Document:

EXHIBIT
      10.27 

     
      

    Dated:
      September 26, 2005 

     
      

    NEITHER
      THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE
      HAVE
      BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
      COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES
      ACT ”),
      AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
      EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
      REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
      SECURITIES LAWS. 

     
      

    $42,250.00
      

     
      

    ARIEL
      WAY, INC. 

     
      

    Secured
      Convertible Debenture 

     
      

     
      

    Due
      September 25, 2006 

     
      

    This
      Secured Convertible Debenture (the “ Debenture
      ”)
      is
      issued by Ariel Way, Inc,  
      a
      Florida
      corporation (the “ Obligor
      ”),
      to
      Mr. Arne Dunhem (the “ Holder
      ”),
      pursuant to that certain Securities Purchase Agreement (the “ Securities
      Purchase Agreement ”)
      of
      even date herewith. 

     
      

    FOR
      VALUE RECEIVED ,
      the
      Obligor hereby promises to pay to the Holder or its successors and assigns
      the
      principal sum of $42,250.00, together with accrued but unpaid interest on the
      following terms: 

     
      

    Payments
      .
      Interest on the outstanding principal balance hereof shall be due and payable
      monthly, in arrears, commencing on September 25, 2006 and shall continue on
      the
      first day of each calendar month thereafter that any amounts under this
      Debenture are due and payable (each, an “ Interest
      Payment Date ”).
      Principal shall be due and payable in 6 equal installments of $7,041.74 each.
      The installments of principal shall be due and payable commencing on October
      1,
      2006 and subsequent installments shall be due and payable on the first day
      of
      each calendar month thereafter (“ Principal
      Payment Date ”)
      until
      the outstanding principal balance is paid in full (the “ Maturity
      Date ”).
      All
      payments in respect of the indebtedness evidenced hereby shall be made in
      collected funds, and shall be applied to principal, accrued interest and charges
      and expenses owing under or in connection with this Debenture in such order
      as
      the Holder elects, except that payments shall be applied to accrued interest
      before principal. Notwithstanding the foregoing, this Debenture shall become
      due
      and immediately payable, including all accrued but unpaid interest, upon the
      closing of a Funding Event (as defined in Section
      4 hereof)
      or pursuant to an Event of Default (as defined in Section
      2 hereof).
      

     
      

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Interest
      .
      Interest shall accrue on the outstanding principal balance hereof at an annual
      rate equal to 5%. Interest shall be calculated on the basis of a 360-day year
      and the actual number of days elapsed, to the extent permitted by applicable
      law. Interest hereunder will be paid to the Holder or its assignee (as defined
      in Section
      4 )
      in
      whose name this Debenture is registered on the records of the Obligor regarding
      registration and transfers of Debentures (the “ Debenture
      Register ”).
      

     
      

     
      

    Right
      of Redemption .
      The
      Company at its option shall have the right to redeem, with fifteen (15) days
      advance written notice (the “ Redemption
      Notice ”),
      a
      portion or all outstanding convertible debenture. The redemption price shall
      be
      one hundred ten percent (110%) of the amount redeemed plus accrued
      interest. 

     
      

     
      

     
      

    This
      Debenture is subject to the following additional provisions: 

     
      

    Section
      1 .
       
      This
      Debenture is exchangeable for an equal aggregate principal amount of Debentures
      of different authorized denominations, as requested by the Holder surrendering
      the same. No service charge will be made for such registration of transfer
      or
      exchange. 

     
      

    Section
      2 .
       
      Events
      of Default .
      

     
      

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

     
      

    (i)
       
      Any
      default in the payment of the principal of, interest on or other charges in
      respect of this Debenture, free of any claim of subordination, as and when
      the
      same shall become due and payable (whether on an installment, a Principal
      Payment Date, an Interest Payment Date, a Conversion Date or the Maturity Date
      or by acceleration or otherwise); 

     
      

    (ii)
       
      The
      Obligor shall fail to observe or perform any other covenant, agreement or
      warranty contained in, or otherwise commit any breach or default of any
      provision of this Debenture (except as may be covered by Section
      2(a)(i) hereof
      or
      any Transaction Document (as defined in Section
      4 )
      which
      is not cured with in the time prescribed; 

     
      

    (iii)
       
