Unassociated Document


    AMENDED
      AND RESTATED CONSENT AND WAIVER

     

    Dated
      as
      of August 19, 2008

     

    GENERAL
      RECITALS

     

    WHEREAS,
      this Amended and Restated Consent and Waiver amends and restates in its entirety
      the Consent and Waiver dated as of February 13, 2008 relating to the subject
      matter hereof.

     

    WHEREAS,
      the
      undersigned are the holders of at least 75% (the “75%
      Holders”)
      of the
      outstanding principal amount of the Company’s 10% Secured Convertible Debentures
      issued on September 12, 2006 (the “Debentures”);

     

    WHEREAS,
      reference is hereby made to the Securities Purchase Agreement, dated September
      12, 2006, among the Company and the purchasers of the Debentures signatory
      thereto (the “Purchasers”),
      and
      the warrants to purchase common stock of the Company issued pursuant thereto
      (the “Warrants”);

     

    RECITALS
      RELATING TO OFFICER LOAN

     

    WHEREAS,
      Section
      7(a) of the Debentures prohibits the Company from incurring any additional
      indebtedness without the written consent of the 75% Holders;

     

    WHEREAS,
      on or
      about October 1, 2007, the Company’s Chief Executive Officer, Gary Guseinov,
      loaned $28,077.75 to the Company (the “Officer
      Loan”);

     

    WHEREAS,
      the
      Officer Loan is unsecured, has a maturity date of January 3, 2008 and bears
      simple interest at the rate of 5% per annum;

     

    RECITALS
      RELATING TO REGISTRATION RIGHTS AGREEMENT

     

    WHEREAS,
      capitalized terms used but not defined herein have the meanings ascribed to
      them
      in the Registration Rights Agreement, dated September 12, 2006, among the
      Company and the holders of the Debentures (the “RRA”);

     

    WHEREAS,
      the
      Company was obligated pursuant to the Section 3(c) of the RRA to file a second
      Registration Statement no less than 30 days after the date the initial
      Registration Statement filed thereunder was declared effective by the
      Commission, covering the remaining unregistered Registrable Securities (the
      “Second
      Registration Statement”);

     

    WHEREAS,
      the
      Commission declared the initial Registration Statement effective on July 19,
      2007 and the Company has not yet filed the Second Registration
      Statement;

     

    WHEREAS,
      as of
      December 19, 2007, the Company has incurred liquidated damages under Section
      2(b) of the RRA, for failure to file the Second Registration Statement, in
      the
      amount of $194,602.68 (the “Liquidated
      Damages”);

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    WHEREAS,
      the
      undersigned have agreed to waive the Second Registration Statement entirely
      and
      all liquidated damages that would otherwise be owing after December 19, 2007
      with respect thereto;

     

    WHEREAS,
      the
      undersigned 75% Holders wish to direct the Company to pay the Liquidated Damages
      by issuing to each Purchaser, at each Purchaser’s election, an amount of common
      stock equal to the amount of such Purchaser’s pro rata portion of Liquidated
      Damages divided by $0.85 (the “Damages
      Shares”)
      or an
      unsecured debenture, paying interest at the rate of 10% per annum, having a
      maturity date 18 months from the date of issuance and a conversion price of
      $0.85 per share, in the principal amount of such Purchaser’s pro rata portion of
      the Liquidated Damages plus interest from December 19, 2007 until the date
      of
      the debenture at the rate of 10% per annum (each, an “Additional Debenture”,
      collectively, the “Additional Debentures”), substantially in the form in
      attached Exhibit
      A in
      lieu
      of cash as full and final payment of the
      Liquidated Damages; 

     

    RECITAL
      RELATING TO INTEREST PAYMENT UNDER DEBENTURES

     

    WHEREAS,
      in
      connection with the Company’s interest payment due on January 1, 2008 under each
      Debenture (the “January
      1 Interest Payment”),
      the
      Company and the 75% Holders wish to direct the Company to make the January
      1
      Interest Payment by issuing to each Purchaser, at each Purchaser’s election,
      either an amount of common stock equal to the amount of such Purchaser’s January
      1 Interest Payment divided by $0.85 (collectively, the “Interest
      Payment Shares”)
      or an
      Additional Debenture in the principal amount of such Purchaser’s January 1
      Interest Payment, in lieu of cash as full and final payment of the January
      1
      Interest Payment; 

     

    NOW,
      THEREFORE,
      in
      consideration of the premises set forth above and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      undersigned hereby agree as follows:

     

    Section
      1.  Consent
      to Officer Loan.
      The
      undersigned 75% Holders hereby waive, for and on behalf of all the holders
      of
      Debentures pursuant to Section 9(k) of the Debentures, the prohibition set
      forth
      in Section 7(a) of the Debentures, solely for the purpose of consenting to
      the
      Company incurring the Officer Loan.  

     

    Section
      2.  Waiver
      of Second Registration Statement and Liquidated Damages.
      The
      undersigned 75% Holders hereby waive, for and on behalf of all the holders
      of
      Debentures pursuant to Section 6(f) of the RRA, (i) the requirement that the
      Company file the Second Registration Statement, (ii) all liquidated damages
      that
      would otherwise be owing under the RRA in respect thereof from and after
      December 19, 2007, and (iii) all interest that would otherwise be owing in
      connection with the Company’s failure to timely pay the Liquidated Damages.
 

     

    Section
      3.  Waiver
      of Event of Default under Section 8(a)(iii) of the
      Debentures.
      The
      undersigned 75% Holders hereby waive, for and on behalf of all the holders
      of
      Debentures pursuant to Section 9(k) of the Debentures, the Event of Default
      under Section 8(a)(iii) of the Debentures occurring as a result of the Company’s
      failure to file the Second Registration Statement by its Filing Date, failure
      to
      obtain effectiveness of the Second Registration Statement by its Effectiveness
      Date and failure to timely pay the January 1 Interest Payment, the Liquidated
      Damages and interest thereon; provided
      that
      such waiver shall not extinguish the Company’s obligation to pay the Liquidated
      Damages and the January 1 Interest Payment, as provided herein. 

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    Section
      4.  Consent
      to Issuance of Damages Shares in Lieu of Cash for Liquidated
      Damages.
      The
      undersigned 75% Holders hereby consent, for and on behalf of all the Purchasers,
      to the Company issuing the Damages Shares, at each Purchaser’s election, to the
      so electing Purchasers on a pro rata basis as full and final payment of the
      Liquidated Damages, and hereby accept, for and on behalf of all the so electing
      Purchasers, the Damages Shares as full and final payment of the Liquidated
      Damages.

     

    Section
      5.  Consent
      to Issuance of Interest Payment Shares in Lieu of Cash for January 1 Interest
      Payment.
      The
      undersigned 75% Holders hereby consent, for and on behalf of all the Purchasers,
      to the Company issuing the applicable number of Interest Payment Shares, at
      each
      Purchaser’s election, to each so electing Purchaser as full and final payment of
      the January 1 Interest Payment, and hereby accept, for and on behalf of all
      the
      so electing Purchasers, the Interest Payment Shares as full and final payment
      of
      the January 1 Interest Payment.

     

    Section
      6.  Consent
      of 75% Holders to Issuance of Additional Debentures as Payment for Liquidated
      Damages and January 1 Interest Payment.
      The 75%
      Holders hereby waive, for and on behalf of all Purchasers pursuant to Section
      9(k) of the Debentures and solely in connection with the possible issuance
      of
      Additional Debentures as payment of the Liquidated Damages and the January
      1
      Interest Payment (to the extent such election is made by each Purchaser), the
      prohibitions set forth in Sections 7(a) and (b) of the Debentures. The Company
      shall issue to each so electing Purchaser an Additional Debenture in the
      principal amount of such Purchaser’s January 1 Interest Payment and applicable
      portion of the Liquidated Damages in full satisfaction thereof. No additional
      warrants shall be issued as a result of the issuance of Additional
      Debentures.

     

    Section
      7.  Waiver
      of Anti-Dilution Rights.
      The
      undersigned 75% Holders hereby waive, for and on behalf of all the Purchasers
      pursuant to Section 9(k) of the Debentures and Section 5(l) of the Warrants,
      solely in connection with the issuance of the Additional Debentures, Damages
      Shares and the Interest Payment Shares, any adjustment to the Conversion Price
      (as defined in the Debentures) and the Exercise Price (as defined in the
      Warrants). 

     

    Section
      8.  Effectiveness.
      This
      Consent and Waiver shall be deemed effective when executed and delivered to
      the
      Company by (i) the Agent, and (ii) the holders of at least 75% in principal
      amount of the currently outstanding Debentures.

     

    Section
      9.   Counterparts.
      This
      Consent may be executed in separate original or facsimile counterparts, each
      of
      which shall be deemed to be an original instrument and all of which taken
      together shall constitute a single instrument.

     

    Section
      10.   Recitals
      Incorporated.
      The
      Recitals of this Consent and Waiver are incorporated herein and made a part
      hereof.

     

    *
      * *
      *

    


    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF,
      the
      undersigned have executed and delivered this Consent and Waiver as of the date
      first written above. 

     

    
      	
              Purchasers:

            	
              Signature

            
	
              Bushido
                Capital Master Fund, LP

               

              By:
                Ronald S. Dagar

              Its:
                Director

            	
               

              /s/
                Ronald S. Dagar

            
	
              BCMF
                Trustees, LLC

               

              By:
                Ronald S. Dagar

              Its:
                Director

            	
               

              /s/
                Ronald S. Dagar

            
	
              Pierce
                Diversified Strategy Master Fund LLC, Series BUS (6)

               

              By:
                Ronald S. Dagar

              Its:
                Attorney In Fact

            	
               

               

              /s/
                Ronald S. Dagar

            
	
              Camofi
                Master LDC

               

              By:
                Richard Smithline

              Its:
                Director

            	
               

              /s/
                Richard Smithline

            


    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    


    EXHIBIT
      A

    


    NEITHER
      THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE
      BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
      COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
      MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
      STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
      OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
      EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
      SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
      AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED
      IN
      CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
      SECURITIES

    


    Original
      Issue Date: ______________, 2008

    Original
      Conversion Price (subject to adjustment herein): $0.85

    


    $__________

     

    


    10%
      CONVERTIBLE DEBENTURE

    DUE
      _________________, 2010 [18 Months from Original Issue
      Date]

     

    THIS
      10%
      CONVERTIBLE DEBENTURE of CyberDefender Corporation, a California corporation,
      having its principal place of business at 617 W. 7th Street, Suite 401, Los
      Angeles CA 90017 (the “Company”)
      (this
      debenture, the “Debenture”
and
      collectively with the other such series of debentures, the “Debentures”)
      is
      issued to the Holder in lieu of cash as full and final payment of [interest
      due to the Holder, for the fiscal quarter of the Company ended December 31,
      2007, under that certain 10% Secured Convertible Debenture due September 12,
      2009 in the principal amount of $__________ held by the Holder, and default
      interest thereon] [liquidated
      damages due to the Holder in accordance with that certain Amended and Restated
      Consent and Waiver dated as of August 19, 2008 executed by the holders of at
      least 75% of the outstanding principal amount of the
      Debentures].
      

