder's total purchase
price (including brokerage commissions, if any) for the shares of Common Stock
so purchased (the "BUY-IN PRICE"), at which point the Company's obligation to
deliver such certificate (and to issue such shares of Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such shares of Common Stock and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the date of exercise.

                  (d) Cashless Exercise. Notwithstanding anything contained
herein to the contrary, if a Registration Statement (as defined in the
Registration Rights Agreement) covering the Warrant Shares that are the subject
of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES") is not available for
the resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):

                  Net Number = (A x B) - (A x C)
                               -----------------
                                       B

                                      -3-


                  For purposes of the foregoing formula:

            A= the total number of shares with respect to which this Warrant is
            then being exercised.

            B= the Closing Sale Price of the shares of Common Stock (as reported
            by Bloomberg) on the date immediately preceding the date of the
            Exercise Notice.

            C= the Exercise Price then in effect for the applicable Warrant
            Shares at the time of such exercise.

                  (e) Disputes. In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the Holder the number of Warrant Shares that are
not disputed and resolve such dispute in accordance with Section 12.

                  (f) Limitations on Exercises.

                        (i) Beneficial Ownership. Other than in connection with
                        a Fundamental Transaction pursuant to Section 4(a), the
                        Company shall not effect the exercise of this Warrant,
                        and the Holder shall not have the right to exercise this
                        Warrant, to the extent that after giving effect to such
                        exercise, such Person (together with such Person's
                        affiliates) would beneficially own in excess of 4.99%
                        (the "MAXIMUM PERCENTAGE") of the shares of Common Stock
                        outstanding immediately after giving effect to such
                        exercise. For purposes of the foregoing sentence, the
                        aggregate number of shares of Common Stock beneficially
                        owned by such Person and its affiliates shall include
                        the number of shares of Common Stock issuable upon
                        exercise of this Warrant with respect to which the
                        determination of such sentence is being made, but shall
                        exclude shares of Common Stock which would be issuable
                        upon (i) exercise of the remaining, unexercised portion
                        of this Warrant beneficially owned by such Person and
                        its affiliates and (ii) exercise or conversion of the
                        unexercised or unconverted portion of any other
                        securities of the Company beneficially owned by such
                        Person and its affiliates (including, without
                        limitation, any convertible notes or convertible
                        preferred stock or warrants) subject to a limitation on
                        conversion or exercise analogous to the limitation
                        contained herein. Except as set forth in the preceding
                        sentence, for purposes of this paragraph, beneficial
                        ownership shall be calculated in accordance with Section
                        13(d) of the Securities Exchange Act of 1934, as
                        amended. For purposes of this Warrant, in determining
                        the number of outstanding shares of Common Stock, the
                        Holder may rely on the number of outstanding shares of
                        Common Stock as reflected in (1) the Company's most
                        recent Form 10-K, Form 10-Q, Current Report on Form 8-K
                        or other

                                      -4-


                        public filing with the Securities and Exchange
                        Commission, as the case may be, (2) a more recent public
                        announcement by the Company or (3) any other notice by
                        the Company or the Transfer Agent setting forth the
                        number of shares of Common Stock outstanding. For any
                        reason at any time, upon the written or oral request of
                        the Holder, the Company shall within one Business Day
                        confirm orally and in writing to the Holder the number
                        of shares of Common Stock then outstanding. In any case,
                        the number of outstanding shares of Common Stock shall
                        be determined after giving effect to the conversion or
                        exercise of securities of the Company, including the SPA
                        Securities and the SPA Warrants, by the Holder and its
                        affiliates since the date as of which such number of
                        outstanding shares of Common Stock was reported. By
                        written notice to the Company, the Holder may increase
                        or decrease the Maximum Percentage to any other
                        percentage not in excess of 9.99% specified in such
                        notice; provided that (i) any such increase will not be
                        effective until the sixty-first (61st) day after such
                        notice is delivered to the Company, and (ii) any such
                        increase or decrease will apply only to the Holder and
                        not to any other holder of SPA Securities.

                        (ii) Principal Market Regulation. The Company shall not
                        be obligated to issue any shares of Common Stock upon
                        exercise of this Warrant if the issuance of such shares
                        of Common Stock would exceed that number of shares of
                        Common Stock which the Company may issue upon exercise
                        or conversion, as applicable, of the SPA Warrants and
                        SPA Securities without breaching the Company's
                        obligations under the rules or regulations of the
                        Principal Market (the "EXCHANGE CAP"),except that such
                        limitation shall not apply in the event that the Company
                        (A) obtains the approval of its shareholders as required
                        by the applicable rules of the Principal Market for
                        issuances of shares of Common Stock in excess of such
                        amount or (B) obtains a written opinion from outside
                        counsel to the Company that such approval is not
                        required, which opinion shall be reasonably satisfactory
                        to the Required Holders. Until such approval or written
                        opinion is obtained, no Buyer shall be issued in the
                        aggregate, upon exercise or conversion, as applicable,
                        of any SPA Warrants or SPA Securities, shares of Common
                        Stock in an amount greater than the product of the
                        Exchange Cap multiplied by a fraction, the numerator of
                        which is the total number of shares of Common Stock
                        underlying the SPA Warrants issued to such Buyer
                        pursuant to the Securities Purchase Agreement on the
                        Issuance Date and the denominator of which is the
                        aggregate number of shares of Common Stock underlying
                        the SPA Warrants issued to the Buyers pursuant to the
                        Securities Purchase Agreement on the Issuance Date (with
                        respect to each Buyer, the "EXCHANGE CAP ALLOCATION").
                        In the event that

                                      -5-


                        any Buyer shall sell or otherwise transfer any of such
                        Buyer's SPA Warrants, the transferee shall be allocated
                        a pro rata portion of such Buyer's Exchange Cap
                        Allocation, and the restrictions of the prior sentence
                        shall apply to such transferee with respect to the
                        portion of the Exchange Cap Allocation allocated to such
                        transferee. In the event that any holder of SPA Warrants
                        shall exercise all of such holder's SPA Warrants into a
                        number of shares of Common Stock which, in the
                        aggregate, is less than such holder's Exchange Cap
                        Allocation, then the difference between such holder's
                        Exchange Cap Allocation and the number of shares of
                        Common Stock actually issued to such holder shall be
                        allocated to the respective Exchange Cap Allocations of
                        the remaining holders of SPA Warrants on a pro rata
                        basis in proportion to the shares of Common Stock
                        underlying the SPA Warrants then held by each such
                        holder. In the event that the Company is prohibited from
                        issuing any Warrant Shares for which an Exercise Notice
                        has been received as a result of the operation of this
                        Section 1(f)(ii), the Company shall pay cash in exchange
                        for cancellation of such Warrant Shares, at a price per
                        Warrant Share equal to the difference between the
                        Closing Sale Price and the Exercise Price as of the date
                        of the attempted exercise.

            2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:

                  (a) Adjustment upon Issuance of shares of Common Stock. If and
whenever on or after the Subscription Date the Company issues or sells, or in
accordance with this Section 2 is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
deemed to have been issued by the Company in connection with any Excluded
Securities (as defined in the SPA Securities) for a consideration per share less
than a price (the "APPLICABLE PRICE") equal to the Exercise Price in effect
immediately prior to such issue or sale or deemed issuance or sale (the
foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance,
the Exercise Price then in effect shall be reduced to an amount equal to the
product of (A) the Exercise Price in effect immediately prior to such Dilutive
Issuance and (B) the quotient determined by dividing (1) the sum of (I) the
product derived by multiplying the Exercise Price in effect immediately prior to
such Dilutive Issuance and the number of Common Stock Deemed Outstanding
immediately prior to such Dilutive Issuance plus (II) the consideration, if any,
received by the Company upon such Dilutive Issuance, by (2) the product derived
by multiplying (I) the Exercise Price in effect immediately prior to such
Dilutive Issuance by (II) the number of Common Stock Deemed Outstanding
immediately after such Dilutive Issuance. Upon each such adjustment of the
Exercise Price hereunder, the number of Warrant Shares shall be adjusted to the
number of shares of Common Stock determined by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Exercise Price

                                      -6-


resulting from such adjustment. For purposes of determining the adjusted
Exercise Price under this Section 2(a), the following shall be applicable:

                  (i) Issuance of Options. If the Company in any manner grants
                  any Options and the lowest price per share for which one share
                  of Common Stock is issuable upon the exercise of any such
                  Option or upon conversion, exercise or exchange of any
                  Convertible Securities issuable upon exercise of any such
                  Option is less than the Applicable Price, then such share of
                  Common Stock shall be deemed to be outstanding and to have
                  been issued and sold by the Company at the time of the
                  granting or sale of such Option for such price per share. For
                  purposes of this Section 2(a)(i), the "lowest price per share
                  for which one share of Common Stock is issuable upon exercise
                  of such Options or upon conversion, exercise or exchange of
                  such Convertible Securities" shall be equal to the sum of the
                  lowest amounts of consideration (if any) received or
                  receivable by the Company with respect to any one share of
                  Common Stock upon the granting or sale of the Option, upon
                  exercise of the Option and upon conversion, exercise or
                  exchange of any Convertible Security issuable upon exercise of
                  such Option. No further adjustment of the Exercise Price or
                  number of Warrant Shares shall be made upon the actual
                  issuance of such Common Stock or of such Convertible
                  Securities upon the exercise of such Options or upon the
                  actual issuance of such Common Stock upon conversion, exercise
                  or exchange of such Convertible Securities.

                  (ii) Issuance of Convertible Securities. If the Company in any
                  manner issues or sells any Convertible Securities and the
                  lowest price per share for which one share of Common Stock is
                  issuable upon the conversion, exercise or exchange thereof is
                  less than the Applicable Price, then such share of Common
                  Stock shall be deemed to be outstanding and to have been
                  issued and sold by the Company at the time of the issuance or
                  sale of such Convertible Securities for such price per share.
                  For the purposes of this Section 2(a)(ii), the "lowest price
                  per share for which one share of Common Stock is issuable upon
                  the conversion, exercise or exchange" shall be equal to the
                  sum of the lowest amounts of consideration (if any) received
                  or receivable by the Company with respect to one share of
                  Common Stock upon the issuance or sale of the Convertible
                  Security and upon conversion, exercise or exchange of such
                  Convertible Security. No further adjustment of the Exercise
                  Price or number of Warrant Shares shall be made upon the
                  actual issuance of such Common Stock upon conversion, exercise
                  or exchange of such Convertible Securities, and if any such
                  issue or sale of such Convertible Securities is made upon
                  exercise of any Options for which adjustment of this Warrant
                  has been or is to be made pursuant to other provisions of this
                  Section 2(a), no further adjustment of the Exercise Price or
                  number of Warrant Shares shall be made by reason of such issue
                  or sale.

                                      -7-


                  (iii) Change in Option Price or Rate of Conversion. If the
                  purchase price provided for in any Options, the additional
                  consideration, if any, payable upon the issue, conversion,
                  exercise or exchange of any Convertible Securities, or the
                  rate at which any Convertible Securities are convertible into
                  or exercisable or exchangeable for shares of Common Stock
                  increases or decreases at any time, the Exercise Price and the
                  number of Warrant Shares in effect at the time of such
                  increase or decrease shall be adjusted to the Exercise Price
                  and the number of Warrant Shares which would have been in
                  effect at such time had such Options or Convertible Securities
                  provided for such increased or decreased purchase price,
                  additional consideration or increased or decreased conversion
                  rate, as the case may be, at the time initially granted,
                  issued or sold. For purposes of this Section 2(a)(iii), if the
                  terms of any Option or Convertible Security that was
                  outstanding as of the date of issuance of this Warrant are
                  increased or decreased in the manner described in the
                  immediately preceding sentence, then such Option or
                  Convertible Security and the shares of Common Stock deemed
                  issuable upon exercise, conversion or exchange thereof shall
                  be deemed to have been issued as of the date of such increase
                  or decrease. No adjustment pursuant to this Section 2(a) shall
                  be made if such adjustment would result in an increase of the
                  Exercise Price then in effect or a decrease in the number of
                  Warrant Shares.

                  (iv) Calculation of Consideration Received. In case any Option
                  is issued in connection with the issue or sale of other
                  securities of the Company, together comprising one integrated
                  transaction in which no specific consideration is allocated to
                  such Options by the parties thereto, the Options will be
                  deemed to have been issued for a consideration of $.01. If any
                  shares of Common Stock, Options or Convertible Securities are
                  issued or sold or deemed to have been issued or sold for cash,
                  the consideration received therefor will be deemed to be the
                  net amount received by the Company therefor. If any shares of
                  Common Stock, Options or Convertible Securities are issued or
                  sold for a consideration other than cash, the amount of such
                  consideration other than cash received by the Company will be
                  the fair value of such consideration, except where such
                  consideration consists of marketable securities, in which case
                  the amount of consideration received by the Company will be
                  the Closing Sale Price of such security on the date of
                  receipt. If any shares of Common Stock, Options or Convertible
                  Securities are issued to the shareholders of the non-surviving
                  entity in connection with any merger in which the Company is
                  the surviving entity, the amount of such consideration will be
                  deemed to be the fair value of the net assets and business of
                  the non-surviving entity, calculated on a going-concern basis,
                  as is attributable to such shares of Common Stock, Options or
                  Convertible Securities, as the case may be. The fair value of
                  any consideration other than cash or securities will be
                  determined jointly by the Company and the Required Holders. If
                  such parties are unable to reach agreement within

                                      -8-


                  ten (10) days after the occurrence of an event requiring
                  valuation (the "VALUATION EVENT"), the fair value of such
                  consideration will be determined within five (5) Business Days
                  after the tenth day following the Valuation Event by an
                  independent, reputable appraiser jointly selected by the
                  Company and the Required Holders. The determination of such
                  appraiser shall be final and binding upon all parties absent
                  manifest error and the fees and expenses of such appraiser
                  shall be borne one-half by the Company and one-half by the
                  Holders. The consideration received by the Company need not be
                  calculated for shares of Common Stock that are issued or sold
                  or deemed issued or sold to the extent they constitute
                  Excluded Securities.

