Document:

Exhibit
      10.38

    

    AMENDED
      AND RESTATED SECURITY AGREEMENT

    

    This
      AMENDED AND RESTATED SECURITY AGREEMENT, dated as of March__, 2007 (this
“Agreement”),
      is
      among CyberDefender
      Corporation, a California corporation (the
      “Company”),
      and,
      if and when the Company creates or acquires any subsidiaries, all of such future
      subsidiaries of the Company
      pursuant
      to a Joinder Agreement (such subsidiaries,
      the
“Guarantors”
      and
      together with the Company,
      the
“Debtors”),
      the
      holders of the Company’s 10% Secured Convertible Debentures due September 12,
      2009 and issued on September 12, 2006 in the original aggregate principal amount
      of $3,243,378 (collectively, the “Debentures”)
      signatory hereto, their endorsees, transferees and assigns, and the holders
      of
      the Company’s 7.41% Senior Secured Notes due [March] ___, 2008 in the original
      aggregate principal amount of $864,000 (collectively, the “OID
      Notes”)
      signatory hereto, their endorsees, transferees and assigns (the holders of
      the
      Debentures and OID Notes collectively, the “Secured
      Parties”). As
      of the date hereof the Company has no direct or indirect subsidiaries and
      accordingly all references to Guarantors and Debtors other than the Company
      shall be disregarded until such time that Guarantors are added pursuant to
      the
      terms hereof.

    

    WITNESSETH:

    

    WHEREAS,
      pursuant to the Debentures and the OID Notes, the Secured Parties have severally
      agreed to extend the loans to the Company evidenced by the
      Debentures
      and the
      OID Notes; and

    

    WHEREAS,
      in order to induce the Secured Parties to extend the loans evidenced by the
      Debentures and the OID Notes, each Debtor has agreed to execute and deliver
      to
      the Secured Parties this Agreement and to grant the Secured Parties,
pari passu
      with
      each other Secured Party and through the Agent, a security interest in certain
      property of such Debtor to secure the prompt payment, performance and discharge
      in full of all of the Company’s obligations under the Debentures and the OID
      Notes.

    

    NOW,
      THEREFORE, in consideration of the agreements herein contained and for other
      good and valuable consideration, the receipt and sufficiency of which is hereby
      acknowledged, the parties hereto hereby agree as follows:

    

    1.
       Certain
      Definitions.
      As used
      in this Agreement, the following terms shall have the meanings set forth in
      this
      Section 1. Terms used but not otherwise defined in this Agreement that are
      defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial
      tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general
      intangibles”, “goods”, “instruments”, “inventory”, “investment property”,
“letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have
      the respective meanings given such terms in Article 9 of the UCC.

    

    (a)
       “Collateral”
means
      the collateral in which the Secured Parties are granted a security interest
      by
      this Agreement and which shall include the following personal property of the
      Debtors, whether presently owned or existing or hereafter acquired or coming
      into existence, wherever situated, and all additions and accessions thereto
      and
      all substitutions and replacements thereof, and all proceeds, products and
      accounts thereof, including, without limitation, all proceeds from the sale
      or
      transfer of the Collateral and of insurance covering the same and of any tort
      claims in connection therewith,
      and all
      dividends, interest, cash, notes, securities, equity interest or other property
      at any time and from time to time acquired, receivable or otherwise distributed
      in respect of, or in exchange for, any or all of the Pledged Securities (as
      defined below):

     

    
      
         

      

      
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    (i)
      All
      goods, including, without limitation, (A) all machinery, equipment, computers,
      motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special
      and
      general tools, fixtures, test and quality control devices and other equipment
      of
      every kind and nature and wherever situated, together with all documents of
      title and documents representing the same, all additions and accessions thereto,
      replacements therefor, all parts therefor, and all substitutes for any of the
      foregoing and all other items used and useful in connection with any Debtor’s
      businesses and all improvements thereto; and (B) all inventory;

    

    (ii)
       All
      contract rights and other general intangibles, including, without limitation,
      all partnership interests, membership interests, stock or other securities,
      rights
      under any of the Organizational Documents, agreements related to the Pledged
      Securities, licenses,
      distribution and other agreements, computer software (whether “off-the-shelf”,
      licensed from any third party or developed by any Debtor), computer software
      development rights, leases, franchises, customer lists, quality control
      procedures, grants and rights, goodwill, trademarks, service marks, trade
      styles, trade names, patents, patent applications, copyrights, and income tax
      refunds; 

     

    (iii)
       All
      accounts, together with all instruments, all documents of title representing
      any
      of the foregoing, all rights in any merchandising, goods, equipment, motor
      vehicles and trucks which any of the same may represent, and all right, title,
      security and guaranties with respect to each account, including any right of
      stoppage in transit; 

    

    (iv)
       All
      documents, letter-of-credit rights, instruments and chattel paper;

    

    (v) All
      commercial tort claims;

    

    (vi) All
      deposit accounts and all cash (whether or not deposited in such deposit
      accounts);

    

    (vii) All
      investment property;

    

     (viii) All
      supporting obligations; and

     

    
      
         

      

      
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    (ix) All
      files, records, books of account, business papers, and computer programs;
      and

    

    (x) the
      products and proceeds of all of the foregoing Collateral set forth in clauses
      (i)-(ix) above.

    

    Without
      limiting the generality of the foregoing, the “Collateral”
shall
      include all investment property and general intangibles respecting ownership
      and/or other equity interests in each Guarantor, including, without limitation,
      the shares of capital stock and the other equity interests listed on
Schedule
      H
      hereto
      (as the same may be modified from time to time pursuant to the terms hereof),
      and any other shares of capital stock and/or other equity interests of any
      other
      direct or indirect subsidiary of any Debtor obtained in the future, and, in
      each
      case, all certificates representing such shares and/or equity interests and,
      in
      each case, all rights, options, warrants, stock, other securities and/or equity
      interests that may hereafter be received, receivable or distributed in respect
      of, or exchanged for, any of the foregoing and all rights arising under or
      in
      connection with the Pledged Securities, including, but not limited to, all
      dividends, interest and cash.

     

    Notwithstanding
      the foregoing, nothing herein shall be deemed to constitute an assignment of
      any
      asset which, in the event of an assignment, becomes void by operation of
      applicable law or the assignment of which is otherwise prohibited by applicable
      law (in each case to the extent that such applicable law is not overridden
      by
      Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law);
      provided, however, that to the extent permitted by applicable law, this
      Agreement shall create a valid security interest in such asset and, to the
      extent permitted by applicable law, this Agreement shall create a valid security
      interest in the proceeds of such asset.

    

    (b)
       “Intellectual
      Property”
means
      the collective reference to all rights, priorities and privileges relating
      to
      intellectual property, whether arising under United States, multinational or
      foreign laws or otherwise, including, without limitation, (i) all copyrights
      arising under the laws of the United States, any other country or any political
      subdivision thereof, whether registered or unregistered and whether published
      or
      unpublished, all registrations and recordings thereof, and all applications
      in
      connection therewith, including, without limitation, all registrations,
      recordings and applications in the United States Copyright Office, (ii) all
      letters patent of the United States, any other country or any political
      subdivision thereof, all reissues and extensions thereof, and all applications
      for letters patent of the United States or any other country and all divisions,
      continuations and continuations-in-part thereof, (iii) all trademarks, trade
      names, corporate names, company names, business names, fictitious business
      names, trade dress, service marks, logos, domain names and other source or
      business identifiers, and all goodwill associated therewith, now existing or
      hereafter adopted or acquired, all registrations and recordings thereof, and
      all
      applications in connection therewith, whether in the United States Patent and
      Trademark Office or in any similar office or agency of the United States, any
      State thereof or any other country or any political subdivision thereof, or
      otherwise, and all common law rights related thereto, (iv) all trade secrets
      arising under the laws of the United States, any other country or any political
      subdivision thereof, (v) all rights to obtain any reissues, renewals or
      extensions of the foregoing, (vi) all licenses for any of the foregoing, and
      (vii) all causes of action for infringement of the foregoing.

     

    
      
         

      

      
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    (c) “Majority
      in Interest”
means,
      at any time of determination, the majority in interest (based on
      then-outstanding principal amounts of Debentures and OID Notes at the time
      of
      such determination) of the Secured Parties.

    

    (d) “Necessary
      Endorsement”
means
      undated stock powers endorsed in blank or other proper instruments of assignment
      duly executed and such other instruments or documents as the Agent (as that
      term
      is defined below) may reasonably request.

    

    (e)
       “Obligations”
means
      all of the liabilities
      and obligations (primary, secondary, direct, contingent, sole, joint or several)
      due or to become due, or that are now or may be hereafter contracted or
      acquired, or owing to, of any Debtor to the Secured Parties, including, without
      limitation, all
      obligations under this Agreement, the Debentures and OID Notes, the Guarantee
      and any other instruments, agreements or other documents executed and/or
      delivered in connection herewith or therewith, in each case, whether now or
      hereafter existing, voluntary or involuntary, direct or indirect, absolute
      or
      contingent, liquidated or unliquidated, whether or not jointly owed with others,
      and whether or not from time to time decreased or extinguished and later
      increased, created or incurred, and all or any portion of such obligations
      or
      liabilities that are paid, to the extent all or any part of such payment is
      avoided or recovered directly or indirectly from any of the Secured Parties
      as a
      preference, fraudulent transfer or otherwise as such obligations may be amended,
      supplemented, converted, extended or modified from time to time. Without
      limiting the generality of the foregoing, the term “Obligations” shall include,
      without limitation: (i) principal of, and interest on the Debentures and OID
      Notes and the loans extended pursuant thereto; (ii) any and all other fees,
      indemnities, costs, obligations and liabilities of the Debtors from time to
      time
      under or in connection with this Agreement, the Debentures and OID Notes, the
      Guarantee and any other instruments, agreements or other documents executed
      and/or delivered in connection herewith or therewith; and (iii) all amounts
      (including but not limited to post-petition interest) in respect of the
      foregoing that would be payable but for the fact that the obligations to pay
      such amounts are unenforceable or not allowable due to the existence of a
      bankruptcy, reorganization or similar proceeding involving any
      Debtor.

    

    (f)
       “Organizational
      Documents”
means
      with respect to any Debtor, the documents by which such Debtor was organized
      (such as a certificate of incorporation, certificate of limited partnership
      or
      articles of organization, and including, without limitation, any certificates
      of
      designation for preferred stock or other forms of preferred equity) and which
      relate to the internal governance of such Debtor (such as bylaws, a partnership
      agreement or an operating, limited liability or members agreement).

     

    
      
         

      

      
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    (g)
       “Pledged
      Securities”
if
      applicable to this Agreement, shall have the meaning ascribed to such term
      in
      Section 4(i). If Section 4(i) has been intentionally left blank, then all
      references to Pledged Securities shall be disregarded.

    

    (h) “UCC”
means
      the Uniform Commercial Code of the State of New York and or any other applicable
      law of any state or states which has jurisdiction with respect to all, or any
      portion of, the Collateral or this Agreement, from time to time. It is the
      intent of the parties that defined terms in the UCC should be construed in
      their
      broadest sense so that the term “Collateral” will be construed in its broadest
      sense. Accordingly if there are, from time to time, changes to defined terms
      in
      the UCC that broaden the definitions, they are incorporated herein and if
      existing definitions in the UCC are broader than the amended definitions, the
      existing ones shall be controlling. 

    

    2.
       Grant
      of Security Interest in Collateral.
      As an
      inducement for the Secured Parties to extend the loans as evidenced by the
      Debentures and OID Notes and to secure the complete and timely payment,
      performance and discharge in full, as the case may be, of all of the
      Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants
      and hypothecates to the Secured Parties a security interest in and to, a lien
      upon and a right of set-off against all of their respective right, title and
      interest of whatsoever kind and nature in and to, the Collateral (a
“Security
      Interest”
and
      collectively, the “Security
      Interests”).

    

    3. Delivery
      of Certain Collateral.
      Contemporaneously or prior to the execution of this Agreement, each Debtor
      shall
      deliver or cause to be delivered to the Agent (a) any and all certificates
      and
      other instruments representing or evidencing the Pledged Securities, and (b)
      any
      and all certificates and other instruments or documents representing any of
      the
      other Collateral, in each case, together with all Necessary Endorsements. The
      Debtors are, contemporaneously with the execution hereof, delivering to Agent,
      or have previously delivered to Agent, a true and correct copy of each
      Organizational Document governing any of the Pledged Securities.

    

     4.  Representations,
      Warranties, Covenants and Agreements of the Debtors.
      Except
      as set forth under the corresponding section of the disclosure schedules
      delivered to the Secured Parties concurrently herewith (the “Disclosure
      Schedules”),
      which
      Disclosure Schedules shall be deemed a part hereof, each Debtor represents
      and
      warrants to, and covenants and agrees with, the Secured Parties as
      follows:

    

    (a)
      Each
      Debtor has the requisite corporate, partnership, limited liability company
      or
      other power and authority to enter into this Agreement and otherwise to carry
      out its obligations hereunder. The execution, delivery and performance by each
      Debtor of this Agreement and the filings contemplated therein have been duly
      authorized by all necessary action on the part of such Debtor and no further
      action is required by such Debtor. This Agreement has been duly executed by
      each
      Debtor. This Agreement constitutes the legal, valid and binding obligation
      of
      each Debtor, enforceable against each Debtor in accordance with its terms except
      as such enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization and similar laws of general application relating to or affecting
      the rights and remedies of creditors and by general principles of
      equity.

     

    
      
         

      

      
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    (b)
       The
      Debtors have no place of business or offices where their respective books of
      account and records are kept (other than temporarily at the offices of its
      attorneys or accountants) or places where Collateral is stored or located,
      except as set forth on Schedule
      A
      attached
      hereto. Except as specifically set forth on Schedule
      A,
      each
      Debtor is the record owner of the real property where such Collateral is
      located, and there exist no mortgages or other liens on any such real property
      except for Permitted Liens (as defined in the Debentures). Except as disclosed
      on Schedule
      A,
      none of
      such Collateral is in the possession of any consignee, bailee, warehouseman,
      agent or processor.

    

    (c)
       Except
      for Permitted Liens (as defined in the Debentures) and except as set forth
      on
Schedule
      B
      attached
      hereto, the Debtors are the sole owner of the Collateral (except for
      non-exclusive licenses granted by any Debtor in the ordinary course of
      business), free and clear of any liens, security interests, encumbrances, rights
      or claims, and are fully authorized to grant the Security Interests. Except
      as
      set forth on Schedule
      B
      attached
      hereto, there is not on file in any governmental or regulatory authority, agency
      or recording office an effective financing statement, security agreement,
      license or transfer or any notice of any of the foregoing (other than those
      that
      will be filed in favor of the Secured Parties pursuant to this Agreement)
      covering or affecting any of the Collateral. Except as set forth on Schedule
      B
      attached hereto and except pursuant to this Agreement, as long as this Agreement
      shall be in effect, the Debtors shall not execute and shall not knowingly permit
      to be on file in any such office or agency any other financing statement or
      other document or instrument (except to the extent filed or recorded in favor
      of
      the Secured Parties pursuant to the terms of this Agreement).

    

    (d)
       No
      written claim has been received that any Collateral or Debtor's use of any
      Collateral violates the rights of any third party. There has been no adverse
      decision to any Debtor's claim of ownership rights in or exclusive rights to
      use
      the Collateral in any jurisdiction or to any Debtor's right to keep and maintain
      such Collateral in full force and effect, and there is no proceeding involving
      said rights pending or, to the best knowledge of any Debtor, threatened before
      any court, judicial body, administrative or regulatory agency, arbitrator or
      other governmental authority.

    

    (e)
       Each
      Debtor shall at all times maintain its books of account and records relating
      to
      the Collateral at its principal place of business and its Collateral at the
      locations set forth on Schedule
      A
      attached
      hereto and may not relocate such books of account and records or tangible
      Collateral unless it delivers to the Secured Parties at least 30 days prior
      to
      such relocation (i) written notice of such relocation and the new location
      thereof (which must be within the United States) and (ii) evidence that
      appropriate financing statements under the UCC and other necessary documents
      have been filed and recorded and other steps have been taken to perfect the
      Security Interests to create in favor of the Secured Parties a valid, perfected
      and continuing perfected first priority lien in the Collateral.

