Document:

Exhibit
      10.5

     

    AMENDED
      AND RESTATED SECURITY AGREEMENT

     

    THIS
      SECURITY AGREEMENT
      (the
“Agreement”), is
      entered into and made effective as of April ___, 2007, by and between
NS8
      CORPORATION, INC., a
      Delaware corporation with its principal place of business located at 608
      University Street, Suite 1525, Seattle, Washington 98101 (the “Parent”),
      and
      the each subsidiary of the Parent listed on Schedule I attached hereto (each
      a
“Subsidiary,”
and
      collectively and together with the Parent, the “Company”),
      in
      favor of CORNELL
      CAPITAL PARTNERS, L.P.
      (the
“Secured
      Party”
or
      “Buyer”).
      

     

    WHEREAS,
      the
      Company issued to the Secured Party convertible debentures (the “Existing
      Convertible Debentures”)
      under
      the Securities Purchase Agreements dated May 19, 2004, and November 14, 2005,
      between the Company and the Secured Party (the “Existing
      SPAs”).
      This
      Agreement shall amend and restate the Security Agreements between the Company
      and the Secured Party dated May 19, 2004 and November 14, 2005 (the
“Existing
      Security Agreements”);

     

    WHEREAS,
      the
      Company has requested the Secured Party to make additional financing available
      to the Company;

     

    WHEREAS,
      the
      parties hereto desire for this Agreement to amend and restate the Existing
      Security Agreements; 

     

    WHEREAS,
      the
      Secured Party is willing to provide such additional financing on the condition
      that such additional financing is secured hereunder and under the UCC-1
      Financing Statement filed in Delaware on June 14, 2004, file number
      2004-167-7198-7, and such additional UCC-1 Financing Statements as have been
      filed in connection with the Existing SPAs and Existing Security Agreements,
      and
      the convertible debentures issued pursuant to the Existing SPAs, and as shall
      be
      filed pursuant to this Agreement; 

     

    WHEREAS,
      The
      Parent shall issue and sell to the Secured Party, as provided in the Securities
      Purchase Agreement, and the Secured Party shall purchase, up to Three Million
      Three Hundred Thirty Thousand Dollars ($3,300,000) of secured convertible
      debentures (the “New
      Convertible Debentures,”
and
      together with the Existing Convertible Debentures, the “Convertible
      Debentures”),
      which
      shall be convertible into shares of the Parent’s common stock, par value
      $0.0001, as set forth in the Securities Purchase Agreement of even date herewith
      (the “Securities
      Purchase Agreement”);

     

    WHEREAS,
      to
      induce
      the Secured Party to enter into the transaction contemplated by the Securities
      Purchase Agreement, the New Convertible Debentures, the Investor Registration
      Rights Agreement of even date herewith between, among others, the Parent and
      the
      Secured Party (the “Investor
      Registration Rights Agreement”),
      and
      the Irrevocable Transfer Agent Instructions between, among others, the Parent,
      the Secured Party, the Parent’s transfer agent, and David Gonzalez, Esq. (the
“Transfer
      Agent Instructions”)
      (collectively referred to as the “Transaction
      Documents”),
      each
      Company hereby grants to the Secured Party a security interest in and to the
      pledged property of each Company identified on Exhibit
      A
      hereto
      (collectively referred to as the “Pledged
      Property”)
      to
      secure all of the Obligations (as defined below).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    NOW,
      THEREFORE, in
      consideration of the promises and the mutual covenants herein contained, and
      for
      other good and valuable consideration, the adequacy and receipt of which are
      hereby acknowledged, the parties hereto hereby agree as follows:

     

    ARTICLE
      1.

     

    DEFINITIONS
      AND INTERPRETATIONS

     

    Section
      1.1. Recitals.
      

     

    The
      above
      recitals are true and correct and are incorporated herein, in their entirety,
      by
      this reference.

     

    Section
      1.2. Interpretations.
      

     

    Nothing
      herein expressed or implied is intended or shall be construed to confer upon
      any
      person other than the Secured Party any right, remedy or claim under or by
      reason hereof.

     

    Section
      1.3. Obligations
      Secured.

     

    The
      security interest created hereby in the Pledged Property constitutes continuing
      collateral security for all of the obligations of the Parent now existing or
      hereinafter incurred to the Buyer, whether oral or written and whether arising
      before, on or after the date hereof including, without limitation following
      obligations (collectively, the “Obligations”):

    

    (a)
      for
      so long as the Convertible Debentures are outstanding, the payment by the
      Parent, as and when due and payable (by scheduled maturity, acceleration, demand
      or otherwise), of all amounts from time to time owing by it in respect of the
      Securities Purchase Agreement, the Convertible Debentures and the other
      Transaction Documents; and

    

    (b)
      for
      so long as the Convertible Debentures are outstanding, the due performance
      and
      observance by the Parent of all of its other obligations from time to time
      existing in respect of any of the Transaction Documents, including without
      limitation, the Parent’s obligations with respect to any conversion or
      redemption rights of the Secured Party under the Convertible
      Debentures.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    ARTICLE
      2.

     

    PLEDGED
      PROPERTY; EVENT OF DEFAULT

     

    Section
      2.1. Pledged
      Property.

     

    (a) As
      collateral security for all of the Obligations, the Company hereby pledges
      to
      the Secured Party, and creates in the Secured Party for its benefit, a
      continuing security interest in and to all of the Pledged Property whether
      now
      owned or hereafter acquired.

     

    (b) Simultaneously
      with the execution and delivery of this Agreement, the Company shall make,
      execute, acknowledge, file, record and deliver to the Secured Party any
      documents reasonably requested by the Secured Party to perfect its security
      interest in the Pledged Property. Simultaneously with the execution and delivery
      of this Agreement, the Company shall make, execute, acknowledge and deliver
      to
      the Secured Party such documents and instruments, including, without limitation,
      financing statements, certificates, affidavits and forms as may, in the Secured
      Party’s reasonable judgment, be necessary to effectuate, complete or perfect, or
      to continue and preserve, the security interest of the Secured Party in the
      Pledged Property, and the Secured Party shall hold such documents and
      instruments as secured party, subject to the terms and conditions contained
      herein.

     

    (c)
      (RESERVED)

     

    Section
      2.2. Event
      of Default

     

    An
      “Event
      of Default”
shall
      be deemed to have occurred under this Agreement upon an Event of Default under
      and as defined in the Convertible Debentures, or any single convertible
      debenture comprising the Convertible Debentures.

     

    ARTICLE
      3.

     

    ATTORNEY-IN-FACT;
      PERFORMANCE

     

    Section
      3.1. Secured
      Party Appointed Attorney-In-Fact.

     

    Upon
      the
      occurrence and during the continuance of an Event of Default: (a) the Company
      hereby appoints the Secured Party as its attorney-in-fact, with full authority
      in the place and stead of the Company and in the name of the Company or
      otherwise, from time to time in the Secured Party’s discretion to take any
      action and to execute any instrument which the Secured Party may reasonably
      deem
      necessary to accomplish the purposes of this Agreement, including, without
      limitation, to receive and collect all instruments made payable to the Company
      representing any payments in respect of the Pledged Property or any part thereof
      and to give full discharge for the same; (b) the Secured Party may demand,
      collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize
      on the Pledged Property as and when the Secured Party may determine, and (c)
      to
      facilitate collection, the Secured Party may notify account debtors and obligors
      on any Pledged Property to make payments directly to the Secured
      Party.

     

    Section
      3.2. Secured
      Party May Perform.