     

    FOR
      VALUE
      RECEIVED, the Company promises to pay to _____________
      or its
      registered assigns (the “Holder”),
      or
      shall have paid pursuant to the terms hereunder, the principal sum of $_________
      by _________________, 2010 (the “Maturity
      Date”),
      or
      such earlier date as this Debenture is required or permitted to be repaid as
      provided hereunder, and to pay interest to the Holder on the aggregate
      unconverted and then outstanding principal amount of this Debenture in
      accordance with the provisions hereof. This Debenture is subject to the
      following additional provisions:

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    Section
      1. Definitions.
      For the
      purposes hereof, in addition to the terms defined elsewhere in this Debenture,
      (a) the capitalized terms not otherwise defined herein shall have the meanings
      set forth in the Purchase Agreement and (b) the following terms shall have
      the
      following meanings:

    


    “Alternate
      Consideration”
shall
      have the meaning set forth in Section 5(e).

    


    “Bankruptcy
      Event”
means
      any of the following events: (a) the Company or any Significant Subsidiary
      (as
      such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a
      case
      or other proceeding under any bankruptcy, reorganization, arrangement,
      adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
      or
      similar law of any jurisdiction relating to the Company or any Significant
      Subsidiary thereof; (b) there is commenced against the Company or any
      Significant Subsidiary thereof any such case or proceeding that is not dismissed
      within 60 days after commencement; (c) the Company or any Significant Subsidiary
      thereof is adjudicated insolvent or bankrupt or any order of relief or other
      order approving any such case or proceeding is entered; (d) the Company or
      any
      Significant Subsidiary thereof suffers any appointment of any custodian or
      the
      like for it or any substantial part of its property that is not discharged
      or
      stayed within 60 calendar days after such appointment; (e) the Company or any
      Significant Subsidiary thereof makes a general assignment for the benefit of
      creditors; (f) the Company or any Significant Subsidiary thereof calls a meeting
      of its creditors with a view to arranging a composition, adjustment or
      restructuring of its debts; or (g) the Company or any Significant Subsidiary
      thereof, by any act or failure to act, expressly indicates its consent to,
      approval of or acquiescence in any of the foregoing or takes any corporate
      or
      other action for the purpose of effecting any of the foregoing.

    


    “Base
      Conversion Price”
shall
      have the meaning set forth in Section 5(b).

    


    “Business
      Day”
means
      any day except Saturday, Sunday, any day which shall be a federal legal holiday
      in the United States or any day on which banking institutions in the State
      of
      New York are authorized or required by law or other governmental action to
      close.

    


    “Buy-In”
shall
      have the meaning set forth in Section 4(d)(v).

    


    “Cash
      Sale Redemption Amount”
shall
      equal the sum of (i) 100% of the principal amount of this Debenture to be
      prepaid, plus all accrued and unpaid interest thereon, (ii) the principal amount
      of this Debenture to be prepaid, plus all other accrued and unpaid interest
      hereon, divided by the Conversion Price on the closing date of the applicable
      event multiplied by the “Effective Price” (defined below), and (iii) all other
      amounts, costs, expenses and liquidated damages due in respect of this
      Debenture. The “Effective
      Price”
shall
      be the cash consideration paid by the acquirer in such event (less the amount
      set forth in clause (i) above) divided by the sum of; (x) the issued and
      outstanding shares of Common Stock of the Company then outstanding and (y)
      the
      shares of Common Stock into which the outstanding Debentures may be converted
      on
      the day immediately preceding the record date fixed for determining the holders
      of shares of Common Stock eligible to receive a distribution (or if no such
      date
      has been fixed, the date of the day immediately preceding the closing of the
      transaction) and (z) the number of shares deemed issuable to the Warrant holders
      pursuant to the mandatory redemption provisions in the Warrants which take
      effect upon sale of assets for cash consideration whether or not any Warrant
      holder shall have elected to have their Warrants Redeemed; provided,
      however,
      that
      the
      number of shares of Common Stock issuable on conversion of the Debentures and
      issuable upon exercise of the Warrants for this purpose shall be determined
      on a
      fully converted or exercised basis and ignoring any conversion or exercise
      limitations therein).

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    “Change
      of Control Transaction”
means
      the occurrence after the date hereof of any of (i) an acquisition after the
      date
      hereof by an individual or legal entity or “group” (as described in Rule
      13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
      through legal or beneficial ownership of capital stock of the Company, by
      contract or otherwise) of in excess of 40% of the voting securities of the
      Company (other than by means of conversion or exercise of the Debentures and
      the
      Securities issued together with the Debentures), or (ii) the Company merges
      into
      or consolidates with any other Person, or any Person merges into or consolidates
      with the Company and, after giving effect to such transaction, the stockholders
      of the Company immediately prior to such transaction own less than 60% of the
      aggregate voting power of the Company or the successor entity of such
      transaction, or (iii) the Company sells or transfers all or substantially all
      of
      its assets to another Person and the stockholders of the Company immediately
      prior to such transaction own less than 60% of the aggregate voting power of
      the
      acquiring entity immediately after the transaction, or (iv) a replacement at
      one
      time or within a three year period of more than one-half of the members of
      the
      Company’s board of directors which is not approved by a majority of those
      individuals who are members of the board of directors on the date hereof (or
      by
      those individuals who are serving as members of the board of directors on any
      date whose nomination to the board of directors was approved by a majority
      of
      the members of the board of directors who are members on the date hereof),
      or
      (v) the execution by the Company of an agreement to which the Company is a
      party
      or by which it is bound, providing for any of the events set forth in clauses
      (i) through (iv) above.

    


    “Common
      Stock”
means
      the common stock, no par value per share, of the Company and stock of any other
      class of securities into which such securities may hereafter be reclassified
      or
      changed into.

    


    “Conversion
      Date”
shall
      have the meaning set forth in Section 4(a).

    


    “Conversion
      Price”
shall
      have the meaning set forth in Section 4(b).

    


    “Conversion
      Shares”
means,
      collectively, the shares of Common Stock issuable upon conversion of this
      Debenture in accordance with the terms hereof.

    


    “Debenture
      Register”
shall
      have the meaning set forth in Section 2(c).

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    “Dilutive
      Issuance”
shall
      have the meaning set forth in Section 5(b).

    


    “Dilutive
      Issuance Notice”
shall
      have the meaning set forth in Section 5(b).

    


    “Equity
      Conditions”
shall
      mean, during the period in question, (i)
      the Company shall have duly honored all conversions and redemptions scheduled
      to
      occur or occurring by virtue of one or more Notices of Conversion of the Holder,
      if any, (ii) the Company shall have paid all liquidated damages and other
      amounts owing to the Holder in respect of this Debenture, (iii)
      there is an effective registration statement pursuant to which the Holder is
      permitted to utilize the prospectus thereunder to resell all of the shares
      issuable pursuant to the Transaction Documents (and the Company believes, in
      good faith, that such effectiveness will continue uninterrupted for the
      foreseeable future), (iv) the Common Stock is trading on a Trading Market and
      all of the shares issuable pursuant to the Transaction Documents are listed
      for
      trading on such Trading Market (and the Company believes, in good faith, that
      trading of the Common Stock on a Trading Market will continue uninterrupted
      for
      the foreseeable future), (v) there is a sufficient number of authorized but
      unissued and otherwise unreserved shares of Common Stock for the issuance of
      all
      of the shares issuable pursuant to the Transaction Documents, (vi) there is
      no
      existing Event of Default or no existing event which, with the passage of time
      or the giving of notice, would constitute an Event of Default, (vii) the
      issuance of the shares in question (or, in the case of an Optional Redemption,
      the shares issuable upon conversion in full of the Optional Redemption
      Amount) to
      the
      Holder would not violate the limitations set forth in Section 4(c)(i) herein,
      (viii)
      there has been no public announcement of a pending or proposed Fundamental
      Transaction or Change of Control Transaction that has not been consummated
      and
      (ix) the Holder is not in possession of any information provided by the Company
      that constitutes, or may constitute, material non-public
      information.

    


    “Event
      of Default”
      shall have the meaning set forth in Section 8.

    


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

     

      
 “Forced
      Conversion”
shall
      have the meaning set forth in Section 6(c).

    


    “Forced
      Conversion Date”
shall
      have the meaning set forth in Section 6(c).

    


    “Forced
      Conversion Notice”
shall
      have the meaning set forth in Section 6(c).

    


    “Forced
      Conversion Notice Date”
shall
      have the meaning set forth in Section 6(c).

    


    “Fundamental
      Transaction”
shall
      have the meaning set forth in Section 5(e).

     

    “Interest
      Conversion Rate”
means
      85% of the lesser of (i) the average of the VWAPs for the 10 consecutive Trading
      Days ending on the Trading Day that is immediately prior to the applicable
      Interest Payment Date or (ii) the average of the VWAPs for the 10 consecutive
      Trading Days ending on the Trading Day that is immediately prior to the date
      the
      applicable Interest Conversion Shares are issued and delivered, if such date
      is
      after the Interest Payment Date.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    “Interest
      Conversion Shares”
shall
      have the meaning set forth in Section 2(a).

    


    “Interest
      Notice Period”
shall
      have the meaning set forth in Section 2(a).

     

    “Interest
      Payment Date”
shall
      have the meaning set forth in Section 2(a).

    


    “Interest
      Share Amount”
shall
      have the meaning set forth in Section 2(a).

    


    “Late
      Fees”
shall
      have the meaning set forth in Section 2(d).

    


    “Mandatory
      Default Amount”
means
      the sum of (i) the greater of (A) 130% of the outstanding principal amount
      of
      this Debenture, plus all accrued and unpaid interest hereon, or (B) the
      outstanding principal amount of this Debenture, plus all accrued and unpaid
      interest hereon, divided by the Conversion Price on the date the Mandatory
      Default Amount is either (a) demanded (if demand or notice is required to create
      an Event of Default) or otherwise due or (b) paid in full, whichever has a
      lower
      Conversion Price, multiplied by the VWAP on the date the Mandatory Default
      Amount is either (x) demanded or otherwise due or (y) paid in full, whichever
      has a higher VWAP, and (ii) all other amounts, costs, expenses and liquidated
      damages due in respect of this Debenture.