      The
      Obligor or any subsidiary of the Obligor shall commence, or there shall be
      commenced against the Obligor or any subsidiary of the Obligor under any
      applicable bankruptcy or insolvency laws as now or hereafter in effect or any
      successor thereto, or the Obligor or any subsidiary of the Obligor commences
      any
      other proceeding under any reorganization, arrangement, adjustment of debt,
      relief of debtors, dissolution, insolvency or liquidation or similar law of
      any
      jurisdiction whether now or hereafter in effect relating to the Obligor or
      any
      subsidiary of the Obligor or there is commenced against the Obligor or any
      subsidiary of the Obligor any such bankruptcy, insolvency or other proceeding
      which remains undismissed for a period of 61 days; or the Obligor or any
      subsidiary of the Obligor is adjudicated insolvent or bankrupt; or any order
      of
      relief or other order approving any such case or proceeding is entered; or
      the
      Obligor or any subsidiary of the Obligor suffers any appointment of any
      custodian, private or court appointed receiver or the like for it or any
      substantial part of its property which continues undischarged or unstayed for
      a
      period of sixty one (61) days; or the Obligor or any subsidiary of the Obligor
      makes a general assignment for the benefit of creditors; or the Obligor or
      any
      subsidiary of the Obligor shall fail to pay, or shall state that it is unable
      to
      pay, or shall be unable to pay, its debts generally as they become due; or
      the
      Obligor or any subsidiary of the Obligor shall call a meeting of its creditors
      with a view to arranging a composition, adjustment or restructuring of its
      debts; or the Obligor or any subsidiary of the Obligor shall by any act or
      failure to act expressly indicate its consent to, approval of or acquiescence
      in
      any of the foregoing; or any corporate or other action is taken by the Obligor
      or any subsidiary of the Obligor for the purpose of effecting any of the
      foregoing; 

     
      

     

    
      
         

      

      
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    (iv)
       
      The
      Obligor or any subsidiary of the Obligor shall default in any of its obligations
      under any other Debenture or any mortgage, credit agreement or other facility,
      indenture agreement, factoring agreement or other instrument under which there
      may be issued, or by which there may be secured or evidenced any indebtedness
      for borrowed money or money due under any long term leasing or factoring
      arrangement of the Obligor or any subsidiary of the Obligor in an amount
      exceeding $100,000, whether such indebtedness now exists or shall hereafter
      be
      created and such default shall result in such indebtedness becoming or being
      declared due and payable prior to the date on which it would otherwise become
      due and payable; 

     
      

    (v)
       
      The
      Common Stock shall cease to be quoted for trading or listed for trading on
      the
      Nasdaq OTC Bulletin Board (“ OTC
      ”),
      Nasdaq SmallCap Market, New York Stock Exchange, American Stock Exchange or
      the
      Nasdaq National Market (each, a “ Subsequent
      Market ”)
      and
      shall not again be quoted or listed for trading thereon within five (5) Trading
      Days of such delisting; 

     
      

    (vi)
       
      The
      Obligor or any subsidiary of the Obligor shall be a party to any Change of
      Control Transaction (as defined in Section
      4 );
      

     
      

    (vii)
       
      The
      Obligor shall fail to file the Underlying Shares Registration Statement (as
      defined in Section
      4 )
      with
      the Commission (as defined in Section
      4 ),
      or the
      Underlying Shares Registration Statement shall not have been declared effective
      by the Commission, in each case within the time periods set forth in the
      Investor Registration Rights Agreement of even date herewith between the Obligor
      and the Holder; 

     
      

    (viii)
       
      If
      the
      effectiveness of the Underlying Shares Registration Statement lapses for any
      reason or the Holder shall not be permitted to resell the shares of Common
      Stock
      underlying this Debenture under the Underlying Shares Registration Statement,
      in
      either case, for more than five (5) consecutive Trading Days or an aggregate
      of
      eight Trading Days (which need not be consecutive Trading Days); 

     
      

    (ix)
       
      The
      Obligor shall fail for any reason to deliver Common Stock certificates to a
      Holder prior to the fifth (5 th
      )
      Trading
      Day after a Conversion Date or the Obligor shall provide notice to the Holder,
      including by way of public announcement, at any time, of its intention not
      to
      comply with requests for conversions of this Debenture in accordance with the
      terms hereof; 

     
      

     

    
      
         

      

      
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    (x)
        
      The
      Obligor shall fail for any reason to deliver the payment in cash pursuant to
      a
      Buy-In (as defined herein) within three (3) days after notice is claimed
      delivered hereunder; 

     
      

    (b)
       
      During
      the time that any portion of this Debenture is outstanding, if any Event of
      Default has occurred, the full principal amount of this Debenture, together
      with
      interest and other amounts owing in respect thereof, to the date of acceleration
      shall become at the Holder's election, immediately due and payable in cash,
      provided
      however ,
      the
      Holder may request (but shall have no obligation to request) payment of such
      amounts in Common Stock of the Obligor. If an Event of Default occurs and
      remains uncured, the Conversion Price shall be reduced to Fifteen Cents ($0.15).
      In addition to any other remedies, the Holder shall have the right (but not
      the
      obligation) to convert this Debenture at any time after (x) an Event of Default
      or (y) the Maturity Date at the Conversion Price then in-effect. The Holder
      need
      not provide and the Obligor hereby waives any presentment, demand, protest
      or
      other notice of any kind, and the Holder may immediately and without expiration
      of any grace period enforce any and all of its rights and remedies hereunder
      and
      all other remedies available to it under applicable law. Such declaration may
      be
      rescinded and annulled by Holder at any time prior to payment hereunder. No
      such
      rescission or annulment shall affect any subsequent Event of Default or impair
      any right consequent thereon. Upon an Event of Default, notwithstanding any
      other provision of this Debenture or any Transaction Document, the Holder shall
      have no obligation to comply with or adhere to any limitations, if any, on
      the
      conversion of this Debenture or the sale of the Underlying Shares. 

