Document:

SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of ___________, 2008 among CyberDefender Corporation, a California
      corporation (the “Company”),
      and
      the purchaser identified on the signature page hereto (the “Purchaser”).

     

    WHEREAS,
      subject to the terms and conditions set forth in this Agreement and pursuant
      to
      Section 4(2) of the Securities Act of 1933, as amended (the “Securities
      Act”)
      and
      Rule 506 promulgated thereunder, the board of directors of the Company has
      authorized the sale and issuance to the Purchaser and other purchasers who
      are
“accredited investors” within the meaning of Rule 501 under the Securities Act
      (collectively, the “Other
      Purchasers”,
      and
      together with the Purchaser, the “Purchasers”)
      of up
      to $1,200,000 in aggregate principal amount of the Company’s 10% Convertible
      Promissory Notes and warrants to purchase common stock of the Company, subject
      to the terms and conditions of this form of Agreement (the “Offering”).

     

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

     

    ARTICLE
      I.

    DEFINITIONS

     

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

     

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

     

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

     

    “Business
      Day”
means
      any day except Saturday, Sunday, any day which shall be a federal legal holiday
      in the United States or any day on which banking institutions in the State
      of
      New York are authorized or required by law or other governmental action to
      close
      and, upon the Company becoming listed or quoted on a Trading Market, except
      any
      day that the Common Stock is not traded on the Trading Market.

     

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

    

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

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Commission”
means
      the Securities and Exchange Commission.

     

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

     

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

     

    “Conversion
      Price”
shall
      have the meaning ascribed to such term in the Notes.

     

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

     

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

     

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

     

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

    

    “Exempt
      Issuance”
means
      the issuance of (a) shares of Common Stock, options or warrants to employees,
      officers, directors or consultants of the Company, (b) securities upon the
      exercise or exchange of or conversion of any Securities issued hereunder and/or
      other securities exercisable or exchangeable for or convertible into shares
      of
      Common Stock issued and outstanding on the date of this Agreement, (c)
      securities issued pursuant to acquisitions or strategic transactions approved
      by
      a majority of the disinterested directors, provided any such issuance shall
      only
      be to a Person which is, itself or through its subsidiaries, an operating
      company in a business synergistic with the business of the Company and in which
      the Company receives benefits in addition to the investment of funds.

    

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

     

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

     

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

    
      
        
        

      

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

     

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

     

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

     

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

     

    “Notes”
means
      the 10% Convertible Promissory Notes in the form of Exhibit
      A
      attached
      hereto due, subject to the terms therein, eleven months from the Closing Date,
      issued by the Company to the Purchasers pursuant to this form of
      Agreement.

     

    “Note
      Shares”
mean
      the shares of Common Stock issuable upon conversion of the Notes, including
      any
      shares of Common Stock issued in payment of interest thereunder.

     

    “Offering”
has
      the
      meaning set forth in the recitals hereof.

     

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

     

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

     

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

     

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

     

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

     

    “Required
      Minimum”
means,
      as of any date, the maximum aggregate number of shares of Common Stock then
      issued or potentially issuable in the future pursuant to the Transaction
      Documents, including any Underlying Shares (including Underlying Shares issuable
      as payment of interest), ignoring any conversion or exercise limits set forth
      therein, and assuming that the Conversion Price is at all times on and after
      the
      date of determination 75% of the then Conversion Price on the Business Day
      immediately prior to the date of determination.

    
      
        
        

      

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

     

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

     

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

     

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

     

    “Subordination
      Agreement”
means
      the Subordination Agreement in the form attached hereto as Exhibit
      E.

     

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

     

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

     

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

     

    “Transaction
      Documents”
means
      this form of Agreement, the Notes, the Warrants, the Registration Rights
      Agreement, and any other documents or agreements executed by the Purchasers
      in
      connection with the transactions contemplated hereby.

     

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

     

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

    
      
        
        

      

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

     

    “Warrants”
means
      the Common Stock purchase warrants, in the form of Exhibit C
      attached
      hereto, delivered to the Purchasers pursuant to this form of
      Agreement.

     

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

     

    ARTICLE
      II.

    PURCHASE
      AND SALE

     

    2.1 Closing.
      On the
      Closing Date, upon the terms and subject to the conditions set forth herein
      and
      substantially concurrent with the execution and delivery of this Agreement
      by
      the parties hereto, the Company agrees to sell, and the Purchaser agrees to
      purchase, a Note in principal amount of the Subscription Amount and a Warrant
      to
      purchase the number of Warrant Shares determined in accordance with Section
      2.2(a)(iii) below. The Purchaser shall deliver to the Company immediately
      available funds via wire transfer or a certified check equal to the Subscription
      Amount (or, if the Subscription Amount is to be paid by cancellation of
      indebtedness, evidence of such cancellation reasonably satisfactory to the
      Company), the Company shall deliver to the Purchaser the Purchaser’s Note and
      Warrant, and the Company and the Purchaser shall deliver the other items set
      forth in Section 2.2 deliverable at the Closing. The Closing shall occur upon
      satisfaction of the conditions set forth in Sections 2.2 and 2.3.

     

    Deliveries2.2 .

     

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

     

    
      
        (i)
          this
          Agreement duly executed by the Company;

      

    

     

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

     

    (iii) a
      Warrant
      registered in the name of the Purchaser to purchase up to a number of shares
      of
      Common Stock equal to 50% of the Purchaser’s Subscription Amount divided by
      $1.25, at an exercise price of $1.25 per share,
      subject
      to adjustment therein;

    
      
        
        

      

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

     

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

     

    (vi) the
      Subordination Agreement duly executed by the Company.

    

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

     

    
      
        (i)
          this
          Agreement duly executed by the Purchaser;

      

    

     

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

     

    (iii) the
      Escrow Agreement duly executed by the Purchaser; and 

     

    (iv) the
      Registration Rights Agreement duly executed by the Purchaser.

     

    (v) the
      Subordination Agreement duly executed by the Purchaser.

    

    2.3 Closing
      Conditions. 

     

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

     

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

     

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

     

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

     

    (iv) the
      Company obtaining the written consent and waiver of the holders of at least
      75%
      of the outstanding principal amount of the Company’s 10% Secured Convertible
      Debentures, for and on behalf of all the holders of such debentures (the
“Debenture
      Holders”),
      consenting to the issuance of up to $1,200,000 in aggregate principal amount
      of
      the Notes. 

