Security Agreement with Vision Master Fund, Ltd. (June 29, 2007)


    Exhibit
      10.18

      SECURITY
        AGREEMENT

       

      THIS
        SECURITY AGREEMENT
        (the
“Security
        Agreement”)
        is
        dated as of the 29th day of June 2007 by and among XA, Inc., a Nevada
        Corporation (“XA”),
        The
        Experiential Agency, Inc., XA Scenes, Inc., XA Interactive, Inc., and Fiori
        XA,
        Inc. (collectively the with XA, the “Debtor”)
        and
        Vision Opportunity Master Fund, Ltd. (the “Secured
        Party”).

       

      W I T N E S S E T H

       

      WHEREAS,
        pursuant
        to a Securities Purchase Agreement, dated as of the date hereof, as may be
        amended or supplemented from time to time (the “SPA”),
        the
        Debtor is selling to the Secured Party an 11% Senior Secured Convertible
        Promissory Note, in the principal amount of $200,000, which is part of $500,000
        in 11% Senior Secured Convertible Promissory Note financing (the “Follow
        On Notes”),
        which
        is in addition to an aggregate of $2,700,000 in 11% Senior Secured Convertible
        Promissory Notes previously sold by the Debtor to certain parties (the
“Prior
        Purchasers”)
        in
        August, September and October 2006 (the “Prior
        Notes”)
        and
        along with the Follow On Notes, each, a “Note”:
        and
        collectively, the “Notes”)
        sold
        to certain parties (collectively with the “Prior
        Purchasers,”
the
        “Purchasers”);
        and

       

      WHEREAS,
        Debtor
        has agreed, pursuant to the terms and conditions of the SPA, in connection
        with
        the Financing described therein, to secure the repayment of the Note, as
        more
        specifically provided herein;

       

      NOW,
        THEREFORE,
        in
        consideration of the foregoing, Debtor and the Secured Party agree as
        follows:

       

      SECTION
        1. Definitions.
        

       

      1.1 
Certain
        Defined Terms.
        The
        following terms, as used herein, have the meanings set forth below:

       

      “Accounts”
means
        all “accounts” (as defined in the UCC) now owned or hereafter created or
        acquired by Debtor including all of the following now owned or hereafter
        created
        or acquired by Debtor: (a) accounts receivable, contracts, contract rights,
        book debts, notes, drafts and other obligations or indebtedness owing to
        Debtor
        arising from the sale, lease or exchange of goods or other property or the
        performance of services; (b) Debtor’s rights in, to and under all purchase
        orders for goods, services or other property; (c) Debtor’s rights to any
        goods, services or other property represented by any of the foregoing (including
        returned or repossessed goods and unpaid sellers’ rights of rescission,
        repletion, reclamation and rights to stoppage in transit); (d) monies due
        to or to become due to Debtor under all contracts for the sale, lease or
        exchange of goods or other property or the performance of services (whether
        or
        not yet earned by performance on the part of Debtor); and (e) Proceeds of
        any of the foregoing and all collateral security and guaranties of any kind
        given by any Person with respect to any of the foregoing.

       

      “Collateral”
has
        the
        meaning assigned to that term in Section 2.

       


      
        
           

          


          
          

        

        
          1

          
            

          

        

        
          
          

        

      


      “Computer
        Software”
or
        “Software”
means
        a
        computer program and any supporting information provided in connection with
        a
        transaction relating to the program.

       

      “Contracts”
means
        all contracts and agreements (as defined in the UCC).

       

      “Copyrights”
means
        collectively all of the following now owned or hereafter created or acquired
        by
        Debtor: (a) all literary works, derivative works, works for hire,
        compositions, compilations of all or some of the foregoing, whether published
        or
        unpublished, all registrations or recordings thereof, and all applications
        in
        connection therewith including registrations, recordings and applications
        in the
        Copyright Office of the United States, or any other country; (b) all
        reissues, extensions or renewals thereof; (c) all income, royalties,
        damages and payments now or hereafter due or payable under any of the foregoing
        or with respect to any of the foregoing including damages or payments for
        past
        or future infringements of any of the foregoing; (d) the right to sue for
        past, present and future infringements or any of the foregoing; and (e) all
        rights corresponding to any of the foregoing throughout the world.

       

      “Debtor”
has
        the
        meaning assigned to that term in the introduction to this Security
        Agreement.

       

      “Documents”
means
        all “documents” (as defined in the UCC) or other receipts covering, evidencing
        or representing goods now owned or hereafter acquired by Debtor.

       

      “Equipment”
means
        all “equipment” (as defined in the UCC) now owned or hereafter acquired by
        Debtor including all machinery, motor vehicles, trucks, trailers, vessels,
        aircraft and rolling stock and all parts thereof and all additions and
        accessions thereto and replacements therefor.

       

      “Event
        of Default”
has
        the
        meaning assigned to that term in Section 8(a).

       

      “Fixtures”
means
        all of the following now owned or hereafter acquired by Debtor: plant fixtures;
        business fixtures; other fixtures and storage office facilities, wherever
        located; and all additions and accessions thereto and replacements therefor.
        

