Exhibit 10.2
Domingue Loan Agreement

LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement"), is executed as of August ____, 2006, by
and between Itec Environmental Group, Inc., a Delaware corporation (the
"Company"), and Arbor Malone, LLC, a Delaware limited liability company (the
"Lender").
 
WHEREAS, the Company wishes to borrow and the Lender wishes to lend $2.0 million
as a short term bridge loan; and
 
WHEREAS, the Lender is willing to provide such financing on terms and conditions
as set forth herein.
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Lender,
intending to be legally bound, agree as follows:
 
ARTICLE 1
DEFINITIONS
 
1.1 Defined terms. Certain capitalized terms used in this Agreement shall have
the specific meanings defined below:
 
“Business Day” shall mean a day other than a Saturday, Sunday, or other day on
which commercial banks are authorized or required by law to close.
 
“Closing Date” shall mean the date upon which the Loan is received by the
Company.
 
"Encumbrance" means any lien, charge, security interest, mortgage, deed of
trust, pledge or other encumbrance of any nature whatsoever.
 
“Interest Rate” shall mean ten percent (10%) per annum.
 
"Proprietary Rights" means all patents, trademarks, service marks, copyrights,
trade names and all registrations and applications and renewals for any of the
foregoing and all goodwill associated therewith.
 
ARTICLE 2
THE LOAN
 
2.1 Loan. According to the terms and subject to the conditions of this
Agreement, the Lender shall loan to the Company the aggregate amount of Two
Million Dollars ($2,000,000.00) (the "Loan"). One half of the Loan amount shall
be funded on the initial closing date that will occur as soon as the conditions
to close specified in Section 2.4 below are satisfied (the “First Closing Date”)
and the balance of the Loan amount shall be funded on the second closing date
(the “Second Closing Date” and the First Closing Date and Second Closing Date
are each referred to herein as a “Closing Date”) that will occur as soon as
reasonably practicable after the Effective Date set forth in the Employment
Agreement between Rodney Rougelot and the Company dated as of July 31, 2006 (the
“Rougelot Employment Agreement”). The Loan shall be evidenced by one or more
convertible promissory notes in the form attached hereto as Exhibit A (each a
"Note"), duly executed on behalf of the Company and dated as of the Closing
Date.

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2.2 Interest.
 
(a) Interest Rate. The Loan shall bear interest ("Interest") from the First
Closing Date until the Maturity Date at the Interest Rate (calculated on the
basis of the actual number of days elapsed over a year of 360 days). Interest is
payable by the Company on a monthly basis in arrears on the first Business Day
of the month.
 
(b) Default Interest. Upon the occurrence of an Event of Default and for so long
as such Event of Default continues, Interest shall accrue on the outstanding
Loan amount at the rate per annum equal to the lower of eighteen percent (18%)
or the maximum rate of interest permissible under applicable law at any time
(the "Default Interest Rate"). The term "Interest" shall include both the
interest rate described in Section 2.2(a) and the Default Interest Rate, if
applicable.
 
2.3 Maturity Date. Unless the Loan is earlier accelerated pursuant to the terms
hereof or converted pursuant to the provisions of Section 4.1 hereof, the Loan
and all accrued Interest thereon shall be due and payable in full on the date
that is one (1) year following the Second Closing Date (the “Maturity Date”).
The Lender may, at the Lender's option, extend the Maturity Date on such terms
and conditions as determined by the Lender in their sole discretion.
 
2.4 Conditions Precedent to the Loan. The obligation of the Lender to make the
Loan pursuant to Section 2.1 shall be subject to the satisfaction, on or before
the applicable Closing Date, of the conditions set forth in this Section. If the
conditions set forth in this Section are not met on or prior to the applicable
Closing Date, the Lender shall have no obligation to fund the amount of the Loan
required on the applicable Closing Date.
 
(a) The Company shall have duly executed and delivered to the Lender the Note
representing the Loan in the amount funded on the applicable Closing Date.
 
(b) The Company shall have duly authorized, executed, and delivered to the
Lender a security agreement in the form attached hereto as Exhibit B (the
“Security Agreement”) to secure the repayment of the Loan and granting the
Lender a continuing security interest in all presently existing and hereafter
acquired assets and property of the Company of whatever nature and wherever
located which such Security Interest shall be senior to all other security
interests or Encumbrances against the assets and property of the Company other
than Senior Debt (as hereafter defined). Lender shall be entitled to a security
interest pari passu on a pro-rata basis with the investors participating in
private placement pursuant to the 2006 Private Placement Memorandum (the “PPM”)
of the Company and, except as set forth above, Lender’s security interest shall
be senior to any other indebtedness of the Company, whether now existing or
created or incurred in the future. “Senior Debt” shall mean all indebtedness for
all principal, fees, expenses, interest, penalties, post-bankruptcy petition
interest, and all other amounts payable for money borrowed from banking or other
financial institutions or governmental lending facilities that is not
convertible into equity securities of the Company, including, but not limited to
the $2,000,000 loan from the California Integrated Waste Management Board (the
“CIWMB Loan”) and the remaining amount due and owing under the forbearance
agreement by and between the Company and the Elevation Fund, LLC (the
“Forbearance Agreement”).

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(c) On each Closing Date, the Company shall have caused its counsel to deliver
to the Lender a legal opinion dated as of the applicable Closing Date in form
and substance acceptable to Lender. With respect to the Second Closing Date, the
Effective Date under the Rougelot Employment Agreement shall have occurred.
 
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS
 
3.1 Organization, qualification and Authority. The Company is a corporation duly
organized and validly existing under the laws of the State of Delaware, and is
in good standing and duly qualified to do business as a foreign corporation in
all jurisdictions where the operation of its business or the ownership of its
properties make such qualification necessary. The Company has the requisite
corporate power and authority to own, lease and operate its facilities and
assets as presently owned, leased and operated, and to carry on its respective
business as it is now being conducted. The Company has the requisite or
individual right, power and authority to execute, deliver and carry out the
terms of this Agreement and all documents and agreements contemplated hereby or
necessary to give effect to the provisions of this Agreement and to consummate
the transactions contemplated hereunder and thereunder. The execution, delivery
and consummation of this Agreement, and all other agreements and documents
executed in connection herewith by the Company, have been duly authorized by all
necessary action on the part of the Company. No other action, consent or
approval on the part of the Company or any other person or entity, is necessary
to authorize the Company's due and valid execution, delivery and consummation of
this Agreement and all other agreements and documents executed in connection
hereto. This Agreement and all other agreements and documents executed in
connection herewith by the Company, upon due execution and delivery thereof,
shall constitute the valid and binding obligations of the Company, enforceable
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and by general principles of equity.
 
3.2 Compliance with Laws. The nature and transaction of the Company's business
and operations and the use of its properties and assets do not, and during the
term of this Agreement shall not, violate or conflict with in any material
respect any applicable law, statute, ordinance, rule, regulation or order of any
kind or nature.
 
3.3 Absence of Conflicts. The execution, delivery and performance by the Company
of this Agreement and all other agreements and documents executed in connection
herewith by the Company, and the transactions contemplated hereby, do not
constitute a breach or default, or require consents under, any agreement,
permit, contract or other instrument to which the Company is a party, or by
which the Company is bound or to which any of the assets of the Company is
subject, or any judgment, order, writ, decree, authorization, license, rule,
regulation, or statute to which the Company is subject, and will not result in
the creation of any lien upon any of the assets of the Company.

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3.4 Litigation and Taxes. There is no litigation or governmental proceeding
pending, or to the best knowledge of the Company after due inquiry, threatened,
against the Company other than as disclosed in the Company SEC Reports (as
defined below). The Company has duly filed all applicable income or other tax
returns and has paid all material income or other taxes when due. There is no
controversy or objection pending, or to the best knowledge of the Company after
due inquiry, threatened in respect of any tax returns of the Company.
 
3.5 Intellectual Property. No proceedings have been instituted or are pending
or, to the Company’s knowledge, threatened which challenge the validity of the
ownership by the Company of any Proprietary Rights of the Company. The Company
has not licensed anyone to use any such Proprietary Rights and, to the Company’s
knowledge, there has been no use or infringement of any of such Proprietary
Rights by any other person.
 