     
      

    Section
      3 .
       
      Conversion
      

     
      

    (a)
       
      (i)
       
      Conversion
      at Option of Holder .
      

     
      

    (A)
       
      This
      Debenture shall be convertible into shares of Common Stock at the option of
      the
      Holder, in whole or in part at any time and from time to time, after the
      Original Issue Date (as defined in Section 4) (subject to the limitations on
      conversion set forth in Section
      3(a)(ii) hereof).
      The number of shares of Common Stock issuable upon a conversion hereunder equals
      the sum of (i) the quotient obtained by dividing (x) the outstanding amount
      of
      this Debenture to be converted by (y) the Conversion Price (as defined in
Section
      3(c)(i) ).
      The
      Obligor shall deliver Common Stock certificates to the Holder prior to the
      Fifth
      (5 th
      )
      Trading
      Day after a Conversion Date. 

     
      

    (B)
       
      Notwithstanding
      anything to the contrary contained herein, if on any Conversion Date: (1) the
      number of shares of Common Stock at the time authorized, unissued and unreserved
      for all purposes, or held as treasury stock, is insufficient to pay principal
      and interest hereunder in shares of Common Stock; (2) the Common Stock is not
      listed or quoted for trading on the OTC or on a Subsequent Market; (3) the
      Obligor has failed to timely satisfy its conversion; or (4) the issuance of
      such
      shares of Common Stock would result in a violation of Section
      3(a)(ii) ,
      then,
      at the option of the Holder, the Obligor, in lieu of delivering shares of Common
      Stock pursuant to Section
      3(a)(i)(A) ,
      shall
      deliver, within three (3) Trading Days of each applicable Conversion Date,
      an
      amount in cash equal to the product of the outstanding principal amount to
      be
      converted plus any interest due therein divided by the Conversion Price and
      multiplied by the highest closing price of the stock from date of the conversion
      notice till the date that such cash payment is made. 

     
      

     

    
      
         

      

      
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    Further,
      if the Obligor shall not have delivered any cash due in respect of conversion
      of
      this Debenture or as payment of interest thereon by the fifth (5 th
      )
      Trading
      Day after the Conversion Date, the Holder may, by notice to the Obligor, require
      the Obligor to issue shares of Common Stock pursuant to Section
      3(c) ,
      except
      that for such purpose the Conversion Price applicable thereto shall be the
      lesser of the Conversion Price on the Conversion Date and the Conversion Price
      on the date of such Holder demand. Any such shares will be subject to the
      provisions of this Section. 

     
      

    (C)
       
      The
      Holder shall effect conversions by delivering to the Obligor a completed notice
      in the form attached hereto as Exhibit A (a “ Conversion
      Notice ”).
      The
      date on which a Conversion Notice is delivered is the “ Conversion
      Date .”
Unless
      the Holder is converting the entire principal amount outstanding under this
      Debenture, the Holder is not required to physically surrender this Debenture
      to
      the Obligor in order to effect conversions. Conversions hereunder shall have
      the
      effect of lowering the outstanding principal amount of this Debenture plus
      all
      accrued and unpaid interest thereon in an amount equal to the applicable
      conversion. The Holder and the Obligor shall maintain records showing the
      principal amount converted and the date of such conversions. In the event of
      any
      dispute or discrepancy, the records of the Holder shall be controlling and
      determinative in the absence of manifest error. 

     
      

    (ii)
       
      Certain
      Conversion Restrictions .
      

     
      

    (A)
       
      A
      Holder
      may not convert this Debenture or receive shares of Common Stock as payment
      of
      interest hereunder to the extent such conversion or receipt of such interest
      payment would result in the Holder, together with any affiliate thereof,
      beneficially owning (as determined in accordance with Section 13(d) of the
      Exchange Act and the rules promulgated thereunder) in excess of 4.9% of the
      then
      issued and outstanding shares of Common Stock, including shares issuable upon
      conversion of, and payment of interest on, this Debenture held by such Holder
      after application of this Section. Since the Holder will not be obligated to
      report to the Obligor the number of shares of Common Stock it may hold at the
      time of a conversion hereunder, unless the conversion at issue would result
      in
      the issuance of shares of Common Stock in excess of 4.9% of the then outstanding
      shares of Common Stock without regard to any other shares which may be
      beneficially owned by the Holder or an affiliate thereof, the Holder shall
      have
      the authority and obligation to determine whether the restriction contained
      in
      this Section will limit any particular conversion hereunder and to the extent
      that the Holder determines that the limitation contained in this Section
      applies, the determination of which portion of the principal amount of this
      Debenture is convertible shall be the responsibility and obligation of the
      Holder. If the Holder has delivered a Conversion Notice for a principal amount
      of this Debenture that, without regard to any other shares that the Holder
      or
      its affiliates may beneficially own, would result in the issuance in excess
      of
      the permitted amount hereunder, the Obligor shall notify the Holder of this
      fact
      and shall honor the conversion for the maximum principal amount permitted to
      be
      converted on such Conversion Date in accordance with the periods described
      in
Section
      3(a)(i)(A) and,
      at
      the option of the Holder, either retain any principal amount tendered for
      conversion in excess of the permitted amount hereunder for future conversions
      or
      return such excess principal amount to the Holder. The provisions of this
      Section may be waived by a Holder (but only as to itself and not to any other
      Holder) upon not less than 65 days prior notice to the Obligor. Other Holders
      shall be unaffected by any such waiver. 