    

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

    

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

    
      
        
        

      

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

     

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

     

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

     

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

     

    ARTICLE
      III.

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1 Representations
      and Warranties of the Company.
      Except
      as set forth in the SEC Documents, the Company hereby makes the following
      representations and warranties to each Purchaser.

     

    (a) Subsidiaries.
      The
      Company has no subsidiaries, therefore all references in the Transaction
      Documents to the Subsidiaries or any of them in the Transaction Documents shall
      be disregarded.

     

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

    
      
        
        

      

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

     

    (d) No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the other transactions contemplated
      hereby and thereby do not and will not: (i) conflict with or violate any
      provision of the Company’s or any Subsidiary’s certificate or articles of
      incorporation, bylaws or other organizational or charter documents, or (ii)
      subject to the Required Approvals, conflict with, or constitute a default (or
      an
      event that with notice or lapse of time or both would become a default) under,
      result in the creation of any Lien upon any of the properties or assets of
      the
      Company or any Subsidiary, or give to others any rights of termination,
      amendment, acceleration or cancellation (with or without notice, lapse of time
      or both) of, any agreement, credit facility, debt or other instrument
      (evidencing a Company or Subsidiary debt or otherwise) or other understanding
      to
      which the Company or any Subsidiary is a party or by which any property or
      asset
      of the Company or any Subsidiary is bound or affected, except for the
      acceleration of the maturity date of the Company’s 18-month 10% Convertible
      Debentures, in the aggregate principal amount up to $480,000, which will have
      an
      accelerated maturity date of September 12, 2009, or (iii) subject to the
      Required Approvals, conflict with or result in a violation of any law, rule,
      regulation, order, judgment, injunction, decree or other restriction of any
      court or governmental authority to which the Company or a Subsidiary is subject
      (including federal and state securities laws and regulations), or by which
      any
      property or asset of the Company or a Subsidiary is bound or affected; except
      in
      the case of each of clauses (ii) and (iii), such as could not have or reasonably
      be expected to result in a Material Adverse Effect.

    
      
        
        

      

      
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    (e) Filings,
      Consents and Approvals.
      The
      Company is not required to obtain any consent, waiver, authorization or order
      of, give any notice to, or make any filing or registration with, any court
      or
      other federal, state, local or other governmental authority or other Person
      in
      connection with the execution, delivery and performance by the Company of the
      Transaction Documents, other than (i) the filing with the Commission of the
      Registration Statement, and (ii) the filing of Form D with the Commission and
      such filings as are required to be made under applicable state securities laws,
      and (iii) the written consent of the holders of at least 75% of the outstanding
      principal amount of the Company’s 10% Secured Convertible Debentures issued on
      or about September 12, 2006 (collectively, the “Required
      Approvals”).

     

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

     

    (g) Capitalization.
      The
      capitalization of the Company is as disclosed in its Quarterly Report on Form
      10-Q for the quarter ended September 30, 2008. Except as a result of the
      purchase and sale of the Securities or otherwise as set forth in such Quarterly
      Report, there are no outstanding options, warrants, script rights to subscribe
      to, calls or commitments of any character whatsoever relating to, or securities,
      rights or obligations convertible into or exercisable or exchangeable for,
      or
      giving any Person any right to subscribe for or acquire, any shares of Common
      Stock, or contracts, commitments, understandings or arrangements by which the
      Company or any Subsidiary is or may become bound to issue additional shares
      of
      Common Stock or Common Stock Equivalents. The issuance and sale of the
      Securities will not obligate the Company to issue shares of Common Stock or
      other securities to any Person (other than the Purchasers) and will not result
      in a right of any holder of Company securities to adjust the exercise,
      conversion, exchange or reset price under any of such securities. All of the
      outstanding shares of capital stock of the Company are validly issued, fully
      paid and non-assessable, have been issued in compliance with all federal and
      state securities laws, and none of such outstanding shares was issued in
      violation of any preemptive rights or similar rights to subscribe for or
      purchase securities. No further approval or authorization of any stockholder,
      the Board of Directors of the Company or others is required for the issuance
      and
      sale of the Securities. There are no stockholders agreements, voting agreements
      or other similar agreements with respect to the Company’s capital stock to which
      the Company is a party or, to the knowledge of the Company, between or among
      any
      of the Company’s stockholders. The Company has at least 40 shareholders of
      Common Stock of record prior to the date hereof. 

    
      
        
        

      

      
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    (h) SEC
      Documents.
      The
      Company hereby makes reference to the following documents filed by the Company
      with the Commission, which are available for review on the Commission’s website,
      www.sec.gov: (collectively, the “SEC
      Documents”):
      (a)
      Annual Report on Form 10-K for the fiscal year ended December 31, 2007; (b)
      and
      Quarterly Reports on Form 10-Q for the periods ended March 31, June 30 and
      September 30, 2008; and any amendments thereto. As of their respective dates,
      the SEC Documents complied in all material respects with the requirements of
      the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules
      and regulations promulgated thereunder and none of the SEC Documents contained
      an untrue statement of a material fact or omitted to state a material fact
      required to be stated therein or necessary to make the statements therein,
      in
      light of the circumstances under which they were made, not misleading. The
      financial statements of the Company included in the SEC Documents comply as
      to
      form in all material respects with applicable accounting requirements and the
      published rules and regulations of the SEC with respect thereto, have been
      prepared in accordance with generally accepted accounting principles in the
      United States (“GAAP”)
      (except, in the case of unaudited statements, as permitted by the applicable
      form under the Exchange Act) applied on a consistent basis during the periods
      involved (except as may be indicated in the notes thereto) and fairly present
      the financial position of the Company as of the dates thereof and its
      consolidated statements of operations, stockholders’ equity and cash flows for
      the periods then ended (subject, in the case of unaudited statements, to normal
      and recurring year-end audit adjustments which were and are not expected to
      have
      a material adverse effect on the Company, its business, financial condition
      or
      results of operations). Except as and to the extent set forth on the balance
      sheet of the Company as of September 30, 2008, including the notes thereto,
      the
      Company has no liability or obligation of any nature (whether accrued, absolute,
      contingent or otherwise and whether required to be reflected on a balance sheet
      or not). 