3.6 Company's SEC Reports. The Company is current in regards to all filings with
the Securities and Exchange Commission (the “SEC”) of all forms, reports,
definitive proxy statements, schedules and registration statements (the “
Company SEC Reports”) required to be filed by it with the SEC pursuant to the
Securities Act of 1933, as amended (the “Securities Act”), and the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and the respective rules
and regulations of the SEC thereunder. As of their respective filing dates or,
if amended prior to the date hereof, as of the date of the last amendment, none
of the Company SEC Reports contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. The Company’s SEC Reports (including, without
limitation, any financial statements and schedules included therein) when filed
or, if amended prior to the date hereof, as of the date of the last amendment,
complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, and the respective rules and regulations of
the SEC thereunder.
 
3.7 No Omissions or Misstatements. None of the information included in this
Agreement, other documents or information furnished to the Lender by the
Company, or any of its representations, contains any untrue statement of a
material fact or is misleading in any material respect or omits to state any
material fact. Copies of all documents referred to in herein have been delivered
or made available to the Lender and constitute true and complete copies thereof
and include all amendments, schedules, appendices, supplements or modifications
thereto or waivers thereunder.
 
3.8 Other Indebtedness. On and as of the date hereof and on and as of each
Closing Date, the Company does not and will not have any outstanding Senior
Indebtedness other than the CIWMB Loan and the amount due and owning pursuant to
the Forbearance Agreement. For so long as the Note (or any note issued upon
transfer of the Note, in whole or in part) remains outstanding, the Company
shall not incur, create or enter into any agreement to incur or create
indebtedness ranking on a parity or parri passu with the Notes (“Parity
Indebtedness”), other than the investors participating in the current financing
under the Company’s 2006 Private Placement Memorandum and certain other lenders,
identified in Schedule A to the Security Agreement, as defined below, without
the prior written consent of the Lender, which consent shall not be unreasonably
withheld.

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3.9 Lender Board Representation. Effective at the Closing of the Loan, the
Company shall appoint Mr. Ronald M. Domingue (or his designee) to the Company’s
Board of Directors. For so long as (i) the Note (or any note issued upon
transfer of the Note, in whole or in part) remains outstanding, or if later (ii)
one year from the First Closing Date, the Company shall nominate Mr. Domingue
(or his designee) for election to the Board at any and all times that the
stockholders of the Company take action (whether by meeting or written consent)
to elect members of the Board of Directors and shall use best efforts to secure
Mr. Domingue’s (or his designee’s) election to the Board.
 
ARTICLE 4
CONVERSION
 
4.1 Conversion Right. Lender in its sole discretion may convert, via written
notice to the Company, the full amount of the principal plus any interest
payable under the Note and the Loan Agreement into shares of common stock of the
Company at a conversion price of $0.0975 per share (the “Conversion Right”).
Further, in the event that the Lender elects to exercise the Conversion Right,
the Company will issue to Lender a warrant, exclusive of the warrant referenced
in Article 6, with coverage equal to sixty-five percent (65%) of the value of
the Loan, exercisable at Twelve Cents ($0.12) per share (the “Conversion
Warrant”). All conversion and exercise prices in this Loan Agreement shall be
subject to appropriate adjustment in the case of stock splits, stock dividends,
recapitalizations and the like. The form of warrant evidencing the Conversion
Warrant shall be identical to the form attached as Exhibit C hereto.  
ARTICLE 5
DEFAULT
5.1 Events of Default. The occurrence of any of the following events (each an
“Event of Default”), not cured in the applicable cure period, if any, shall
constitute and Event of Default of the Company:
 
(a) a breach of any representation, warranty, covenant or other provision of
this Agreement or the Note, which, if capable of being cured, is not cured
within ten days following notice thereof to the Company;
 
(b) the failure to make when due any payment described in this Agreement or the
Note, whether on or after the Maturity Date, by acceleration or otherwise;
 
(c) the failure to make when due any payment on any Senior Indebtedness or
Parity Indebtedness, whether on or after the maturity date, by acceleration or
otherwise;
 
(d) The removal of Mr. Ronald M. Domingue (or his designee) from the Company’s
Board of Directors or the failure of Mr. Domingue (or his designee) to continue
to serve on the Board of Directors of the Company for any reason other than his
death or voluntary resignation;

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(e) The Effective Date under the Rougelot Employment Agreement shall not have
occurred on or prior to August 25, 2006 or Mr. Rougelot shall no longer serve as
the Chief Executive Officer of the Company for any reason other than his death
or disability, Voluntary departure or removal for Cause (as such terms are
defined in the Rougelot Employment Agreement); and
 
(f)(i) the application for the appointment of a receiver or custodian for the
Company or the property of the Company, (ii) the entry of an order for relief or
the filing of a petition by or against the Company under the provisions of any
bankruptcy or insolvency law, (iii) any assignment for the benefit of creditors
by or against the Company, or (iv) the Company becomes insolvent.
 
5.2 Effect of Default. Upon the occurrence of any Event of Default that is not
cured within any applicable cure period, the Lender may elect, by written notice
delivered to the Company, to take any or all of the following actions: (i)
declare the outstanding amounts under the Note to be forthwith due and payable,
whereupon the entire unpaid Loan, together with accrued and unpaid Interest
thereon (including the Default Interest Rate), and all other cash obligations
hereunder, shall become forthwith due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived by the Company, anything contained herein or in any of the Note to the
contrary notwithstanding, and (ii) exercise any and all other remedies provided
hereunder or available at law or in equity upon the occurrence and continuation
of an Event of Default.
 
ARTICLE 6
ISSUANCE OF STOCK
 
6.1 Issuance of Warrants. The Company shall issue to the Lender one (1) warrant
to purchase a combined total of twenty million (20,000,000) shares of common
stock of the Company in the form attached hereto as Exhibit C (the “Warrant”).
The Warrant shall be immediately exercisable by the Lender (or its assigns) on
the Closing Date and at an exercise price of Twelve Cents ($0.12) per share. The
Warrant shall be exercisable for a period of four (4) years following the
Closing Date. The number of shares purchasable upon Exercise of the Warrant and
the exercise price thereof shall be subject to appropriate adjustment in the
case of stock splits, stock dividends, recapitalizations and will contain
antidilution protection identical to those contained in the Note.
 

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6.2 Registration of Registrable Securities. Within nine (9) months after the
First Closing Date, the Company, at its expense, shall have registered pursuant
to one or more effective registration statements filed with the SEC under the
Securities Act the resale by Lender or any successor thereto any and all Company
shares issued or issuable (x) pursuant to the Conversion Right or otherwise with
respect to the Loan and (y) upon exercise or conversion of the Warrants and the
Additional Warrant (collectively, the “Registrable Securities”), and the Company
agrees to maintain the effectiveness and currency of each such registration
statement, including any related prospectus until the earlier to occur of (i)
the resale of the Registrable Securities by Lender or any successor thereto in
the manner contemplated by such registration statement or (ii) such time as all
of the Registrable Securities may be sold by Lender or any successor thereto
pursuant to Rule 144(k) under the Securities Act (or any successor provision
thereto); and the Company shall take all such further action (including, without
limitation, any registration of such shares under applicable state securities
laws and the listing of such shares on any and all trading markets or stock
exchanges as the Company’s Common Shares may trade from time to time) as shall
permit the resale of such shares, or any portion thereof, as aforesaid. The
Company agrees to amend such registration statements from time to time upon
request of the Lender to reflect any successors of Lender’s rights hereunder.
The Company shall from time to time furnish to Lender or any successor thereto
sufficient copies of any such prospectus, and any supplements thereto, so as to
permit the resale of such Registrable Securities, or any portion thereof, in the
manner prescribed by Lender or any successor thereto. If, at any time prior to
nine (9) months after the First Closing Date, the Company files a registration
statement with the SEC for the purpose of registering the sale of its equity
securities under the Securities Act (other than on Form S-4 or Form S-8), the
Company agrees to include the registration of the resale of the Registrable
Securities in such registration statement and the other applicable covenants and
agreements of the Company set forth in this Section 6.2 shall apply to such
registration statement. The Company shall pay all costs and expenses of any such
registration contemplated by this Section 6.2, including the reasonable legal
fees and expenses (up to a maximum of $15,000) that Lender or any successor
thereto may incur in connection therewith. 
 
