Document:

Unassociated Document

     

     

     

    (English
      Translation)

    June
      4, 2007

    

    

    

    

    
      	
            	Transferor:	
              YIU,
                SIU FUNG JEFF

            

    

     

    

    
      	
            	Transferee:	
              CHINA
                SAFETECH HOLDINGS LIMITED 

            

    

    

    

    
      	
            	Party
              C:	
              CHINA
                SECURITY & SURVEILLANCE TECHNOLOGY, INC.  

            

    

     

    
      	 
	
               

              Equity
                Transfer Agreement 

              of
                

              All
                Issued Shares 

              of
                

              ALLIED
                RICH LIMITED 

               

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    This
      Equity Transfer Agreement (the “Agreement”)
      is
      entered into by and among the following parties on June 4, 2007:

    

    
      	
              (1)

            	
              YIU,
                SIU FUNG JEFF
                whose address is Flat B3107, Man Wah House,
                Lok
                Wah Estate,
                Ngau
                Tau Kok,
                Kowloon,
                Hong Kong (the ID Card No. in Hong Kong is K636594(9)) (hereinafter
                referred to as “Transferor”);

            

    

    

    
      	
              (2)

            	
              CHINA
                SAFETECH HOLDINGS LIMITED,
                a
                company incorporated in British Virgin Islands, whose address
                is
                F13, Press Plaza, Shennan Avenue Special Zone, Futian District, Shenzhen
                (hereinafter
                referred to as “Transferee”);

            

    

    

    
      	(3)	
              CHINA
                SECURITY & SURVEILLANCE TECHNOLOGY, INC.,
                a
                company incorporated in Delaware, United States, whose address is
                F13,
                Press Plaza, Shennan Avenue Special Zone, Futian District, Shenzhen
                (hereinafter
                referred to as “Party
                C”);

            

    

    

    The
      Transferor, the Transferee and Party C above shall be individually referred
      to
      as a “Party”
and
      collectively referred to as the “Parties”.

    

    
      
        WHEREAS
          ALLIED
          RICH LIMITED,
          a
          limited liability company legally organized and validly existing under
          the
          Company Ordinance of Hong Kong, whose information is listed as Exhibit
          I
          (hereinafter referred to as “Allied
          Rich”),
          and
          whose all issued shares are beneficially held by the
          Transferor.

      

    

    

    
      	WHEREAS	
              Allied
                Rich invests and acquires Changzhou
                Minking Electronics Co., Ltd.,
                a
                wholly foreign owned company legally organized and validly existing
                under
                the laws of People’s Republic of China, whose information is listed as
                Exhibit III (hereinafter referred to as “Minking”),
                and whose all shares are beneficially held by Allied
                Rich.

            

    

    

    
      
        	WHEREAS	
                The
                  Transferee desires to purchase from the Transferor and the Transferor
                  desires to transfer to the Transferee 100% issued shares of Allied
                  Rich.
                  Upon completion of the transfer under this Agreement, the Transferee
                  shall
                  indirectly and fully acquire 100% shares and control power of
                  Minking.

              

      

    

     

    NOW,
      THEREFORE,
      the
      Parties hereby agree as follows:

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Article
      1 Definitions

    

    
      	1.1	
              Unless
                otherwise defined in this Agreement, the following terms shall have
                the
                meanings indicated as follow:

            

    

    

    
      	
              “Company
                Ordinance”

            	 	
              means
                Chapter 32 Company Ordinance of the laws of Hong Kong;

            
	 	 	 
	
              “Shares
                for Transfer”

            	 	
              means
                10,000 common share of Allied Rich owned by the Transferor to be
                transferred from the Transferor to the Transferee under this Agreement,
                constituting 100% issued and outstanding stock of Allied Rich (for
                details
                please refer to Exhibit II - Part A);

            
	 	 	 
	
              “Share
                Transfer”

            	 	
              means
                100% issued shares of Allied Rich to be transferred from the Transferor
                to
                the Transferee under Article 2.1 hereof;

            
	 	 	 
	
              “Balance”

            	 	
              shall
                have the meaning as provided in Article 3.2.1(2);

            
	 	 	 
	
              “Total
                Transfer Price”

            	 	
              means
                total price paid to the Transferor by the Transferee under Article
                3.1
                hereof;

            
	 	 	 
	
              “Closing
                Date”

            	 	
              June
                4, 2007;

            
	 	 	 
	
              “Accounts
                of Allied Rich”

            	 	
              means
                management and financial statements of Allied Rich as of March 31,
                2007,
                the copies of which are attached as Exhibit A hereof;

            
	 	 	 
	
              “Minking
                Accounts”

            	 	
              means
                management and financial statements of Minking as of March 31, 2007
                the
                copies of which are attached as Exhibit B hereof;

            
	 	 	 
	
              “Business
                Day and Working Hours”

            	 	
              means
                the days when banks in Hong Kong normally provide general bank services
                (excluding Saturday, Sunday and other Hong Kong public holidays)
                and
                general working hours;

            
	 	 	 
	
              “PRC”

            	 	
              means
                People’s Republic of China;

            
	 	 	 
	
              “Hong
                Kong”

            	 	
              means
                Hong Kong Special Administrative Region of PRC;

            
	 	 	 
	
              “HKD”

            	 	
              means
                legal currency of Hong Kong;

            
	 	 	 
	
              “USD”

            	 	
              means
                legal currency of United States;

            
	 	 	 
	
              “RMB”

            	 	
              means
                legal currency of PRC.

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      	1.2	
              In
                this Agreement:

            

    

    

    
      	 	
              (i)

            	
              Any
                rule or law involved herein shall include any and all amendments,
                supplements or reenactments thereof from time to
                time;

            

    

    

    
      	 	
              (ii)

            	
              Words
                and terms contained in Companies Ordinance shall be interpreted according
                to definitions stipulated in Companies Ordinance except as otherwise
                defined or stated in this Agreement, however, any amendment or change
                to
                Companies Ordinance shall be excluded which is not enforced before
                or on
                the date to execute this Agreement.

            

    

    

    
      	 	
              (iii)

            	
              Single
                word also includes plural meaning; word referred to any gender also
                includes the other gender and neuter, word referred to person also
                includes groups (legal person or non-legal person) and (under every
                circumstance), vice versa;

            

    

    

    
      	 	
              (iv)

            	
              The
                parties, descriptions, exhibits, appendices and terms and conditions
                mentioned herein shall be respectively referred to the parties,
                descriptions, exhibits, appendices and terms and conditions hereof;
                and

            

    

    

    
      	 	
              (v)

            	
              The
                headings and table of contents in this Agreement are provided for
                reference only and will not affect its construction or
                interpretation.

            

    

     

    Article
      2 Share Transfer

    

    
      	2.1	
              According
                to the provisions in this Agreement, the Transferor, as the beneficial
                owner of all issued and outstanding shares of Allied Rich (for more
                details please refer to Part A, Exhibit II), will transfer such Shares
                for
                Transfer to the Transferee (for more details please refer to Part
                B,
                Exhibit II). After such transfer, the Transferee will own 100% issued
                and
                outstanding shares of Allied Rich.

            

    

    

    
      	2.2	
              Upon
                the completion of transaction hereunder, Shares for Transfer shall
                be free
                and clear of any mortgage, lien or property encumbrances of any form,
                and
                Shares for Transfer shall be transferred with all rights attached
                or
                accumulated thereto, including all dividends and profits accumulated
                and
                distributed from the completion date and the investment in Minking
                by
                Allied Rich. 

            

    

     

    Article
      3 Transfer Price

    

    
      	3.1	
              Transfer
                Price

            

    

    

    The
      Transferor and the Transferee agree, the Transferor shall transfer to the
      Transferee Shares for Transfer. In return, the Transferee shall pay to the
      Transferor the Total Transfer Price of RMB 200,000,000, consisting of RMB
      100,000,000 in cash and the OTCBB listed shares of Party C with the value of
      RMB
      100,000,000.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      	3.2	
              Method
                of Payment

            

    

    

    
      	
            	3.2.1	
              The
                Transferee shall pay the Total Transfer Price to the Transferor as
                follows:

            

    

    

    
      	
            	(1)	
              The
                Transferee has paid to the Transferor USD3,952,555
                before the Closing Date. 

            

    

    

    
      	
            	(2)	
              The
                Transferee shall pay the remaining price of USD8,900,915 (“Balance”)
                upon the execution of this
                Agreement.

            

    

    

    
      	
            	(3)	
              The
                Transferee (through its parent company, Party C) shall issue restricted
                shares equal to RMB100,000,000
                to the
                Transferor or its designees within
                ninety days after the execution date of this Agreement, and the share
                value shall be calculated based
                on the average of the closing price of Party C’s common stock on the OTCBB
                for the 20 trading days prior to January 29, 2007 (USD13.27/share),
                which means that the Transferee shall issue 968,611 shares to the
                Transferor. The Transferor shall pledge certain shares to the Transferee
                as provided under Article 5.2
                hereof.

            

    

    

    
      	
            	3.2.2	
              The
                Transferee shall remit the Balance to the bank accounts designated
                by the
                Transferor, the information of which will be provided
                otherwise.

            

    

     

    
      	3.3	
              Exchange
                Rate

            

    

    

    Cash
      of
      the total transfer price shall be paid by the Transferee to the Transferor
      in
      USD. Exchange Rate of RMB against USD shall be 1:7.78.

    

    Article
      4 Closing

    

    
      	4.1	
              The
                Share Transfer shall be completed on the Closing Date at the place
                stipulated by both parties in accordance with Exhibit
                V.

            

    

    

    
      
        
          	4.2	
                  Terms
                    and conditions to be performed hereof shall remain in force after
                    the
                    Closing Date.

                

        

      

    

    

    
      	4.3	
              From
                the Closing Date, debts and credits and all risks of Allied Rich
                and
                Minking shall be promptly borne by the Transferee (except otherwise
                undertaken by the Transferor in Exhibit
                IV).

            

    

    

    
      	4.4	
              From
                the Closing Date, the Transferee shall have the right to consolidate
                profits of Allied Rich and Minking with the Transferee group. At
                the
                meantime, the Transferee shall have the right to appoint manager
                or
                financial person, or authorize to appoint existing personnel of Allied
                Rich and Minking to take charge of management and operation of Allied
                Rich
                and Minking as well as all files, materials, financial documents
                and so
                on. The Transferor shall not enjoy any shareholder right and/or interest
                of Allied Rich and Minking from the Closing Date because of such
                Share
                Transfer, provided
                however,
                the Transferor shall be liable for all obligations that are required
                to be
                borne by the Transferor under applicable laws and this
                Agreement.

            

    

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    Article
      5 Warrants, Representations and Covenants of the
      Transferor

    

    
      	5.1	
              In
                addition to the information disclosed in this Agreement, the Transferor
                warrants, represents and covenants to the Transferee under terms
                and
                conditions stipulated in Exhibit IV, which also constitute the base
                for
                the Transferee to accept the Shares for
                Transfer.

            

    

    

    
      	5.2	
              The
                Transferor covenants to the Transferee that the profits after tax
                in 2007
                audited by US Auditors shall reach three levels: RMB20,000,000,
                RMB22,500,000 and RMB25,000,000. If profits after tax reach RMB20,000,000,
                the Transferee shall release pledged shares equivalent to USD1,100,000
                to
                the Transferor
                or its designee;
                if Minking reaches profits after tax of RMB22,500,000, the Transferee
                shall release pledged shares equivalent to USD2,200,000 to the Transferor
                or its designee; and if Minking reaches profits after tax of
                RMB25,000,000, the Transferee shall release pledge shares equivalent
                to
                USD3,213,368 to the Transferor or its designee. The Transferor also
                covenants to the Transferee that Minking’s profits after tax in 2008 which
                are audited by US Auditors shall reach three levels: RMB30,000,000,
                RMB32,500,000, and RMB35,000,000. If Minking reaches profits after
                tax of
                RMB30,000,000, the Transferee shall release pledged shares equivalent
                to
                USD1,100,000 to the Transferor or its designee; if Minking reaches
                profits
                after tax of RMB32,500,000, the Transferee shall release pledged
                shares
                equivalent to USD22,000,000 to the Transferor or its designee; and
                if
                Minking reaches profits after tax of RMB35,000,000, the Transferee
                shall
                release pledged shares equivalent to USD3,213,367 to the Transferor
                or its
                designee.

            

    

     

    Article
      6 Warrants, Representations and Covenants of the Transferee and Party
      C

    

    
      	6.1	
              The
                Transferee covenants to keep the organization structure of Allied
                Rich and
                Minking after the Share Transfer, expand its brand influence, fully
                support business development of Allied Rich and Minking. The Transferee
                shall also provide financial support as required by business based
                on the
                real situation according to relevant laws and
                regulations.

            

    

    

    
      	6.2	
              The
                Transferee covenants that existing employees of Allied Rich and Minking
                shall remain employed given that they are willing to stay and their
                stay
                will not impede development of companies after Share Transfer; arrangement
                of senior management and technical staff and the operation rights
                and
                benefits of such persons shall be governed by separate agreements
                to be
                entered after the Share Transfer. In addition, the Transferee covenants
                that benefits of such persons shall not be lower than their previous
                benefits.

            

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    
      	6.3	
              The
                Transferee shall provide appropriate operation funds to Allied Rich
                and
                Minking in order to support the Transferor to realize profits after
                tax
                for 2007 and 2008, dates and amounts of providing such funds shall
                be
                otherwise stipulated.

            

    

    

    
      
        
          	6.4	
                  Party
                    C shall file relevant reports with the U.S. Securities and Exchange
                    Committee (“SEC”) according to law and issue shares to the Transferor
                    under Article 3.2.1(3) hereof after the execution of this
                    Agreement.

                

        

      

    

     

    Article
      7 Governing Law

    

    This
      Agreement shall be governed and construed by rules and laws of Hong
      Kong.

     

    Article
      8 Settlement of Disputes and Agent of Receiving Legal Procedure
      Documents

    

    
      	8.1	
              Any
                dispute arising out of or relating to this Agreement, shall be settled
                by
                friendly negotiation and discussion. If no agreement is reached through
                friendly negotiation and discussion, such dispute shall be finally
                arbitrated by Hong Kong International Arbitration Center(HKIAC) in
                accordance with HKIAC Arbitration Rules then in effect. Unless otherwise
                provided in the arbitration rules of HKIAC then in effect, the arbitration
                shall be the sole and exclusive method and procedure of any dispute
                arising out of or relating to this
                Agreement.

            

    

    

    
      	8.2	
              The
                Parties to this Agreement agree that unless not permitted by the
                applicable laws and rules, the arbitration terms hereto shall be
                interpreted as and constitute the currently effective arbitration
                agreement in writing with legal effect, and shall be granted with
                such
                effect. The Parties to this Agreement hereby expressly waive any
                right of
                possibly requested local administrative, judicial or alternative
                dispute
                settlement methods, as the conditions of any settlement procedure
                which
                arising out of this Agreement.