     

    If
      the
      Company fails to perform any agreement contained herein, the Secured Party,
      at
      its option, may itself perform, or cause performance of, such agreement, and
      the
      expenses of the Secured Party incurred in connection therewith shall be included
      in the Obligations secured hereby and payable by the Company under
      Section 8.3.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    ARTICLE
      4.

     

    REPRESENTATIONS
      AND WARRANTIES

     

    Section
      4.1. Authorization;
      Enforceability.

     

    Each
      of
      the parties hereto represents and warrants that it has taken all action
      necessary to authorize the execution, delivery and performance of this Agreement
      and the transactions contemplated hereby; and upon execution and delivery,
      this
      Agreement shall constitute a valid and binding obligation of the respective
      party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
      and similar laws affecting creditors’ rights or by the principles governing the
      availability of equitable remedies.

     

    Section
      4.2. Ownership
      of Pledged Property.

     

    The
      Company represents and warrants that it is the legal and beneficial owner of
      the
      Pledged Property free and clear of any lien, security interest, option or other
      charge or encumbrance (each, a “Lien”) except for the security interest created
      by this Agreement and other Permitted Liens. For purposes of this Agreement,
      “Permitted Liens” means: (1) the security interest created by this Agreement,
      (2) existing Liens disclosed by the Company to the Secured Party; (3) inchoate
      Liens for taxes, assessments or governmental charges or levies not yet due,
      as
      to which the grace period, if any, related thereto has not yet expired, or
      being
      contested in good faith and by appropriate proceedings for which adequate
      reserves have been established in accordance with GAAP; (4) Liens of carriers,
      materialmen, warehousemen, mechanics and landlords and other similar Liens
      which
      secure amounts which are not yet overdue by more than 60 days or which are
      being
      contested in good faith by appropriate proceedings; (5) licenses, sublicenses,
      leases or subleases granted to other Persons not materially interfering with
      the
      conduct of the business of the Company; (6) Liens securing capitalized lease
      obligations and purchase money indebtedness incurred solely for the purpose
      of
      financing an acquisition or lease; (7) easements, rights-of-way, restrictions,
      encroachments, municipal zoning ordinances and other similar charges or
      encumbrances, and minor title deficiencies, in each case not securing debt
      and
      not materially interfering with the conduct of the business of the Company
      and
      not materially detracting from the value of the property subject thereto; (8)
      Liens arising out of the existence of judgments or awards which judgments or
      awards do not constitute an Event of Default; (9) Liens incurred in the ordinary
      course of business in connection with workers compensation claims, unemployment
      insurance, pension liabilities and social security benefits and Liens securing
      the performance of bids, tenders, leases and contracts in the ordinary course
      of
      business, statutory obligations, surety bonds, performance bonds and other
      obligations of a like nature (other than appeal bonds) incurred in the ordinary
      course of business (exclusive of obligations in respect of the payment for
      borrowed money); (10) Liens in favor of a banking institution arising by
      operation of law encumbering deposits (including the right of set-off) and
      contractual set-off rights held by such banking institution and which are within
      the general parameters customary in the banking industry and only burdening
      deposit accounts or other funds maintained with a creditor depository
      institution; (11) usual and customary set-off rights in leases and other
      contracts; and (12) escrows in connection with acquisitions and
      dispositions.

     

    Section
      4.3. Name
      Change.
      The
      Company and each Subsidiary have only effectuated changes their respective
      corporate names as designated in Schedule 4.3 herein.

     

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    ARTICLE
      5.

     

    DEFAULT;
      REMEDIES; SUBSTITUTE COLLATERAL

     

    Section
      5.1 Method
      of Realizing Upon the Pledged Property: Other Remedies.

     

    If
      any
      Event of Default shall have occurred and be continuing:

     

    (a) The
      Secured Party may exercise in respect of the Pledged Property, in addition
      to
      any other rights and remedies provided for herein or otherwise available to
      it,
      all of the rights and remedies of a secured party upon default under the Uniform
      Commercial Code (whether or not the Uniform Commercial Code applies to the
      affected Pledged Property), and also may (i) take absolute control of the
      Pledged Property, including, without limitation, transfer into the Secured
      Party's name or into the name of its nominee or nominees (to the extent the
      Secured Party has not theretofore done so) and thereafter receive, for the
      benefit of the Secured Party, all payments made thereon, give all consents,
      waivers and ratifications in respect thereof and otherwise act with respect
      thereto as though it were the outright owner thereof, (ii) require the
      Company to assemble all or part of the Pledged Property as directed by the
      Secured Party and make it available to the Secured Party at a place or places
      to
      be designated by the Secured Party that is reasonably convenient to both
      parties, and the Secured Party may enter into and occupy any premises owned
      or
      leased by the Company where the Pledged Property or any part thereof is located
      or assembled for a reasonable period in order to effectuate the Secured Party's
      rights and remedies hereunder or under law, without obligation to the Company
      in
      respect of such occupation, and (iii) without notice except as specified
      below and without any obligation to prepare or process the Pledged Property
      for
      sale, (A) sell the Pledged Property or any part thereof in one or more
      parcels at public or private sale, at any of the Secured Party's offices or
      elsewhere, for cash, on credit or for future delivery, and at such price or
      prices and upon such other terms as the Secured Party may deem commercially
      reasonable and/or (B) lease, license or dispose of the Pledged Property or
      any part thereof upon such terms as the Secured Party may deem commercially
      reasonable. The Company agrees that, to the extent notice of sale or any other
      disposition of the Pledged Property shall be required by law, at least ten
      (10)
      days' notice to the Company of the time and place of any public sale or the
      time
      after which any private sale or other disposition of the Pledged Property is
      to
      be made shall constitute reasonable notification. The Secured Party shall not
      be
      obligated to make any sale or other disposition of any Pledged Property
      regardless of notice of sale having been given. The Secured Party may adjourn
      any public or private sale from time to time by announcement at the time and
      place fixed therefor, and such sale may, without further notice, be made at
      the
      time and place to which it was so adjourned. The Company hereby waives any
      claims against the Secured Party arising by reason of the fact that the price
      at
      which the Pledged Property may have been sold at a private sale was less than
      the price which might have been obtained at a public sale or was less than
      the
      aggregate amount of the Obligations, even if the Secured Party accepts the
      first
      offer received and does not offer such Pledged Property to more than one
      offeree, and waives all rights that the Company may have to require that all
      or
      any part of such Pledged Property be marshaled upon any sale (public or private)
      thereof. The Company hereby acknowledges that (i) any such sale of the
      Pledged Property by the Secured Party may be made without warranty,
      (ii) the Secured Party may specifically disclaim any warranties of title,
      possession, quiet enjoyment or the like, and (iii) such actions set forth
      in clauses (i) and (ii) above shall not adversely affect the commercial
      reasonableness of any such sale of Pledged Property. 

     

    (b) (RESERVED)
      

     

    (c) Any
      cash
      held by the Secured Party as Pledged Property and all cash proceeds received
      by
      the Secured Party in respect of any sale of or collection from, or other
      realization upon, all or any part of the Pledged Property shall be applied
      (after payment of any amounts payable to the Secured Party pursuant to Section
      8.3 hereof) by the Secured Party against, all or any part of the Obligations
      in
      such order as the Secured Party shall elect, consistent with the provisions
      of
      the Securities Purchase Agreement. Any surplus of such cash or cash proceeds
      held by the Secured Party and remaining after the indefeasible payment in full
      in cash of all of the Obligations shall be paid over to whomsoever shall be
      lawfully entitled to receive the same or as a court of competent jurisdiction
      shall direct.