    


    “New
      York Courts”
shall
      have the meaning set forth in Section 9(d).

    


    “Notice
      of Conversion”
shall
      have the meaning set forth in Section 4(a).

    


    “Optional
      Redemption”
shall
      have the meaning set forth in Section 6(a).

    


    “Optional
      Redemption Amount”
means
      the sum of (i) 150% of the principal amount of this Debenture,(ii) accrued
      but
      unpaid interest then outstanding and (iii) all liquidated damages and other
      amounts due in respect of the Debenture.

    


    “Optional
      Redemption Date”
shall
      have the meaning set forth in Section 6(a).

    


    “Optional
      Redemption Notice”
shall
      have the meaning set forth in Section 6(a).

    


    “Optional
      Redemption Notice Date”
shall
      have the meaning set forth in Section 6(a).

    


    “Original
      Issue Date”
means
      the date of the first issuance of the Debentures, regardless of any transfers
      of
      any Debenture and regardless of the number of instruments which may be issued
      to
      evidence such Debentures.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    “Permitted
      Indebtedness”
means
      (a) the Indebtedness existing on the Original Issue Date and (b) [Intentionally
      Omitted], and (c) lease obligations and purchase money indebtedness of up to
      $250,000, in the aggregate, incurred in connection with the acquisition of
      capital assets and lease obligations with respect to newly acquired or leased
      assets and (d) indebtedness to a strategic investor in connection with a
      strategic commercial agreement, to a commercial lender or pursuant to the
      acquisition of another corporation or entity by the Company, provided that
      an
      indebtedness incurred under this clause (d), (i) is expressly subordinate to
      the
      Debentures pursuant to a written subordination agreement with the Purchasers
      that is acceptable to each Purchaser in its sole and absolute discretion and
      (ii) matures at a date later than the Maturity Date.

    


    “Permitted
      Lien”
means
      the individual and collective reference to the following: (a) Liens for taxes,
      assessments and other governmental charges or levies not yet due or Liens for
      taxes, assessments and other governmental charges or levies being contested
      in
      good faith and by appropriate proceedings for which adequate reserves (in the
      good faith judgment of the management of the Company) have been established
      in
      accordance with GAAP; (b) Liens imposed by law which were incurred in the
      ordinary course of the Company’s business, such as carriers’, warehousemen’s and
      mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
      the ordinary course of the Company’s business, and which (x) do not individually
      or in the aggregate materially detract from the value of such property or assets
      or materially impair the use thereof in the operation of the business of the
      Company and its consolidated Subsidiaries or (y) are being contested in good
      faith by appropriate proceedings, which proceedings have the effect of
      preventing for the foreseeable future the forfeiture or sale of the property
      or
      asset subject to such Lien; (c) Liens incurred in connection with Permitted
      Indebtedness under clause (a) thereunder; and (d) Liens incurred in connection
      with Permitted Indebtedness under clause (c) thereunder, provided that such
      Liens are not secured by assets of the Company or its Subsidiaries other than
      the assets so acquired or leased.

     

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

    


    “Purchase
      Agreement”
means
      the Securities Purchase Agreement, dated as of September 12, 2006, among the
      Company and the original Holders as amended, modified or supplemented from
      time
      to time in accordance with its terms.

    


    “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder.

    


    “Share
      Delivery Date”
shall
      have the meaning set forth in Section 4(d).

    


    “Subsidiary”
shall
      have the meaning set forth in the Purchase Agreement.

    


    “Threshold
      Period”
shall
      have the meaning set forth in Section 6(d). 

     

    
      
         

      

      
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    “Trading
      Day”
means
      a
      day on which the principal Trading Market is open for business.

    


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

    


    “Transaction
      Documents”
shall
      have the meaning set forth in the Purchase Agreement.

    


    “VWAP”
means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
      the daily volume weighted average price of the Common Stock for such date (or
      the nearest preceding date) on the Trading Market on which the Common Stock
      is
      then listed or quoted for trading as reported by Bloomberg L.P. (based on a
      Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
      time); (b)  if the OTC Bulletin Board is not a Trading Market, the volume
      weighted average price of the Common Stock for such date (or the nearest
      preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
      quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
      are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a
      similar organization or agency succeeding to its functions of reporting prices),
      the most recent bid price per share of the Common Stock so reported; or
      (d) in all other cases, the fair market value of a share of Common Stock as
      determined by an independent appraiser selected in good faith by the Holder
      and
      reasonably acceptable to the Company.

    


    Section
      2. Interest.

     

    a)  Payment
      of Interest in Cash or Kind.
      The
      Company shall pay interest to the Holder on the aggregate unconverted and then
      outstanding principal amount of this Debenture at the rate of 10% per annum,
      payable quarterly on January 1, April 1, July 1 and October 1, beginning on
      October 1, 2008, on each Conversion Date (as to that principal amount then
      being
      converted), on each Optional Redemption Date (as to that principal amount then
      being redeemed) and on the Maturity Date (each such date, an “Interest
      Payment Date”)
      (if
      any Interest Payment Date is not a Business Day, then such payment shall be
      due
      on the next succeeding Business Day) in cash or duly authorized, validly issued,
      fully paid and non-assessable shares of Common Stock at the Interest Conversion
      Rate (the dollar amount to be paid in shares, the “Interest
      Share Amount”),
      or a
      combination thereof; provided,
      however,
      that
      payment in shares of Common Stock may only occur if (i) all of the Equity
      Conditions have been met (unless waived by the Holder in writing) during the
      20
      Trading Days immediately prior to the applicable Interest Payment Date (the
      “Interest
      Notice Period”)
      and
      through and including the date such shares of Common Stock are issued to the
      Holder, (ii) the Company shall have given the Holder notice in accordance with
      the notice requirements set forth below, (iii) the aggregate dollar amount
      of
      interest payable under all Debentures on the applicable Interest Payment Date
      is
      less than 25% of the aggregate trading volume of the Common Stock during the
      6
      Trading Days immediately prior to the applicable Interest Payment Date
      multiplied by the Interest Conversion Rate as to such interest payment (by
      way
      of an example, if the aggregate amount of interest due under all Debentures
      on
      an Interest Payment Date is equal to $225,000 and the trading volume for the
      6
      Trading Day period prior to the applicable Interest Payment Date was 1,000,000
      shares and the Interest Conversion Rate for such Interest Payment Date is equal
      to $2.50, the Company could make such interest payment in shares of Common
      Stock
      (since the $225,000 interest payment is less than $625,000 (1,000,000 x $2.50
      =
      $2,500,000 x 25%)) and (iv) as to such Interest Payment Date, prior to such
      Interest Notice Period (but not more than 5 Trading Days prior to the
      commencement of such Interest Notice Period), the Company shall have delivered
      to the Holder’s account with The Depository Trust Company a number of shares of
      Common Stock to be applied against such Interest Share Amount equal to the
      quotient of (x) the applicable Interest Share Amount divided by (y) the then
      Conversion Price (the “Interest
      Conversion Shares”).
      

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    b)  Company’s
      Election to Pay Interest in Kind.
      Subject
      to the terms and conditions herein, the decision whether to pay interest
      hereunder in cash, shares of Common Stock, or a combination thereof shall be
      at
      the discretion of the Company. Prior to the commencement of any Interest Notice
      Period, the Company shall deliver to the Holder a written notice of its election
      to pay interest hereunder on the applicable Interest Payment Date either in
      cash, shares of Common Stock or a combination thereof and the Interest Share
      Amount as to the applicable Interest Payment Date, provided that the Company
      may
      indicate in such notice that the election contained in such notice shall apply
      to future Interest Payment Dates until revised by a subsequent notice. During
      any Interest Notice Period, the Company’s election (whether specific to an
      Interest Payment Date or continuous) shall be irrevocable as to such Interest
      Payment Date. Subject to the aforementioned conditions, failure to timely
      deliver such written notice to the Holder shall be deemed an election by the
      Company to pay the interest on such Interest Payment Date in cash. At any time
      the Company delivers a notice to the Holder of its election to pay the interest
      in shares of Common Stock, the Company shall timely file a prospectus supplement
      pursuant to Rule 424 disclosing such election. The aggregate number of shares
      of
      Common Stock otherwise issuable to the Holder on an Interest Payment Date shall
      be reduced by the number of Interest Conversion Shares previously issued to
      the
      Holder in connection with such Interest Payment Date.

    


    c)  Interest
      Calculations.
      Interest shall be calculated on the basis of a 360-day year consisting of 12
      30-calendar day periods, and shall accrue daily commencing on the Original
      Issue
      Date until payment in full of the principal sum, together with all accrued
      and
      unpaid interest, liquidated damages and other amounts which may become due
      hereunder, has been made. Payment of interest in shares of Common Stock (other
      than the Interest Conversion Shares issued prior to an Interest Notice Period)
      shall otherwise occur pursuant to Section 4(d)(ii) herein and, solely for
      purposes of the payment of interest in shares, the Interest Payment Date shall
      be deemed the Conversion Date. Interest shall cease to accrue with respect
      to
      any principal amount converted, provided that the Company actually delivers
      the
      Conversion Shares within the time period required by Section 4(d)(ii). Interest
      hereunder will be paid to the Person in whose name this Debenture is registered
      on the records of the Company regarding registration and transfers of this
      Debenture (the “Debenture
      Register”).
      

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    d)  Late
      Fee.
      All
      overdue accrued and unpaid interest to be paid hereunder shall entail a late
      fee
      at an interest rate equal to the lesser of 18% per annum or the maximum rate
      permitted by applicable law (“Late
      Fees”)
      which
      shall accrue daily from the date such interest is due hereunder through and
      including the date of payment in full. Notwithstanding anything to the contrary
      contained herein, if on any Interest Payment Date the Company has elected to
      pay
      accrued interest in the form of Common Stock but the Company is not permitted
      to
      pay accrued interest in Common Stock because it fails to satisfy the conditions
      for payment in Common Stock set forth in Section 2(a) herein, then, at
      the option of the Holder, the
      Company, in lieu of delivering either
      shares
      of Common Stock pursuant to this Section 2 or
      paying the regularly scheduled interest payment in cash, shall deliver, within
      three Trading Days of each applicable Interest Payment Date, an amount in cash
      equal to the product of (x) the number of shares of Common Stock otherwise
      deliverable to the Holder in connection with the payment of interest due on
      such
      Interest Payment Date multiplied by (y) the highest VWAP during the period
      commencing on the Interest Payment Date and ending on the Trading Day prior
      to
      the date such payment is made. If any Interest Conversion Shares are issued
      to
      the Holder in connection with an Interest Payment Date and are not applied
      against an Interest Share Amount, then the Holder shall promptly return such
      excess shares to the Company.