     

    (i) Material
      Changes.
      Since
      September 30, 2008, except as disclosed as a subsequent event in the Company’s
      Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (i)
      there
      has been no event, occurrence or development that has had or that could
      reasonably be expected to result in a Material Adverse Effect, (ii) the Company
      has not incurred any liabilities (contingent or otherwise) other than (A) trade
      payables and accrued expenses incurred in the ordinary course of business
      consistent with past practice and (B) liabilities not required to be reflected
      in the Company’s financial statements pursuant to GAAP or disclosed in filings
      made with the Commission, (iii) the Company has not altered its method of
      accounting, (iv) the Company has not declared or made any dividend or
      distribution of cash or other property to its stockholders or purchased,
      redeemed or made any agreements to purchase or redeem any shares of its capital
      stock and (v) the Company has not issued any equity securities to any officer,
      director or Affiliate, except pursuant to existing Company stock option plans.
      The Company does not have pending before the Commission any request for
      confidential treatment of information.

     

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

    
      
        
        

      

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

     

    (a) Organization;
      Authority.
      If the
      Purchaser is not an individual, the Purchaser is an entity duly organized,
      validly existing and in good standing under the laws of the jurisdiction of
      its
      organization with full right, corporate or partnership power and authority
      to
      enter into and to consummate the transactions contemplated by the Transaction
      Documents and otherwise to carry out its obligations hereunder and thereunder.
      The execution, delivery and performance by the Purchaser of the transactions
      contemplated by this Agreement have been duly authorized by all necessary
      corporate or similar action on the part of the Purchaser if the Purchaser is
      not
      an individual. Each Transaction Document to which it is a party has been duly
      executed by the Purchaser, and when delivered by the Purchaser in accordance
      with the terms hereof, will constitute the valid and legally binding obligation
      of the Purchaser, enforceable against it in accordance with its terms, except
      (i) as limited by general equitable principles and applicable bankruptcy,
      insolvency, reorganization, moratorium and other laws of general application
      affecting enforcement of creditors’ rights generally, (ii) as limited by laws
      relating to the availability of specific performance, injunctive relief or
      other
      equitable remedies and (iii) insofar as indemnification and contribution
      provisions may be limited by applicable law.

     

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

     

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

    
      
        
        

      

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

     

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

     

    (f) Access
      to Company Information.
      The
      Purchaser acknowledges that it has been afforded access and the opportunity
      to
      obtain all financial and other information concerning the Company that the
      Purchaser desires (including the opportunity to meet with the Company’s
      executive officers, either in person or telephonically). The Purchaser has
      reviewed copies of the SEC Documents and is familiar with the contents thereof,
      including, without limitation, the risk factors contained in the Company’s
      Annual Report on Form 10-K for the fiscal year ended December 31, 2007, and
      there is no further information about the Company that the Purchaser desires
      in
      determining whether to acquire the Securities.

     

    (g) Broker’s
      Fees.
      Purchaser acknowledges and agrees that the Company may compensate its placement
      agent, 1st
      Worldwide Financial Partners, LLC (“1st Worldwide”), in the amount of up to 6%
      of the Purchaser’s Subscription Amount plus a 5-year warrant, substantially in
      the form of the Warrants, to purchase up to 6% of the number of shares of Common
      Stock into which the Purchaser’s Note may be converted as of the Closing Date at
      an exercise price of $1.25 per share, but only if 1st
      Worldwide or its sub-agents introduced the Purchaser to the Company. The Company
      shall not be obligated to pay any commission, brokerage fee, or finder’s fee
      based on any alleged agreement or understanding between the Purchaser and a
      third person in respect of the transactions contemplated hereby. The Purchaser
      hereby agrees to indemnify the Company against any claim by any third person
      for
      any commission, brokerage fee, finder’s fee, or other payment with respect to
      this Agreement or the transactions contemplated hereby based on any alleged
      agreement or understanding between the Purchaser and any such third person,
      whether express or implied from the actions of the Purchaser or anyone acting
      or
      purporting to act on behalf of the Purchaser.

    
      
        
        

      

      
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    ARTICLE
      IV.

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1 Transfer
      Restrictions.

     

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

     

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

     

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

     

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

    
      
        
        

      

      
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    (c) The
      Company shall cause its counsel to issue a legal opinion to the Company’s
      transfer agent from time to time after the Effective Date while the Registration
      Statement is effective in order to effect the removal of the legend hereunder,
      provided that such legend removal is in connection with a planned resale of
      Underlying Shares at or around the time such opinion is requested, and that
      such
      opinion may only cover the number of shares planned for sale at such time.
      If
      all or any portion of a Note or Warrant is converted or exercised (as
      applicable) at a time when the applicable Underlying Shares may be sold under
      Rule 144(b)(1)(i) or if such legend is not otherwise required under applicable
      requirements of the Securities Act (including judicial interpretations and
      pronouncements issued by the staff of the Commission) then such Underlying
      Shares shall be issued free of all legends. The Company agrees that at such
      time
      as such legend is no longer required under this Section 4.1(c), it will, no
      later than three Business Days following the delivery by a Purchaser to the
      Company or the Company’s transfer agent of a certificate representing Underlying
      Shares, as applicable, issued with a restrictive legend, deliver or cause to
      be
      delivered to the Purchaser a certificate representing such shares that is free
      from all restrictive and other legends. 

     

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

     

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

     

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

    
      
        
        

      

      
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    4.4 Securities
      Laws Disclosure; Publicity.
      The
      Company shall not consult with Purchasers in issuing any press releases with
      respect to the transactions contemplated hereby. Notwithstanding the foregoing,
      the Company shall not publicly disclose the name of any Purchaser, or include
      the name of any Purchaser in any filing with the Commission or any regulatory
      agency or Trading Market, without the prior written consent of the Purchaser,
      except (i) as required by federal securities law in connection with (A) any
      registration statement contemplated by the Registration Rights Agreement and
      (B)
      the filing of final Transaction Documents (including signature pages thereto)
      with the Commission and (ii) to the extent such disclosure is required by law
      or
      Trading Market regulations.

     

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

     

    4.6 [Intentionally
      Ommitted]

     

    4.7 Reservation
      and Listing of Securities.

     

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

     

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

     

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

    
      
        
        

      

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

    
      
        
        

      

      
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    ARTICLE
      V.