     
      

     

    
      
         

      

      
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    (b)          
      (i)  
      Nothing
      herein shall limit a Holder's right to pursue actual damages or declare an
      Event
      of Default pursuant to Section
      2 herein
      for the Obligor 's failure to deliver certificates representing shares of Common
      Stock upon conversion within the period specified herein and such Holder shall
      have the right to pursue all remedies available to it at law or in equity
      including, without limitation, a decree of specific performance and/or
      injunctive relief, in each case without the need to post a bond or provide
      other
      security. The exercise of any such rights shall not prohibit the Holder from
      seeking to enforce damages pursuant to any other Section hereof or under
      applicable law. 

     
      

    (ii)
       
      In
      addition to any other rights available to the Holder, if the Obligor fails
      to
      deliver to the Holder such certificate or certificates pursuant to Section
      3(a)(i)(A) by
      the
      fifth Trading Day after the Conversion Date, and if after such fifth (5
th
      )
      Trading
      Day the Holder purchases (in an open market transaction or otherwise) Common
      Stock to deliver in satisfaction of a sale by such Holder of the Underlying
      Shares which the Holder anticipated receiving upon such conversion (a “
Buy-In
      ”),
      then
      the Obligor shall (A) pay in cash to the Holder (in addition to any remedies
      available to or elected by the Holder) the amount by which (x) the Holder's
      total purchase price (including brokerage commissions, if any) for the Common
      Stock so purchased exceeds (y) the product of (1) the aggregate number of shares
      of Common Stock that such Holder anticipated receiving from the conversion
      at
      issue multiplied by (2) the market price of the Common Stock at the time of
      the
      sale giving rise to such purchase obligation and (B) at the option of the
      Holder, either reissue a Debenture in the principal amount equal to the
      principal amount of the attempted conversion or deliver to the Holder the number
      of shares of Common Stock that would have been issued had the Obligor timely
      complied with its delivery requirements under Section
      3(a)(i)(A) .
      For
      example, if the Holder purchases Common Stock having a total purchase price
      of
      $11,000 to cover a Buy-In with respect to an attempted conversion of Debentures
      with respect to which the market price of the Underlying Shares on the date
      of
      conversion was a total of $10,000 under clause (A) of the immediately preceding
      sentence, the Obligor shall be required to pay the Holder $1,000. The Holder
      shall provide the Obligor written notice indicating the amounts payable to
      the
      Holder in respect of the Buy-In. 

     
      

    (c)         
       
      (i)
       
      The
      conversion price (the “ Conversion
      Price ”)
      in
      effect on any Conversion Date shall be equal to Thirty Cents ($0.30), which
      may
      be adjusted pursuant to the other terms of this Debenture. 

     
      

    (ii)
       
      If
      the
      Obligor, at any time while this Debenture is outstanding, shall (a) pay a
      stock dividend or otherwise make a distribution or distributions on shares
      of
      its Common Stock or any other equity or equity equivalent securities payable
      in
      shares of Common Stock, (b) subdivide outstanding shares of Common Stock into
      a
      larger number of shares, (c) combine (including by way of reverse stock split)
      outstanding shares of Common Stock into a smaller number of shares, or (d)
      issue
      by reclassification of shares of the Common Stock any shares of capital stock
      of
      the Obligor, then the Conversion Price shall be multiplied by a fraction of
      which the numerator shall be the number of shares of Common Stock (excluding
      treasury shares, if any) outstanding before such event and of which the
      denominator shall be the number of shares of Common Stock outstanding after
      such
      event. Any adjustment made pursuant to this Section shall become effective
      immediately after the record date for the determination of stockholders entitled
      to receive such dividend or distribution and shall become effective immediately
      after the effective date in the case of a subdivision, combination or
      re-classification. 

     
      

     

    
      
         

      

      
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    (iii)
       
      If
      the
      Obligor, at any time while this Debenture is outstanding, shall issue rights,
      options or warrants to all holders of Common Stock (and not to the Holder)
      entitling them to subscribe for or purchase shares of Common Stock at a price
      per share less than the Closing Bid Price at the record date mentioned below,
      then the Conversion Price shall be multiplied by a fraction, of which the
      denominator shall be the number of shares of the Common Stock (excluding
      treasury shares, if any) outstanding on the date of issuance of such rights
      or
      warrants (plus the number of additional shares of Common Stock offered for
      subscription or purchase), and of which the numerator shall be the number of
      shares of the Common Stock (excluding treasury shares, if any) outstanding
      on
      the date of issuance of such rights or warrants, plus the number of shares
      which
      the aggregate offering price of the total number of shares so offered would
      purchase at such Closing Bid Price. Such adjustment shall be made whenever
      such
      rights or warrants are issued, and shall become effective immediately after
      the
      record date for the determination of stockholders entitled to receive such
      rights, options or warrants. However, upon the expiration of any such right,
      option or warrant to purchase shares of the Common Stock the issuance of which
      resulted in an adjustment in the Conversion Price pursuant to this Section,
      if
      any such right, option or warrant shall expire and shall not have been
      exercised, the Conversion Price shall immediately upon such expiration be
      recomputed and effective immediately upon such expiration be increased to the
      price which it would have been (but reflecting any other adjustments in the
      Conversion Price made pursuant to the provisions of this Section after the
      issuance of such rights or warrants) had the adjustment of the Conversion Price
      made upon the issuance of such rights, options or warrants been made on the
      basis of offering for subscription or purchase only that number of shares of
      the
      Common Stock actually purchased upon the exercise of such rights, options or
      warrants actually exercised. 