       

      “General
        Intangibles”
means
        all “general intangibles” (as defined in the UCC) now owned or hereafter
        acquired by Debtor including all right, title and interest of Debtor in and
        to:
        (a) all Software of the Debtor, including all source code and object code
        thereto; (b) all agreements, leases, licenses and contracts to which Debtor
        is or may become a party; (c) all obligations or indebtedness owing to
        Debtor (other than Accounts) from whatever source arising; (d) all tax
        refunds; (e) Intellectual Property; and (f) all trade secrets and
        other confidential information relating to the business of Debtor.

       

      “Instruments”
means
        all “instruments” “chattel paper” or “letters of credit” (each as defined in the
        UCC) including promissory notes, drafts, bills of exchange and trade
        acceptances, now owned or hereafter acquired by Debtor.

       


      
        
           

          


          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      “Intellectual
        Property”
means
        collectively all of the following: Copyrights, Copyright Licenses, Patents,
        Trademarks and Trademark Licenses.

       

      “Inventory”
means
        all “inventory” (as defined in the UCC), now owned or hereafter acquired by
        Debtor, wherever located including finished goods, raw materials, work in
        process and other materials and supplies (including packaging and shipping
        materials) used or consumed in the manufacture or production thereof and
        goods
        which are returned to or repossessed by Debtor.

       

      “Permitted
        Senior Indebtedness”
shall
        mean the prior first priority security interest of LaSalle Bank National
        Association (“LaSalle”), and/or any other bank or institutional lending source
        which shall replace and/or supersede the LaSalle loan and debt ; provided,
        however,
        that in
        no case shall the aggregate amount of such Permitted Senior Indebtedness
        exceed
        seven hundred and fifty thousand dollars ($750,000).

       

      “Proceeds”
means
        all proceeds of, and all other profits, rentals or receipts, in whatever
        form,
        arising from the collection, sale, lease, exchange, assignment, licensing
        or
        other disposition of, or realization upon, any Collateral including all claims
        of Debtor against third parties for loss of, damage to or destruction of,
        or for
        proceeds payable under, or unearned premiums with respect to, policies of
        insurance with respect to any Collateral, and any condemnation or requisition
        payments with respect to any Collateral, in each case whether now existing
        or
        hereafter arising.

       

      “Secured
        Obligations”
has
        the
        meaning assigned to that term in Section 3.

       

      “Security
        Agreement”
means
        this Security Agreement as it may be amended, supplemented or otherwise modified
        from time to time.

       

      “Security
        Interests”
means
        the security interest granted pursuant to Section 2,
        as well
        as all other security interests created or assigned as additional security
        for
        the Secured Obligations pursuant to the provisions of this Security
        Agreement.

       

      “Subsidiaries”
has
        the
        meaning assigned to that term in the introduction to this Security
        Agreement.

       

      “Trademarks”
means
        collectively all of the following now owned or hereafter created or acquired
        by
        Debtor: (a) all trademarks, trade names, corporate names, company names,
        business names, fictitious business names, trade styles, service marks, logos,
        domain names and domain name registrations, other business identifiers, prints
        and labels on which any of the foregoing have appeared or appear, all
        registrations and recordings thereof (to the extent Debtor can register such
        corporate, company or business name as a trademark), and all applications
        in
        connection therewith including registrations, recordings and applications
        in the
        Trademark Office or in any similar office or agency of the United States,
        any
        State thereof or any other country or any political subdivision thereof;
        (b) all reissues, extensions or renewals thereof; (c) all income,
        royalties, damages and payments now or hereafter due or payable under any
        of the
        foregoing or with respect to any of the foregoing including damages or payments
        for past or future infringements of any of the foregoing; (d) the right to
        sue for past, present and future infringements of any of the foregoing;
        (e) all rights corresponding to any of the foregoing throughout the world;
        and (f) all goodwill associated with and symbolized by any of the
        foregoing. 

      
        
           

          


          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      “UCC”
means
        the Uniform Commercial Code as in effect on the date hereof in the State
        of
        Illinois, Nevada, California, New Jersey and New York or such state as property
        and/or fixtures may be located, as the case may be, as amended from time
        to
        time, and any successor statute; provided
        that if
        by reason of mandatory provisions of law, the perfection or the effect of
        perfection or non-perfection of the Security Interest in any Collateral is
        governed by the Uniform Commercial Code as in effect on or after the date
        hereof
        in any other jurisdiction, “UCC”
means
        the Uniform Commercial Code as in effect in such other jurisdiction for purposes
        of the provision hereof relating to such perfection or effect of perfection
        or
        non-perfection.

       

      1.2 
Other
        Definition Provisions.
        References to “Sections”
        “subsections,”
        “Exhibits”
and
        “Schedules”
shall
        be to Sections, subsections, Exhibits and Schedules, respectively, of this
        Security Agreement unless otherwise specifically provided. References to
        the
        words “including,” “includes” and “include” shall be deemed to be followed by
        the words “without limitation;” and the term “or” has, except where otherwise
        indicated, the inclusive meaning represented by the phrase “and/or.” Any of the
        terms defined in subsection 1.1 may, unless the context otherwise requires,
        be used in the singular or the plural depending on the reference. All references
        to statutes and related regulations shall include any amendments of same
        and any
        successor statutes and regulations.