    

    (f)
       This
      Agreement creates in favor of the Secured Parties a valid, security interest
      in
      the Collateral, subject only to Permitted Liens (as defined in the Debentures)
      securing the payment and performance of the Obligations. Upon making the filings
      described in the immediately following paragraph, all security interests created
      hereunder in any Collateral which may be perfected by filing Uniform Commercial
      Code financing statements shall have been duly perfected. Except for the filing
      of the Uniform Commercial Code financing statements referred to in the
      immediately following paragraph, the recordation of the Intellectual Property
      Security Agreement (as defined below) with respect to copyrights and copyright
      applications in the United States Copyright Office referred to in paragraph
      (m),
the
      execution and delivery of deposit account control agreements satisfying the
      requirements of Section 9-104(a)(2) of the UCC with respect to each deposit
      account of the Debtors,
      and the
      delivery of the certificates and other instruments provided in Section
      3,
      no
      action is necessary to create, perfect or protect the security interests created
      hereunder. Without limiting the generality of the foregoing, except for the
      filing of said financing statements, the recordation of said Intellectual
      Property Security Agreement, and the execution and delivery of said deposit
      account control agreements, no consent of any third parties and no
      authorization, approval or other action by, and no notice to or filing with,
      any
      governmental authority or regulatory body is required for (i) the execution,
      delivery and performance of this Agreement, (ii) the creation or perfection
      of
      the Security Interests created hereunder in the Collateral or (iii) the
      enforcement of the rights of the Agent and the Secured Parties
      hereunder.

     

    
      
         

      

      
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    (g)
       Each
      Debtor hereby authorizes the Agent to file one or more financing statements
      under the UCC, with respect to the Security Interests with the proper filing
      and
      recording agencies in any jurisdiction deemed proper by it.

    

     (h)
       The
      execution, delivery and performance of this Agreement by the Debtors does not
      (i) violate any of the provisions of any Organizational Documents of any Debtor
      or any judgment, decree, order or award of any court, governmental body or
      arbitrator or any applicable law, rule or regulation applicable to any Debtor
      or
      (ii) conflict with, or constitute a default (or an event that with notice or
      lapse of time or both would become a default) under, or give to others any
      rights of termination, amendment, acceleration or cancellation (with or without
      notice, lapse of time or both) of, any agreement, credit facility, debt or
      other
      instrument (evidencing any Debtor's debt or otherwise) or other understanding
      to
      which any Debtor is a party or by which any property or asset of any Debtor
      is
      bound or affected. If any, all required consents (including, without limitation,
      from stockholders or creditors of any Debtor) necessary for any Debtor to enter
      into and perform its obligations hereunder have been obtained.

     

    (i)
       [Intentionally
      deleted]. 

    

    (j)
       [Intentionally
      deleted].

    

    (k)
       Except
      for Permitted Liens (as defined in the Debentures), each Debtor shall at all
      times maintain the liens and Security Interests provided for hereunder as valid
      and perfected first priority liens and security interests in the Collateral
      in
      favor of the Secured Parties until this Agreement and the Security Interest
      hereunder shall be terminated pursuant to Section 14 hereof. Each Debtor hereby
      agrees to defend the same against the claims of any and all persons and
      entities. Each Debtor shall safeguard and protect all Collateral for the account
      of the Secured Parties. At the request of the Agent, each Debtor will sign
      and
      deliver to the Agent on behalf of the Secured Parties at any time or from time
      to time one or more financing statements pursuant to the UCC in form reasonably
      satisfactory to the Agent and will pay the cost of filing the same in all public
      offices wherever filing is, or is deemed by the Agent to be, necessary or
      desirable to effect the rights and obligations provided for herein. Without
      limiting the generality of the foregoing, each Debtor shall pay all fees, taxes
      and other amounts necessary to maintain the Collateral and the Security
      Interests hereunder, and each Debtor shall obtain and furnish to the Agent
      from
      time to time, upon demand, such releases and/or subordinations of claims and
      liens which may be required to maintain the priority of the Security Interests
      hereunder.

     

    
      
         

      

      
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    (l)
       No
      Debtor
      will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose
      of any of the Collateral (except for non-exclusive licenses granted by a Debtor
      in its ordinary course of business and sales of inventory by a Debtor in its
      ordinary course of business) without the prior written consent of a Majority
      in Interest.

    

    (m) Each
      Debtor shall keep and preserve its equipment, inventory and other tangible
      Collateral in good condition, repair and order and shall not operate or locate
      any such Collateral (or cause to be operated or located) in any area excluded
      from insurance coverage.

    

    (n) Each
      Debtor shall maintain with financially sound and reputable insurers, insurance
      with respect to the Collateral, including Collateral hereafter acquired, against
      loss or damage of the kinds and in the amounts customarily insured against
      by
      entities of established reputation having similar properties similarly situated
      and in such amounts as are customarily carried under similar circumstances
      by
      other such entities and otherwise as is prudent for entities engaged in similar
      businesses but in any event sufficient to cover the full replacement cost
      thereof. Each Debtor shall cause each insurance policy issued in connection
      herewith to provide, and the insurer issuing such policy to certify to the
      Agent
      that (a) the Agent will be named as lender loss payee and additional insured
      under each such insurance policy; (b) if such insurance be proposed to be
      cancelled or materially changed for any reason whatsoever, such insurer will
      promptly notify the Agent and such cancellation or change shall not be effective
      as to the Agent for at least thirty (30) days after receipt by the Agent of
      such
      notice, unless the effect of such change is to extend or increase coverage
      under
      the policy; and (c) the Agent will have the right (but no obligation) at its
      election to remedy any default in the payment of premiums within thirty (30)
      days of notice from the insurer of such default. If no Event of Default (as
      defined in the Debentures) exists and if the proceeds arising out of any claim
      or series of related claims do not exceed $100,000, loss payments in each
      instance will be applied by the applicable Debtor to the repair and/or
      replacement of property with respect to which the loss was incurred to the
      extent reasonably feasible, and any loss payments or the balance thereof
      remaining, to the extent not so applied, shall be payable to the applicable
      Debtor, provided, however, that payments received by any Debtor after an Event
      of Default occurs and is continuing or in excess of $100,000 for any occurrence
      or series of related occurrences shall be paid to the Agent on behalf of the
      Secured Parties and, if received by such Debtor, shall be held in trust for
      the
      Secured Parties and immediately paid over to the Agent unless otherwise directed
      in writing by the Agent. Copies of such policies or the related certificates,
      in
      each case, naming the Agent as lender loss payee and additional insured shall
      be
      delivered to the Agent at least annually and at the time any new policy of
      insurance is issued.

     

    
      
         

      

      
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    (o)
       Each
      Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the
      Secured Parties promptly, in sufficient detail, of any material adverse change
      in the Collateral, and of the occurrence of any event which would have a
      material adverse effect on the value of the Collateral or on the Secured
      Parties’ security interest, through the Agent, therein.

    

    (p)
       Each
      Debtor shall promptly execute and deliver to the Agent such further deeds,
      mortgages, assignments, security agreements, financing statements or other
      instruments, documents, certificates and assurances and take such further action
      as the Agent may from time to time request and may in its sole discretion deem
      necessary to perfect, protect or enforce the Secured Parties’ security interest
      in the Collateral including, without limitation, if applicable, the execution
      and delivery of a separate security agreement with respect to each Debtor’s
      Intellectual Property (“Intellectual
      Property Security Agreement”)
      in
      which the Secured Parties have been granted a security interest hereunder,
      substantially in a form reasonably acceptable to the Agent, which Intellectual
      Property Security Agreement, other than as stated therein, shall be subject
      to
      all of the terms and conditions hereof.

    

    (q)
       Each
      Debtor shall permit the Agent and its representatives and agents to inspect
      the
      Collateral during normal business hours and upon reasonable prior notice, and
      to
      make copies of records pertaining to the Collateral as may be reasonably
      requested by the Agent from time to time.

    

    (r)
       Each
      Debtor shall take all steps reasonably necessary to diligently pursue and seek
      to preserve, enforce and collect any rights, claims, causes of action and
      accounts receivable in respect of the Collateral.

    

    (s)
       Each
      Debtor shall promptly notify the Secured Parties in sufficient detail upon
      becoming aware of any attachment, garnishment, execution or other legal process
      levied against any Collateral and of any other information received by such
      Debtor that may materially affect the value of the Collateral, the Security
      Interest or the rights and remedies of the Secured Parties
      hereunder.

    

    (t)
       All
      information heretofore, herein or hereafter supplied to the Secured Parties
      by
      or on behalf of any Debtor with respect to the Collateral is accurate and
      complete in all material respects as of the date furnished.

     

    
      
         

      

      
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    (u)
       The
      Debtors shall at all times preserve and keep in full force and effect their
      respective valid existence and good standing and any rights and franchises
      material to its business.

    

    (v)
       No
      Debtor
      will change its name, type of organization, jurisdiction of organization,
      organizational identification number (if it has one), legal or corporate
      structure, or identity, or add any new fictitious name unless it provides at
      least 30 days prior written notice to the Secured Parties of such change and,
      at
      the time of such written notification, such Debtor provides any financing
      statements or fixture filings necessary to perfect and continue the perfection
      of the Security Interests granted and evidenced by this Agreement.

    

    (w) Except
      in
      the ordinary course of business, no Debtor may consign any of its Inventory
      or
      sell any of its Inventory on bill and hold, sale or return, sale on approval,
      or
      other conditional terms of sale without the consent of the
      Agent
      which shall not be unreasonably withheld.

    

    (x)
       No
      Debtor
      may relocate its chief executive office to a new location without providing
      30
      days prior written notification thereof to the Secured Parties and so long
      as,
      at the time of such written notification, such Debtor provides any financing
      statements or fixture filings necessary to perfect and continue the perfection
      of the Security Interests granted and evidenced by this Agreement.

    

    (y) Each
      Debtor was organized and remains organized solely under the laws of the state
      set forth next to such Debtor’s name in Schedule
      D
      attached
      hereto, which Schedule
      D
      sets
      forth each Debtor’s organizational identification number or, if any Debtor does
      not have one, states that one does not exist.

    

    (z) 
      (i) The
      actual name of each Debtor is the name set forth in Schedule
      D
      attached
      hereto; (ii) no Debtor has any trade names except as set forth on Schedule
      E
      attached
      hereto; (iii) no Debtor has used any name other than that stated in the preamble
      hereto or as set forth on Schedule
      E
      for the
      preceding five years; and (iv) no entity has merged into any Debtor or been
      acquired by any Debtor within the past five years except as set forth on
Schedule
      E.

    

    (aa) At
      any
      time and from time to time that any Collateral consists of instruments,
      certificated securities or other items that require or permit possession by
      the
      secured party to perfect the security interest created hereby, the applicable
      Debtor shall deliver such Collateral to the Agent.

    

    (bb)
       [Intentionally
      Deleted].

     

    (cc) Each
      Debtor shall cause all tangible chattel paper constituting Collateral to be
      delivered to the Agent, or, if such delivery is not possible, then to cause
      such
      tangible chattel paper to contain a legend noting that it is subject to the
      security interest created by this Agreement. To the extent that any Collateral
      consists of electronic chattel paper, the applicable Debtor shall cause the
      underlying chattel paper to be “marked” within the meaning of Section 9-105 of
      the UCC (or successor section thereto).

     

    
      
         

      

      
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    (dd) If
      there
      is any investment property or deposit account included as Collateral that can
      be
      perfected by “control” through an account control agreement, the applicable
      Debtor shall cause such an account control agreement, in form and substance
      in
      each case satisfactory to the Agent, to be entered into and delivered to the
      Agent for the benefit of the Secured Parties.

    

    (ee)
       To
      the
      extent that any Collateral consists of letter-of-credit rights, the applicable
      Debtor shall cause the issuer of each underlying letter of credit to consent
      to
      an assignment of the proceeds thereof to the Secured Parties.

    

    (ff)
       To
      the
      extent that any Collateral is in the possession of any third party, the
      applicable Debtor shall join with the Agent in notifying such third party of
      the
      Secured Parties’ security interest in such Collateral and shall use its best
      efforts to obtain an acknowledgement and agreement from such third party with
      respect to the Collateral, in form and substance reasonably satisfactory to
      the
      Agent.

    

    (gg) If
      any
      Debtor shall at any time hold or acquire a commercial tort claim, such Debtor
      shall promptly notify the Secured Parties in a writing signed by such Debtor
      of
      the particulars thereof and grant to the Secured Parties in such writing a
      security interest therein and in the proceeds thereof, all upon the terms of
      this Agreement, with such writing to be in form and substance satisfactory
      to
      the Agent.

    

    (hh)  Each
      Debtor shall immediately provide written notice to the Secured Parties of any
      and all accounts which arise out of contracts with any governmental authority
      and, to the extent necessary to perfect or continue the perfected status of
      the
      Security Interests in such accounts and proceeds thereof, shall execute and
      deliver to the Agent an assignment of claims for such accounts and cooperate
      with the Agent in taking any other steps required, in its judgment, under the
      Federal Assignment of Claims Act or any similar federal, state or local statute
      or rule to perfect or continue the perfected status of the Security Interests
      in
      such accounts and proceeds thereof.

    

    (ii) Each
      Debtor shall cause each subsidiary
      of such
      Debtor to immediately become a party hereto (an “Additional
      Debtor”),
      by
      executing and delivering an Additional Debtor Joinder in substantially the
      form
      of Annex A attached hereto and comply with the provisions hereof applicable
      to
      the Debtors. Concurrent therewith, the Additional Debtor shall deliver
      replacement schedules for, or supplements to all other Schedules to (or referred
      to in) this Agreement, as applicable, which replacement schedules shall
      supersede, or supplements shall modify, the Schedules then in effect. The
      Additional Debtor shall also deliver such opinions of counsel, authorizing
      resolutions, good standing certificates, incumbency certificates, organizational
      documents, financing statements and other information and documentation as
      the
      Agent may reasonably request. Upon delivery of the foregoing to the Agent,
      the
      Additional Debtor shall be and become a party to this Agreement with the same
      rights and obligations as the Debtors, for all purposes hereof as fully and
      to
      the same extent as if it were an original signatory hereto and shall be deemed
      to have made the representations, warranties and covenants set forth herein
      as
      of the date of execution and delivery of such Additional Debtor Joinder, and
      all
      references herein to the “Debtors” shall be deemed to include each Additional
      Debtor.

     

    
      
         

      

      
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    (jj)
       Each
      Debtor shall vote the Pledged Securities to comply with the covenants and
      agreements set forth herein and in the Debentures and OID Notes.

    

    (kk) Each
      Debtor shall register the pledge of the applicable Pledged Securities on the
      books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities
      to register the pledge of the applicable Pledged Securities in the name of
      the
      Secured Parties on the books of such issuer. Further, except with respect to
      certificated securities delivered to the Agent, the applicable Debtor shall
      deliver to Agent an acknowledgement of pledge (which, where appropriate, shall
      comply with the requirements of the relevant UCC with respect to perfection
      by
      registration) signed by the issuer of the applicable Pledged Securities, which
      acknowledgement shall confirm that: (a) it has registered the pledge on its
      books and records; and (b) at any time directed by Agent during the continuation
      of an Event of Default, such issuer will transfer the record ownership of such
      Pledged Securities into the name of any designee of Agent, will take such steps
      as may be necessary to effect the transfer, and will comply with all other
      instructions of Agent regarding such Pledged Securities without the further
      consent of the applicable Debtor.

    

    (ll)
      In
      the
      event that, upon an occurrence of an Event of Default, Agent shall sell all
      or
      any of the Pledged Securities to another party or parties (herein called the
      “Transferee”)
      or
      shall purchase or retain all or any of the Pledged Securities, each Debtor
      shall, to the extent applicable: (i) deliver to Agent or the Transferee, as
      the
      case may be, the articles of incorporation, bylaws, minute books, stock
      certificate books, corporate seals, deeds, leases, indentures, agreements,
      evidences of indebtedness, books of account, financial records and all other
      Organizational Documents and records of the Debtors and their direct and
      indirect subsidiaries; (ii) use its best efforts to obtain resignations of
      the
      persons then serving as officers and directors of the Debtors and their direct
      and indirect subsidiaries, if so requested; and (iii) use its best efforts
      to
      obtain any approvals that are required by any governmental or regulatory body
      in
      order to permit the sale of the Pledged Securities to the Transferee or the
      purchase or retention of the Pledged Securities by Agent and allow the
      Transferee or Agent to continue the business of the Debtors and their direct
      and
      indirect subsidiaries.