     

    e)  Prepayment.
      Except
      as otherwise set forth in this Debenture, the Company may not prepay any portion
      of the principal amount of this Debenture, without the prior written consent
      of
      the Holder.

    


    Section
      3.  Registration
      of Transfers and Exchanges.
      

     

    a)  Different
      Denominations.
      This
      Debenture is exchangeable for an equal aggregate principal amount of Debentures
      of different authorized denominations, as requested by the Holder surrendering
      the same. No service charge will be payable for such registration of transfer
      or
      exchange.

     

    b)  Investment
      Representations.
      This
      Debenture has been issued subject to certain investment representations of
      the
      original Holder set forth in the Purchase Agreement and may be transferred
      or
      exchanged only in compliance with the Purchase Agreement and applicable federal
      and state securities laws and regulations. 

    


    c)  Reliance
      on Debenture Register.
      Prior
      to due presentment for transfer to the Company of this Debenture, the Company
      and any agent of the Company may treat the Person in whose name this Debenture
      is duly registered on the Debenture Register as the owner hereof for the purpose
      of receiving payment as herein provided and for all other purposes, whether
      or
      not this Debenture is overdue, and neither the Company nor any such agent shall
      be affected by notice to the contrary.

    


    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    


    Section
      4.  Conversion.

     

    a)  Voluntary
      Conversion.
      At any
      time after the Original Issue Date until this Debenture is no longer
      outstanding, this Debenture shall be convertible, in whole or in part, into
      shares of Common Stock at the option of the Holder, at any time and from time
      to
      time (subject to the conversion limitations set forth in Section 4(c)
      hereof). The Holder shall effect conversions by delivering to the Company a
      Notice of Conversion, the form of which is attached hereto as Annex
      A
      (a
“Notice
      of Conversion”),
      specifying therein the principal amount of this Debenture to be converted and
      the date on which such conversion shall be effected (such date, a “Conversion
      Date”).
      If no
      Conversion Date is specified in a Notice of Conversion, the Conversion Date
      shall be the date that such Notice of Conversion is deemed delivered hereunder.
      To effect conversions hereunder, the Holder shall not be required to physically
      surrender this Debenture to the Company unless the entire principal amount
      of
      this Debenture plus all accrued and unpaid interest thereon, has been so
      converted. Conversions hereunder shall have the effect of lowering the
      outstanding principal amount of this Debenture in an amount equal to the
      applicable conversion. The Holder and the Company shall maintain records showing
      the principal amount(s) converted and the date of such conversion(s). The
      Company may deliver an objection to any Notice of Conversion within 1 Business
      Day of delivery of such Notice of Conversion. In the event of any dispute or
      discrepancy, the records of the Holder shall be controlling and determinative
      in
      the absence of manifest error. The
      Holder, and any assignee by acceptance of this Debenture, acknowledge and agree
      that, by reason of the provisions of this paragraph, following conversion of
      a
      portion of this Debenture, the unpaid and unconverted principal amount of this
      Debenture may be less than the amount stated on the face
      hereof.

     

    b)  Conversion
      Price.
      The
      conversion price in effect on any Conversion Date shall be equal to
      $0.85 (subject
      to adjustment herein) (the “Conversion
      Price”).

    


    c)  Holder’s
      Restriction on Conversion.
      The
      Company shall not effect any conversion of this Debenture, and a Holder shall
      not have the right to convert any portion of this Debenture, to the extent
      that
      after giving effect to the conversion set forth on the applicable Notice of
      Conversion, such Holder (together with such Holder’s Affiliates, and any other
      person or entity acting as a group together with such Holder or any of such
      Holder’s Affiliates) would beneficially own in excess of the Beneficial
      Ownership Limitation (as defined below).  For purposes of the foregoing
      sentence, the number of shares of Common Stock beneficially owned by such Holder
      and its Affiliates shall include the number of shares of Common Stock issuable
      upon conversion of this Debenture with respect to which such determination
      is
      being made, but shall exclude the number of shares of Common Stock which are
      issuable upon (A) conversion of the remaining, unconverted principal amount
      of
      this Debenture beneficially owned by such Holder or any of its Affiliates and
      (B) exercise or conversion of the unexercised or unconverted portion of any
      other securities of the Company subject to a limitation on conversion or
      exercise analogous to the limitation contained herein (including, without
      limitation, any other Debentures or the Warrants) beneficially owned by such
      Holder or any of its Affiliates.  Except as set forth in the preceding
      sentence, for purposes of this Section 4(c), beneficial ownership shall be
      calculated in accordance with Section 13(d) of the Exchange Act and the rules
      and regulations promulgated thereunder. To the extent that the limitation
      contained in this Section 4(c) applies, the determination of whether this
      Debenture is convertible (in relation to other securities owned by such Holder
      together with any Affiliates) and of which principal amount of this Debenture
      is
      convertible shall be in the sole discretion of such Holder, and the submission
      of a Notice of Conversion shall be deemed to be such Holder’s determination of
      whether this Debenture may be converted (in relation to other securities owned
      by such Holder together with any Affiliates) and which principal amount of
      this
      Debenture is convertible, in each case subject to such aggregate percentage
      limitations. To ensure compliance with this restriction, each Holder will be
      deemed to represent to the Company each time it delivers a Notice of Conversion
      that such Notice of Conversion has not violated the restrictions set forth
      in
      this paragraph and the Company shall have no obligation to verify or confirm
      the
      accuracy of such determination. In
      addition, a determination as to any group status as contemplated above shall
      be
      determined in accordance with Section 13(d) of the Exchange Act and
      the
      rules and regulations promulgated thereunder. For
      purposes of this Section 4(c), in determining the number of outstanding shares
      of Common Stock, a Holder may rely on the number of outstanding shares of Common
      Stock as stated in the most recent of the following: (A) the Company’s most
      recent Form 10-Q or Form 10-K, as the case may be; (B) a more recent public
      announcement by the Company; or (C) a more recent notice by the Company or
      the
      Company’s transfer agent setting forth the number of shares of Common Stock
      outstanding.  Upon the written or oral request of a Holder, the Company
      shall within two Trading Days confirm orally and in writing to such 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
      Debenture, by such Holder or its Affiliates since the date as of which such
      number of outstanding shares of Common Stock was reported. The “Beneficial
      Ownership Limitation”
shall
      be 4.99% of the number of shares of the Common Stock outstanding immediately
      after giving effect to the issuance of shares of Common Stock issuable upon
      conversion of this Debenture held by the Holder. The Beneficial Ownership
      Limitation provisions of this Section 4(c) may be waived by such Holder, at
      the
      election of such Holder, upon not less than 61 days’ prior notice to the
      Company, to change the Beneficial Ownership Limitation to 9.99% of the number
      of
      shares of the Common Stock outstanding immediately after giving effect to the
      issuance of shares of Common Stock upon conversion of this Debenture held by
      the
      Holder and the provisions of this Section 4(c) shall continue to apply. Upon
      such a change by a Holder of the Beneficial Ownership Limitation from such
      4.99%
      limitation to such 9.99% limitation, the Beneficial Ownership Limitation may
      not
      be further waived by such Holder. The provisions of this paragraph shall be
      construed and implemented in a manner otherwise than in strict conformity with
      the terms of this Section 4(c) to correct this paragraph (or any portion hereof)
      which may be defective or inconsistent with the intended Beneficial Ownership
      Limitation herein contained or to make changes or supplements necessary or
      desirable to properly give effect to such limitation.
      The
      limitations contained in this paragraph shall apply to a successor holder of
      this
      Debenture.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    
      	d)  	
              Mechanics
                of Conversion.

            


    

     

    i.  Conversion
      Shares Issuable Upon Conversion of Principal Amount.
      The
      number of shares of Common Stock issuable upon a conversion hereunder shall
      be
      determined by the quotient obtained by dividing (x) the outstanding principal
      amount of this Debenture to be converted by (y) the Conversion
      Price.

    


    ii.  Delivery
      of Certificate Upon Conversion.
      Not
      later than three Trading Days after each Conversion Date (the “Share
      Delivery Date”),
      the
      Company shall deliver, or cause to be delivered, to the Holder (A) a certificate
      or certificates representing the Conversion Shares which, on or after the
      Effective Date, shall be free of restrictive legends and trading restrictions
      (other than those which may then be required by the Purchase Agreement)
      representing the number of shares of Common Stock being acquired upon the
      conversion of this Debenture (including, if the Company has given continuous
      notice pursuant to Section 2(b) for payment of interest in shares of Common
      Stock at least 20 Trading Days prior to the date on which the Conversion Notice
      is delivered to the Company, shares of Common Stock representing the payment
      of
      accrued interest otherwise determined pursuant to Section 2(a) but assuming
      that
      the Interest Payment Period is the 20 Trading Days period immediately prior
      to
      the date on which the Conversion Notice is delivered to the Company and
      excluding for such issuance the condition that the Company deliver Interest
      Conversion Shares as to such interest payment) and (B) a bank check in the
      amount of accrued and unpaid interest (if the Company has elected or is required
      to pay accrued interest in cash). On or after the Effective Date, the Company
      shall use its best efforts to deliver any certificate or certificates required
      to be delivered by the Company under this Section 4 electronically through
      the
      Depository Trust Company or another established clearing corporation performing
      similar functions. 

     

    iii.  Failure
      to Deliver Certificates.
      If in
      the case of any Notice of Conversion such certificate or certificates are not
      delivered to or as directed by the applicable Holder by the third Trading Day
      after the Conversion Date, the Holder shall be entitled to elect by written
      notice to the Company at any time on or before its receipt of such certificate
      or certificates, to rescind such Conversion, in which event the Company shall
      promptly return to the Holder any original Debenture delivered to the Company
      and the Holder shall promptly return the Common Stock certificates representing
      the principal amount of this Debenture tendered for conversion to the Company.
      