     

    (d) In
      the
      event that the proceeds of any such sale, collection or realization are
      insufficient to pay all amounts to which the Secured Party is legally entitled,
      the Company shall be liable for the deficiency, together with interest thereon
      at the rate specified in the Convertible Debentures for interest on overdue
      principal thereof or such other rate as shall be fixed by applicable law,
      together with the costs of collection and the reasonable fees, costs, expenses
      and other client charges of any attorneys employed by the Secured Party to
      collect such deficiency.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (e) The
      Company hereby acknowledges that if the Secured Party complies with any
      applicable state, provincial, or federal law requirements in connection with
      a
      disposition of the Pledged Property, such compliance will not adversely affect
      the commercial reasonableness of any sale or other disposition of the Pledged
      Property.

     

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

     

     

     

    Section
      5.2 Duties
      Regarding Pledged Property.

     

    The
      Secured Party shall have no duty as to the collection or protection of the
      Pledged Property or any income thereon or as to the preservation of any rights
      pertaining thereto, beyond the safe custody and reasonable care of any of the
      Pledged Property actually in the Secured Party’s possession.

     

    ARTICLE
      6.

     

    AFFIRMATIVE
      COVENANTS

     

    The
      Company covenants and agrees that, from the date hereof and until the
      Obligations have been fully paid and satisfied or the Convertible Debentures
      have been fully converted, unless the Secured Party shall consent otherwise
      in
      writing (as provided in Section 8.4 hereof):

     

    Section
      6.1. Existence,
      Properties, Etc.

     

    (a) The
      Company shall do, or cause to be done, all things, or proceed with due diligence
      with any actions or courses of action, that may be reasonably necessary
      (i) to maintain Company’s due organization, valid existence and good
      standing under the laws of its state of incorporation, and (ii) to preserve
      and keep in full force and effect all qualifications, licenses and registrations
      in those jurisdictions in which the failure to do so could have a Material
      Adverse Effect (as defined below); and (b) the Company shall not do, or
      cause to be done, any act impairing the Company’s corporate power or authority
      (i) to carry on the Company’s business as now conducted, and (ii) to
      execute or deliver this Agreement or any other document delivered in connection
      herewith, including, without limitation, any UCC-1 Financing Statements required
      by the Secured Party (which other loan instruments collectively shall be
      referred to as the “Loan
      Instruments”) to
      which it is or will be a party, or perform any of its obligations hereunder
      or
      thereunder. For purpose of this Agreement, the term “Material
      Adverse Effect”
shall
      mean any material and adverse affect as determined by Secured Party in its
      reasonable discretion, whether individually or in the aggregate, upon
      (a) the Company’s assets, business, operations, properties or condition,
      financial or otherwise; (b) the Company’s ability to make payment as and
      when due of all or any part of the Obligations; or (c) the Pledged
      Property.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Section
      6.2. Financial
      Statements and Reports.

     

    The
      Company shall furnish to the Secured Party within a reasonable time such
      financial data as the Secured Party may reasonably request.

     

    Section
      6.3. Accounts
      and Reports.

     

    The
      Company shall maintain a standard system of accounting in accordance with
      generally accepted accounting principles consistently applied (“GAAP”) and
      provide, at its sole expense, to the Secured Party the following:

     

    (a) as
      soon
      as available, a copy of any notice or other communication alleging any
      nonpayment or other material breach or default, or any foreclosure or other
      action respecting any material portion of its assets and properties, received
      respecting any of the indebtedness of the Company in excess of $500,000 (other
      than the Obligations), or any demand or other request for payment under any
      guaranty, assumption, purchase agreement or similar agreement or arrangement
      respecting the indebtedness or obligations of others in excess of $500,000;
      and

     

    (b) within
      fifteen (15) days after the making of each submission or filing, a copy of
      any report, financial statement, notice or other document, whether periodic
      or
      otherwise, submitted to the shareholders of the Company, or submitted to or
      filed by the Company with any governmental authority involving or affecting
      (i)
      the Company that could reasonably be expected to have a Material Adverse Effect;
      (ii) the Obligations; (iii) any part of the Pledged Property; or
      (iv) any of the transactions contemplated in this Agreement or the Loan
      Instruments (except, in each case, to the extent any such submission, filing,
      report, financial statement, notice or other document is posted on EDGAR
      Online).

     

    Section
      6.4. Maintenance
      of Books and Records; Inspection.

     

    The
      Company shall maintain its books, accounts and records in accordance with GAAP,
      and permit the Secured Party, its officers and employees and any professionals
      designated by the Secured Party in writing, at any time during normal business
      hours and upon reasonable notice to visit and inspect any of its properties
      (including but not limited to the collateral security described in the
      Transaction Documents and/or the Loan Instruments), corporate books and
      financial records, and to discuss its accounts, affairs and finances with any
      employee, officer or director thereof (it being agreed that, unless an Event
      of
      Default shall have occurred and be continuing, there shall be no more than
      two
      (2) such visits and inspections in any Fiscal Year).

     

    Section
      6.5. Maintenance
      and Insurance.

     

    (a) The
      Company shall maintain or cause to be maintained, at its own expense, all of
      its
      material assets and properties in good working order and condition, ordinary
      wear and tear excepted, making all necessary repairs thereto and renewals and
      replacements thereof.

     

    (b) The
      Company shall maintain or cause to be maintained, at its own expense, insurance
      in form, substance and amounts (including deductibles), which the Company deems
      reasonably necessary to the Company’s business, (i) adequate to insure all
      assets and properties of the Company of a character usually insured by persons
      engaged in the same or similar business against loss or damage resulting from
      fire or other risks included in an extended coverage policy; (ii) against
      public liability and other tort claims that may be incurred by the Company;
      (iii) as may be required by the Transaction Documents and/or applicable law
      and (iv) as may be reasonably requested by Secured Party, all with financially
      sound and reputable insurers.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Section
      6.6. Contracts
      and Other Collateral.

     

    The
      Company shall perform all of its obligations under or with respect to each
      instrument, receivable, contract and other intangible included in the Pledged
      Property to which the Company is now or hereafter will be party on a timely
      basis and in the manner therein required, including, without limitation, this
      Agreement, except to the extent the failure to so perform such obligations
      would
      not reasonably be expected to have a Material Adverse Effect.

     

    Section
      6.7. Defense
      of Collateral, Etc.

     

    The
      Company shall defend and enforce its right, title and interest in and to any
      part of: (a) the Pledged Property; and (b) if not included within the
      Pledged Property, those assets and properties whose loss would reasonably be
      expected to have a Material Adverse Effect, each against all manner of claims
      and demands on a timely basis to the full extent permitted by applicable law
      (other than any such claims and demands by holders of Permitted
      Liens).

     

    Section
      6.8. Taxes
      and Assessments.

     

    The
      Company shall (a) file all material tax returns and appropriate schedules
      thereto that are required to be filed under applicable law, prior to the date
      of
      delinquency (taking into account any extensions of the original due date),
      (b) pay and discharge all material taxes, assessments and governmental
      charges or levies imposed upon the Company, upon its income and profits or
      upon
      any properties belonging to it, prior to the date on which penalties attach
      thereto, and (c) pay all material taxes, assessments and governmental
      charges or levies that, if unpaid, might become a lien or charge upon any of
      its
      properties; provided,
      however,
      that
      the Company in good faith may contest any such tax, assessment, governmental
      charge or levy described in the foregoing clauses (b) and (c) so long as
      appropriate reserves are maintained with respect thereto if and to the extent
      required by GAAP. 