     

    (mm) Without
      limiting the generality of the other obligations of the Debtors hereunder,
      each
      Debtor shall promptly (i) cause to be registered at the United States Copyright
      Office all of its material copyrights, (ii) cause the security interest
      contemplated hereby with respect to all Intellectual Property registered at
      the
      United States Copyright Office or United States Patent and Trademark Office
      to
      be duly recorded at the applicable office, and (iii) give the Agent notice
      whenever it acquires (whether absolutely or by license) or creates any
      additional material Intellectual Property.

     

    
      
         

      

      
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    (nn) Each
      Debtor will from time to time, at the joint and several expense of the Debtors,
      promptly execute and deliver all such further instruments and documents, and
      take all such further action as may be necessary or desirable, or as the Agent
      may reasonably request, in order to perfect and protect any security interest
      granted or purported to be granted hereby or to enable the Secured Parties
      to
      exercise and enforce their rights and remedies hereunder and with respect to
      any
      Collateral or to otherwise carry out the purposes of this
      Agreement.

    

    (oo) Schedule
      F
      attached
      hereto lists all of the patents, patent applications, trademarks, trademark
      applications, registered copyrights, and domain names owned by any of the
      Debtors as of the date hereof. Schedule
      F
      lists
      all material licenses in favor of any Debtor for the use of any patents,
      trademarks, copyrights and domain names as of the date hereof. All material
      patents and trademarks of the Debtors have been duly recorded at the United
      States Patent and Trademark Office and all material copyrights of the Debtors
      have been duly recorded at the United States Copyright Office.

    

    (pp) Except
      as
      set forth on Schedule
      G
      attached
      hereto, none of the account debtors or other persons or entities obligated
      on
      any of the Collateral is a governmental authority covered by the Federal
      Assignment of Claims Act or any similar federal, state or local statute or
      rule
      in respect of such Collateral.

    

    5. Effect
      of Pledge on Certain Rights. If
      any of
      the Collateral subject to this Agreement consists of nonvoting equity or
      ownership interests (regardless of class, designation, preference or rights)
      that may be converted into voting equity or ownership interests upon the
      occurrence of certain events (including, without limitation, upon the transfer
      of all or any of the other stock or assets of the issuer), it is agreed that
      the
      pledge of such equity or ownership interests pursuant to this Agreement or
      the
      enforcement of any of Agent’s rights hereunder shall not be deemed to be the
      type of event which would trigger such conversion rights notwithstanding any
      provisions in the Organizational Documents or agreements to which any Debtor
      is
      subject or to which any Debtor is party.

    

    6.
       Defaults.
      The
      following events shall be “Events
      of Default”:

    

    (a)
      The
      occurrence of an Event of Default (as defined in the Debentures and the OID
      Notes) under the Debentures or OID Notes;

    

    (b)
      Any
      representation or warranty of any Debtor in this Agreement shall prove to have
      been incorrect in any material respect when made;

    

    (c)
      The
      failure by any Debtor to observe or perform any of its obligations hereunder
      for
      five (5) days after delivery to such Debtor of notice of such failure by or
      on
      behalf of a Secured Party unless such default is capable of cure but cannot
      be
      cured within such time frame and such Debtor is using best efforts to cure
      same
      in a timely fashion; or

     

    
      
         

      

      
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    (d)
      If
      any provision of this Agreement shall at any time for any reason be declared
      to
      be null and void, or the validity or enforceability thereof shall be contested
      by any Debtor, or a proceeding shall be commenced by any Debtor, or by any
      governmental authority having jurisdiction over any Debtor, seeking to establish
      the invalidity or unenforceability thereof, or any Debtor shall deny that any
      Debtor has any liability or obligation purported to be created under this
      Agreement.

    

     7.  Duty
      To Hold In Trust.

    

    (a) Upon
      the
      occurrence of any Event of Default and at any time thereafter, each Debtor
      shall, upon receipt of any revenue, income,
      dividend, interest
      or other
      sums subject to the Security Interests, whether payable pursuant to the
      Debentures, the OID Notes or otherwise, or of any check, draft, note, trade
      acceptance or other instrument evidencing an obligation to pay any such sum,
      hold the same in trust for the Secured Parties and shall forthwith endorse
      and
      transfer any such sums or instruments, or both, to the Secured Parties, pro-rata
      in proportion to their respective then-currently outstanding principal amount
      of
      Debentures and OID Notes for application to the satisfaction of the Obligations
      (and if any Debenture or OID Note is not outstanding, pro-rata in proportion
      to
      the initial purchases of the remaining Debentures and OID Notes).

    

    (b) If
      any
      Debtor shall become entitled to receive or shall receive any securities or
      other
      property (including, without limitation, shares of Pledged Securities or
      instruments representing Pledged Securities acquired after the date hereof,
      or
      any options, warrants, rights or other similar property or certificates
      representing a dividend, or any distribution in connection with any
      recapitalization, reclassification or increase or reduction of capital, or
      issued in connection with any reorganization of such Debtor or any of its direct
      or indirect subsidiaries) in respect of the Pledged Securities (whether as
      an
      addition to, in substitution of, or in exchange for, such Pledged Securities
      or
      otherwise), such Debtor agrees to (i) accept the same as the agent of the
      Secured Parties; (ii) hold the same in trust on behalf of and for the benefit
      of
      the Secured Parties; and (iii) to deliver any and all certificates or
      instruments evidencing the same to Agent on or before the close of business
      on
      the fifth business day following the receipt thereof by such Debtor, in the
      exact form received together with the Necessary Endorsements, to be held by
      Agent subject to the terms of this Agreement as Collateral.

    

     8.  Rights
      and Remedies Upon Default.

    

    (a) Upon
      the
      occurrence of any Event of Default and at any time thereafter, the Secured
      Parties, acting through the Agent, shall have the right to exercise all of
      the
      remedies conferred hereunder and under the Debentures and OID Notes, and the
      Secured Parties shall have all the rights and remedies of a secured party under
      the UCC. Without limitation, the Agent, for the benefit of the Secured Parties,
      shall have the following rights and powers:

    

    (i)
      The
      Agent shall have the right to take possession of the Collateral and, for that
      purpose, enter, with the aid and assistance of any person, any premises where
      the Collateral, or any part thereof, is or may be placed and remove the same,
      and each Debtor shall assemble the Collateral and make it available to the
      Agent
      at places which the Agent shall reasonably select, whether at such Debtor's
      premises or elsewhere, and make available to the Agent, without rent, all of
      such Debtor’s respective premises and facilities for the purpose of the Agent
      taking possession of, removing or putting the Collateral in saleable or
      disposable form.

     

    
      
         

      

      
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    (ii) Upon
      notice to the Debtors by Agent, all rights of each Debtor to exercise the voting
      and other consensual rights which it would otherwise be entitled to exercise
      and
      all rights of each Debtor to receive the dividends and interest which it would
      otherwise be authorized to receive and retain, shall cease. Upon such notice,
      Agent shall have the right to receive, for the benefit of the Secured Parties,
      any interest, cash dividends or other payments on the Collateral and, at the
      option of Agent, to exercise in such Agent’s discretion all voting rights
      pertaining thereto. Without limiting the generality of the foregoing, Agent
      shall have the right (but not the obligation) to exercise all rights with
      respect to the Collateral as it were the sole and absolute owner thereof,
      including, without limitation, to vote and/or to exchange, at its sole
      discretion, any or all of the Collateral in connection with a merger,
      reorganization, consolidation, recapitalization or other readjustment concerning
      or involving the Collateral or any Debtor or any of its direct or indirect
      subsidiaries.

    

    (iii)
      The
      Agent shall have the right to operate the business of each Debtor using the
      Collateral and shall have the right to assign, sell, lease or otherwise dispose
      of and deliver all or any part of the Collateral, at public or private sale
      or
      otherwise, either with or without special conditions or stipulations, for cash
      or on credit or for future delivery, in such parcel or parcels and at such
      time
      or times and at such place or places, and upon such terms and conditions as
      the
      Agent may deem commercially reasonable, all without (except as shall be required
      by applicable statute and cannot be waived) advertisement or demand upon or
      notice to any Debtor or right of redemption of a Debtor, which are hereby
      expressly waived. Upon each such sale, lease, assignment or other transfer
      of
      Collateral, the Agent, for the benefit of the Secured Parties, may, unless
      prohibited by applicable law which cannot be waived, purchase all or any part
      of
      the Collateral being sold, free from and discharged of all trusts, claims,
      right
      of redemption and equities of any Debtor, which are hereby waived and
      released.

    

    (iv) The
      Agent
      shall have the right (but not the obligation) to notify any account debtors
      and
      any obligors under instruments or accounts to make payments directly to the
      Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights
      against such account debtors and obligors.

    

    (v) The
      Agent, for the benefit of the Secured Parties, may (but is not obligated to)
      direct any financial intermediary or any other person or entity holding any
      investment property to transfer the same to the Agent, on behalf of the Secured
      Parties, or its designee.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    (vi) The
      Agent
      may (but is not obligated to) transfer any or all Intellectual Property
      registered in the name of any Debtor at the United States Patent and Trademark
      Office and/or Copyright Office into the name of the Secured Parties or any
      designee or any purchaser of any Collateral.

    

    (b) The
      Agent
      shall comply with any applicable law in connection with a disposition of
      Collateral and such compliance will not be considered adversely to affect the
      commercial reasonableness of any sale of the Collateral. The Agent may sell
      the
      Collateral without giving any warranties and may specifically disclaim such
      warranties. If the Agent sells any of the Collateral on credit, the Debtors
      will
      only be credited with payments actually made by the purchaser. In addition,
      each
      Debtor waives any and all rights that it may have to a judicial hearing in
      advance of the enforcement of any of the Agent’s rights and remedies hereunder,
      including, without limitation, its right following an Event of Default to take
      immediate possession of the Collateral and to exercise its rights and remedies
      with respect thereto.

     

    (c) For
      the
      purpose of enabling the Agent to further exercise rights and remedies under
      this
      Section 8 or elsewhere provided by agreement or applicable law, each Debtor
      hereby grants to the Agent, for the benefit of the Agent and the Secured
      Parties, an irrevocable, nonexclusive license (exercisable without payment
      of
      royalty or other compensation to such Debtor) to use, license or sublicense
      following an Event of Default, any Intellectual Property now owned or hereafter
      acquired by such Debtor, and wherever the same may be located, and including
      in
      such license access to all media in which any of the licensed items may be
      recorded or stored and to all computer software and programs used for the
      compilation or printout thereof.

    

     9.  Applications
      of Proceeds.
      The
      proceeds of any such sale, lease or other disposition of the Collateral
      hereunder or from payments made on account of any insurance policy insuring
      any
      portion of the Collateral shall be applied first, to the expenses of retaking,
      holding, storing, processing and preparing for sale, selling, and the like
      (including, without limitation, any taxes, fees and other costs incurred in
      connection therewith) of the Collateral, to the reasonable attorneys’ fees and
      expenses incurred by the Agent in enforcing the Secured Parties’ rights
      hereunder and in connection with collecting, storing and disposing of the
      Collateral, and then to satisfaction of the Obligations pro rata among the
      Secured Parties (based on then-outstanding principal amounts of Debentures
      and
      OID Notes at the time of any such determination), and to the payment of any
      other amounts required by applicable law, after which the Secured Parties shall
      pay to the applicable Debtor any surplus proceeds. If, upon the sale, license
      or
      other disposition of the Collateral, the proceeds thereof are insufficient
      to
      pay all amounts to which the Secured Parties are legally entitled, the Debtors
      will be liable for the deficiency, together with interest thereon, at the rate
      of 10% per annum or the lesser amount permitted by applicable law (the “Default
      Rate”), and the reasonable fees of any attorneys employed by the Secured Parties
      to collect such deficiency. To the extent permitted by applicable law, each
      Debtor waives all claims, damages and demands against the Secured Parties
      arising out of the repossession, removal, retention or sale of the Collateral,
      unless due solely to the gross negligence or willful misconduct of the Secured
      Parties as determined by a final judgment (not subject to further appeal) of
      a
      court of competent jurisdiction.

     

    
      
         

      

      
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    10. Securities
      Law Provision.
      Each
      Debtor recognizes that Agent may be limited in its ability to effect a sale
      to
      the public of all or part of the Pledged Securities by reason of certain
      prohibitions in the Securities Act of 1933, as amended, or other federal or
      state securities laws (collectively, the “Securities
      Laws”),
      and
      may be compelled to resort to one or more sales to a restricted group of
      purchasers who may be required to agree to acquire the Pledged Securities for
      their own account, for investment and not with a view to the distribution or
      resale thereof. Each Debtor agrees that sales so made may be at prices and
      on
      terms less favorable than if the Pledged Securities were sold to the public,
      and
      that Agent has no obligation to delay the sale of any Pledged Securities for
      the
      period of time necessary to register the Pledged Securities for sale to the
      public under the Securities Laws. Each Debtor shall cooperate with Agent in
      its
      attempt to satisfy any requirements under the Securities Laws (including,
      without limitation, registration thereunder if requested by Agent) applicable
      to
      the sale of the Pledged Securities by Agent.

     

     11.  Costs
      and Expenses.
      Each
      Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses
      incurred in connection with any filing required hereunder, including without
      limitation, any financing statements pursuant to the UCC, continuation
      statements, partial releases and/or termination statements related thereto
      or
      any expenses of any searches reasonably required by the Agent. The Debtors
      shall
      also pay all other claims and charges which in the reasonable opinion of the
      Agent is reasonably likely to prejudice, imperil or otherwise affect the
      Collateral or the Security Interests therein. The Debtors will also, upon
      demand, pay to the Agent the amount of any and all reasonable expenses,
      including the reasonable fees and expenses of its counsel and of any experts
      and
      agents, which the Agent, for the benefit of the Secured Parties, may incur
      in
      connection with (i) the enforcement of this Agreement, (ii) the custody or
      preservation of, or the sale of, collection from, or other realization upon,
      any
      of the Collateral, or (iii) the exercise or enforcement of any of the rights
      of
      the Secured Parties under the Debentures or OID Notes. Until so paid, any fees
      payable hereunder shall be added to the principal amount of the Debentures
      and
      OID Notes and shall bear interest at the Default Rate.

    

     12.  Responsibility
      for Collateral.
      The
      Debtors assume all liabilities and responsibility in connection with all
      Collateral, and the Obligations shall in no way be affected or diminished by
      reason of the loss, destruction, damage or theft of any of the Collateral or
      its
      unavailability for any reason. Without limiting the generality of the foregoing,
      (a) neither the Agent nor any Secured Party (i) has any duty (either before
      or
      after an Event of Default) to collect any amounts in respect of the Collateral
      or to preserve any rights relating to the Collateral, or (ii) has any obligation
      to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor
      shall remain obligated and liable under each contract or agreement included
      in
      the Collateral to be observed or performed by such Debtor thereunder. Neither
      the Agent nor any Secured Party shall have any obligation or liability under
      any
      such contract or agreement by reason of or arising out of this Agreement or
      the
      receipt by the Agent or any Secured Party of any payment relating to any of
      the
      Collateral, nor shall the Agent or any Secured Party be obligated in any manner
      to perform any of the obligations of any Debtor under or pursuant to any such
      contract or agreement, to make inquiry as to the nature or sufficiency of any
      payment received by the Agent or any Secured Party in respect of the Collateral
      or as to the sufficiency of any performance by any party under any such contract
      or agreement, to present or file any claim, to take any action to enforce any
      performance or to collect the payment of any amounts which may have been
      assigned to the Agent or to which the Agent or any Secured Party may be entitled
      at any time or times.