     

    iv.  Obligation
      Absolute; Partial Liquidated Damages.
      The
      Company’s obligations to issue and deliver the Conversion Shares upon conversion
      of this Debenture in accordance with the terms hereof are absolute and
      unconditional, irrespective of any action or inaction by the Holder to enforce
      the same, any waiver or consent with respect to any provision hereof, 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, and irrespective of any other circumstance which might otherwise
      limit such obligation of the Company to the Holder in connection with the
      issuance of such Conversion Shares; provided,
      however,
      that
      such delivery shall not operate as a waiver by the Company of any such action
      the Company may have against the Holder. In the event the Holder of this
      Debenture shall elect to convert any or all of the outstanding principal amount
      hereof, the Company may not refuse conversion based on any claim that the Holder
      or anyone associated or affiliated with the Holder has been engaged in any
      violation of law, agreement or for any other reason, unless an injunction from
      a
      court, on notice to Holder, restraining and or enjoining conversion of all
      or
      part of this Debenture shall have been sought and obtained, and the Company
      posts a surety bond for the benefit of the Holder in the amount of 150% of
      the
      outstanding principal amount of this Debenture, which is subject to the
      injunction, which bond shall remain in effect until the completion of
      arbitration/litigation of the underlying dispute and the proceeds of which
      shall
      be payable to such Holder to the extent it obtains judgment. In the absence
      of
      such injunction, the Company shall issue Conversion Shares or, if applicable,
      cash, upon a properly noticed conversion. If the Company fails for any reason
      to
      deliver to the Holder such certificate or certificates pursuant to Section
      4(d)(ii) by the third Trading Day after the Conversion Date, the Company shall
      pay to such Holder, in cash, as liquidated damages and not as a penalty, for
      each $1000 of principal amount being converted, $10 per Trading Day (increasing
      to $20 per Trading Day on the fifth Trading Day after such liquidated damages
      begin to accrue) for each Trading Day after such third Trading Day until such
      certificates are delivered. Nothing herein shall limit a Holder’s right to
      pursue actual damages or declare an Event of Default pursuant to Section 8
      hereof for the Company’s failure to deliver Conversion Shares within the period
      specified herein and such Holder shall have the right to pursue all remedies
      available to it hereunder, at law or in equity including, without limitation,
      a
      decree of specific performance and/or injunctive relief. The exercise of any
      such rights shall not prohibit the Holder from seeking to enforce damages
      pursuant to any other Section hereof or under applicable law.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    v.  Compensation
      for Buy-In on Failure to Timely Deliver Certificates Upon
      Conversion.
      In
      addition to any other rights available to the Holder, if the Company fails
      for
      any reason to deliver to the Holder such certificate or certificates by the
      Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share
      Delivery Date the Holder is required by its brokerage firm to purchase (in
      an
      open market transaction or otherwise), or the Holder’s brokerage firm otherwise
      purchases, shares of Common Stock to deliver in satisfaction of a sale by such
      Holder of the Conversion Shares which the Holder was entitled to receive upon
      the conversion relating to such Share Delivery Date (a “Buy-In”),
      then
      the Company shall (A) pay in cash to the Holder (in addition to any other
      remedies available to or elected by the Holder) the amount by which (x) the
      Holder’s total purchase price (including any brokerage commissions) for the
      Common Stock so purchased exceeds (y) the product of (1) the aggregate number
      of
      shares of Common Stock that such Holder was entitled to receive from the
      conversion at issue multiplied by (2) the actual sale price at which the sell
      order giving rise to such purchase obligation was executed (including any
      brokerage commissions) and (B) at the option of the Holder, either reissue
      (if
      surrendered) this Debenture in a principal amount equal to the principal amount
      of the attempted conversion or deliver to the Holder the number of shares of
      Common Stock that would have been issued if the Company had timely complied
      with
      its delivery requirements under Section 4(d)(ii). For example, if the Holder
      purchases Common Stock having a total purchase price of $11,000 to cover a
      Buy-In with respect to an attempted conversion of this Debenture with respect
      to
      which the actual sale price of the Conversion Shares (including any brokerage
      commissions) giving rise to such purchase obligation was a total of $10,000
      under clause (A) of the immediately preceding sentence, the Company shall be
      required to pay the Holder $1,000. The Holder shall provide the Company written
      notice indicating the amounts payable to the Holder in respect of the Buy-In
      and, upon request of the Company, evidence of the amount of such loss. Nothing
      herein shall limit a 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 certificates representing shares of Common Stock
      upon
      conversion of this Debenture as required pursuant to the terms
      hereof.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    vi.  Reservation
      of Shares Issuable Upon Conversion.
      The
      Company covenants that it will at all times reserve and keep available out
      of
      its authorized and unissued shares of Common Stock for the sole purpose of
      issuance upon conversion of this Debenture and payment of interest on this
      Debenture, each as herein provided, free from preemptive rights or any other
      actual contingent purchase rights of Persons other than the Holder (and the
      other holders of the Debentures), not less than such aggregate number of shares
      of the Common Stock as shall (subject to the terms and conditions set forth
      in
      the Purchase Agreement) be issuable (taking into account the adjustments and
      restrictions of Section 5) upon the conversion of the outstanding principal
      amount of this Debenture and payment of interest hereunder. The Company
      covenants that all shares of Common Stock that shall be so issuable shall,
      upon
      issue, be duly authorized, validly issued, fully paid and
      nonassessable.

    


    vii.  Fractional
      Shares.
      Upon a
      conversion hereunder the Company shall not be required to issue stock
      certificates representing fractions of shares of Common Stock, but may if
      otherwise permitted, make a cash payment in respect of any final fraction of
      a
      share based on the VWAP at such time. If the Company elects not, or is unable,
      to make such a cash payment, the Holder shall be entitled to receive, in lieu
      of
      the final fraction of a share, 1 whole share of Common Stock.

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    viii.  Transfer
      Taxes.
      The
      issuance of certificates for shares of the Common Stock on conversion of this
      Debenture shall be made without charge to the Holder hereof for any documentary
      stamp or similar taxes that may be payable in respect of the issue or delivery
      of such certificates, provided that the Company shall not be required to pay
      any
      tax that may be payable in respect of any transfer involved in the issuance
      and
      delivery of any such certificate upon conversion in a name other than that
      of
      the Holder of this Debenture so converted and the Company shall not be required
      to issue or deliver such certificates unless or until the person or persons
      requesting the issuance thereof shall have paid to the Company the amount of
      such tax or shall have established to the satisfaction of the Company that
      such
      tax has been paid.

    


    Section
      5. Certain
      Adjustments.

     

    a)  Stock
      Dividends and Stock Splits.
      If the
      Company, at any time while this Debenture is outstanding: (A) pays a stock
      dividend or otherwise makes a distribution or distributions payable in shares
      of
      Common Stock on shares of Common Stock or any Common Stock Equivalents (which,
      for avoidance of doubt, shall not include any shares of Common Stock issued
      by
      the Company upon conversion of, or payment of interest on, this Debenture);
      (B)
      subdivides outstanding shares of Common Stock into a larger number of shares;
      (C) combines (including by way of a reverse stock split) outstanding shares
      of
      Common Stock into a smaller number of shares; or (D) issues, in the event of
      a
      reclassification of shares of the Common Stock, any shares of capital stock
      of
      the Company, then the Conversion Price shall be multiplied by a fraction of
      which the numerator shall be the number of shares of Common Stock (excluding
      any
      treasury shares of the Company) outstanding immediately before such event and
      of
      which the denominator shall be the number of shares of Common Stock outstanding
      immediately after such event. Any adjustment made pursuant to this Section
      shall
      become effective immediately after the record date for the determination of
      stockholders entitled to receive such dividend or distribution and shall become
      effective immediately after the effective date in the case of a subdivision,
      combination or re-classification.

     

    b)  Subsequent
      Equity Sales.
      If at
      any time while this Debenture is outstanding, the Company or any Subsidiary,
      as
      applicable, sells or grants any option to purchase or sells or grants any right
      to reprice its securities, or otherwise disposes of or issues (or announces
      any
      sale, grant or any option to purchase or other disposition) any Common Stock
      or
      Common Stock Equivalents entitling any Person to acquire shares of Common Stock
      at an effective price per share that is lower than the then Conversion Price
      (such lower price, the “Base
      Conversion Price”
and
      such issuances collectively, a “Dilutive
      Issuance”)
      (if
      the holder of the Common Stock or Common Stock Equivalents so issued shall
      at
      any time, whether by operation of purchase price adjustments, reset provisions,
      floating conversion, exercise or exchange prices or otherwise, or due to
      warrants, options or rights per share which are issued in connection with such
      issuance, be entitled to receive shares of Common Stock at an effective price
      per share that is lower than the Conversion Price, such issuance shall be deemed
      to have occurred for less than the Conversion Price on such date of the Dilutive
      Issuance), then the Conversion Price shall be reduced to equal the Base
      Conversion Price. Such adjustment shall be made whenever such Common Stock
      or
      Common Stock Equivalents are issued. Notwithstanding
      the foregoing, no adjustment will be made under this Section 5(b) in respect
      of
      an Exempt Issuance.
      The
      Company shall notify the Holder in writing, no later than 1 Business Day
      following the issuance of any Common Stock or Common Stock Equivalents subject
      to this Section 5(b), indicating therein the applicable issuance price, or
      applicable reset price, exchange price, conversion price and other pricing
      terms
      (such notice, the “Dilutive
      Issuance Notice”).
      For
      purposes of clarification, whether or not the Company provides a Dilutive
      Issuance Notice pursuant to this Section 5(b), upon the occurrence of any
      Dilutive Issuance, the Holder is entitled to receive a number of Conversion
      Shares based upon the Base Conversion Price on or after the date of such
      Dilutive Issuance, regardless of whether the Holder accurately refers to the
      Base Conversion Price in the Notice of Conversion.

     

    
      
         

      

      
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    c)  Subsequent
      Equity Sales Below Market.
      If at
      any time while this Debenture is outstanding, the Company or any Subsidiary,
      as
      applicable, sells or grants any option to purchase or sells or grants any right
      to reprice its securities, or otherwise disposes of or issues (or announces
      any
      sale, grant or any option to purchase or other disposition) any Common Stock
      or
      Common Stock Equivalents entitling any Person to acquire shares of Common Stock
      at an effective price per share that is lower than the VWAP on the date of
      such
      issuance and higher than the then Conversion Price (below Conversion Price
      issuances shall be governed by clause (b) above), then the Conversion Price
      shall be multiplied by a fraction of which the denominator shall be the number
      of shares of the Common Stock outstanding on the date of such issuance plus
      the
      number of additional shares of Common Stock offered for subscription or
      purchase, and of which the numerator shall be the number of shares of the Common
      Stock outstanding on the date of such issuance plus the number of shares which
      the aggregate offering price of the total number of shares so offered (assuming
      delivery to the Company in full of all consideration payable upon exercise
      of
      such rights, options or warrants) would purchase at such VWAP. Such adjustment
      shall be made whenever such issuance occurs, and shall become effective
      immediately after such issuance.

