SECURITY AGREEMENT

Exhibit 10.7

SECURITY AGREEMENT

1.             Identification .

This Security Agreement (the “Agreement”), dated as of May 8, 2009, is entered into by and between Clear Skies Solar, Inc., a Delaware corporation (“Debtor”), the lenders set forth on Schedule I hereto (the “Lenders”).

2.             Recitals .

2.1             At or about the date hereof, the Lenders are making loans (the “Loan”) to Debtor. It is beneficial to Debtor that the Loan is made.

                 2.2             The Loan will be evidenced by promissory notes (“Notes”) issued by Debtor on or about the date of this Agreement pursuant to subscription agreement (the “Subscription Agreement”) to which Debtor and Lenders are parties.  The Notes are in the principal amount of $400,000 and were or will be executed by Debtor as “Borrower” or “Debtor” for the benefi t of each Lender as the “Holder” or “Lender” thereof.

2.3             In consideration of the Loan made and to be made by Lenders to Debtor and for other good and valuable consideration, and as security for the performance by Debtor of its obligations under the Notes, and as security for the repayment of the Loan and all other sums due from Debtor to Lenders arising under the Transaction Documents (as defined in the Subscription Agreement) and any other agreement between or among them (collectively, the “Obligations”), Debtor, for good and valuable consideration, receipt of which is acknowledged, has agreed to grant to the Lenders a security interest in the Collateral (as such term is hereinafter defined), on the terms and conditions hereinafter set forth.  Obligations include all future advances and loans by Lenders to Debtor that may be made pursuant to the Subscription Agreement or any other agreements.

2.4             The following defined terms which are defined in the Uniform Commercial Code in effect in the State of New York on the date hereof are used herein as so defined:  Accounts, Chattel Paper, Documents, Equipment, General Intangibles, Instruments, Inventory and Proceeds.  Other capitalized terms employed herein shall have the meanings attributed to them in the Subscription Agreement.

3.             Grant of General Security Interest in Collateral .

(A)             All now owned and hereafter acquired right, title and interest of Debtor in, to and in respect of all Accounts, Goods, real or personal property, all present and future books and records relating to the foregoing and all products and Proceeds of the foregoing, and as set forth below:

(i)             All now owned and hereafter acquired right, title and interest of Debtor in, to and in respect of all: Accounts, interests in goods represented by Accounts, returned, reclaimed or repossessed goods with respect thereto and rights as an unpaid vendor; contract rights; Chattel Paper; investment property; General Intangibles (including but not limited to, tax and duty claims and refunds, registered and unregistered patents, trademarks, service marks, certificates, copyrights trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims, and existing and future leasehold interests and claims in and to equipment, real estate and fixtures); Documents; Instruments; letters of credit, bankers’ acceptances or guaranties; cash moneys, deposits; securities, bank accounts, deposit accounts, credits and other property now or hereafter owned or held in any capacity by Debtor, as well as agreements or property securing or relating to any of the items referred to above;

                                                 (ii)             Goods:   All now owned and hereafter acquired right, title and interest of Debtor in, to and in respect of goods, including, but not limited to:

(a)             All Inventory, wherever located, whether now owned or hereafter acquired, of whatever kind, nature or description, including all raw materials, work-in-process, finished goods, and materials to be used or consumed in Debtor’s business; finished goods, timber cut or to be cut, oil, gas, hydrocarbons, and minerals extracted or to be extracted, and all names or marks affixed to or to be affixed thereto for purposes of selling same by the seller, manufacturer, lessor or licensor thereof and all Inventory which may be returned to Debtor by its customers or repossessed by Debtor and all of Debtors’ right, title and interest in and to the foregoing (including all of Debtor’s rights as a seller of goods);

(b)             All Equipment and fixtures, wherever located, whether now owned or hereafter acquired, including, without limitation, all machinery, furniture and fixtures, and any and all additions, substitutions, replacements (including spare parts), and accessions thereof and thereto (including, but not limited to Debtor’s rights to acquire any of the foregoing, whether by exercise of a purchase option or otherwise);

(iii)             Property:   All now owned and hereafter acquired right, title and interests of Debtor in, to and in respect of any other personal property in or upon which Debtor has or may hereafter have a security interest, lien or right of setoff;

                                 (iv)             Books and Records:   All present and future books and records relating to any of the above including, without limitation, all computer programs, printed output and computer readable data in the possession or control of the Debtor, any computer service bureau or other third party; and

                                 (v)             Products and Proceeds:   All products and Proceeds of the foregoing in whatever form and wherever located, including, without limitation, all insurance proceeds and all claims against third parties for loss or destruction of or damage to any of the foregoing.

(B)             All now owned and hereafter acquired right, title and interest of Debtor in, to and in respect of the following:

(i)             all shares of stock, partnership interests, member interests or other equity interests from time to time acquired by Debtor, in any current Subsidiary or any Subsidiary that is not a Subsidiary of the Debtor on the date hereof (“Future Subsidiaries”), the certificates representing such shares, and other rights, contractual or otherwise, in respect thereof and all dividends, distributions, cash, instruments, investment property and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares, interests or equity; and

(ii)             all security entitlements of Debtor in, and all Proceeds of any and all of the foregoing in each case, whether now owned or hereafter acquired by Debtor and howsoever its interest therein may arise or appear (whether by ownership, security interest, lien, claim or otherwise).

3.3             The Lenders are hereby specifically authorized, after the Maturity Date (defined in the Notes) accelerated or otherwise, and after the occurrence of an Event of Default (as defined herein) and the expiration of any applicable cure period, to transfer any Collateral into the name of the Lenders and to take any and all action deemed advisable to the Lenders to remove any transfer restrictions affecting the Collateral.