ARTICLE 7
MISCELLANEOUS
 
7.1 Successors and Assigns; Third Party Beneficiary. Subject to the exceptions
specifically set forth in this Agreement, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors and permitted assigns of the
parties. This Agreement may not be assigned (whether by operation of law or
otherwise) by the Company without the prior written consent of the Lender.
Lender’s rights under this Agreement and the related agreements of the Company
contemplated hereby (including the Note and the Security Agreement) may be
assigned, in whole or in part, by the Lender without the consent of the Company.
 
7.2 Titles and Subtitles. The titles and subtitles of the Sections of this
Agreement are used for convenience only and shall not be considered in
construing or interpreting this agreement.
 
7.3 Notices. Any notice, request or other communication required or permitted
hereunder shall be in writing and shall be delivered personally or by facsimile
(receipt confirmed electronically) or shall be sent by a reputable express
delivery service or by certified mail, postage prepaid with return receipt
requested, addressed as follows:

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if to the Company, to:

Itec Environmental Group, Inc.
5300 Claus Road, Box 760
Riverbank, CA 95367
Attn: Gary M. De Laurentiis
Fax: (209) 881-3529

with a copy to:

The Otto Law Group, PLLC
601 Union Street, Suite 4500
Seattle, WA 98101
Attn:  David M. Otto
Fax: (206) 262-9513

if to the Lender, to:

Arbor Malone, LLC
Attn: Mr. Ronald S. Domingue
600 Seminole Drive
Winter Park, FL 32789
 

With a copy to:

Gary J. Kocher
Preston Gates & Ellis LLP
925 Fourth Avenue
Suite 2900
Seattle, WA 98104

Either party hereto may change the above specified recipient or mailing address
by notice to the other party given in the manner herein prescribed. All notices
shall be deemed given on the day when actually delivered as provided above (if
delivered personally or by facsimile, provided that any such facsimile is
received during regular business hours at the recipient's location) or on the
day shown on the return receipt (if delivered by mail or delivery service).

7.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of California or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of California.
 
7.5 Waiver and Amendment. Any term of this Agreement may be amended, waived or
modified with the written consent of the Company and the Lender.

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7.6 Remedies. No delay or omission by the Lender in exercising any of its
rights, remedies, powers or privileges hereunder or at law or in equity and no
course of dealing between the Lender and the undersigned or any other person
shall be deemed a waiver by the Lender of any such rights, remedies, powers or
privileges, even if such delay or omission is continuous or repeated, nor shall
any single or partial exercise of any right, remedy, power or privilege preclude
any other or further exercise thereof by the Lender or the exercise of any other
right, remedy, power or privilege by the Lender. The rights and remedies of the
Lender described herein shall be cumulative and not restrictive of any other
rights or remedies available under any other instrument, at law or in equity.
 
7.7 Expenses. The Company agrees to reimburse Lender for fees and expenses
incurred by Lender in connection with the preparation of this Agreement and the
transactions contemplated hereby, including reasonable attorneys fess, up to a
maximum amount of Twenty Thousand Dollars ($20,000.00).
 
7.8 Enforcement. In the event an action is instituted to enforce or interpret
any of the terms of this Agreement including but not limited to any action or
participation by Lender in, or in connection with, a case or proceeding under
the Bankruptcy Code or any successor statute, the prevailing party shall be
entitled to recover all expenses reasonably incurred at, before and after trial
and on appeal or review, whether or not taxable as costs, including, without
limitation, attorney fees, witness fees (expert and otherwise), deposition
costs, copying charges and other expenses.

IN WITNESS WHEREOF, the Company has caused this Loan Agreement to be signed in
its name on the date first set forth above.
 

       
ITEC ENVIRONMENTAL GROUP, INC.
 
   
   
    By:      

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Gary M. De Laurentiis    Chief Executive Officer 

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IN WITNESS WHEREOF, the Lender has caused this Loan Agreement to be signed in
its name on the date first set forth above.
 

        ARBOR MALONE, LLC  
   
   
    By:      

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Name: Ronald S. Domingue  
Title:   Manager

 
        

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Exhibit A

Form of Note

ITEC ENVIRONMENTAL GROUP, INC.
10% CONVERTIBLE NOTE
 
 

$__  
August___, 2006
RIVERBANK, CALIFORNIA

 
 
ITEC ENVIRONMENTAL GROUP, INC., a Delaware corporation (“Maker” or the
“Company”), hereby promises to pay to the order of Arbor Malone, LLC, a Delaware
limited liability company or its assigns (“Holder”), the sum of ___ Dollars
($__), with interest at the rate of ten percent (10%) per annum accruing on and
as of August ___, 2006 [date of the First Closing] until paid. All outstanding
principal and accrued and unpaid interest shall become due August __, 2007 (the
“Maturity Date”). All payments due and owning under this 10% Convertible Note
(“Note”) shall be subject to the terms and conditions set forth herein.

 
1.
Agreement.

The Note is issued pursuant to that certain Loan Agreement (the “Agreement”),
dated August __, 2006, by and between Maker and Holder, which is hereby
incorporated by reference. Capitalized terms used but not defined in this Note
have the meanings assigned to them in the Agreement.

 
2.
Register.

The Company shall keep at its principal office a register in which the Company
shall provide for the registration of the Holder of the Note or for the
registration of a transfer of the Note to a different Holder.

 
3.
Loss Theft, Destruction or Mutilation of the Note.

Upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of the Note and, in the case of any such loss,
theft or destruction, upon receipt of an indemnity bond in such reasonable
amount as the Company may determine (or if such Note is held by the original
Holder, of an unsecured indemnity agreement reasonably satisfactory to the
Company) or, in the case of any such mutilation, upon surrender and cancellation
of such Note, the Company will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Note, a new Note of like tenor and unpaid principal
amount and dated as of the date to which interest has been paid on the Note so
lost, stolen, destroyed or mutilated.

 
4.
Registered Holder.

The Company may deem and treat the person in whose name any Note is registered
as the absolute owner and Holder of such Note for the purpose of receiving
payment of the principal of and interest on such Note and for the purpose of any
notices, waivers or consents thereunder, whether or not such Note shall be
overdue, and the Company shall not be affected by notice to the contrary.
Payments with respect to any Note shall be made only to the registered Holder
thereof.

 
5.
Surrender of the Note.

The Company may, as a condition of payment of all or any of the principal of,
and interest on, the Note, or its conversion, require Holder to present the Note
for notation of such payment and, if the Note be paid in full or converted at
the election of Holder as herein provided, require the surrender hereof.

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6.
Security and Subordination.

 
The Company’s obligations under this Note are subject to a security agreement in
the form attached as Exhibit B to the Agreement which secures the repayment of
the Loan and grants Holder a continuing security interest in all presently
existing and hereafter acquired assets and property of the Company of whatever
nature and wherever located which such Security Interest is senior to all other
security interests or Encumbrances against the assets and property of the
Company other than Senior Indebtedness and Parity Indebtedness. The Company, in
its sole discretion, may subordinate this Note to any Senior Indebtedness of the
Company. .

 
7.
Conversion.

At any time prior to or at the Maturity Date, at the option of the Holder, all
principal and accrued interest due on this Note (the “Convertible Amount”) may
be converted at $0.0975 per share (the “Conversion Price”). The Conversion Price
shall be adjusted downward in the event the Company issues common stock (or
securities exercisable for or convertible into or exchangeable for common stock)
at a price below the Conversion Price, to a price equal to such issue price. The
preceding adjustments shall be effective immediately at the time of the issuance
of any security issued (or of any reduction in effective price of any security)
on or before the Maturity Date. In addition, the Conversion Price shall be
appropriately adjusted in the case of stock splits, stock dividends,
recapitalizations and the like.
 
In the event that the Holder elects to exercise the conversion right set forth
above, the Company shall issue to Holder to a warrant, exclusive of the warrant
referenced in Article 6, with coverage equal to sixty-five percent (65%) of the
value of the Convertible Amount, exercisable at Twelve Cents ($0.12) per share
(subject to appropriate adjustment in the case of stock splits, stock dividends,
recapitalizations and the like). The form of warrant shall be identical to the
form attached as Exhibit C to the Agreement.  

If, on or prior to the Maturity Date, Holder has not elected to convert this
Note, all outstanding principal and accrued and unpaid interest shall become due
and payable.
 