     

    d)  Subsequent
      Rights Offerings.
      If the
      Company, at any time while the Debenture is outstanding, shall issue rights,
      options or warrants to all holders of Common Stock (and not to Holders)
      entitling them to subscribe for or purchase shares of Common Stock at a price
      per share that is lower than the VWAP on the record date referenced below,
      then
      the Conversion Price shall be multiplied by a fraction of which the denominator
      shall be the number of shares of the Common Stock outstanding on the date of
      issuance of such rights or warrants plus the number of additional shares of
      Common Stock offered for subscription or purchase, and of which the numerator
      shall be the number of shares of the Common Stock outstanding on the date of
      issuance of such rights or warrants plus the number of shares which the
      aggregate offering price of the total number of shares so offered (assuming
      delivery to the Company in full of all consideration payable upon exercise
      of
      such rights, options or warrants) would purchase at such VWAP. Such adjustment
      shall be made whenever such rights or warrants are issued, and shall become
      effective immediately after the record date for the determination of
      stockholders entitled to receive such rights, options or warrants. 

     

    
      
         

      

      
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    e)  Pro
      Rata Distributions.
      If the
      Company, at any time while this Debenture is outstanding, distributes to all
      holders of Common Stock (and not to the Holders) evidences of its indebtedness
      or assets (including cash and cash dividends) or rights or warrants to subscribe
      for or purchase any security (other than the Common Stock, which shall be
      subject to Section 5(b)), then in each such case the Conversion Price shall
      be
      adjusted by multiplying such Conversion Price in effect immediately prior to
      the
      record date fixed for determination of stockholders entitled to receive such
      distribution by a fraction of which the denominator shall be the VWAP determined
      as of the record date mentioned above, and of which the numerator shall be
      such
      VWAP on such record date less the then fair market value at such record date
      of
      the portion of such assets or evidence of indebtedness so distributed applicable
      to 1 outstanding share of the Common Stock as determined by the Board of
      Directors of the Company in good faith. In either case the adjustments shall
      be
      described in a statement delivered to the Holder describing the portion of
      assets or evidences of indebtedness so distributed or such subscription rights
      applicable to 1 share of Common Stock. Such adjustment shall be made whenever
      any such distribution is made and shall become effective immediately after
      the
      record date mentioned above.

     

    f)  Fundamental
      Transaction.
      If, at
      any time while this Debenture is outstanding, (A) the Company effects any merger
      or consolidation of the Company with or into another Person, (B) the Company
      effects any sale of all or substantially all of its assets in one transaction
      or
      a series of related transactions, (C) any tender offer or exchange offer
      (whether by the Company or another Person) is completed pursuant to which
      holders of Common Stock are permitted to tender or exchange their shares for
      other securities, cash or property, or (D) the Company effects any
      reclassification of the Common Stock or any compulsory share exchange pursuant
      to which the Common Stock is effectively converted into or exchanged for other
      securities, cash or property (in any such case, a “Fundamental
      Transaction”),
      then,
      upon any subsequent conversion of this Debenture, the Holder shall have the
      right to receive, for each Conversion Share that would have been issuable upon
      such conversion immediately prior to the occurrence of such Fundamental
      Transaction, the same kind and amount of securities, cash or property as it
      would have been entitled to receive upon the occurrence of such Fundamental
      Transaction if it had been, immediately prior to such Fundamental Transaction,
      the holder of 1 share of Common Stock (the “Alternate
      Consideration”).
      For
      purposes of any such conversion, the determination of the Conversion Price
      shall
      be appropriately adjusted to apply to such Alternate Consideration based on
      the
      amount of Alternate Consideration issuable in respect of 1 share of Common
      Stock
      in such Fundamental Transaction, and the Company shall apportion the Conversion
      Price among the Alternate Consideration in a reasonable manner reflecting the
      relative value of any different components of the Alternate Consideration.
      If
      holders of Common Stock are given any choice as to the securities, cash or
      property to be received in a Fundamental Transaction, then the Holder shall
      be
      given the same choice as to the Alternate Consideration it receives upon any
      conversion of this Debenture following such Fundamental Transaction. To the
      extent necessary to effectuate the foregoing provisions, any successor to the
      Company or surviving entity in such Fundamental Transaction shall issue to
      the
      Holder a new debenture consistent with the foregoing provisions and evidencing
      the Holder’s right to convert such debenture into Alternate Consideration. The
      terms of any agreement pursuant to which a Fundamental Transaction is effected
      shall include terms requiring any such successor or surviving entity to comply
      with the provisions of this Section 5(e) and insuring that this Debenture (or
      any such replacement security) will be similarly adjusted upon any subsequent
      transaction analogous to a Fundamental Transaction.

     

    
      
         

      

      
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    g)  Calculations.
      All
      calculations under this Section 5 shall be made to the nearest cent or the
      nearest 1/100th of a share, as the case may be. For purposes of this Section
      5,
      the number of shares of Common Stock deemed to be issued and outstanding as
      of a
      given date shall be the sum of the number of shares of Common Stock (excluding
      any treasury shares of the Company) issued and outstanding.

    


    h)  Notice
      to the Holder.

    


    i.  Adjustment
      to Conversion Price.
      Whenever the Conversion Price is adjusted pursuant to any provision of this
      Section 5, the Company shall promptly mail to each Holder a notice setting
      forth
      the Conversion Price after such adjustment and setting forth a brief statement
      of the facts requiring such adjustment. If the Company issues a variable rate
      security, despite the prohibition thereon in the Purchase Agreement, the Company
      shall be deemed to have issued Common Stock or Common Stock Equivalents at
      the
      lowest possible conversion or exercise price at which such securities may be
      converted or exercised in the case of a Variable Rate Transaction (as defined
      in
      the Purchase Agreement).

     

    ii.  Notice
      to Allow Conversion by Holder.
      If (A)
      the Company shall declare a dividend (or any other distribution in whatever
      form) on the Common Stock, (B) the Company shall declare a special nonrecurring
      cash dividend on or a redemption of the Common Stock, (C) the Company shall
      authorize the granting to all holders of the Common Stock of rights or warrants
      to subscribe for or purchase any shares of capital stock of any class or of
      any
      rights, (D) the approval of any stockholders of the Company shall be required
      in
      connection with any reclassification of the Common Stock, any consolidation
      or
      merger to which the Company is a party, any sale or transfer of all or
      substantially all of the assets of the Company, of any compulsory share exchange
      whereby the Common Stock is converted into other securities, cash or property
      or
      (E) the
      Company shall authorize the voluntary or involuntary dissolution, liquidation
      or
      winding up of the affairs of the Company, then, in each case, the Company shall
      cause to be filed at each office or agency maintained for the purpose of
      conversion of this Debenture, and shall cause to be delivered
      to the Holder at its last address as it shall appear upon the Debenture
      Register, at least 20 calendar days prior to the applicable record or effective
      date hereinafter specified, a notice stating (x)
      the
      date on which a record is to be taken for the purpose of such dividend,
      distribution, redemption, rights or warrants, or if a record is not to be taken,
      the date as of which the holders of the Common Stock of record to be entitled
      to
      such dividend, distributions, redemption, rights or warrants are to be
      determined or (y) the date on which such reclassification, consolidation,
      merger, sale, transfer or share exchange is expected to become effective or
      close, and the date as of which it is expected that holders of the Common Stock
      of record shall be entitled to exchange their shares of the Common Stock for
      securities, cash or other property deliverable upon such reclassification,
      consolidation, merger, sale, transfer or share exchange, provided that the
      failure to deliver such notice or any defect therein or in the delivery thereof
      shall not affect the validity of the corporate action required to be specified
      in such notice. The Holder is entitled to convert this Debenture during the
      20-day period commencing on the date of such notice through the effective date
      of the event triggering such notice. 

     

    
      
         

      

      
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    Section
      6. Redemption
      and Forced Conversion.

    


    a)  Optional
      Redemption at Election of Company.
      Subject
      to the provisions of this Section 6, at any time after the 12-month anniversary
      of the Effective Date, the Company may deliver a notice to the Holder (an
“Optional
      Redemption Notice”
      and the date such notice is deemed delivered hereunder, the “Optional
      Redemption Notice Date”)
      of its irrevocable election to redeem some or all of the then outstanding
      principal amount of this Debenture for cash in an amount equal to the Optional
      Redemption Amount on the 10th
      Trading Day following the Optional Redemption Notice Date (such date, the
“Optional
      Redemption Date”
      and such redemption, the “Optional
      Redemption”).
      The Optional Redemption Amount is payable in full on the Optional Redemption
      Date. The Company may only effect an Optional Redemption if each of the Equity
      Conditions shall have been met on each Trading Day during the period commencing
      on the Optional Redemption Notice Date through to the later of (i) the Optional
      Redemption Date and
      through and including (ii) the date on which the payment of the Optional
      Redemption Amount is actually made,
      each of the Equity Conditions shall have been satisfied. If any of the Equity
      Conditions shall cease to be satisfied at any time during the 10 Trading Day
      period, then the Holder may elect to nullify the Optional Redemption Notice
      by
      notice to the Company within 3 Trading Days after the first day on which any
      such Equity Condition has not been met (provided that if, by a provision of
      the
      Transaction Documents, the Company is obligated to notify the Holder of the
      non-existence of an Equity Condition, such notice period shall be extended
      to
      the third Trading Day after proper notice from the Company) in which case the
      Optional Redemption Notice shall be null and void, ab initio.

     

    
      
         

      

      
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    b)  Redemption
      Procedure.
      The
      payment of cash pursuant to an Optional Redemption shall be payable on the
      Optional Redemption Date. If any portion of the payment pursuant to an Optional
      Redemption shall not be paid by the Company by the applicable due date, interest
      shall accrue thereon at an interest rate equal to the lesser of 18% per annum
      or
      the maximum rate permitted by applicable law until such amount is paid in full.
      Notwithstanding anything herein contained to the contrary, if any portion of
      the
      Optional Redemption Amount remains unpaid after such date, the Holder may elect,
      by written notice to the Company given at any time thereafter,
      to invalidate such Optional Redemption, ab initio,
      and,
      with respect to the Company’s failure to honor the Optional Redemption, the
      Company shall have no further right to exercise such Optional Redemption.
      Notwithstanding anything to the contrary in this Section 6, the Company’s
      determination to redeem in cash under Section 6(a) shall be applied ratably
      among the Holders of Debentures.
      The Holder may elect to convert the outstanding principal amount of the
      Debenture pursuant to Section 4 prior to actual payment in cash for any
      redemption under this Section 6 by the delivery of a Notice of Conversion to
      the
      Company. The Company covenants and agrees that it will honor all Notices of
      Conversion tendered from the time of delivery of the Optional Redemption Notice
      through the date all amounts owing thereon are due and paid in
      full.