     

    
      
         

      

      
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    13.  Security
      Interests Absolute.
      All
      rights of the Secured Parties and all obligations of the Debtors hereunder,
      shall be absolute and unconditional, irrespective of: (a) any lack of validity
      or enforceability of this Agreement, the Debentures, the OID Notes or any
      agreement entered into in connection with the foregoing, or any portion hereof
      or thereof; (b) any change in the time, manner or place of payment or
      performance of, or in any other term of, all or any of the Obligations, or
      any
      other amendment or waiver of or any consent to any departure from the
      Debentures, the OID Notes or any other agreement entered into in connection
      with
      the foregoing; (c) any exchange, release or nonperfection of any of the
      Collateral, or any release or amendment or waiver of or consent to departure
      from any other collateral for, or any guarantee, or any other security, for
      all
      or any of the Obligations; (d) any action by the Secured Parties to obtain,
      adjust, settle and cancel in its sole discretion any insurance claims or matters
      made or arising in connection with the Collateral; or (e) any other circumstance
      which might otherwise constitute any legal or equitable defense available to
      a
      Debtor, or a discharge of all or any part of the Security Interests granted
      hereby. Until the Obligations shall have been paid and performed in full, the
      rights of the Secured Parties shall continue even if the Obligations are barred
      for any reason, including, without limitation, the running of the statute of
      limitations or bankruptcy. Each Debtor expressly waives presentment, protest,
      notice of protest, demand, notice of nonpayment and demand for performance.
      In
      the event that at any time any transfer of any Collateral or any payment
      received by the Secured Parties hereunder shall be deemed by final order of
      a
      court of competent jurisdiction to have been a voidable preference or fraudulent
      conveyance under the bankruptcy or insolvency laws of the United States, or
      shall be deemed to be otherwise due to any party other than the Secured Parties,
      then, in any such event, each Debtor’s obligations hereunder shall survive
      cancellation of this Agreement, and shall not be discharged or satisfied by
      any
      prior payment thereof and/or cancellation of this Agreement, but shall remain
      a
      valid and binding obligation enforceable in accordance with the terms and
      provisions hereof. Each Debtor waives all right to require the Secured Parties
      to proceed against any other person or entity
      or
to
      apply
      any Collateral which the Secured Parties may hold at any time, or to marshal
      assets, or to pursue any other remedy. Each Debtor waives any defense arising
      by
      reason of the application of the statute of limitations to any obligation
      secured hereby.

     

    14.
       Term
      of Agreement.
      This
      Agreement and the Security Interests shall terminate on the date on which all
      payments under the Debentures and OID Notes have been indefeasibly paid in
      full
      and all other Obligations have been paid or discharged; provided,
      however,
      that
      all indemnities of the Debtors contained in this Agreement (including, without
      limitation, Annex B hereto) shall survive and remain operative and in full
      force
      and effect regardless of the termination of this Agreement.

    

    15.
       Power
      of Attorney; Further Assurances.

    

    (a)
       Each
      Debtor authorizes the Agent, and does hereby make, constitute and appoint the
      Agent and its officers, agents, successors or assigns with full power of
      substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in
      the name of the Agent or such Debtor, to, after the occurrence and during the
      continuance of an Event of Default, (i) endorse any note, checks, drafts, money
      orders or other instruments of payment (including payments payable under or
      in
      respect of any policy of insurance) in respect of the Collateral that may come
      into possession of the Agent; (ii) to sign and endorse any financing statement
      pursuant to the UCC or any invoice, freight or express bill, bill of lading,
      storage or warehouse receipts, drafts against debtors, assignments,
      verifications and notices in connection with accounts, and other documents
      relating to the Collateral; (iii) to pay or discharge taxes, liens, security
      interests or other encumbrances at any time levied or placed on or threatened
      against the Collateral; (iv) to demand, collect, receipt for, compromise, settle
      and sue for monies due in respect of the Collateral; (v) to transfer any
      Intellectual Property or provide licenses respecting any Intellectual Property;
      and (vi) generally, at the option of the Agent, and at the expense of the
      Debtors, at any time, or from time to time, to execute and deliver any and
      all
      documents and instruments and to do all acts and things which the Agent deems
      necessary to protect, preserve and realize upon the Collateral and the Security
      Interests granted therein in order to effect the intent of this Agreement and
      the Debentures and OID Notes all as fully and effectually as the Debtors might
      or could do; and each Debtor hereby ratifies all that said attorney shall
      lawfully do or cause to be done by virtue hereof. This power of attorney is
      coupled with an interest and shall be irrevocable for the term of this Agreement
      and thereafter as long as any of the Obligations shall be outstanding.
The
      designation set forth herein shall be deemed to amend and supersede any
      inconsistent provision in the Organizational Documents or other documents or
      agreements to which any Debtor is subject or to which any Debtor is a party.
      Without
      limiting the generality of the foregoing, after the occurrence and during the
      continuance of an Event of Default, each Secured Party is specifically
      authorized to execute and file any applications for or instruments of transfer
      and assignment of any patents, trademarks, copyrights or other Intellectual
      Property with the United States Patent and Trademark Office and the United
      States Copyright Office.

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    (b)
       On
      a
      continuing basis, each Debtor will make, execute, acknowledge, deliver, file
      and
      record, as the case may be, with the proper filing and recording agencies in
      any
      jurisdiction, including, without limitation, the jurisdictions indicated on
      Schedule
      C
      attached
      hereto, all such instruments, and take all such action as may reasonably be
      deemed necessary or advisable, or as reasonably requested by the Agent, to
      perfect the Security Interests granted hereunder and otherwise to carry out
      the
      intent and purposes of this Agreement, or for assuring and confirming to the
      Agent the grant or perfection of a perfected security interest in all the
      Collateral under the UCC.

    

    (c)
       Each
      Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact,
      with full authority in the place and instead of such Debtor and in the name
      of
      such Debtor, from time to time in the Agent’s discretion, to take any action and
      to execute any instrument which the Agent may deem necessary or advisable to
      accomplish the purposes of this Agreement, including the filing, in its sole
      discretion, of one or more financing or continuation statements and amendments
      thereto, relative to any of the Collateral without the signature of such Debtor
      where permitted by law, which financing statements may (but need not) describe
      the Collateral as “all assets” or “all personal property” or words of like
      import, and ratifies all such actions taken by the Agent. This power of attorney
      is coupled with an interest and shall be irrevocable for the term of this
      Agreement and thereafter as long as any of the Obligations shall be
      outstanding.

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

    16.  Notices.
      All
      notices, requests, demands and other communications hereunder shall be subject
      to the notice provision of each Purchase Agreement (as such term is defined
      in
      the Debentures and OID Notes).

    

    17.  Other
      Security.
      To the
      extent that the Obligations are now or hereafter secured by property other
      than
      the Collateral or by the guarantee, endorsement or property of any other person,
      firm, corporation or other entity, then the Agent shall have the right, in
      its
      sole discretion, to pursue, relinquish, subordinate, modify or take any other
      action with respect thereto, without in any way modifying or affecting any
      of
      the Secured Parties’ rights and remedies hereunder.

    

    18.  Appointment
      of Agent.
      The
      Secured Parties hereby appoint Bushido Capital Master Fund L.P. to act as their
      agent (“Bushido”
or
      “Agent”)
      for
      purposes of exercising any and all rights and remedies of the Secured Parties
      hereunder. Such appointment shall continue until revoked in writing by a
Majority
      in Interest, at which time a Majority in Interest
      shall
      appoint a new Agent, provided that Bushido may not be removed as Agent unless
      Bushido shall then hold less than $10,000 in principal amount of
      Debentures.
      The
      Agent
      shall have the rights, responsibilities and immunities set forth in Annex
      B
      hereto.

     

    19.  Miscellaneous.

    

    (a)
       No
      course
      of dealing between the Debtors and the Secured Parties, nor any failure to
      exercise, nor any delay in exercising, on the part of the Secured Parties,
      any
      right, power or privilege hereunder or under the Debentures or OID Notes shall
      operate as a waiver thereof; nor shall any single or partial exercise of any
      right, power or privilege hereunder or thereunder preclude any other or further
      exercise thereof or the exercise of any other right, power or
      privilege.

    

    (b)
       All
      of
      the rights and remedies of the Secured Parties with respect to the Collateral,
      whether established hereby or by the Debentures or OID Notes or by any other
      agreements, instruments or documents or by law shall be cumulative and may
      be
      exercised singly or concurrently.

    

    (c)
       This
      Agreement,
      together with the exhibits and schedules hereto, contain the entire
      understanding of the parties with respect to the subject matter hereof and
      supersede all prior agreements and understandings, oral or written, with respect
      to such matters, which the parties acknowledge have been merged into this
      Agreement and the exhibits and schedules hereto.
      No
      provision of this Agreement may be waived, modified, supplemented or amended
      except in a written instrument signed, in the case of an amendment, by the
      Debtors and the Agent or, in the case of a waiver, by the party against whom
      enforcement of any such waived provision is sought. Additional Secured Parties
      (“Additional
      Secured Parties”)
      may be
      added as parties to this Agreement with the written consent of the Agent and
      the
      Company. Each
      Additional Secured Party shall comply with the provisions hereof applicable
      to
      the Secured Parties. An Additional Secured Party shall have the same rights
      and
      obligations as the Secured Parties, for all purposes hereof as fully and to
      the
      same extent as if it were an original signatory hereto and shall be deemed
      to
      have made the representations, warranties and covenants set forth herein, and
      all references herein to the “Secured Parties” shall be deemed to include each
      Additional Secured Party.

    

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    

    (d)
       If
      any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their commercially reasonable
      efforts to find and employ an alternative means to achieve the same or
      substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

    

    (e)
       No
      waiver
      of any default with respect to any provision, condition or requirement of this
      Agreement shall be deemed to be a continuing waiver in the future or a waiver
      of
      any subsequent default or a waiver of any other provision, condition or
      requirement hereof, nor shall any delay or omission of any party to exercise
      any
      right hereunder in any manner impair the exercise of any such
      right.

    

    (f)
       This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. The Company and the Guarantors may
      not
      assign this Agreement or any rights or obligations hereunder without the prior
      written consent of each Secured Party (other than by merger). Any Secured Party
      may assign any or all of its rights under this Agreement to any Person to whom
      such Secured Party assigns or transfers any Securities, provided such transferee
      agrees in writing to be bound, with respect to the transferred Securities,
      by
      the provisions of this Agreement that apply to the “Secured
      Parties.”

    

    (g)
       Each
      party shall take such further action and execute and deliver such further
      documents as may be necessary or appropriate in order to carry out the
      provisions and purposes of this Agreement.

    

    (h)
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by and construed and enforced in accordance
      with the internal laws of the State of New York, without regard to the
      principles of conflicts of law thereof. Each Debtor agrees that all proceedings
      concerning the interpretations, enforcement and defense of the transactions
      contemplated by this Agreement and the Debentures and OID Notes (whether brought
      against a party hereto or its respective affiliates, directors, officers,
      shareholders, partners, members, employees or agents) shall be commenced
      exclusively in the state and federal courts sitting in the City of New York,
      Borough of Manhattan. Each Debtor hereby irrevocably submits to the exclusive
      jurisdiction of the state and federal courts sitting in the City of New York,
      Borough of Manhattan for the adjudication of any dispute hereunder or in
      connection herewith or with any transaction contemplated hereby or discussed
      herein, and hereby irrevocably waives, and agrees not to assert in any
      proceeding, any claim that it is not personally subject to the jurisdiction
      of
      any such court, that such proceeding is improper. Each party hereto hereby
      irrevocably waives personal service of process and consents to process being
      served in any such proceeding by mailing a copy thereof via registered or
      certified mail or overnight delivery (with evidence of delivery) to such party
      at the address in effect for notices to it under this Agreement and agrees
      that
      such service shall constitute good and sufficient service of process and notice
      thereof. Nothing contained herein shall be deemed to limit in any way any right
      to serve process in any manner permitted by law. 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 Agreement or the transactions contemplated hereby. If any party shall
      commence a proceeding to enforce any provisions of this Agreement, then the
      prevailing party in such proceeding shall be reimbursed by the other party
      for
      its reasonable attorney’s fees and other costs and expenses incurred with the
      investigation, preparation and prosecution of such proceeding.

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

     

    (i)
       This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed shall be deemed to be an original and, all of which taken together
      shall constitute one and the same Agreement. In the event that any signature
      is
      delivered by facsimile transmission, such signature shall create a valid binding
      obligation of the party executing (or on whose behalf such signature is
      executed) the same with the same force and effect as if such facsimile signature
      were the original thereof.

    

    (j) All
      Debtors shall jointly and severally be liable for the obligations of each Debtor
      to the Secured Parties hereunder.

    

    (k) Each
      Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured
      Parties and their respective partners, members, shareholders, officers,
      directors, employees and agents (and any other persons with other titles that
      have similar functions) (collectively, “Indemnitees”)
      from
      and against any and all losses, claims, liabilities, damages, penalties, suits,
      costs and expenses, of any kind or nature, (including fees relating to the
      cost
      of investigating and defending any of the foregoing) imposed on, incurred by
      or
      asserted against such Indemnitee in any way related to or arising from or
      alleged to arise from this Agreement or the Collateral, except any such losses,
      claims, liabilities, damages, penalties, suits, costs and expenses which result
      from the gross negligence or willful misconduct of the Indemnitee as determined
      by a final, nonappealable decision of a court of competent jurisdiction. This
      indemnification provision is in addition to, and not in limitation of, any
      other
      indemnification provision in the Debentures, OID Notes and each Purchase
      Agreement (as such term is defined in the Debentures and OID Notes) or any
      other
      agreement, instrument or other document executed or delivered in connection
      herewith or therewith.

    

    (l) Nothing
      in this Agreement shall be construed to subject Agent or any Secured Party
      to
      liability as a partner in any Debtor or any if its direct or indirect
      subsidiaries that is a partnership or as a member in any Debtor or any of its
      direct or indirect subsidiaries that is a limited liability company, nor shall
      Agent or any Secured Party be deemed to have assumed any obligations under
      any
      partnership agreement or limited liability company agreement, as applicable,
      of
      any such Debtor or any if its direct or indirect subsidiaries or otherwise,
      unless and until any such Secured Party exercises its right to be substituted
      for such Debtor as a partner or member, as applicable, pursuant
      hereto.

    

    (m)
       To
      the
      extent that the grant of the security interest in the Collateral and the
      enforcement of the terms hereof require the consent, approval or action of
      any
      partner or member, as applicable, of any Debtor or any direct or indirect
      subsidiary of any Debtor or compliance with any provisions of any of the
      Organizational Documents, the Debtors hereby grant such consent and approval
      and
      waive any such noncompliance with the terms of said documents.

    

    [SIGNATURE
      PAGES FOLLOW]

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Amended and Restated
      Security
      Agreement to be duly executed on the day and year first above
      written.

     

    
      	
              CYBERDEFENDER
                CORPORATION

            
	 
	
              By:

            	                    
              
	 	
              Name:
                

            	
              Gary
                Guseinov

            
	 	
              Title:
                

            	
              Chief
                Executive Officer

            

    

     

    [SIGNATURE
      PAGE OF HOLDERS FOLLOWS]

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    [SIGNATURE
      PAGE OF HOLDERS TO CYBER AMENDED AND RESTATED SA]

     

    Name
      of
      Investing Entity: __________________________

     

    Signature
      of Authorized Signatory of Investing entity:
      _________________________

     

    Name
      of
      Authorized Signatory: _________________________

     

    Title
      of
      Authorized Signatory: __________________________

     

    [SIGNATURE
      PAGE OF HOLDERS FOLLOWS]

    

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

    

     

    SCHEDULE
      A

     

    Principal
      Place of Business of Debtors:

    

    Locations
      Where Collateral is Located or Stored:

    

    SCHEDULE
      B

    
 

    SCHEDULE
      C

    
 

    SCHEDULE
      D

    Legal
      Names and Organizational Identification Numbers

    
 

    SCHEDULE
      E

    Names;
      Mergers and Acquisitions

    
 

    SCHEDULE
      F

    Intellectual
      Property

    
 

    SCHEDULE
      G

    Account
      Debtors

    
 

    SCHEDULE
      H

    Pledged
      Securities

    

      
        
          
          

          
          

        

        
          25

          
            

          

        

        
          
          

          
          

        

      

    

     

    ANNEX
      A

    to

    AMENDED
      AND RESTATED SECURITY AGREEMENT

    

    FORM
      OF ADDITIONAL DEBTOR JOINDER

    

    Amended
      and Restated Security Agreement dated as of March ___, 2007 made by

    CyberDefender
      Corporation

    and
      its
      subsidiaries party thereto from time to time, as Debtors

    to
      and in
      favor of

    the
      Secured Parties identified therein (the “Security
      Agreement”)

    

    Reference
      is made to the Security Agreement as defined above; capitalized terms used
      herein and not otherwise defined herein shall have the meanings given to such
      terms in, or by reference in, the Security Agreement.