     

    Section
      6.9. Compliance
      with Law and Other Agreements.
      

     

    The
      Company shall maintain its business operations and property owned or used in
      connection therewith in compliance with (a) all applicable federal, state
      and local laws, regulations and ordinances governing such business operations
      and the use and ownership of such property, and (b) all agreements,
      licenses, franchises, indentures and mortgages to which the Company is a party
      or by which the Company or any of its properties is bound, except where the
      failure to so comply would not reasonably be expected to have a Material Adverse
      Effect.

     

    Section
      6.10. Notice
      of Default.
      

     

    The
      Company shall give written notice to the Secured Party of the occurrence of
      any
      Event of Default.

     

    Section
      6.11. Notice
      of Litigation.

     

    The
      Company shall give notice, in writing, to the Secured Party of (a) any
      actions, suits or proceedings wherein the amount at issue is in excess of
      $250,000, instituted by any persons against the Company, or affecting any of
      the
      assets of the Company, and (b) any dispute, not resolved within fifteen
      (15) days of the commencement thereof, between the Company on the one hand
      and
      any governmental or regulatory body on the other hand, which might reasonably
      be
      expected to have a Material Adverse Effect on the business operations or
      financial condition of the Company.

     

    Section
      6.13. Future
      Subsidiaries.

     

    If
      the
      Company shall hereafter create or acquire any subsidiary, simultaneously with
      the creation or acquisition of such subsidiary, the Company shall cause such
      subsidiary to grant to the Secured Party a security interest of the same tenor
      as created under this Agreement. 

     

    Section
      6.14. (RESERVED)
      

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    ARTICLE
      7.

     

    NEGATIVE
      COVENANTS

     

    The
      Company covenants and agrees that, from the date hereof until the Obligations
      have been fully paid and satisfied, the Company shall not, unless the Secured
      Party shall consent otherwise in writing:

     

    Section
      7.1. Liens
      and Encumbrances.

     

    Directly
      or indirectly make, create, incur, assume or permit to exist any Lien in, to
      or
      against any part of the Pledged Property other than Permitted
      Liens.

     

    Section
      7.2. Restriction
      on Redemption and Cash Dividends

     

    Directly
      or indirectly, redeem, repurchase or declare or pay any cash dividend or
      distribution on its capital stock without the prior express written consent
      of
      the Secured Party.

     

    Section
      7.3. Incurrence
      of Indebtedness.

     

    Directly
      or indirectly, incur or guarantee, assume or suffer to exist any indebtedness,
      other than the indebtedness evidenced by the Convertible Debentures and other
      Permitted Indebtedness. “Permitted
      Indebtedness”
means:
      (i) indebtedness evidenced by Convertible Debentures; (ii) indebtedness
      described on the Disclosure Schedule to the Securities Purchase Agreement;
      (iii)
      indebtedness incurred solely for the purpose of financing the acquisition or
      lease of any equipment by the Company, including capital lease obligations
      with
      no recourse other than to such equipment; (iv) indebtedness (A) the repayment
      of
      which has been subordinated to the payment of the Convertible Debentures on
      terms and conditions acceptable to the Secured Party, including with regard
      to
      interest payments and repayment of principal, (B) which does not mature or
      otherwise require or permit redemption or repayment prior to or on the
      91st
      day
      after the maturity date of any Convertible Debentures then outstanding; and
      (C)
      which is not secured by any assets of the Company; (v) indebtedness solely
      between the Company and/or one of its domestic subsidiaries, on the one hand,
      and the Company and/or one of its domestic subsidiaries, on the other which
      indebtedness is not secured by any assets of the Company or any of its
      subsidiaries, provided that (x) in each case a majority of the equity of any
      such domestic subsidiary is directly or indirectly owned by the Company, such
      domestic subsidiary is controlled by the Company and such domestic subsidiary
      has executed a security agreement in the form of this Agreement and (y) any
      such
      loan shall be evidenced by an intercompany note that is pledged by the Company
      or its subsidiary, as applicable, as collateral pursuant to this Agreement;
      (vi)
      reimbursement obligations in respect of letters of credit issued for the account
      of the Company or any of its subsidiaries for the purpose of securing
      performance obligations of the Company or its subsidiaries incurred in the
      ordinary course of business so long as the aggregate face amount of all such
      letters of credit does not exceed $500,000 at any one time; and (vii) renewals,
      extensions and refinancing of any indebtedness described in clauses (i) or
      (iii)
      of this subsection.

     

    Section
      7.4. Places
      of Business.

     

    Change
      the location of its chief place of business, chief executive office or any
      place
      of business disclosed to the Secured Party, unless such change in location
      is to
      a different location within the United States and the Company provides notice
      to
      the Secured Party of new location within 10 days’ of such change in
      location.

     

    Section
      7.5. Company
      Name. The
      Company and each Subsidiary shall not change their respective names with out
      providing the Secured Party thirty (30) calendar days prior written
      notice.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    ARTICLE
      8.

     

    MISCELLANEOUS

     

    Section
      8.1. Notices.

     

    All
      notices or other communications required or permitted to be given pursuant
      to
      this Agreement shall be in writing and shall be considered as duly given on:
      (a) the date of delivery, if delivered in person or by nationally
      recognized overnight delivery service or (b) five (5) days after
      mailing if mailed from within the continental United States by certified mail,
      return receipt requested to the party entitled to receive the same:

     

    
      	
              If
                to the Secured Party:

            	
              Cornell
                Capital Partners, LP

            
	 	
              101
                Hudson Street-Suite 3700 

            
	 	
              Jersey
                City, New Jersey 07302 

            
	 	
              Attention: Mark
                Angelo

            
	 	
              Portfolio
                Manager

            
	 	
              Telephone: (201)
                986-8300

            
	 	
              Facsimile: (201)
                985-8266

            
	 	 
	
              With
                a copy to:

            	
              David
                Gonzalez or Troy Rillo, Esq.

            
	 	
              101
                Hudson Street, Suite 3700

            
	 	
              Jersey
                City, NJ 07302

            
	 	
              Telephone: (201)
                985-8300

            
	 	
              Facsimile: (201)
                985-8266

            
	 	 
	 	 
	 	 
	
              And
                if to the Company:

            	
              NS8
                Corporation

            
	 	
              600
                University Street - Suite 1525

            
	 	
              Seattle,
                WA 98101

            
	 	
              Attention: Anthony
                Alda

            
	 	
              Telephone: (604)
                677-6994

            
	 	
              Facsimile: (604)
                677-7011

            
	 	 
	
              With
                a copy to:

            	
              Sichenzia
                Ross Friedman Ference LLP

            
	 	
              1065
                Avenue of the Americas, 21st
                Floor

            
	 	
              New
                York, New York 10018

            
	 	
              Telephone: (212)
                930-9700

            
	 	
              Facsimile: (212)
                930-9725

            
	 	 

    

    

    Any
      party
      may change its address by giving notice to the other party stating its new
      address. Commencing on the tenth (10th) day
      after the giving of such notice, such newly designated address shall be such
      party’s address for the purpose of all notices or other communications required
      or permitted to be given pursuant to this Agreement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Section
      8.2. Severability.

     

    If
      any
      provision of this Agreement shall be held invalid or unenforceable, such
      invalidity or unenforceability shall attach only to such provision and shall
      not
      in any manner affect or render invalid or unenforceable any other severable
      provision of this Agreement, and this Agreement shall be carried out as if
      any
      such invalid or unenforceable provision were not contained herein.