 
8.
Mechanics of Conversion.

Upon the Company’s receipt of written notice of Holder’s election to convert the
Note, the principal amount of this Note plus any accrued interest shall be
deemed converted into such number of shares of the Company’s Common Stock as
determined pursuant to Section 7, and no further payments shall thereafter
accrue or be owing under the Note. The entire balance due and owing under the
Note must be converted to Common Stock; no partial conversions will be allowed.
Holder shall return this Note to the Company at the address set forth below, or
such other place as the Company may require in writing. Within ten (10) days
after receipt of this Note, the Company shall cause to be issued in the name of
and delivered to Holder at the address set forth above, or to such other address
as to which Holder shall have notified the Company in writing, a certificate and
a warrant evidencing the securities to which Holder is entitled. No fractional
securities will be issued upon conversion of the Note. If on conversion of the
Note a fraction of a security results, the Company shall round up the total
number of securities to be issued to Holder to the nearest whole number.

 
9.
Notice.

Any notice required or desired to be given under this Agreement shall be in
writing and shall be deemed given when personally delivered, one business day
after deposit with a reputable overnight courier service for next business day
delivery, or three days after being sent by certified or registered mail postage
prepaid to the addresses set forth below, or such other address as to which one
party may have notified the other in such manner.

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10.
Default.

 
Upon an Event of Default (as defined in the Agreement) that is not cured within
any applicable cure period set forth in the Agreement, and at the option of
Holder, or Holder’s successors or assigns, Holder may (i) accelerate all amounts
due and owing under this Note and demand payment immediately and/or (ii) declare
the right to exercise any and all remedies available to Holder under applicable
law.

 
11.
Miscellaneous.

(a) Interest hereunder shall be calculated based on ten percent (10%) per annum
calculated using a 360-day year composed of 12 30-day months, payable in full,
unless otherwise converted to common stock in the Company, at maturity or
conversion.

(b) The Company agrees that all Conversion Shares at the time of issuance will
be fully paid and non-assessable. Maker shall pay upon demand any and all
expenses, including reasonable attorney fees, incurred or paid by Holder of this
Note without suit or action in attempting to collect funds due under this Note
or in connection with the issuance of the Conversion Shares. In the event an
action is instituted to enforce or interpret any of the terms of this Note
including but not limited to any action or participation by Maker in, or in
connection with, a case or proceeding under the Bankruptcy Code or any successor
statute, the prevailing party shall be entitled to recover all expenses
reasonably incurred at, before and after trial and on appeal or review, whether
or not taxable as costs, including, without limitation, attorney fees, witness
fees (expert and otherwise), deposition costs, copying charges and other
expenses.

(c) All parties to this Note hereby waive presentment, dishonor, notice of
dishonor and protest. All parties hereto consent to, and Holder is hereby
expressly authorized to make, without notice, any and all renewals, extensions,
modifications or waivers of the time for or the terms of payment of any sum or
sums due hereunder, or under any documents or instruments relating to or
securing this Note, or of the performance of any covenants, conditions or
agreements hereof or thereof or the taking or release of collateral securing
this Note. Any such action taken by Holder shall not discharge the liability of
any party to this Note.

(d) The Company may not prepay the amount due and owing under this Note.

(e) This Note shall be governed by and construed in accordance with the laws of
the State of California without regard to conflict of law principles.

(f) All payments due and owing under this Note shall be delivered to Holder at
the address set forth below unless Holder provides the Company with written
notice of a change of such instructions.   

IN WITNESS WHEREOF, the parties hereto execute this Convertible Note as of this
____ day of August, 2006.
 
 

 

 
11.
Miscellaneous.

 

  Maker:   ITEC ENVIRONMENTAL GROUP, INC.       ____________________________    
  By:       Its:

        
 
                                        
                           
                                     
 
 

Holder: Arbor Malone, LLC Holder’s address:  600 Seminole Drive   Winter Park,
FL 32789   Attn: Ronald S. Domingue     With a copy to: 
Preston Gates & Ellis LLP
  925 Fourth Avenue  
Suite 2900
 
Seattle, WA 98177 
  Attn: Gary J. Kocher

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Maker’s address: Itec Environmental Group, Inc.    Attn: Gary De Laurentiis  
5300 Claus Road    P.O. Box 760   
Riverbank, California 95367
    With a copy to: 
The Otto Law Group, PLLC 
 
Attn: David M. Otto
  601 Union Street, Suite 4500  
Seattle, Washington 98101

14

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Exhibit B

Form of Security Agreement

SECURITY AGREEMENT

This SECURITY AGREEMENT ("Security Agreement") is dated as of September __, 2006
(the "Effective Date"), by and among Itec Environmental Group, Inc., a Delaware
corporation (the "Company"), and the parties listed in Schedule A and B,
attached hereto (the “Secured Parties”).
 
WHEREAS, on the Effective Date, the Company received funds pursuant to certain
loans (collectively, the “Loans” and each individually, a “Loan”) by the Secured
Parties; and
 
WHEREAS, in order to induce Secured Parties to provide the Loans to the Company,
the Company agreed to grant to the Secured Parties a security interest in all of
the Company’s assets to secure the amounts currently owing, and any additional
amounts which may be owing, by the Company pursuant to the agreements between
each of the Secured Parties and the Company that evidence the Loans (the “Loan
Documents”).
 
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the Company and parties listed in Schedule A and B attached
hereto, agree as follows:
 
1. Defined Terms. The following terms shall have the following meanings, unless
the context otherwise requires:
 
“Arbor Malone Notes” shall mean the Secured Convertible Promissory Notes dated
August 14, 2006 and September __, 2006 issued by the Company to Arbor Malone,
LLC (“Arbor Malone”) in the aggregate principal amount of $2,300,000.00.

“Baek Note” means the Secured Convertible Promissory Note dated August 29, 2006
issued by the Company to Ji Y. Baek (“Baek”) in the aggregate principal amount
of $202,000.00.

"Code" shall mean the Uniform Commercial Code as in effect in the State of
California on the Loan Closing Date.

"Collateral" shall have the meaning given such term in Section 2.

"Event of Default" shall have the meaning given such term in each Note.

“Goldman Note” shall mean the Secured Convertible Promissory Note dated July 27,
2006 issued by the Company to Leroy and Lois Goldman (“Goldman”) in the
aggregate principal amount of $500,000.00.

“Itec Capital Group Notes” shall mean the Secured Convertible Promissory Note
issued by the Company to each of investors participating in the offering
described in the Company’s 2006 Private Placement Memorandum as set forth on
Schedule B hereto, in the aggregate principal amount of $3,022,500.00.

15

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“Note” and “Notes” shall mean the Arbor Malone Notes, the Baek Note, the Goldman
Note and the Itec Capital Group Notes, individually and collectively, as the
case may be.

"Obligations" shall mean the obligations of the Company under the Notes and the
Loan Documents, including all costs of collection.

“Senior Debt” shall mean all indebtedness for all principal, fees, expenses,
interest, penalties, post-bankruptcy petition interest, and all other amounts
payable for money borrowed from banking or other financial institutions or
governmental lending facilities that is not convertible into equity securities
of the Company, including, but not limited to the $2,000,000 loan from the
California Integrated Waste Management Board (the “CIWMB Loan”).

2. Grant of Security Interest. As collateral security for the prompt and
complete payment and performance when due of all the Obligations, the Company
hereby grants to the Secured Parties a security interest in all of the Company's
right, title and interest in, to and under the following, whether now existing
or hereafter acquired (all of which collateral being hereinafter collectively
called the “Collateral”); provided, however, that the security interest granted
hereby shall be subordinate to the security interest to be granted or granted
(as the case may be) by the Company in connection any Senior Debt. Secured
Parties shall be entitled to a security interest in the following:
 
ACCOUNTS
 
All present and future accounts owned by the Company, including and together
with any and all contract rights, accounts receivable, security deposits (where
not otherwise prohibited by law or agreement), and other rights of any kind to
receive payments for services rendered and goods supplied by the Company,
together with agreements, customer lists, client lists, and accounts, invoices,
agings, verification reports and other records relating in any way to such
accounts.
 
CONTRACTS
 
All contracts, contract rights, royalties, license rights, leases, instruments,
undertakings, documents or other agreements in or under which the Company may
now or hereafter have any right, title or interest whether now existing or
hereinafter created and all forms of obligations owing to the Company arising
out of the sale or lease of goods, the licensing of technology or the rendering
of services by the Company, whether or not earned by performance, and any and
all credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by the Company.
 