    MISCELLANEOUS

     

    5.1 [Intentionally
      Omitted]

     

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

     

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

     

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

     

    5.5 Amendments;
      Waivers.
      Except
      as otherwise set forth herein, any provision of this Agreement may be waived,
      modified, supplemented or amended in a written instrument signed by the Company
      and Purchasers holding at least 51% in principal amount of the then-outstanding
      Notes. No waiver of any default with respect to any provision, condition or
      requirement of this Agreement shall be deemed to be a continuing waiver in
      the
      future or a waiver of any subsequent default or a waiver of any other provision,
      condition or requirement hereof, nor shall any delay or omission of any party
      to
      exercise any right hereunder in any manner impair the exercise of any such
      right.

     

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

     

    5.7 Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. Neither the Company nor the Purchase
      may
      assign this Agreement or any rights or obligations hereunder without the prior
      written consent of the other (other than by merger). 

    
      
        
        

      

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

     

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

     

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

     

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

     

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

    
      
        
        

      

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

     

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

     

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

     

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

    
      
        
        

      

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

     

    5.18 [Intentionally
      Ommitted] 

     

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

     

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

     

    (Signature
      Pages Follow)

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

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

    

      
        	
                CYBERDEFENDER
                  CORPORATION

              	 	
                Address
                  for Notice:

              
	 	 	 	 
	
                By:

              	  
	 	
                617
                  West 7th Street, Suite 401

              
	 	
                Name:
                  Gary Guseinov

              	 	
                Los
                  Angeles CA 90017

              
	 	
                Title:
                  Chief Executive Officer

              	 	 

      

    

     

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

    

    Richardson
      & Patel, LLP

    405
      Lexington Ave., 26th
      Floor

    New
      York,
      NY 10174

    Attention:
      Kevin Friedmann

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE FOR PURCHASER FOLLOWS]

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    [PURCHASER
      SIGNATURE PAGE TO 

    CYBERDEFENDER
      SECURITIES PURCHASE AGREEMENT]

    

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

     

    
      	
              Name of Purchaser:

            	     

    

    

    
      	
              Signature of Authorized Signatory of Purchaser:

            	     

    

    

    
      	
              Name of Authorized Signatory:

            	  
              

    

    

    
      	
              Title of Authorized Signatory:

            	     

    

    

    
      	
              Email Address of Purchaser:

            	   
              

    

    

    
      	
              Facsimile Number of Purchaser:

            	   
              

    

    

    Address for Notice of Purchaser:

    
 

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

    
 

    Subscription
      Amount:

    

    Warrant
      Shares:

    

    EIN
      Number: [PROVIDE
      THIS UNDER SEPARATE COVER]

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    ANNEX
      A

    

    ESCROW
      AGENT WIRE INSTRUCTIONS

     

    RICHARDSON
      & PATEL LLP

    CLIENT
      TRUST ACCT.

    

    
      	
              BANK NAME:

            	
              COMERICA
                BANK OF CALIFORNIA

            
	 	
              WESTWOOD
                OFFICE

            
	 	
              10900
                WILSHIRE BLVD.

            
	 	
              LOS
                ANGELES, CALIF. 90024

            
	 	
              PHONE
                NUMBER: 

            	
              800-888-3595

            
	 	
              ABA
                NUMBER:

            	
              121137522

            
	 	
              ACCT.
                NUMBER:

            	
              1891937581

            
	 	
              BENEFICIARY:

            	
              RICHARDSON
                & PATEL LLP

            
	 	 	
              CLIENT
                TRUST ACCT. RE
                CYBERDEFENDER

            

    

    
      
        
        

      

      
        23EXHIBIT
      A

    

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

    

    THIS
      PROMISSORY
      NOTE IS SUBORDINATED TO ANY PRESENT OR FUTURE INDEBTEDNESS OWING FROM THE
      COMPANY TO THE HOLDERS OF THE COMPANY’S OUTSTANDING 10% SECURED CONVERTIBLE
      DEBENTURES DUE SEPTEMBER 12, 2009, AND THEIR RESPECTIVE ASSIGNS, AND MAY BE
      ENFORCED ONLY IN ACCORDANCE WITH THAT CERTAIN SUBORDINATION AGREEMENT WITH
      THE
      PURCHASERS, DATED ON OR ABOUT THE ORIGINAL ISSUE DATE.

    

    Original
      Issue
      Date: _____________, 2008

    

    Original
      Conversion
      Price (subject to adjustment herein): $1.25
      USD

    

    $_______________

     

    10%
      CONVERTIBLE PROMISSORY NOTE

    DUE
      ELEVEN
      MONTHS FROM ORIGINAL ISSUE DATE

    

    THIS
      10%
      CONVERTIBLE PROMISSORY NOTE (this “Note”)
      is one of a
      series of duly authorized and issued 10% Convertible Promissory Notes of
CyberDefender
      Corporation,
      a California
      corporation, having a principal place of business at 617 West 7th Street, Suite
      401, Los Angeles, CA 90017 (the “Company”),
      designated as
      its 10% Convertible Promissory Notes due eleven months from the Original Issue
      Date (the “Notes”).

    

    FOR
      VALUE RECEIVED,
      the Company promises to pay to ________________________ or its registered
      assigns (the “Holder”),
      the principal
      sum of $_______________ on the date that is eleven months from the Original
      Issue Date set forth above or such earlier date as this Note is required or
      permitted to be repaid as provided hereunder (the “Maturity
      Date”),
      and to pay
      interest to the Holder on the aggregate unconverted and then outstanding
      principal amount of this Note in accordance with the provisions hereof. This
      Note is subject to the following additional provisions:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

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

    

    “Bankruptcy
      Event”
means
      any of the
      following events: (i) the Company or any Significant Subsidiary (as such term
      is
      defined in Rule 1.02(s) of Regulation S-X) thereof commences a case or other
      proceeding under any bankruptcy, reorganization, arrangement, adjustment of
      debt, relief of debtors, dissolution, insolvency or liquidation or similar
      law
      of any jurisdiction relating to the Company or any Significant Subsidiary
      thereof; (ii) there is commenced against the Company or any Significant
      Subsidiary thereof any such case or proceeding that is not dismissed within
      60
      days after commencement; (iii) the Company or any Significant Subsidiary thereof
      is adjudicated insolvent or bankrupt or any order of relief or other order
      approving any such case or proceeding is entered; (iv) the Company or any
      Significant Subsidiary thereof suffers any appointment of any custodian or
      the
      like for it or any substantial part of its property that is not discharged
      or
      stayed within 60 days; (v) the Company or any Significant Subsidiary thereof
      makes a general assignment for the benefit of creditors; (vi) the Company or
      any
      Significant Subsidiary thereof calls a meeting of substantially all of its
      creditors with a view to arranging a composition, adjustment or restructuring
      of
      its debts; or (vii) the Company or any Significant Subsidiary thereof, by any
      act or failure to act, expressly indicates its consent to, approval of or
      acquiescence in any of the foregoing or takes any corporate or other action
      for
      the purpose of effecting any of the foregoing.