            

    

    

    
      	8.3	
              The
                Parties to this Agreement expressly represent that the award made
                according to Article 8 hereof shall be final award binding upon the
                Parties. In addition, the Parties to this Agreement hereby waive
                the right
                to appeal the award made according to Article 8 hereof. The Article
                8
                shall constitute the most comprehensive exclusive agreement to the
                extent
                permitted by the applicable laws.

            

    

    

    
      	8.4	(1) 	
              The
                Transferee irrevocably entrusts BOYU ENTERPRISE CONSULTING CO., LIMITED,
                whose address is Unit B1, 9/F, Loyong Court Commercial Building,
                212-220
                Lockhart Road, Wanchai, Hong Kong (“Agent”),
                to receive legal procedure documents and to be on behalf of the Transferee
                to receive claims arising out of or relevant to the Agreement or
                the legal
                procedures in Hong Kong (including but not limited to, claims for
                reimbursement, summons, arbitration application and arbitration award)
                (“Legal Procedure Documents”).

            

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      	
            	(2)	
              Transferee
                undertakes to consecutively entrust the Agent as the agent of receiving
                Legal Procedure Documents, in order to on behalf of the Transferee
                receive
                Legal Procedure Documents in Hong Kong and immediately notify the
                Transferor in writing if the Agent or its address is
                modified.

            

    

    

    
      	
            	(3)	
              The
                Transferee agrees and confirms that Legal Procedure Documents which
                have
                been sent to its Agent shall be deemed as having been sent to any
                Transferee.

            

    

    

    Article
      9 Liabilities for Breach of Contract

    

    
      	9.1	
              If
                any statement or warrants made by any Party in this Agreement is
                untrue or
                false, it shall be deemed as breach of contract by the
                Party.

            

    

    

    
      	9.2	
              Any
                Party to this Agreement changes minds on purpose and cause the failure
                of
                the share transfer, it shall be deemed as breach of contract by the
                Party.

            

    

    

    
      	9.3	
              The
                breaching party shall, in addition to performance of other obligations
                under this Agreement, compensate the observant party all losses,
                damages,
                expenses suffered by the observant party due to breach of contract
                caused
                by breaching party.

            

    

    

    
      	9.4	
              If
                the Transferor changes minds on purpose and cause that the shares
                cannot
                be transferred to the Transferee or the shares is forfeited after
                transfer, the Transferee shall have the right to terminate the Agreement,
                and The Transferor shall return the share transfer price or the shares
                and
                assume liabilities under Article 9.3 of this
                Agreement.

            

    

    
    

     

    Article
      10 Force Majeure and Change of Circumstances

    

    
      	10.1	
              If
                any Party to this Agreement cannot perform any part or all of the
                terms
                hereto directly or indirectly because of events such as fire, flood,
                earthquake or other unforeseeable, unavoidable and/or uncontrollable
                events, the Party shall be exempted from liabilities to the extent
                as
                affected by force majeure.

            

    

    

    
      	10.2	
              If
                any Party or Parties lose(s) its/their interests under this Agreement
                because of legislation, or administration order or specific administration
                act of government, any Party shall have the right to terminate this
                Agreement and to restore to the conditions before the execution of
                this
                Agreement.

            

    

    

    
      	10.3	
              Any
                Party affected by force majeure shall deliver the other Party the
                written
                notice regarding the occurrence of force majeure within 12 days after
                the
                occurrence of the force majeure
                event.

            

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    
      	10.4	
              After
                the occurrence of force majeure event, the Parties to this Agreement
                shall
                immediately consultant and decide whether to delay the performance
                of this
                Agreement to a day in the future agreed by the Parties or to terminate
                this Agreement.

            

    

    

    
      	10.5	
              If
                any Party delays or unable to perform all or part of the terms of
                this
                Agreement for more than 30 days as a result of force majeure, the
                other
                Party shall have the right to rescind this Agreement, and the Parties
                shall take all necessary actions to restore the rights and obligations
                of
                all parties to their respective original
                positions.

            

    

    
    

    Article
      11 Miscellaneous

    

    
      	11.1	
              This
                Agreement and its involved relevant documents constitute the full
                understanding of the Parties regarding the share transfer, and replace
                any
                previous intention, expression and understanding of the
                Parties.

            

    

    

    
      	11.2	
              If
                any term of this Agreement is regarded as illegal, invalid or
                unenforceable at any time, the validity, effectiveness and enforceability
                of other terms of this Agreement shall not affected or impaired in
                any way
                and shall remain the full validity.

            

    

    

    
      	11.3	
              This
                Agreement shall bind the Parties and their respective successors
                and
                assignees. The interests of this Agreement shall be assigned to the
                Parties hereto and their respective successors and assignees. Without
                the
                permission of the Parties in writing, any Party shall not amend,
                modify or
                revise this Agreement.

            

    

    

    
      	11.4	
              This
                Agreement shall be effective upon
                signing.

            

    

    

    
      	11.5	
              Without
                the permission of the Parties in writing (the relevant permission
                shall
                not be withheld without reasonable reasons), the Parties hereto shall
                not
                transfer any rights or obligations under this
                Agreement.

            

    

    

    
      	11.6	
              The
                Parties agree to bear all the cost and expense in respect of the
                negotiation, preparation, execution and performance of the Agreement
                and
                the taxes arising from the transfer of Shares for Transfer. The stamp
                tax
                and all other tax and expenses arising out of the transfer of Shares
                for
                Transfer (including but not limited to, arising out of in China or
                in any
                other areas), shall be borne and paid by the
                Transferor.

            

    

    

    
      	11.7	
              Unless
                provided and required by laws, regulations, order or judgments by
                the
                competent authorities or courts (including, but not limited to, applicable
                regulation of security exchanges), without the previous permission
                of the
                other Party in writing (the relevant permission shall not be withheld
                without reasonable reasons), any Party shall not make or distribute
                any
                related press statement or
                announcement.

            

    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    
      	11.8	
              Without
                the prior permission of the other Party in writing, any Party shall
                not
                disclose the Agreement or any content or material in connection with
                any
                transaction of this Agreement, excluding the following
                disclosure:

            

    

    

    
      	 	
              (1)

            	
              the
                disclosure is made according to the provisions of applicable laws,
                regulations and rules (including, but not limited to, regulations
                of
                security exchanges) or requirements of relevant government authorities
                or
                supervision authorities, or court
                orders;

            

    

    

    
      	 	
              (2)

            	
              the
                disclosure is made to Allied Rich, Minking, or its higher competent
                authorities or approval and examination authorities, or to contacted
                bank
                or professional consultant of the disclosing
                Party;

            

    

    

    
      	 	
              (3)

            	
              the
                disclosure is made by the Transferor to the company of its company
                group
                or senior management thereof.

            

    

    

    
      	11.9	
              If
                any term of this Agreement is or becomes illegal, invalid or unenforceable
                at any time in any respect, other terms of this Agreement shall not
                be
                affected or impaired.

            

    

    

    
      	11.10	
              Any
                notice required to be sent under this Agreement shall be sent in
                writing.
                The notice shall be delivered to the following address or fax number
                or
                other address or fax number that the recipient designates according
                to
                this Agreement:

            

    

    

      
        	
                (1)

              	
                Transferor:

              	
                YIU,
                  SIU FUNG JEFF

              
	 	
                Address:

              	
                Flat
                  B3107, Man Wah House,
                  Lok
                  Wah Estate,
                  Ngau
                  Tau Kok,
                  Kowloon,
                  Hong Kong

              
	 	
                Telephone:

              	
                (852)
                  2116 1199

              
	 	
                Fax:

              	
                (852)
                  2116 1232

              
	 	 	 
	
                (2)

              	
                Transferee:

              	
                CHINA
                  SAFETECH HOLDINGS LIMITED

              
	 	
                Address:

              	
                Floor
                  13, Press Plaza, Shennan Avenue Special Zone, Futian District,
                  Shenzhen

              
	 	
                Telephone:

              	
                (86-755)
                  8351 0888

              
	 	
                Fax:

              	
                (86-755)
                  8351 0815

              
	 	 	 
	
                (3)

              	
                Party
                  C:

              	
                CHINA
                  SECURITY & SURVEILLANCE TECHNOLOGY, INC.

              
	 	
                Address:

              	
                Floor
                  13, Press Plaza, Shennan Avenue Special Zone, Futian District,
                  Shenzhen

              
	 	
                Telephone:

              	
                (86-755)
                  8351 0888

              
	 	
                
                  Fax:

                

              	
                (86-755)
                  8351 0815

              

      

    
      	11.11	
              Any
                notice can be sent by mail with postage pre-paid, personal delivery,
                courier with good reputation or by facsimile, and shall be deemed
                as
                delivered at the following time:

            

    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    
      	
            	(1)	
              two
                days (seven days if sending by airmail with postage prepaid) after
                post
                (the date of postmark is the posting date) for those sent by mail
                with
                postage prepaid;

            

    

    

    
      	
            	(2)	
              the
                next business day for those sent by
                fax;

            

    

    

    
      	
            	(3)	
              the
                receiving time for those sent by courier or personal
                delivery.

            

    

    

    Any
      notice to the Transferee, when properly delivered to any Transferee, shall
      be
      regarded as delivered to the other Transferee.

    

    
      	11.12	
              This
                Agreement shall be written in Chinese in three copies with each Party
                holding one copy.

            

    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF,
      this
      Agreement has been executed by the Parties on the date first above written
      and
      the Parties confirm that the Parties have carefully reviewed and fully
      understand all the provisions of the Agreement.

    

    
      	
              The
                Transferor

              YIU,
                SIU FUNG JEFF

            
	
              Signature
                :
                /s/
                YIU, SIU FUNG JEFF

            
	
              Place
                of Signature :
                Shenzhen

            

    

     

    Witness
      :
      PENG
      Yaoguang

    

    The
      Transferee

    

    
      	
              TU
                Guoshen
                for and on behalf of

              CHINA
                SAFETECH HOLDINGS LIMITED 

            
	
              Signature
                : /s/
                Tu Guoshen

            
	
              Place
                of Signature :
                Shenzhen

            

    

     

    Witness :
      LUO
      Ganqi

     

    
      	
              Party
                C

              To
                execute, chop and deliver

              TU
                Guoshen
                for and on behalf of

              CHINA
                SECURITY & SURVEILLANCE TECHNOLOGY, INC.

            
	
              Signature
                : /s/
                Tu Guoshen

            
	
              Place
                of Signature :
                Shenzhen

            
	 
	
              Witness
                :
                LUO
                Ganqi

            

    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    Exhibit
      I

    

    Information
      of Allied Rich

     

    
      	Name
              in English :	
              ALLIED
                RICH INVESTMENT LIMITED

            

    

    

    
      	Place
              of Registration :	
              Hong
                Kong

            

    

    

    
      	Registered
              Address :	
              Unit
                B1, 9/F, Loyong Court Commercial Building, 212-220 Lockhart Road,
                Wanchai,
                Hong Kong

            

    

    

    
      	Date
              of Registration and Establishment :	
              February
                23, 2007

            

    

    

    
      	Company
              Form :	
              Limited
                Liability Company

            

    

    

    
      	Director
              :	
              YIU,
                SIU FUNG JEFF

            

    

    

    
      	Company
              Secretary :	
              JPS
                CONSULTING LIMITED

            

    

    

    
      	Shares
              : Legally :	
              HKD10,000,
                divided into 10,000 shares with face value of HKD1.00 per share
                

            

    

     

    
      	Issued
              and fully paid : 	
              HKD10,000,
                divided into 10,000 share with face value of HKD1.00 per
                share

            

    

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Exhibit
      II

    

    Part
      A

    

    Information
      of Shares for Transfer

    

    
      	
              Company

            	
              Registered
                Shareholder

            	
              Quantity
                of Common Shares

            	
              Face
                Value Per Share

            	
              Percent
                of Issued Shares

            
	 	
               

            	
               

            	 	 
	
              Allied
                Rich

            	
              YIU,
                SIU FUNG JEFF

            	
              10,000

            	
              HKD
                1 yuan

            	
              100%

            

    

     

    Part
      B

    

    Information
      of the Recipient of Shares for Transfer

    

    
      	
              The
                Transferee

            	
              Amount
                of Share to Be Transferred

            
	
              CHINA
                SAFETECH HOLDINGS LIMITED

            	
              10,000

            

    

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    Exhibit
      III

     

    Information
      of Minking

    

      
        	
                Name

              	
                :

              	
                Changzhou
                  Minking
                  Electronics Co., Ltd.

              
	 	 	 
	
                Legal
                  Address

              	
                :

              	
                No.
                  65-12, Xinggang Road, Zhonglou Economic Development Zone, Changzhou,
                  Jiangsu Province 

              
	 	 	 
	
                Enterprise
                  Type

              	
                :

              	
                Wholly
                  Foreign Owned Enterprise

              
	 	 	 
	
                Date
                  of Establishment

              	
                :

              	
                February
                  23, 2001

              
	 	 	 
	
                Business
                  License No.

              	
                :

              	
                Qi
                  Du Su Chang Zong Fu Zi No. 004933

              
	 	 	 
	
                Operational
                  Term

              	
                :

              	
                20
                  years 

              
	 	 	 
	
                Total
                  Investment

              	
                :

              	
                RMB16
                  million Yuan

              
	 	 	 
	
                Registered
                  Capital

              	
                :

              	
                RMB8
                  million Yuan

              
	 	 	 
	
                Investor

              	
                :

              	
                ALLIED
                  RICH INVESTMENT LIMITED

              
	 	 	 
	
                Legal
                  Representative

              	
                :

              	
                YIU,
                  SIU FUNG JEFF

              
	 	 	 
	
                Directors

              	
                :

              	
                YIU,
                  SIU FUNG JEFF

              
	 	 	 
	
                Business
                  Scope

              	
                :

              	
                To
                  develop and manufacture digital cable TV system equipment, digital
                  recorder, digital audio/video encoding equipment, software products;
                  to
                  manufacture and process security productive products, equipment
                  for
                  electronic products; to engage in design and construction business
                  of
                  security and protection project; to sale self-produced
                  products.

              

      

    

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    Exhibit
      IV

    

    Representations
      and Warranties

    

    

    
      	1.	
              Allied
                Rich and Minking are companies legally established and validly existing
                under the laws of their respective places of
                establishment.

            

    

    

    
      	2.	
              Allied
                Rich and Minking have been authorized and qualified to conduct business
                within the jurisdiction of their existing
                businesses.

            

    

    

    
      	3.	
              The
                operation businesses and their operation of Allied Rich and Minking
                have
                been in material compliance with the relevant
                laws.

            

    

    

    
      	
              4.

            	
              Accounts
                of Allied Rich and Minking have been properly recorded in accordance
                with
                the account categories and the generally accepted account principles,
                standards and laws of their establishment place, which have truly
                represented and reflected the status of Allied Rich and Minking
                respectively for the fiscal year or the period ending on the date
                of the
                relevant book account.