     
      

    (iv)
       
      If
      the
      Obligor or any subsidiary thereof, as applicable, with respect to Common Stock
      Equivalents (as defined below), at any time while this Debenture is outstanding,
      shall issue shares of Common Stock or rights, warrants, options or other
      securities or debt that are convertible into or exchangeable for shares of
      Common Stock (“ Common
      Stock Equivalents ”)
      entitling any Person to acquire shares of Common Stock, at a price per share
      less than the Conversion Price (if the holder of the Common Stock or Common
      Stock Equivalent so issued shall at any time, whether by operation of purchase
      price adjustments, reset provisions, floating conversion, exercise or exchange
      prices or otherwise, or due to warrants, options or rights per share which
      is
      issued in connection with such issuance, be entitled to receive shares of Common
      Stock at a price per share which is less than the Conversion Price, such
      issuance shall be deemed to have occurred for less than the Conversion Price),
      then, at the sole option of the Holder, the Conversion Price shall be adjusted
      to mirror the conversion, exchange or purchase price for such Common Stock
      or
      Common Stock Equivalents (including any reset provisions thereof) at issue.
      Such
      adjustment shall be made whenever such Common Stock or Common Stock Equivalents
      are issued. The Obligor shall notify the Holder in writing, no later than one
      (1) business day following the issuance of any Common Stock or Common Stock
      Equivalent subject to this Section, indicating therein the applicable issuance
      price, or of applicable reset price, exchange price, conversion price and other
      pricing terms. No adjustment under this Section shall be made as a result of
      issuances and exercises of options to purchase shares of Common Stock issued
      for
      compensatory purposes pursuant to any of the Obligor's stock option or stock
      purchase plans. 

     
      

     

    
      
         

      

      
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    (v)
       
      If
      the
      Obligor, at any time while this Debenture is outstanding, shall distribute
      to
      all holders of Common Stock (and not to the Holder) evidences of its
      indebtedness or assets or rights or warrants to subscribe for or purchase any
      security, then in each such case the Conversion Price at which this Debenture
      shall thereafter be convertible shall be determined by multiplying the
      Conversion Price in effect immediately prior to the record date fixed for
      determination of stockholders entitled to receive such distribution by a
      fraction of which the denominator shall be the Closing Bid Price determined
      as
      of the record date mentioned above, and of which the numerator shall be such
      Closing Bid Price on such record date less the then fair market value at such
      record date of the portion of such assets or evidence of indebtedness so
      distributed applicable to one outstanding share of the Common Stock as
      determined by the Board of Directors in good faith. In either case the
      adjustments shall be described in a statement provided to the Holder of the
      portion of assets or evidences of indebtedness so distributed or such
      subscription rights applicable to one share of Common Stock. Such adjustment
      shall be made whenever any such distribution is made and shall become effective
      immediately after the record date mentioned above. 

     
      

    (vi)
       
      In
      case
      of any reclassification of the Common Stock or any compulsory share exchange
      pursuant to which the Common Stock is converted into other securities, cash
      or
      property, the Holder shall have the right thereafter to, at its option, (A)
      convert the then outstanding principal amount, together with all accrued but
      unpaid interest and any other amounts then owing hereunder in respect of this
      Debenture into the shares of stock and other securities, cash and property
      receivable upon or deemed to be held by holders of the Common Stock following
      such reclassification or share exchange, and the Holder of this Debenture shall
      be entitled upon such event to receive such amount of securities, cash or
      property as the shares of the Common Stock of the Obligor into which the then
      outstanding principal amount, together with all accrued but unpaid interest
      and
      any other amounts then owing hereunder in respect of this Debenture could have
      been converted immediately prior to such reclassification or share exchange
      would have been entitled, or (B) require the Obligor to prepay the outstanding
      principal amount of this Debenture, plus all interest and other amounts due
      and
      payable thereon. The entire prepayment price shall be paid in cash. This
      provision shall similarly apply to successive reclassifications or share
      exchanges. 

     
      

    (vii)
       
      The
      Obligor shall maintain a share reserve of not less than 150% of the shares
      of
      Common Stock issuable upon conversion of this Debenture; and within three (3)
      Business Days following the receipt by the Obligor of a Holder's notice that
      such minimum number of Underlying Shares is not so reserved, the Obligor shall
      promptly reserve a sufficient number of shares of Common Stock to comply with
      such requirement. 