                  (v) Record Date. If the Company takes a record of the holders
                  of shares of Common Stock for the purpose of entitling them
                  (A) to receive a dividend or other distribution payable in
                  shares of Common Stock, Options or in Convertible Securities
                  or (B) to subscribe for or purchase shares of Common Stock,
                  Options or Convertible Securities, then such record date will
                  be deemed to be the date of the issue or sale of the shares of
                  Common Stock deemed to have been issued or sold upon the
                  declaration of such dividend or the making of such other
                  distribution or the date of the granting of such right of
                  subscription or purchase, as the case may be.

                  (vi) Until such time as the Company receives the Stockholder
                  Approval (as defined in the Securities Purchase Agreement), no
                  adjustment pursuant to Section 2(a) shall cause the Exercise
                  Price to be less than $2.62, as adjusted for any stock
                  dividend, stock split, stock combination, reclassification or
                  similar transaction.

                  (b) Adjustment upon Subdivision or Combination of shares of
Common Stock. If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of Warrant Shares
will be proportionately increased. If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination will be proportionately increased and the number of Warrant Shares
will be proportionately decreased. Any adjustment under this Section 2(b) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

                  (c) Other Events. If any event occurs of the type contemplated
by the provisions of this Section 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of Warrant Shares so as to protect the rights of the
Holder;

                                      -9-


provided that no such adjustment pursuant to this Section 2(c) will increase the
Exercise Price or decrease the number of Warrant Shares as otherwise determined
pursuant to this Section 2.

            3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare
or make any dividend or other distribution of its assets (or rights to acquire
its assets) to holders of shares of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) for which adjustment in the Exercise Price of the Warrant
is not otherwise provided hereunder (a "DISTRIBUTION"), at any time after the
issuance of this Warrant, then, in each such case:

                  (a) any Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
shares of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Exercise Price by a fraction of which (i) the numerator
shall be the Closing Bid Price of the shares of Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of shares of Common Stock, and (ii) the denominator shall be the Closing
Bid Price of the shares of Common Stock on the trading day immediately preceding
such record date; and

                  (b) the number of Warrant Shares shall be increased to a
number of shares equal to the number of shares of Common Stock obtainable
immediately prior to the close of business on the record date fixed for the
determination of holders of shares of Common Stock entitled to receive the
Distribution multiplied by the reciprocal of the fraction set forth in the
immediately preceding paragraph (a).

            4. FUNDAMENTAL TRANSACTIONS.

                  (a) The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Warrant and the other Transaction
Documents in accordance with the provisions of this Section (4)(a) pursuant to
written agreements in form and substance satisfactory to the Required Holders
and approved by the Required Holders prior to such Fundamental Transaction,
including agreements to deliver to each holder of Warrants in exchange for such
Warrants a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant, including, without
limitation, an adjusted exercise price equal to the value for the shares of
Common Stock reflected by the terms of such Fundamental Transaction, and
exercisable for a corresponding number of shares of capital stock equivalent to
the shares of Common Stock acquirable and receivable upon exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
prior to such Fundamental Transaction, and satisfactory to the Required Holders
and (ii) the Successor Entity (including its Parent Entity) is a publicly traded
corporation whose common stock is quoted on or listed for trading on an Eligible
Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of
such Fundamental Transaction, the provisions of this Warrant referring to the

                                      -10-


"Company" shall refer instead to the Successor Entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under this Warrant with the same effect as if such Successor Entity had
been named as the Company herein. Upon consummation of the Fundamental
Transaction, the Successor Entity shall deliver to the Holder confirmation that
there shall be issued upon exercise of this Warrant at any time after the
consummation of the Fundamental Transaction, in lieu of the shares of the Common
Stock (or other securities, cash, assets or other property) purchasable upon the
exercise of the Warrant prior to such Fundamental Transaction, such shares of
stock, securities, cash, assets or any other property whatsoever (including
warrants or other purchase or subscription rights) which the Holder would have
been entitled to receive upon the happening of such Fundamental Transaction had
this Warrant been exercised immediately prior to such Fundamental Transaction,
as adjusted in accordance with the provisions of this Warrant. In addition to
and not in substitution for any other rights hereunder, prior to the
consummation of any Fundamental Transaction pursuant to which holders of shares
of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a "CORPORATE EVENT"), the Company
shall make appropriate provision to insure that the Holder will thereafter have
the right to receive upon an exercise of this Warrant at any time after the
consummation of the Fundamental Transaction but prior to the Expiration Date, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property) purchasable upon the exercise of the Warrant prior to such
Fundamental Transaction, such shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had the Warrant been exercised immediately prior
to such Fundamental Transaction. Provision made pursuant to the preceding
sentence shall be in a form and substance reasonably satisfactory to the
Required Holders. The provisions of this Section shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events. Provision
made pursuant to the preceding sentence shall be in a form and substance
satisfactory to the Required Holders. The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied without regard to any limitations on the exercise of
this Warrant.

                  (b) In the event of a Fundamental Transaction, if the
Successor Entity is unable to deliver to the Holder the warrant referred to in
Section 4(a) and the Holder has not exercised the Warrant in full prior to the
consummation of the Fundamental Transaction, then the Company may enter into a
Fundamental Transaction pursuant to which the Holder shall receive,
simultaneously with the consummation of the Fundamental Transaction, in lieu of
the warrant referred to in Section 4(a) cash in an amount equal to the value of
the remaining unexercised portion of this Warrant on the date of such
consummation, which value shall be determined by use of the Black and Scholes
Option Pricing Model. Provision made pursuant to this Section shall be in a form
and substance reasonably satisfactory to the Required Holders and approved by
the Required Holders prior to such Fundamental Transactions. The provisions of
this Section shall apply similarly and equally to successive Fundamental
Transactions.

            5. NONCIRCUMVENTION. The Company hereby covenants and agrees that
the Company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or

                                      -11-


performance of any of the terms of this Warrant, and will at all times in good
faith carry out all the provisions of this Warrant and take all action as may be
required to protect the rights of the Holder. Without limiting the generality of
the foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, 130% of the number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of the SPA Warrants then outstanding
(without regard to any limitations on exercise).

            6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a shareholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same notices and other information given to the shareholders of the
Company generally, contemporaneously with the giving thereof to the
shareholders.

            7. REISSUANCE OF WARRANTS.

                  (a) Transfer of Warrant. If this Warrant is to be transferred,
the Holder shall surrender this Warrant to the Company, whereupon the Company
will forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.

                  (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant

                                      -12-


(in accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.

                  (c) Exchangeable for Multiple Warrants. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.

                  (d) Issuance of New Warrants. Whenever the Company is required
to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant
(i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated
on the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) shall have an issuance
date, as indicated on the face of such new Warrant which is the same as the
Issuance Date, and (iv) shall have the same rights and conditions as this
Warrant.

                                      -13-


            8. NOTICES. Whenever notice is required to be given under this
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Exercise Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least fifteen
days (or such lesser period agreed to in writing by the Required Holders) prior
to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the shares of Common Stock, (B)
with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
to all holders of shares of Common Stock or (C) for determining rights to vote
with respect to any Fundamental Transaction, dissolution or liquidation,
provided in each case that such information shall be made known to the public
prior to or in conjunction with such notice being provided to the Holder.

            9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.

            10. GOVERNING LAW. This Warrant shall be governed by and construed
and enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant shall be governed by,
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.

            11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be
jointly drafted by the Company and all the Buyers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.

            12. DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent,

                                      -14-


outside accountant. The Company shall cause at its expense the investment bank
or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
ten Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.

            13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

            14. TRANSFER. (a)This Warrant may be offered for sale, sold,
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement. Each
Person to whom this Warrant is sold, assigned or transferred by the Holder shall
provide to the Company true and accurate information as to such Person
comparable to that contained in columns (1), (2) and (7) of the Schedule of
Buyers attached to the Securities Purchase Agreement and as to the jurisdiction
of residence of such Person.

                  (a) The Company shall be entitled to treat the registered
Holder of this Warrant as the absolute owner hereof and shall incur no liability
for the issuance of Common Stock or for other action taken hereunder in good
faith based upon such ownership until such time as a written assignment of this
Warrant is effected by such registered owner, which assignment has been
delivered to the Company and satisfies the requirements of Sections 7(a) and
14(a) hereof.

            15. CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:

                  (a) "BLOOMBERG" means Bloomberg Financial Markets.

                  (b) "BUSINESS DAY" means any day other than Saturday, Sunday
or other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

                  (c) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing

                                      -15-


trade price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m., New York Time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing bid price or last
trade price, respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If
the Closing Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Sale Price, as the case may be, of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved pursuant to
Section 12. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during the
applicable calculation period.

                  (d) "COMMON STOCK" means (i) the Company's shares of Common
Stock, par value $0.01 per share, and (ii) any share capital into which such
Common Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.

                  (e) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock owned or held by or for the account of the Company or
issuable upon conversion and exercise, as applicable, of the SPA Securities and
the Warrants.

                  (f) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable for shares of Common Stock.

                  (g) "ELIGIBLE MARKET" means the Principal Market, The New York
Stock Exchange, Inc., the American Stock Exchange or The Nasdaq SmallCap Market.

                  (h) "EXPIRATION DATE" means the date sixty months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "HOLIDAY"), the
next date that is not a Holiday.

                  (i) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, (iii) allow another Person to make a purchase, tender or exchange offer
that is

                                      -16-


accepted by the holders of more than the 50% of the outstanding shares of Common
Stock (not including any shares of Common Stock held by the Person or Persons
making or party to, or associated or affiliated with the Persons making or party
to, such purchase, tender or exchange offer) or (iv) consummate a stock purchase
agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (iv) reorganize, recapitalize or
reclassify its Common Stock.

                  (j) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.

                  (k) "PARENT ENTITY" of a Person means an entity that, directly
or indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market, or, if
there is more than one such Person or Parent Entity, the Person or Parent Entity
with the largest public market capitalization as of the date of consummation of
the Fundamental Transaction.

                  (l) "PERSON" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

                  (m) "PRINCIPAL MARKET" means the Nasdaq National Market.

                  (n) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement by and among the Company and the Buyers.

                  (o) "REQUIRED HOLDERS" means the holders of the SPA Warrants
representing at least a majority of shares of Common Stock underlying the SPA
Warrants then outstanding.

                  (p) "SPA SECURITIES" means the Notes issued pursuant to the
Securities Purchase Agreement.

                  (q) "SUCCESSOR ENTITY" means the Person (or, if so elected by
the Required Holders, the Parent Entity) formed by, resulting from or surviving
any Fundamental Transaction or the Person (or, if so elected by the Required
Holders, the Parent Entity) with which such Fundamental Transaction shall have
been entered into.

                            [SIGNATURE PAGE FOLLOWS]

                                      -17-


      IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.

                                             VERILINK CORPORATION

                                             By:________________________________
                                                Name:
                                                Title:



                                                                       EXHIBIT A

                                 EXERCISE NOTICE
            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                        WARRANT TO PURCHASE COMMON STOCK

                              VERILINK CORPORATION

      The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Verilink
Corporation, a Delaware corporation (the "COMPANY"), evidenced by the attached
Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms used herein
and not otherwise defined shall have the respective meanings set forth in the
Warrant.

      1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:

            ____________ a "Cash Exercise" with respect to _________________
                         Warrant Shares; and/or

            ____________ a "Cashless Exercise" with respect to _______________
                         Warrant Shares.

      2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

      3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

      4. The undersigned confirms that the Warrant Shares have been sold in
compliance with the applicable Registration Statement (as defined in the
Registration Rights Agreement) relative to the registration for resale of such
Warrant Shares.

            Yes ______        No_______

Date: ____________ __, ______

________________________________
  Name of Registered Holder

By: _____________________________
    Name:
    Title:



                                 ACKNOWLEDGMENT

      The Company hereby acknowledges this Exercise Notice and hereby directs
American Stock Transfer & Trust Company to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
March 21, 2005 from the Company and acknowledged and agreed to by American Stock
Transfer & Trust Company.

                                            VERILINK CORPORATION

                                            By:_________________________________
                                               Name:
                                               Title:

EX-10.21

                                                                   EXHIBIT 10.21

                      [FORM OF ADDITIONAL INVESTMENT RIGHT]

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, (B) AN OPINION OF
COUNSEL, REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (C) REASONABLE ASSURANCE HAVING BEEN PROVIDED TO THE COMPANY
THAT SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER IS BEING MADE PURSUANT TO RULE 144
OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

                              VERILINK CORPORATION

                           ADDITIONAL INVESTMENT RIGHT

Additional Investment Right No.: __________
Principal Amount of Additional Notes: __________
Date of Issuance:  March 21, 2005 ("ISSUANCE DATE")

Verilink Corporation, a Delaware corporation (the "COMPANY"), hereby certifies
that, for value received, the receipt and sufficiency of which are hereby
acknowledged, [BUYERS], the registered holder hereof or its permitted assigns
(the "HOLDER"), is entitled, subject to the terms set forth below to purchase
from the Company, at the Exercise Price (as defined below) then in effect, at
any time or times on or after the Effective Date (as defined in the Registration
Rights Agreement by and among the Company and the buyers referred to therein
(the "REGISTRATION RIGHTS AGREEMENT")) of the Initial Registration Statement (as
defined in the Registration Rights Agreement), but not after 11:59 P.M., New
York Time, on the Expiration Date (as defined below), up to a total of $
______(1), in principal amount of Additional Notes (as defined in the Securities
Purchase Agreement (as defined below)). Except as otherwise defined herein,
capitalized terms in this Additional Investment Right shall have the meanings
set forth in Section 15 or in that certain Securities Purchase Agreement, dated
as of March 20, 2005, by and among the Company and the buyers referred to
therein, including the Holder (the "SECURITIES PURCHASE AGREEMENT"). This
Additional Investment Right (including all Additional Investment Rights issued
in exchange, transfer or replacement hereof, each an "AIR", such other AIRs, the
"OTHER AIRS" and collectively, the "AIRS") is one of the Additional Investment
Rights (as defined in the

- ---------------------
(1) Insert number set forth opposite such Buyer's name in column 5 of the
Schedule of Buyers set forth in the Securities Purchase Agreement.