       

      SECTION
        2. Grant
        of Security Interest.
        

       

      In
        order
        to secure the payment and performance of the Secured Obligations in accordance
        with the terms thereof, except as otherwise specifically provided in this
        Security Agreement, the Debtor hereby grants to the Secured Party, a continuing
        first priority security interest and lien in and to all right, title and
        interest of Debtor in the following property, whether now owned or existing
        or
        hereafter acquired or arising and regardless of where located, which first
        priority security interest shall be pari passu to the first priority security
        interest of the Purchasers and the other purchasers who invest during the
        offering to which this Security Agreement is a part), and subject only to
        the
        Permitted Senior Indebtedness (all being collectively referred to as the
        “Collateral”).

       

      (a) 
Accounts;

       

      (b)            
         Inventory;

       

      (c)            
         Computer
        Software;

       

      (d)            
         General
        Intangibles;

       


      
        
           

          


          
          

        

        
          4

          
            

          

        

        
          
          

        

      


      (e) 
Documents;

       

      (f) 
Instruments;

       

      (g)            
         Equipment;

       

      (h) 
Fixtures;

       

      (i) 
Contracts;

       

      (j) 
All
        deposit accounts of Debtor maintained with any bank or financial
        institution;

       

      (k)            
         All
        books, records, ledger cards, files, correspondence, computer programs, tapes,
        disks and related data processing software that at any time evidence or contain
        information relating to any of the property described in subparts (a)
        - (j)
        above or
        are otherwise necessary or helpful in the collection thereof or realization
        thereon; 

       

      (l) 
any
        and
        all other assets of the Debtor, whether currently held or hereafter acquired;
        and

       

      (m)          
         Proceeds
        of all or any of the property described in subparts (a)
        - (l)
        above.

       

      Notwithstanding
        the foregoing, so long as no Event of Default has occurred and is continuing,
        Debtor shall have the exclusive, non-transferable right and license to use
        the
        Collateral and the exclusive right to sell, transfer, convey, rent, lease,
        and
        grant to third parties licenses and sublicenses with respect to the Collateral,
        provided that any such sale, transfer, conveyance, rental, lease, license
        or
        sublicense is effected in the Debtor’s ordinary course of business. In the event
        that the Debtor sells any of its inventory in the ordinary course of business,
        such shall be transferred without any liens under the terms of this Security
        Agreement. 

       

      SECTION
        3. Security
        for Obligations.
        

       

      This
        Security Agreement secures the payment and performance of all obligations,
        liabilities, duties and covenants of Debtor to the Secured Party with respect to
        the Notes, plus any and all accrued (and accruing) but unpaid interest on
        all
        such indebtedness (all such debts, obligations and liabilities of Debtor
        being
        collectively called the “Secured
        Obligations”).

       

      SECTION
        4. Debtor
        Remains Liable.
        

       

      Anything
        herein to the contrary notwithstanding: (a) Debtor shall remain liable
        under the contracts and agreements included in the Collateral to the extent
        set
        forth therein to perform all of its duties and obligations thereunder to
        the
        same extent as if this Security Agreement had not been executed; (b) the
        exercise by the Secured Party of any of the rights hereunder shall not release
        Debtor from any of its duties or obligations under the contracts and agreements
        included in the Collateral; and (c) the Secured Party shall not have any
        obligation or liability under the contracts and agreements included in the
        Collateral by reason of this Security Agreement, nor shall the Secured Party
        be
        obligated to perform any of the obligations or duties of Debtor thereunder
        or to
        take any action to collect or enforce any claim for payment assigned
        hereunder.

      
        
           

          


          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      SECTION
        5. Representations
        and Warranties.
        Debtor
        represents and warrants as follows:

       

      5.1. 
Binding
        Obligation; Authorization.
        This
        Security Agreement and the Note are legally valid and binding obligations
        of
        Debtor, enforceable against it in accordance with their terms, except as
        limited
        by applicable bankruptcy, insolvency, reorganization, moratorium and other
        laws
        of general application affecting enforcement of creditors’ rights generally. The
        execution, delivery and performance of this Security Agreement and the Note
        by
        the Debtor has been duly approved by the Board of Directors of the Debtor
        and
        all other actions required to authorize and effect the granting of the Security
        Interests and the issuance of the Note has been duly taken and approved by
        the
        Debtor.

       

      5.2. 
Location
        of Equipment and Inventory.
        All of
        the Equipment and Inventory is located at the places specified on Schedule I.

       

      5.3. 
Ownership
        of Collateral; Outstanding Loans.
        The
        Company owns the Collateral free and clear of any liens, security interests,
        charges or other encumbrances (collectively, “Liens”).
        No
        financing statement or other form of Lien notice covering all or any part
        of the
        Collateral is on file in any recording office, except for those in favor
        of the
        Secured Party. 

       

      5.4. 
Office
        Locations; Fictitious Names. The
        chief
        place of business, the chief executive office and the office where Debtor
        keeps
        its books and records are located at the places specified on Schedule I.