     

    Section
      8.3. Expenses.

     

    In
      the
      event of an Event of Default, the Company will pay to the Secured Party the
      amount of any and all reasonable out-of-pocket expenses, including the
      reasonable fees and expenses of its counsel, which the Secured Party may incur
      in connection with: (i) the custody or preservation of, or the sale,
      collection from, or other realization upon, any of the Pledged Property;
      (ii) the exercise or enforcement of any of the rights of the Secured Party
      hereunder or (iii) the failure by the Company to perform or observe any of
      the provisions hereof.

     

    Section
      8.4. Waivers,
      Amendments, Etc.

     

    The
      Secured Party’s delay or failure at any time or times hereafter to require
      strict performance by Company of any undertakings, agreements or covenants
      shall
      not waive, affect, or diminish any right of the Secured Party under this
      Agreement to demand strict compliance and performance herewith. Any waiver
      by
      the Secured Party of any Event of Default shall not waive or affect any other
      Event of Default, whether such Event of Default is prior or subsequent thereto
      and whether of the same or a different type. None of the undertakings,
      agreements and covenants of the Company contained in this Agreement, and no
      Event of Default, shall be deemed to have been waived by the Secured Party,
      nor
      may this Agreement be amended, changed or modified, unless such waiver,
      amendment, change or modification is evidenced by an instrument in writing
      specifying such waiver, amendment, change or modification and signed by the
      Secured Party in the case of any such waiver, and signed by the Secured Party
      and the Company in the case of any such amendment, change or
      modification.

     

    Section
      8.5. Continuing
      Security Interest; Partial Release.

     

    (a)
      This
      Agreement shall create a continuing security interest in the Pledged Property
      and shall: (i) remain in full force and effect until payment or conversion
      in full of the Convertible Debentures; (ii) be binding upon the Company and
      its successors and assigns; and (iii) inure to the benefit of the Secured
      Party and its successors and assigns. Upon the payment or satisfaction in full
      or conversion in full of the Convertible Debentures, this Agreement and the
      security interest created hereby shall terminate, and, in connection therewith,
      the Company shall be entitled to the return, at its expense, of such of the
      Pledged Property as shall not have been sold in accordance with Section 5.2
      hereof or otherwise applied pursuant to the terms hereof and the Secured Party
      shall deliver to the Company such documents as the Company shall reasonably
      request to evidence such termination.

     

    (b) Effective
      upon the closing of a disposition of any Pledged Property, provided the Secured
      Party consents in writing prior to such disposition or such disposition is
      made
      in the ordinary course of business, the security interest granted hereunder
      in
      the Pledged Property so disposed of shall terminate and the Secured Party shall
      deliver such documents as the Company shall reasonably request to evidence
      such
      termination; provided, however, the security interest granted hereunder in
      all
      remaining Pledged Property shall remain in full force and effect.

     

    Section
      8.6. Independent
      Representation.

     

    Each
      party hereto acknowledges and agrees that it has received or has had the
      opportunity to receive independent legal counsel of its own choice and that
      it
      has been sufficiently apprised of its rights and responsibilities with regard
      to
      the substance of this Agreement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Section
      8.7. Applicable
      Law: Jurisdiction.

     

    This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of New Jersey without regard to the principles of conflict of laws.
      The parties further agree that any action between them shall be heard in Hudson
      County, New Jersey, and expressly consent to the jurisdiction and venue of
      the
      Superior Court of New Jersey, sitting in Hudson County and the United States
      District Court for the District of New Jersey sitting in Newark, New Jersey
      for
      the adjudication of any civil action asserted pursuant to this
      Paragraph.

     

    Section
      8.8. Waiver
      of Jury Trial.

     

    AS
      A
      FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO
      MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES
      ANY
      RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
      AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.

     

    Section
      8.9. Entire
      Agreement.

     

    This
      Agreement constitutes the entire agreement among the parties and supersedes
      any
      prior agreement or understanding among them with respect to the subject matter
      hereof.

     

    

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

     

    

    
      	 	
              COMPANY:

            
	 	
              NS8
                CORPORATION, INC.

            
	 	 
	 	
              By:                                            
                      

            
	 	
              Name: Anthony
                Alda

            
	 	
              Title: Chief
                Executive Officer

            
	 	 

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

     

    

    
      	 	
              COMPANY:

            
	 	
              CANONLINE
                MEDIA CORPORATION

            
	 	 
	 	
              By:                                                    

            
	 	
              Name: Brent
                R. Bysouth

            
	 	
              Title: President

            
	 	 

    

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

     

    

    
      	 	
              COMPANY:

            
	 	
              CANONLINE
                GLOBAL MEDIA, INC.

            
	 	 
	 	
              By:                                                    

            
	 	
              Name: Brent
                R. Bysouth

            
	 	
              Title: President

            
	 	 

    

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

     

    

    
      	 	
              COMPANY:

            
	 	
              SUBSIDIARY
                3

            
	 	 
	 	
              By:                                                    

            
	 	
              Name: 

            
	 	
              Title: 

            
	 	 

    

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

     

    

    
      	 	
              COMPANY:

            
	 	
              SUBSIDIARY
                4

            
	 	 
	 	
              By:                                                    

            
	 	
              Name: 

            
	 	
              Title: 

            
	 	 

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

     

    

    
      	 	 
	 	
              SECURED
                PARTY:

            
	 	
              CORNELL
                CAPITAL PARTNERS, LP

            
	 	 
	 	
              By: Yorkville
                Advisors, LLC

            
	 	
              Its: Investment
                Manager

            
	 	 
	 	
              By:                                                    

            
	 	
              Name: Mark
                Angelo

            
	 	
              Title: Portfolio
                Manager

            
	 	 

    

    

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    SCHEDULE
      I

     

     

    LEGAL
      NAMES; ORGANIZATIONAL IDENTIFICATION NUMBERS; STATES OF
      ORGANIZATION

     

    

      
        	
                Company’s
                  Name

              	
                State/Province
                  of Organization

              	
                Employer
                  ID

              	
                Organizational
                  ID

              
	 	 	 	 
	
                Canonline
                  Media Corporation

              	
                British
                  Columbia, Canada

              	
                 

              	
                 

              
	
                Canonline
                  Global Media, Inc.

              	
                Washington

              	 	 
	
                Subsidiary
                  3

              	 	 	 
	
                Subsidiary
                  4

              	 	 	 

      

    

     

     

    

    
      
        
           

          

           

          

        

         

      

      
         

        
          

        

      

      
         

        
        

      

    

    

     

    EXHIBIT
      A

     

     

    DEFINITION
      OF PLEDGED PROPERTY

     

     

    For
      the
      purpose of securing prompt and complete payment and performance by the Company
      of all of the Obligations, the Company unconditionally and irrevocably hereby
      grants to the Secured Party a continuing security interest in and to, and lien
      upon, the following Pledged Property of the Company:

     

     

    (a) all
      goods
      of the Company, including, without limitation, machinery, equipment, furniture,
      furnishings, fixtures, signs, lights, tools, parts, supplies and motor vehicles
      of every kind and description, now or hereafter owned by the Company or in
      which
      the Company may have or may hereafter acquire any interest, and all
      replacements, additions, accessions, substitutions and proceeds thereof, arising
      from the sale or disposition thereof, and where applicable, the proceeds of
      insurance and of any tort claims involving any of the foregoing;

     

     