     

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

    

    “Change
      of
      Control Transaction”
means
      the
      occurrence after the date hereof of any of (i) an acquisition after the date
      hereof by an individual or legal entity or “group” (as described in Rule
      13d5(b)(1) promulgated under the Exchange Act) of effective control (whether
      through legal or beneficial ownership of capital stock of the Company, by
      contract or otherwise) of in excess of 50% of the voting securities of the
      Company, or (ii) a replacement at one time or within a one year period of more
      than one-half of the members of the Company's board of directors which is not
      approved by a majority of those individuals who are members of the board of
      directors on the date hereof (or by those individuals who are serving as members
      of the board of directors on any date whose nomination to the board of directors
      was approved by a majority of the members of the board of directors who are
      members on the date hereof), or (iii) the execution by the Company of an
      agreement to which the Company is a party or by which it is bound, providing
      for
      any of the events set forth above in (i) or (ii).

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

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

    

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

    

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

    

    “Equity
      Conditions”
Unless
      waived by
      the Holder as to a particular event (which waiver shall apply only to such
      Holder), as of such event date, the following conditions have been met: (i)
      there is a sufficient number of authorized but unissued and otherwise unreserved
      shares of Common Stock for the issuance of all of the Note Shares as are
      issuable to the Holder upon conversion in full of this Note; and (ii) no Event
      of Default has occurred and is continuing.

    

    “Event
      of
      Default”
shall
      have the
      meaning set forth in Section 7 hereof.

    

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

    

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

    

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

    

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

    

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

    

    “Original
      Conversion Price”
shall
      be $1.25
      USD.

    

    “Original
      Issue
      Date”
shall
      mean the
      date of the first issuance of this Note as provided on the cover page hereof,
      regardless of the number of transfers of this Note and regardless of the number
      of instruments which may be issued to evidence this Note.

    

    “Permitted
      Liens”
means
      (i) Liens
      for taxes, assessments or other governmental charges (including without
      limitation in connection with workers compensation and unemployment insurance)
      that are not delinquent or which are being contested in good faith and for
      which
      a reserve shall have been established in accordance with GAAP, (ii) Liens of
      mechanics, material men, warehousemen, carriers, landlords or other similar
      statutory Liens securing obligations that are not yet due and are incurred
      in
      the ordinary course of business or which are being contested in good faith
      and
      for which a reserve shall have been established in accordance with GAAP, (iii)
      purchase money Liens to finance property or assets of the Company or any
      Subsidiary of the Company acquired in the ordinary course of business, (iv)
      judgment Liens not giving rise to an Event of Default, (v) liens and securities
      interests to or for the benefit of holders of any Superior
      Indebtedness.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    
 

    “Person”
means
      a
      corporation, an association, a partnership, an organization, a business, an
      individual, a government or political subdivision thereof or a governmental
      agency.

    

    “Purchase
      Agreement”
means
      the
      Securities Purchase Agreement between the Holder and the Company, pursuant
      to
      which this Note is initially purchased, as amended, modified or supplemented
      from time to time in accordance with its terms.

    

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

    

    “Secured
      Parties”
means
      any
      Federal, state or local governmental or quasi-governmental agencies or divisions
      and any lender or creditor holding a security interest under the Uniform
      Commercial Code in assets and other property of the Company.

    “Superior
      Indebtedness”
shall
      mean and
      include all present and future indebtedness, obligations, liabilities, claims,
      rights and demands of any kind which may be now or hereafter owing from the
      Company to any Secured Parties. The term is used in its broadest sense and
      includes without limitation all principal, all interest, all costs, attorney’s
      fees, all sums paid for the purpose of protecting the Secured Parties rights
      in
      security (such as paying insurance on collateral if the Company fails to do
      so),
      all contingent obligations of the Company (such as a guaranty), all obligations
      arising by reason of the Company’s accounts with a Secured Party (such as
      overdraft on a checking account) and all other obligations of the Company to
      the
      Secured Parties, of any nature whatsoever.

    

    Section
      2. Interest.

     

    a) Payment
      of
      Interest.
      The Company shall
      pay interest to the Holder on the aggregate unconverted and then outstanding
      principal amount of this Note at the rate of 10% per annum payable on the
      Maturity Date (except that, if any such date is not a Business Day, then such
      payment shall be due on the next succeeding Business Day) (each such date,
      an
“Interest
      Payment
      Date”)
      and on each
      Conversion Date (as to that principal amount then being converted), in (a)
      the
      number of Note Shares equal to the aggregate unpaid and accrued interest divided
      by the Conversion Price, or (b) if this Note is in default, then the payment
      shall be made in cash. 

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    b) Interest
      Calculations.
      Interest shall be
      calculated on the basis of a 360-day year and shall accrue commencing on the
      Original Issue Date until payment in full of the principal sum, together with
      all accrued and unpaid interest and other amounts which may become due
      hereunder, has been made. Interest shall cease to accrue with respect to any
      principal amount converted, provided that the Company in fact delivers the
      Note
      Shares within the time period required by Section 4(c). Interest hereunder
      will
      be paid to the Person in whose name this Note is registered on the records
      of
      the Company regarding registration and transfers of Notes (the “Note
      Register”).