       

      5.5. 
Perfection.
        This
        Security Agreement creates a valid and perfected security interest in the
        Collateral, securing the payment of the Secured Obligations, and all filings
        and
        other actions necessary or desirable to perfect and protect such security
        interest have been duly taken (or will be taken immediately after the Closing
        ,
        as defined in the SPA, by the Debtor at the request of the Secured Party);
        provided,
        nothing
        herein constitutes a representation as to actions that must be taken, if
        any, to
        perfect a security interest in any item of Equipment, the ownership of which
        is
        evidenced by a certificate of title.

       

      5.6. 
Governmental
        Authorizations.
        No
        authorization, approval or other action by, and no notice to or filing with,
        any
        governmental authority or regulatory body is required either (a) for the
        grant by Debtor of the Security Interests granted hereby or for the execution,
        delivery or performance of this Security Agreement and/or the Note by Debtor
        or
        (b) for the perfection of or the exercise by the Secured Party of its
        rights and remedies hereunder (except as may have been taken by or at the
        direction of Debtor or the Secured Party).

       

      5.7.            
         Accurate
        Information.
        All
        information heretofore, herein or hereafter supplied to the Secured Party
        by or
        on behalf of Debtor with respect to the Collateral is and will be accurate
        and
        complete in all material respects.

       


      
        
           

          


          
          

        

        
          6

          
            

          

        

        
          
          

        

      


      SECTION
        6. Further
        Assurances; Covenants.
        

       

      6.1. 
Other
        Documents and Actions.
        Debtor
        will, from time to time, at its expense, immediately execute and deliver
        all
        further instruments and documents and take all further action that may be
        necessary or desirable, or that the Secured Party may request, in order to
        perfect and protect any security interest granted or purported to be granted
        hereby or to enable the Secured Party to exercise and enforce their rights
        and
        remedies hereunder with respect to any Collateral. Without limiting the
        generality of the foregoing, Debtor will immediately upon request of the
        Secured
        Party: (a) execute and file such financing or continuation statements, or
        amendments thereto, and such other instruments or notices, as may be necessary
        or desirable, or as the Secured Party may request, in order to perfect and
        preserve the security interests granted or purported to be granted hereby
        (in
        such jurisdictions and with such officers as the Secured Party so request);
        (b) upon demand by the Secured Party exhibit the Collateral to allow
        inspection of the Collateral by the Secured Party or persons designated by
        the
        Secured Party; and (c) upon the Secured Party’s request, appear in and
        defend any action or proceeding that may affect Debtor’s title to or the Secured
        Party’s security interest in the Collateral.

       

      6.2. 
Business
        Locations.
        Debtor
        will keep the Collateral at the locations specified on Schedule I
        hereto.

       

      6.3. 
Insurance.
        At
        its
        sole expense, the Debtor shall insure the Collateral at all times for the
        full
        insurable value thereof against casualty and theft and against such other
        risks,
        in such form and with such insurers, as may be satisfactory to the Secured
        Party
        from time to time. In addition, each such policy shall (i) name the Secured
        Party as mortgagee and loss payee as its interest may appear and name the
        Secured Party as an additional insured relating to liability risks,
        (ii) provide that no act of omission or commission or misrepresentation or
        breach of warranty by the Debtor shall affect the Secured Party’s rights
        thereunder, (iii) provide that the Secured Party shall not be liable for
        any premiums or other amounts and (iv) upon the agreement of the insurer,
        at the Debtor’s request, provide that the insurer shall give the Secured Party
        not less than twenty (20) days’ prior written notice of cancellation or lapse.
        If the Debtor shall fail at any time to maintain such insurance, the Secured
        Party may obtain such insurance coverage and the Debtor agrees to reimburse
        the
        Secured Party therefor on demand with interest thereon at the rate specified
        in
        the Note. The Debtor shall notify the Secured Party promptly if any loss
        or
        casualty relating to the Collateral occurs.

       

      6.4. 
Taxes
        and Claims.
        Debtor
        will pay promptly when due all property and other taxes, assessments and
        governmental charges or levies imposed upon, and all claims against, the
        Collateral (including claims for labor, materials and supplies), except to
        the
        extent the validity thereof is being contested in good faith. 

       

      6.5. 
Use
        of Collateral.
        Debtor
        will not use or permit any Collateral to be used unlawfully or in violation
        of
        any provision of this Security Agreement or any applicable statute, regulation
        or ordinance or any policy of insurance covering any of the
        Collateral.

       


      
        
           

          


          
          

        

        
          7

          
            

          

        

        
          
          

        

      


      6.6. 
Condition
        of Collateral.
        The
        Debtor shall maintain the Collateral in good condition and operate the
        Collateral with reasonable care and caution and the Debtor hereby indemnifies
        and holds the Secured Party harmless from any and all loss, damage and liability
        suffered, incurred or asserted by or against the Secured Party as a result
        of
        the use and operation of the Collateral.

       

      6.7. 
Records
        Relating to Collateral.
        The
        Debtor will keep its records concerning the Collateral at its address designated
        on Schedule
        I
        hereof
        or at such other place or places of which the Secured Party shall have been
        notified in writing upon no less than ten (10) days’ advance written notice. The
        Debtor (a) will hold and preserve such records and will permit representatives
        of the Secured Party at any time during normal business hours without disrupting
        the Debtor’s business to examine, inspect and to make abstracts from such
        records and (b) will furnish to the Secured Party such information and reports
        regarding the Collateral as the Secured Party may from time to time
        request.