    

    The
      undersigned hereby agrees that upon delivery of this Additional Debtor Joinder
      to the Secured Parties referred to above, the undersigned shall (a) be an
      Additional Debtor under the Security Agreement, (b) have all the rights and
      obligations of the Debtors under the Security Agreement as fully and to the
      same
      extent as if the undersigned was an original signatory thereto and (c) be deemed
      to have made the representations and warranties set forth in Section 4 therein
      as of the date of execution and delivery of this Additional Debtor Joinder.
      WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY
      GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE
      FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE
      WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

    

    Attached
      hereto are supplemental and/or replacement Schedules to the Security Agreement,
      as applicable.

    

    An
      executed copy of this Joinder shall be delivered to the Secured Parties, and
      the
      Secured Parties may rely on the matters set forth herein on or after the date
      hereof. This Joinder shall not be modified, amended or terminated without the
      prior written consent of the Secured Parties.

     

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    IN
      WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in
      the
      name and on behalf of the undersigned.

    

    
      	 	
              [Name
                of Additional Debtor]

            
	 	 	 
	 	
              By:

            	 
	 	
              Name:

            	 
	 	
              Title:

            	 
	 	 	 
	 	
              Address:

            	 

    

    

    Dated:   

    

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    [ANNEX
      B

    to

    AMENDED
      AND RESTATED SECURITY AGREEMENT

    

    THE
      AGENT

    

    1.
      Appointment. The
      Secured Parties (all capitalized terms used herein and not otherwise defined
      shall have the respective meanings provided in the Security Agreement to which
      this Annex B is attached (the "Agreement")),
      by
      their acceptance of the benefits of the Agreement, hereby designate Bushido
      Capital Master Fund L.P. (“Bushido”
or
      “Agent”)
      as the
      Agent to act as specified herein and in the Agreement. Each Secured Party shall
      be deemed irrevocably to authorize the Agent to take such action on its behalf
      under the provisions of the Agreement and any other Transaction Document (as
      such term is defined in the Debentures and OID Notes) and to exercise such
      powers and to perform such duties hereunder and thereunder as are specifically
      delegated to or required of the Agent by the terms hereof and thereof and such
      other powers as are reasonably incidental thereto. The Agent may perform any
      of
      its duties hereunder by or through its agents or employees.

    

    2.
      Nature
      of Duties.
      The
      Agent shall have no duties or responsibilities except those expressly set forth
      in the Agreement. Neither the Agent nor any of its partners, members,
      shareholders, officers, directors, employees or agents shall be liable for
      any
      action taken or omitted by it as such under the Agreement or hereunder or in
      connection herewith or therewith, be responsible for the consequence of any
      oversight or error of judgment or answerable for any loss, unless caused solely
      by its or their gross negligence or willful misconduct as determined by a final
      judgment (not subject to further appeal) of a court of competent jurisdiction.
      The duties of the Agent shall be mechanical and administrative in nature; the
      Agent shall not have by reason of the Agreement or any other Transaction
      Document a fiduciary relationship in respect of any Debtor or any Secured Party;
      and nothing in the Agreement or any other Transaction Document, expressed or
      implied, is intended to or shall be so construed as to impose upon the Agent
      any
      obligations in respect of the Agreement or any other Transaction Document except
      as expressly set forth herein and therein.

    

    3.
      Lack
      of Reliance on the Agent.
      Independently and without reliance upon the Agent, each Secured Party, to the
      extent it deems appropriate, has made and shall continue to make (i) its own
      independent investigation of the financial condition and affairs of the Company
      and its subsidiaries in connection with such Secured Party’s investment in the
      Debtors, the creation and continuance of the Obligations, the transactions
      contemplated by the Transaction Documents, and the taking or not taking of
      any
      action in connection therewith, and (ii) its own appraisal of the
      creditworthiness of the Company and its subsidiaries, and of the value of the
      Collateral from time to time, and the Agent shall have no duty or
      responsibility, either initially or on a continuing basis, to provide any
      Secured Party with any credit, market or other information with respect thereto,
      whether coming into its possession before any Obligations are incurred or at
      any
      time or times thereafter. The Agent shall not be responsible to the Debtors
      or
      any Secured Party for any recitals, statements, information, representations
      or
      warranties herein or in any document, certificate or other writing delivered
      in
      connection herewith, or for the execution, effectiveness, genuineness, validity,
      enforceability, perfection, collectibility, priority or sufficiency of the
      Agreement or any other Transaction Document, or for the financial condition
      of
      the Debtors or the value of any of the Collateral, or be required to make any
      inquiry concerning either the performance or observance of any of the terms,
      provisions or conditions of the Agreement or any other Transaction Document,
      or
      the financial condition of the Debtors, or the value of any of the Collateral,
      or the existence or possible existence of any default or Event of Default under
      the Agreement, the Debentures, the OID Notes or any of the other Transaction
      Documents.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    4.
      Certain
      Rights of the Agent.
      The
      Agent shall have the right to take any action with respect to the Collateral,
      on
      behalf of all of the Secured Parties. To the extent practical, the Agent shall
      request instructions from the Secured Parties with respect to any material
      act
      or action (including failure to act) in connection with the Agreement or any
      other Transaction Document, and shall be entitled to act or refrain from acting
      in accordance with the instructions of Secured Parties holding a majority in
      principal amount of Debentures and OID Notes (based on then-outstanding
      principal amounts of Debentures and OID Notes at the time of any such
      determination); if such instructions are not provided despite the Agent’s
      request therefor, the Agent shall be entitled to refrain from such act or taking
      such action, and if such action is taken, shall be entitled to appropriate
      indemnification from the Secured Parties in respect of actions to be taken
      by
      the Agent; and the Agent shall not incur liability to any person or entity
      by
      reason of so refraining. Without limiting the foregoing, (a) no Secured Party
      shall have any right of action whatsoever against the Agent as a result of
      the
      Agent acting or refraining from acting hereunder in accordance with the terms
      of
      the Agreement or any other Transaction Document, and the Debtors shall have
      no
      right to question or challenge the authority of, or the instructions given
      to,
      the Agent pursuant to the foregoing and (b) the Agent shall not be required
      to
      take any action which the Agent believes (i) could reasonably be expected to
      expose it to personal liability or (ii) is contrary to this Agreement, the
      Transaction Documents or applicable law.

    

    5.
      Reliance.
      The
      Agent shall be entitled to rely, and shall be fully protected in relying, upon
      any writing, resolution, notice, statement, certificate, telex, teletype or
      telecopier message, cablegram, radiogram, order or other document or telephone
      message signed, sent or made by the proper person or entity, and, with respect
      to all legal matters pertaining to the Agreement and the other Transaction
      Documents and its duties thereunder, upon advice of counsel selected by it
      and
      upon all other matters pertaining to this Agreement and the other Transaction
      Documents and its duties thereunder, upon advice of other experts selected
      by
      it. Anything to the contrary notwithstanding, the Agent shall have no obligation
      whatsoever to any Secured Party to assure that the Collateral exists or is
      owned
      by the Debtors or is cared for, protected or insured or that the liens granted
      pursuant to the Agreement have been properly or sufficiently or lawfully
      created, perfected, or enforced or are entitled to any particular priority.
      Additionally, in determining whether to agree to an amendment to any Transaction
      Document, waive any rights thereunder or add Secured Parties, such determination
      shall be in the Agents sole discretion and the Agent shall have no fiduciary
      duty or liability to the other Secured Parties in making such
      determinations.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    6.
      Indemnification.
      To the
      extent that the Agent is not reimbursed and indemnified by the Debtors, the
      Secured Parties will jointly and severally reimburse and indemnify the Agent,
      in
      proportion to their initially purchased respective principal amounts of
      Debentures and OID Notes, from and against any and all liabilities, obligations,
      losses, damages, penalties, actions, judgments, suits, costs, expenses or
      disbursements of any kind or nature whatsoever which may be imposed on, incurred
      by or asserted against the Agent in performing its duties hereunder or under
      the
      Agreement or any other Transaction Document, or in any way relating to or
      arising out of the Agreement or any other Transaction Document except for those
      determined by a final judgment (not subject to further appeal) of a court of
      competent jurisdiction to have resulted solely from the Agent's own gross
      negligence or willful misconduct. Prior to taking any action hereunder as Agent,
      the Agent may require each Secured Party to deposit with it sufficient sums
      as
      it determines in good faith is necessary to protect the Agent for costs and
      expenses associated with taking such action.

    

    7.
      Resignation
      by the Agent. 

     

    (a)
      The
      Agent may resign from the performance of all its functions and duties under
      the
      Agreement and the other Transaction Documents at any time by giving 30 days'
      prior written notice (as provided in the Agreement) to the Debtors and the
      Secured Parties. Such resignation shall take effect upon the appointment of
      a
      successor Agent pursuant to clauses (b) and (c) below.

    

    (b)
      Upon
      any such notice of resignation, the Secured Parties, acting by a Majority
      in Interest,
      shall
      appoint a successor Agent hereunder.

    

    (c)
      If a
      successor Agent shall not have been so appointed within said 30-day period,
      the
      Agent shall then appoint a successor Agent who shall serve as Agent until such
      time, if any, as the Secured Parties appoint a successor Agent as provided
      above. If a successor Agent has not been appointed within such 30-day period,
      the Agent may petition any court of competent jurisdiction or may interplead
      the
      Debtors and the Secured Parties in a proceeding for the appointment of a
      successor Agent, and all fees, including, but not limited to, extraordinary
      fees
      associated with the filing of interpleader and expenses associated therewith,
      shall be payable by the Debtors on demand.

    

    8.
      Rights
      with respect to Collateral.
      Each
      Secured Party agrees with all other Secured Parties and the Agent (i) that
      it
      shall not, and shall not attempt to, exercise any rights with respect to its
      security interest in the Collateral, whether pursuant to any other agreement
      or
      otherwise (other than pursuant to this Agreement), or take or institute any
      action against the Agent or any of the other Secured Parties in respect of
      the
      Collateral or its rights hereunder (other than any such action arising from
      the
      breach of this Agreement) and (ii) that such Secured Party has no other rights
      with respect to the Collateral other than as set forth in this Agreement and
      the
      other Transaction Documents. Upon the acceptance of any appointment as Agent
      hereunder by a successor Agent, such successor Agent shall thereupon succeed
      to
      and become vested with all the rights, powers, privileges and duties of the
      retiring Agent and the retiring Agent shall be discharged from its duties and
      obligations under the Agreement.  After any retiring Agent’s resignation or
      removal hereunder as Agent, the provisions of the Agreement including this
      Annex
      B shall inure to its benefit as to any actions taken or omitted to be taken
      by
      it while it was Agent.Exhibit
      10.39

     

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of March __, 2007 among CyberDefender Corporation, a California
      corporation (the “Company”),
      and
      each purchaser identified on the signature pages hereto (each, including its
      successors and assigns, a “Purchaser”
and
      collectively the “Purchasers”).

     

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

     

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

     

    ARTICLE
      I.

    DEFINITIONS

     

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

     

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

     

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

     

    “Agent”
shall
      have the meaning ascribed to such term in the Security Agreement.

     

    “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
      and, upon the Company becoming listed or quoted on a Trading Market, except
      any
      day that the Common Stock is not traded on the Trading Market.

     

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

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

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

     

    “Commission”
means
      the Securities and Exchange Commission.

     

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

     

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

     

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

     

    “Effective
      Date”
means
      the date that the initial Registration Statement filed by the Company pursuant
      to the Registration Rights Agreement is first declared effective by the
      Commission.

     

    “Earlier
      Debentures”
means
      the 10% Senior Secured Convertible Debentures due, September 12, 2009 in the
      aggregate principal amount of $3,243,378, issued by the Company.

     

    “Escrow
      Agent”
means
      Richardson & Patel, LLP, having an escrow account as set forth on
Annex
      A
      attached
      hereto.

     

    “Escrow
      Agreement”
means
      the Escrow Agreement by and among the Company, the Purchasers and the Escrow
      Agent, in the form of Exhibit
      D
      attached
      hereto.

     

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

    

    “Exempt
      Issuance”
means
      the issuance of (a) shares of Common Stock or options to employees, officers,
      directors or consultants of the Company pursuant to any stock or option plan
      duly adopted by a majority of the members of the Board of Directors of the
      Company or a committee of non-directors established for such purpose (provided
      that any such issuance(s) to consultants shall not exceed an aggregate of
      100,000 shares (adjusted for reverse and forward stock splits, recapitalizations
      and the like) of Common Stock or Common Stock Equivalents in any 12-month
      period), (b) securities upon the exercise or exchange of any Securities issued
      hereunder and/or other securities exercisable or exchangeable for or convertible
      into shares of Common Stock issued and outstanding on the date of this
      Agreement, provided that such securities have not been amended since the date
      of
      this Agreement to increase the number of such securities or to decrease the
      exercise, exchange or conversion price of any such securities or (c) securities
      issued pursuant to acquisitions or strategic transactions approved by a majority
      of the disinterested directors, provided any such issuance shall only be to
      a
      Person which is, itself or through its subsidiaries, an operating company in
      a
      business synergistic with the business of the Company and in which the Company
      receives benefits in addition to the investment of funds, but shall not include
      a transaction in which the Company is issuing securities primarily for the
      purpose of raising capital or to an entity whose primary business is investing
      in securities, or (d) up to an amount of Notes and Warrants equal to the
      difference between $800,000 and the aggregate Subscription Amounts hereunder,
      on
      substantially the same terms and conditions hereunder, provided that investors
      shall execute definitive agreements for the purchase of such securities and
      such
      transactions shall have closed on or before the date the Registration Statement
      is initially filed with the Commission.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Notes”
means
      the 7.41% Senior Secured Notes due, subject to the terms therein, 12 months
      from
      the date of this Agreement, issued by the Company to the Purchasers hereunder,
      in the form of Exhibit
      A.

     

    “Participation
      Maximum”
shall
      have the meaning ascribed to such term in Section 4.7. 

     

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

     

    “Pre-Notice”
shall
      have the meaning ascribed to such term in Section 4.7. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

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

     

    “Purchaser
      Party”
shall
      have the meaning ascribed to such term in Section 4.11.

     

    “Registration
      Rights Agreement”
means
      the Registration Rights Agreement, dated the date hereof, among the Company
      and
      the Purchasers, in the form of Exhibit
      B
      attached
      hereto.

     

    “Registration
      Statement”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement and covering the resale of the Underlying Shares by each
      Purchaser as provided for in the Registration Rights Agreement.

     

    “Required
      Approvals”
shall
      have the meaning ascribed to such term in Section 3.1(e).

     

    “Required
      Minimum”
means,
      as of any date, the maximum aggregate number of shares of Common Stock then
      issued or potentially issuable in the future pursuant to the Transaction
      Documents, including any Underlying Shares, ignoring any exercise limits in
      the
      Warrants.

     

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

     

    “Securities”
means
      the Notes, the Warrants, the Warrant Shares and the Underlying
      Shares.

     

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

     

    “Security
      Agreement”
means
      the Amended and Restated Security Agreement, dated the date hereof, among the
      Company, the holders of the Earlier Debentures and the Purchasers, in the form
      of Exhibit
      E
      attached
      hereto.

    

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

     

    “Short
      Sales”
shall
      include all “short sales” as defined in Rule 200 of Regulation SHO under the
      Exchange Act (but shall not be deemed to include the location and/or reservation
      of borrowable shares of Common Stock). 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

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

     

    “Subsequent
      Financing”
shall
      have the meaning ascribed to such term in Section 4.7.

     

    “Subsequent
      Financing Notice”
shall
      have the meaning ascribed to such term in Section 4.7. 

     

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

     

    “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”
means
      this Agreement, the Notes, the Warrants, the Registration Rights Agreement,
      the
      Security Agreement and any other documents or agreements executed in connection
      with the transactions contemplated hereunder.

     

    Transfer
      Agent”
means
      Continental Stock Transfer & Trust Company, with a mailing address of 17
      Battery Place, New York, NY 10004 and a facsimile number of (212) 616-7616,
      and
      any successor transfer agent of the Company.

     

    “Underlying
      Shares”
means
      the shares of Common Stock issued and issuable upon exercise of the Warrants.
      