EQUIPMENT, FURNISHINGS AND MISCELLANEOUS PERSONAL PROPERTY
 
All presently owned and hereafter acquired furniture, furnishings, equipment,
machinery, vehicles (including motor vehicles and trailers) computer hardware
and software, accounting or bookkeeping systems, client or customer lists and
information, data sheets and other records of any kind, wherever located, stored
or inventoried, which are used or which may be used in the Company’s business;

16

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FIXTURES
 
All materials used by the Company in connection with its business operations,
including, but not limited to, supplies, trade equipment, appliances, apparatus
and any other items, now owned or hereafter acquired by the Company, and now or
hereafter attached to, or installed in (temporarily or permanently) any real
property now or in the future owned or leased by the Company;
 
GENERAL INTANGIBLES
 
All general intangibles and other personal property of the Company, now owned or
hereinafter acquired, including, without limitation, the following: (a) permits,
authorizations and approvals presently and hereafter issued by any federal,
state, municipal or local governmental or regulatory authority in favor of the
Company; (b) all plans, specifications, renderings and other similar materials
presently owned or hereafter acquired by the Company; (c) all presently existing
and hereafter created contracts, leases, licenses and agreements to which the
Company is a party; (d) all presently and hereafter existing policies and
agreements of insurance in favor of the Company; (e) all presently and hereafter
existing equity contribution agreements and other equity financing arrangements
in favor of the Company; (f) all copyrights, chattel paper, electronic chattel
paper, licenses, money, insurance proceeds, contract rights, subscription lists,
mailing lists, licensing agreements, patents, trademarks, service marks, trade
styles, patents, patent applications, franchise agreements, blueprints,
drawings, purchase orders, customer lists, route lists, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, design rights, income tax refunds, payments of insurance and rights to
payment of any kinds, trade names, refundable, returnable or reimbursable fees,
deposits or other funds or evidences of credit or indebtedness deposited by or
on behalf of the Company with any governmental agencies, boards, corporations,
providers of utility services, public or private; (g) all presently existing and
hereafter acquired computer programs, computer software and other electronic
systems and materials of any kind of the Company; (h) goodwill; and (i) all
other presently existing and hereafter acquired documents, accounts, general
intangibles and intangible personal property of any kind.
 
DOCUMENTS
 
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments, chattel paper, and electronic chattel
paper now owned or hereafter acquired and the Company’s books relating to the
foregoing.
 
COPYRIGHTS
 
All copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing.

17

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PROCEEDS
 
All of the Company’s books and records relating to the foregoing and any and all
present and future accounts, general intangibles, chattel paper, electronic
chattel paper, products, accessions, replacements, betterments and substitutions
for any of the foregoing described property, and all proceeds arising from or by
virtue of, or from the sale or disposition of, or collections with respect to,
or insurance proceeds payable with respect to, or claims against any other
persons, corporations or other entities with respect to, all or any part of the
foregoing described property and interests.

3. Pro Rata Distributions among Secured Parties. It is expressly agreed by the
Secured Parties that all payments received by the Company under or in connection
with the any sale or liquidation of the Collateral, subject to any Senior Debt,
shall be divided among the Secured Parties pari passu on a pro-rata basis equal
to the quotient of: (x) the unpaid principal amount of the Note held by each of
the respective Secured Parties (without regard to interest); divided by (y) the
aggregate unpaid principal amount of all Notes (without regard to interest).
 
4. Rights of Secured Parties; Limitations on Secured Parties’ Obligations. It is
expressly agreed by the Company that, anything herein to the contrary
notwithstanding, the Company shall remain liable under each of its contracts and
documents to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with and pursuant to
the terms and provisions of its contracts and documents. Secured Parties shall
have no obligation or liability under any of the Company’s contracts and
documents by reason of or arising out of this Security Agreement or the granting
to Secured Parties of a security interest therein or the receipt by Secured
Parties of any payment relating to any of the Company’s contracts and documents
pursuant hereto, nor shall Secured Parties be required or obligated in any
manner to perform or fulfill any of the obligations of the Company under or
pursuant to any of its contracts and documents, or to make any payment, or to
make any inquiry as to the nature or the sufficiency of any payment received by
it or the sufficiency of any performance by any party under any of its contracts
and documents, or to present or file any claim, or to take any action to collect
or enforce any performance or the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
 
5. Representations and Warranties. The Company hereby represents and warrants
that the chief executive office and chief place of business of the Company is
5300 Claus Road, Riverbank, CA 95367, and the Company will not change such chief
executive office and chief place of business or remove such records unless the
Company shall have given the Secured Parties at least 10 days' prior written
notice thereof.
 
6. Covenants. The Company covenants and agrees with the Secured Parties that
from and after the date of this Security Agreement and until the Obligations are
fully satisfied:

18

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(a) Further Documentation. At any time and from time to time, upon the written
request of the Secured Parties, and at the sole expense of the Company, the
Company will promptly and duly execute and deliver any and all such further
documents and take such further action as any Secured Party may reasonably
request in carrying out the terms and conditions of this Security Agreement and
the rights and powers herein granted, including, without limitation, the filing
of any financing or continuation statements under the Uniform Commercial Code in
effect in any jurisdiction with respect to the security interests granted
hereby.
 
(b) Continuous Perfection. The Company will not change its name, identity or
corporate structure in any manner unless the Company shall have given the
Secured Parties at least 10 days' prior written notice thereof and shall have
taken all action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action in
advance) necessary or reasonably requested by any Secured Party to amend any
financing statement or continuation statement filed with respect to the
Collateral so that it is not misleading.
 
(c) Insurance. The Company will insure the Collateral against such risks and
hazards as other companies similarly situated insure against, in amounts and
under policies which it currently holds and under such additional or substituted
amounts or policies as it may from time to time determine, which shall be
reasonably acceptable to the Secured Parties (providing that no cancellation of
such insurance shall be effective without 30 days written notice to the Secured
Parties and containing loss payable clauses to the Secured Parties as their
interest may appear) and all premiums thereon shall be paid by the Company.
 
6. Remedies, Rights Upon Default. 
 
(a) In addition to any other rights given to the Secured Parties hereunder, if
an Event of Default shall occur and be continuing and any Secured Party shall
have declared the amounts owing under the Note(s) to be due and payable (or such
amounts shall have automatically, become due and payable), all payments received
by the Company under or in connection with any of the Collateral shall be
subject to the subordination provisions contained in the preceding Section 2,
held by the Company in trust for the Secured Parties, shall be segregated from
other funds of the Company and shall, if requested by any Secured Party
forthwith upon receipt by the Company be turned over to the Secured Parties, in
the same form as received by the Company (duly endorsed by the Company to the
Secured Parties, if required).

19

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If any Event of Default shall occur and be continuing and subject to the
subordination provisions of the preceding Section 2, any Secured Party may
exercise in addition to all other rights and remedies granted to it in this
Security Agreement or in any other instrument or agreement securing, evidencing
or relating to the Obligations or at law or in equity, all rights and remedies
of a secured party under the Code. Without limiting the generality of the
foregoing, the Company expressly agrees that in any such event, the Secured
Parties, without demand of performance or other demand, (except the notice
specified below of time and place of public or private sale) to or upon the
Company or any other person may forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or sell or otherwise dispose
of and deliver said Collateral (or contract to do so), or any part thereof, in
one or more parcels at public or private sale or sales, at any exchange broker's
board or at any of the Secured Parties’ offices or elsewhere at such prices as
it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. Each Secured Party shall have the right upon any
such public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of said Collateral so
sold, free of any right or equity of redemption, which equity of redemption the
Company hereby releases. The Company further agrees, at any Secured Party’s
request, to assemble the Collateral, make it available to one or more of the
Secured Parties at places which a Secured Party shall reasonably select, whether
at the Company's premises or elsewhere. The Secured Parties shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care, safe keeping or otherwise of any or
all of the Collateral or in any way relating to the rights of the Secured
Parties hereunder, including reasonable attorneys' fees and legal expenses, to
the payment in whole or in part of the Obligations, the Company remaining liable
for any deficiency remaining unpaid after the application, and only after so
paying over such net proceeds and after the payment by the Secured Parties of
any other amount required by any provision of law. To the extent permitted by
applicable law, the Company waives all claims, damages, and demands against the
Secured Parties arising out of the repossession, retention or sale of the
Collateral. The Company agrees that a Secured Party need not give more than 10
days notice of the time and place of any public sale or of the time after which
a private sale may take place and that such notice is reasonable notification of
such matters. The Company shall remain liable for any deficiency if the proceeds
of any sale or disposition of the Collateral are insufficient to pay all amounts
to which a Secured Party is entitled.
 