     
      

    (viii)
       
      All
      calculations under this Section
      3 shall
      be
      rounded up to the nearest $0.001 of a share. 

     
      

    (ix)
       
      Whenever
      the Conversion is adjusted pursuant to Section
      3 hereof,
      the Obligor shall promptly mail to the Holder a notice setting forth the
      Conversion Price after such adjustment and setting forth a brief statement
      of
      the facts requiring such adjustment. 

     
      

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

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

     
      

    (xi)
       
      In
      case
      of any (1) merger or consolidation of the Obligor or any subsidiary of the
      Obligor with or into another Person, or (2) sale by the Obligor or any
      subsidiary of the Obligor of more than one-half of the assets of the Obligor
      in
      one or a series of related transactions, a Holder shall have the right to (A)
      exercise any rights under Section
      2(b) ,
      (B)
      convert the aggregate amount of this Debenture then outstanding into the shares
      of stock and other securities, cash and property receivable upon or deemed
      to be
      held by holders of Common Stock following such merger, consolidation or sale,
      and such Holder shall be entitled upon such event or series of related events
      to
      receive such amount of securities, cash and property as the shares of Common
      Stock into which such aggregate principal amount of this Debenture could have
      been converted immediately prior to such merger, consolidation or sales would
      have been entitled, or (C) in the case of a merger or consolidation, require
      the
      surviving entity to issue to the Holder a convertible Debenture with a principal
      amount equal to the aggregate principal amount of this Debenture then held
      by
      such Holder, plus all accrued and unpaid interest and other amounts owing
      thereon, which such newly issued convertible Debenture shall have terms
      identical (including with respect to conversion) to the terms of this Debenture,
      and shall be entitled to all of the rights and privileges of the Holder of
      this
      Debenture set forth herein and the agreements pursuant to which this Debentures
      were issued. In the case of clause (C), the conversion price applicable for
      the
      newly issued shares of convertible preferred stock or convertible Debentures
      shall be based upon the amount of securities, cash and property that each share
      of Common Stock would receive in such transaction and the Conversion Price
      in
      effect immediately prior to the effectiveness or closing date for such
      transaction. The terms of any such merger, sale or consolidation shall include
      such terms so as to continue to give the Holder the right to receive the
      securities, cash and property set forth in this Section upon any conversion
      or
      redemption following such event. This provision shall similarly apply to
      successive such events. 

     
      

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    (d)
       
      The
      Obligor covenants that it will at all times reserve and keep available out
      of
      its authorized and unissued shares of Common Stock solely for the purpose of
      issuance upon conversion of this Debenture and payment of interest on this
      Debenture, each as herein provided, free from preemptive rights or any other
      actual contingent purchase rights of persons other than the Holder, not less
      than such number of shares of the Common Stock as shall (subject to any
      additional requirements of the Obligor as to reservation of such shares set
      forth in this Debenture) be issuable (taking into account the adjustments and
      restrictions of Sections
      2(b) and 3(c) )
      upon
      the conversion of the outstanding principal amount of this Debenture and payment
      of interest hereunder. The Obligor covenants that all shares of Common Stock
      that shall be so issuable shall, upon issue, be duly and validly authorized,
      issued and fully paid, nonassessable and, if the Underlying Shares Registration
      Statement has been declared effective under the Securities Act, registered
      for
      public sale in accordance with such Underlying Shares Registration Statement.
      

     
      

    (e)
       
      Upon
      a
      conversion hereunder the Obligor shall not be required to issue stock
      certificates representing fractions of shares of the Common Stock, but may
      if
      otherwise permitted, make a cash payment in respect of any final fraction of
      a
      share based on the Closing Bid Price at such time. If the Obligor elects not,
      or
      is unable, to make such a cash payment, the Holder shall be entitled to receive,
      in lieu of the final fraction of a share, one whole share of Common Stock.
      

     
      

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

     
      

    (g)
       
      Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms hereof must be in writing and will be deemed to have
      been
      delivered: (i) upon receipt, when delivered personally; (ii) upon receipt,
      when
      sent by facsimile (provided confirmation of transmission is mechanically or
      electronically generated and kept on file by the sending party); or (iii) one
      (1) trading day after deposit with a nationally recognized overnight delivery
      service, in each case properly addressed to the party to receive the same.
      The
      addresses and facsimile numbers for such communications shall be: 

    

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    
      	
              If
                to the Company, to: 

            	
              Ariel
                Way, Inc. 