            

    

    

    
      	5.	(a) 	
              Exhibit
                I has listed all the directors and company secretaries of Allied
                Rich
                before the completion of the transaction as of the Closing
                Date.

            

    

    

    
      	
            	(b)	
              Exhibit
                III has listed the legal representative and all the directors of
                Minking
                before the completion of the transaction as of the Closing
                Date.

            

    

    

    
      	
            	(c)	
              There
                has not been any shareholder resolution adopted to liquidate Allied
                Rich
                and Minking before the completion of the transaction as of the Closing
                Date.

            

    

    

    
      	
              6.

            	
              The
                register of shareholders of Allied Rich has truly and correctly recorded
                the date and the changes of shareholders from the establishment to
                the
                completion date and before the completion of the
                transition.

            

    

    

    
      	
              7.

            	
              Any
                share warrant has not been sent or given to any person in respect
                of any
                share of Allied Rich and Minking by the Transferor, Allied Rich and
                Minking.

            

    

    

    
      	8.	(a)	
              Allied
                Rich has not conducted any business activities other than holding
                shares
                of Minking.

            

    

    

    
      	
            	(b)	
              Allied
                Rich has Minking as its only one subsidiary company. Minking has
                no
                subsidiary companies.

            

    

    

    
      	
              9.

            	
              Articles
                of associations of Allied Rich and duplicate of articles of associations
                of Minking have been delivered to Transferee, which shall be true
                and
                complete. 

            

    

    

    
      	
              10.

            	
              If
                any thing conflicts or is inconsistent with foregoing warrants before
                the
                closing date, the Transferee agrees to immediately notify the Transferor
                in writing.

            

    

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    
      	
              11.

            	
              Allied
                Rich has fully paid the issued shares. Minking has fully contributed
                the
                registered capital.

            

    

    

    
      	
              12.

            	
              The
                Transferor shall be the solely and legal beneficial owner of the
                Shares
                for Transfer. The Shares for Transfer shall not be imposed of any
                mortgage, lien or property
                encumbrances.

            

    

    

    
      	
              13.

            	
              Allied
                Rich owns 100% of shares of Minking. Allied Rich shall be the solely
                and
                legal beneficial owner of the shares. The shares shall not be imposed
                of
                any mortgage, lien or property
                encumbrances.

            

    

    

    
      	
              14.

            	
              The
                Transferor shall have the authority to execute the Agreement and
                can sell
                any shares for transfer without any third party’s permission. The
                Agreement shall be legally binding on the
                Transferor.

            

    

    

    
      	
              15.

            	
              Except
                for the ongoing litigations disclosed to the Transferee, Allied Rich
                and
                Minking have not currently been involved in any material litigation
                or a
                party to any litigation and/or any unexecuted verdict, and have not
                been
                subject to any ongoing material injunction or
                order.

            

    

    

    
      	
              16.

            	
              Up
                to the Closing Date, all or part of the assets or businesses of Allied
                Rich and Minking have not been entrusted to take over by any person,
                and
                there are not any orders or applications before court or adopted
                solutions
                to close down Allied Rich and
                Minking.

            

    

    

    
      	17.	
              Except
                for debts (including the outstanding tax fees)disclosed by the Transferor,
                the Agreement or accounts of Allied Rich and Minking, Allied Rich
                and
                Minking shall not have any other debts and/or outstanding tax fees
                as of
                the Closing Date, which shall be assumed by the Transferor (if
                any).

            

    

    

    
      	18.	
              Except
                for the information disclosed by the Transferor, the Agreement or
                accounts
                of Allied Rich and Minking, Allied Rich and Minking shall not have
                other
                unperformed material contracts.

            

    

    

    
      
        
          	19.	
                  The
                    net assets in 2006 audited by the US auditor and verified by
                    a third party
                    appraiser shall be more than RMB 35,000,000, the amount of sales
                    shall be
                    no less than RMB 100,000,000 and the net profits shall be no
                    less than RMB
                    16,000,000.

                

        

      

    

    

    
      	20.	
              The
                shareholders and the meeting of board of directors according to the
                Company Law have reached a resolution to approve the share transfer
                for
                the issue of the share transfer under the
                Agreement.

            

    

    

    
      	21.	
              The
                existing and outstanding legal liabilities of Allied Rich and Minking
                before the Closing Date such as labor compensation disputes, bad
                debts and
                losses of bad assets, debt disputes and/or risks of contingent debts
                shall
                be assumed by the Transferor. For the losses which can be calculated
                into
                money, if the net assets of the target company are less than
                RMB35,000,000, the Transferor shall be obliged to make it up to
                RMB35,000,000.

            

    

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    
      	
              22.

            	
              The
                Transferor shall be fully responsible for all civil and criminal
                liabilities of Allied Rich and Minking before and on the Closing
                Date.

            

    

    

    
      	23.	
              The
                Transferor shall not manipulate any adverse change to the operations
                of
                Allied Rich and Minking on purpose (excluding the normal operation
                and
                force majeure) as of execution of this Agreement. The Transferor
                shall
                immediately inform the Transferee if there is any thing causing the
                material change to the operation of Allied Rich and
                Minking.

            

    

    

    
      	24.	
              The
                Transferor undertakes to assign WANG Qinghan to continue to be the
                CEO of
                Allied Rich and Minking for another five years and maintain the stability
                of Allied Rich and Minking.

            

    

    

    
      	25.	
              The
                Transferor undertakes that ZHENG Hui, WANG Qinghan and CHEN Jian
                and their
                direct relatives (parents, spouse or children) shall not engage in
                security and protection industry or operation in similar industry
                in five
                years.

            

    

    

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    Exhibit
      V

    

    Provisions
      for the Closing

    

    
      	
              1.

            	
              Liabilities
                of the Transferee

            

    

    

    
      	
            	(i)	
              The
                Transferee shall pay the Balance of the total price to the Transferor
                according to Article 3.2.1 (2) of the Agreement and submit the proof
                document of payment to the
                Transferor.

            

    

    

    
      	
            	(ii)	
              The
                Transferee shall provide a consent letter executed by two persons
                to be
                the directors of Allied Rich and a consent letter executed by two
                persons
                to be the directors of Minking.

            

    

    

    
      	
              2.

            	
              Liabilities
                of the Transferor

            

    

    

    After
      the
      transferor confirms that its bank account under Article 3.2.2 of the Agreement
      has received all the payment by the Transferee under Article 3.2.1, the
      Transferor shall deliver and arrange the following to the
      Transferee:

    

    
      	
            	(i)	
              The
                transfer documents (subject to official execution by the registered
                shareholders of Allied Rich) and instruments for sale along with
                shares in
                connection with the Shares for Transfer;

            

    

    

    
      	
            	(ii)	
              The
                original copy of resignation executed by two current directors of
                Minking
                with stating that there are not any claims against
                Minking;

            

    

    

    
      	
            	(iii)	
              All
                account books, registration certificates, business registration
                certificates, articles of association, meeting records, statutory
                books,
                application forms, seals, offset printing, steel seals and all documents
                relevant to the company businesses (if any) of Allied Rich controlled
                by
                the Transferor;

            

    

    

    
      	
            	(iv)	
              The
                Transferor shall incentive Allied Rich and Minking to hold a board
                meeting
                to approve (1) the transfer of the Shares for Sale relevant to Allied
                Rich, and registration after payment of appropriate stamp taxes;
                (2)
                appointment of the persons nominated by the Transferee according
                to law
                and who are qualified to be directors of company under laws as the
                two new
                directors of Allied Rich and the two new directors of Minking under
                the
                written instruction of the Transferee; (3) after the completion of
                the
                foregoing (2), acceptance of resignation of the two directors of
                the
                Minking under the above (ii); and (4) suspension and change of the
                operation of the bank accounts of Allied Rich and Minking, and appointment
                of the person nominated by the Transferee as the authorized person
                to
                execute the bank accounts of Allied Rich and Minking under the written
                instruction of the Transferee at least before two business
                days;

            

    

    

    
      	
            	(v)	
              The
                original copy of records of the board meeting held for the issue
                of the
                above (iv) executed and confirmed by the directors of Allied Rich
                and
                Minking;

            

    

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    
      	
            	(vi)	
              The
                documents controlled by Minking (refer to the list of Exhibit C);
                

            

    

    

    
      	
            	(vii)	
              The
                original resignation letter of the legal representative duly signed
                by the
                transferor with stating that there are not any claims against Minking;
                and

            

    

    

    
      	
            	(viii)	
              Legal
                opinion reports issued by Hong Kong law firms and China law
                firms.

            

    

    

    
      	3.	
              The
                Transferor and the Transferee shall make obvious marks on the seals
                and
                enter into the delivery memorandum to present the differences between
                the
                new users and the old users, while transferring
                Minking.

            

    

    

    
      
        
        

      

      
        19THIS
        SENIOR SECURED CONVERTIBLE PROMISSORY NOTE (THIS “NOTE”)
        AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED
        UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
        ACT”),
        AND ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AS SET FORTH HEREIN. NEITHER
        THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE SOLD,
        TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
        REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE
        REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT. 

       

      SURFECT
        HOLDINGS, INC.

       

      10%
        Senior Secured Convertible Promissory Note 

      
        	 	 	 
	
                $___________

              	
                 

              	
                As
                  of June 1, 2007

              
	
                 

              	
                 

              	
                New
                  York, New York

              
	 	 	 

      

      Surfect
        Holdings, Inc., a Delaware corporation (the “Company”),
        for
        value received, hereby promises to pay to ___________, or its successors
        or
        assigns (the “Holder”),
        the
        principal amount of ___________($__________), in lawful money of the United
        States of America, with interest thereon to be computed from the date hereof,
        on
        the unpaid principal balance at the rate and as herein provided.

      

      All
        agreements herein made are expressly limited so that in no event whatsoever,
        whether by reason of advancement of proceeds hereof, acceleration of maturity
        of
        the unpaid balance hereof or otherwise, shall the amount paid or agreed to
        be
        paid to the Holder for the use of the money advanced or to be advanced hereunder
        exceed the maximum rate permitted by applicable law (the “Maximum
        Rate”).
        If,
        for any circumstances whatsoever, the fulfillment of any provision of this
        Note
        or any other agreement or instrument now or hereafter evidencing, securing
        or in
        any way relating to the debt evidenced hereby shall involve the payment of
        interest in excess of the Maximum Rate, then, ipso
        facto,
        the
        obligation to pay interest hereunder shall be reduced to the Maximum Rate;
        and
        if for any circumstance whatsoever, the Holder shall ever receive interest,
        the
        amount of which would exceed the amount collectible at the Maximum Rate,
        such
        amount as would be excessive interest shall be applied to the reduction of
        the
        principal balance remaining unpaid hereunder and not to the payment of interest.
        This provision shall control every other provision in any and all other
        agreements and instruments existing or hereafter arising between the Company
        and
        the Holder with respect to the debt evidenced hereby.

      

      1. Securities
        Purchase Agreement: Security.

      

      This
        Note
        is issued pursuant to, and is entitled to the benefits of, the Securities
        Purchase Agreement, dated as of the date hereof, by and among the Company
        and
        the Investors (the “Purchase
        Agreement”;
        capitalized terms that appear but are not defined herein have the meanings
        ascribed to such terms in the Purchase Agreement
        or the
        Security Agreement (as hereinafter defined)).
        This
        Note
        and the Company’s obligations hereunder are collateralized by a security
        interest in the Collateral,
        pursuant to a Security Agreement, dated as of the date hereof (the “Security
        Agreement”),
        by
        and among the Company and the Buyers, as secured parties. If an Event of
        Default
        (as hereinafter defined) shall have occurred and the principal amount of
        this
        Note and all accrued and unpaid interest thereon shall become due and payable,
        the Holder shall be entitled to exercise, in addition to any right, power
        or
        remedy permitted in law or equity, all its remedies under the Security Agreement
        or the Purchase Agreement, as applicable.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      2. Maturity
        Date; Interest; Payments.
        (a)
        Principal of, and any accrued and unpaid interest on, this Note shall be
        due and
        payable immediately on
        the
        earlier to occur of (i) the consummation by the Company (or any Affiliate
        of the
        Company) of any debt or equity financing, or indebtedness (in one or a series
        of
        closings) in which the Company (or any Affiliate of the Company) receives
        gross
        cash proceeds of at least One Million Five Hundred Thousand Dollars
        ($1,500,000), in which case the Maturity Date shall be the closing date of
        such
        financing, or (ii) one hundred fifty (150) days after the Closing Date (the
        “Maturity
        Date”),
        unless the principal of, and any accrued and unpaid interest on this Note
        shall
        have been converted in accordance with the terms hereof.

      

      (b) Until
        this Note is converted or paid in full, interest on this Note shall accrue
        from
        the date hereof at the Applicable Rate (calculated on the basis of a 360-day
        year consisting of twelve 30-day months and compounded monthly). For purposes
        of
        this Note, the Applicable Rate shall mean 10.0%
        per
        annum, except in the event that the Company fails to pay to the Holder any
        portion of the principal and/or interest due on the Maturity Date or if an
        Event
        of Default shall have occurred in which case the Applicable Rate shall
        thereafter, during the continuance of such failure, be the Maximum
        Rate.  

      

      (c) If
        the
        Maturity Date would fall on a day that is not a Business Day, the payment
        due on
        such Maturity Date will be made on the next succeeding Business Day with
        the
        same force and effect as if made on the Maturity Date.

      

      (d) Payment
        of principal and interest on this Note shall be made by wire transfer of
        immediately available funds to an account designated by the Holder or by
        check
        sent to the Holder as the Holder may designate for such purpose from time
        to
        time by written notice to the Company, in such coin or currency of the United
        States of America as at the time of payment shall be legal tender for the
        payment of public and private debts.

      

      (e) The
        obligations to make the payments provided for in this Note are absolute and
        unconditional and not subject to any defense, setoff, counterclaim, rescission,
        recoupment or adjustment whatsoever. The Company hereby expressly waives
        demand
        and presentment for payment, notice of non-payment, notice of dishonor, protest,
        notice of protest and diligence in taking any action to collect any amount
        called for hereunder, and shall be directly and primarily liable for the
        payment
        of all sums owing and to be owing hereon, regardless of and without any notice,
        diligence, act or omission with respect to the collection of any amount called
        for hereunder.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (f) Notwithstanding
        anything to the contrary in this Note or any other Transaction Document executed
        in connection herewith, the amounts owing under this Note may be prepaid
        at any
        time without penalty or premium.

      

      3.
         Ranking
        of Note.

      

      (a) The
        Company, for itself, its successors and assigns, covenants and agrees, that
        the
        payment of the principal of and interest on this Note is senior in right
        of
        payment to the payment of all existing and future Junior Debt. “Junior
        Debt”
shall
        mean all existing and future Indebtedness, except for any future senior
        Indebtedness incurred by the Company from financial institutions and/or venture
        debt lenders with the written consent of the Investors and expressly made
        senior
        to the Company’s obligations under the Notes and the Purchase
        Agreement.