The Company hereby waives presentment, demand, protest or any notice (to the
extent permitted by applicable law) of any kind in connection with this Security
Agreement or any Collateral.
 
8. Application of Proceeds. Subject to the subordination provisions contained in
the preceding Section 2, the Proceeds of all sales and collections in respect of
any Collateral shall be applied as follows:
 
(a) First, to the payment of the costs and expenses of such sales and
collections, the expenses of Secured Parties and the reasonable fees and
expenses of counsel to the Secured Parties;
 
(b) Second, any surplus then remaining to the payment of the Obligations in such
order and manner consistent with the provisions of Section 3 above as the
Secured Parties may in their sole discretion determine; and
 
(c) Third, any surplus then remaining shall be paid to the Company.
 
9. Limitation on Secured Parties’ Duty in Respect of Collateral. Beyond the use
of reasonable care in the custody thereof, no Secured Party shall have any duty
as to any Collateral in their possession or control or in the possession or
control of any agent or nominee of it or any income thereon or as to the
preservation of rights against prior Secured Parties or any other rights
pertaining thereto.

20

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10. Notices. Any notice, request or other communication required or permitted
hereunder shall be in writing and shall be delivered personally or by facsimile
(receipt confirmed electronically) or shall be sent by a reputable express
delivery service or by certified mail, postage prepaid with return receipt
requested, addressed as follows:
 
if to the Company, to:

Itec Environmental Group, Inc.
5300 Claus Road, Box 760
Riverbank, CA 95367
Attn: Gary M. De Laurentiis
Fax: (209) 881-3529
 
if to Arbor Malone, to:

Arbor Malone, LLC
Attn: Mr. Ronald S. Domingue
600 Seminole Drive
Winter Park, FL 32789
 
if to the Baek, to:

Ji Y. Baek
13700 Marina Pointe Drive, Suite 1001
Marina Del Rey, CA 90292

if to the Goldman, to:

Leroy and Lois Goldman
23808 Ladrillo Street
Woodland Hills, CA 91376

if to Itec Capital Group, to:

See Schedule B.

A party hereto may change the above specified recipient or mailing address by
notice to the other party given in the manner herein prescribed. All notices
shall be deemed given on the day when actually delivered as provided above (if
delivered personally or by facsimile, provided that any such facsimile is
received during regular business hours at the recipient's location) or on the
day shown on the return receipt (if delivered by mail or delivery service).
 
11. Severability. Any provision of this Security Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

21

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12. No Waiver; Cumulative Remedies. No Secured Parties shall by any act, delay,
omission or otherwise be deemed to have waived any of their rights or remedies
hereunder and no waiver shall be valid unless in writing, signed by the Secured
Party, and then only to the extent therein set forth. A waiver by a Secured
Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Secured Parties would
otherwise have had on any future occasion and shall not apply to any other
Secured Party. No failure to exercise nor any delay in exercising on the part of
a Secured Party, any right, power or privilege hereunder, shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise or any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law.
 
13. Successors and Assigns. This Security Agreement and all obligations of the
Company hereunder shall be binding upon the successors and permitted assigns of
the Company, and shall, together with the rights and remedies of the Secured
Parties hereunder, inure to the benefit of each of the Secured Parties and their
successors and permitted assigns; provided that the Company may not assign any
of its rights or obligations hereunder without the prior written consent of each
of the Secured Parties.
 
14. Waiver and Amendment. None of the terms or provisions of this Security
Agreement may be waived, altered, modified or amended except by an instrument in
writing, duly executed by the Company and the Secured Party against whom such
waiver, alteration, modification or amendment is sought to be enforced.
 
15. Governing Law. This Security Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of California or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of California.
 
16. Counterparts. This Security Agreement may be executed in separate
counterparts each of which will be an original and all of which taken together
will constitute one and the same agreement.
 
17. Facsimile. This Security Agreement may be executed using facsimiles of
signatures, and a facsimile of a signature shall be deemed to be the same, and
equally enforceable, as an original of such signature.
 
18. Termination. At such time as the Obligations have been fully paid in cash,
the security interest created hereby shall automatically terminate, the Secured
Parties shall take all such actions as may be requested by the Company to
evidence such termination and to release the liens created hereby, at the
Company's expense.

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IN WITNESS WHEREOF, each of the Secured Parties hereto has caused this Security
Agreement to be executed and delivered by its duly authorized officer as of
Effective Date.
 

       
ITEC ENVIRONMENTAL GROUP, INC.
 
   
   
    By:      

--------------------------------------------------------------------------------

Gary M. De Laurentiis    Chief Executive Officer 

 

        SECURED PARTY:  
   
   
    By:        

--------------------------------------------------------------------------------

    Its:      

--------------------------------------------------------------------------------

                  

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SCHEDULE A

Secured Party
Aggregate Principal Amount of Note(s)
Itec Capital Group, LLC
$3,022,500.00
Arbor Malone, LLC
$2,300,000.00
Leroy and Lois Goldman
$500,000.00
Ji Y. Baek
$202,000.00
   
Total
$6,024,500.00

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SCHEDULE B

Itec Capital Group, LLC Investors

Name
Address
City
State
Zip Code
Allen and Judy Adler Trust
PO Box 3644
Rcho Santa Fe
CA
92067
Jeffrey D. Alpert
P.O. Box 528
Ross
CA
94957
Ji Y. Baek
13700 Marina Pointe Dr. #1001
Marina del Rey
CA
90292
Craig R. Barone
1645 W. School Unit 403
Chicago
IL
60657
Brandon Barrera
1149 Cole Ave
Los Angeles
CA
90038
Robert Belli
5655 Anza Street
San Francisco
CA
94121
Benetti Trust
80 Mount Vernon Ln.
Atherton
CA
94027
Gil Bensimon or Danielle Krause Simon
32 Union Park Street Apt. No. 2
Boston
MA
02118
Maurice & Paula Benard
15300 Ventura Blvd., Ste #315
Sherman Oaks
CA
91403
Amy Blanchard & Jerry Ivers
147 Normandy Ct
San Carlos
CA
94070
Jordan Lee & Judy Bloom
315 Barbara Way
Hillsborough
CA
94010
Phil Brodie
[Currently unknown]
 
CA
 
Thomas A. Brown
854 East Terrace Avenue
Fresno
CA
93704
Douglas R. Curtis & Mary P. Curtis
110 Highland Avenue
Los Gatos
CA
95030
Mark S. Devereaux
324 Bretano Way
Greenbrae
CA
94904
Paul Dittmeier
762 W. Mountain Rd.
Sparta
NJ
07871
Ronald Domingue
600 Seminole Drive
Winter Park
FL
32789
Michael J. Edwards
3439 North Greenview Avenue
Chicago
IL
60657
Douglas & Jennifer Flentge
378 Faas Ranch Road
New Castle
CO
81647
Joel Frazin Trust
2008 C West Willow
Chicago
IL
60647
Michael Frazin
395 Landis Lane
Deerfield
IL
60015
Clayton S. Friedman & Terri E. Friedman
38 Vernon
Newport Coast
CA
92657
Leroy H. Goldman & Lois H. Goldman
23808 Ladrillo Street
Woodland Hills
CA
91367
Todd S. Greenhalgh
112 Clifford Terrace
San Francisco
CA
94117
Hart Trust
25421 Via Alcira
Valencia
CA
91355
Hughes Family Trust
1543 Cole Street
San Francisco
CA
94117
Hurwich Family Trust
260 Sea View Avenue
Piedmont
CA
94610
Itec Alaska Partnership
10250 Jamestown Drive #21
Anchorage
AK
99507
Richard O. Johnson
PO Box 1448
Zanesville
OH
43702
Susan G. Kief
1012A Mission Street
S. Pasadena
CA
91030
Charles J. Lidman
4311 Vista De La Tierra
Del Mar
CA
92014
Andrew and Campbell Loft
37 Elm Avenue
San Anselmo
CA
94960
Losson Family Revocable Trust
90 Valley Hill Dr.
Moraga
CA
94556
Kelly Luthringshausen
323 The Lane
Hinsdale
IL
60521
Fred & Ruth Lynch
25 Cromwell Dr.
Chester
NJ
07930
Mark Miller
1698 Massachusetts Avenue
Cambridge
MA
02138
Nave Family Trust
P.O. Box 572529
Tarzana
CA
91357-2529
Johnathan Nicholas
1154 Washington Street #3
Boston
MA
02118
Andrew Paul IRA
216 Emerald Ave
San Carlos
CA
94070