       

      6.8. 
Other
        Information.
        Debtor
        will, promptly upon request, provide to the Secured Party all information
        and
        evidence they may reasonably request concerning the Collateral, and in
        particular the Accounts, to enable the Secured Party to enforce the provisions
        of this Security Agreement.

       

      SECTION
        7. Transfers
        and Other Liens.
        

       

      Except
        in
        the ordinary course of business, Debtor shall not:

       

      (a) 
Sell,
        assign (by operation of law or otherwise) or otherwise dispose of, or grant
        any
        option with respect to, any of the Collateral; or

       

      (b) 
Create
        or
        suffer to exist any Liens with respect to any of the Collateral to secure
        indebtedness of any Person except for (i) the Security Interests created
        by this
        Security Agreement, (ii) any Liens and/or security interests existing prior
        to
        the date of this Security Agreement; (iii) any security interests that are
        junior and subordinate to the Security Interests created by this Security
        Agreement, and (iv) any purchase money security interests required in connection
        with Debtor’s purchase or lease of Equipment.

       


      
        
           

          


          
          

        

        
          8

          
            

          

        

        
          
          

        

      


      SECTION
        8. Events
        of Default; Remedies

       

      (a)            
         Each
        of
        the following events shall be an “Event
        of Default”
        (i) the non-payment of any of the Secured Obligations; (ii) the
        failure of the Debtor to observe or perform any other term, provision or
        condition of the Transaction Documents (as defined in the SPA), or this Security
        Agreement, after receipt of notice from the Secured Party of such failure
        to
        observe or perform and the failure of the Debtor to cure such non-performance
        or
        non-observance within fifteen (15) days after receipt thereof;
        (iii) dissolution or termination of existence of, or the suspension or
        termination of operations of the Debtor; (iv) the inability of the Debtor,
        or the Debtor’s admission that it is unable, to pay its debts as they become due
        or any petition in bankruptcy is filed by or against the Debtor, or any
        proceeding in bankruptcy, or under any other laws of any jurisdiction relating
        to the relief of debtors is commenced against the Debtor for the relief or
readjustment
        of any indebtedness of the Debtor, either through reorganization, composition,
        extension or otherwise, (v) the appointment of a receiver of any property
        of the Debtor, (vi) the making by the Debtor of any assignment for the
        benefit of creditors or the taking advantage of any insolvency law;
        (vii) any seizure, vesting, or intervention by or under authority of a
        government, by which the management of the Debtor is displaced or its authority
        in the conduct of its business is curtailed; (viii) any representation or
        warranty contained the Note or this Security Agreement, shall prove to be
        materially false when made; or (ix) if an event of default shall occur for
        whatever reason under the any of the Notes.
         

        (b) 
If
          any
          Event of Default shall have occurred and be continuing, the Secured Party
          may
          exercise in respect of the Collateral, in addition to all other rights
          and
          remedies provided for herein or otherwise available to them, all the right
          and
          remedies of a secured party on default under the UCC (whether or not the
          UCC
          applies to the affected Collateral) and also may: (a) require Debtor to,
          and Debtor hereby agrees that it will, at its expense and upon request
          of the
          Secured Party forthwith, assemble all or part of the Collateral as directed
          by
          the Secured Party and make it available to the Secured Party at a place
          to be
          designated by the Secured Party which is reasonably convenient to the Debtor;
          (b) without notice or demand or legal process, enter upon any premises of
          Debtor and take possession of the Collateral; and (c) 
          without notice except as specified below, sell the Collateral or any part
          thereof in one or more parcels at public or private sale, at such time
          or times,
          for cash, on credit or for future delivery, and at such price or prices
          and upon
          such other terms as the Secured Party may deem commercially reasonable.
          Debtor
          agrees that, to the extent notice of sale shall be required by law, at
          least two
          (2) days’ notice to Debtor of the time and place of any public sale or the time
          after which any private sale is to be made shall constitute reasonable
          notification. At any sale of the Collateral, if permitted by law, the Secured
          Party may bid (which bid may be, in whole or in part, in the form of
          cancellation of indebtedness) for the purchase of the Collateral or any
          portion
          thereof for the account of the Secured Party. The Secured Party shall not
          be
          obligated to make any sale of Collateral regardless of notice of sale having
          been given. The Secured Party may adjourn any public or private sale from
          time
          to time by announcement at the time and place fixed therefor, and such
          sale may,
          without further notice, be made at the time and place to which it was so
          adjourned. To the extent permitted by law, Debtor hereby specifically waives
          all
          rights of redemption, stay or appraisal which it has or may have under
          any law
          now existing or hereafter enacted. All cash proceeds received by the Secured
          Party resulting from the disposition of or collection from the Collateral
          may be
          held by the Secured Party as collateral for the Secured Obligations and/or
          then
          or at any time thereafter applied in payment of all or any of the Secured
          Obligations in such order as the Secured Party shall elect. The balance
          of such
          cash proceeds held by the Secured Party and remaining after payment in
          full of
          the Secured Obligations shall be paid over to the Debtor or to the person
          who
          may be lawfully entitled to such balance. The remedies provided in this
          Security
          Agreement are cumulative and not exclusive of any other remedies provided
          by law
          including, without limitation, any rights of setoff available to the Secured
          Party.