    (b) all
      inventory of the Company, including, but not limited to, all goods, wares,
      merchandise, parts, supplies, finished products, other tangible personal
      property, including such inventory as is temporarily out of Company’s custody or
      possession and including any returns upon any accounts or other proceeds,
      including insurance proceeds, resulting from the sale or disposition of any
      of
      the foregoing;

     

     

    (c) all
      contract rights and general intangibles of the Company, including, without
      limitation, goodwill, trademarks, trade styles, trade names, leasehold
      interests, partnership or joint venture interests, patents and patent
      applications, copyrights, deposit accounts whether now owned or hereafter
      created;

     

     

    (d) all
      documents, warehouse receipts, instruments and chattel paper of the Company
      whether now owned or hereafter created;

     

     

    (e) all
      accounts and other receivables, instruments or other forms of obligations and
      rights to payment of the Company (herein collectively referred to as
“Accounts”),
      together with the proceeds thereof, all goods represented by such Accounts
      and
      all such goods that may be returned by the Company’s customers, and all proceeds
      of any insurance thereon, and all guarantees, securities and liens which the
      Company may hold for the payment of any such Accounts including, without
      limitation, all rights of stoppage in transit, replevin and reclamation and
      as
      an unpaid vendor and/or lienor;

     

     

    (f) to
      the
      extent assignable, all of the Company’s rights under all present and future
      authorizations, permits, licenses and franchises issued or granted in connection
      with the operations of any of its facilities;

     

     

    (g) all
      equity interests, securities or other instruments in other companies, including,
      without limitation, any subsidiaries, investments or other entities (whether
      or
      not controlled); and

     

     

    (h) all
      products and proceeds (including, without limitation, insurance proceeds) from
      the above-described Pledged Property.Form of senior debt security  -- medium-term note

 Exhibit 4.01 
 LEHMAN BROTHERS HOLDINGS INC. 
 100% Principal Protection Absolute
Return Barrier Notes Linked to the Dow Jones EURO STOXX 50® Index due May 16, 2008

			
	Number R-1	  	$6,500,000
	ISIN US 52520W4327	  	CUSIP 52520W432

 See Reverse for Certain Definitions 
 THIS SECURITY (THIS “SECURITY”) IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITORY OR A NOMINEE THEREOF. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN CERTIFICATED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO SUCH DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TO LEHMAN BROTHERS HOLDINGS INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 
 LEHMAN BROTHERS
HOLDINGS INC., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the “Company”), for value received, hereby promises to pay to CEDE & CO. or registered assigns, at the
office or agency of the Company in the Borough of Manhattan, The City of New York, on the Maturity Date, in such coin or currency of the United States of America at the time of payment shall be legal tender for the payment of public and private
debts, for each $10 principal amount of the Securities represented hereby, an amount equal to the Payment at Maturity. THE SECURITIES REPRESENTED HEREBY SHALL NOT BEAR ANY INTEREST. 
 Any amount payable on the Maturity Date hereon will be paid only upon presentation and surrender of this Security. 
 REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE
THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. 

 “Dow Jones EURO STOXX 50®” and “STOXX®” are trademarks of STOXX Limited and have been licensed for use by the Company. The Securities are not sponsored, endorsed, sold or
promoted by STOXX Limited, and STOXX Limited makes no representation regarding the advisability of investing in the Securities. This Security shall not be valid or become obligatory for any purpose until the certificate of authentication hereon
shall have been signed by the Trustee under the Indenture referred to on the reverse hereof. 

 IN WITNESS WHEREOF, LEHMAN BROTHERS HOLDINGS INC. has caused this instrument to be signed by its Chairman
of the Board, its President, its Vice Chairman, its Chief Financial Officer, one of its Vice Presidents or its Treasurer, by manual or facsimile signature under its corporate seal, attested by its Secretary or one of its Assistant Secretaries by
manual or facsimile signature. 
  

					
	Dated: May 17, 2007	 	LEHMAN BROTHERS HOLDINGS INC.
			
		 	By:	 	  

		 		 	Vice President
			
		 	Attest:	 	  

		 		 	Assistant Secretary

 TRUSTEE’S CERTIFICATE OF AUTHENTICATION 
 This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. 
  

			
	CITIBANK, N.A.
	as Trustee
		
	By:	 	  

		 	Authorized Officer

 Reverse of Security 
 This Security is one of a duly authorized series of Securities of the Company designated as 100%
Principal Protection Absolute Return Barrier Notes Linked to the Dow Jones EURO STOXX 50®
Index due May 16, 2008 (herein called the “Securities”). The Company may, without the consent of the holders of the Securities, create and issue additional notes ranking equally with the Securities and otherwise similar in all
respects so that such further notes shall be consolidated and form a single series with the Securities; provided that no additional notes can be issued if an Event of Default has occurred with respect to the Securities. This series of Securities is
one of an indefinite number of series of debt securities of the Company, issued and to be issued under an indenture, dated as of September 1, 1987, as amended (herein called the “Indenture”), duly executed and delivered by the
Company and Citibank N.A., as trustee (herein called the “Trustee”, which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities. 
 The Payment at Maturity, at the request of the Trustee, shall be determined by the Calculation Agent pursuant to the Calculation Agency Agreement. The Trustee shall fully rely on the determination by the Calculation
Agent of the Payment at Maturity and shall have no duty to make any such determination. The Calculation Agent will provide written notice to the Trustee at its New York office, on which notice the Trustee may conclusively rely, of the Payment at
Maturity on or prior to 11:00 a.m. on the Business Day preceding the Maturity Date. 
 All calculations with respect to the Index Starting
Level, the Index Ending Level, the Absolute Index Return or any Index Closing Level will be rounded to the nearest one hundred-thousandth, with five one-millionths rounded upward (e.g., .876545 would be rounded to .87655); all dollar amounts
related to determination of the Additional Amount payable at maturity, if any, per $10 principal amount note will be rounded to the nearest ten-thousandth, with five one hundred-thousandths rounded upward (e.g., .76545 would be rounded up to
..7655); and all dollar amounts paid on the aggregate principal amount of Notes per Holder will be rounded to the nearest cent, with one-half cent rounded upward. 
 This Security is not subject to any sinking fund. 
 If an Event of Default with respect to the Securities
shall occur and be continuing, the amounts payable on all of the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The amount payable to the Holder hereof upon any acceleration permitted under
the Indenture will be equal to the Payment at Maturity calculated as though the date of acceleration were the Final Valuation Date. If the maturity of the Notes is accelerated because of an Event of Default, the Company shall, or shall cause the
Calculation Agent to, provide written notice to the Trustee at its New York office, on which notice the Trustee may conclusively rely, and to The Depository Trust Company of the cash amount due with respect to the Notes as promptly as possible and
in no event later than two Business Days after the date of acceleration. 
 The
Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than 66 2/3% in aggregate principal amount of each series of Securities at the time Outstanding to be affected (each series voting as a class), evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to,
or 