 
 
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Carol A. Pochini
501 Portola Road, Box 8174
Portola Valley
CA
94028
Jim Rose
109 El Pinar
Los Gatos
CA
95032
Rodney S. Rougelot
542 46th Avenue
San Francisco
CA
94121
Arthur L. Ruoff
216 Texas Lane
Ithaca
NY
14850
Saratoga Capital Partners
601 Union Street, Suite 4500
Seattle
WA
98101
Lee S. Schwartz
458 N. Green Bay Rd.
Waukegan
IL
60085
Ronald E. Schweitzer
261 Roycroft Avenue
Long Beach
CA
90803
Barry Seidman
16631 Avenido Molino Viejo
Rancho Santa Fe
CA
92067
Charles M. Spitz, DDS, MS
50 South San Mateo Drive, Suite 160
San Mateo
CA
94401
Shamash Family Trust
1770 Forest View Avenue
Hillsborough
CA
94010
Danielle Simon
32 Union Park
Boston
MA
02118
Sirott Family Trust
20 Midvale Court
Walnut Creek
CA
94597
Dane Solomon
100 North Harper Avenue
Los Angeles
CA
90048
Norma L. Taylor
13200 Marina Pointe Drive #531
Marina del Rey
CA
90292
Elissa R. Wellikson
765 Campbell Ave
Los Altos
CA
94024
Whittaker Family Trust
8070 La Jolla Shores Dr. #508
La Jolla
CA
92037
Wong Family Trust
1119 Alomar Way
Belmont
CA
94002
Arnold Zousmer
P.O. Box 9906
Rancito Santa Fe
CA
92067

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Exhibit C

Form of Warrant

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933 (THE “ACT”) OR APPLICABLE STATE SECURITIES LAWS, AND THE
TRANSFER THEREOF IS PROHIBITED EXCEPT PURSUANT TO REGISTRATION UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
SUCH REGISTRATION. HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE
CONDUCTED UNLESS IN COMPLIANCE WITH THE ACT.

Warrant To Purchase 20,000,000 Shares of Common Stock

Itec Environmental Group, inc.

Date of Issuance: August 14, 2006

No. 93

THIS CERTIFIES that, for value received, Arbor Malone, LLC, or its assigns (in
either case, the “Holder”) is entitled to purchase, subject to the provisions of
this Warrant, from Itec Environmental Group, Inc., a Delaware corporation (the
“Company”), at the price per share set forth in Section 8 hereof, that number of
shares of the Company’s common stock (the “Common Stock”) set forth in Section 7
hereof. This Warrant is referred to herein as the “Warrant” and the shares of
Common Stock issuable pursuant to the terms hereof are sometimes referred to
herein as “Warrant Shares.”

1. Holder Exercise of Warrant. This Warrant shall only be exercisable in whole.
All shares of Common Stock issued upon the exercise of this Warrant at the time
of issuance will be validly issued, fully paid, and nonassessable. To exercise
this Warrant in whole, the Holder shall deliver to the Company at its principal
office, (a) a written notice, in substantially the form of the exercise notice
attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election
to exercise this Warrant, which notice shall specify the number of shares of
Common Stock to be purchased and be accompanied by a check for the full amount
of the aggregate Exercise Price (as defined in Section 8(a) below) for the
Warrant Shares so purchased and (b) this Warrant. The Company shall as promptly
as practicable, and in any event within twenty (20) days after delivery to the
Company of (i) the Exercise Notice together with payment of the Exercise Price,
(ii) and this Warrant, execute and deliver or cause to be executed and
delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of Warrant Shares specified in such notice.
Each certificate representing Warrant Shares shall bear the legend or legends
required by applicable securities laws. The Company shall pay all expenses and
other charges payable in connection with the preparation, issuance and delivery
of such stock certificates except that, in case such stock certificates shall be
registered in a name or names other than the name of the Holder, funds
sufficient to pay all stock transfer taxes, if any, that are payable upon the
issuance of such stock certificate or certificates shall be paid by the Holder
at the time of delivering the Exercise Notice.

The Holder shall also have the right to convert this Warrant or any portion
thereof (the "Conversion Right"), without payment by the Holder of the Exercise
Price in cash or any other consideration (other than the surrender of rights to
receive Warrant Shares hereunder), into shares of Common Stock as provided in
this Section 1. Upon receipt by the Company of a duly executed and completed
Conversion Notice in the form attached hereto as Exhibit B for the exercise of
the Conversion Right with respect to a particular number of Warrant Shares (the
"Converted Warrant Shares"), the Company shall deliver to the Holder (without
payment by the Holder of the Exercise Price in cash or any other consideration
(other than the surrender of rights to receive Warrant Shares hereunder)) that
number of shares of Common Stock equal to the quotient obtained by dividing: (x)
the difference between (i) the product of (A) the Current Market Price of a
share of Common Stock multiplied by (B) the number of Converted Warrant Shares
and (ii) the product of (A) the Exercise Price multiplied by (B) the number of
the Converted Warrant Shares, in each case as of the Conversion Date, by (y) the
Current Market Price of a share of Common Stock on the Conversion Date. The term
“Conversion Date” shall be the date a duly executed and completed Conversion
Notice is received by the Company. No fractional Warrant Shares shall be
issuable upon exercise of the Conversion Right, and if the number of Warrant
Shares to be issued determined in accordance with the following formula is other
than a whole number, the Company shall, at its election, pay to the Holder an
amount in cash equal to the Current Market Price of the resulting fractional
Warrant Share on the Conversion Date or round up to the next nearest whole
share.

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The term "Current Market Price" for the shares of Common Stock as of a specified
date shall mean: (i) if the shares of Common Stock are publicly traded on such
date, the average closing price per share over the preceding 10 trading days as
reported on the principal stock exchange or quotation system on which the shares
of Common Stock are then listed or quoted; (ii) if the shares of Common Stock
are not so publicly traded on such date, the value determined in good faith by
the Board of Directors of the Company; provided, that if Holder shall dispute
such value determined by the Board of Directors the value shall be the appraised
value per share of Common Stock as of such date determined by an investment
banking firm of recognized standing selected by the Company and reasonably
satisfactory to the Holder. In the event the appraised value is greater than
120% of the value of determined by the Board of Directors, the cost of such
appraisal shall be borne by the Company and in all other circumstances, the cost
of such appraisal shall be borne by the Holder.

The Warrant shall expire on August 14, 2010 (the “Expiration Date”). The Holder
may exercise the warrant at any time prior to the Expiration Date.

2. Reservation of Shares. The Company hereby covenants that at all times during
the term of this Warrant there shall be reserved for issuance such number of
shares of its Common Stock as shall be required to be issued upon exercise of
this Warrant.

3.  Fractional Shares. This Warrant may be exercised only for a whole number of
shares of Common Stock, and no fractional shares or scrip representing
fractional shares shall be issuable upon the exercise of this Warrant.

4.  Transfer of Warrant and Warrant Shares. The Holder may sell, pledge,
hypothecate, or otherwise transfer (“Transfer”) this Warrant, in whole or in
part, only if such sale, pledge, hypothecation, or transfer is made in
compliance with the Act or pursuant to an available exemption from registration
under the Act relating to the disposition of securities. Subject to the
preceding sentence, the Company agrees to issue to any successor or transferee
of Holder a new Warrant or Warrants of like tenor promptly upon receipt of
Holder’s notice of any such Transfer and shall issue to Holder a new Warrant
representing any portion hereof that is not so Transferred.

5.  Loss of Warrant. Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, or destruction of this Warrant, and of indemnification
satisfactory to it, or upon surrender and cancellation of this Warrant, if
mutilated, the Company will execute and deliver a new warrant of like tenor.

6.  Rights of the Holder. No provision of this Warrant shall be construed as
conferring upon the Holder the right to vote, consent, receive dividends or
receive notice other than as expressly provided herein. Prior to exercise, no
provision hereof, in the absence of affirmative action by the Holder to exercise
this Warrant, and no enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of the holder for the purchase price of
any warrant shares or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.

7.  Number of Warrant Shares. This Warrant shall be exercisable for 20,000,000
shares of the Company’s Common Stock, as adjusted from time to time in
accordance with this Agreement.