     

    c) Late
      Fee.
      All overdue
      accrued and unpaid interest to be paid hereunder shall entail a late fee at
      the
      rate of 10.00% per annum (or such lower maximum amount of interest permitted
      to
      be charged under applicable law) (“Late
      Fee”)
      which will
      accrue from the date such interest is due hereunder through and including the
      date of payment.

    

    d) Prepayment.
      Pursuant to
      Section 6 hereof, the Company has the right to prepay this Note any time with
      14
      days notice (the Prepayment Notice Period). The right to convert by the Holder
      remains active during the Prepayment Notice Period.

    

    Section
      3.  Registration
      of
      Transfers and Exchanges.

     

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

     

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

    

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

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    Section
      4.  Conversion.

    a) Voluntary
      Conversion.
      At any time after
      the Original Issue Date and until payment hereof in full (including interest),
      this Note shall be convertible into Note Shares at the option of the Holder,
      in
      whole or in part at any time and from time to time. The Holder shall effect
      conversions by delivering to the Company the form of Notice of Conversion
      attached hereto as Annex
      A
      (a “Notice
      of
      Conversion”),
      specifying
      therein the principal amount of Notes and interest thereon to be converted
      and
      the date on which such conversion is to be effected (a “Conversion
      Date”).
      If no
      Conversion Date is specified in a Notice of Conversion, the Conversion Date
      shall be the date that such Notice of Conversion is received hereunder. To
      effect conversions hereunder, the Holder shall not be required to physically
      surrender Notes to the Company unless the entire principal amount of this Note
      plus all accrued and unpaid interest thereon has been so converted. Conversions
      hereunder shall have the effect of lowering the outstanding principal amount
      of
      this Note in an amount equal to the applicable conversion. The Holder and the
      Company shall maintain records showing the principal amount converted and the
      date of such conversions. The Company shall deliver any objection to any Notice
      of Conversion promptly, but in no event later than 2 Business Days of receipt
      of
      such notice. In the event of any dispute or discrepancy, the records of the
      Holder shall be controlling and determinative in the absence of manifest error.
      The Holder and any assignee, by acceptance of this Note, acknowledge and agree
      that, by reason of the provisions of this paragraph, following conversion of
      a
      portion of this Note, the unpaid and unconverted principal amount of this Note
      may be less than the amount stated on the face hereof. Conversion Notices shall
      be irrevocable, except as provided in Section 4.21 of the Purchase
      Agreement.

     

    b) Conversion
      Price.
      The conversion
      price in effect on any Conversion Date shall be equal to the lower of the
      Original Conversion Price or
      the price
      as adjusted
      subject to
      Section 5 herein (the “Conversion
      Price”).

    

    
      
        c)
Mechanics
          of
          Conversion.

      

    

     

    i. Note
      Shares
      Issuable Upon Conversion.
      The number of
      shares of Note Shares issuable upon a conversion hereunder shall be determined
      by the quotient obtained by dividing (x) the outstanding principal amount of
      this Note to be converted plus all accrued and unpaid interest thereon by (y)
      the Conversion Price.

    

    ii. Delivery
      of
      Certificate Upon Conversion.
      Not later than 7
      Business Days after any Conversion Date, the Company will deliver to the Holder
      (A) a certificate or certificates representing the Note Shares representing
      the
      number of shares of Note Shares being acquired upon the conversion of this
      Note
      or a portion of this Note.  

    

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

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    

    Section
      5. Certain
      Adjustments.

     

    a) Stock
      Dividends
      and Stock Splits.
      If the Company,
      at any time while this Note is outstanding: (A) shall pay a stock dividend
      or
      otherwise make a distribution or distributions on shares of its Common Stock
      or
      any other equity or equity equivalent securities payable in shares of Common
      Stock (which, for avoidance of doubt, shall not include any shares of Common
      Stock issued by the Company pursuant to this Note), (B) subdivide outstanding
      shares of Common Stock into a larger number of shares, (C) combine (including
      by
      way of reverse stock split) outstanding shares of Common Stock into a smaller
      number of shares, or (D) issue by reclassification of shares of the Common
      Stock
      any shares of capital stock of the Company, then the Conversion Price shall
      be
      multiplied by a fraction of which the numerator shall be the number of shares
      of
      Common Stock (excluding treasury shares, if any) outstanding before such event
      and of which the denominator shall be the number of shares of Common Stock
      outstanding after such event. Any adjustment made pursuant to this Section
      shall
      become effective immediately after the record date for the determination of
      stockholders entitled to receive such dividend or distribution and shall become
      effective immediately after the effective date in the case of a subdivision,
      combination or re-classification.

     

    b) Subsequent
      Equity Sales.
      If the Company,
      at any time while this Note is outstanding, shall offer, sell, grant any option
      to purchase or offer, sell or grant any right to re-price its securities, or
      otherwise dispose of or issue (or announce any offer, sale, grant or any option
      to purchase or other disposition) any Common Stock or Common Stock Equivalents
      entitling any Person to acquire shares of Common Stock, at an effective price
      per share less than the then Conversion Price (“Dilutive
      Issuance”),
      except for an
      Exempt Issuance, as adjusted hereunder (if the holder of the Common Stock or
      Common Stock Equivalents so issued shall at any time, whether by operation
      of
      purchase price adjustments, reset provisions, floating conversion, exercise
      or
      exchange prices or otherwise, or due to warrants, options or rights per share
      which is issued in connection with such issuance, be entitled to receive shares
      of Common Stock at an effective price per share which is less than the
      Conversion Price, such issuance shall be deemed to have occurred for less than
      the Conversion Price), then the Conversion Price shall be multiplied by a
      fraction of which the denominator shall be the number of shares of Common Stock
      issued and outstanding immediately prior to such Dilutive Issuance plus the
      number of additional shares of Common Stock offered for subscription or purchase
      in connection with such Dilutive Issuance, and of which the numerator shall
      be
      the number of shares of Common Stock issued and outstanding immediately prior
      to
      such Dilutive Issuance plus the number of shares which the aggregate offering
      price of the total number of shares so offered (assuming delivery to the Company
      in full of all consideration payable upon exercise of such rights, options
      or
      warrants) would purchase at the Conversion Price 

    

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

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    d) Notice
      to
      Holders.

    

    i. Adjustment
      to
      Conversion Price.
      Whenever the
      Conversion Price is adjusted pursuant to any of this Section 5, the Company
      shall promptly mail to the Holder a notice setting forth the Conversion Price
      after such adjustment and setting forth a brief statement of the facts requiring
      such adjustment.