            
	
               
                

            	
               
                

            
	
               
                

            	
              8000
                Towers Crescent Drive, Suite 1220 

            
	
               
                

            	
              Vienna,
                VA 22182 

            
	
               
                

            	
              Attention:
                 
                Chief
                Executive Officer 

            
	
               
                

            	
              Telephone:
                 
                (703)
                918-2420 

            
	
               
                

            	
              Facsimile:
                 
                (703)
                991-0841 

            
	
               
                

            	
               
                

            
	
              If
                to the Holder: 

            	
              Arne
                Dunhem 

            
	
               
                

            	
              7901
                Ariel Way 

            
	
               
                

            	
              McLean,
                VA 22102 

            

    

    

    or
      at
      such other address and/or facsimile number and/or to the attention of such
      other
      person as the recipient party has specified by written notice given to each
      other party three (3) business days prior to the effectiveness of such change.
      Written confirmation of receipt (i) given by the recipient of such notice,
      consent, waiver or other communication, (ii) mechanically or electronically
      generated by the sender's facsimile machine containing the time, date, recipient
      facsimile number and an image of the first page of such transmission or (iii)
      provided by a nationally recognized overnight delivery service, shall be
      rebuttable evidence of personal service, receipt by facsimile or receipt from
      a
      nationally recognized overnight delivery service in accordance with clause
      (i),
      (ii) or (iii) above, respectively. 

     
      

    Section
      4 .
       
      Definitions
      .
      For the
      purposes hereof, the following terms shall have the following meanings:

     
      

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

     
      

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    “
      Change
      of Control Transaction ”
means
      the occurrence of (a) an acquisition after the date hereof by an individual
      or
      legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the
      Exchange Act) of effective control (whether through legal or beneficial
      ownership of capital stock of the Obligor, by contract or otherwise) of in
      excess of fifty percent (50%) of the voting securities of the Obligor (except
      that the acquisition of voting securities by the Holder shall not constitute
      a
      Change of Control Transaction for purposes hereof), (b) a replacement at one
      time or over time of more than one-half of the members of the board of directors
      of the Obligor which is not approved by a majority of those individuals who
      are
      members of the board of directors on the date hereof (or by those individuals
      who are serving as members of the board of directors on any date whose
      nomination to the board of directors was approved by a majority of the members
      of the board of directors who are members on the date hereof), (c) the merger,
      consolidation or sale of fifty percent (50%) or more of the assets of the
      Obligor or any subsidiary of the Obligor in one or a series of related
      transactions with or into another entity, or (d) the execution by the Obligor
      of
      an agreement to which the Obligor is a party or by which it is bound, providing
      for any of the events set forth above in (a), (b) or (c). 

     
      

    “
      Commission
      ”
means
      the Securities and Exchange Commission. 

     
      

    “
      Common
      Stock ”
means
      the common stock, par value $0.001, of the Obligor and stock of any other class
      into which such shares may hereafter be changed or reclassified. 

     
      

    “
      Exchange
      Act ”
means
      the Securities Exchange Act of 1934, as amended. 

     
      

    “
      Funding
      Event ”
means
      any transaction or series of transactions closed after the Original Issue Date
      in which the Obligor raise $4,000,000 or more through the sale of their equity
      securities or securities exercisable or convertible into equity securities.
      

     
      

    “
      Original
      Issue Date ”
shall
      mean the date of the first issuance of this Debenture regardless of the number
      of transfers and regardless of the number of instruments, which may be issued
      to
      evidence such Debenture. 

     
      

    “
      Closing
      Bid Price ”
means
      the price per share in the last reported trade of the Common Stock on the OTC
      or
      on the exchange which the Common Stock is then listed as quoted by Bloomberg,
      LP. 

     
      

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

     
      

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

     
      

    “
      Trading
      Day ”
means
      a
      day on which the shares of Common Stock are quoted on the OTC or quoted or
      traded on such Subsequent Market on which the shares of Common Stock are then
      quoted or listed; provided, that in the event that the shares of Common Stock
      are not listed or quoted, then Trading Day shall mean a Business Day.

     
      

    “
      Transaction
      Documents ”
means
      the SECURITIES PURCHASE AGREEMENT or any other agreement delivered in connection
      with the SECURITIES PURCHASE AGREEMENT, including, without limitation, the
      Security Agreement, the Pledge and Escrow Agreement, or the Investor
      Registration Rights Agreement. 

     
      

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    “
      Underlying
      Shares ”
means
      the shares of Common Stock issuable upon conversion of this Debenture or as
      payment of interest in accordance with the terms hereof. 

     
      

    “
      Underlying
      Shares Registration Statement ”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement, covering among other things the resale of the Underlying
      Shares and naming the Holder as a “selling stockholder” thereunder.

     
      

    Section
      5 .
       
      Except
      as
      expressly provided herein, no provision of this Debenture shall alter or impair
      the obligations of the Obligor, which are absolute and unconditional, to pay
      the
      principal of, interest and other charges (if any) on, this Debenture at the
      time, place, and rate, and in the coin or currency, herein prescribed. This
      Debenture is a direct obligation of the Obligor. This Debenture ranks pari
      passu
      with all other Debentures now or hereafter issued under the terms set forth
      herein. As long as this Debenture is outstanding, the Obligor shall not and
      shall cause their subsidiaries not to, without the consent of the Holder, (i)
      amend its certificate of incorporation, bylaws or other charter documents so
      as
      to adversely affect any rights of the Holder; (ii) repay, repurchase or offer
      to
      repay, repurchase or otherwise acquire shares of its Common Stock or other
      equity securities other than as to the Underlying Shares to the extent permitted
      or required under the Transaction Documents; or (iii) enter into any agreement
      with respect to any of the foregoing. 