8.  Exercise Price; Adjustment of Warrants.

a.  Exercise Price. The per share purchase price (the “Exercise Price”) for each
of the Warrant Shares purchasable under this Warrant shall be equal to $0.12, as
adjusted from time to time in accordance with this Agreement.

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b. Adjustment for Mergers or Reorganization, etc. In case of any consolidation
or merger of the Company with or into another corporation or the conveyance of
all or substantially all of the assets of the Company to another corporation,
this Warrant shall be exercisable into the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Company deliverable upon exercise of this Warrant would have been
entitled upon such consolidation, merger or conveyance; and, in any such case,
appropriate adjustment (as determined by the Board of Directors of the Company)
shall be made in the application of the provisions herein set forth with respect
to the rights and interest thereafter of the holder of this Warrant, to the end
that the provisions set forth herein shall thereafter be applicable, as nearly
as reasonable may be, in relation to any shares of stock or other property
thereafter deliverable upon the exercise of this Warrant.

c. Adjustment in the Case of Certain Transactions or Events. The Exercise Price
shall be adjusted downward in the event the Company issues Common Stock (or
securities exercisable for or convertible into or exchangeable for common stock)
at a price below the Exercise Price, to a price equal to such issue price. The
preceding adjustment shall be effective immediately at the time of the issuance
of any security issued (or of any reduction in effective price of any security).
In addition, the Exercise Price and the number of Warrant Shares issuable upon
exercise hereof shall be appropriately adjusted in the case of stock splits,
stock dividends, recapitalizations and the like.

d.  NO IMPAIRMENT. THE COMPANY WILL NOT, THROUGH ANY REORGANIZATION, TRANSFER OF
ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ISSUE OR SALE OF SECURITIES OR ANY
OTHER VOLUNTARY ACTION, AVOID OR SEEK TO AVOID THE OBSERVANCE OR PERFORMANCE OF
ANY OF THE TERMS TO BE OBSERVED OR PERFORMED HEREUNDER BY THE COMPANY, BUT WILL
AT ALL TIMES IN GOOD FAITH ASSIST IN THE CARRYING OUT OF ALL THE PROVISIONS OF
THIS SECTION AND IN THE TAKING OF ALL SUCH ACTION AS MAY BE NECESSARY OR
APPROPRIATE IN ORDER TO PROTECT THE EXERCISE RIGHTS OF THE HOLDER OF THIS
WARRANT AGAINST IMPAIRMENT.

e. Issue Taxes. The Company shall pay issue taxes that may be payable in respect
of any issue or delivery of shares of Common Stock on exercise of this Warrant,
in whole; provided, however, that the Company shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such exercise.

f.  Reservation of Stock Issuable Upon Conversion. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
common stock, solely for the purpose of effecting the exercise of this Warrant,
such number of its shares of common stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of common stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take all appropriate
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of common stock to such number of shares as
shall be sufficient for such purpose.

9. Certain Distributions. In case the Company shall, at any time, prior to the
Expiration Date, declare any distribution of its assets to holders of its common
stock as a partial liquidation, distribution or by way of return of capital,
other than as a dividend payable out of earnings or any surplus legally
available for dividends, then the Holder shall be entitled, upon the proper
exercise of this Warrant in whole prior to the effecting of such declaration, to
receive, in addition to the shares of common stock issuable on such exercise,
the amount of such assets (or at the option of the Company a sum equal to the
value thereof at the time of such distribution to holders of common stock as
such value is determined by the Board of Directors of the Company in good
faith), which would have been payable to the Holder had it been a holder of
record of such shares of common stock on the record date for the determination
of those holders of Common Stock entitled to such distribution.

10. Dissolution or Liquidation. In case the Company shall, at any time prior to
the Expiration Date, dissolve, liquidate or wind up its affairs, the Holder
shall be entitled, upon the proper exercise of this Warrant in whole and prior
to any distribution associated with such dissolution, liquidation, or winding
up, to receive on such exercise, in lieu of the shares of Common Stock to which
the Holder would have been entitled, the same kind and amount of assets as would
have been distributed or paid to the Holder upon any such dissolution,
liquidation or winding up, with respect to such shares of Common Stock had the
Holder been a holder of record of such share of Common Stock on the record date
for the determination of those holders of Common Stock entitled to receive any
such dissolution, liquidation, or winding up distribution.

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11.  Reclassification or Reorganization. In case of any reclassification,
capital reorganization or other change of outstanding shares of common stock of
the Company (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of an issuance of
common stock by way of dividend or other distribution or of a subdivision or
combination), the Company shall cause effective provision to be made so that the
Holder shall have the right thereafter by exercising this Warrant, to receive
the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, capital reorganization or other change,
that a holder of the number of shares of common stock which might have been
purchased upon exercise of this warrant immediately prior to such
reclassification or change would have received. Any such provision shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this warrant. The foregoing
provisions of this Section 11 shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of common
stock. in the event that in any such capital reorganization, reclassification,
or other change, additional shares of common stock shall be issued in exchange,
conversion, substitution or payment, in whole, for or of a security of the
company other than common stock, any amount of the consideration received upon
the issue thereof being determined by the board of directors of the company
shall be final and binding on the holder.

12.  Miscellaneous.

a.  Successors and Assigns. The terms and conditions of this Agreement shall
inure to the benefit of, and be binding upon, the respective successors and
assigns of the parties, except to the extent otherwise provided herein. Nothing
in this Agreement, express or implied, is intended to confer upon any party,
other than the parties hereto or their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.

b.  Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to the
principles of conflict of laws thereof.

c. Counterparts; Delivery by Facsimile. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery of this
Agreement may be effected by facsimile.

d.  Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

e. Notices. Unless otherwise provided, any notice required or permitted
hereunder shall be given by personal service upon the party to be notified by
certified mail, return receipt requested and: (i) if to the Company, addressed
to Itec Environmental Group, Inc., 5300 Claus Road, Riverbank, California 95367,
or at such other address as the Company may designate by notice to the Holder in
accordance with the provisions of this Section; and (ii) if to the Holder, at
the address indicated on the signature page hereof, or at such other addresses
as the Holder may designate by notice to the Company in accordance with the
provisions of this Section.

f.  Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either prospectively or retroactively), only with the
written consent of the Company and the Holder.

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IN WITNESS WHEREOF, the undersigned hereby sets is hand and seal this 14th day
of August, 2006.

Itec Environmental Group, Inc.

By: ____________________________________
       Name: Gary De Laurentiis
       Title: President and Chief Executive Officer

Holder Name: ____________________________________

Holder Address: __________________________________

_________________________________________________

_________________________________________________

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EXHIBIT A

NOTICE OF EXERCISE

(To be signed only upon exercise of the Warrant)

TO: Itec Environmental Group, Inc.

The undersigned, hereby irrevocably elects to exercise the purchase rights
represented by the Warrant granted to the undersigned on ______________ and to
purchase thereunder __________* shares of Common Stock of Itec Environmental
Group, Inc. (the “Company”).

Dated: ________________

_________________________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant)

_________________________________________
(Please Print Name)

_________________________________________
(Address)

* Insert here the number of shares being exercised, without making any
adjustment for additional Common Stock of the Company, other securities or
property which, pursuant to the adjustment provisions of the Warrant, may be
deliverable upon exercise.

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EXHIBIT B

(FORM OF CONVERSION NOTICE TO BE EXECUTED
UPON EXERCISE OF WARRANT)

CONVERSION NOTICE

The undersigned, the registered holder of Warrant No. _______ (the "Warrant"),
issued Itec Environmental Group, Inc. (the "Company"), hereby (1) irrevocably
elects to convert the Warrant into such number of shares of Common Stock of the
Company as is determined pursuant to Section 1 of the Warrant, which conversion
shall be effected pursuant to the terms and conditions of the Warrant, and (2)
directs that the certificates for such shares of Common Stock issuable upon
exercise of the Warrant be issued in the name of and

delivered to: _________________________________________________________________

whose address is _____________________________________________________________.

The undersigned represents that the aforesaid shares of Common Stock are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.

                                                                        
 
 

       
(Name)
         
(Address)
       

 

 
SIGNATURE:

Dated: ________________.

 

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NOTICE: The signature on this Conversion Notice must correspond with the name as
written upon the face of the Warrant, or upon an assignment form attached
hereto.

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