    


    c)  Forced
      Conversion.
      Notwithstanding anything herein to the contrary, if, at any time following
      the
      Effective Date, the VWAPs for each of any 20 consecutive Trading Days, which
      period shall have commenced only after the Effective Date (such period, the
      “Threshold
      Period”),
      exceeds 200% of the then applicable Conversion Price and the daily trading
      volume for the Common Stock on the principal Trading Market exceeds 250,000
      shares (subject to adjustment for forward and reverse stock splits,
      recapitalizations, stock dividends and the like after the Original Issue Date)
      on each Trading Day during the Threshold Period, the Company may, within 1
      Trading Day after the end of any such Threshold Period, deliver a written notice
      to the Holder (a “Forced
      Conversion Notice”
and
      the
      date such notice is delivered to the Holder, the “Forced
      Conversion Notice Date”)
      to
      cause the Holder to convert all or part of the then outstanding principal amount
      of Debentures plus, if so specified in the Forced Conversion Notice, accrued
      but
      unpaid interest, liquidated damages and other amounts owing to the Holder
      pursuant to Section 4, it being agreed that the “Conversion Date” for purposes
      of Section 4 shall be deemed to occur on the third Trading Day following the
      Forced Conversion Notice Date (such third Trading Day, the “Forced
      Conversion Date”).
      The
      Company may not deliver a Forced Conversion Notice, and any Forced Conversion
      Notice delivered by the Company shall not be effective, unless each of the
      Equity Conditions is satisfied on each Trading Day during the 30 consecutive
      Trading Days immediately preceding the Forced Conversion Notice Date through
      and
      including the later of (i) the Forced Conversion Date and (ii) the Trading
      Day
      after the date such Conversion Shares pursuant to such conversion are delivered
      to the Holder. For purposes of clarification, a Forced Conversion shall be
      subject to all of the provisions of Section 4, including, without limitation,
      the provision requiring payment of liquidated damages and limitations on
      conversions.

     

    
      
         

      

      
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    Section
      7. Negative
      Covenants.
      As long
      as any portion of this Debenture remains outstanding, unless Purchasers holding
      at least 75% of the aggregate principal amount of the then outstanding
      Debentures shall otherwise consent in writing, the Company shall not, and shall
      not permit any of its Subsidiaries to, directly or indirectly:

     

    a)  other
      than Permitted Indebtedness, enter into, create, incur, assume, guarantee or
      suffer to exist any indebtedness for borrowed money of any kind, including
      but
      not limited to, a guarantee, on or with respect to any of its property or assets
      now owned or hereafter acquired or any interest therein or any income or profits
      therefrom;

     

    b)  other
      than Permitted Liens, enter into, create, incur, assume or suffer to exist
      any
      Liens of any kind, on or with respect to any of its property or assets now
      owned
      or hereafter acquired or any interest therein or any income or profits
      therefrom;

    


    c)  amend
      its charter documents, including without limitation, the certificate of
      incorporation and bylaws, in any manner that materially and adversely affects
      any rights of the Holder;

    


    d)  repay,
      repurchase or offer to repay, repurchase or otherwise acquire any shares of
      its
      Common Stock or Common Stock Equivalents or any other security, including
      preferred stock, or Indebtedness of the Company that is pari passu
      with, or
      junior or subordinate to (unless otherwise permitted pursuant to a written
      subordination agreement with the Holders) other than as to (a) the Conversion
      Shares or Warrant Shares as permitted or required under the Transaction
      Documents and (b) repurchases of Common Stock or Common Stock Equivalents of
      departing officers and directors of the Company, provided that such repurchases
      shall not exceed an aggregate of $100,000 for all officers and directors during
      the term of this Debenture);

    


    e)  
      enter into any Fundamental Transaction or Change of Control Transaction without
      the consent of the Holders of 75% of the outstanding principal amount of the
      Debentures; 

    


    f)  pay
      cash dividends or distributions on any equity securities of the
      Company;

    


    g)  enter
      into any transaction with any Affiliate of the Company which would be required
      to be disclosed in any public filing with the Commission, unless such
      transaction is made on an arm’s-length basis and expressly approved by a
      majority of the disinterested directors of the Company (even if less than a
      quorum otherwise required for board approval); or

    


    h)  enter
      into any agreement with respect to any of the foregoing.

     

    
      
         

      

      
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    Section
      8. Events
      of Default.
      

    


    a)  “Event
      of Default”
means,
      wherever used herein, any of the following events (whatever the reason for
      such
      event and whether such event shall be voluntary or involuntary or effected
      by
      operation of law or pursuant to any judgment, decree or order of any court,
      or
      any order, rule or regulation of any administrative or governmental
      body):

    


    i.  any
      default in the payment of (A) the principal amount of any Debenture or (B)
      interest, liquidated damages and other amounts owing to a Holder on any
      Debenture, as and when the same shall become due and payable (whether on a
      Conversion Date or the Maturity Date or by acceleration or otherwise) which
      default, solely in the case of an interest payment or other default under clause
      (B) above, is not cured within 3 Trading Days;

     

    ii.  the
      Company shall fail to observe or perform any other covenant or agreement
      contained in the Debentures (other than a breach by the Company of its
      obligations to deliver shares of Common Stock to the Holder upon conversion,
      which breach is addressed in clause (xi) below) which failure is not cured,
      if
      possible to cure, within the earlier to occur
      of (A)
      5 Trading
      Days after notice of such failure sent by the Holder or by any other
      Holder
      and (B) 10 Trading Days after the Company has become or should have become
      aware
      of such failure;

    


    iii.  a
      default
      or event of default (subject to any grace or cure period provided in the
      applicable agreement, document or instrument) shall occur under (A) any of
      the
      Transaction Documents or (B) any other material agreement, lease, document
      or
      instrument to which the Company or any Subsidiary is obligated (and not covered
      by clause (vi) below);

    


    iv.  any
      representation
      or warranty made in this Debenture, any other Transaction Documents, any written
      statement pursuant hereto or thereto or any other report, financial statement
      or
      certificate made or delivered to the Holder or any other Holder shall
      be untrue or incorrect in any material respect as of the date when made or
      deemed made;

    


    v.  the
      Company or any Significant Subsidiary shall be subject to a Bankruptcy
      Event;

     

    vi.  the
      Company or any Subsidiary with material assets shall default on any of its
      obligations under any mortgage, credit agreement or other facility, indenture
      agreement, factoring agreement or other instrument under which there may be
      issued, or by which there may be secured or evidenced, any indebtedness for
      borrowed money or money due under any long term leasing or factoring arrangement
      that (a) involves an obligation greater than $150,000, whether such indebtedness
      now exists or shall hereafter be created, and (b) results in such indebtedness
      becoming or being declared due and payable prior to the date on which it would
      otherwise become due and payable; 

     

    
      
         

      

      
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    vii.  the
      Common Stock shall not be eligible for listing or quotation for trading on
      a
      Trading Market and shall not be eligible to resume listing or quotation for
      trading thereon within five Trading Days;

    


    viii.  the
      Company shall be a party to any Change of Control Transaction or Fundamental
      Transaction or shall agree to sell or dispose of all or in excess of 33% of
      its
      assets in one transaction or a series of related transactions (whether or not
      such sale would constitute a Change of Control Transaction);

    


    ix.  [Intentionally
      Omitted] 

    


    x.  [Intentionally
      Omitted]

    


    xi.  the
      Company shall fail for any reason to deliver certificates to a Holder prior
      to
      the fifth Trading Day after a Conversion Date or any Forced Conversion Date
      pursuant to Section 4(d) or the Company shall provide at any time notice to
      the
      Holder, including by way of public announcement, of the Company’s intention to
      not honor requests for conversions of any Debentures in accordance with the
      terms hereof;

    


    xii.  any
      monetary judgment, writ or similar final process shall be entered or filed
      against the Company, any Subsidiary or any of their respective property or
      other
      assets for more than $50,000, and such judgment, writ or similar final process
      shall remain unvacated, unbonded or unstayed for a period of 45 calendar days;
      

    


    xiii.  the
      Company shall fail to maintain a regular quotation or listing for the Common
      Stock on the OTC Bulletin Board, one of the Nasdaq stock markets or a national
      securities exchange in the United States; or

    


    xiv.  the
      Company fails to register the shares of Common Stock into which this Debenture
      may be converted as of the Original Issue Date on the next registration
      statement filed by the Company with the Commission following the Original Issue
      Date (other than on Form S-4, S-8 or successor forms thereto). 

    


    b)  Remedies
      Upon Event of Default.
      If any
      Event of Default occurs, the outstanding principal amount of this Debenture,
      plus accrued but unpaid interest, liquidated damages and other amounts owing
      in
      respect thereof through the date of acceleration, shall become, at the Holder’s
      election, immediately due and payable in cash at the Mandatory Default Amount.
      Commencing 5 days after the occurrence of any Event of Default that results
      in
      the eventual acceleration of this Debenture, the interest rate on this Debenture
      shall accrue at an interest rate equal to the lesser of 18% per annum or the
      maximum rate permitted under applicable law. Upon the payment in full of the
      Mandatory Default Amount, the Holder shall promptly surrender this Debenture
      to
      or as directed by the Company. In connection with such acceleration described
      herein, the Holder need not provide, and the Company hereby waives, any
      presentment, demand, protest or other notice of any kind, and the Holder may
      immediately and without expiration of any grace period enforce any and all
      of
      its rights and remedies hereunder and all other remedies available to it under
      applicable law. Such acceleration may be rescinded and annulled by Holder at
      any
      time prior to payment hereunder and the Holder shall have all rights as a holder
      of the Debenture until such time, if any, as the Holder receives full payment
      pursuant to this Section 8(b). No such rescission or annulment shall affect
      any
      subsequent Event of Default or impair any right consequent thereon.

     

    
      
         

      

      
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    c)  Redemption
      at Election of Holder.
      If the
      Company shall agree to sell substantially all of its assets in one or more
      transactions in which the consideration consists solely of cash, cash
      equivalents, assumption of indebtedness, or any combination thereof, the Holder
      shall have the right to require the Company, by written notice to the Company,
      to redeem this Debenture, in full and in cash, at the closing of such Change
      of
      Control Transaction, Fundamental Transaction or sale of assets. The aggregate
      amount payable upon such Change of Control Transaction, Fundamental Transaction
      or sale of assets shall be equal to the Cash Sale Redemption Amount. In the
      event that the Company fails to pay the Cash Sale Redemption Amount on or prior
      to the applicable closing date, the interest rate on this Debenture shall accrue
      at the rate of 18% per annum, or such lower maximum amount of interest permitted
      to be charged under applicable law, until the Cash Sale Redemption Amount is
      paid in full. Concurrently with the payment in full of the Cash Sale Redemption
      Amount, the Holder shall surrender this Debenture to or as directed by the
      Company (or the successor company). The
      Holder may elect to convert the outstanding principal amount of the Debenture
      pursuant to Section 4 prior to actual payment in cash for the redemption under
      this Section 6 by fax delivery of a Notice of Conversion to the
      Company.