     

    “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 as reported by Bloomberg L.P. (based on a Business 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 listed or quoted 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, the fees and expenses of which shall be paid by the
      Company.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    “Warrants”
means
      collectively the Common Stock purchase warrants, in the form of Exhibit C
      delivered to the Purchasers at the Closing in accordance with Section 2.2(a)
      hereof, which Warrants shall be exercisable immediately and have a term of
      exercise equal to five and one half years, in the form of Exhibit
      C
      attached
      hereto.

     

    “Warrant
      Shares”
means
      the shares of Common Stock issuable upon exercise of the Warrants.

     

     

    ARTICLE
      II.

    PURCHASE
      AND SALE

     

    2.1  Closing.
      On the
      Closing Date, upon the terms and subject to the conditions set forth herein
      and
      substantially concurrent with the execution and delivery of this Agreement
      by
      the parties hereto, the Company agrees to sell, and each Purchaser agrees to
      purchase in the aggregate, severally and not jointly, up to $864,000 in
      principal amount of the Notes, for a purchase price of up to $800,000. Each
      Purchaser shall deliver to the Company immediately available funds via wire
      transfer or a certified check equal to its Subscription Amount, the Company
      shall deliver to each Purchaser their respective Debenture and a Warrant as
      determined pursuant to Section 2.2(a), and the Company, and each Purchaser
      shall
      deliver the other items set forth in Section 2.2 deliverable at the Closing.
      Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the
      Closing shall occur at the offices of the Escrow Agent or such other location
      as
      the parties shall mutually agree.

     

    2.2  Deliveries

     

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

     

    (i)    this
      Agreement duly executed by the Company;

     

    (ii)   a
      Debenture with a principal amount equal to such Purchaser’s Subscription Amount,
      registered in the name of such Purchaser;

     

    (iii)         
      a
      Warrant
      registered in the name of such Purchaser to purchase up to a number of shares
      of
      Common Stock equal to 50% of such Purchaser’s Subscription Amount divided by
      $1.00, with an exercise price equal to $1.20,
      subject
      to adjustment therein;

     

    (iv)    the
      Security Agreement, duly executed by the Company; 

     

    (v)    
the
      Escrow Agreement duly executed by the Company; and

     

    (vi)    the
      Registration Rights Agreement duly executed by the Company.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

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

     

    (i)       
      this
      Agreement duly executed by such Purchaser;

     

    (ii)  such
      Purchaser’s Subscription Amount by wire transfer to the Company;

     

    (iii)  the
      Security Agreement duly executed by such Purchaser; 

     

    (iv)  the
      Escrow Agreement duly executed by such Purchaser; and 

     

    (v)  the
      Registration Rights Agreement duly executed by such Purchaser.

     

    2.3  Closing
      Conditions. 

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    (iv)  there
      shall have been no Material Adverse Effect with respect to the Company since
      the
      date hereof; and

     

    (v)  from
      the
      date hereof to the Closing Date, a banking moratorium shall not have been
      declared either by the United States or New York State authorities nor shall
      there have occurred any material outbreak or escalation of hostilities or other
      national or international calamity of such magnitude in its effect on, or any
      material adverse change in, any financial market which, in each case, in the
      reasonable judgment of each Purchaser, makes it impracticable or inadvisable
      to
      purchase the Notes at the Closing.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      III.

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1  Representations
      and Warranties of the Company.
      Except
      as set forth under the corresponding section of the disclosure schedules
      delivered to the Purchasers concurrently herewith (the “Disclosure
      Schedules”),
      which
      Disclosure Schedules shall be deemed a part hereof and to qualify any
      representation or warranty otherwise made herein to the extent of such
      disclosure, the Company hereby makes the following representations and
      warranties set forth below to each Purchaser.

     

    (a)  Subsidiaries.
      All of
      the direct and indirect subsidiaries of the Company are set forth on
Schedule
      3.1(a).
      The
      Company owns, directly or indirectly, all of the capital stock or other equity
      interests of each Subsidiary free and clear of any Liens, and all of the issued
      and outstanding shares of capital stock of each Subsidiary are validly issued
      and are fully paid, non-assessable and free of preemptive and similar rights
      to
      subscribe for or purchase securities. If the Company has no subsidiaries, then
      all other references in the Transaction Documents to the Subsidiaries or any
      of
      them in the Transaction Documents shall be disregarded.

     

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

     

    (c)  Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and to
      consummate the transactions contemplated by each of the Transaction Documents
      and otherwise to carry out its obligations hereunder and thereunder. The
      execution and delivery of each of the Transaction Documents by the Company
      and
      the consummation by it of the transactions contemplated hereby thereby have
      been
      duly authorized by all necessary action on the part of the Company and no
      further action is required by the Company, its board of directors or its
      stockholders in connection therewith other than in connection with the Required
      Approvals. Each Transaction Document has been (or upon delivery will have been)
      duly executed by the Company and, when delivered in accordance with the terms
      hereof and thereof, will constitute the valid and binding obligation of the
      Company enforceable against the Company in accordance with its terms except
      (i)
      as limited by general equitable principles and applicable bankruptcy,
      insolvency, reorganization, moratorium and other laws of general application
      affecting enforcement of creditors’ rights generally, (ii) as limited by laws
      relating to the availability of specific performance, injunctive relief or
      other
      equitable remedies and (iii) insofar as indemnification and contribution
      provisions may be limited by applicable law.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (f)  Issuance
      of the Securities.
      The
      Securities are duly authorized and, when issued and paid for in accordance
      with
      the applicable Transaction Documents, will be duly and validly issued, fully
      paid and nonassessable, free and clear of all Liens imposed by the Company
      other
      than restrictions on transfer provided for in the Transaction Documents. The
      Underlying Shares, when issued in accordance with the terms of the Transaction
      Documents, will be validly issued, fully paid and nonassessable, free and clear
      of all Liens imposed by the Company. The Company has reserved from its duly
      authorized capital stock a number of shares of Common Stock for issuance of
      the
      Underlying Shares at least equal to the Required Minimum on the date hereof.
      

     

    (g)  Capitalization.
      The
      capitalization of the Company is as set forth on Schedule
      3.1(g).
      No
      Person has any right of first refusal, preemptive right, right of participation,
      or any similar right to participate in the transactions contemplated by the
      Transaction Documents. Except as a result of the purchase and sale of the
      Securities or otherwise as set forth on Schedule
      3.1(g),
      there
      are no outstanding options, warrants, script rights to subscribe to, calls
      or
      commitments of any character whatsoever relating to, or securities, rights
      or
      obligations convertible into or exercisable or exchangeable for, or giving
      any
      Person any right to subscribe for or acquire, any shares of Common Stock, or
      contracts, commitments, understandings or arrangements by which the Company
      or
      any Subsidiary is or may become bound to issue additional shares of Common
      Stock
      or Common Stock Equivalents. The issuance and sale of the Securities will not
      obligate the Company to issue shares of Common Stock or other securities to
      any
      Person (other than the Purchasers) and will not result in a right of any holder
      of Company securities to adjust the exercise, conversion, exchange or reset
      price under any of such securities. All of the outstanding shares of capital
      stock of the Company are validly issued, fully paid and nonassessable, have
      been
      issued in compliance with all federal and state securities laws, and none of
      such outstanding shares was issued in violation of any preemptive rights or
      similar rights to subscribe for or purchase securities. No further approval
      or
      authorization of any stockholder, the Board of Directors of the Company or
      others is required for the issuance and sale of the Securities. There are no
      stockholders agreements, voting agreements or other similar agreements with
      respect to the Company’s capital stock to which the Company is a party or, to
      the knowledge of the Company, between or among any of the Company’s
      stockholders. The Company has at least 40 shareholders of Common Stock of record
      prior to the date hereof. A complete list of stockholders of record, with their
      shareholdings immediately prior to the Closing, is included in Schedule
      3.1(g).

     

    (h)  Financial
      Statements.
      The
      audited financial statements of the Company since the Company’s inception are
      attached hereto on Schedule
      3.1(h).
      Such
      financial statements have been prepared in accordance with United States
      generally accepted accounting principles applied on a consistent basis during
      the periods involved (“GAAP”),
      except as may be otherwise specified in such financial statements or the notes
      thereto and except that unaudited financial statements may not contain all
      footnotes required by GAAP, and fairly present in all material respects the
      financial position of the Company and its consolidated Subsidiaries as of and
      for the dates thereof and the results of operations and cash flows for the
      periods then ended, subject, in the case of unaudited statements, to normal,
      immaterial, year-end audit adjustments.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

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

     

    (j)  Litigation.
      Except
      as set forth on Schedule
      3.1(j),
      there
      is no action, suit, inquiry, notice of violation, proceeding or investigation
      pending or, to the knowledge of the Company, threatened against or affecting
      the
      Company, any Subsidiary or any of their respective properties before or by
      any
      court, arbitrator, governmental or administrative agency or regulatory authority
      (federal, state, county, local or foreign) (collectively, an “Action”)
      which
      (i) adversely affects or challenges the legality, validity or enforceability
      of
      any of the Transaction Documents or the Securities or (ii) could, if there
      were
      an unfavorable decision, have or reasonably be expected to result in a Material
      Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
      officer thereof, is or has been the subject of any Action involving a claim
      of
      violation of or liability under federal or state securities laws or a claim
      of
      breach of fiduciary duty. There has not been, and to the knowledge of the
      Company, there is not pending or contemplated, any investigation by the
      Commission involving the Company or any current or former director or officer
      of
      the Company. 

     

    (k)  Labor
      Relations.
      No
      material labor dispute exists or, to the knowledge of the Company, is imminent
      with respect to any of the employees of the Company which could reasonably
      be
      expected to result in a Material Adverse Effect. None of the Company’s or its
      Subsidiaries’ employees is a member of a union that relates to such employee’s
      relationship with the Company, and neither the Company or any of its
      Subsidiaries is a party to a collective bargaining agreement, and the Company
      and its Subsidiaries believe that their relationships with their employees
      are
      good. Schedule
      3.1(k)
      sets
      forth: (i) each union with which the Company or any Subsidiary has a collective
      bargaining agreement and the number of employees covered by each such agreement
      as of a recent date, (ii) the current term of each such agreement, (iii) the
      current status of any negotiations to amend, extend or negotiate a new
      collective bargaining agreement, (iv) whether the entity subject to such
      collective bargaining agreement has been subject to any strike or other
      organized work stoppage in the last 5 calendar years, (v) a summary list of
      grievances filed under each agreement in the last 24 months, and (vi) whether
      the entity subject to such collective bargaining agreement is subject to any
      order, decree or is a participant in any ongoing proceeding of the United States
      Department of Labor, National Labor Relations Board or other governmental agency
      respecting such collective bargaining agreement, and if so, the particulars
      thereof. The Company and its Subsidiaries are in compliance with all U.S.
      federal, state, local and foreign laws and regulations relating to employment
      and employment practices, terms and conditions of employment and wages and
      hours, except where the failure to be in compliance could not, individually
      or
      in the aggregate, reasonably be expected to have a Material Adverse Effect.
      Except as set forth on Schedule
      3.1(k),
      the
      Company is not a party to or bound by any currently effective employment
      contract, deferred compensation arrangement, bonus plan, incentive plan, profit
      sharing plan, retirement agreement or other employee compensation plan or
      agreement. To the Company’s knowledge, no employee of the Company, nor any
      consultant with whom the Company has contracted, is in violation of any term
      of
      any employment contract, proprietary information agreement or any other
      agreement relating to the right of any such individual to be employed by, or
      to
      contract with, the Company because of the nature of the business to be conducted
      by the Company; and to the Company’s knowledge the continued employment by the
      Company of its present employees, and the performance of the Company’s contracts
      with its independent contractors, will not result in any such violation. The
      Company has not received any notice alleging that any such violation has
      occurred. No employee of the Company has been granted the right to continued
      employment by the Company or to any material compensation following termination
      of employment with the Company. The Company is not aware that any officer,
      key
      employee or group of employees intends to terminate his, her or their employment
      with the Company nor does the Company have a present intention to terminate
      the
      employment of any officer, key employee or group of employees.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (l)  Compliance.
      Neither
      the Company nor any Subsidiary (i) is in default under or in violation of (and
      no event has occurred that has not been waived that, with notice or lapse of
      time or both, would result in a default by the Company or any Subsidiary under),
      nor has the Company or any Subsidiary received notice of a claim that it is
      in
      default under or that it is in violation of, any indenture, loan or credit
      agreement or any other agreement or instrument to which it is a party or by
      which it or any of its properties is bound (whether or not such default or
      violation has been waived), (ii) is in violation of any order of any court,
      arbitrator or governmental body, or (iii) is or has been in violation of any
      statute, rule or regulation of any governmental authority, including without
      limitation all foreign, federal, state and local laws applicable to its business
      and all such laws that affect the environment, except in each case as could
      not
      have or reasonably be expected to result in a Material Adverse
      Effect.

     

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

     

    (n)  Title
      to Assets.
      The
      Company and the Subsidiaries have good and marketable title in fee simple to
      all
      real property owned by them that is material to the business of the Company
      and
      the Subsidiaries and good and marketable title in all personal property owned
      by
      them that is material to the business of the Company and the Subsidiaries,
      in
      each case free and clear of all Liens, except for Liens as do not materially
      affect the value of such property and do not materially interfere with the
      use
      made and proposed to be made of such property by the Company and the
      Subsidiaries and Liens for the payment of federal, state or other taxes, the
      payment of which is neither delinquent nor subject to penalties. Any real
      property and facilities held under lease by the Company and the Subsidiaries
      are
      held by them under valid, subsisting and enforceable leases with which the
      Company and the Subsidiaries are in compliance.

     

    
      
        
        

      

      
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    (o)  Intellectual
      Property.
      

     

    (i)  Patents
      and Trademarks.
      The
      Company and the Subsidiaries have, or have rights to use, all patents, patent
      applications, trademarks, trademark applications, service marks, trade names,
      trade secrets, inventions, copyrights, licenses and other intellectual property
      rights and similar rights necessary or material for use in connection with
      their
      respective businesses and which the failure to so have could have a Material
      Adverse Effect (collectively, the “Intellectual
      Property Rights”).
      Neither the Company nor any Subsidiary has received a notice (written or
      otherwise) that the Intellectual Property Rights used by the Company or any
      Subsidiary violates or infringes upon the rights of any Person. To the knowledge
      of the Company, all such Intellectual Property Rights are enforceable and there
      is no existing infringement by another Person of any of the Intellectual
      Property Rights. The Company and its Subsidiaries have taken reasonable security
      measures to protect the secrecy, confidentiality and value of all of their
      intellectual properties, except where failure to do so could not, individually
      or in the aggregate, reasonably expect to have a Material Adverse
      Effect.

     

    (ii)  Agreements.
      Neither
      the Company nor its Subsidiaries has paid or received any royalties. Further,
      neither the Company nor its Subsidiaries has any contracts relating to the
      Intellectual Property Rights to which the Company or any Subsidiary is a party
      or by which the Company or any Subsidiary is bound, except for any license
      implied by the sale of a product and perpetual, paid-up licenses for commonly
      available software programs with a value of less than $5,000 under which the
      Company or any Subsidiary is the licensee. 

     

    (iii)  Know-How
      Necessary for the Business.
      The
      Intellectual Property Rights are all those necessary for the operation of the
      Company’s businesses as it is currently conducted or as reflected in the
      executive summary given to the Purchaser. The Company is the owner of all right,
      title, and interest in and to each of the Intellectual Property Rights, free
      and
      clear of all liens, security interests, charges, encumbrances, equities, and
      other adverse claims, and has the right to use without payment to a third party
      all of the Intellectual Property Rights. Neither the Company nor any Subsidiary
      has received a written notice that the Intellectual Property Rights used by
      the
      Company or any Subsidiary violates or infringes upon the rights of any Person.
      Except as set forth in Schedule
      3.1(o),
      all
      former and current employees of the Company have executed written contracts
      with
      the Company that assign to the Company all rights to any inventions,
      improvements, discoveries, or information relating to the business of the
      Company. No employee of the Company has entered into any contract that restricts
      or limits in any way the scope or type of work in which the employee may be
      engaged or requires the employee to transfer, assign, or disclose information
      concerning his work to anyone other than the Company.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (iv)  Trade
      Secrets.
      As used
      herein, “Trade
      Secrets”
means
      all know-how, trade secrets, confidential information, customer lists, software,
      technical information, data, process technology, plans, drawings, and blue
      prints (collectively, “Trade
      Secrets'');
      owned,
      used, or licensed by the Company or any Subsidiary as licensee or licensor.
      With
      respect to each Trade Secret, the documentation relating to such Trade Secret
      is
      current, accurate, and sufficient in detail and content to identify and explain
      it and to allow its full and proper use without reliance on the knowledge or
      memory of any individual. The Company has taken all reasonable precautions
      to
      protect the secrecy, confidentiality, and value of its Trade Secrets. The
      Company has good title and an absolute (but not necessarily exclusive) right
      to
      use the Trade Secrets. The Trade Secrets are not part of the public knowledge
      or
      literature, and, to the Company’s knowledge, have not been used, divulged, or
      appropriated either for the benefit of any Person (other the Company) or to
      the
      detriment of the Company. No Trade Secret is subject to any adverse claim or
      has
      been challenged or threatened in any way.