      

      (b) Upon
        any
        payment or distribution of the assets of the Company, to creditors upon
        dissolution, total or partial liquidation or reorganization of, or similar
        proceeding relating to the Company, the Holder of this Note shall be entitled
        to
        receive payment in full before any holder of Junior Debt is entitled to receive
        any payment.

      

      4. Affirmative
        Covenants.
        

      

      The
        Company covenants and agrees with the Holder that, so long as any amount
        remains
        unpaid on this Note:

      

      (a) the
        Company shall immediately after the Company shall obtain knowledge of the
        occurrence of any Event of Default (as hereinafter defined) or any event
        which
        with notice or lapse of time or both would become an Event of Default (an
        Event
        of Default or such other event being a “Default”),
        deliver to the Holder a notice specifying that such notice is a “Notice of
        Default” and describing such Default in reasonable detail, and, in such Notice
        of Default or as soon thereafter as practicable, a description of the action
        the
        Company has taken or proposes to take with respect thereto; and

      

      (b) the
        Company shall permit any Holder
        representative,
        including, but
        not
        limited to
        its
        attorneys and accountants, to inspect, examine the
        books
        of account and
        make
        copies and abstracts of the books and
        records of the Company and its Subsidiaries at reasonable times and upon
        reasonable notice during normal business hours. 

      

      5. Conversion.
        (a) At
        the option of the Holder in its sole discretion, upon the closing after the
        date
        hereof of a Financing by the Company, any portion or
        all
of
        the
        principal and accrued but unpaid interest then due on this Note (the
“Loan
        Amount”)
        may be
        converted into that number of shares of the class of equity security or other
        securities issued in the Financing (the “Securities”)
        determined by (i) in the case of an equity Financing, dividing the Loan Amount
        by the lowest purchase price per Security

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      established
        in the equity Financing or (ii) in the case of a debt Financing, converting
        the
        Loan Amount into the right of the Holder to receive debt securities with
        a
        principal amount equal to the Loan Amount. Any fraction of a share resulting
        from this calculation shall be rounded upward to the next whole share. Such
        Securities issued to the Holder shall be identical in all respects to the
        Securities issued by the Company in the Financing and the Holder shall have
        all
        the rights and benefits (including, but not limited to, the benefits of any
        representations and warranties, preemptive rights, rights of first offer,
        co-sale rights, registration rights and other similar rights) accorded to
        the
        purchasers of such Securities. In the event the Holder elects to convert
        this
        Note as aforesaid, it shall deliver to the Company written notice of such
        election. The conversion of this Note into Securities shall take place at
        the
        closing of the Financing or on such other date and at such other time as
        may be
        mutually agreed to by the Company and the Holder (such date hereinafter referred
        to as the “Conversion
        Date”).

      

      (b) Upon
        conversion of this Note pursuant to Section 5(a), the Holder shall be deemed
        to
        be the holder of record of the Securities issuable upon such conversion (the
        “Conversion
        Securities”),
        notwithstanding that the transfer books of the Company shall then be closed
        or
        certificates or other instruments representing such Conversion Securities
        shall
        not then have been actually delivered to the Holder. As soon as practicable
        after the Conversion Date, the Company shall issue and deliver to the Holder
        certificate(s) or other instruments for the Conversion Securities registered
        in
        the name of the Holder or its designee(s); provided,
        however,
        that
        the Company, by notice given to the Holder promptly after the Conversion
        Date,
        may require the Holder, as a condition to the delivery of such certificate(s)
        or
        instruments, to present this Note, or written evidence of its cancellation
        that
        is reasonably satisfactory to the Company, to the Company.

      

      (c) The
        issuance of any Conversion Securities, and the delivery of certificate(s)
        or
        other instruments representing such Conversion Securities, shall be made
        without
        charge to the Holder for any tax or other charge in respect of such issuance.
        The Company shall not, however, be required to pay any tax which may be payable
        in respect of any transfer involved in the issue and delivery of any certificate
        or other instruments in a name other than that of the Holder, and the Company
        shall not be required to issue or deliver any such certificate or other
        instrument unless and until the person or persons requesting the issue thereof
        shall have paid to the Company the amount of such tax or shall have established
        to the satisfaction of the Company that such tax has been paid.

      

      (d) The
        Holder shall not have, solely on account of such status as a holder of this
        Note, any rights of a shareholder of the Company, either at law or in equity,
        or
        any right to any notice of meetings of shareholders or of any other proceedings
        of the Company, except as provided in this Note or the Purchase
        Agreement.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      6. Events
        of Default.
        

      

      The
        occurrence of any of the following events shall constitute an event of default
        (an “Event
        of Default”):

      

      (a) A
        default
        in the payment of the principal or interest on the Note, when and as the
        same
        shall become due and payable.

      

      (b) A
        default
        in the performance, or a breach, of any of the covenants or agreements of
        the
        Company or any Subsidiary contained in any Transaction Document, which default
        (except as provided in Section 6(a)) is not cured within ten
        (10)
        days
        after written notice thereof from
        the
        Holders.

      

      (c) Any
        representation, warranty, certification or other statement made by or on
        behalf
        of the Company or any Subsidiary in or pursuant to any Transaction Document
        is
        untrue in any material respect when made.

      

      

      (d) Any
        order
        to cease or suspend trading in any securities of the Company
        or
        prohibiting or restricting the issuance by the Company of the Shares or the
        Notes, is made, or any proceeding is announced or commenced for the making
        of
        any such order, by the SEC, the OTCBB, any other securities regulatory
        authority, stock exchange or any other Governmental Entity having jurisdiction
        over the Company, which order has not been rescinded, revoked or withdrawn,
        and
        trading of the Company’s securities does not resume, within two (2) weeks from
        the date the order is issued.

      

      (e) The
        Company’s President and Chief Executive Officer resigns, has his employment
        terminated or suspended or has his responsibilities materially reduced in
        any
        manner.

      

      (f) A
        Change
        of Control occurs. “Change
        of Control”
means
        a
        sale of all or substantially all of the Company’s assets, or any merger or
        consolidation of the Company with or into another corporation other than
        a
        merger or consolidation in which the holders of more than 50% of the shares
        of
        capital stock of the Company outstanding immediately prior to such transaction
        continue to hold (either by the voting securities remaining outstanding or
        by
        their being converted into voting securities of the surviving entity) more
        than
        50% of the total voting power represented by the voting securities of the
        Company, or such surviving entity, outstanding immediately after such
        transaction. 

      

      (g) A
        final
        judgment or judgments for the payment of money in excess of $50,000
        in the
        aggregate shall be rendered by one or more courts, administrative or arbitral
        tribunals or other bodies having jurisdiction against the Company and the
        same
        shall not be discharged (or provision shall not be made for such discharge),
        or
        a stay of execution thereof shall not be procured, within 60 days from the
        date
        of entry thereof and the Company shall not, within such 60-day period, or
        such
        longer period during which execution of the same shall have been stayed,
        appeal
        therefrom and cause the execution thereof to be stayed during such appeal.
        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (h) The
        entry
        of a decree or order by a court having jurisdiction adjudging the Company
        a
        bankrupt or insolvent, or approving a petition seeking reorganization,
        arrangement, adjustment or composition of or in respect of the Company, under
        federal bankruptcy law, as now or hereafter constituted, or any other applicable
        federal or state bankruptcy, insolvency or other similar law, and the
        continuance of any such decree or order unstayed and in effect for a period
        of
        60 days; or the commencement by the Company of a voluntary case under federal
        bankruptcy law, as now or hereafter constituted, or any other applicable
        federal
        or state bankruptcy, insolvency, or other similar law, or the consent by
        the
        Company to the institution of bankruptcy or insolvency proceedings against
        it,
        or the filing by the Company of a petition or answer or consent seeking
        reorganization or relief under federal bankruptcy law or any other applicable
        federal or state law, or the consent by the Company to the filing of such
        petition or to the appointment of a receiver, liquidator, assignee, trustee,
        sequestrator or similar official of the Company or of any substantial part
        of
        the property of the Company, or the making by the Company of an assignment
        for
        the benefit of creditors, or the admission by the Company in writing of its
        inability to pay its debts generally as they become due, or the taking of
        corporate action by the Company in furtherance of any such action.

      

      7.
         Remedies
        Upon Default.

      

      Upon
        the
        occurrence of an Event of Default referred to in Sections 6(a) through (i)
        or at
        any time thereafter
        (unless
        such event of Default shall have been waived in writing by the
        Holder),
        the
        Holder, by notice in writing given to the Company, (a) may declare the entire
        principal amount then outstanding of, and the accrued interest on, this Note
        to
        be due and payable immediately, and upon any such declaration the same shall
        become and be due and payable immediately, without presentation, demand,
        protest
        or other formalities of any kind, all of which are expressly waived by the
        Company; provided,
        however,
        that if
        an event described in Section 6(i) or 6(j) above shall occur, the result
        that
        would otherwise occur only upon giving of notice by the Holder to the Company
        as
        specified above shall occur automatically, without the giving of any such
        notice
        or (b) may demand that the Company take all actions necessary and appropriate
        to
        remedy such Event of Default to the Holder’s sole satisfaction on or before the
        date that is thirty (30) days after the date notice is delivered by the Holder
        to the Company, and, in the event that the Company does not so cure the Event
        of
        Default within such 30 day period, the
        Company shall incur and be required to pay an additional Two Hundred Thousand
        Dollars ($200,000), which payment shall be paid immediately upon the expiration
        of such thirty (30) day period, or if the Company fails to make such payment,
        be
        automatically added to the outstanding principal balance hereof. The Holder
        may
        institute such actions or proceedings in law or equity as it shall deem
        expedient for the protection of its rights and may prosecute and enforce its
        claims against all assets of the Company, and in connection with any such
        action
        or proceeding shall be entitled to receive from the Company payment of the
        principal amount of this Note plus accrued interest to the date of payment
        plus
        reasonable expenses of collection, including, without limitation, reasonable
        attorneys’ fees and expenses actually incurred.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      8.
         Representations
        and Warranties of the Company.
        The
        representations and warranties of the Company set forth in the Purchase
        Agreement and Security Agreement are incorporated herein by
        reference.

      

      9.
         Miscellaneous.
        (a) The
        terms and conditions of this Note shall inure to the benefit of and be binding
        upon the respective successors and assigns of the parties; provided,
        however,
        that
        the Company may not assign, by operation of law or otherwise, any of its
        rights
        or obligations hereunder without the prior written consent of the
        Holder.
        The
        Holder may not
        assign
        all or any
        portion
        of its rights hereunder
        unless
        Company receives an opinion from Investor’s counsel or other evidence reasonably
        satisfactory to the Company to the effect that such proposed assignment or
        other
        distribution may be made without registration or qualification under any
        federal
        or state law then in effect. Nothing
        in this Note, expressed or implied, is intended to confer upon any party
        other
        than the parties hereto or their respective successors and assigns any rights,
        remedies, obligations, or liabilities under or by reason of this Note, except
        as
        expressly provided in this Note.

      

      (b) Any
        notice or other communication required or permitted to be given hereunder
        shall
        be in writing and shall be mailed by certified mail, return receipt requested,
        or by Federal Express, Express Mail or similar overnight delivery or courier
        service or delivered (in person or by telecopy, telex or similar
        telecommunications equipment) against receipt to the party to whom it is
        to be
        given:

      

      (i)
        if to
        the Company:

      

      Surfect
        Holdings, Inc.

      12000-G
        Candelaria NE

      Albuquerque,
        New Mexico 87112

      Attention:
        Chief Executive Officer

      Facsimile:
        (505)
        294 6311

      

      with
        a
        copy to:

      

      Brownstein
        Hyatt Farber Schreck, P.C.

      201
        Third
        Street NW, Suite 1700

      Albuquerque,
        New Mexico 87102

      Attention:
        Eduardo Duffy, Esq.

      Facsimile:
        (505) 244 9266

      

      (ii)
        if
        to the Holder:

      

      [Address]

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      with
        a
        copy to:

      

      Greenberg
        Traurig, LLP

      Met
        Life
        Building

      200
        Park
        Avenue

      New
        York,
        New York 10166

      Attention:
        Anthony
        Marsico, Escq.

      Facsimile:
        (212) 801-6400

      

      or
        (iii)
        in either case, to such other address as the party shall have furnished in
        writing in accordance with the provisions of this Section 9(b). Notice to
        the
        estate of any party shall be sufficient if addressed to the party as provided
        in
        this Section 9(b). Any notice or other communication given by certified mail
        shall be deemed given at the time of certification thereof, except for a
        notice
        changing a party’s address which shall be deemed given at the time of receipt
        thereof. Any notice given by other means permitted by this Section 9(b) shall
        be
        deemed given at the time of receipt thereof.

      

      (c)
         Upon
        receipt of evidence satisfactory to the Company, of the loss, theft, destruction
        or mutilation of this Note (and upon surrender of this Note if mutilated),
        including an affidavit of the Holder thereof that this Note has been lost,
        stolen, destroyed or mutilated together with an indemnity against any claim
        that
        may be made against the Company on account of such lost, stolen, destroyed
        or
        mutilated Note, and upon reimbursement of the Company’s reasonable incidental
        expenses, the Company shall execute and deliver to the Holder a new Note
        of like
        date, tenor and denomination.

      

      (d)
         No
        course
        of dealing and no delay or omission on the part of the Holder or the Company
        in
        exercising any right or remedy shall operate as a waiver thereof or otherwise
        prejudice the Holder’s or the Company’s rights, powers or remedies, as the case
        may be. No right, power or remedy conferred by this Note upon the Holder
        or the
        Company shall be exclusive of any other right, power or remedy referred to
        herein or now or hereafter available at law, in equity, by statute or otherwise,
        and all such remedies may be exercised singly or concurrently.

      

      (e)
         If
        one or
        more provisions of this Note are held to be unenforceable under applicable
        law,
        such provision shall be excluded from this Note and the balance of this Note
        shall be interpreted as if such provision were so excluded and shall be
        enforceable in accordance with its terms. This Note may be amended only by
        a
        written instrument executed by the Company and the Holder hereof. Any amendment
        shall be endorsed upon this Note, and all future Holders shall be bound
        thereby.

      

      (f)
         The
        provisions of this Note shall be governed by and construed in accordance
        with
        the laws of the State of New York, without giving effect to any choice of
        law or
        conflict of law rules or provisions. The Company hereby irrevocably consents
        to
        the jurisdiction of all courts (state and federal) sitting in the State of
        New
        York in connection with any claim, action or proceeding relating to or for
        enforcement of this Note, and hereby waives any defense of inconvenient forum
        or
        other such claim or defense in respect of the lodging of any such claim,
        action
        or proceeding in any such court. THE COMPANY HEREBY IRREVOCABLY WAIVES ALL
        RIGHT
        TO TRIAL BY JURY IN ANY CLAIM, ACTION OR PROCEEDING RELATING TO THIS
        AGREEMENT.

       

       

      

       

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      IN
        WITNESS WHEREOF,
        the
        Company has caused this Note to be executed on and effective as of the day
        and
        year first above written.