Securities Purchase Agreement) issued pursuant to Section 1 of the Securities
Purchase Agreement.

      1. EXERCISE OF AIR.

            (a) Mechanics of Exercise. Subject to the terms and conditions
hereof, this AIR may be exercised by the Holder hereof on any day beginning on
or after the Effective Date (as defined in the Registration Rights Agreement) of
the Initial Registration Statement (as defined in the Registration Rights
Agreement) and ending on and including the date which is nine months after such
Effective Date (the "EXPIRATION DATE"), in whole or in part, by (i) delivery of
a written notice, in the form attached hereto as Exhibit A (the "EXERCISE
NOTICE"), of such Holder's election to exercise this AIR and (ii) payment to the
Company of an amount equal to $1.00 for each $1.00 of principal amount of
Additional Notes as to which this AIR is being exercised (the "EXERCISE PRICE")
in cash or wire transfer of immediately available funds. The date the Exercise
Notice and the Exercise Price are delivered to the Company (as determined in
accordance with the notice provisions hereof) is an "EXERCISE DATE"; provided,
however, that if the Exercise Notice and the Exercise Price are not delivered to
the Company on the same date, the Exercise Date shall be the date of the later
of the two deliveries. The Holder of this AIR shall not be required to deliver
the original AIR in order to effect an exercise hereunder. Execution and
delivery of the Exercise Notice with respect to less than all of the Additional
Notes shall have the same effect as cancellation of the original AIR and
issuance of a new AIR evidencing the right to purchase the remaining number of
Additional Notes. On or before the first Business Day following the Exercise
Date, the Company shall transmit by facsimile an acknowledgment of receipt of
the Exercise Notice and the Exercise Price to the Holder hereof. On or before
the third Business Day following the Exercise Date, the Company shall issue and
deliver to the address as specified in the Exercise Notice an Additional Note,
registered in the name of the Holder of this AIR or its designee, in the
principal amount as to which the Holder of this AIR is entitled pursuant to such
exercise. On the Exercise Date, the Holder of this AIR shall be deemed for all
corporate purposes to have become the Holder of record of the Additional Note
with respect to which this AIR has been exercised, irrespective of the date of
delivery of such Additional Note. Upon surrender of this AIR to the Company
following one or more partial exercises, the Company shall as soon as
practicable and in no event later than three Business Days after receipt of the
AIR and at its own expense, issue a new AIR (in accordance with Section 5(d))
representing the right to purchase the number of Additional Notes purchasable
immediately prior to such exercise under this AIR, less the principal amount of
Additional Notes with respect to which this AIR is exercised. The Company shall
pay any and all taxes which may be payable with respect to the issuance and
delivery of Additional Notes upon exercise of this AIR; provided that the
Company shall not be required to pay any tax that may be payable in respect of
any issuance and delivery of Additional Notes to any Person other than the
Holder or with respect to any income tax due by the Holder with respect to such
Additional Notes. The ability of the Holder to exercise this AIR shall be
conditioned upon such Holder satisfying the conditions specified in Section 6(b)
that would permit this AIR to be transferred to such Holder on the date of
exercise, and exercise of this AIR shall constitute a representation and
warranty by the Holder to that effect.

            (b) Company's Failure to Timely Deliver Additional Notes. If the
Company shall fail for any reason or for no reason to issue to the Holder within
three Business Days of the

                                      -2-



Exercise Date, Additional Notes, the Company shall pay as additional damages in
cash to such Holder on each day after such third Business Day that the issuance
of such Additional Notes is not timely effected an amount equal to 1.0% of the
principal amount of the Additional Notes into which this AIR is exercisable.

            (c) Absolute and Unconditional Obligation. The Company's obligations
to issue and deliver Additional Notes in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction by the Holder
to enforce the same, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of
law by the Holder or any other Person. Nothing herein shall limit the Holder's
right to pursue any other remedies available to it hereunder, at law or in
equity, including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
Additional Notes upon exercise of the AIR as required pursuant to the terms
hereof.

      2. FUNDAMENTAL TRANSACTION. The Company shall not enter into or be party
to a Fundamental Transaction (as defined in the Notes), unless (i) the Successor
Entity (as defined in the Notes) assumes all the obligations of the Company
under this AIR and the other Transaction Documents (as defined in the Securities
Purchase Agreement) pursuant to written agreements in form and substance
reasonably satisfactory to the Required Holders and approved by the Required
Holders prior to such Fundamental Transaction, and including agreements to
deliver to each holder of AIRs in exchange for such AIRs, a security of the
Successor Entity (if other than the Company) evidenced by a written instrument
substantially similar in form and substance to this AIR, including, without
limitation, a right to exercise for Additional Notes that have been adjusted and
approved as set forth in Sections 5 and 6 of the Additional Notes as if such
Additional Notes were outstanding at the time of such Fundamental Transaction
and (ii) the Company or the Successor Entity is a publicly traded entity whose
common stock or equivalent equity security is quoted on or listed for trading on
an Eligible Market (as defined in the Notes). Upon any Fundamental Transaction,
the Successor Entity shall succeed to, and be substituted for (so that from and
after the date of such Fundamental Transaction, the provisions of this AIR
referring to such "Company" shall refer instead to the Successor Entity), and
may exercise every right and power of the Company and shall assume all of the
obligations of the Company under this AIR with the same effect as if the
Successor Entity had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from its obligations under the
Transaction Documents except in the case of a Fundamental Transaction that meets
the requirements of this section. The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions.

      3.    COMPANY'S RIGHT OF MANDATORY FUNDING.

            (a) Mandatory Funding. If at any time from and after the Effective
Date of the Initial Registration Statement until the Expiration Date (the
"MANDATORY FUNDING ELIGIBILITY DATE"), (i) the Weighted Average Price (as
defined in the Notes) of the Common Stock equals or exceeds $4.52(2) (subject to
appropriate adjustments for stock splits, stock dividends, stock

- ---------------
(2) Insert amount equal to 150% of Conversion Price specified in the Notes.

                                      -3-


combinations and other similar transactions after the Issuance Date) for each of
any twenty (20) consecutive Trading Days (as defined in the Notes) following the
Effective Date (the "MANDATORY FUNDING MEASURING PERIOD") and (ii) the AIR
Equity Conditions (as defined below) shall have been satisfied or waived in
writing by the Holder during the period commencing with the Mandatory Funding
Notice Date and ending with the Mandatory Funding Date (each, as defined below),
the Company shall have the right to require the Holder to exercise all or any
designated portion of the AIR and purchase from the Company, at the Exercise
Price then in effect, all or any designated portion of the Additional Notes in
accordance with Section 1(a) hereof as of the Mandatory Funding Date (a
"MANDATORY FUNDING"). The Company may exercise its right to require purchase of
Additional Notes under this Section 3(a) by delivering within not more than two
Trading Days following the end of any such Mandatory Funding Measuring Period a
written notice thereof by facsimile and overnight courier to all, but not less
than all, of the holders of AIRs (the "MANDATORY FUNDING NOTICE" and the date
all of the holders have received such notice is referred to as the "MANDATORY
FUNDING NOTICE DATE"). The Mandatory Funding Notice shall be irrevocable. The
Mandatory Funding Notice shall state (i) the Trading Day selected for the
Mandatory Funding in accordance with Section 3(a), which Trading Day shall be at
least 20 Business Days but not more than 60 Business Days following the
Mandatory Funding Notice Date (the "MANDATORY FUNDING DATE"), (ii) the aggregate
amount of the Additional Notes to be issued upon mandatory exercise from all of
the holders of the AIRs pursuant to this Section 3 (and analogous provisions
under the Other AIRS) and (iii) the principal amount of Additional Notes to be
issued.

            As used herein, "AIR EQUITY CONDITIONS" means each of the following
conditions: (i) on each day during the period beginning one (1) month prior to
the applicable date of determination and ending on and including the applicable
date of determination, the Initial Registration Statement filed pursuant to the
Registration Rights Agreement shall be effective and available for the resale of
all remaining Registrable Securities in accordance with the terms of the
Registration Rights Agreement and there shall not have been any Grace Periods
(as defined in the Registration Rights Agreement) during such period; (ii) on
each day during the period beginning three (3) months prior to the applicable
date of determination and ending on and including the applicable date of
determination (the "AIR EQUITY CONDITIONS MEASURING PERIOD"), the Common Stock
is designated for quotation on the Principal Market and shall not have been
suspended from trading on such exchange or market (other than suspensions of not
more than two (2) days and occurring prior to the applicable date of
determination due to business announcements by the Company) nor shall delisting
or suspension by such exchange or market been threatened or pending either (A)
in writing by such exchange or market or (B) by falling below then effective
minimum listing maintenance requirements of such exchange or market.; (iii)
during the one (1) year period ending on and including the date immediately
preceding the applicable date of determination, the Company shall have delivered
any Additional Notes to be delivered upon exercise of the AIRs, any Conversion
Shares to be delivered upon conversion of the Notes and any Warrant Shares to be
delivered upon exercise of the Warrants to the holders thereof on a timely basis
as set forth in Section 1(a) of the AIRs (and analogous provisions under the
Other AIRs), Section 2(c)(ii) of the Notes and Sections 2(a) of the Warrants,
respectively; (iv) during the AIR Equity Conditions Measuring Period, all shares
of Common Stock issuable pursuant to Additional Notes to be issued in connection
with the proposed Mandatory Funding may be converted in full without violating
Section 3(d) of the Notes or the rules or regulations of the Principal Market;
(v) during the AIR Equity Conditions

                                      -4-


Measuring Period, the Company shall not have failed to make timely any payments
within five (5) Business Days of when such payment is due pursuant to any
Transaction Document; (vi) during the AIR Equity Conditions Measuring Period,
there shall not have occurred either (A) the public announcement of a pending,
proposed or intended Fundamental Transaction which has not been abandoned,
terminated or consummated or (B) an Event of Default or an event that with the
passage of time or giving of notice would constitute an Event of Default; (vii)
on the applicable date of determination, the Company shall have no knowledge of
any fact that would cause the Initial Registration Statement required pursuant
to the Registration Rights Agreement not to be effective and available for the
resale of all remaining Registrable Securities in accordance with the terms of
the Registration Rights Agreement; and (viii) during the AIR Equity Conditions
Measuring Period, the Company otherwise shall have been in material compliance
with and shall not have materially breached any provision, covenant,
representation or warranty of any Transaction Document.

            (b) Pro Rata Funding Requirement. If the Company elects to cause an
exercise of this AIR pursuant to Section 3(a), then it must simultaneously take
the same action in the same proportion with respect to the Other AIRs. All AIRs
exercised by the Holder after the Mandatory Funding Notice Date shall reduce the
amount of Additional Notes required to be issued on the Mandatory Funding Date.
If the Company has elected a Mandatory Funding, the mechanics of exercise set
forth in Section 1(a) shall apply, to the extent applicable, as if the Company
had received from the Holder on the Mandatory Funding Date an Exercise Notice
with respect to the Additional Notes being issued pursuant to the Mandatory
Funding.

      4. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation or through
any Fundamental Transaction, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this AIR, and will at all times in good faith carry out all the provisions of
this AIR and take all action as may be required to protect the rights of the
Holder of this AIR.

      5. REISSUANCE OF AIRS.

            (a) Transfer of AIR. If this AIR is to be transferred, the Holder
shall surrender this AIR to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder of this AIR a new AIR (in
accordance with Section 5(d)), registered as the Holder of this AIR may request,
representing the right to purchase the principal amount of Additional Notes
being transferred by the Holder and, if less then the total number of Additional
Notes then underlying this AIR is being transferred, a new AIR (in accordance
with Section 5(d)) to the Holder of this AIR representing the right to purchase
the principal amount of Additional Notes not being transferred.

            (b) Lost, Stolen or Mutilated AIR. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this AIR, and, in the case of loss, theft or destruction, of
any indemnification undertaking by the Holder of this AIR to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this AIR, the Company shall execute and deliver to the Holder a new AIR (in

                                      -5-


accordance with Section 5(d)) representing the right to purchase the principal
amount of Additional Notes then underlying this AIR.

            (c) AIR Exchangeable for Multiple AIRs. This AIR is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new AIR or AIR (in accordance with Section 5(d)) representing in the
aggregate the right to purchase the principal amount of Additional Notes then
underlying this AIR, and each such new AIR will represent the right to purchase
such portion of such Additional Notes as is designated by the Holder of this AIR
at the time of such surrender.

            (d) Issuance of New AIR. Whenever the Company is required to issue a
new AIR pursuant to the terms of this AIR, such new AIR (i) shall be of like
tenor with this AIR, (ii) shall represent, as indicated on the face of such new
AIR, the right to purchase the principal amount of Additional Notes then
underlying this AIR (or in the case of a new AIR being issued pursuant to
Section 5(a) or Section 5(c), the principal amount of Additional Notes
designated by the Holder of this AIR which, when added to the principal amount
of Additional Notes underlying the other new AIR issued in connection with such
issuance, does not exceed the principal amount of Additional Notes then
underlying this AIR), (iii) shall have an issuance date, as indicated on the
face of such new AIR which is the same as the Issuance Date, and (iv) shall have
the same rights and conditions as this AIR.