 
changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the
holders of the Securities of all such series; provided, however, that no such supplemental indenture shall, among other things, (i) change the fixed maturity of any Security, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, if any, or reduce any premium payable on redemption, or make the principal thereof, or premium, if any, or interest thereon, if any, payable in any coin or currency other than that
hereinabove provided, without the consent of the holder of each Security so affected, or (ii) change the place of payment on any Security, or impair the right to institute suit for payment on any Security, or reduce the aforesaid percentage of
Securities, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of each Security so affected. It is also provided in the Indenture that, prior to any declaration accelerating the
maturity of any series of Securities, the holders of a majority in aggregate principal amount of the Securities of such series Outstanding may on behalf of the holders of all the Securities of such series waive any past default or Event of Default
under the Indenture with respect to such series and its consequences, except a default in the payment of interest, if any, or the principal of, or premium, if any, on any of the Securities of such series, or in the payment of any sinking fund
installment or analogous obligation with respect to Securities of such series. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future holders and owners of this Security and any
Securities which may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Security or such other Securities. 
 No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal amount with respect to this Security. 
 The Securities are issuable in denominations of $10
and any whole multiples of $10. 
 The Company, the Trustee, and any agent of the Company or of the Trustee may deem and treat the registered
holder (the “Holder”) hereof as the absolute owner of this Security (whether or not this Security shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment hereof,
or on account hereof, and for all other purposes and neither the Company nor the Trustee nor any agent of the Company or of the Trustee shall be affected by any notice to the contrary. All such payments made to or upon the order of such registered
holder shall, to the extent of the sum or sums paid, effectually satisfy and discharge liability for moneys payable on this Security. 
 No
recourse for the payment of the principal of, premium, if any, or interest on this Security, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the
Indenture or any indenture supplemental thereto or in any Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the
Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such
liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. 

 As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this
Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the Corporate Trust Office or agency in a Place of Payment for this Security, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or such Holder’s attorney duly authorized in writing, and thereupon one or more new Securities of this series or of like tenor and of
authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. 
 The
Company agrees, and by acceptance of beneficial ownership interest in the Notes of this series, each Holder of such Notes will be deemed to have agreed, for United States federal income tax purposes, to treat the Notes of this series as
indebtedness. 
 THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 Definitions 
 Set forth below are
definitions of the terms used in this Security. 
 The “Absolute Return Barrier” is 18.90%. 
 “Absolute Index Return”, as calculated by the Calculation Agent, is calculated as follows: 
  

							
	 The absolute value of:
	  	[	  	 Index Ending Level – Index Starting Level
 Index Starting Level
	  	]
	  	  	  

 “Additional Amount”, as calculated by the Calculation Agent shall equal:

 If the Index Closing Level is never greater than the Upper Index Barrier nor less than the Lower Index Barrier on any
Trading Day during the Observation Period, an amount per $10 principal amount of Notes equal to $10.00 x Absolute Index Return, provided, however, that in no event will the Additional Amount be less than zero. 
 If the Index Ending Level is equal to the Index Starting Level or if the Index Closing Level is either greater than the Upper Index
Barrier or less than the Lower Index Barrier on any Trading Day during the Observation Period, $0. 
 “Business Day”,
notwithstanding any provision in the Indenture, shall mean any day that is not a Saturday or Sunday and that is not a day on which banking institutions in the City of New York are authorized or obligated by law to close. 

 “Calculation Agency Agreement” shall mean the Calculation Agency Agreement, dated as of
December 21, 2006 between the Company and the Calculation Agent, as amended from time to time, or any successor calculation agency agreement. 
 “Calculation Agent” shall mean the person that has entered into an agreement with the Company providing for, among other things, the determination of the Payment at Maturity, which term shall, unless the context otherwise
requires, include its successors and assigns. The initial Calculation Agent shall be Lehman Brothers Inc. 
 “Closing Price”
of a security, on any particular day, means the last reported sales price for that security on the Relevant Exchange at the scheduled weekday closing time of the regular trading session of the Relevant Exchange. If, however, the security is not
listed or traded on a bulletin board, then the Closing Price of the security will be determined using the average execution price per share that an affiliate of the Company pays or receives upon the purchase or sale of the security used to hedge the
Company’s obligations under the Notes. 
 “Company” shall have the meaning set forth on the face of this Security.

 “Final Valuation Date” shall mean May 12, 2008; provided, that if the scheduled Final Valuation Date is not a
Trading Day or if there is a Market Disruption Event on such day, the Final Valuation Date shall be postponed to the immediately succeeding Trading Day during which no Market Disruption Event shall have occurred or shall be continuing;
provided, however, that the Index Closing Level for the Final Valuation Date shall not be determined on a date later than the eighth scheduled Trading Day after the originally scheduled Final Valuation Date, and if such day is not a
Trading Day, or if there is a Market Disruption Event on such date, the Calculation Agent shall determine the Index Closing Level for the Final Valuation Date on such date in accordance with the formula for and method of calculating the Index
Closing Level last in effect prior to commencement of the Market Disruption Event (or prior to the non-Trading Day), using the Closing Price (or, if trading in the relevant securities has been materially suspended or materially limited, the
Calculation Agent’s good faith estimate of the Closing Price that would have prevailed but for such suspension or limitation or non-Trading Day) on such eighth scheduled Trading Day of each security most recently constituting the Index.

 “Indenture” shall have the meaning set forth on the reverse of this Security. 
 “Index” shall mean the Dow Jones EURO STOXX 50® Index, as calculated, published and disseminated by STOXX Limited. 
 “Index Closing Level”, as determined by the Calculation Agent, shall mean, with respect to any Trading Day, the closing level of the
Index or the Successor Index, as the case may be, at the regular official weekday close of the principal trading session of the Relevant Exchange or market for the Index or the Successor Index, as the case may be, on such day, or as determined by
the Calculation Agent pursuant to the Calculation Agency Agreement as described below under “Discontinuation of the Index; Alteration of Method of Calculation.” 
 “Index Ending Level” shall equal the Index Closing Level on the Final Valuation Date. 
 “Index Starting Level” equals 4,423.07. 

 “Holder” shall have the meaning set forth on the reverse of this Security. 

The “Lower Index Barrier” equals the Index Starting Level x (1 - Absolute Return Barrier). 
 “Market Disruption Event”, with respect to the Index or any Successor Index shall mean any of the following events has occurred on any
day as determined by the Calculation Agent in its sole discretion: 
 (1) a suspension, absence or material limitation of trading of stocks
then constituting 20% or more of the level of the Index (or the relevant Successor Index) on the Relevant Exchanges for such securities at any time during the one hour period preceding the close of the principal trading session on such Relevant
Exchange; 
 (2) a breakdown or failure in the price and trade reporting systems of any Relevant Exchange as a result of which the reported
trading prices for stocks then constituting 20% or more of the level of the Index (or the relevant Successor Index) at any time during the one hour period preceding the close of the principal trading session on such Relevant Exchange are materially
inaccurate; 
 (3) a suspension, absence or material limitation of trading on any major securities exchange for trading in futures or options
contracts or exchange traded funds related to the Index (or the relevant Successor Index) at any time during the one hour period preceding the close of the principal trading session on such exchange; or 
 (4) a decision to permanently discontinue trading in the relevant futures or options contracts or exchange traded funds. 
 For the purpose of determining whether a Market Disruption Event exists at any time, if trading in a security included in the Index is materially
suspended or materially limited at that time, then the relevant percentage contribution of that security to the level of the Index shall be based on a comparison of: 
 (1) the portion of the level of the Index attributable to that security relative to 
 (2) the overall level
of the Index, 
 in each case immediately before that suspension or limitation. 
 For purposes of determining whether a Market Disruption Event has occurred: 
 (1) a limitation on the hours or number of days of trading will not constitute a Market Disruption Event if it results from an announced change in the regular business hours of the Relevant Exchange or market;