    


    Section
      9. Miscellaneous.
      

     

    a)  Notices.
      Any and
      all notices or other communications or deliveries to be provided by the Holder
      hereunder, including, without limitation, any Notice of Conversion, shall be
      in
      writing and delivered personally, by facsimile, or sent by a nationally
      recognized overnight courier service, addressed to the Company, at the address
      set forth above, facsimile number (213) 947-1914,
      Attn: Gary Guseinov or
      such
      other facsimile number or address as the Company may specify for such purpose
      by
      notice to the Holder delivered in accordance with this Section 9. Any and all
      notices or other communications or deliveries to be provided by the Company
      hereunder shall be in writing and delivered personally, by facsimile, or sent
      by
      a nationally recognized overnight courier service addressed to each Holder
      at
      the facsimile number or address of such Holder appearing on the books of the
      Company, or if no such facsimile number or address appears, at the principal
      place of business of the Holder. Any notice or other communication or deliveries
      hereunder shall be deemed given and effective on the earliest of (i) the date
      of
      transmission, if such notice or communication is delivered via facsimile at
      the
      facsimile number specified in this Section 9 prior to 5:30 p.m. (New York City
      time), (ii) the date immediately following the date of transmission, if such
      notice or communication is delivered via facsimile at the facsimile number
      specified in this Section 9 between 5:30 p.m. (New York City time) and 11:59
      p.m. (New York City time) on any date, (iii) the second Business Day following
      the date of mailing, if sent by nationally recognized overnight courier service,
      or (iv) upon actual receipt by the party to whom such notice is required to
      be
      given.

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     

    b)  Absolute
      Obligation.
      Except
      as expressly provided herein, no provision of this Debenture shall alter or
      impair the obligation of the Company, which is absolute and unconditional,
      to
      pay the principal of, liquidated damages and accrued interest, as applicable,
      on
      this Debenture at the time, place, and rate, and in the coin or currency, herein
      prescribed. This Debenture is a direct debt obligation of the Company. This
      Debenture ranks pari passu
      with all
      other Debentures now or hereafter issued under the terms set forth
      herein. 

     

    c)  Lost
      or Mutilated Debenture.
      If this
      Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
      execute and deliver, in exchange and substitution for and upon cancellation
      of a
      mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
      destroyed Debenture, a new Debenture for the principal amount of this Debenture
      so mutilated, lost, stolen or destroyed, but only upon receipt of evidence
      of
      such loss, theft or destruction of such Debenture, and of the ownership hereof,
      reasonably satisfactory to the Company.

    


    d)  Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Debenture shall be governed by and construed and enforced in accordance
      with the internal laws of the State of New York, without regard to the
      principles of conflict of laws thereof. Each party agrees that all legal
      proceedings concerning the interpretation, enforcement and defense of the
      transactions contemplated by any of the Transaction Documents (whether brought
      against a party hereto or its respective Affiliates, directors, officers,
      shareholders, employees or agents) shall be commenced in the state and federal
      courts sitting in the City of New York, Borough of Manhattan (the “New
      York Courts”).
      Each
      party hereto hereby irrevocably submits to the exclusive jurisdiction of the
      New
      York Courts for the adjudication of any dispute hereunder or in connection
      herewith or with any transaction contemplated hereby or discussed herein
      (including with respect to the enforcement of any of the Transaction Documents),
      and hereby irrevocably waives, and agrees not to assert in any suit, action
      or
      proceeding, any claim that it is not personally subject to the jurisdiction
      of
      such New York Courts, or such New York Courts are improper or inconvenient
      venue
      for such proceeding. Each party hereby irrevocably waives personal service
      of
      process and consents to process being served in any such suit, action or
      proceeding by mailing a copy thereof via registered or certified mail or
      overnight delivery (with evidence of delivery) to such party at the address
      in
      effect for notices to it under this Debenture 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 other manner permitted by applicable law. Each party hereto hereby
      irrevocably waives, to the fullest extent permitted by applicable law, any
      and
      all right to trial by jury in any legal proceeding arising out of or relating
      to
      this Debenture or the transactions contemplated hereby. If either party shall
      commence an action or proceeding to enforce any provisions of this Debenture,
      then the prevailing party in such action or proceeding shall be reimbursed
      by
      the other party for its attorneys fees and other costs and expenses incurred
      in
      the investigation, preparation and prosecution of such action or
      proceeding.

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

     

    e)  Waiver.
      Any
      waiver by the Company or the Holder of a breach of any provision of this
      Debenture shall not operate as or be construed to be a waiver of any other
      breach of such provision or of any breach of any other provision of this
      Debenture. The failure of the Company or the Holder to insist upon strict
      adherence to any term of this Debenture on one or more occasions shall not
      be
      considered a waiver or deprive that party of the right thereafter to insist
      upon
      strict adherence to that term or any other term of this Debenture. Any waiver
      by
      the Company or the Holder must be in writing.

     

    f)  Severability.
      If any
      provision of this Debenture is invalid, illegal or unenforceable, the balance
      of
      this Debenture shall remain in effect, and if any provision is inapplicable
      to
      any Person or circumstance, it shall nevertheless remain applicable to all
      other
      Persons and circumstances. If it shall be found that any interest or other
      amount deemed interest due hereunder violates the applicable law governing
      usury, the applicable rate of interest due hereunder shall automatically be
      lowered to equal the maximum rate of interest permitted under applicable law.
      The Company covenants (to the extent that it may lawfully do so) that it shall
      not at any time insist upon, plead, or in any manner whatsoever claim or take
      the benefit or advantage of, any stay, extension or usury law or other law
      which
      would prohibit or forgive the Company from paying all or any portion of the
      principal of or interest on this Debenture as contemplated herein, wherever
      enacted, now or at any time hereafter in force, or which may affect the
      covenants or the performance of this indenture, and the Company (to the extent
      it may lawfully do so) hereby expressly waives all benefits or advantage of
      any
      such law, and covenants that it will not, by resort to any such law, hinder,
      delay or impede the execution of any power herein granted to the Holder, but
      will suffer and permit the execution of every such as though no such law has
      been enacted.

     

    g)  Next
      Business Day.
      Whenever any payment or other obligation hereunder shall be due on a day other
      than a Business Day, such payment shall be made on the next succeeding Business
      Day.

    


    h)  Headings.
      The
      headings contained herein are for convenience only, do not constitute a part
      of
      this Debenture and shall not be deemed to limit or affect any of the provisions
      hereof.

    


    i)  Assumption. 
      Any successor to the Company or any surviving entity in a Fundamental
      Transaction shall (i) assume, prior to such Fundamental Transaction, all of
      the
      obligations of the Company under this Debenture and the other Transaction
      Documents pursuant to written agreements in form and substance satisfactory
      to
      the Holder (such approval not to be unreasonably withheld or delayed) and (ii)
      issue to the Holder a new debenture of such successor entity evidenced by a
      written instrument substantially similar in form and substance to this
      Debenture, including, without limitation, having a principal amount and interest
      rate equal to the principal amount and the interest rate of this Debenture
      and
      having similar ranking to this Debenture, which shall be satisfactory to the
      Holder (any such approval not to be unreasonably withheld or delayed).  The
      provisions of this Section 9(i) shall apply similarly and equally to successive
      Fundamental Transactions and shall be applied without regard to any limitations
      of this Debenture.

     

    j)  Amendment.
      This
      Debenture may be modified or amended or provisions hereof waived with the
      written consent of the Company, the Agent, the Holder and the Holder(s) of
      at
      least 75% of the then outstanding principal amount of all of the
      Debentures.

    


    *********************

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF, the Company has caused this Debenture to be duly executed
      by a
      duly authorized officer as of the date first above indicated.

     

    
      	 	 	 
	 	CYBERDEFENDER
              CORPORATION
	 
 	 
 	 
 
	
            	By:  	/s/ 
	 	
              
Name:
              Gary Guseinov
	 	
              Title:
                Chief Executive Officer

            


    

    


    
      
         

      

      
        26

        
          

        

      

      
         

      

    

     

    ANNEX
      A

    


    NOTICE
      OF CONVERSION

     

    The
      undersigned hereby elects to convert principal under the 10% Convertible
      Debenture of CyberDefender Corporation, a California corporation (the
“Company”),
      due
      on _________________, 2010, into shares of common stock, no par value per share
      (the “Common
      Stock”),
      of
      the Company according to the conditions hereof, as of the date written below.
      If
      shares of Common Stock are to be issued in the name of a person other than
      the
      undersigned, the undersigned will pay all transfer taxes payable with respect
      thereto and is delivering herewith such certificates and opinions as reasonably
      requested by the Company in accordance therewith. No fee will be charged to
      the
      holder for any conversion, except for such transfer taxes, if any.

    


    By
      the
      delivery of this Notice of Conversion the undersigned represents and warrants
      to
      the Company that its ownership of the Common Stock does not exceed the amounts
      specified under Section 4 of this Debenture, as determined in accordance with
      Section 13(d) of the Exchange Act, specified under Section 4 of this
      Debenture.

    


    The
      undersigned agrees to comply with the prospectus delivery requirements under
      the
      applicable securities laws in connection with any transfer of the aforesaid
      shares of Common Stock. 

    


    Conversion
      calculations: 

    

      
        	 	
                Date
                  to Effect Conversion:

              
	 	 
	 	
                Principal
                  Amount of Debenture to be Converted:

              
	 	 
	 	
                Payment
                  of Interest in Common Stock __ yes __ no

              
	 	
                If
                  yes, $_____ of Interest Accrued on Account of Conversion at
                  Issue.

              
	 	 
	 	
                Number
                  of shares of Common Stock to be issued:

              
	 	 
	 	 
	 	
                Signature:

              
	 	 
	 	
                Name:

              
	 	 
	 	
                Address:

              
	 	 


      
  

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

     

    Schedule
      1

    


    CONVERSION
      SCHEDULE

    


    The
      10%
      Convertible Debentures due on _________________, 2010, in the aggregate
      principal amount of $__________ issued by CyberDefender Corporation. This
      Conversion Schedule reflects conversions made under Section 4 of the above
      referenced Debenture.

    


    Dated:
      

     

    
      	
               

              Date
                of Conversion

              (or
                for first entry, Original Issue Date)

            	
               

              Amount
                of Conversion

            	
               

              Aggregate
                Principal Amount Remaining Subsequent to Conversion

              (or
                original Principal Amount)

            	
               

              Company
                Attest

            
	 	 	 	 
	 	 	 	 
	
               

               

               

            	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 


    

    


    
      
         

      

      
        28