      6. COVENANTS.

            (a) Disclosure of Transactions and Other Material Information. On or
before 8:30 a.m., New York Time, on the second Business Day following each
Exercise Date, the Company shall file a Current Report on Form 8-K, describing
the terms of the transactions contemplated by the exercise of this AIR in the
form required by the 1934 Act.

            (b) Transfer or Resale. This AIR may not be sold, transferred or
assigned to any Person other than (i) if the seller, transferor or assignor of
the AIR is a "qualified institutional buyer" as that term is defined in Rule
144A of the Securities Act ("QIB"), to a QIB, and (ii) if the seller, transferor
or assignor is not a QIB, to a QIB or an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D that is an institution.

      7. NOTICES. Whenever notice is required to be given under this AIR, unless
otherwise provided herein, such notice shall be given in accordance with Section
9(f) of the Securities Purchase Agreement. The Company shall provide the Holder
of this AIR with prompt written notice of all actions taken pursuant to this
AIR, including in reasonable detail a description of such action and the reason
therefore. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder of this AIR at least fifteen days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the Common Stock, (B) with respect to any
grants, issues or sales of any Options (as defined in the Additional Notes),
Convertible Securities (as defined in the Additional Notes) or rights to
purchase stock, warrants, securities or other property to Holders of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such Holder.

                                      -6-


      8. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this AIR may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Required Holders;
provided that no such action may increase the exercise price of any AIRs or
decrease the principal amount of Additional Notes obtainable upon exercise of
any AIRs without the written consent of the Holder of this AIR. No such
amendment shall be effective to the extent that it applies to less than all of
the Holders of the AIRs then outstanding.

      9. GOVERNING LAW. This AIR shall be construed and enforced in accordance
with, and all questions concerning the construction, validity, interpretation
and performance of this AIR shall be governed by, the internal laws of the State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.

      10. CONSTRUCTION; HEADINGS. This AIR shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any person as
the drafter hereof. The headings of this AIR are for convenience of reference
and shall not form part of, or affect the interpretation of, this AIR.

      11. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this AIR shall be cumulative and in addition to all other
remedies available under this AIR, the Securities Purchase Agreement and the
other Transaction Documents (as defined in the Securities Purchase Agreement),
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder of
this AIR to pursue actual damages for any failure by the Company to comply with
the terms of this AIR. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder of this AIR and
that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach, the
Holder of this AIR shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.

      12. TRANSFER. (a)This AIR may be offered for sale, sold, transferred or
assigned without the consent of the Company. Each person to whom this AIR is
sold, transferred or assigned shall expressly assume the obligations of the
Holder under Section 3 hereof. Each Person to whom this AIR is sold, assigned or
transferred by the Holder shall provide to the Company true and accurate
information as to such Person comparable to that contained in columns (1), (2)
and (7) of the Schedule of Buyers attached to the Securities Purchase Agreement
and as to the jurisdiction of residence of such Person.

            (b) The Company shall be entitled to treat the registered Holder of
this Additional Investment Right as the absolute owner hereof and shall incur no
liability for the issuance of Additional Notes or for other action taken
hereunder in good faith based upon such ownership until such time as a written
assignment of this Additional Investment Right is effected

                                      -7-


by such registered owner, which assignment has been delivered to the Company and
satisfies the requirements of Sections 5(a) and 12(a) hereof.

      13. CERTAIN DEFINITIONS. For purposes of this AIR, the following terms
shall have the following meanings:

            (a) "BUSINESS DAY" means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

            (b) "COMMON STOCK" means (i) the Company's common stock, par value
$0.01 per share, and (ii) any capital stock into which such Common Stock shall
have been changed or any capital stock resulting from a reclassification of such
Common Stock.

            (c) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

            (d) "REQUIRED HOLDERS" means the holders of AIRs representing the
right to acquire at least a majority of the principal amount of Additional Notes
underlying the AIRs then outstanding.

                            [SIGNATURE PAGE FOLLOWS]

                                      -8-


      IN WITNESS WHEREOF, the Company has caused this AIR to be duly executed as
of the Issuance Date set out above.

                                                     VERILINK CORPORATION

                                                     By: _______________________
                                                         Name:
                                                         Title:



                                                                       EXHIBIT A

                                 EXERCISE NOTICE

            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                           ADDITIONAL INVESTMENT RIGHT

                              VERILINK CORPORATION

To:   Verilink Corporation

      The undersigned is the holder of Additional Investment Right No. _____
(the "AIR") issued by Verilink Corporation, a Delaware corporation (the
"COMPANY"). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the AIR.

      1.    The AIR is currently exercisable to purchase a total of $_______
principal amount of Additional Notes.

      2.    The undersigned holder hereby exercises its right to purchase
$_______ principal amount of Additional Notes pursuant to the AIR.

      3.    The holder shall pay the sum of $___________________ to the Company
in accordance with the terms of the AIR.

      4.    Pursuant to this exercise, the Company shall deliver to the holder
$_______ principal amount of Additional Notes in accordance with the terms of
the AIR.

      5.    Following this exercise, the AIR shall be exercisable to purchase a
total of $_______ principal amount of Additional Notes.

      Please issue the Additional Notes in the following name and to the
following address:

      Issue to:
               ________________________________________________________________

               ________________________________________________________________

               ________________________________________________________________

Date: _______________ __, ______

________________________________
   Name of Registered Holder

By:
   _____________________________
   Name:
   Title:



                               FORM OF ASSIGNMENT

             [To be completed and signed only upon transfer of AIR]

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within AIR to
purchase $________ principal amount of Additional Notes of Verilink Corporation,
to which the within AIR relates and appoints ________________ attorney to
transfer said right on the books of Verilink Corporation with full power of
substitution in the premises.

Dated:_________________, __________

                                            ___________________________________
                                            (Signature must conform in all
                                            respects to name of holder as
                                            specified on the face of the AIR)

                                            ____________________________________
                                            Address of Transferee

                                            ____________________________________

                                            ____________________________________

In the presence of:

__________________

EX-10.22

                                                                   EXHIBIT 10.22

                          REGISTRATION RIGHTS AGREEMENT

            REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of March
20, 2005, by and among Verilink Corporation., a Delaware corporation, with
headquarters located at 11551 E. Arapahoe Rd., Suite 150, Centennial, Colorado
80112 (the "COMPANY"), and the undersigned buyers (each, a "BUYER", and
collectively, the "BUYERS").

            WHEREAS:

            A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions set forth
in the Securities Purchase Agreement, to issue and sell to each Buyer (i) senior
secured convertible notes of the Company (the "INITIAL NOTES"), which will,
among other things, be convertible into the Company's common stock, $0.01 par
value per share (the "COMMON STOCK", as converted, the "INITIAL CONVERSION
SHARES") in accordance with the terms of the Notes, and (ii) warrants (the
"WARRANTS"), which will be exercisable to purchase shares of Common Stock (as
exercised collectively, the "WARRANT SHARES").

            B. In connection with the Securities Purchase Agreement, the Company
has agreed, upon the terms and subject to the conditions set forth in the
Securities Purchase Agreement, to issue and sell to each Buyer certain
additional investment rights (the "ADDITIONAL INVESTMENT RIGHTS") which will be
exercisable to purchase additional senior secured convertible notes of the
Company (the "ADDITIONAL NOTES", and collectively with the Initial Notes, the
"NOTES"), which will be convertible into shares of Common Stock (as converted,
the "ADDITIONAL CONVERSION SHARES", and collectively with the Initial Conversion
Shares, the "CONVERSION SHARES") in accordance with the terms of the Additional
Notes.

            C. The Notes bear interest, which at the option of the Company,
subject to certain conditions, may be paid in shares of Common Stock (the
"INTEREST SHARES").

            D. To induce the Buyers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws.

            NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:

            1. Definitions.

            Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement. As
used in this Agreement, the following terms shall have the following meanings:



            a. "ADDITIONAL EFFECTIVENESS DEADLINE" means the date that is 90
days after the applicable Exercise Date (as defined in the Additional Investment
Rights) or, if there is a full review of the Registration Statement by the SEC,
120 days after the applicable Exercise Date.

            b. "ADDITIONAL FILING DEADLINE" means 30 days after the earlier of
(x) each Exercise Date at which an aggregate of at least $500,000 in principal
amount of Additional Notes are purchased by one or more Buyers or their
successors or assigns or after which there is an aggregate of at least $500,000
in principal amount of Additional Notes that have been purchased by one or more
Buyers or their successors or assigns, with respect to which the underlying
Additional Registrable Securities have not be previously registered pursuant
hereto or (y) such time after any Additional Notes are purchased that no
additional Additional Notes are available or are permitted to be purchased
pursuant to the Additional Investment Rights.

            c. "ADDITIONAL REGISTRABLE SECURITIES" means (i) the Additional
Conversion Shares issued or issuable upon conversion or redemption of all of the
Additional Notes actually purchased, (ii) any Interest Shares issued or issuable
under the Additional Notes, and (iii) any share capital of the Company issued or
issuable with respect to the Additional Notes or the Additional Conversion
Shares as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise with respect to the Common Stock, without
regard to any limitations on conversions of Additional Notes or exercise of the
Additional Warrants. Notwithstanding the foregoing, Additional Registrable
Securities shall not include any securities (i) sold by a person to the public
either pursuant to a registration statement or Rule 144, (ii) sold in a private
transaction in which the transferor's rights hereunder are not assigned or (iii)
that may be sold without restriction pursuant to Rule 144(k) promulgated under
the 1933 Act.

            d. "ADDITIONAL REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering any Additional Registrable Securities.

            e. "BUSINESS DAY" means any day other than Saturday, Sunday or any
other day on which commercial banks in the City of New York are authorized or
required by law to remain closed.

            f. "CLOSING DATE" shall have the meaning set forth in the Securities
Purchase Agreement.

            g. "EFFECTIVE DATE" means the date a Registration Statement has been
declared effective by the SEC.

            h. "EFFECTIVENESS DEADLINE" means the Initial Effectiveness Deadline
and the Additional Effectiveness Deadline, as applicable.

            i. "FILING DEADLINE" means the Initial Filing Deadline and the
Additional Filing Deadline, as applicable.

                                       2



            j. "INITIAL EFFECTIVENESS DEADLINE" means the date that is 120 days
after the Closing Date.

            k. "INITIAL FILING DEADLINE" means 60 days after the Closing Date.

            l. "INITIAL REGISTRABLE SECURITIES" means (i) the Initial Conversion
Shares issued or issuable upon conversion or redemption of the Initial Notes,
(ii) the Warrant Shares issued or issuable upon exercise of the Warrants, (iii)
the Interest Shares issued or issuable under the Initial Notes, and (iv) any
share capital of the Company issued or issuable with respect to the Initial
Conversion Shares, the Initial Notes, the Warrant Shares and the Warrants as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise with respect to the Common Stock, without regard to any
limitations on conversions of the Initial Notes or exercises of the Warrants.
Notwithstanding the foregoing, Initial Registrable Securities shall not include
any securities (i) sold by a person to the public either pursuant to a
registration statement or Rule 144, (ii) sold in a private transaction in which
the transferor's rights hereunder are not assigned or (iii) that may be sold
without restriction pursuant to Rule 144(k) promulgated under the 1933 Act.

            m. "INITIAL REGISTRATION STATEMENT" means a registration statement
or registration statements of the Company filed under the 1933 Act covering the
Initial Registrable Securities.

            n. "INVESTOR" means a Buyer or any transferee or assignee thereof to
whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9, in each case who holds Registrable
Securities that have not been sold to the public.

            o. "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

            p. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.

            q. "REGISTRABLE SECURITIES" means the Initial Registrable Securities
and the Additional Registrable Securities.

            r. "REGISTRATION STATEMENT" means the Initial Registration Statement
and the Additional Registration Statement(s) and any registration statement
filed pursuant to the provisions of Section 2(f) hereof.

            s. "REQUIRED HOLDERS" means the holders of at least a majority of
the Registrable Securities.

                                       3



            t. "REQUIRED REGISTRATION AMOUNT" for the Initial Registration
Statement and the Additional Registration Statement, as applicable, means 150%
of the sum of (i) the number of Interest Shares issued and issuable pursuant to
the terms of the Initial Notes or Additional Notes, as applicable, assuming that
all principal payments on such Notes are made in a timely fashion and that the
Notes are not redeemed or converted before maturity, that all interest payments
on such Notes are made in Interest Shares and that the number of Interest Shares
is determined based on the Interest Conversion Price (as defined in the Notes),
as of the trading date immediately preceding the applicable date of
determination, (ii) the number of Conversion Shares issued and issuable pursuant
to the Initial Notes or Additional Notes as of the trading day immediately
preceding the applicable date of determination, and (ii) the number of Warrant
Shares issued and issuable pursuant to the Warrants as of the trading day
immediately preceding the applicable date of determination, all subject to
adjustment as provided in Section 2(e).

            u. "RULE 144" means Rule 144 under the 1933 Act or any other similar
rule or regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration.

            v. "RULE 415" means Rule 415 under the 1933 Act or any successor
rule providing for offering securities on a continuous or delayed basis.

            w. "SEC" means the United States Securities and Exchange Commission.