      

       


      
        
           

          


          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      SECTION
        9. Limitation
        on Duty of the Secured Party with Respect to Collateral.
        

       

        
        Beyond the safe custody thereof, the Secured Party shall have no duty with
        respect to any Collateral in their possession or control (or in the possession
        or control of the Secured Party or bailee)
        or with respect to any income thereon or the preservation of rights against
        prior parties or any other rights pertaining thereto. The Secured Party shall
        be
        deemed to have exercised reasonable care in the custody and preservation
        of the
        Collateral in their possession if the Collateral is accorded treatment
        substantially equal to that which they accord their own property. The Secured
        Party shall not be liable or responsible for any loss or damage to any of
        the
        Collateral, or for any diminution in the value thereof, by reason of the
        act or
        omission of any warehouseman, carrier, forwarding agency, consignee or other
        agent or bailee selected by the Secured Party in good faith.

       

      SECTION
        10. Secured
        Party Appointed Attorney-In-Fact.

       

        
        Debtor hereby irrevocably appoints the Secured Party as Debtor’s
        attorney-in-fact, with full authority in the place and stead of Debtor and
        in
        the name of Debtor to take any action and to execute any instrument that
        the
        Secured Party may deem necessary and/or advisable as follows: 

       

      (a) 
to
        obtain
        and adjust insurance required to be paid to the Secured Party if Debtor has
        not
        done so in the ordinary course of its business;

       

      (b)            
         to
        ask,
        demand, collect, sue for, recover, compound, receive and give receipts for
        moneys due and to become due under or in respect of any of the Collateral
        upon
        the occurrence of an Event of Default;

       

      (c) 
to
        receive, endorse, and collect any drafts or other instruments, documents
        and
        chattel paper, in connection with clauses (a) and (b) above upon the
        occurrence of an Event of Default;

       

      (d) 
to
        file
        any claims or take any action or institute any proceedings that the Secured
        Party may deem necessary or desirable for the collection of any of the
        Collateral or otherwise to enforce the rights of the Secured Party with respect
        to any of the Collateral if Debtor has not done so in the ordinary course
        of its
        business;

       

      (e)             
         to
        pay or
        discharge taxes or liens, levied or placed upon or threatened against the
        Collateral, the legality or validity thereof and the amounts necessary to
        discharge the same to be determined by the Secured Party in its sole discretion,
        and such payments made by the Secured Party to become obligations of Debtor
        to
        the Secured Party, due and payable immediately without demand if Debtor has
        not
        done so in the ordinary course of its business;

       

      (f)             
         to
        sign
        and endorse any invoices, freight or express bills, bills of lading, storage
        or
        warehouse receipts, assignments, verifications and notices in connection
        with
        Accounts and other documents relating to the Collateral upon the occurrence
        of
        an Event of Default;

       

      (g) 
generally
        to sell, transfer, pledge, make any agreement with respect to or otherwise
        deal
        with any of the Collateral as fully and completely as though the Secured
        Party
        were the absolute owner thereof for all purposes, and to do, at the Secured
        Party’s option and Debtor’s expense, at any time or from time to time, all acts
        and things that the Secured Party deems necessary to protect, preserve or
        realize on the Collateral upon the occurrence of an Event of Default;
        and

       


      
        
           

          


          
          

        

        
          10

          
            

          

        

        
          
          

        

      


      (h)            
         to
        accomplish the purposes of this Security Agreement if Debtor has not done
        so in
        the ordinary course of its business.

       

        
        Neither the Secured Party nor any person designated by the Secured Party
        shall
        be liable for any acts or omissions or for any error of judgment or mistake
        of
        fact or law. This power, being coupled with an interest, is irrevocable so
        long
        as this Security Agreement shall remain in force.

       

      SECTION
        11. Expenses.
        

       

        
        Debtor shall pay all insurance expenses and all expenses of protecting, storing,
        warehousing, appraising, insuring, handling, maintaining and shipping the
        Collateral, all costs, fees and expenses of perfecting, and maintaining the
        Security Interest, any and all excise, property, sales and use taxes imposed
        by
        any state, federal or local authority on any of the Collateral, or with respect
        to periodic appraisals and inspections of the Collateral, or with respect
        to the
        sale or other disposition thereof. If Debtor fails to promptly pay any portion
        of the above expenses when due or to perform any other obligation of Debtor
        under this Security Agreement, the Secured Party may, at their option, but
        shall
        not be required to, pay or perform the same and charge Debtor’s account for all
        costs and expenses incurred therefor, and Debtor agrees to reimburse the
        Secured
        Party therefor on demand. All sums so paid or incurred by the Secured Party
        for
        any of the foregoing, any and all other sums for which Debtor may become
        liable
        hereunder and all costs and expenses (including reasonable and documented
        attorneys’ fees, legal expenses and court costs) incurred by the Secured Party
        in enforcing or protecting the Security Interests or any of their rights
        or
        remedies under this Security Agreement, the Notes, the Warrants and/or other
        Transaction Documents shall be payable on demand, shall constitute Secured
        Obligations and shall be secured by the Collateral.