     

    (p)  Insurance.
      The
      Company and the Subsidiaries are insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are prudent
      and customary in the businesses in which the Company and the Subsidiaries are
      engaged, including, but not limited to, directors and officers insurance
      coverage at least equal to the aggregate Subscription Amount. Neither the
      Company nor any Subsidiary has any reason to believe that it will not be able
      to
      renew its existing insurance coverage as and when such coverage expires or
      to
      obtain similar coverage from similar insurers as may be necessary to continue
      its business without a significant increase in cost.

     

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

     

    
      
        
        

      

      
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    (r)  Internal
      Accounting Controls.
      The
      Company and the Subsidiaries maintain a system of internal accounting controls
      sufficient to provide reasonable assurance that (i) transactions are executed
      in
      accordance with management’s general or specific authorizations, (ii)
      transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP and to maintain asset accountability, (iii)
      access to assets is permitted only in accordance with management’s general or
      specific authorization, and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences.

     

    (s)  Certain
      Fees.
      Except
      as set forth on Schedule
      3.1(s),
      no
      brokerage or finder’s fees or commissions are or will be payable by the Company
      to any broker, financial advisor or consultant, finder, placement agent,
      investment banker, bank or other Person with respect to the transactions
      contemplated by the Transaction Documents. The Purchasers shall have no
      obligation with respect to any fees or with respect to any claims made by or
      on
      behalf of other Persons for fees of a type contemplated in this Section that
      may
      be due in connection with the transactions contemplated by the Transaction
      Documents. 

     

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

     

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

     

    (v)  Registration
      Rights.
      Other
      than each of the Purchasers and except with respect to the investors set forth
      on Schedule
      3.1(v),
      no
      Person has any right to cause the Company to effect the registration under
      the
      Securities Act of any securities of the Company.

     

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

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

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

     

    (y)  [INTENTIONALLY
      OMITTED].

     

    (z)  Solvency.
      The
      Company does not intend to incur debts beyond its ability to pay such debts
      as
      they mature (taking into account the timing and amounts of cash to be payable
      on
      or in respect of its debt). The Company has no knowledge of any facts or
      circumstances which lead it to believe that it will file for reorganization
      or
      liquidation under the bankruptcy or reorganization laws of any jurisdiction
      within one year from the Closing Date. Schedule
      3.1(z)
      sets
      forth as of the dates thereof all outstanding secured and unsecured Indebtedness
      of the Company or any Subsidiary, or for which the Company or any Subsidiary
      has
      commitments. For the purposes of this Agreement, “Indebtedness”
shall
      mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000
      (other than trade accounts payable incurred in the ordinary course of business),
      (b) all guaranties, endorsements and other contingent obligations in respect
      of
      Indebtedness of others, whether or not the same are or should be reflected
      in
      the Company’s balance sheet (or the notes thereto), except guaranties by
      endorsement of negotiable instruments for deposit or collection or similar
      transactions in the ordinary course of business; and (c) the present value
      of
      any lease payments
      in excess of $50,000 due under leases required to be capitalized in accordance
      with GAAP. Neither
      the Company nor any Subsidiary is in default with respect to any
      Indebtedness.

     

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

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    (dd)  Accountants.
      The
      Company’s accountants are set forth on Schedule
      3.1(aa)
      of the
      Disclosure Schedule. To the knowledge of the Company, such accountants, who
      have
      expressed their opinion with respect to the financial statements included in
      the
      Company’s Registration Statement on Form SB-2/A filed with the Commission on
      February 1, 2007, are a registered public accounting firm as required by the
      Securities Act.

     

    (ee)  Seniority.
      As of
      the Closing Date, except with respect to the Earlier Debentures (which rank
      pari
      passu with the Notes), no Indebtedness or other claim against the Company is
      senior to the Notes in right of payment, whether with respect to interest or
      upon liquidation or dissolution, or otherwise, other than indebtedness secured
      by purchase money security interests (which is senior only as to underlying
      assets covered thereby) and capital lease obligations (which is senior only
      as
      to the property covered thereby).

     

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

     

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

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

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

     

    (ii)  Manufacturing
      and Marketing Rights.
      The
      Company has not granted rights to manufacture, produce, assemble, license,
      market, or sell its products to any other Person and is not bound by any
      agreement that affects the Company’s exclusive right to develop, manufacture,
      assemble, distribute, market or sell its products.

     

    (jj)  Obligations
      of Management.
      Each
      officer and key employee of the Company is currently devoting substantially
      all
      of his or her business time to the conduct of business of the Company. The
      Company is not aware that any officer or key employee of the Company is planning
      to work less than full time at the Company in the five year period following
      the
      Closing (or such longer period as may be set forth in a written employment
      agreement between the Company and any such officer or key employee). No officer
      or key employee is the currently working or, to the Company’s knowledge, plans
      to work for an enterprise competitive with the Company, whether or not such
      officer of key employee is or will be compensated by such
      enterprise.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (kk)  Environmental
      and Safety Laws.
      

     

    (i)  The
      Company is, and at all times has been, in full compliance with, and has not
      been
      and is not in violation of or liable under, any Environmental Law. The Company
      has no basis to expect, nor has it or any other Person for whose conduct it
      is
      or may be held to be responsible received, any actual or threatened order,
      notice, or other communication from (i) any governmental body or private citizen
      acting in the public interest, or (ii) the current or prior owner or operator
      of
      any facilities, of any actual or potential violation or failure to comply with
      any Environmental Law, or of any actual or threatened obligation to undertake
      or
      bear the cost of any environmental, health, and safety liabilities with respect
      to any of the facilities or any other properties or assets (whether real,
      personal, or mixed) in which the Company has had an interest, or with respect
      to
      any property or facility at or to which Hazardous Materials were generated,
      manufactured, refined, transferred, imported, used, or processed by the Company,
      or any other Person for whose conduct it are or may be held responsible, or
      from
      which Hazardous Materials have been transported, treated, stored, handled,
      transferred, disposed, recycled, or received. 

     

    (ii)  There
      are
      no pending or, to the knowledge of the Company, threatened claims, encumbrances,
      or other restrictions of any nature, resulting from any environmental, health,
      and safety liabilities or arising under or pursuant to any Environmental Law,
      with respect to or affecting any of the facilities or any other properties
      and
      assets (whether real, personal, or mixed) in which the Company has or had an
      interest. 

     

    (iii)  The
      Company has no knowledge of any basis to expect, nor has it or any other Person
      for whose conduct it is or may be held responsible, received, any citation,
      directive, inquiry, notice, order, summons, warning, or other communication
      that
      relates to Hazardous Materials, or any alleged, actual, or potential violation
      or failure to comply with any Environmental Law, or of any alleged, actual,
      or
      potential obligation to undertake or bear the cost of any environmental, health,
      and safety liabilities with respect to any of the facilities or any other
      properties or assets (whether real, personal, or mixed) in which the Company
      had
      an interest, or with respect to any property or facility to which Hazardous
      Materials generated, manufactured, refined, transferred, imported, used, or
      processed by the Company, or any other Person for whose conduct it is or may
      be
      held responsible, have been transported, treated, stored, handled, transferred,
      disposed, recycled, or received.

     

    (iv)  Neither
      the Company nor any other Person for whose conduct it is or may be held
      responsible, had any environmental, health, and safety liabilities with respect
      to the facilities or, to the knowledge of the Company, with respect to any
      other
      properties and assets (whether real, personal, or mixed) in which the Company
      (or any predecessor), has or had an interest, or at any property geologically
      or
      hydrologically adjoining the facilities or any such other property or
      assets.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (v)  There
      are
      no Hazardous Materials present on or in the environment at the facilities or
      at
      any geologically or hydrologically adjoining property, including any Hazardous
      Materials contained in barrels, above or underground storage tanks, landfills,
      land deposits, dumps, equipment (whether moveable or fixed) or other containers,
      either temporary or permanent, and deposited or located in land, water, sumps,
      or any other part of the facilities or such adjoining property, or incorporated
      into any structure therein or thereon. Neither the Company nor any other Person
      for whose conduct it is or may be held responsible, or to the knowledge of
      the
      Company, any other Person, has permitted or conducted, or is aware of, any
      hazardous activity conducted with respect to the facilities or any other
      properties or assets (whether real, personal, or mixed) in which the Company
      has
      or had an interest except in full compliance with all applicable Environmental
      Laws. 

     

    (vi)  There
      has
      been no release or, to the knowledge of the Company, threat of release, of
      any
      Hazardous Materials at or from the facilities or at any other locations where
      any Hazardous Materials were generated, manufactured, refined, transferred,
      produced, imported, used, or processed from or by the facilities, or from or
      by
      any other properties and assets (whether real, personal, or mixed) in which
      the
      Company has or had an interest, or to the knowledge of the Company any
      geologically or hydrologically adjoining property, whether by the Company,
      or
      any other Person.

     

    (vii)  The
      Company has delivered to the Purchasers true and complete copies and results
      of
      any reports, studies, analyses, tests, or monitoring possessed or initiated
      by
      the Company pertaining to Hazardous Materials in, on, or under the facilities,
      or concerning compliance by the Company, or any other Person for whose conduct
      they are or may be held responsible, with Environmental Laws.

     

    (viii)  For
      the
      purpose of this Section, “Hazardous
      Material”
shall
      mean (i) materials which are listed or otherwise defined as “hazardous” or
“toxic” under any applicable federal, local or stated and/or foreign laws and
      regulations that govern the existence and/or remedy of contamination on
      property, the protection of the environment from contamination, the control
      of
      the hazardous wastes, or other activities involving hazardous substances,
      including building materials or (b) petroleum products or nuclear
      materials.

     

    (ix)  For
      the
      purpose of this Section, “Environmental
      Law”
shall
      mean any applicable
      statute, law or regulation relating to the environment.

     

    (ll)  Minute
      Books.
      The
      minute books of the Company made available to the Purchasers contain a complete
      summary of all meetings of directors and stockholders since the time of
      incorporation.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (mm)  Accounts
      Receivable.
      Neither
      the Company nor any Subsidiary has any material accounts
      receivable.

     

    (nn)  Inventory.
      All
      inventory of the Company and the Subsidiaries, whether or not reflected in
      the
      balance sheet or interim balance sheet, consists of a quality and quantity
      usable and salable in the ordinary course of business, except for obsolete
      items
      and items of below standard quality, all of which have been written off or
      written down to net realizable value in the balance sheet or interim balance
      sheet or on the accounting records of the Company and the Subsidiaries as of
      the
      Closing Date, as the case may be. All inventories not written off have been
      priced at the lower of cost or market on the last in, first out basis. The
      quantities of each item of inventory (whether raw materials, work-in-process,
      or
      finished goods) are not excessive, but are reasonable in the present
      circumstances of the Company and the Subsidiaries.

     

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

     

    (a)  Organization;
      Authority.
      If such
      Purchaser is no an individual, such Purchaser is an entity duly organized,
      validly existing and in good standing under the laws of the jurisdiction of
      its
      organization with full right, corporate or partnership power and authority
      to
      enter into and to consummate the transactions contemplated by the Transaction
      Documents and otherwise to carry out its obligations hereunder and thereunder.
      The execution, delivery and performance by such Purchaser of the transactions
      contemplated by this Agreement have been duly authorized by all necessary
      corporate or similar action on the part of such Purchaser if such Purchaser
      is
      not an individual. Each Transaction Document to which it is a party has been
      duly executed by such Purchaser, and when delivered by such Purchaser in
      accordance with the terms hereof, will constitute the valid and legally binding
      obligation of such Purchaser, enforceable against it in accordance with its
      terms, except (i) as limited by general equitable principles and applicable
      bankruptcy, insolvency, reorganization, moratorium and other laws of general
      application affecting enforcement of creditors’ rights generally, (ii) as
      limited by laws relating to the availability of specific performance, injunctive
      relief or other equitable remedies and (iii) insofar as indemnification and
      contribution provisions may be limited by applicable law.

     

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

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (c)  Purchaser
      Status.
      At the
      time such Purchaser was offered the Securities, it was, and at the date hereof
      it is, and on each date on which it exercises any Warrants: (i) an “accredited
      investor” as defined in Rule 501 under the Securities Act or (ii) a “qualified
      institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such
      Purchaser is not required to be registered as a broker-dealer under Section
      15
      of the Exchange Act.

     

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

     

    (e)  General
      Solicitation.
      Such
      Purchaser is not purchasing the Securities as a result of any advertisement,
      article, notice or other communication regarding the Securities published in
      any
      newspaper, magazine or similar media or broadcast over television or radio
      or
      presented at any seminar or any other general solicitation or general
      advertisement.

     

    ARTICLE
      IV.

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1  Transfer
      Restrictions.

     

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

     

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

     

    NEITHER
      THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
      [CONVERTIBLE] HAS 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 [EXERCISE] [CONVERSION]
      OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
      OR
      OTHER LOAN SECURED BY SUCH SECURITIES.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    The
      Company acknowledges and agrees that a Purchaser may from time to time pledge
      pursuant to a bona fide margin agreement with a registered broker-dealer or
      grant a security interest in some or all of the Securities to a financial
      institution that is an “accredited investor” as defined in Rule 501(a) under the
      Securities Act and who agrees to be bound by the provisions of this Agreement
      and the Registration Rights Agreement and, if required under the terms of such
      arrangement, such Purchaser may transfer pledged or secured Securities to the
      pledgees or secured parties. Such a pledge or transfer would not be subject
      to
      approval of the Company and no legal opinion of legal counsel of the pledgee,
      secured party or pledgor shall be required in connection therewith. Further,
      no
      notice shall be required of such pledge. At the appropriate Purchaser’s expense,
      the Company will execute and deliver such reasonable documentation as a pledgee
      or secured party of Securities may reasonably request in connection with a
      pledge or transfer of the Securities, including, if the Securities are subject
      to registration pursuant to the Registration Rights Agreement, the preparation
      and filing of any required prospectus supplement under Rule 424(b)(3) under
      the
      Securities Act or other applicable provision of the Securities Act to
      appropriately amend the list of Selling Stockholders thereunder.

     

    (c) Certificates
      evidencing the Underlying Shares shall not contain any legend (including the
      legend set forth in Section 4.1(b) hereof): (i) while a registration statement
      (including the Registration Statement) covering the resale of such security
      is
      effective under the Securities Act, or (ii) following any sale of such
      Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares
      are
      eligible for sale under Rule 144(k), or (iv) if such legend is not required
      under applicable requirements of the Securities Act (including judicial
      interpretations and pronouncements issued by the staff of the Commission).
      The
      Company shall cause its counsel to issue a legal opinion to the Company’s
      transfer agent promptly after the Effective Date if required by the Company’s
      transfer agent to effect the removal of the legend hereunder. If all or any
      portion of a Warrant is exercised at a time when there is an effective
      registration statement to cover the resale of the Underlying Shares, or if
      such
      Underlying Shares may be sold under Rule 144(k) or if such legend is not
      otherwise required under applicable requirements of the Securities Act
      (including judicial interpretations and pronouncements issued by the staff
      of
      the Commission) then such Underlying Shares shall be issued free of all legends.
      The Company agrees that following the Effective Date or at such time as such
      legend is no longer required under this Section 4.1(c), it will, no later than
      three Business Days following the delivery by a Purchaser to the Company or
      the
      Company’s transfer agent of a certificate representing Underlying Shares, as
      applicable, issued with a restrictive legend, deliver or cause to be delivered
      to such Purchaser a certificate representing such shares that is free from
      all
      restrictive and other legends. The Company may not make any notation on its
      records or give instructions to any transfer agent of the Company that enlarge
      the restrictions on transfer set forth in this Section. 