      2. Registration.

            a. Initial Mandatory Registration. The Company shall prepare, and,
as soon as reasonably practicable but in no event later than the Initial Filing
Deadline, file with the SEC the Initial Registration Statement on Form S-3
covering the resale of all of the Initial Registrable Securities. In the event
that Form S-3 is unavailable for such a registration, the Company shall use such
other form as is available for such a registration, subject to the provisions of
Section 2(d). The Initial Registration Statement prepared pursuant hereto shall
register for resale at least the number of shares of Common Stock equal to the
Required Registration Amount as to the Initial Registrable Securities as of the
date the Initial Registration Statement is initially filed with the SEC. The
Initial Registration Statement shall contain (except to the extent requested
otherwise by the Required Holders or reasonably determined by the Company to be
inappropriate) the "Selling Stockholders" and "Plan of Distribution" sections in
substantially the form attached hereto as Exhibit B. The Company shall use its
reasonable best efforts to have the Initial Registration Statement declared
effective by the SEC as soon as reasonably practicable, but in no event later
than the Initial Effectiveness Deadline. The Company shall not be obligated to
enter into any underwriting agreement for the sale of any of the Initial
Registrable Securities.

            b. Additional Mandatory Registration. The Company shall prepare,
and, as soon as reasonably practicable but in no event later than the Additional
Filing Deadline, file with the SEC an Additional Registration Statement on Form
S-3 covering the resale of all of the Additional Registrable Securities not
previously registered on an Additional Registration Statement hereunder. In the
event that Form S-3 is unavailable for such a registration, the

                                       4



Company shall use such other form as is available for such a registration,
subject to the provisions of Section 2(e). Each Additional Registration
Statement prepared pursuant hereto shall register for resale at least the number
of Shares of Common Stock equal to the Required Registration Amount as to the
Additional Registrable Securities not previously registered pursuant to this
Agreement as of the date such Additional Registration Statement is initially
filed with the SEC. Each Additional Registration Statement shall contain (except
to the extent requested otherwise by the Required Holders or reasonably
determined by the Company to be inappropriate) the "Selling Stockholders" and
"Plan of Distribution" sections in substantially the form attached hereto as
Exhibit B. The Company shall use its reasonable best efforts to have the
Additional Registration Statement declared effective by the SEC as soon as
reasonably practicable, but in no event later than the Additional Effectiveness
Deadline. The Company shall not be obligated to enter into any underwriting
agreement for the sale of any of the Additional Registrable Securities.

            c. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and any increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Investor's Registrable Securities, each transferee shall, subject to the
provisions of Section 9 hereof, be allocated a pro rata portion of the then
remaining number of Registrable Securities included in such Registration
Statement for such transferor. Any shares of Common Stock included in a
Registration Statement and which remain allocated to any Person which ceases to
hold any Registrable Securities covered by such Registration Statement shall be
allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors which are covered by such
Registration Statement. In no event shall the Company include any securities
other than Registrable Securities on any Registration Statement without the
prior written consent of the Required Holders.

            d. Legal Counsel. Subject to Section 5 hereof, the Required Holders
shall have the right to select one legal counsel to review any Registration
Statement and related prospectus pursuant to this Section 2 ("LEGAL COUNSEL"),
which shall be Schulte Roth & Zabel LLP or such other counsel as thereafter
designated by the Required Holders. The Company shall permit Legal Counsel to
review any such Registration Statement and prospectus and all amendments and
supplements thereto, and any comments made by the staff of the SEC and the
Company's responses thereto, within a reasonable period of time prior to the
filing thereof with the SEC (or, in the case of comments made by the staff of
the SEC, within a reasonable period of time following the receipt thereof by the
Company).

            e. Ineligibility for Form S-3. In the event that the Company does
not meet the eligibility requirements for filing a Registration Statement on
Form S-3 for the registration of the resale of Registrable Securities hereunder,
the Company shall (i) register the resale of the Registrable Securities on
another appropriate form and (ii) undertake to register the Registrable
Securities on Form S-3 as soon as such form is available (through post-effective
amendment of an existing Registration Statement or otherwise), provided that the
Company shall maintain the effectiveness of the Registration Statement filed
pursuant to subsection (i) above

                                       5



then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the SEC.

            f. Sufficient Number of Shares Registered. In the event the number
of shares available under a Registration Statement filed pursuant to Section
2(a) or Section 2(b) is insufficient to cover all of the Registrable Securities
required to be covered by such Registration Statement or an Investor's allocated
portion of the Registrable Securities pursuant to Section 2(b), the Company
shall amend the applicable Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or both, so as
to cover at least the Required Registration Amount as of the trading day
immediately preceding the date of the filing of such amendment or new
Registration Statement, in each case, as soon as reasonably practicable, but in
any event not later than fifteen (15) days after the necessity therefor arises.
The Company shall use its reasonable best efforts to cause such amendment and/or
new Registration Statement to become effective as soon as reasonably practicable
following the filing thereof. For purposes of the foregoing provision, the
number of shares available under a Registration Statement shall be deemed
"insufficient to cover all of the Registrable Securities" if at any time the
number of shares of Common Stock available for resale under the Registration
Statement is less than the product determined by multiplying (i) the Required
Registration Amount as of such time by (ii) 0.67. The calculation set forth in
the foregoing sentence shall be made without regard to any limitations on the
conversion of the Notes or the exercise of the Warrants or the Additional
Investment Rights (unless such Warrants or Additional Investment Rights have
expired in accordance with their terms) and such calculation shall assume that
the Notes are then convertible into shares of Common Stock at the then
prevailing Conversion Rate (as defined in the Notes) and that the unexpired
Warrants and Additional Investment Rights are then exercisable for shares of
Common Stock or Additional Notes at the then prevailing Exercise Price (as
defined in the Warrants and Additional Investment Rights, respectively).

            g. Effect of Failure to File and Obtain and Maintain Effectiveness
of Registration Statement. If (i) a Registration Statement or Registration
Statements covering all of the Registrable Securities required to be covered
thereby and required to be filed by the Company pursuant to this Agreement are,
(A) not filed with the SEC on or before the respective Filing Deadline (a
"FILING FAILURE") or (B) not declared effective by the SEC on or before the
respective Effectiveness Deadline (an "EFFECTIVENESS FAILURE") or (ii) on any
day after the applicable Effective Date sales of all of the Registrable
Securities required to be included on such Registration Statement cannot be made
(other than during an Allowable Grace Period (as defined in Section 3(r))
pursuant to such Registration Statement (including, without limitation, because
of a failure to keep such Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to such Registration
Statement or to register a sufficient number of shares of Common Stock) (a
"MAINTENANCE FAILURE") then, as partial relief for the damages to any holder by
reason of any such delay in or reduction of its ability to sell the underlying
shares of Common Stock (which remedy shall not be exclusive of any other
remedies available at law or in equity), the Company shall pay to each holder of
Registrable Securities relating to such Registration Statement an amount in cash
equal to one percent (1%) of the aggregate Purchase Price (as such term is
defined in the Securities Purchase Agreement) of such Investor's Registrable
Securities included in such Registration Statement (or, in the case of a
Maintenance Failure resulting from failure to register a sufficient number of
shares of Common Stock, cash equal one percent (1%) of the greater of (x)
one-third (1/3) of the aggregate Purchase

                                       6



Price or (y) the Purchase Price of such Investor's Registrable Securities that
cannot be sold) on each of the following dates: (i) the day of a Filing Failure
and on every thirtieth day (pro rated for periods totaling less than thirty
days) thereafter until such Filing Failure is cured; (ii) on the thirtieth day
after an Effectiveness Failure and on every thirtieth day (pro rated for periods
totaling less than thirty days) thereafter until such Effectiveness Failure is
cured; (iii) the initial day of a Maintenance Failure and on every thirtieth day
(pro rated for periods totaling less than thirty days) thereafter until such
Maintenance Failure is cured. The payments to which a holder shall be entitled
pursuant to this Section 2(g) are referred to herein as "REGISTRATION DELAY
PAYMENTS." Registration Delay Payments shall be paid on the earlier of (I) the
last day of the calendar month during which such Registration Delay Payments are
incurred and (II) the third Business Day after the event or failure giving rise
to the Registration Delay Payments is cured. In the event the Company fails to
make Registration Delay Payments in a timely manner, such Registration Delay
Payments shall bear interest at the rate of 1.0% per month (prorated for partial
months) until paid in full.

            h. The obligations of the Company under this Section 2 shall
terminate at such time as there are no Registrable Securities held by the Buyers
or there assignees hereunder.

      3. Related Obligations.

      At such time as the Company is obligated to file a Registration Statement
with the SEC pursuant to Section 2(a), 2(b), 2(e) or 2(f), the Company will use
its reasonable best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:

            a. The Company shall submit to the SEC, within two (2) Business Days
after the Company learns that no review of a particular Registration Statement
will be made by the staff of the SEC or that the staff has no further comments
on a particular Registration Statement, as the case may be, a request for
acceleration of effectiveness of such Registration Statement to a time and date
not later than 48 hours after the submission of such request. Subject to the
terms hereof, including but not limited to Section 3(r), the Company shall keep
each Registration Statement effective pursuant to Rule 415 at all times until
the earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or any successor thereto) promulgated under
the 1933 Act or (ii) the date on which the Investors shall have disposed of all
of the Registrable Securities covered by such Registration Statement (the
"REGISTRATION PERIOD"). The Company shall ensure that each Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein (in the case of prospectuses, in the light of the
circumstances in which they were made) not misleading.

            b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such

                                       7



period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form 10-Q, Form
10-K, Form 8-K or any analogous report under the Securities Exchange Act of
1934, as amended (the "1934 ACT"), the Company shall have incorporated such
report by reference into such Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC on the same day on which the
1934 Act report is filed which created the requirement for the Company to amend
or supplement such Registration Statement.

            c. The Company shall (A) permit Legal Counsel to review and comment
upon (i) a Registration Statement within a reasonable amount of time prior to
its filing with the SEC and (ii) all amendments and supplements to all
Registration Statements (except for Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and any similar or successor
reports) within a reasonable amount of time prior to their filing with the SEC,
and (B) not file, or submit a request for the acceleration of the effectiveness
of, any Registration Statement or amendment or supplement thereto in a form to
which Legal Counsel reasonably and timely objects. The Company shall furnish to
Legal Counsel, without charge, (i) copies of any correspondence from the SEC or
the staff of the SEC to the Company or its representatives relating to any
Registration Statement, (ii) promptly after the same is prepared and filed with
the SEC, one copy of any Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated therein
by reference, if requested by an Investor, and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto.

            d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents, including exhibits, incorporated
therein by reference, if requested by an Investor and not otherwise available on
the EDGAR system, and each preliminary prospectus, and (ii) upon the
effectiveness of any Registration Statement (but in no event later than two
Business Days after the Effective Date), ten (10) copies of the prospectus
included in such Registration Statement and all amendments and supplements
thereto (or such other number of copies as such Investor may reasonably
request).

            e. The Company shall use its reasonable best efforts to (i) register
and qualify, unless an exemption from registration and qualification applies,
the resale by Investors of the Registrable Securities covered by a Registration
Statement under such other securities or "blue sky" laws of such jurisdictions
in the United States as the Investor may reasonably request, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as

                                       8



may be necessary to maintain such registrations and qualifications in effect at
all times during the Registration Period to the extent necessary to enable the
Investors to consummate the public sale of the Registrable Securities covered by
such Registration Statement, and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (x) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(e), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify Legal Counsel and each Investor
who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threatening of any proceeding for such purpose.

            f. The Company shall notify Legal Counsel and each Investor in
writing of the happening of any event, as promptly as reasonably practicable
after becoming aware of such event, as a result of which the prospectus included
in a Registration Statement, as then in effect, includes an untrue statement of
a material fact or omission to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (provided that in no
event shall such notice contain any material, nonpublic information), and,
subject to Section 3(r), promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to Legal Counsel and each
Investor (or such other number of copies as Legal Counsel or such Investor may
reasonably request). The Company shall also promptly notify Legal Counsel and
each Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to Legal Counsel and each Investor by
electronic mail or facsimile on the same day of such effectiveness and by
overnight mail), (ii) of any request by the SEC for amendments or supplements to
a Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.

            g. The Company shall use its reasonable best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest reasonably practicable moment and to notify Legal Counsel and each
Investor who holds Registrable Securities being sold of the issuance of such
order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.

            h. If any Investor is required under applicable securities law to be
described in the Registration Statement as an underwriter, at the reasonable
request of such Investor, the Company shall use its reasonable efforts to
furnish to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company's independent

                                       9



certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the Investors, and (ii) an opinion, dated as of
such date, of counsel representing the Company for purposes of such Registration
Statement, in form, scope and substance as is customarily given in an
underwritten public offering, addressed to the Investors.

            i. In connection with the Investors' due diligence efforts, the
Company shall make available for inspection during business hours and upon
reasonable advance request by (i) any Investor, (ii) Legal Counsel and (iii) one
firm of accountants or other agents retained by the Investors (collectively, the
"INSPECTORS"), all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the "RECORDS"),
as shall be reasonably deemed necessary by each Inspector, and cause the
Company's officers, directors and employees to supply all information which any
Inspector may reasonably request; provided, however, that each Inspector shall
agree in writing to hold in strict confidence and shall not make any disclosure
(except to an Investor) or use of any Record or other information which the
Company determines in good faith to be confidential, and of which determination
the Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement of which the Inspector
has knowledge. Each Investor agrees that it shall, upon learning that disclosure
of such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investors' ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.

            j. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws or applicable rules and regulations of the Principal Market,
(ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

            k. The Company shall use its reasonable best efforts either to (i)
cause all of the Registrable Securities covered by a Registration Statement to
be listed on each securities exchange on which securities of the same class or
series issued by the Company are then listed, if

                                      10



any, if the listing of such Registrable Securities is then permitted under the
rules of such exchange or applicable law, or (ii) secure designation and
quotation of all of the Registrable Securities covered by a Registration
Statement on the Nasdaq National Market or (iii) if, despite the Company's
reasonable best efforts to satisfy, the preceding clauses (i) and (ii) the
Company is unsuccessful in satisfying the preceding clauses (i) and (ii), to
secure the inclusion for quotation on The Nasdaq SmallCap Market for such
Registrable Securities and, without limiting the generality of the foregoing, to
use reasonable best efforts to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. ("NASD") as
such with respect to such Registrable Securities. The Company shall pay all fees
and expenses in connection with satisfying its obligation under this Section
3(k).

            l. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, facilitate
the timely preparation and delivery of certificates representing the Registrable
Securities to be offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
Investors may reasonably request and registered in such names as the Investors
may request.

            m. If requested by an Investor, the Company shall, to the extent
necessary to comply with the provisions of the 1933 Act with respect to the
disposition of such Investor's portion of the Registrable Securities covered by
a Registration Statement pursuant to the terms hereof (i) as soon as reasonably
practicable incorporate in a prospectus supplement or post-effective amendment
such information as an Investor reasonably requests to be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities being offered or sold, the purchase price being paid therefor and any
other terms of the offering of the Registrable Securities to be sold in such
offering; (ii) as soon as reasonably practicable make all required filings of
such prospectus supplement or post-effective amendment after being notified of
the matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) as soon as reasonably practicable, supplement or make
amendments to any Registration Statement if reasonably requested by an Investor
holding any Registrable Securities.

            n. The Company shall use its reasonable best efforts to cause the
Registrable Securities covered by a Registration Statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.

            o. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with, and in the manner provided by, the provisions of Rule 158 under the 1933
Act which provides that an earning statement is deemed to be made generally
available its security holders if such information is contained in one report or
any combination of reports either on Form 10-K, Form 10-Q, Form 8-K, or in the
annual report to security holders pursuant to Rule 14a-3 under the 1934 Act)
covering a twelve-month period beginning not later than the first day of the
Company's fiscal quarter next following the effective date of a Registration
Statement.