       

      

       

       

       

      SURFECT
        HOLDINGS, INC.

       

       

       

      By:___________________________

      Name:
        

      Its:
        

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

      SECURITY
        AGREEMENT

       

      THIS
        SECURITY AGREEMENT (this “Agreement”)
        is
        entered into as of June 1, 2007, by Surfect Holdings, Inc., a Delaware
        corporation (the “Company”),
        and
        Surfect Technologies, Inc., a Delaware corporation and wholly-owned subsidiary
        of the Company (“Surfect
        Technologies”),
        to
        and in favor of Birchten Investments, Ltd, an International Business Company
        organized under the laws of the Bahamas, and Gemini Strategies, LLC, a
        California
        Limited
        Liability Corporation (together, the “Secured
        Parties”),
        as
        contemplated by the Securities Purchase Agreement, dated of even date herewith,
        by and among the Company, the Secured Parties and Granite Financial Group
        (the
“Purchase
        Agreement”;
        capitalized terms used but not defined herein shall have the meanings ascribed
        to such terms in the Purchase Agreement), and the Notes.

       

      RECITALS

       

      WHEREAS,
        pursuant to the Purchase Agreement, the Company is issuing to each Secured
        Party
        a 10% senior secured promissory note dated of even date herewith in the combined
        principal amount of One Million Five Hundred Thousand Dollars
        ($1,500,000);

       

      WHEREAS,
        in order to induce the Secured Parties to accept the Notes in accordance
        with
        the Purchase Agreement, and in consideration therefor, the Company has agreed
        to
        grant to the Secured Parties, on a pari passu basis, a perfected lien on
        and
        security interest in the
        Collateral (as defined below)
        in order
        to secure the due and punctual payment of (a) the principal and interest
        (including, without limitation, interest accruing during the pendency of
        any
        bankruptcy, insolvency, receivership or other similar proceeding, regardless
        of
        whether allowed or allowable in such proceeding) on the Notes, when and as
        due,
        whether at maturity, by acceleration, upon one or more dates set for prepayment
        or otherwise, and (b) all other monetary obligations, including but not
        limited to fees, costs, expenses and indemnities, whether primary, secondary,
        direct, contingent, fixed or otherwise (including, without limitation, monetary
        obligations incurred during the pendency of any bankruptcy, insolvency,
        receivership or other similar proceeding regardless of whether allowed or
        allowable in such proceeding), of the Company under the Notes and/or any
        of the
        other Transaction Documents (collectively, the “Obligations”);
        and

       

      WHEREAS,
        it is a condition precedent to the purchase and acceptance of the Notes by
        the
        Secured Parties that the Company executes and delivers this
        Agreement.

       

      NOW,
        THEREFORE, in consideration of the premises and in reliance on the
        representations, warranties, covenants and agreements contained herein, and
        for
        other good and valuable consideration, the receipt and sufficiency of which
        are
        hereby acknowledged, and intending to be legally bound hereby, the Company
        hereby agree as follows:

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      ARTICLE
        1

      SECURITY
        INTEREST

       

      1.1 Grant
        of Security Interest.
        As
        security for the Obligations, the Company hereby assigns, pledges and grants
        a
        continuing and unconditional security interest, on a pari passu basis, to
        the
        Secured Parties and their respective successors and assigns, in and to all
        of
        the personal property of the Company and any existing or future Subsidiaries,
        wherever located, and whether now owned or hereafter acquired,
        including:

       

      (a) all
        equipment (including all “Equipment” as such term is defined in Section
        9-102(a)(33) of the Uniform Commercial Code as in effect from time to time
        in
        the State of New York (the “Code”)),
        machinery, vehicles, fixtures, improvements, supplies, furniture, and other
        fixed assets, all as now owned or hereafter acquired by the Company and any
        Subsidiary or in which the Company or any Subsidiary has or hereafter acquires
        any interest, and any items substituted therefor as replacements and any
        additions or accessions thereto (all of the property described in this clause
        (a) being hereinafter collectively referred to as “Equipment”);

       

      (b) all
        goods
        (including all “Goods” as defined in Section 9-102(a)(44) of the Code) and all
        inventory (including all “Inventory” as defined in Section 9-102(a)(48) of the
        Code) of the Company and any Subsidiary, now owned or hereafter acquired
        by the
        Company or any Subsidiary or in which the Company or any Subsidiary has or
        hereafter acquires any interest, including but not limited to, raw materials,
        scrap inventory, work in process, products, packaging materials, finished
        goods,
        documents of title, chattel paper and other instruments covering the same
        and
        all substitutions therefor and additions thereto (all of the property described
        in this clause (b) being hereinafter collectively referred to as
“Inventory”);

       

      (c) all
        present and future accounts in which the Company or any Subsidiary has or
        hereafter acquires any interest (including all “Accounts” as defined in Section
        9-102(a)(2) of the Code), contract rights (including all rights to receive
        payments and other rights under all equipment and other leasing contracts)
        and
        rights to payment and rights or accounts receivable evidencing or representing
        indebtedness due or to become due of the Company or any Subsidiary on account
        of
        goods sold or leased or services rendered, claims and instruments (including
        tax
        refunds, royalties and all other rights to the payment of money of every
        nature
        and description), including but not limited to, any such right evidenced
        by
        chattel paper (whether in tangible, electronic or other form), and all liens,
        securities, guaranties, remedies, security interests and privileges pertaining
        thereto (all of the property described in this clause (c) being hereinafter
        collectively referred to as “Accounts”); 

       

      (d) all
        investment property now owned or hereafter acquired by the Company or any
        Subsidiary (including all “Investment Property” as defined in Section
        9-102(a)(49) of the Code), including, without limitation, all securities
        (certificated and uncertificated), securities accounts, securities entitlements,
        commodity contracts and commodity accounts, and all dividends and distributions
        paid or payable thereon; provided,
        however,
        that
        with respect to securities constituting capital stock or other equity interests
        in entities whose jurisdiction of formation is other than the United States
        of
        America or any state thereof, the Collateral shall not include more than
        65% of
        the outstanding equity securities of any class of any such issuers; 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (e) all
        general intangibles now owned or hereafter acquired by the Company or any
        Subsidiary or in which the Company or any Subsidiary has or hereafter acquires
        any interest (including all “General Intangibles” as defined in Section
        9-102(a)(42) of the Code), including but not limited to, payment intangibles
        (including all “Payment Intangibles” as defined in Section 9-102(a)(61) of the
        Code), chooses in action and causes of action and all licenses and permits
        (to
        the extent the collateral assignment of such licenses and permits is not
        prohibited by applicable law), registrations, franchises, corporate or other
        business records, systems, designs, software, manuals, procedures, drawings,
        goodwill, logos, indicia, business identifiers, inventions, processes,
        production methods, proprietary information, know-how and trade-secrets of
        the
        Company or any Subsidiary, and all Owned Intellectual Property, trade-names,
        copyrights, patents, trademarks (including service marks) and copyright,
        patent
        and trademark applications, all continuations thereof in whole or in part,
        and
        contract rights (including but not limited to all rights to receive payments
        and
        other rights under all equipment and other leasing contracts, instruments
        and
        documents owned or used by the Company or any Subsidiary and any goodwill
        relating thereto);

       

      (f) all
        other
        personal property owned by the Company or any Subsidiary or in which the
        Company
        or any Subsidiary has or hereafter acquires any interest, wherever located,
        and
        of whatever kind or nature, tangible or intangible;

       

      (g) all
        moneys, cash, chattel paper (including all “Chattel Paper” as defined in Section
        9-102(a)(11) of the Code), checks, notes, bills of exchange, documents of
        title,
        money orders, negotiable instruments, commercial paper, and other securities,
        letters of credit (including all “Letter-of-Credit Rights” as defined in Section
        9-102(a)(51) of the Code), supporting obligations (including all “Supporting
        Obligations” as defined in Section 9-102(a)(77) of the Code), instruments
        (including all “Instruments” as defined in Section 9-102(a)(47) of the Code),
        documents (including all “Documents” as defined in Section 9-102(a)(30) of the
        Code) and deposit accounts (including all “Deposit Accounts” as defined in
        Section 9-102(a)(29) of the Code), deposits and credits from time to time
        whether or not in the possession of or under the control of the Secured
        Parties;

       

      (h) all
        commercial tort claims (as defined in Section 9-102(a)(13) of the
        Code);

       

      (i) all
        books
        and records relating to any of the foregoing assets or property;
        and

       

      (j) any
        consideration received or receivable when all or any part of the property
        referred to in clauses (a) through (i) above is sold, transferred, exchanged,
        leased, collected or otherwise disposed of, or any value received or receivable
        as a consequence of possession thereof, including but not limited to, all
        products, proceeds (including all “Proceeds” as defined in Section 9-102(a)(64)
        of the Code), cash, negotiable instruments and other instruments for the
        payment
        of money, chattel paper, security agreements or other documents, insurance
        proceeds, condemnation awards or proceeds of other proceeds now or hereafter
        owned by the Company or any Subsidiary or in which the Company or any Subsidiary
        has an interest.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      The
        property set forth in clauses (a) through (j) of the preceding sentence is
        referred to herein as the “Collateral.”

       

      1.2 Perfection
        of Security Interests.
        (a) The
        Company hereby authorizes the Secured Parties to file a financing statement
        or
        financing statements and other filing or recording documents or instruments
        (collectively, the “Financing
        Statements”)
        describing the Collateral
        in any
        and all jurisdictions and filing offices where the Secured Parties deem such
        filing to be necessary or appropriate including, without limitation, the
        jurisdiction of the debtor’s location for purposes of the Code. For purposes of
        this Section 1.2(a), the Financing Statements shall be deemed to include
        any
        amendment, modification, assignment, continuation statement or other similar
        instrument consistent with the rights granted to Secured Parties under this
        Agreement and the Purchase Agreement.

       

      (b) The
        Company shall cooperate with Secured Parties in obtaining control (including
        “Control” as contemplated by Section 9-312(b) of the Code) with respect to
        Collateral consisting of deposit accounts, investment property and electronic
        chattel paper. 

       

      ARTICLE
        2

      REPRESENTATIONS
        AND WARRANTIES

       

      2.1 Representations
        and Warranties.
        The
        Company represents and warrants that:

       

      (a) The
        Company or a Subsidiary has and shall have good and indefeasible title to
        all
        the Collateral owned by it, wherever and whenever acquired, free and clear
        of
        any lien or encumbrance except for (i) any and all liens or security interests
        granted by the Company or Surfect Technologies existing on the date hereof,
        (ii)
        liens
        for taxes, assessments and other governmental charges or levies not
        yet
        due or as to which the period of grace, if any, related thereto has not expired
        or which are being contested in good faith and by appropriate proceedings
        with
        adequate reserves on the books of the Company or a Subsidiary, (iii) liens
        or
        claims
        of materialmen, mechanics, carriers, warehousemen, processors or landlords
        for
        labor, materials, supplies or rentals incurred in the ordinary course of
        business which are not overdue for a period of more than thirty (30) days
        or
        which are being contested in good faith and by appropriate proceedings, (iv)
        liens consisting of deposits or pledges made in the ordinary course of business
        in connection with, or to secure payment of, obligations under workers’
compensation, unemployment insurance, social security
        or
        similar legislation, (v) liens securing purchase money indebtedness or
        capitalized leases for the acquisition or leasing
        of
        capital assets provided
        that such liens shall be created substantially simultaneously with the

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      acquisition
        or lease of the subject assets, do not at any time encumber any property
        or
        assets other than the assets acquired in such purchase money financing or
        capitalized lease, and do not secure any amount exceeding the original purchase
        price or lease payment amount of the acquired assets at the time that such
        assets were acquired by the Company,
        and (vi)
        liens arising from judgments, decrees or attachments to the extent and only
        so
        long as such judgment, decree or attachment has not caused or resulted in
        an
        Event of Default; (vii) leases, subleases, licenses and sublicenses granted
        to
        others in the ordinary course of Grantor's business not interfering in any
        material respect with the conduct of the business of Company and not materially
        detracting from the value of the Collateral; (viii) liens arising solely
        by
        virtue of any statutory or common law provision relating to banker's liens,
        rights-of set-off or similar rights and remedies as to deposit accounts or
        other
        funds maintained with a creditor depository institution;
        and (ix)
        the
        liens
        and security interests of the Secured Parties pursuant to this Agreement
        (collectively, “Permitted
        Liens”).
        Neither the Company nor any Subsidiary has not filed, nor is there on record,
        a
        financing statement under the Code (or similar statement or instrument of
        registration under the law of any jurisdiction) covering any Collateral except
        for Permitted Liens. No consent of any other person is required on the part
        of
        the Company or any Subsidiary for the Company’s execution, delivery and
        performance of this Agreement and the granting of the liens
        hereunder.

       

      (b) Schedule
        A
        hereto
        lists, as to the Company, (i) the Company’s principal executive office and
        other place(s) of business, (ii) the address where the books and records
        relating to the Collateral are maintained, (iii) any other location of any
        Equipment or tangible Collateral, (iv) the location of leased facilities
        and
        name of each lessor/sublessor, (vi) all Owned Intellectual Property and Licensed
        Intellectual Property of the Company (setting forth, with respect to all
        owned
        patents, trademarks and copyrights or applications therefor, the name,
        registered owner, filing date, registration number or serial number, as
        applicable), and (vii) all other names by which the Company or any Subsidiary
        has been known or under which the Company, any Subsidiary or any respective
        predecessor has done business within the past five (5) years, and all entities
        or businesses acquired by the Company or any Subsidiary (whether through
        stock
        purchase, merger, consolidation, share exchange, acquisition of assets or
        otherwise) within the past five (5) years.

       

      (c) Each
        of
        the Company and the Subsidiaries has paid or will pay when due all taxes,
        fees,
        assessments and other charges now or hereafter imposed upon the Collateral
        except for any tax, fee, assessment or other charge the validity of which
        is
        being contested in good faith by appropriate proceedings and so long as the
        Company or such Subsidiary shall have set aside on its books adequate reserves
        with respect thereto.

       

      (d) As
        a
        result of the execution and delivery of this Agreement and the filing of
        any
        financing statements or other documents necessary to assure, preserve and
        perfect the security interest created hereby to the extent a lien may be
        perfected by filing a financing statement, the Secured Parties shall have
        a
        valid and perfected lien on, and a continuing security interest in, the
        Collateral and such lien shall be superior and prior to all other liens,
        subject, in each case, only to
        the
        Permitted Liens.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (e) All
        Accounts represent bona fide transactions completed in accordance with the
        terms
        and provisions contained in the contracts, agreements, invoices and other
        documents governing or evidencing the same. As of the date hereof, there
        are no
        setoffs, counterclaims or disputes existing or asserted with respect to
        Accounts, subject only to non-material set off, return and similar rights
        arising in the ordinary course of business. Neither the Company nor any
        Subsidiary has made any agreement with any account debtor for any deduction
        therefrom except non-material set-offs and claims arising in the ordinary
        course
        of business. To the Company’s knowledge, at the date hereof, all account debtors
        have the capacity to contract and are solvent, and each Account constitutes
        the
        legally valid and binding obligation of the subject account debtor. To the
        Company’s knowledge, the goods giving rise to Accounts are not subject to any
        lien, claim or encumbrance except (i) set-off and claims arising in the ordinary
        course of business, and (ii) liens, claims and encumbrances in favor of the
        Secured Parties.