3.4             Additional Security.

4.            Perfection of Security Interest .

4.1           Debtor shall prepare, execute and deliver to the Lenders UCC-1 Financing Statements.  The Lenders are instructed to prepare and file at Debtor’s cost and expense, financing statements in such jurisdictions deemed advisable to Lenders, including but not limited to the State of Delaware.

4.2             All other certificates and instruments constituting Collateral from time to time required to be pledged to Lenders pursuant to the terms hereof (the “Additional Collateral”) shall be delivered to Lenders promptly upon receipt thereof by or on behalf of Debtor.  All such certificates and instruments shall be held by or on behalf of Lenders pursuant hereto and shall be delivered in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment or undated stock powers executed in blank, all in form and substance satisfactory to Lenders.  If any Collateral consists of uncertificated securities, unless the immediately following sentence is applicable thereto, Debtor shall cause Lenders (or its custodian, nominee or other designee) to become the registered holder thereof, or cause each issuer of such securities to agree that it will comply with instructions originated by Lenders with respect to such securities without further consent by Debtor.  If any Collateral consists of security entitlements, Debtor shall transfer such security entitlements to Lenders (or its custodian, nominee or other designee) or cause the applicable securities intermediary to agree that it will comply with entitlement orders by Lenders without further consent by Debtor.

4.3           If Debtor shall receive, by virtue of Debtor being or having been an owner of any Collateral, any (i) stock certificate (including, without limitation, any certificate representing a stock dividend or distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spin-off or split-off), promissory note or other instrument, (ii) option or right, whether as an addition to, substitution for, or in exchange for, any Collateral, or otherwise, (iii) dividends payable in cash (except such dividends permitted to be retained by Debtor pursuant to Section 5.2 hereof) or in securities or other property or (iv) dividends or other distributions in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus, Debtor shall receive such stock certificate, promissory note, instrument, option, right, payment or distribution in trust for the benefit of Lenders, shall segregate it from Debtor’s other property and shall deliver it forthwith to Lenders, in the exact form received, with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by Lenders as Collateral and as further collateral security for the Obligations.

5.             Distribution .

5.1             So long as an Event of Default does not exist, Debtor shall be entitled to exercise all voting power pertaining to any of the Collateral, provided such exercise is not contrary to the interests of the Lenders and does not impair the Collateral.

5.2.                        At any time an Event of Default exists or has occurred and is continuing, all rights of Debtor, upon notice given by Lenders , to exercise the voting power and receive payments, which it would otherwise be entitled to pursuant to Section 5.1, shall cease and all such rights shall thereupon become vested in Lenders , which shall thereupon have the sole right to exercise such voting power and receive such payments.

5.3             All dividends, distributions, interest and other payments which are received by Debtor contrary to the provisions of Section 5.2 shall be received in trust for the benefit of Lenders  as security and Collateral for payment of the Obligation, shall be segregated from other funds of Debtor, and shall be forthwith paid over to Lenders  as Collateral in the exact form received with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by Lenders  as Collateral and as further collateral security for the Obligations.

6.             Further Action By Debtor; Covenants and Warranties .

6.1             Subject to the terms of this Agreement, Lenders  at all times shall have a perfected security interest in the Collateral. Debtor represents that, other than the security interests described on Schedule 6.1, it has and will continue to have full title to the Collateral free from any liens, leases, encumbrances, judgments or other claims.  The Lenders’  security interest in the Collateral constitutes and will continue to constitute a first, prior and indefeasible security interest in favor of Lenders , subject only to the security interests described on Schedule 6.1 . Debtor will do all acts and things, and will execute and file all instruments (including, but not limited to, security agreements, financing statements, continuation statements, etc.) reasonably requested by Lenders to establish, maintain and continue the perfected security interest of Lenders  in the perfected Collateral, and will promptly on demand, pay all costs and expenses of filing and recording, including the costs of any searches reasonably deemed necessary by Lenders  from time to time to establish and determine the validity and the continuing priority of the security interest of Lenders , and also pay all other claims and charges that, in the opinion of Lenders  are reasonably likely to materially prejudice, imperil or otherwise affect the Collateral or Lenders’ security interests therein.

6.2             Except (i) in connection with sales of Collateral, in the ordinary course of business, for fair value and in cash, (ii) the assets described on Schedule 6.2 (referred to as the “XTRAX Assets”) which may be sold, transferred or assigned to an entity in which Debtor holds not less than 20% of the outstanding equity and right to receive equity at the time the XTRAX Assets are conveyed, and (iii) for Collateral which is substituted by assets of identical or greater value (subject to the consent of the Lenders ) or which is inconsequential in value, Debtor will not sell, transfer, assign or pledge those items of Collateral (or allow any such items to be sold, transferred, assigned or pledged), without the prior written consent of Lenders  other than a transfer of the Collateral to a wholly-owned United States formed and located subsidiary on prior notice to Lenders , and provided the Collateral remains subject to the security interest herein described.  Although Proceeds of Collateral are covered by this Agreement, this shall not be construed to mean that Lenders  consent to any sale of the Collateral, except as provided herein.  Sales of Collateral in the ordinary course of business and as described above shall be free of the security interest of Lenders and Lenders shall promptly execute such documents (including without limitation releases and termination statements) as may be required by Debtor to evidence or effectuate the same.

6.3             Debtor will, at all reasonable times during regular business hours and upon reasonable notice, allow Lenders  or their representatives free and complete access to the Collateral and all of Debtor’s records that in any way relate to the Collateral, for such inspection and examination as Lenders reasonably deem necessary.

6.4             Debtor, at its sole cost and expense, will protect and defend this Security Agreement, all of the rights of Lender