                                       11



            p. The Company shall otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the SEC in connection with
any registration hereunder.

            q. Within two (2) Business Days after a Registration Statement which
covers Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.

            r. Notwithstanding anything to the contrary herein, at any time
after the Registration Statement has been declared effective by the SEC, the
Company may delay the disclosure of material, non-public information concerning
the Company the disclosure of which at the time is not, in the good faith
opinion of the Board of Directors of the Company and upon the advice of its
counsel, in the best interest of the Company and, upon the advice of counsel to
the Company, otherwise required (a "GRACE PERIOD"); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of material,
non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material, non-public
information to the Investors) and the date on which the Grace Period will begin,
and (ii) notify the Investors in writing of the date on which the Grace Period
ends; and, provided further, that during any three hundred sixty five (365) day
period such Grace Periods shall not exceed an aggregate of thirty-five (35) days
(each, an "ALLOWABLE GRACE PERIOD"). For purposes of determining the length of a
Grace Period above, the Grace Period shall begin on and include the date the
Investors receive the notice referred to in clause (i) and shall end on and
include the later of the date the Investors receive the notice referred to in
clause (ii) and the date referred to in such notice. Subject to the provisions
of Section 2(g), the Company may delay the filing or effectiveness or suspend
the use or effectiveness of any Registration Statement (and the Investors hereby
agree not to offer or sell any Registrable Securities pursuant to such
Registration Statement), and the provisions of Section 3(g) hereof shall not be
applicable, during the period of any Allowable Grace Period. Upon expiration of
the Grace Period, the Company shall again be bound by the first sentence of
Section 3(f) with respect to the information giving rise thereto unless such
material, non-public information is no longer applicable. Notwithstanding
anything to the contrary, the Company shall cause its transfer agent to deliver
unlegended shares of Common Stock to a transferee of an Investor for any sale of
Registrable Securities made under a Registration Statement or pursuant to Rule
144 with respect to which an Investor has entered into a contract for sale, and
delivered a copy of the prospectus included as part of the applicable
Registration Statement, prior to the Investor's receipt of the notice of a Grace
Period and for which the Investor has not yet settled.

      4. Obligations of the Investors.

            a. Within the reasonable amount of time prior to the first
anticipated filing date of a Registration Statement, the Company shall notify
each Investor in writing of the information the Company requires from each such
Investor if such Investor elects to have any of such Investor's Registrable
Securities included in such Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to

                                       12



this Agreement with respect to the Registrable Securities of a particular
Investor that such Investor shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it as shall be reasonably
required to effect the effectiveness of the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request, including a registration statement
questionnaire in the form provided by the Company.

            b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.

            c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(g) or the
first sentence of 3(f) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor for any sale of Registrable Securities made under a Registration
Statement or pursuant to Rule 144 with respect to which an Investor has entered
into a contract for sale prior to the Investor's receipt of a notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f) and for which the Investor has not yet settled.

            d. To the extent required by applicable law, each Investor shall
promptly notify the Company of any change in any information regarding such
Investor furnished by such Investor to the Company for inclusion in a
Registration Statement. Each Investor covenants and agrees that it will comply
with the prospectus delivery requirements of the 1933 Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement.

            e. To the extent required by applicable law, each Investor shall
deliver a prospectus to the purchaser of Registrable Securities held by such
Investor.

            f. The Investors shall (i) notify the Company in the event that any
information supplied by such Investor in writing for inclusion in any
Registration Statement or related prospectus is materially untrue or omits to
state a material fact required to be stated therein or necessary to make such
information not misleading in light of the circumstances then existing and (ii)
immediately discontinue any sale or other disposition of Registrable Securities
pursuant to any such Registration Statement or prospectus until the filing of an
amendment or supplement to such prospectus as may be necessary so that such
prospectus does not contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.

                                       13



            g. At the end of the Registration Period with respect to a
Registration Statement, the Investors holding Registrable Securities subject to
such Registration Statement shall discontinue sales of shares pursuant to such
Registration Statement upon receipt of notice from the Company of its intention
to remove from registration the shares covered by such Registration Statement
which remain unsold.

      5. Expenses of Registration.

      All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company shall be paid by the Company.
The Company shall also reimburse the Investors for the fees and disbursements of
Legal Counsel in connection with registration, filing or qualification pursuant
to Sections 2 and 3 of this Agreement which amount shall be limited to $10,000
for the Initial Registration Statement and $5,000 for each Additional
Registration Statement.

      6. Indemnification.

      In the event any Registrable Securities are included in a Registration
Statement under this Agreement:

            a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, members, partners, employees, agents, representatives of, and each
Person, if any, who controls any Investor within the meaning of the 1933 Act or
the 1934 Act (each, an "INDEMNIFIED PERSON"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, reasonable
attorneys' fees, amounts paid in settlement or expenses, joint or several,
(collectively, "CLAIMS") incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used in accordance with applicable law prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in the light of the circumstances under which the statements therein
were made, not misleading, (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any other securities law, including,
without limitation, any state securities

                                       14



law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement or (iv) any
violation of this Agreement (the matters in the foregoing clauses (i) through
(iv) being, collectively, "VIOLATIONS"). Subject to Section 6(c), the Company
shall reimburse the Indemnified Persons, promptly as such expenses are
reasonably incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person for such
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(d); (ii) with respect to any preliminary prospectus, shall not inure to the
benefit of any such Person from whom the Person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any Person controlling such Person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented and if such prospectus was
timely made available by the Company pursuant to Section 3(d), and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a violation and such Indemnified
Person, notwithstanding such advice, used it or failed to deliver the correct
prospectus as required by the 1933 Act; (iii) shall not be available to the
extent such Claim is based on a failure of the Investor to deliver or to cause
to be delivered the prospectus made available by the Company, including a
corrected prospectus, if such prospectus or corrected prospectus was timely made
available by the Company pursuant to Section 3(d); and (iv) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.

            b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement and each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(each, an "INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to
which any of them may become subject, under the 1933 Act, the 1934 Act or
otherwise, insofar as such Claim or Indemnified Damages arise out of or are
based upon any Violation, in each case to the extent, and only to the extent,
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement or any post-effective amendment
thereof; and, subject to Section 6(c), such Investor promptly will reimburse,
promptly as such expenses are reasonably incurred and are due and payable, any
legal or other expenses reasonably incurred by an Indemnified Party in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) and the agreement
with respect to contribution contained in Section 7 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent

                                       15



shall not be unreasonably withheld or delayed; provided, further, however, that
the Investor shall be liable under this Section 6(b) for only that amount of a
Claim or Indemnified Damages as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.

            c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. In the case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding a majority in interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such action or Claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or Claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person reasonably apprised
at all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such Claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of

                                       16



the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action.

            d. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

      7. Contribution.

      To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no Person involved in the sale of Registrable Securities which Person is
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) in connection with such sale shall be entitled to contribution
from any Person involved in such sale of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant to
such Registration Statement.

      8. Reports Under the 1934 Act.

      With a view to making available to the Investors the benefits of Rule 144,
the Company agrees to:

            a. so long as an Investor owns Registrable Securities, make and keep
public information available, as those terms are understood and defined in Rule
144;

            b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements and the filing of such reports
and other documents is required for the applicable provisions of Rule 144; and

            c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company, if true, that it has complied with the reporting requirements of Rule
144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual report
of the Company and such other reports and documents so filed by the Company
(other than any correspondence filed by the Company with the SEC, including,
without limitation, any confidential treatment requests), and (iii) such other
information as may be reasonably requested to permit the Investors to sell such
securities pursuant to Rule 144 without registration.

      9. Assignment of Registration Rights.

      The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of such Investor's Registrable
Securities if: (i)

                                       17



the Investor agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned;
(iii) immediately following such transfer or assignment the further disposition
of such securities by the transferee or assignee is restricted under the 1933
Act and applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.

      10. Amendment of Registration Rights.

      Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and the Required
Holders. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. 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 this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.

      11. Miscellaneous.

            a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the such record owner of such Registrable Securities.

            b. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by electronic mail or facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:

      If to the Company:

            Verilink Corporation
            11551 E. Arapahoe Rd., Suite 150
            Centennial, Colorado 80112

                                       18



            Telephone:    (303) 968-3000
            Facsimile:    (303) 968-3005
            Attention:    Chief Financial Officer

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

            Cooley Godward LLP
            380 Interlocken Crescent, Suite 900
            Broomfield, CO 80021
            Telephone:    (720) 566-4000
            Facsimile:    (720) 566-4099
            Attention:    Brent D. Fassett, Esq.

      If to Legal Counsel:

            Schulte Roth & Zabel LLP
            919 Third Avenue
            New York, New York  10022
            Telephone:  (212) 756-2000
            Facsimile:  (212) 593-5955
            Attention:  Eleazer N. Klein, Esq.

If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers, or to such other address and/or facsimile number
and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five (5) days prior to the
effectiveness of such change. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

            c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

            d. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by the internal laws of
the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and 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, 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

                                       19



jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. 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 to such party at the address for such 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.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

            e. This Agreement, the other Transaction Documents (as defined in
the Securities Purchase Agreement) and the instruments referenced herein and
therein constitute the entire agreement among the parties hereto with respect to
the subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the other Transaction Documents and the instruments
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.

            f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.

            g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.

            h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

            i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

            j. All consents and other determinations required to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by the Required Holders.

                                       20



            k. 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.

            l. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.

            m. The obligations of each Buyer hereunder are several and not joint
with the obligations of any other Buyer, and no provision of this Agreement is
intended to confer any obligations on any Buyer vis-a-vis any other Buyer.
Nothing contained herein, and no action taken by any Buyer pursuant hereto,
shall be deemed to constitute the Buyers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Buyers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated herein.

                                   * * * * * *

                                       21



      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

                                            COMPANY:

                                            VERILINK CORPORATION

                                            By: /s/ Leigh S. Belden
                                               ---------------------------------
                                                Name:  Leigh S. Belden
                                                Title: President and CEO



      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

                                            BUYERS:

                                            PORTSIDE GROWTH & OPPORTUNITY FUND

                                            By: /s/ Jeffrey Smith
                                               ---------------------------------
                                                Name:  Jeffrey Smith
                                                Title: Authorized Signatory



      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

                                            BUYER:

                                            SMITHFIELD FIDUCIARY LLC

                                            By: /s/ Adam J. Chill
                                               ---------------------------------
                                                Name: Adam J. Chill
                                                Title: Authorized Signatory



      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

                                           BUYER:

                                           D.B. ZWIRN SPECIAL OPPORTUNITIES
                                           FUND, L.P.

                                           By: D.B. Zwirn and Co., L.P.

                                           By: /s/ Divid Proshan
                                              ----------------------------------
                                               Name:  Divid Proshan
                                               Title: General Counsel



      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

                                           BUYER:

                                           PROVIDENT PREMIER MASTER FUND, LTD.

                                           By: /s/ Steven W. Winters
                                              ----------------------------------
                                               Name:  Steven W. Winters
                                               Title: Attorney-In-Fact



      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

                                           BUYER:

                                           LANGLEY PARTNERS, L.P.

                                           By: Langley Capital, LLC, its General
                                                Partner

                                           By: /s/ Jeffrey Thorp
                                              ----------------------------------
                                               Name: Jeffrey Thorp
                                               Title: Managing Member



      IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Registration Rights Agreement to be duly
executed as of the date first written above.

                                           BUYER:

                                           JGB CAPITAL L.P.