       

      (f) All
        Inventory is of good and merchantable quality, free from any material defects.
        To the Company’s knowledge, none of such Inventory is subject to any licensing,
        patent, trademark, trade name or copyright with any person that restricts
        the
        Company’s ability to manufacture and/or sell Inventory. The completion of the
        manufacturing process of such Inventory by a person other than the Company
        or a
        Subsidiary is permitted under each contract to which the Company is a party
        or
        to which the subject Inventory is subject. All Inventory has been and will
        be
        manufactured in compliance with the Fair Labor Standards Act and other
        applicable law.

       

      (g) None
        of
        the Collateral is held by a third party in any location as assignee, trustee,
        bailee, consignee or in any similar capacity.

       

      (h) The
        Company is a Delaware corporation whose legal name is Surfect Holdings, Inc.,
        whose federal tax identification number is 88-0513176,
        and
        whose Delaware organizational identification number is 4217552.
        Surfect
        Technologies is a Delaware corporation whose legal name is Surfect Technologies,
        Inc., whose federal tax identification number is 85-0477420,
        and
        whose Delaware organizational identification number is 4122366.

       

      2.2 Survival.
        All
        representations, warranties and agreements of the Company and the Subsidiaries
        contained in this Agreement shall survive the execution, delivery and
        performance of this Agreement and shall, except for any covenants which
        expressly continue thereafter, continue until the termination of this Agreement
        pursuant to Section 5.5 hereof.

       

      ARTICLE
        3

      COVENANTS

       

      3.1 Covenants.
        The
        Company hereby covenants and agrees with the Secured Parties that so long
        as
        this Agreement shall remain in effect, any Obligations shall remain unpaid
        or
        unperformed, and/or the Post-Closing Commitment shall have expired or been
        terminated, (a) the Company shall promptly give written notice to the
        Secured Parties of any adverse claim or levy or attachment, execution or
        other
        process 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      against
        any of the Collateral; (b) at the Company’s own cost and expense, the
        Company shall take or cause to be taken any and all lawful actions necessary
        or
        desirable to defend the Collateral against the claims and demands of all
        persons
        other than the Secured Parties and persons holding Permitted Liens, and to
        defend the security interest of the Secured Parties in the Collateral and
        the
        priority thereof against any lien or encumbrance of any nature other than
        Permitted Liens; (c) the Company shall keep or cause to be kept all
        tangible Collateral properly
        insured
        with financially sound and reputable insurers, against loss by fire, explosion,
        theft, fraud and such other casualties; (d) the Company shall keep, or cause
        to
        be kept, all Equipment and other tangible Collateral in good order and repair
        (normal wear and tear excepted) and promptly notify the Secured Parties of
        any
        event causing any material loss, damage or depreciation in value of the
        Collateral in the aggregate and of the estimated extent of such loss, damage
        or
        depreciation; (e) at the Secured Parties’ request, the Company shall mark,
        or cause to be marked, any Collateral that is chattel paper with a legend
        showing the Secured Parties’ lien and security interest therein, and/or shall
        deliver same to the Secured Parties; (f) the Company shall promptly give,
        or cause to be given, written notice to the Secured Parties of any change
        in or
        addition to the intellectual property rights material to its business or
        any
        change in any of the information set forth on Schedule A hereto, and update
        such
        Schedule A accordingly if so requested by the Secured Parties; (g) the Company
        shall promptly notify the Secured Parties in writing of the particulars of
        any
        and all commercial tort claims held or acquired by the Company or any Subsidiary
        at any time and from time to time; and (h) neither the Company nor any
        Subsidiary shall (i) amend or terminate any contract or other document or
        instrument constituting part of the Collateral, except for transactions in
        the
        ordinary course of business, (ii) voluntarily or involuntarily exchange,
        lease, sell, transfer or otherwise dispose of any Collateral other than in
        the
        ordinary course of business, (iii) make any compromise, settlement,
        discharge or adjustment or grant any extension of time for payment with respect
        to any Account or any lien, Guaranty or remedy pertaining thereto, except
        for
        transactions in the ordinary course of business, (iv) except upon thirty
        (30) days prior written notice to the Secured Parties, change its name, or
        the
        location of any Collateral (other
        than Collateral that constitutes goods that are mobile and that are of the
        type
        normally used in more than one jurisdiction or otherwise in the ordinary
        course
        of business (including without limitation, sales and shipments of inventory
        in
        the ordinary course of business)) or
        (v) change the location of its principal executive office or jurisdiction
        of incorporation. 

       

      3.2 Further
        Deliveries.
        The
        Company hereby covenants and agrees with the Secured Parties that so long
        as
        this Agreement shall remain in effect, any Obligations shall remain unpaid
        or
        unperformed, upon
        the
        reasonable request of the Secured Parties,
        the
        Company shall, (a)
        at any
        time and from time to time, execute and deliver, or cause to be executed
        and
        delivered, any and all specific collateral assignments which the Secured
        Parties
        may reasonably request with respect to Owned Intellectual Property, and the
        Secured Parties hereby consent to the filing thereof with the United States
        Patent and Trademark Office, the United States Copyright Office, and/or any
        other governmental agency or office (domestic or foreign) in which such filing
        may be appropriate, (b) use
        all
        reasonable efforts to cause each depository bank holding a deposit account
        of
        the Company, and each securities intermediary holding any investment property
        owned by the Company, to execute and deliver, or cause to be executed and
        

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      delivered,
        a control agreement sufficient to provide the Secured Parties with control
        of
        such deposit account or investment property, and otherwise in form and substance
        reasonably satisfactory to the Secured Parties, and the Company shall itself
        execute and deliver, or cause to be executed and delivered, any and all such
        control agreements (and in the event that any such depository bank or securities
        intermediary refuses to execute and deliver such control agreement, the Secured
        Parties may require the applicable deposit account or investment property
        to be
        transferred to another institution which will execute and deliver such control
        agreement), (c) with
        respect to all letter of credit rights and electronic chattel paper owned
        or
        held by the Company, take, or cause to be taken, such actions and deliver,
        or
        cause to be delivered, such agreements
        to
        provide the Secured Parties with control thereof, (d) with
        respect to any Collateral which is the subject of or evidenced by a certificate
        of title, cause the Secured Parties’ security interests to be officially noted
        on such certificate of title, (e) obtain
        for the benefit of the Secured Parties a landlord waiver or landlord
        subordination agreement pursuant to which, among other things, the landlord
        of
        each premises at which any material amount of Collateral is located agrees
        to
        treat all such Collateral as personal property (and not as fixtures) and
        agrees
        to waive or subordinate in favor of the Secured Parties any and all liens
        and
        security interests (whether pursuant to a lease agreement, by statute, or
        otherwise) which such landlord may have for unpaid rent or otherwise, and/or
        obtain such landlord’s written consent to a collateral assignment of the subject
        lease in favor of the Secured Parties
        and
        (f) in
        the event that any of the Collateral is at any time or from time to time
        held by
        any bailee, warehouseman, consignee or other person, notify
        such person in writing of the Secured Parties’ security interests in such
        Collateral, and shall use reasonable best efforts to obtain such person’s
        written agreement to hold such Collateral for the Secured Parties’ account and
        subject to the Secured Parties’ instructions and to deliver to the Secured
        Parties all warehouse receipts, bills of lading or other similar documents
        (duly
        endorsed in favor of the Secured Parties) relating to such Collateral. In
        addition
        the
        Company shall notify the Secured Parties not less than thirty (30) days prior
        to
        acquiring any fee interest in any real property, and shall execute and deliver,
        or cause to be executed and delivered, to the Secured Parties a mortgage
        or deed
        of trust on such real property to secure the Obligations, which shall be
        senior
        and in priority to any other mortgage or deed of trust other than Permitted
        Liens. 

      

      3.3 Intellectual
        Property.
        (a)
        Except as could not reasonably be expected to have a Material Adverse Effect,
        the Company or a Subsidiary (either itself or through licensees) (i) will
        continue to use each registered trademark (owned by the Company or a Subsidiary)
        and trademark for which an application (owned by the Company or a Subsidiary)
        is
        pending, to the extent reasonably necessary to maintain such trademark in
        full
        force free from any claim of abandonment for non-use, (ii) will maintain
        products and services offered under such trademark at a level not less than
        the
        quality of such products and services as of the date hereof, (iii) will not
        (and will not permit any licensee or sublicensee thereof to) do any act or
        knowingly omit to do any act whereby such trademark could reasonably be expected
        to become invalidated or impaired in any way, (iv) will not do any act, or
        knowingly omit to do any act, whereby any issued patent owned by the Company
        or
        a Subsidiary would reasonably be expected to become forfeited, abandoned
        or
        dedicated to the public, (v) will not (and will not permit any licensee or
        sublicensee thereof to) do any act or knowingly omit to do any act whereby
        any
        registered copyright owned by the Company or a Subsidiary or copyright for
        which
        an application is pending (owned by the Company or a Subsidiary) could
        reasonably be expected to become invalidated or otherwise impaired, and (vi)
        will not (either itself or through licensees) do any act whereby any material
        portion of the Company’s or a Subsidiary’s owned copyrights may fall into the
        public domain.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      (b) The
        Company will give prompt written notice to the Secured Parties if the Company
        knows, or has reason to know, that any application or registration relating
        to
        any material Owned Intellectual Property may become forfeited, abandoned
        or
        dedicated to the public, or of any adverse determination or development
        (including, without limitation, the institution of, or any such determination
        or
        development in, any proceeding in the United States Patent and Trademark
        Office,
        the United States Copyright Office or any court or tribunal in any country)
        regarding the Company’s ownership of, or the validity of, any material Owned
        Intellectual Property or the Company’s right to register the same or to own and
        maintain the same.

       

      (c) Whenever
        the Company or a Subsidiary, either by itself or through any agent, employee,
        licensee or designee, shall file an application for the registration of any
        Intellectual Property with the United States Patent and Trademark Office,
        the
        United States Copyright Office or any similar office or agency in any other
        country or any political subdivision thereof, the Company shall report such
        filing to the Secured Parties in writing within five (5) Business Days after
        the
        last day of the fiscal quarter in which such filing occurs. Upon request
        of the
        Secured Parties, the Company shall execute and deliver, and have recorded,
        any
        and all agreements, instruments, documents and papers as the Secured Parties
        may
        reasonably request to evidence the Secured Parties’ security interests in any
        material copyright, patent or trademark and the goodwill and general intangibles
        of the Company and the Subsidiaries relating thereto or represented
        thereby.

       

      (d) The
        Company will take, or cause to be taken, all reasonable and necessary steps,
        at
        the Company’s sole cost and expense, including, without limitation, in any
        proceeding before the United States Patent and Trademark Office, the United
        States Copyright Office or any similar office or agency in any other country
        or
        any political subdivision thereof, to maintain and pursue each application
        (and
        to obtain the relevant registration) and to maintain each registration of
        the
        material Owned Intellectual Property, including, without limitation, filing
        of
        applications for renewal, affidavits of use and affidavits of
        incontestability.

       

      (e) In
        the
        event that any material Owned Intellectual Property owned by the Company
        or a
        Subsidiary is infringed, misappropriated or diluted by a third party, the
        Company or such Subsidiary shall (i) at its sole cost and expense, take
        such actions as the Secured Parties shall reasonably request or the Company
        or
        such Subsidiary shall reasonably deem appropriate under the circumstances
        to
        protect such Owned Intellectual Property, and (ii) if such Owned
        Intellectual Property is of material economic value, promptly notify the
        Secured
        Parties after the Company learns of such infringement, misappropriation or
        dilution.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      ARTICLE
        4

      REMEDIAL
        MATTERS

       

      4.1 Event
        of Default.
        An
“Event
        of Default”
shall
        exist hereunder (a) if an Event of Default shall occur under any of the
        Notes, or (b) if the Company or any Subsidiary shall breach in any material
        respect any agreement contained herein or otherwise default in any material
        respect in the observance or performance of any of the covenants, terms,
        conditions or agreements on the part of the Company contained in this Agreement
        and such non-observance or non-performance continues for a period of thirty
        (30)
        days after the earlier
        of (i) written notice from the Secured Parties of such default or (ii) actual
        knowledge of the Company of such default.

       

      4.2 Collections.
        Upon
        the occurrence and during the continuance of an Event of Default, the Secured
        Parties may, in their sole discretion: (a) communicate with the account debtors
        of any and all Accounts, and require the Company to notify such account debtors
        and any and all parties to any contracts included in the Collateral, notifying
        such account debtors and parties to contracts that the subject Accounts and
        contracts have been assigned to the Secured Parties; (b) demand, sue for,
        collect or receive any money or property at any time payable or receivable
        on
        account of or in exchange for, or make any compromise or settlement deemed
        desirable with respect to any of the Collateral, but shall be under no
        obligation to do so; and/or (c) extend the time of payment, arrange for payment
        in installments, or otherwise modify the term of, or release, any of the
        Collateral, without thereby incurring responsibility to, or discharging or
        otherwise affecting any liability of, the Company or any Subsidiary, other
        than
        to discharge the Company or a Subsidiary in so doing with respect to liabilities
        of the Company or a Subsidiary to the extent that the liabilities are paid
        or
        repaid. After the occurrence and during the continuance of an Event of Default,
        any money, checks, notes, bills, drafts, or commercial paper received by
        the
        Company or a Subsidiary shall be held in trust for the Secured Parties and
        shall
        be promptly (and in any event within ten
        (10)
        Business Days after receipt by the Company) turned over to the Secured Parties
        as its interest shall appear. Upon the occurrence and during the continuance
        of
        an Event of Default, the Secured Parties may make such payments and take
        such
        actions as the Secured Parties deem necessary to protect their security
        interests in the Collateral or the value thereof, and the Secured Parties
        are
        hereby unconditionally and irrevocably authorized (without limiting the general
        nature of the authority hereinabove conferred) to pay, purchase, contest
        or
        compromise any liens which in the judgment of the Secured Parties appear
        to be
        equal to, prior to or superior to its security interest in the Collateral
        and
        any liens not expressly permitted by this Agreement.