       

      SECTION
        12. Termination
        of Security Interests; Release of Collateral.
        

       

        
        Upon payment in full of all Secured Obligations, including the aggregate
        principal amount of the Notes, including all Interest, the Security Interests
        shall immediately terminate and all rights to the Collateral shall revert
        to
        Debtor automatically and without the need for further action to be taken
        on the
        part of the Debtor or the Secured Party. Upon such termination of the Security
        Interests or release of any Collateral, the Secured Party will, at the expense
        of Debtor, execute and deliver to Debtor such documents as Debtor shall
        reasonably request to evidence the termination of the Security Interests
        or the
        release of such Collateral, as the case may be.

       

      SECTION
        13. Notices.
        

       

        
        All notices, requests, demands and other communications provided for hereunder
        shall be in writing and directed to the applicable party at the addresses
        set
        forth on the signature page hereof or, as to each party, at such other address
        as shall be designated by such party in a written notice to the other parties
        complying as to delivery with the terms of this Section. Notice to the Secured
        Party on terms designated in this Section
        13
        shall be
        deemed proper notice the Secured Party. All such notices, requests, demands
        and
        other communication shall be deemed given upon the earlier to occur of (i)
        the
        third day following deposit thereof with the United States Postal Service
        for
        mailing via certified or registered mail, return receipt requested, or (ii)
        the
        actual receipt by the party to whom such notice is directed.

      
        
           

          


          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      SECTION
        14. Waivers,
        Non-Exclusive Remedies. 

       

        
        No failure on the part of the Secured Party to exercise, and no delay in
        exercising and no course of dealing with respect to, any right under the
        Note or
        this Security Agreement shall operate as a waiver thereof; nor shall any
        single
        or partial exercise by the Secured Party of any right under the Note or this
        Security Agreement preclude any other or further exercise thereof or the
        exercise of any other right. The rights in this Security Agreement and/or
        the
        Note are cumulative and are not exclusive of any other remedies provided
        by
        law.

       

      SECTION
        15. Successors
        and Assigns. 

       

        
        This Security Agreement is for the benefit of the Secured Party and each
        of its
        successors and assigns, and in no event shall the Debtor without the prior
        express written consent of the Secured Party, assign all or any portion of
        the
        Secured Obligations, the rights hereunder, or the Note. This Security Agreement
        shall be binding on Debtor and its successors and all permitted
        assigns.

       

      SECTION
        16. Severability. 

       

       
If
        any provisions hereof are invalid or unenforceable in any jurisdiction, the
        other provisions hereof shall remain in full force and effect in such
        jurisdiction and shall be liberally construed in favor of the Secured
        Party.

       

      SECTION
        17. Changes
        in Writing.

       

        
        No amendment, modification, termination or waiver of any provision of this
        Security Agreement or consent to any departure by Debtor therefrom, shall
        in any
        event be effective without the written concurrence of the Secured Party,
        and the
        Debtor.

       

      SECTION
        18. Applicable
        Law, Etc.

       

        
        This Security Agreement will be governed by and construed exclusively under
        the
        laws of the State of New York as applied to agreements among New York
        residents entered into and to be performed entirely within New York. Each
        of the parties hereto (1) agree that any legal suit, action or proceeding
        arising out of or relating to this Agreement will be instituted exclusively
        in
        New York State Supreme Court, County of New York, or in the United
        States District Court for the Southern District of New York, (2) waive
        any objection which the Company may have now or hereafter to the venue of
        any
        such suit, action or proceeding, and (3) irrevocably consent to the
        jurisdiction of the New York State Supreme Court, County of New York,
        and the United States District Court for the Southern District of New York
        in any such suit, action or proceeding. Each of the parties hereto further
        agrees to accept and acknowledge service of any and all process which may
        be
        served in any such suit, action or proceeding in the New York State Supreme
        Court, County of New York, or in the United States District Court for the
        Southern District of New York and agree that service of process upon it
        mailed by certified mail to its address will be deemed in every respect
        effective service of process upon it, in any such suit, action or proceeding.
        

       


      
        
           

          


          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      SECTION
        19. Actions
        by Secured Party;
        Distributions.
        

       

      Unless
        otherwise specifically provided herein, wherever this Security Agreement
        provides for actions to be taken by the Secured Party, or any determination
        to
        be made by the Secured Party, the actions of those Holders representing,
        in the
        aggregate, more than 50% of the outstanding Notes shall represent the actions
        or
        agreement of the Secured Party. In addition, whenever the Secured Party is
        entitled to the distribution of monies, Collateral or any other property,
        pursuant to the terms of this Security Agreement, such monies, Collateral
        and/or
        other property shall be distributed to the Secured Party, on a pro-rata basis,
        based on the outstanding principal amounts under the Note.

       

      SECTION
        20. Headings.
        

       

      Section and
        subsection headings in this Security Agreement are included herein for
        convenience of reference only and shall not constitute a part of this Security
        Agreement for any other purpose or be given any substantive effect.

       

      SECTION
        21. Execution.
        