     

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

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    iii. Fundamental
      Transaction.
      If, at any time
      while this Note is outstanding, (A) the Company effects any merger or
      consolidation of the Company with or into another Person where the Company
      is
      not the surviving corporation, (B) the Company effects any sale of all or
      substantially all of its assets in one or a series of related transactions,
      (C)
      any tender offer or exchange offer (whether by the Company or another Person)
      is
      completed pursuant to which holders of Common Stock are permitted to tender
      or
      exchange their shares for other securities, cash or property, or (D) the Company
      effects any reclassification of the Common Stock or any compulsory share
      exchange pursuant to which the Common Stock is effectively converted into or
      exchanged for other securities, cash or property (in any such case, a
“Fundamental
      Transaction”),
      then upon any
      subsequent conversion of this Note, the Holder shall have the right to receive,
      for each Note Share that would have been issuable upon such conversion absent
      such Fundamental Transaction, the same kind and amount of securities, cash
      or
      property as it would have been entitled to receive upon the occurrence of such
      Fundamental Transaction if it had been, immediately prior to such Fundamental
      Transaction, the holder of one share of Common Stock (the “Alternate
      Consideration”).
      For purposes of
      any such conversion, the determination of the Conversion Price shall be
      appropriately adjusted to apply to such Alternate Consideration based on the
      amount of Alternate Consideration issuable in respect of one share of Common
      Stock in such Fundamental Transaction, and the Company shall apportion the
      Conversion Price among the Alternate Consideration in a reasonable manner
      reflecting the relative value of any different components of the Alternate
      Consideration. If holders of Common Stock are given any choice as to the
      securities, cash or property to be received in a Fundamental Transaction, then
      the Holder shall be given the same choice as to the Alternate Consideration
      it
      receives upon any conversion of this Note following such Fundamental
      Transaction. To the extent necessary to effectuate the foregoing provisions,
      any
      successor to the Company or surviving entity in such Fundamental Transaction
      shall issue to the Holder a new Note consistent with the foregoing provisions
      and evidencing the Holder's right to convert such Note into Alternate
      Consideration. The Company will utilize its best efforts to ensure that terms
      of
      any agreement pursuant to which a Fundamental Transaction is effected shall
      include terms requiring any such successor or surviving entity to comply with
      the provisions of this paragraph (c) and insuring that this Note (or any such
      replacement security) will be similarly adjusted upon any subsequent transaction
      analogous to a Fundamental Transaction. Failure to obtain such terms by the
      Company shall not cause an Event of Default and the Holder shall then be
      required to convert in accordance with the terms of the Fundamental
      Transaction.

     

    iv. Exempt
      Issuance.
      Notwithstanding
      the foregoing, no adjustment will be made under this Section 5 in respect of
      an
      Exempt Issuance.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    Section
      6. Redemption
      and
      Forced Conversion.

    (a) Optional
      Redemption at Election of Company.
Subject
      to the
      provisions of this Section 6, at any time after the Original Issuance Date,
      the
      Company may deliver a notice to the Holder (an “Optional
      Redemption Notice”
and
      the date such
      notice is deemed delivered hereunder, the “Optional
      Redemption Notice Date”)
      of its revocable
      election to redeem this Note, for an amount, in cash, equal to the Optional
      Redemption Amount on the 60th
      day following the
      Optional Redemption Notice Date (such date, the “Optional
      Redemption Date”
and
      such
      redemption, the “Optional
      Redemption”).
      The Optional
      Redemption Amount is equal to the sum of the un-converted principal balance
      outstanding plus the aggregate accrued interest payable outstanding on the
      Optional Redemption Date and is due in full. The Company may only effect an
      Optional Redemption if during the period commencing on the Optional Redemption
      Notice Date through to the Optional Redemption Date, each of the Equity
      Conditions shall have been met. If any of the Equity Conditions shall cease
      to
      be satisfied at any time during the required period, then the Holder may elect
      to nullify the Optional Redemption Notice by notice to the Company within three
      (3) Business Days after the first day on which any such Equity Condition has
      not
      been met (provided that if, by a provision of the Transaction Documents the
      Company is obligated to notify the Holder of the non-existence of an Equity
      Condition, such notice period shall be extended to the third Business Day after
      proper notice from the Company) in which case the Optional Redemption Notice
      shall be null and void, ab initio.
      The Company
      covenants and agrees that it will honor all Conversion Notices tendered from
      the
      time of delivery of the Optional Redemption Notice through the date all amounts
      owing thereon are due and paid in full.

    

    (b) Redemption
      Procedure.
      The payment of
      cash pursuant to an Optional Redemption shall be made on the Optional Redemption
      Date. If any portion of the cash payment for an Optional Redemption shall not
      be
      paid by the Company by the respective due date, interest shall accrue thereon
      at
      the rate of 15% per annum (or the maximum rate permitted by applicable law,
      whichever is less) until the payment of the Optional Redemption Amount plus
      all
      amounts owing thereon is paid in full. Alternatively, if any portion of the
      Optional Redemption Amount remains unpaid after such date, the Holders subject
      to such redemption may elect, by written notice to the Company given at any
      time
      thereafter, to invalidate ab initio
      such redemption.
The
      Holder may elect to convert the outstanding principal amount of this Note
      pursuant to Section 4 prior to actual payment in cash for any redemption under
      this Section 6 by fax delivery of a Notice of Conversion to the
      Company.

     

    Section
      7. Events
      of
      Default.