       

      4.3 Possession;
        Sale of Collateral.
        (a)
        Upon the occurrence and during the continuance of an Event of Default, the
        Secured Parties may: (i) require the Company to assemble, or cause to be
        assembled, the tangible assets that comprise part of the Collateral and make
        them available to the Secured Parties at any place or places reasonably
        designated by the Secured Parties; (ii) to the extent permitted by applicable
        law, with or without notice or demand for performance and without liability
        for
        trespass, enter any premises where the Collateral may be located and peaceably
        take possession of the same, and may demand and receive such possession from
        any
        person who has 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      possession
        thereof, and may take such measures as it may deem necessary or proper for
        the
        care or protection thereof (including, but not limited to, the right to remove
        all or any portion of the Collateral); and (iii) with or without taking such
        possession may sell or cause to be sold, in one or more sales or parcels,
        for
        cash, on credit or for future delivery, without assumption of any credit
        risk,
        all or any portion of the Collateral, at public or private sale or at any
        broker’s board or any securities exchange, without demand of performance or
        notice of intention to sell or of time or place of sale, except ten (10)
        days’
written notice to the Company of the time and place of such sale or sales
        (and
        such other notices as may be required by applicable statute, if any, and
        which
        cannot be waived), which the Company hereby expressly acknowledges is
        commercially reasonable. The Secured Parties shall have no obligation to
        clean-up or otherwise prepare any Collateral for sale. The Collateral may
        be
        sold or disposed of for cash, upon credit or for future delivery as the Secured
        Parties shall deem appropriate. Each such purchaser at any such sale shall
        hold
        the property sold absolutely, free from any claim or right on the part of
        the
        Company or any Subsidiary. At any such sale, the Collateral, or portion thereof,
        to be sold may be sold in one lot as an entirety or in separate parcels,
        as the
        Secured Parties may determine. The Secured Parties shall not be obligated
        to
        make any sale of any Collateral if it shall determine not to do so, regardless
        of the fact that notice of sale of such Collateral shall have been given.
        The
        Secured Parties may, without notice or publication, adjourn any public or
        private sale or cause the same to be adjourned from time to time by announcement
        at the time and place fixed for sale, and such sale may, without further
        notice,
        be made at the time and place to which the same was so adjourned. The Secured
        Parties may comply with any applicable state or federal law requirements
        in
        connection with a disposition of the Collateral and compliance will not be
        considered adversely to affect the commercial reasonableness of any disposition
        of the Collateral. In case any sale of all or any part of the Collateral
        is made
        on credit or for future delivery, the Collateral so sold may be retained
        by the
        Secured Parties until the sale price is paid by the purchaser or purchasers
        thereof. The Secured Parties shall not incur any liability for the failure
        to
        collect or realize upon any or all of the Collateral or for any delay in
        doing
        so and, in case of any such failure, shall not be under any obligation to
        take
        any action with respect thereto; provided, such Collateral may be sold again
        upon like notice. If any Collateral is sold upon credit, the Company will
        be
        credited only with payments actually made by the purchaser, received by the
        Secured Parties and applied to the Obligations in accordance with Section
        4.4.
        In the event the purchasers fail to pay for the Collateral, the Secured Parties
        may resell the Collateral. At any public sale made pursuant to this Section
        4.3,
        the Secured Parties may bid for or purchase, free from any right of redemption,
        stay or appraisal and all rights of marshalling, the Collateral and any other
        security for the Obligations (all such rights being also hereby waived and
        released by the Company to the fullest extent permitted by law), and may
        make
        payment on account thereof by using any claim then due and payable to the
        Secured Parties from the Company as a credit against the purchase price,
        and the
        Secured Parties may, upon compliance with the terms of sale, hold, retain
        and
        dispose of such property without further accountability to the Company or
        any
        Subsidiary therefor. As an alternative to exercising the power of sale herein
        conferred upon it, the Secured Parties may proceed by a suit or suits at
        law or
        in equity to foreclose this Agreement and to sell the Collateral or any portion
        thereof pursuant to a judgment or 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      decree
        of
        a court or courts having competent jurisdiction or pursuant to a proceeding
        by a
        court-appointed receiver. In any action hereunder, the Secured Parties shall
        be
        entitled to the appointment of a receiver without notice, to peaceably take
        possession of all or any portion of the Collateral and to exercise such powers
        as the court shall confer upon the receiver. Notwithstanding the foregoing,
        if
        an Event of Default shall occur and be continuing, the Secured Parties shall
        be
        entitled, in its discretion, to apply any cash or cash items constituting
        Collateral in its possession to payment of the Obligations, and to set off
        the
        Obligations against any and all liabilities or obligations owed by a Secured
        Party to the Company, in each case without notice to the Company (any such
        notice being hereby expressly waived by the Company); and the Secured Parties
        shall endeavor to notify the Company promptly upon any such application or
        set-off, provided that the failure to give any such notice shall not affect
        the
        validity of such application or set-off.

       

      (b) If
        an
        Event of Default shall occur and be continuing, the Secured Parties shall,
        in
        addition to exercising any and all rights and remedies afforded to it hereunder,
        have all the rights and remedies of a secured party under all applicable
        provisions of law, including but not limited to the Code.

       

      (c) If
        an
        Event of Default shall occur and be continuing, the Secured Parties shall
        be
        entitled (but shall not be required) to (i) operate any or all of the
        Collateral, (ii) perform any and all obligations of the Company under any
        contract included within the Collateral and exercise all rights of the Company
        thereunder, (ii) do all other acts which the Secured Parties may deem necessary
        or appropriate to protect its security interest hereunder, and (iv) sell,
        assign, subcontract or otherwise transfer any such contract (subject, however,
        to the prior approval of each other party to such contract to the extent
        required thereunder). The Company agrees that notwithstanding anything to
        the
        contrary contained in this Agreement, the Company shall remain liable under
        each
        contract or other agreement giving rise to Accounts and general intangibles
        and
        all other contracts or agreements constituting part of the Collateral and
        the
        Secured Parties shall not have any obligation or liability in respect
        thereof.

       

      (d) After
        the
        occurrence and during the continuance of an Event of Default, upon the Secured
        Parties’ request, the Company shall deliver to the Secured Parties all original
        and other documents, evidencing and relating to the sale and delivery of
        Inventory or Accounts, including but not limited to, all original orders,
        invoices and shipping receipts. The Company shall also furnish to the Secured
        Parties, reasonably promptly upon the request of the Secured Parties, to
        the
        extent available, such reports, reconciliations and aging balances regarding
        Accounts as the Secured Parties may reasonably request from time to
        time.

       

      (e) After
        the
        occurrence and during the continuance of an Event of Default, the Secured
        Parties shall have the right (i) to receive any and all cash dividends, payments
        or distributions paid or payable in respect of any investment property included
        in the Collateral, (ii) to cause such investment property to be registered
        in
        the name of the Secured Parties or their respective nominees, and (iii) to
        exercise all voting and other rights pertaining to such investment property
        and
        any and all rights of conversion, exchange and subscription and any other
        rights, privileges or options pertaining to such investment property as if
        the
        Secured Parties were the absolute owner thereof. The Company hereby authorizes
        each issuer of investment property included in the Collateral to rely, without
        investigation, on any notice given by the Secured Parties which states the
        existence of an Event of Default and requires compliance with instructions
        of
        the Secured Parties with respect to such investment property, without
        requirement of any other or further instructions from the Company; and the
        Company agrees that each such issuer shall be fully protected in so complying
        with any such notice and instruction.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      4.4 Application
        of Proceeds.
        Unless
        the Secured Parties otherwise direct, the proceeds of any sale of Collateral
        pursuant to this Agreement or otherwise shall be applied after receipt by
        the
        Secured Parties as follows:

       

      (a) First,
        to
        the payment of all costs, fees and expenses of the Secured Parties and their
        respective agents, representatives and attorneys incurred in connection with
        such sale or with the retaking, holding, handling, preparing for sale (or
        other
        disposition) of the Collateral or otherwise in connection with any of the
        Notes,
        this Agreement or any of the Obligations, including, but not limited to,
        the
        reasonable fees and expenses of the Secured Parties’ agents and attorneys and
        court costs (whether at trial, appellate or administrative levels), if any,
        incurred by the Secured Parties in so doing;

       

      (b) Second,
        to the payment of the outstanding principal balance, accrued interest, fees
        and
        other amounts payable on the Obligations in such order as the Secured Parties
        may determine; and

       

      (c) Third,
        to
        the Company or to such other Person as a court may direct.

       

      4.5 Authority
        of Secured Parties.
        The Secured
        Parties shall have and be entitled to exercise all such powers hereunder
        as are
        specifically delegated to the Secured Parties by the terms hereof, together
        with
        such powers as are reasonably incidental thereto. The Secured Parties may
        execute any of its duties hereunder by or through its agents or employees
        and
        shall be entitled to retain counsel and to act in reliance upon the advice
        of
        such counsel concerning all matters pertaining to its duties
        hereunder.

       

      4.6 Certain
        Waivers; Company Not Discharged.
        The
        Company expressly and irrevocably waives (to the extent permitted by applicable
        law) presentment, demand for payment and protest of nonpayment in respect
        of its
        Obligations under this Agreement. The obligations and duties of the Company
        hereunder are irrevocable, absolute, and unconditional and shall not be
        discharged, impaired or otherwise affected by (a) the failure of the Secured
        Parties to assert any claim or demand or to enforce any right or remedy against
        the Company or any grantee or any Collateral under the provisions of this
        Agreement or any waiver, consent, extension, indulgence or other action or
        inaction in respect thereof, (b) any extension or renewal of any part of
        the
        Obligations, (c) the release of any security interests in any part of the
        Collateral or the release, sale or exchange of or failure to foreclose against
        any security held by or for the benefit of the Secured Parties for payment
        or
        performance of the Obligations, (d) the bankruptcy, insolvency or reorganization
        of the Company or any grantee or any other Persons, or (e) any change,
        restructuring or termination of the corporate structure or existence of the
        Company or any grantee or any restructuring, refinancing, subordination or
        other
        change or variation in the terms of all or any portion of the
        Obligations.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      4.7 Transfer
        of Security Interest.
        The
        Secured Parties may transfer to any other Person all or any part of the liens
        and security interests granted hereby, and all or any part of the Collateral
        which may be in the Secured Parties’ possession. Upon such transfer, the
        transferee shall be vested with all the rights and powers of the Secured
        Parties
        hereunder with respect to such of the Collateral as is so transferred, but,
        with
        respect to any of the Collateral not so transferred, the Secured Parties
        shall
        retain all of its rights and powers (whether given to it in this Agreement,
        or
        otherwise).

       

      ARTICLE
        5

      MISCELLANEOUS

       

      5.1 Further
        Assurances.
        The
        Company agrees, at its expense, to do such further things, to execute,
        acknowledge, deliver and cause to be duly filed all such further instruments
        and
        documents and take all such actions as the Secured Parties may from time
        to time
        reasonably request for the better preservation and perfection of the security
        interests and the rights and remedies created hereby, including but not limited
        to the execution and delivery of such schedules of Collateral and additional
        assignments, agreements and instruments, the payment of any fees and taxes
        required in connection with the execution and delivery of this Agreement,
        the
        granting and maintenance of the security interests created hereby and the
        execution, filing and recordation of any financing statements (including
        fixture
        filings) or other documents as the Secured Parties may deem reasonably necessary
        or desirable for the perfection of the security interests granted hereunder.
        If
        any amount payable under or in connection with any of the Collateral shall
        be or
        become evidenced by any promissory note or other instrument, such note or
        instrument shall be immediately pledged and delivered to the Secured Parties,
        duly endorsed in a manner satisfactory to the Secured Parties. If any Collateral
        requires possession thereof to perfect the Secured Parties’ security interests
        hereunder, such Collateral shall be immediately delivered to the Secured
        Parties
        or their respective agents, upon the reasonable request of the Secured
        Parties.
        If at
        any time the Company shall take and perfect a security interest in any property
        to secure payment and performance of an Account, the Company, upon the request
        of the Secured Parties, shall promptly assign such security interest to the
        Secured Parties. The Company agrees that, after the occurrence and during
        the
        continuance of an Event of Default, it shall upon request of the Secured
        Parties, take, or cause to be taken, any and all actions, to the extent
        permitted by applicable law, at its own expense, to obtain the approval of
        any
        governmental authority for any action or transaction contemplated by this
        Agreement that is then required by law, and specifically, without limitation,
        upon request of the Secured Parties, to prepare, sign and file with any
        governmental authority the Company’s portion of any application or applications
        for consent to the assignment of licenses held by the Company, or for consent
        to
        the possession and sale of any of the Collateral by or on behalf of the Secured
        Parties. The Company and each Subsidiary shall at all times, at its own expense
        and cost, keep accurate and complete records with respect to the Collateral,
        including but not limited to a record of all payments and proceeds received
        in
        connection therewith or as a result of the sale thereof and of all credits
        granted, and agrees that the Secured Parties or its representatives shall
        have
        the right at any reasonable time and from time to time to call at the Company’s
        place or places of business to inspect the Collateral and to examine or cause
        to
        be examined all of the books, records, journals and other data relating to
        the
        Collateral and to make extracts therefrom or copies thereof as are reasonably
        requested;
        provided
        that such inspections shall occur no more often than quarterly unless an
        Event
        of Default has occurred and is continuing..

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      5.2 Effectiveness.
        This
        Security Agreement shall take effect immediately upon execution and delivery
        by
        the Company.

       

      5.3 Indemnity;
        Reimbursement of Secured Parties; Deficiency.
        In
        connection with the administration and enforcement or exercise of any right
        or
        remedy granted to the Secured Parties hereunder or under any other security
        documents, the Company shall, subject to the limitations set forth hereafter,
        (a) indemnify, defend and hold harmless each Secured Party from and against
        any
        and all claims, demands, losses, judgments and liabilities (including but
        not
        limited to liabilities for taxes and penalties) of whatever nature, incurred
        by
        or assessed against such Secured Party in connection with such administration,
        enforcement or exercise (including in connection with any workout,
        restructuring, bankruptcy or any similar proceeding), and (b)
        reimburse each Secured Party for all reasonable costs and expenses, including
        but not limited to the reasonable fees and disbursements of attorneys, incurred
        by or assessed against such Secured Party in connection with such
        administration, enforcement or exercise (including in connection with any
        workout, restructuring, bankruptcy or any similar proceeding. The foregoing
        indemnity agreement includes all reasonable costs incurred by the Secured
        Parties in connection with any litigation relating to the Collateral whether
        or
        not the Secured Party shall be a party to such litigation, including but
        not
        limited to the reasonable fees and disbursements of attorneys for the Secured
        Parties, and any out-of-pocket costs incurred by the Secured Parties in
        appearing as a witness or in otherwise complying with legal process served
        upon
        it. The obligations of the Company in this Section 5.3 shall not apply to
        any
        claims or losses that
        arise from
        the
        gross negligence or willful misconduct of a Secured Party. All indemnities
        contained in this Section 5.3 and elsewhere in this Agreement shall survive
        the
        expiration or earlier termination of this Agreement. After application of
        the
        proceeds by the Secured Parties pursuant to Section 4.4 hereof, the Company
        shall remain liable to the Secured Parties for any deficiency. The provisions
        of
        this Section 5.3 shall survive any termination of this Agreement and release
        of
        liens hereunder. 