                                           By: JGB Management Inc., as General
                                                Partner

                                           By: /s/ Brett Cohen
                                              ----------------------------------
                                               Name: Brett Cohen
                                               Title: President



                               SCHEDULE OF BUYERS



                                                                    BUYER'S REPRESENTATIVE'S
                                       BUYER'S ADDRESS                       ADDRESS
        BUYER                      AND FACSIMILE NUMBER               AND FACSIMILE NUMBER
- ---------------------------  -----------------------------------  -----------------------------
                                                            
PORTSIDE GROWTH &            c/o Ramius Capital Group, L.L.C.     Schulte Roth & Zabel LLP
OPPORTUNITY FUND             666 Third Avenue, 26th Floor         919 Third Avenue
                             New York, New York  10017            New York, New York 10022
                             Attention: Jeffrey Smith             Attn:  Eleazer N. Klein, Esq.
                                        Michael Neidell           Facsimile: (212) 593-5955
                             Facsimile: (212) 845-7999            Telephone: (212) 756-2000
                             Telephone: (212) 845-7955            E-mail: eleazer.klein@srz.com
                             E-mail: jsmith@ramius.com
                                     mneidell@ramius.com
                             Residence: Cayman Islands

SMITHFIELD FIDUCIARY LLC     c/o Highbridge Capital
                             Management, LLC
                             9 West 57th Street, 27th Floor
                             New York, New York 10019
                             Attention: Ari J. Storch
                                        Adam J. Chill
                             Facsimile: (212) 751-0755
                             Telephone: (212) 287-4720
                             Residence: Cayman Islands

D.B. ZWIRN SPECIAL           D.B. Zwirn & Co., L.P.
OPPORTUNITIES FUND, L.P.     745 Fifth Ave.
                             18th Floor
                             New York, New York
                             10151
                             Attention: Daniel B. Zwirn
                                        Perry A. Gruss
                             Telephone: 646-720-9101
                             Facsimile: 646-344-4743
                             Residence: Delaware

PROVIDENT PREMIER MASTER     c/o Gemini Investment Strategies,
FUND, LTD.                   LLC
                             35 Waterview Boulevard
                             Parsippany, NJ  07054
                             Attention: Steven Winters
                             Facsimile: (973) 404-1360
                             Telephone: (973) 404-1350
                             Residence: Cayman Islands

LANGLEY PARTNERS, L.P.       c/o Langley Capital, LLC
                             535 Madison Avenue, 7th Floor
                             New York, NY 10022
                             Attention:  Jeffrey Thorp
                             Facsimile: (212) 208-2971
                             Telephone: (212) 850-7528
                             Residence: Delaware




                          
JGB CAPITAL L.P.             660 Madison, 21st floor
                             New York, NY 10021
                             Attention:  Brett Cohen
                             Facsimile: (212) 253-4093
                             Telephone: (212) 355-5771
                             Residence: Delaware





                                                                       EXHIBIT A

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

American Stock Transfer & Trust Company
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
Attention: Office of General Counsel

            Re: Verilink Corporation

Ladies and Gentlemen:

            I am an executive officer of Verilink Corporation, a Delaware
corporation (the "COMPANY"), and I am issuing this notice to in connection with
that certain Securities Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT")
entered into by and among the Company and the buyers named therein
(collectively, the "HOLDERS") pursuant to which the Company issued to the
Holders senior secured convertible notes (the "INITIAL NOTES") convertible into
the Company's common stock, $.01 par value per share (the "COMMON STOCK"),
warrants exercisable for shares of Common Stock (the "WARRANTS") and additional
investment rights exercisable for additional senior secured convertible notes of
the Company (the "ADDITIONAL NOTES", and collectively with the Initial Notes,
the "NOTES") which will be convertible into shares of Common Stock. Pursuant to
the Securities Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Holders (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Notes, the shares of Common Stock issuable as interest on the Notes and the
shares of Common Stock issuable upon exercise of the Warrants, under the
Securities Act of 1933, as amended (the "1933 ACT"). In connection with the
Company's obligations under the Registration Rights Agreement, on ____________
___, 200_, the Company filed a Registration Statement on Form S-3 (File No.
333-_____________) (the "REGISTRATION STATEMENT") with the Securities and
Exchange Commission (the "SEC") relating to the Registrable Securities which
names each of the Holders as a selling stockholder thereunder.

            In connection with the foregoing, I advise you that a member of the
SEC's staff has advised the Company's counsel by telephone that the SEC has
entered an order declaring the Registration Statement effective under the 1933
Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and I have
no knowledge, after telephonic inquiry of a member of the SEC's staff, that any
stop order suspending its effectiveness has been issued or that any proceedings
for that purpose are pending before, or threatened by, the SEC and the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.



            We hereby authorize American Stock Transfer & Trust Company as
transfer agent to the Company, without further inquiry and unless we inform you
otherwise, upon receipt of (i) an acknowledged Conversion Notice or Exercise
Notice, as applicable, and confirmation of resale or (ii) an appropriate legal
opinion, to remove the restrictive legends from any applicable shares of the
Common Stock of the Company to be issued pursuant thereto.

                                           Very truly yours,

                                           [ISSUER'S COUNSEL]

                                           By: _____________________

CC:   Portside Growth and Opportunity Fund
      Smithfield Fiduciary LLC
      Highbridge/Zwirn Special Opportunities Fund, L.P.
      Provident Premier Master Fund, Ltd.
      Langley Partners, L.P.
      JGB Capital L.P.
      Eleazer N. Klein, Esq.



                                                                       EXHIBIT B

                              SELLING STOCKHOLDERS

      The shares of Common Stock being offered by the selling stockholders are
issuable upon conversion of the convertible notes, as principal and interest
payments on the convertible notes and upon exercise of the warrants. For
additional information regarding the issuance of those convertible notes and
warrants, see "Private Placement of Shares of Common Stock, Convertible Notes,
Warrants and Additional Investment Rights" above. We are registering the shares
of Common Stock in order to permit the selling stockholders to offer the shares
for resale from time to time. Except for the ownership of the Convertible Notes,
the Warrants and the Additional Investment Rights issued pursuant to the
Securities Purchase Agreement, the selling stockholders have not had any
material relationship with us within the past three years.

      The table below lists the selling stockholders and other information
regarding the beneficial ownership of the shares of Common Stock by each of the
selling stockholders. The second column lists the number of shares of Common
Stock beneficially owned by each selling stockholder, based on its ownership of
the convertible notes and warrants, as of ________, 200_, assuming conversion of
all convertible notes and exercise of the warrants held by the selling
stockholders on that date, without regard to any limitations on conversions or
exercise.

      The third column lists the shares of Common Stock being offered by this
prospectus by each selling Stockholder.

      In accordance with the terms of a registration rights agreement among the
Company and the selling stockholders, this prospectus generally covers the
resale of at least 150% of the sum of (i) the number of shares of Common Stock
issuable as interest on the convertible notes based upon certain assumptions,
(ii) the number of shares of Common Stock issuable upon conversion of the
convertible notes as of the trading day immediately preceding the date the
registration statement is initially filed with the SEC and (iii) the number of
shares of Common Stock issuable upon exercise of the related warrants as of the
trading day immediately preceding the date the registration statement is
initially filed with the SEC. Because the conversion price of the convertible
notes, the interest payable on the convertible notes may be adjusted and the
exercise price of the warrants may be adjusted, the number of shares that will
actually be issued may be more or less than the number of shares being offered
by this prospectus. The fourth column assumes the sale of all of the shares
offered by the selling stockholders pursuant to this prospectus.

      Under the terms of the convertible notes and the warrants, a selling
stockholder may not convert the convertible notes or exercise the warrants to
the extent such conversion or exercise would cause such selling stockholder,
together with its affiliates, to beneficially own a number of shares of Common
Stock which would exceed 4.99% (or if the selling stockholder gives notice to
such effect in accordance with the terms of the notes or warrants, 9.99%) of our
then outstanding shares of Common Stock following such conversion or exercise,
excluding for purposes of such determination shares of Common Stock issuable
upon conversion of the convertible notes that have not been converted and upon
exercise of the warrants and additional



investment rights that have not been exercised. The number of shares in the
second column does not reflect this limitation. The selling stockholders may
sell all, some or none of their shares in this offering. See "Plan of
Distribution."




                                                             MAXIMUM NUMBER OF SHARES
                                    NUMBER OF SHARES OWNED  TO BE SOLD PURSUANT TO THIS  NUMBER OF SHARES OWNED
   NAME OF SELLING STOCKHOLDER        PRIOR TO OFFERING             PROSPECTUS               AFTER OFFERING
- ----------------------------------  ----------------------  ---------------------------  ----------------------
                                                                                
Portside Growth & Opportunity Fund                                                                 0

Smithfield Fiduciary LLC

D.B. Zwirn Special
Opportunities Fund, L.P.

Provident Premier Master
Fund, Ltd.

Langley Partners, L.P.

JGB Capital L.P.




                              PLAN OF DISTRIBUTION

      We are registering the shares of Common Stock issuable upon conversion of
the convertible notes, upon exercise of the warrants and in payment of interest
on the convertible notes to permit the resale of these shares of Common Stock by
the holders of the convertible notes and warrants from time to time after the
date of this prospectus. We will not receive any of the proceeds from the sale
by the selling stockholders of the shares of Common Stock. We will bear all fees
and expenses incident to our obligation to register the shares of Common Stock.

      The selling stockholders may sell all or a portion of the shares of Common
Stock beneficially owned by them and offered hereby from time to time directly
or through one or more underwriters, broker-dealers or agents. If the shares of
Common Stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or commissions or
agent's commissions. The shares of Common Stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices.
These sales may be effected in transactions, which may involve crosses or block
transactions,

      -     on any national securities exchange or quotation service on which
            the securities may be listed or quoted at the time of sale;

      -     in the over-the-counter market;

      -     in transactions otherwise than on these exchanges or systems or in
            the over-the-counter market;

      -     through the writing of options, whether such options are listed on
            an options exchange or otherwise;

      -     ordinary brokerage transactions and transactions in which the
            broker-dealer solicits purchasers;

      -     block trades in which the broker-dealer will attempt to sell the
            shares as agent but may position and resell a portion of the block
            as principal to facilitate the transaction;

      -     purchases by a broker-dealer as principal and resale by the
            broker-dealer for its account;

      -     an exchange distribution in accordance with the rules of the
            applicable exchange;

      -     privately negotiated transactions;

      -     short sales;

      -     sales pursuant to Rule 144;

                                       1



      -     broker-dealers may agree with the selling securityholders to sell a
            specified number of such shares at a stipulated price per share;

      -     a combination of any such methods of sale; and

      -     any other method permitted pursuant to applicable law.

      If the selling stockholders effect such transactions by selling shares of
Common Stock to or through underwriters, broker-dealers or agents, such
underwriters, broker-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of the shares of Common Stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, broker-dealers or agents may be in
excess of those customary in the types of transactions involved). In connection
with sales of the shares of Common Stock or otherwise, the selling stockholders
may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of Common Stock in the course of hedging in
positions they assume. The selling stockholders may also sell shares of Common
Stock short and deliver shares of Common Stock covered by this prospectus to
close out short positions and to return borrowed shares in connection with such
short sales. The selling stockholders may also loan or pledge shares of Common
Stock to broker-dealers that in turn may sell such shares.

      The selling stockholders may pledge or grant a security interest in some
or all of the convertible notes, warrants or shares of Common Stock owned by
them and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of Common Stock from
time to time pursuant to this prospectus or any amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of
1933, as amended, amending, if necessary, the list of selling stockholders to
include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus. The selling stockholders also may transfer
and donate the shares of Common Stock in other circumstances in which case the
transferees, donees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.

      The selling stockholders and any broker-dealer participating in the
distribution of the shares of Common Stock may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission paid, or any
discounts or concessions allowed to, any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a
particular offering of the shares of Common Stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount of shares of Common Stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to broker-dealers.

      Under the securities laws of some states, the shares of Common Stock may
be sold in such states only through registered or licensed brokers or dealers.
In addition, in some states the shares of Common Stock may not be sold unless
such shares have been registered or qualified

                                       2



for sale in such state or an exemption from registration or qualification is
available and is complied with.

      There can be no assurance that any selling stockholder will sell any or
all of the shares of Common Stock registered pursuant to the shelf registration
statement, of which this prospectus forms a part.

      The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder, including,
without limitation, Regulation M of the Exchange Act, which may limit the timing
of purchases and sales of any of the shares of Common Stock by the selling
stockholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of Common
Stock to engage in market-making activities with respect to the shares of Common
Stock. All of the foregoing may affect the marketability of the shares of Common
Stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of Common Stock.

      We will pay all expenses of the registration of the shares of Common Stock
pursuant to the registration rights agreement; provided, however, that a selling
stockholder will pay all underwriting discounts and selling commissions, if any.
We will indemnify the selling stockholders against liabilities, including some
liabilities under the Securities Act, in accordance with the registration rights
agreements, or the selling stockholders will be entitled to contribution. We may
be indemnified by the selling stockholders against civil liabilities, including
liabilities under the Securities Act, that may arise from any written
information furnished to us by the selling stockholder specifically for use in
this prospectus, in accordance with the related registration rights agreement,
or we may be entitled to contribution.

      Once sold under the registration statement, of which this prospectus forms
a part, the shares of Common Stock will be freely tradable in the hands of
persons other than our affiliates.

                                       3

EX-10.23

                                                                   EXHIBIT 10.23

                                VOTING AGREEMENT

            VOTING AGREEMENT, dated as of March 20 2005 (this "AGREEMENT"), by
and among Verilink Corporation, a Delaware corporation (the "COMPANY"), and
___________ (the "STOCKHOLDER").

            WHEREAS, the Company and certain investors (each, an "INVESTOR", and
collectively, the "INVESTORS") have entered into a Securities Purchase
Agreement, dated as of the date hereof (the "SECURITIES PURCHASE AGREEMENT"),
pursuant to which, among other things, the Company has agreed to issue and sell
to the Investors and the Investors have, severally but not jointly, agreed to
purchase (i) senior secured convertible notes of the Company (the "NOTES"),
which Notes shall be convertible into the Company's common stock, $.01 par value
per share (the "COMMON STOCK"), (ii) warrants to purchase shares of Common Stock
and (iii) a right to acquire additional Notes.