 (2) limitations pursuant to the rules of any Relevant Exchange similar to NYSE Rule 80B (or any applicable rule or regulation enacted or
promulgated by any other self-regulatory organization or any government agency of scope similar to NYSE Rule 80B as 

 
determined by the Calculation Agent in its sole discretion) on trading during significant market fluctuations will constitute a suspension, absence or
material limitation of trading; 
 (3) a suspension of trading in futures or options contracts on the Index by the primary securities market
trading in such contracts by reason of (i) a price change exceeding limits set by such exchange or market, (ii) an imbalance of orders relating to such contracts, or (iii) a disparity in bid and ask quotes relating to such contracts,
will, in each such case, constitute a suspension, absence or material limitation of trading in futures or options contracts related to the Index; and 
 (4) a suspension, absence or material limitation of trading on any Relevant Exchange or on the primary market on which futures or options contracts related to the Index are traded will not include any time when such
market is itself closed for trading under ordinary circumstances. 
 “Maturity Date” shall mean May 16, 2008, unless
that day is not a Business Day, in which case the amount equal to the Payment at Maturity will instead be due on the next succeeding Business Day following May 16, 2008; provided, that if, due to a non-Trading Day or a Market Disruption
Event, the Final Valuation Date is postponed so that it falls less than three Business Days prior to the scheduled Maturity Date, the Maturity Date will be the third Business Day following the Final Valuation Date, as postponed. 
 “Observation Period” shall mean the period starting on May 11, 2007 and ending on, and including, the Final Valuation Date.

 “Payment at Maturity”, as calculated by the Calculation Agent, shall equal a cash payment per $10 principal amount note
of $10 plus the Additional Amount (which may be zero). 
 “Place of Payment” shall mean the place or places where the
Payment at Maturity on the Securities is payable. 
 “Relevant Exchange” shall mean, for any security (or any combination
thereof) then included in the Index or any Successor Index, the primary exchange or other market of trading for such security. 
 “Securities” shall have the meaning set forth on the reverse of this Security. 
 “Security” shall
have the meaning set forth on the face of this Security. 
 “Successor Index” shall have the meaning specified under
“Discontinuation of the Index; Alteration of Method of Calculation.” 
 “Trading Day” means a day, as determined
by the Calculation Agent, on which trading is generally conducted on (i) the Relevant Exchanges for securities underlying the Index and (ii) the exchanges on which futures or options contracts related to the Index are traded, other than a
day on which trading on such Relevant Exchange or exchange on which such securities, futures or options contracts are traded is scheduled to close prior to its scheduled weekday closing time. 

 “Trustee” shall have the meaning set forth on the reverse of this Security. 

The “Upper Index Barrier” equals the Index Starting Level x (1 + Absolute Return Barrier). 
 All terms used but not defined in this Security are used herein as defined in the Calculation Agency Agreement or the Indenture. 
 Calculation Agent 
 The Calculation Agent will
determine, among other things, the Index Starting Level, the Index Ending Level, the Absolute Index Return, the Additional Amount (which may be zero) and the Payment at Maturity. In addition, the Calculation Agent will determine whether there has
been a Market Disruption Event or a discontinuation of the Index, and whether there has been a material change in the method of calculation of the Index. All calculations, determinations or adjustments made by the Calculation Agent will be at the
sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive for all purposes and binding on Holders and on the Company. The Company may appoint a different Calculation Agent from time to time after the date of
the original issue of the Notes without the Holders’ consent and without notifying Holders. 
 Discontinuation of the Index; Alteration of Method of
Calculation 
 If STOXX Limited discontinues publication of the Index and STOXX Limited or another entity publishes a successor or
substitute index that the Calculation Agent determines to be comparable to the discontinued Index (a “Successor Index”), then any Index Closing Level will be determined by reference to the level of such Successor Index at the close
of the principal trading session on such date of each security most recently comprising the Dow Jones EURO STOXX 50 Index or Successor Index, as applicable, on the Final Valuation Date. Upon any selection by the Calculation Agent of a Successor
Index, the Calculation Agent will cause written notice thereof to be promptly furnished to the Trustee, to the Company and to the Holders. 
 If STOXX Limited discontinues publication of the Index prior to, and such discontinuation is continuing on, the Final Valuation Date and the Calculation Agent determines that no Successor Index is available at such time, or the Calculation
Agent has previously selected a Successor Index and publication of such Successor Index is discontinued prior to, and such discontinuation is continuing on, the Final Valuation Date, or if STOXX Limited (or the publisher of any Successor Index)
fails to calculate and publish an Index Closing Level for the Index (or any Successor Index) on any date when it would ordinarily do so in accordance with its customary practice, then the Calculation Agent will determine the Index Closing Level for
such date. The Index Closing Level will be computed by the Calculation Agent in accordance with the formula for and method of calculating the Index or Successor Index, as applicable, last in effect prior to such discontinuation or failure to
calculate or publish an Index Closing Level for the Index or Successor Index, as applicable, using the Closing Price (or, if trading in the relevant securities has been materially suspended or materially limited, its good faith estimate of the
Closing Price that would have prevailed but for such suspension or limitation) at the close of the 

 
principal trading session on such date of each security most recently composing the Index or Successor Index, as applicable. 
 If at any time the method of calculating the Index or a Successor Index, or the level thereof, is changed in a material respect, or if the Index or a
Successor Index is in any other way modified so that the Index or such Successor Index does not, in the opinion of the Calculation Agent, fairly represent the level of the Index or such Successor Index had such changes or modifications not been
made, then the Calculation Agent will, at the close of business in New York City on each date on which the Index Closing Level is to be determined, make such calculations and adjustments as, in the good faith judgment of the Calculation Agent, may
be necessary in order to arrive at a level of a stock index comparable to the Index or such Successor Index, as the case may be, as if such changes or modifications had not been made, and the Calculation Agent will calculate the Index Closing Level
with reference to the Index or such Successor Index, as adjusted. Accordingly, if the method of calculating the Index or a Successor Index is modified so that the level of the Index or such Successor Index is a fraction of what it would have been if
there had been no such modification (e.g., due to a split in the Index), then the Calculation Agent will adjust its calculation of the Index or such Successor Index in order to arrive at a level of the Index or such Successor Index as if
there had been no such modification (e.g., as if such split had not occurred). 

 The following abbreviations, when used in the inscription on the face of the within Security, shall be
construed as though they were written out in full according to applicable laws or regulations: 
  

					
	TEN COM -	  	as tenants in common	  	UNIF GIFT MIN ACT -              Custodian             

		  		  	                                       
   (Cust)                    (Minor)
	TEN ENT -	  	as tenants by the entireties	  	under Uniform Gifts to Minors
	JT TEN -	  	as joint tenants with right of	  	Act
                                        
                                    
		  	Survivorship and not as tenants in common	  	                                    (State)

 Additional abbreviations may also be used though not in the above list. 
  

 FOR VALUE RECEIVED, the
undersigned hereby sells, assigns and transfers unto 
 PLEASE INSERT SOCIAL SECURITY OR OTHER 
 IDENTIFYING NUMBER OF ASSIGNEE 
  

											
	 					
	  	  		  		  		  		  	 

  
  

 (Name and Address of Assignee, including zip code, must be printed or typewritten.) 
  

 the within Security, and all rights thereunder, hereby irrevocably constituting and appointing 
  

 to transfer the said Security on the books of the
Company, with full power of substitution in the premises. 
 Dated: 
  

	
	  

 NOTICE: The signature to this assignment must correspond with the name as it appears upon
the face of the within Security in every particular, without alteration or enlargement or any change whatever. 
  

	
	Signature(s) Guaranteed:
	
	  

 THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED MEDALLION SIGNATURE GUARANTEE PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

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