    

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

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    i. any
      default in the
      payment of (A) the principal of amount of this Note, or (B) interest (including
      Late Fees) on, or liquidated damages in respect of, this Note, in each case
      free
      of any claim of subordination, as and when the same shall become due and payable
      (whether on a Conversion Date or the Maturity Date or by acceleration or
      otherwise) which default, solely in the case of an interest payment or other
      default under clause (B) above, is not cured, within 15 Business
      Days;

    

    ii. the
      Company shall
      fail to deliver certificates representing Note Shares issuable upon a conversion
      or redemption hereunder that comply with the provisions hereof prior to the
      15th
      Business Day after
      such shares are required to be delivered hereunder, or the Company shall provide
      written notice to the Holder, including by way of public announcement, at any
      time, of its intention not to comply with requests for conversion or redemption
      of this Note in accordance with the terms hereof;

    

    iii. the
      Company shall
      fail to have available a sufficient number of authorized and unreserved shares
      of Common Stock to issue to the Holder upon a conversion hereunder;

    

    iv. the
      Company shall
      materially fail to observe or perform any other covenant, agreement or warranty
      contained in, or otherwise commit any breach of the Transaction Documents to
      which the Holder is a party, and such failure or breach shall not, if subject
      to
      the possibility of a cure by the Company, have been remedied within 30 calendar
      days after the date on which written notice of such failure or breach shall
      have
      been given;

    

    v. the
      Company shall
      purchase more than a de minimis number of Common Stock Equivalents (not
      including a redemption of this Note hereunder);

    

    vi. there
      shall have
      occurred a Bankruptcy Event;

    

    b) Remedies
      Upon
      Event of Default.
      If any Event of
      Default occurs and is continuing, the full principal amount of this Note,
      together with interest and other amounts owing in respect thereof, to the date
      of acceleration shall become, at the Holder’s election, immediately due and
      payable in cash. Commencing 5 days after the occurrence of any Event of Default
      that results in the eventual acceleration of this Note, the interest rate on
      this Note shall accrue at the rate of 15% per annum, or such lower maximum
      amount of interest permitted to be charged under applicable law. When this
      Note
      shall have been paid in full in accordance herewith, the Holder shall promptly
      surrender this Note to or as directed by the Company. The Holder need not
      provide and the Company hereby waives any presentment, demand, protest or other
      notice of any kind, and the Holder may immediately and without expiration of
      any
      grace period enforce any and all of its rights and remedies hereunder and all
      other remedies available to it under applicable law. Such declaration may be
      rescinded and annulled by Holder at any time prior to payment hereunder and
      the
      Holder shall have all rights as a Note holder until such time, if any, as the
      full payment under this Section shall have been received by it. No such
      rescission or annulment shall affect any subsequent Event of Default or impair
      any right consequent thereon.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    Section
      8. Miscellaneous.

     

    a) Notices.
      Any and all
      notices or other communications or deliveries to be provided by the Holder
      hereunder, including, without limitation, any Notice of Conversion, shall be
      in
      writing and delivered either personally, by facsimile or sent by a nationally
      recognized overnight courier service, addressed to the Company at the address
      set forth above, facsimile number 213.947.1914, Attn: Chief Executive Officer
      or
      such other address or facsimile number as the Company may specify for such
      purposes by notice to the Holder delivered in accordance with this Section,
      with
      any fax delivery followed up by overnight delivery service. Any and all notices
      or other communications or deliveries to be provided by the Company hereunder
      shall be in writing and delivered personally, by facsimile or sent by a
      nationally recognized overnight courier service addressed to the Holder at
      the
      facsimile telephone number or address of the Holder appearing on the books
      of
      the Company, or if no such facsimile telephone number or address appears, then
      at the principal place of business of the Holder, if any. Any notice or other
      communication or deliveries hereunder shall be deemed given and effective on
      the
      earliest of (i) the date of transmission, if such notice or communication is
      delivered via facsimile at the facsimile telephone number specified in this
      Section prior to 5:30 p.m. (New York City time), (ii) the date after the date
      of
      transmission, if such notice or communication is delivered via facsimile at
      the
      facsimile telephone number specified in this Section later than 5:30 p.m. (New
      York City time) on any date and earlier than 11:59 p.m. (New York City time)
      on
      such date, (iii) the second Business Day following the date of mailing, if
      sent
      by nationally recognized overnight courier service, or (iv) if personally
      delivered, upon actual receipt by the party to whom such notice is required
      to
      be given.

     

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

    

    c) Subordinated
      Security Interest.
      This Note is a
      general obligation of the Company and is specifically subordinate in all ways
      to
      any Superior Indebtedness now or hereafter created, issued made or outstanding,
      to or held by any Secured Parties. The Holder specifically agrees to provide
      such additional documentation as any of such Secured Parties shall reasonably
      believe may be necessary to protect, defend or perfect such secured
      status.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    d) Lost
      or
      Mutilated Note.
      If this Note
      shall be mutilated, lost, stolen or destroyed, the Company shall execute and
      deliver, in exchange and substitution for and upon cancellation of a mutilated
      Note, or in lieu of or in substitution for a lost, stolen or destroyed Note,
      a
      new Note for the principal amount of this Note (as adjusted for any conversions)
      so mutilated, lost, stolen or destroyed but only upon receipt of evidence of
      such loss, theft or destruction of such Note, and of the ownership hereof,
      and
      indemnity, if requested, all reasonably satisfactory to the
      Company.

    

    e) Governing
      Law.
      Any and all
      actions brought by the Company or Holder under this Note shall be brought in
      the
      state or federal courts located in the City of Los Angeles, California If either
      party shall commence an action to enforce any provisions of the Transaction
      Documents, then the prevailing party in such action after obtaining a final,
      non-appealable judgment shall be reimbursed by the other party for its
      attorneys’ fees and other costs and expenses incurred with the investigation,
      preparation and prosecution of such proceeding.

    

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

     

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

     

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

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    

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

    

    j) Amendment.
      This Note may be
      modified or amended or provisions hereof waived with the written consent of
      the
      Company and the Holder(s) of at least 51% of the then outstanding principal
      amount of all of the Notes.

    

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

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF,
      the Company has caused this 10% Convertible Promissory Note to be duly executed
      by a duly authorized officer as of the date first above indicated.

    

    CYBERDEFENDER
      CORPORATION

    

    
      	
              By:

            	  
	 	
              Gary
                Guseinov

            
	 	
              Chief
                Executive Officer

            

    

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    ANNEX
      A

    

    NOTICE
      OF
      CONVERSION

     

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

    

    Conversion
      calculations:   

    

    Date
      to Effect
      Conversion: _______________________

    

    Principal
      Amount of
      Note(s) to be converted: $ ___________

    

    Note
      Shares
      issuable:___________

    

    Interest
      Payment
      shares issuable:_______

    

    Total
      shares issuable:________________

     

    Signature: ___________________________

     

    Name:

     

    Address:

    

    
      
         

      

      
        16

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