       

      This
        Agreement may be executed simultaneously in two or more counterparts, each
        of
        which shall be deemed an original but all of which together shall constitute
        one
        and the same instrument.

       

      SECTION
        22. Waiver
        of Jury Trial.

       

      DEBTOR
        AND SECURED PARTY HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
        ANY
        CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS SECURITY AGREEMENT.
        DEBTOR AND SECURED PARTY ALSO WAIVE ANY BOND OR INDEMNITY OR SECURITY UPON
        SUCH
        BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF DEBTOR OR THE SECURED
        PARTY HERETO. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING
        OF ANY
        AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
        MATTER OF THIS TRANSACTION INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH
        OF
        DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. DEBTOR AND SECURED
        PARTY ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO
        A
        BUSINESS RELATIONSHIP THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING
        INTO THIS SECURITY AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER
        IN THEIR RELATED FUTURE DEALINGS. DEBTOR AND SECURED PARTY FURTHER WARRANT
        AND
        REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND
        EACH
        KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
        WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
        MODIFIED EITHER ORALLY OR IN WRITING AND THE WAIVER SHALL APPLY TO ANY
        SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS SECURITY
        AGREEMENT. IN THE EVENT OF LITIGATION. THIS SECURITY AGREEMENT MAY BE FILED
        AS A
        WRITTEN CONSENT TO A TRIAL BY THE COURT.

       

      Signature
        Page Follows

       


      
        
           

          


          
          

        

        
          13

          
            

          

        

        
          
          

        

      


      


       

      WITNESS
        the due
        execution hereof by the respective duly authorized officers of the undersigned
        as of the day first above written.

       

       

      
 

      
        
          	 	
                  DEBTORS:

                
	 	 
	 	
                  XA,
                    Inc.

                
	 	 
	 	
                  By:
                    /s/ Joseph Wagner

                
	 	
                  Name:
                    Joseph
                    Wagner

                
	 	
                  Title:
                    President and CEO

                
	 	 
	 	
                  XA
                    Scenes, Inc.

                
	 	 
	 	
                  By:
                    /s/ Joseph Wagner

                
	 	
                  Name:
                    Joseph
                    Wagner

                
	 	
                  Title:
                    President and CEO

                
	 	 
	 	
                  The
                    Experiential Agency, Inc.

                
	 	 
	 	 
	 	
                  By:
                    /s/ Darren Andereck

                
	 	
                  Name:
                    Darren
                    Andereck

                
	 	
                  Title:
                    President 

                
	 	 
	 	
                  XA
                    Interactive, Inc.

                
	 	 
	 	
                  By:
                    /s/ Joseph Wagner

                
	 	
                  Name:
                    Joseph
                    Wagner

                
	 	
                  Title:
                    President and CEO

                
	 	 
	 	
                  Fiori
                    XA, Inc.

                
	 	 
	 	 
	 	
                  By:
                    /s/ Darren Andereck

                
	 	
                  Darren
                    Andereck

                
	 	
                  President

                


        

        


      

       

       

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

      


      


      


      


      SECURED
        PARTY:

      


      


      


      Vision
        Opportunity Master Fund, Ltd.

      


      By:
        /s/ Adam
        Benowitz                                                      

       

      Name:
        Adam
        Benowitz                                      


       

      Title:
        Portfolio
        Mgr.                                           


      


      


       

      


       

      


       

      


       


      
        
          
             

          

          
          

        

        
          15

          
            

          

        

        
          
          

          
          

        

      



      SCHEDULE
        I TO SECURITY AGREEMENT

       

      


      Locations
        of Equipment, Inventory, Books and Records, Chief Executive Officer

      


       

      Locations
        of Equipment and Inventory:

       

      ●
         
        Chicago,
        Illinois - Event decor, furniture and fixtures

       

      
        	 	
                ○

              	
                Office
                  - John Hancock Center, 875 North Michigan Avenue, Suite 2626,

                 Chicago,
                  Illinois 60611 - The Experiential Agency,
                  Inc.

              


      

       

      
        	 	
                ○

              	
                Design
                  Center - 3524 North Halsted, 

                Chicago,
                  IL 60657 - Fiori, XA, Inc.

              


      

       

      ●
         
        Bergen,
        New Jersey (warehouse) - Event decor, furniture and fixtures

               
        1435 51st Street

               
        North Bergen, NJ - The Experiential Agency, Inc.

      


       

      ●
         
        New
        York,
        New York and Manhattan, New York - (office space and warehouse),- Event decor,
        furniture and fixtures

       

      
        	 	
                ○

              	
                New
                  York Office and venue - 636 West 28th Street, Floor 9, 

                New
                  York, NY 10001 - XA Scenes, Inc.

              


      

      


      ●            
         Los
        Angeles, California (office equipment)

      


      ○ 
110
        S.
        Fairfax, Suite 210, Los Angeles, CA  90036 

       The
        Experiential Agency, Inc.

      


      Location
        of Books and Records and Chief Executive Officer:

       

      ●
         
        John
        Hancock Center, 875 North Michigan Avenue, Suite 2626, Chicago, Illinois
        60611 -
        The Experiential Agency, Inc.

       

      
        
          
          

        

        
          16