            WHEREAS, as of the date hereof, the Stockholder owns shares of
Common Stock, which represents (i) approximately [ %] of the total issued and
outstanding Common Stock of the Company, and (ii) approximately [ %] of the
total voting power of the Company;

            WHEREAS, as a condition to the willingness of the Investors to enter
into the Securities Purchase Agreement and to consummate the transactions
contemplated thereby (collectively, the "TRANSACTION"), the Investors have
required that the Stockholder agree, and in order to induce the Investors to
enter into the Securities Purchase Agreement, the Stockholder has agreed, to
enter into this Agreement with respect to all the Common Stock now owned and
which may hereafter be acquired by the Stockholder and any other securities, if
any, which Stockholder is currently entitled to vote, or after the date hererof
becomes entitled to vote, at any meeting of the stockholders of the Company (the
"OTHER SECURITIES").

            NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:

                                    ARTICLE I

                       VOTING AGREEMENT OF THE STOCKHOLDER

            SECTION 1.01. Voting Agreement. Subject to the last sentence of this
Section 1.01, the Stockholder hereby agrees that at any meeting of the
stockholders of the Company, however called, and in any action by written
consent of the Company's stockholders, the Stockholder shall vote the Common
Stock and the Other Securities: (a) in favor of the Stockholder Approval (as
defined in the Securities Purchase Agreement) as described in Section 4(r) of
the Securities Purchase Agreement; and (b) against any proposal or any other
corporate action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Transaction Documents (as defined in the Securities Purchase
Agreement) or which could result in any of the conditions to the Company's
obligations under the Transaction Documents not being fulfilled. The Stockholder
acknowledges receipt and review of a copy of the Securities Purchase Agreement



and the other Transaction Documents. The obligations of the Stockholder under
this Section 1.01 shall terminate immediately following the occurrence of the
Stockholder Approval.

                                   ARTICLE II

                REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER

            The Stockholder hereby represents and warrants to the Company and
each of the Investors as follows:

            SECTION 2.01. Authority Relative to this Agreement. The Stockholder
has the capacity to execute and deliver this Agreement, to perform his
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Stockholder and
constitutes a legal, valid and binding obligation of the Stockholder,
enforceable against the Stockholder in accordance with its terms, except (a) as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws now or
hereafter in effect relating to, or affecting generally, the enforcement of
creditors' and other obligees' rights and (b) where the remedy of specific
performance or other forms of equitable relief may be subject to certain
equitable defenses and principles and to the discretion of the court before
which the proceeding may be brought.

            SECTION 2.02. No Conflict. (a) The execution and delivery of this
Agreement by the Stockholder does not, and the performance of this Agreement by
the Stockholder shall not, (i) conflict with or violate any federal, state or
local law, statute, ordinance, rule, regulation, order, judgment or decree
applicable to the Stockholder or by which the Common Stock or the Other
Securities owned by the Stockholder are bound or affected or (ii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the Common Stock or the Other
Securities owned by the Stockholder pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Stockholder is a party or by which the
Stockholder or the Common Stock or Other Securities owned by the Stockholder is
bound.

            (b) The execution and delivery of this Agreement by the Stockholder
does not, and the performance of this Agreement by the Stockholder shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental entity by the Stockholder.

            SECTION 2.03. Title to the Stock. As of the date hereof, the
Stockholder is the owner of [________] shares of Common Stock, entitled to vote,
without restriction, on all matters brought before holders of capital stock of
the Company, which Common Stock represents on the date hereof approximately [ %]
of the outstanding stock and approximately [ %] of the voting power of the
Company. Such Common Stock is all the securities of the Company owned, either of
record or beneficially, by the Stockholder. Such Common Stock is owned free and
clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on the Stockholder's voting rights,
charges and other

                                      -2-


encumbrances of any nature whatsoever. The Stockholder has not appointed or
granted any proxy, which appointment or grant is still effective, with respect
to the Common Stock or Other Securities owned by the Stockholder.

                                   ARTICLE III

                                    COVENANTS

            SECTION 3.01. No Disposition or Encumbrance of Stock. Until
Stockholder Approval, the Stockholder hereby covenants and agrees that the
Stockholder shall not offer or agree to sell, transfer, tender, assign,
hypothecate or otherwise dispose of, grant a proxy or power of attorney with
respect to, or create or permit to exist any security interest, lien, claim,
pledge, option, right of first refusal, agreement, limitation on Stockholder's
voting rights, charge or other encumbrance of any nature whatsoever
("ENCUMBRANCE") with respect to the Common Stock or Other Securities, directly
or indirectly, or initiate, solicit or encourage any person to take actions
which could reasonably be expected to lead to the occurrence of any of the
foregoing.

            SECTION 3.02. Company Cooperation. The Company hereby covenants and
agrees that it will not, and the Stockholder irrevocably and unconditionally
acknowledges and agrees that the Company will not (and waives any rights against
the Company in relation thereto), recognize any Encumbrance or agreement on any
of the Common Stock or Other Securities subject to this Agreement.

                                   ARTICLE IV

                                  MISCELLANEOUS

            SECTION 4.01. Further Assurances. The Stockholder shall execute and
deliver such further documents and instruments and take all further action as
may be reasonably necessary in order to consummate the transactions contemplated
hereby.

            SECTION 4.02. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that any Investor (without
being joined by any other Investor) shall be entitled to specific performance of
the terms hereof, in addition to any other remedy at law or in equity. Any
Investor shall be entitled to its reasonable attorneys' fees in any action
brought to enforce this Agreement in which it is the prevailing party.

            SECTION 4.03. Entire Agreement. This Agreement constitutes the
entire agreement among the Company and the Stockholder (other than the
Securities Purchase Agreement and the other Transaction Documents to which the
Stockholder is a party) with respect to the subject matter hereof and supersedes
all prior agreements and understandings, both written and oral, among the
Company and the Stockholder with respect to the subject matter hereof.

            SECTION 4.04. Amendment. This Agreement may not be amended except by
an instrument in writing signed by the parties hereto.

                                      -3-


            SECTION 4.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.

            SECTION 4.06. Governing Law. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of Delaware, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware. The parties hereby
agree that all actions or proceedings arising directly or indirectly from or in
connection with this Agreement shall be litigated only in the Supreme Court of
the State of New York or the United States District Court for the Southern
District of New York located in New York County, New York. The parties consent
to the jurisdiction and venue of the foregoing courts and consent that any
process or notice of motion or other application to any of said courts or a
judge thereof may be served inside or outside the State of New York or the
Southern District of New York by registered mail, return receipt requested,
directed to the party being served at its address set forth on the signature
ages to this Agreement (and service so made shall be deemed complete three (3)
days after the same has been posted as aforesaid) or by personal service or in
such other manner as may be permissible under the rules of said courts. Each of
the Company and the Stockholder irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such suit, action, or proceeding brought in such a court and
any claim that suit, action, or proceeding has been brought in an inconvenient
forum. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

            SECTION 4.07. Third-Party Beneficiaries. The Investors shall be
intended third party beneficiaries of this Agreement to the same extent as if
they were parties hereto, and shall be entitled to enforce the provisions
hereof.

            SECTION 4.08. Termination. This Agreement shall terminate
immediately following the occurrence of the Stockholder Approval or upon the
mutual consent of the Stockholder and the Investors holding at least a majority
of the aggregate principal amount of Notes outstanding.

                  [Remainder of Page Intentionally Left Blank.]

                                      -4-




      IN WITNESS WHEREOF, the Stockholder and the Company has duly executed this
Agreement.

                                       COMPANY:

                                       VERILINK CORPORATION

                                       By: _______________________________
                                           Name:
                                           Title:

                                       Address: 11551 E. Arapahoe Rd.,
                                             Suite 150
                                             Centennial, Colorado 80112

                                       STOCKHOLDER:

                                       __________________________________
                                       Print Name:

                                       Address:

EX-99.1

                                                                    EXHIBIT 99.1

VERILINK CONTACT:

Gary W. Gray, Director of Marketing Communications
Verilink Corporation
510-771-3354
gary.gray@verilink.com

              VERILINK CORPORATION ANNOUNCES $10 MILLION FINANCING

Proceeds to be used for Repayment of Line of Credit, Working Capital and General
                               Corporate Purposes

CENTENNIAL, CO. -- MARCH 21, 2005 -- Verilink Corporation (Nasdaq: VRLK), a
leading provider of broadband access solutions, announced today that it has
entered into a securities purchase agreement which provides for a private
placement of $10 million of senior secured convertible debentures and warrants
with certain institutional investors. The purchase agreement also provides for
up to an additional $5 million of convertible debentures to be issued to the
investors at the investors' option or, under certain circumstances, at the
Company's option. The closing of the financing is expected to occur today. The
Company will use the net proceeds from the financing to repay its $3,500,000
revolving line of credit with RBC Centura Bank and for working capital and
general corporate purposes. The closing of the financing and repayment of the
RBC line of credit will resolve the existing default conditions with respect to
outstanding debt of the Company described in the Company's most recent Form
10-Q.

"This investment provides us additional capital resources to execute our
strategy which is focused on growth and strengthening our position in the global
broadband access market," said Leigh S. Belden, President and CEO of Verilink.
"With the integration of last year's acquisitions now largely completed, we
believe Verilink is well positioned to address carrier requirements for today's
networks while providing an elegant migration path to tomorrow's networks
delivering VoIP and native Ethernet services."

The debentures are convertible into common stock at a conversion price of $3.01
per share, which represents a 15% premium to the closing price of the Company's
common



stock on the Nasdaq National Market on Friday, March 18, 2005. The conversion
price is subject to adjustment in certain circumstances. The debentures bear
interest at a rate of six percent per annum and are repayable in quarterly
payments in either cash or, after effectiveness of the registration statement
referred to below, common stock over a period of up to three years. Verilink
will have the right, beginning one year after effectiveness of the registration
statement, to require conversion of the debentures to common stock if the
closing price of a share of the Company's common stock exceeds 200 percent of
the conversion price for 20 consecutive trading days. The debentures are secured
by substantially all of the assets of the Company. The warrants are initially
exercisable for 830,563 shares of the Company's common stock at a price of $3.41
per share, have a term of five years and will be exercisable beginning six
months after the closing date. The Company is required to file a registration
statement with the Securities and Exchange Commission to register the shares of
common stock issuable in connection with the financing. The Company will seek
stockholder approval for the potential issuance of shares of common stock upon
conversion of the debentures and for principal and interest payments on the
debentures in order to satisfy applicable Nasdaq requirements. The exercise
price of the warrants is subject to adjustment in circumstances similar to the
conversion price of the debentures.

The debentures and the warrants sold in the private placement and the shares of
common stock issuable in connection with the financing have not been registered
under the Securities Act of 1933, as amended, or state securities laws and may
not be offered or sold in the United States absent registration with the
Securities and Exchange Commission ("SEC") or an applicable exemption from the
registration requirements. The debentures and warrants were offered and sold
only to qualified institutional buyers and institutional accredited investors.
This announcement is not an offer to sell or the solicitation of an offer to buy
the debentures, the warrants or shares of common stock of the Company.

This announcement is only a description of the terms of the debentures and
warrants and is not a solicitation of a proxy to approve the terms of the
financing. Information concerning the financing will be included in a Current
Report on Form 8-K and any proxy statement to be furnished in connection with a
meeting of the Company's stockholders.



Kaufman Bros, L.P., an investment banking firm specializing in the
communication, media and technology sectors, acted as sole placement agent to
the Company for the transaction.

ABOUT VERILINK CORPORATION

Verilink Corporation is a leading provider of next-generation broadband access
solutions for today's and tomorrow's networks. The company develops,
manufactures and markets a broad suite of products that enable carriers (ILECs,
CLECs, IXCs, and IOCs) and enterprises to build converged access networks to
cost-effectively deliver next-generation communications services to their end
customers. The company's products include a complete line of VoIP, VoATM, VoDSL
and TDM-based integrated access devices (IADs), optical access products,
wire-speed routers, and bandwidth aggregation solutions including CSU/DSUs,
multiplexers and DACS. The company also provides turnkey professional services
to help carriers plan, manage and accelerate the deployment of new services.
Verilink is headquartered in Centennial, CO (metro Denver area) with operations
in Madison, AL and Newark, CA and sales offices in the U.S., Europe and Asia. To
learn more about Verilink, visit the company's website at
http://www.verilink.com.

#   #   #

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

Except for the historical information contained herein, the matters set forth in
this press release are forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include the prospects for completing
integration of the Company's acquisitions, executing its business strategy,
growth and the strengthening of its position in the global broadband access
market and it's ability to address carrier requirements for future networks and
the resolution of defaults. Such statements involve known and unknown risks,
uncertainties and other factors that may cause the Company's actual results,
performance or achievements to be materially different from the results,
performance or achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other factors include, the potential
impact on the Company's liquidity and operations if it is unable to repay the
debentures or meet its working capital needs; the potential dilution to the
company's existing stockholders upon issuance of shares of common stock pursuant
to the terms of the financing, the impact of future developments and unknown
occurrences on compliance with the terms and conditions of financing, the
ability to successfully integrate acquisitions and achieve expected synergies;
the ability to develop and market successfully and in a timely manner new
products and to predict market demand for particular products; the impact of
competitive products and pricing and of alternative technological advances; the
ability to increase sales of acquired product lines; the impact of cost-saving
activities, including the consolidation plans; the sufficiency of cash flow to
fund operations; risks associated with the Company's lack of liquidity and
"going concern" qualification in the report of independent registered public
accounting firm for the audited fiscal 2004 financial statements; possible
negative effects on the Company's customer base, employees and its ability to
obtain



additional financing; fluctuations in operating results and general industry and
economic conditions; costs associated with internal controls; the impact of
price and product competition; the impact of customer concentration and the
financial strength of customers; and changes in demand for the Company's
products. A discussion of risks and uncertainties that could cause actual
results and events to differ materially from such forward-looking statements are
included in the Company's Annual Report on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K. These forward-looking statements speak
only as of the date hereof. The Company disclaims any intention or obligation to
update or revise any forward-looking statements.

Verilink and the Verilink logo are registered trademarks of Verilink
Corporation.