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    (d) Each
      Purchaser, severally and not jointly with the other Purchasers, agrees that
      the
      removal of the restrictive legend from certificates representing Securities
      as
      set forth in this Section 4.1 is predicated upon the Company’s reliance that the
      Purchaser will sell any Securities pursuant to either the registration
      requirements of the Securities Act, including any applicable prospectus delivery
      requirements, or an exemption therefrom, and that if Securities are sold
      pursuant to a Registration Statement, they will be sold in compliance with
      the
      plan of distribution set forth therein.

     

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

     

    4.3  Exercise
      Procedures.
      The
      form of Notice of Exercise included in the Warrants sets forth the totality
      of
      the procedures required of the Purchasers in order to exercise the Warrants.
      No
      additional legal opinion or other information or instructions shall be required
      of the Purchasers to exercise their Warrants. The Company shall honor exercises
      of the Warrants and shall deliver Underlying Shares in accordance with the
      terms, conditions and time periods set forth in the Transaction
      Documents.

     

    4.4  Securities
      Laws Disclosure; Publicity.
      The
      Company and each Purchaser shall consult with each other in issuing any press
      releases with respect to the transactions contemplated hereby, and neither
      the
      Company nor any Purchaser shall issue any such press release or otherwise make
      any such public statement without the prior consent of the Company, with respect
      to any press release of any Purchaser, or without the prior consent of each
      Purchaser, with respect to any press release of the Company, which consent
      shall
      not unreasonably be withheld or delayed, except if such disclosure is required
      by law, in which case the disclosing party shall promptly provide the other
      party with prior notice of such public statement or communication.
      Notwithstanding the foregoing, the Company shall not publicly disclose the
      name
      of any Purchaser, or include the name of any Purchaser in any filing with the
      Commission or any regulatory agency or Trading Market, without the prior written
      consent of such Purchaser, except (i) as required by federal securities law
      in
      connection with (A) any registration statement contemplated by the Registration
      Rights Agreement and (B) the filing of final Transaction Documents (including
      signature pages thereto) with the Commission and (ii) to the extent such
      disclosure is required by law or Trading Market regulations, in which case
      the
      Company shall provide the Purchasers with prior notice of such disclosure
      permitted under this subclause (ii).

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

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

     

    4.5  Use
      of
      Proceeds.
      Except
      as set forth on Schedule
      4.5
      attached
      hereto, the Company shall use the net proceeds from the sale of the Securities
      hereunder for working capital purposes and not for the satisfaction of any
      portion of the Company’s debt (other than payment of trade payables in the
      ordinary course of the Company’s business and prior practices), to redeem any
      Common Stock or Common Stock Equivalents or to settle any outstanding
      litigation.

     

    4.6  Reservation
      and Listing of Securities.

     

    (a)  The
      Company shall maintain a reserve from its duly authorized shares of Common
      Stock
      for issuance pursuant to the Transaction Documents in such amount as may be
      required to fulfill its obligations in full under the Transaction
      Documents.

     

    (b)  If,
      on
      any date, the number of authorized but unissued (and otherwise unreserved)
      shares of Common Stock is less than the Required Minimum on such date, then
      the
      Board of Directors of the Company shall use commercially reasonable efforts
      to
      amend the Company’s certificate or articles of incorporation to increase the
      number of authorized but unissued shares of Common Stock to at least the
      Required Minimum at such time, as soon as possible and in any event not later
      than the 75th day after such date.

     

    (c)  The
      Company shall, if applicable: (i) in the time and manner required by the
      principal Trading Market, prepare and file with such Trading Market an
      additional shares listing application covering a number of shares of Common
      Stock at least equal to the Required Minimum on the date of such application,
      (ii) take all steps necessary to cause such shares of Common Stock to be
      approved for listing on such Trading Market as soon as possible thereafter,
      (iii) provide to the Purchasers evidence of such listing, and (iv) maintain
      the
      listing of such Common Stock on any date at least equal to the Required Minimum
      on such date on such Trading Market or another Trading Market. 

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    4.7  Participation
      in Future Financing.
      

     

    (a)  From
      the
      date hereof until the date that is the 12 month anniversary of the date of
      this
      Agreement, upon any issuance by the Company or any of its Subsidiaries of Common
      Stock or Common Stock Equivalents (a “Subsequent
      Financing”),
      each
      Purchaser shall have the right to participate in up to an amount of the
      Subsequent Financing equal to 100% of the Subsequent Financing (the
“Participation
      Maximum”)
      on the
      same terms, conditions and price provided for in the Subsequent Financing.
      

     

    (b)  At
      least
      5 Business Days prior to the closing of the Subsequent Financing, the Company
      shall deliver to each Purchaser a written notice of its intention to effect
      a
      Subsequent Financing (“Pre-Notice”),
      which
      Pre-Notice shall ask such Purchaser if it wants to review the details of such
      financing (such additional notice, a “Subsequent
      Financing Notice”).
      Upon
      the request of a Purchaser, and only upon a request by such Purchaser, for
      a
      Subsequent Financing Notice, the Company shall promptly, but no later than
      2
      Business Days after such request, deliver a Subsequent Financing Notice to
      such
      Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
      the proposed terms of such Subsequent Financing, the amount of proceeds intended
      to be raised thereunder, the Person or Persons through or with whom such
      Subsequent Financing is proposed to be effected, and attached to which shall
      be
      a term sheet or similar document relating thereto. 

     

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

     

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

     

    (e)  If
      by
      5:30 p.m. (New York City time) on the 5th
      Business
      Day after all of the Purchasers have received the Pre-Notice, the Company
      receives responses to a Subsequent Financing Notice from Purchasers seeking
      to
      purchase more than the aggregate amount of the Participation Maximum, each
      such
      Purchaser shall have the right to purchase the greater of (a) their Pro Rata
      Portion (as defined below) of the Participation Maximum and (b) the difference
      between the Participation Maximum and the aggregate amount of participation
      by
      all other Purchasers.  “Pro
      Rata Portion”
is
      the
      ratio of (x) the Subscription Amount of Securities purchased on the Closing
      Date
      by a Purchaser participating under this Section 4.7 and (y) the sum of the
      aggregate Subscription Amounts of Securities purchased on the Closing Date
      by
      all Purchasers participating under this Section 4.7.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    (f)  The
      Company must provide the Purchasers with a second Subsequent Financing Notice,
      and the Purchasers will again have the right of participation set forth above
      in
      this Section 4.7, if the Subsequent Financing subject to the initial Subsequent
      Financing Notice is not consummated for any reason on the terms set forth in
      such Subsequent Financing Notice within 60 Business Days after the date of
      the
      initial Subsequent Financing Notice. 

     

    (g)  Notwithstanding
      the foregoing, this Section 4.7 shall not apply in respect of (i) an Exempt
      Issuance or (ii) an underwritten public offering of Common Stock.

     

    4.8  Form
      D; Blue Sky Filings.
      The
      Company agrees to timely file a Form D with respect to the Securities as
      required under Regulation D and to provide a copy thereof, promptly upon request
      of any Purchaser. The Company shall take such action as the Company shall
      reasonably determine is necessary in order to obtain an exemption for, or to
      qualify the Securities for, sale to the Purchasers at the Closing under
      applicable securities or “Blue Sky” laws of the states of the United States, and
      shall provide evidence of such actions promptly upon request of any
      Purchaser.

     

    4.9 Most
      Favored Nation Provision.
      From
      the date hereof until the date that is the two year anniversary of the Effective
      Date, if the Company effects a Subsequent Financing, each Purchaser may elect,
      in its sole discretion, in lieu of cash consideration on a $1.00 for $1.00
      basis, to exchange all or some of the Notes (but no Warrants) then held by
      such
      Purchaser for any securities (including any warrants, options or other
      consideration given in connection with such transaction) issued in a Subsequent
      Financing based on the aggregate principal amount of such Notes, along with
      any
      accrued but unpaid interest, liquidated damages and other amounts owing thereon,
      and the effective price at which such securities were sold in such Subsequent
      Financing; provided,
      however,
      that
      this Section 4.9 shall not apply with respect to an Exempt Issuance. The Company
      shall provide each Purchaser with notice of any such Subsequent Financing in
      the
      matter set forth in Section 4.7.

     

    4.10 Quotation
      of Common Stock on OTC Bulletin Board.
      The
      Company shall use its best efforts to qualify the Common Stock for quotation
      on
      the OTC Bulletin Board as soon as practicable, but in no event later than 60
      calendar days from the Effective Date.

     

    ARTICLE
      V.

    MISCELLANEOUS

     

    5.1  Termination. 
      This Agreement may be terminated by any Purchaser, as to such Purchaser’s
      obligations hereunder only and without any effect whatsoever on the obligations
      between the Company and the other Purchasers, by written notice to the other
      parties, if the Closing has not been consummated on or before April 30, 2007;
      provided,
      however,
      that
      such termination will not affect the right of any party to sue for any breach
      by
      the other party (or parties).

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    5.2  Fees
      and Expenses.
      Except
      as expressly set forth in the Transaction Documents to the contrary, each party
      shall pay the fees and expenses of its advisers, counsel, accountants and other
      experts, if any, and all other expenses incurred by such party incident to
      the
      negotiation, preparation, execution, delivery and performance of this Agreement.
      The Company shall pay all transfer agent fees, stamp taxes and other taxes
      and
      duties levied in connection with the delivery of any Securities to the
      Purchasers.

     

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

     

    5.4  Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number set forth on the signature
      pages attached hereto prior to 5:30 p.m. (New York City time) on a Business
      Day,
      (b) the next Business Day after the date of transmission, if such notice or
      communication is delivered via facsimile at the facsimile number set forth
      on
      the signature pages attached hereto on a day that is not a Business Day or
      later
      than 5:30 p.m. (New York City time) on any Business Day, (c) the 2nd
      Business
      Day following the date of mailing, if sent by U.S. nationally recognized
      overnight courier service, or (d) upon actual receipt by the party to whom
      such
      notice is required to be given. The address for such notices and communications
      shall be as set forth on the signature pages attached hereto.

     

    5.5  Amendments;
      Waivers.
      Except
      as otherwise set forth herein, any provision of this Agreement may be waived,
      modified, supplemented or amended in a written instrument signed by the Company,
      the Agent and Purchasers holding at least 66% in principal amount of the
      then-outstanding Notes. No waiver of any default with respect to any provision,
      condition or requirement of this Agreement shall be deemed to be a continuing
      waiver in the future or a waiver of any subsequent default or a waiver of any
      other provision, condition or requirement hereof, nor shall any delay or
      omission of any party to exercise any right hereunder in any manner impair
      the
      exercise of any such right.

     

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

     

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

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

     

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

     

    5.9  Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of the Transaction Documents shall be governed by and construed and enforced
      in
      accordance with the internal laws of the State of California, without regard
      to
      the principles of conflicts of law thereof. Each party agrees that all legal
      proceedings concerning the interpretations, enforcement and defense of the
      transactions contemplated by this Agreement and any other Transaction Documents
      (whether brought against a party hereto or its respective affiliates, directors,
      officers, shareholders, employees or agents) shall be commenced exclusively
      in
      the state and federal courts sitting in the City of Los Angeles. Each party
      hereby irrevocably submits to the exclusive jurisdiction of the state and
      federal courts sitting in the City of Los Angeles for the adjudication of any
      dispute hereunder or in connection herewith or with any transaction contemplated
      hereby or discussed herein (including with respect to the enforcement of any
      of
      the Transaction Documents), and hereby irrevocably waives, and agrees not to
      assert in any suit, action or proceeding, any claim that it is not personally
      subject to the jurisdiction of any such court, that such suit, action or
      proceeding is improper or is an 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
      Agreement and agrees that such service shall constitute good and sufficient
      service of process and notice thereof. Nothing contained herein shall be deemed
      to limit in any way any right to serve process in any other manner permitted
      by
      law. The parties hereby waive all rights to a trial by jury. If either party
      shall commence an action or proceeding to enforce any provisions of the
      Transaction Documents, then the prevailing party in such action or proceeding
      shall be reimbursed by the other party for its reasonable attorneys’ fees and
      other costs and expenses incurred with the investigation, preparation and
      prosecution of such action or proceeding.

     

    5.10  Survival.
      The
      representations and, warranties, shall survive the Closing and the delivery,
      of
      the Securities, for the applicable statue of limitations.

     

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

     

    5.12  Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their commercially reasonable
      efforts to find and employ an alternative means to achieve the same or
      substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    5.18  Independent
      Nature of Purchasers’ Obligations and Rights.
      The
      obligations of each Purchaser under any Transaction Document are several and
      not
      joint with the obligations of any other Purchaser, and no Purchaser shall be
      responsible in any way for the performance or non-performance of the obligations
      of any other Purchaser under any Transaction Document. Nothing contained herein
      or in any other Transaction Document, and no action taken by any Purchaser
      pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
      an association, a joint venture or any other kind of entity, or create a
      presumption that the Purchasers are in any way acting in concert or as a group
      with respect to such obligations or the transactions contemplated by the
      Transaction Documents. Each Purchaser shall be entitled to independently protect
      and enforce its rights, including without limitation the rights arising out
      of
      this Agreement or out of the other Transaction Documents, and it shall not
      be
      necessary for any other Purchaser to be joined as an additional party in any
      proceeding for such purpose. Each Purchaser has been represented by its own
      separate legal counsel in their review and negotiation of the Transaction
      Documents. 

     

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

     

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

     

    (Signature
      Pages Follow)

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

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

    

      
        	
                CYBERDEFENDER
                  CORPORATION

              	 	Address
                for Notice:
	 	 	 	 
	 	 	 	 
	
                By:

              	   
	 	
                12121
                  Wilshire Blvd., Suite 305

              
	 	
                Name:
                  Gary Guseinov 

              	 	
                Los
                  Angeles, CA 90025

              
	 	
                Title:
                  Chief Executive Officer

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

              	 	 
	 	 	 	 
	
                Richardson
                  & Patel, LLP

              	 	 
	
                The
                  Chrysler Building

              	 	 
	
                405
                  Lexington Avenue

              	 	 
	
                26th
                  Floor

              	 	 
	
                New
                  York, NY 10174

              	 	 
	
                Attention:
                  Kevin Friedmann, Esq.

              	 	 

      

    

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE FOR PURCHASER FOLLOWS]

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    [PURCHASER
      SIGNATURE PAGES TO CYBER SECURITIES PURCHASE AGREEMENT]

    

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

     

    Name
      of
      Purchaser: ________________________________________________________

     

    Signature
      of Authorized Signatory of Purchaser:
      __________________________________

     

    Name
      of
      Authorized Signatory:
      ____________________________________________________

     

    Title
      of
      Authorized Signatory:
      _____________________________________________________

     

    Email
      Address of Purchaser:
      ________________________________________________

     

    Facsimile
      Number of Purchaser:
      ________________________________________________

    

    Address
      for Notice of Purchaser:

     

     

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

     

    

    Subscription
      Amount:

     

    Warrant
      Shares:

     

    EIN
      Number: [PROVIDE
      THIS UNDER SEPARATE COVER]

    

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    ANNEX
      A

    

    ESCROW
      AGENT WIRE INSTRUCTIONS

     

    
      
        	
                BANK
                  NAME:

              	
                COMERICA
                  BANK OF CALIFORNIA

              
	 	
                WESTWOOD
                  OFFICE

              
	 	
                10900
                  WILSHIRE BLVD.

              
	 	
                LOS
                  ANGELES, CA 90024

              
	 	
                PHONE
                  NUMBER: 

              	
                800-888-3595

              
	 	
                ABA
                  NUMBER:

              	
                121137522

              
	 	
                ACCT.
                  NUMBER:

              	
                1891937581

              
	 	
                BENEFICIARY:

              	
                RICHARDSON
                  & PATEL LLP

              
	 	 	
                CLIENT
                  TRUST ACCT.

              
	 	
                REFERENCE:
                  

              	
                CYBERDEFENDER

              

      

       

    

    
      
        
        

      

      
        34

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