       

      5.4 Continuing
        Lien.
        It is
        the intent of the parties hereto that (a) this Agreement shall constitute
        a
        continuing agreement as to any and all future, as well as existing transactions,
        between the Company and the Secured Parties under or in connection with the
        Notes, the Purchase Agreement and the other Transaction Documents, and
        (b) the security interest provided for herein shall attach to
        after-acquired as well as existing Collateral.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      5.5 Release.
        Upon
        payment in full of the Obligations or the conversion of the entire principal
        balance and all accrued and unpaid interest under the Notes, the Secured
        Parties
        shall reassign, redeliver and release (or cause to be so reassigned, redelivered
        and released), without recourse upon or warranty by the Secured Parties,
        and at
        the sole expense of the Company, to the Company, against receipt therefor,
        such
        of the Collateral (if any) as shall not have been sold or otherwise applied
        by
        the Secured Parties pursuant to the terms hereof and not theretofore reassigned,
        redelivered and released to the Company, together with appropriate instruments
        of reassignment and release.

       

      5.6 Notices.
        Any
        notice or other communication required or permitted to be given hereunder
        shall
        be in writing and shall be mailed by certified mail, return receipt requested,
        or by Federal Express, Express Mail or similar overnight delivery or courier
        service or delivered (in person or by telecopy, telex or similar
        telecommunications equipment) against receipt to the party to whom it is
        to be
        given:

       

      (i)
        if to
        the Company:

      

      Surfect
        Holdings, Inc.

      12000-G
        Candelaria NE

      Albuquerque,
        New Mexico 87112

      Attention:
        Chief Executive Officer

      Facsimile:
        (505) 294 6311

      

      with
        a
        copy to:

      

      Brownstein
        Hyatt Farber Schreck, P.C.

      201
        Third
        Street NW, Suite 1700

      Albuquerque,
        New Mexico 87102

      Attention:
        Eduardo Duffy, Esq.

      Facsimile:
        (505) 244 9266

      

      (ii)
        if
        to an Investor:

      

      At
        the
        address set forth opposite such Investor’s name on Exhibit A.

      

      with
        a
        copy to:

      

      Greenberg
        Traurig, LLP

      Met
        Life
        Building

      200
        Park
        Avenue

      New
        York,
        New York 10166

      Attention:
        Anthony
        Marsico, Escq.

      Facsimile:
        (212) 801-6400

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      or
        (iii)
        in either case, to such other address as the party shall have furnished in
        writing in accordance with the provisions of this Section 5.6. Notice to
        the
        estate of any party shall be sufficient if addressed to the party as provided
        in
        this Section 5.6. Any notice or other communication given by certified mail
        shall be deemed given at the time of certification thereof, except for a
        notice
        changing a party’s address which shall be deemed given at the time of receipt
        thereof. Any notice given by other means permitted by this Section 5.6 shall
        be
        deemed given at the time of receipt thereof.

       

      5.7 Successors
        and Assigns.
        This
        Security Agreement shall be binding upon and inure solely to the benefit
        of each
        party hereto and their successors and assigns, and nothing in this Agreement,
        express or implied, is intended to or shall confer upon any other person
        any
        right, benefit or remedy of any nature whatsoever under or by reason of this
        Agreement. The Company shall not assign this Agreement or any rights or
        obligations hereunder without the prior written consent of the Secured Parties.
        The Secured Parties may assign their respective rights hereunder without
        prior
        written consent of the Company.

       

      5.8 Governing
        Law; Jurisdiction; Waiver of Jury Trial.
        The
        provisions of this Agreement shall be governed by and construed in accordance
        with the laws of the State of New York, without giving effect to any choice
        of
        law or conflict of law rules or provisions. The Company hereby irrevocably
        consents to the jurisdiction of all courts (state and federal) sitting in
        the
        State of New York in connection with any claim, action or proceeding relating
        to
        or for enforcement of this Agreement, and hereby waives any defense of
        inconvenient forum or other such claim or defense in respect of the lodging
        of
        any such claim, action or proceeding in any such court. THE COMPANY HEREBY
        IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY CLAIM, ACTION OR PROCEEDING
        RELATING TO THIS AGREEMENT.

       

      5.9 Waivers.
        No
        failure or delay of the Secured Parties in exercising any power or right
        hereunder shall operate as a waiver thereof, nor shall any single or partial
        exercise of any such right or power, or any abandonment or discontinuance
        of
        steps to enforce such a right or power, preclude any other or future exercise
        thereof or the exercise of any other right or power. The rights and remedies
        of
        the Secured Parties hereunder are cumulative, may be exercised singly or
        concurrently, and are not exclusive of any rights or remedies which it would
        otherwise have. No course of conduct or course of dealing, or any delay,
        indulgence or other act or omission of the Secured Parties, shall affect
        or
        impair, or constitute a waiver of, any of the Secured Parties’ rights or
        remedies hereunder, except to the extent set forth in a written agreement
        as
        provided in Section 5.10. No waiver of any provision of this Agreement or
        consent to any departure by the Company therefrom shall in any event be
        effective unless the same shall be evidenced as provided in Section 5.10,
        and
        then such waiver or consent shall be effective only in the specific instance
        and
        for the purpose for which given. No notice to or demand on the Company in
        any
        case shall entitle the Company to any other or further notice or demand in
        similar or other circumstances.

       

      5.10 Amendments.
        Neither
        this Agreement nor any provision hereof may be amended or modified, and no
        required performance hereunder may be waived, except pursuant to an agreement
        or
        agreements in writing signed by the party to be charged therewith.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      5.11 Severability.
        In the
        event any one or more of the provisions contained in this Agreement shall
        be
        held invalid, illegal or unenforceable in any respect by a court of competent
        jurisdiction, such provision shall be limited in scope or effect to the extent
        necessary so as to permit such provision to be enforceable to the fullest
        extent
        permitted by applicable law, and the validity, legality and enforceability
        of
        the remaining provisions contained herein or therein shall not in any way
        be
        affected or impaired thereby.

       

      5.12 Counterparts.
        This
        Security Agreement may be executed in two or more counterparts, each of which
        shall constitute an original, but all of which when taken together shall
        constitute but one contract, and shall become effective when copies hereof
        which, when taken together, bear the signatures of each of the parties hereto
        shall be delivered or mailed to the Secured Parties.

       

      5.13 Headings.
        Article
        and Section headings used herein are for convenience of reference only and
        are
        not to affect the construction of, or to be taken into consideration in
        interpreting, this Agreement.

       

      5.15 Interpretation.
        In the
        event of any express conflict between this Agreement and the Purchase Agreement,
        the terms of the Purchase Agreement shall control; provided,
        that
        the imposition of any greater or more specific standard of performance or
        obligation in this Agreement shall not constitute a conflict with the Purchase
        Agreement.

      5.16 Appointment
        of Agent.
        Gemini
        Strategies, LLC hereby appoints Birchten Investments, Ltd. (the
        “Agent”)
        to act
        as its agent for purposes of exercising any
        and
        all rights and remedies of it and the Secured Parties hereunder.
        All
        action required or permitted to be taken by Gemini Strategies, LLC hereunder
        shall be taken through the Agent. The Agent shall have the rights,
        responsibilities and immunities set forth in Schedule
        B
        hereto.

      

      5.17. Rights
        and Obligations between Secured Parties.
        If an
        Event of Default occurs and any Secured Party receives payment from the Company,
        the other Secured Party shall be immediately notified and such payment shall
        be
        shared with such other Secured Party. Notwithstanding anything to the contrary
        contained in the Purchase Agreement, this Agreement or any document executed
        in
        connection with the Obligations and irrespective of: (i) the time, order
        or
        method of attachment or perfection of the security interests created in favor
        of
        the Secured Parties, (ii) the time or order of filing or recording of financing
        statements or other documents filed or recorded to perfect security interests
        in
        any Collateral; (iii) anything contained in any filing or agreement to which
        any
        Secured Party now or hereafter may be a party; and (iv) the rules for
        determining perfection or priority under the Code or any other law governing
        the
        relative priorities of secured creditors, each Secured Party acknowledges
        that
        (x) the other Secured Party has a valid security interest in the Collateral
        and
        (y) the security interests of the Secured Parties in any Collateral pursuant
        to
        any outstanding Obligations shall be pari passu with each other.

      

      

      

       

      

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      IN
        WITNESS WHEREOF,
        this
        Agreement has been duly executed by each of the undersigned as of the date
        first
        set forth above.

       

      SURFECT
        HOLDINGS, INC.

      

      

      By:___________________________

      Name:

      Title:

      

      SURFECT
        TECHNOLOGIES, INC.

      

      

      By:___________________________

      Name:

      Title:

      

      BIRCHTEN
        INVESTMENTS, LTD.

      

      

      By:___________________________

      Name:

      Title:

      

      GEMINI
        MASTER FUND, LTD.

      

      

      By:___________________________

      Name:

      Title:

      

      LONDON
        FAMILY TRUST

      

      

      By:___________________________

      Name:

      Title:

      

      JACOB
        HONIG IRREVOCABLE TRUST

      

      By::__________________________

      Name:
        

      Title:

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Schedule
        A

       

      Location
        of Asset and Record

       

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Schedule
        B

       

      The
        Agent

      

      1. Appointment.
        The
        Secured Parties (all capitalized terms used herein and otherwise defined
        shall
        have the respective meanings provided in the Security Agreement to which
        this
        Schedule B is attached (the “Agreement”)),
        by
        their acceptance of the benefits of the Agreement, hereby designate Birchten
        Investments, Ltd. (the “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
        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 the Company 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
        Company, 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 Company
        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 Company 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 Company, 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 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. 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
        Company 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 Company 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.

      

      6.
         Indemnification.
        To the
        extent that the Agent is not reimbursed and indemnified by the Company, the
        Secured Parties will jointly and severally reimburse and indemnify the Agent,
        in
        proportion to their initially purchased respective principal amounts of 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 Company 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 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
        Company 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 Company 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
        Schedule B shall inure to its benefit as to any actions taken or omitted
        to be
        taken by it while it was Agent.

       

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
 

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	Surfect
              Holdings Options and Warrants as of: May 21, 2007 
	 	  
	  
	         
                         Options
              Outstandinq  	 	
              Shares
                covered by Options/Warrants 
                

            
	         
                                 
                 Steven
              Anderson  	 	955,462 

	         
                                 
                 Miles
              Prim  	 	456,686 

	         
                                 
                 Tony
              Maffia  	 	325,000 

	         
                                 
                 Mark
              Eichhorn  	 	224,846 

	         
                                 
                 Yixiang
              Xie  	 	217,803 

	         
                                 
                 Thomas
              T
              . Griego  	 	108,036 

	         
                                 
                 Doug
              Auker  	 	90,000 

	         
                                 
                 Larry
              Wagner  	 	89,310 

	         
                                 
                 Qiang
              Fu  	 	72,024 

	         
                                 
                 Solomon
              Basame  	 	72,024 

	         
                                 
                 Greg
              Perry  	 	50,000 

	         
                                 
                 Joe
              Krutel  	 	44,655 

	         
                                 
                 Dennis
              Barnes  	 	25,000 

	         
                                 
                 John
              Torvik  	 	25,000 

	         
                                 
                 Bance
              Horn  	 	18,294 

	         
                                 
                 Lee
              Levine  	 	10,000 

	         
                                 
                 Tom
              Obertleitner  	 	10,000 

	         
                                 
                 Mike
              O'Brien  	 	3,601 

	         
                                 
                 Peter
              Elenius  	 	3,601 

	         
                                 
                 Thomas
              Goodman  	 	3,601 

	         
                                 
                 Joel
              Camarda  	 	1,440 

	         
                                 
                 Joseph
              Monkowski  	 	1,440 

	         
                                 
                 Robert
              (Jim) Walker  	 	1,440 

	         
                                 
                 Bruce
              Lipisko  	 	       
              1,008  
	  	 	2,810,273 

	         
                           Warrants
              Outstandinq  	 	  
	         
                                 
                 David
              Khaghan  	 	25,000 

	         
                                 
                 Brad
              and
              Allison Feinberg  	 	25,000 

	         
                                 
                 Alan
              Horowitz  	 	50,000 

	         
                                 
                 David
              J .
              Adelman  	 	25,000 

	         
                                 
                 Jonathan
              Alpert  	 	12,500 

	         
                                 
                 Brian
              Cam  	 	12,500 

	         
                                 
                 David
              Rounick  	 	12,500 

	         
                                 
                 Greg
              Wallace  	 	12,500 

	         
                                 
                 David
               Goldstein  	 	12,500 

	         
                                 
                 Jeff
              and
              Amy Cohan  	 	12,500 

	         
                                 
                 Elinor
              Ganz IRA  	 	25,000 

	         
                                 
                 Harold
              Gelber Rev . Trust  	 	12,500 

	         
                                 
                 Aharon
              Ungar & Jennifer Ungar  	 	25,000 

	         
                                 
                 Chocolate
              Chip Investments  	 	50,000 

	         
                                 
                 DiMarino-Kroop-Prieto
              Gastroin  	 	12,500 

	         
                                 
                 Aaron
              McKie  	 	12,500 

	         
                                 
                 Ira
              M .
              Lubert  	 	125,000 

	         
                                 
                 Natalie
              Rounick  	 	12,500 

	         
                                 
                 Lester
              E
              . Lipschutz  	 	12,500 

	         
                                 
                 Peddle
              Partners  	 	25,000 

	         
                                 
                 Elinor
              Ganz as Trustee for Amy Ganz  	 	12,500 

	                                 Ira
              Saligman  	 	25,000 

	         
                                 
                 Serpentine
              Group Inc ., Defined Benefit Pension Plan 
              	 	25,000 

	         
                                 
                 Alfred
              Gladstone 401K  	 	12,500 

	         
                                 
                 Sidney
              Ulreich 401k  	 	18,750 

	         
                                 
                 Frank
              & Suzanne Pearl  	 	25,000 

	         
                                 
                 Beverly
              Pinnas  	 	12,500 

	         
                                 
                 Jeffrey
              and Robin Feinberg  	 	25,000 

	                                 Elinor
              Ganz as Trustee for Susan Ganz  	 	12,500 

	         
                                 
                 Sandor
              Capital Master Fund I, L .P . (Funds delivered through UBS
              Account)  	 	125,000 

	         
                                 
                 John
              Fries  	 	125,000 

	         
                                 
                 Frank
              Trimboli  	 	50,000 

	         
                                 
                 Mark
              Nicosia  	 	75,000 

	                                 Phyllis
              Ulreich  	 	18,750 

	         
                                 
                 Joseph
              Papa and Marylee Pratnicki  	 	125,000 

	         
                                 
                 Gemini
              Master Fund  	 	100,000 

	         
                                 
                 Schreiber
              Living Trust  	 	100,000 

	                                 ITU
              Ventures West I, LP  	 	250,000 

	                                 Granite
              Financial Group  	 	32,000 

	         
                                 
                 Williams
              Financial Group  	 	20,000 

	         
                                 
                 Westminster
              Securities  	 	    
56,250 

	  	 	1,758,250

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00124-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00124-of-00352.parquet"}]]