     
      

    Section
      6 .
       
      This
      Debenture shall not entitle the Holder to any of the rights of a stockholder
      of
      the Obligor, including without limitation, the right to vote, to receive
      dividends and other distributions, or to receive any notice of, or to attend,
      meetings of stockholders or any other proceedings of the Obligor, unless and
      to
      the extent converted into shares of Common Stock in accordance with the terms
      hereof. 

     
      

    Section
      7 .
       
      If
      this
      Debenture is mutilated, lost, stolen or destroyed, the Obligor shall execute
      and
      deliver, in exchange and substitution for and upon cancellation of the mutilated
      Debenture, or in lieu of or in substitution for a lost, stolen or destroyed
      Debenture, a new Debenture for the principal amount of this Debenture so
      mutilated, lost, stolen or destroyed but only upon receipt of evidence of such
      loss, theft or destruction of such Debenture, and of the ownership hereof,
      and
      indemnity, if requested, all reasonably satisfactory to the Obligor.

     
      

    Section
      8 .
       
      No
      indebtedness of the Obligor is senior to this Debenture in right of payment,
      whether with respect to interest, damages or upon liquidation or dissolution
      or
      otherwise. Without the Holder’s consent, the Obligor will not and will not
      permit any of their subsidiaries to, directly or indirectly, enter into, create,
      incur, assume or suffer to exist any indebtedness of any kind, on or with
      respect to any of its property or assets now owned or hereafter acquired or
      any
      interest therein or any income or profits there from that is senior in any
      respect to the obligations of the Obligor under this Debenture. 

     
      

    Section
      9 .
       
      This
      Debenture shall be governed by and construed in accordance with the laws of
      the
      State of New Jersey, without giving effect to conflicts of laws thereof. Each
      of
      the parties consents to the jurisdiction of the Superior Courts of the State
      of
      New Jersey sitting in Hudson County, New Jersey and the U.S. District Court
      for the District of New Jersey sitting in Newark, New Jersey in connection
      with
      any dispute arising under this Debenture and hereby waives, to the maximum
      extent permitted by law, any objection, including any objection based on
forum
       
      non
       
      conveniens
      to
      the
      bringing of any such proceeding in such jurisdictions. 

     
      

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    Section
      10 .
       
      If
      the
      Obligor fails to strictly comply with the terms of this Debenture, then the
      Obligor shall reimburse the Holder promptly for all fees, costs and expenses,
      including, without limitation, attorneys’ fees and expenses incurred by the
      Holder in any action in connection with this Debenture, including, without
      limitation, those incurred: (i) during any workout, attempted workout, and/or
      in
      connection with the rendering of legal advice as to the Holder’s rights,
      remedies and obligations, (ii) collecting any sums which become due to the
      Holder, (iii) defending or prosecuting any proceeding or any counterclaim to
      any
      proceeding or appeal; or (iv) the protection, preservation or enforcement of
      any
      rights or remedies of the Holder. 

     
      

    Section
      11 .
       
      Any
      waiver by the Holder of a breach of any provision of this Debenture shall not
      operate as or be construed to be a waiver of any other breach of such provision
      or of any breach of any other provision of this Debenture. The failure of the
      Holder to insist upon strict adherence to any term of this Debenture on one
      or
      more occasions shall not be considered a waiver or deprive that party of the
      right thereafter to insist upon strict adherence to that term or any other
      term
      of this Debenture. Any waiver must be in writing. 

     
      

    Section
      12 .
       
      If
      any
      provision of this Debenture is invalid, illegal or unenforceable, the balance
      of
      this Debenture shall remain in effect, and if any provision is inapplicable
      to
      any person or circumstance, it shall nevertheless remain applicable to all
      other
      persons and circumstances. If it shall be found that any interest or other
      amount deemed interest due hereunder shall violate applicable laws governing
      usury, the applicable rate of interest due hereunder shall automatically be
      lowered to equal the maximum permitted rate of interest. The Obligor covenants
      (to the extent that it may lawfully do so) that it shall not at any time insist
      upon, plead, or in any manner whatsoever claim or take the benefit or advantage
      of, any stay, extension or usury law or other law which would prohibit or
      forgive the Obligor from paying all or any portion of the principal of or
      interest on this Debenture as contemplated herein, wherever enacted, now or
      at
      any time hereafter in force, or which may affect the covenants or the
      performance of this indenture, and the Obligor (to the extent it may lawfully
      do
      so) hereby expressly waives all benefits or advantage of any such law, and
      covenants that it will not, by resort to any such law, hinder, delay or impeded
      the execution of any power herein granted to the Holder, but will suffer and
      permit the execution of every such as though no such law has been enacted.
      

     
      

    Section
      13 .
       
      Whenever
      any payment or other obligation hereunder shall be due on a day other than
      a
      Business Day, such payment shall be made on the next succeeding Business Day.
      

     
      

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    Section
      14 .
       
      THE
      PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY
      OF
      THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON
      OR
      ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
      DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL
      OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT
      FOR
      THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT. 

     
      

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     
      

    IN
      WITNESS WHEREOF ,
      the
      Obligor has caused this Secured Convertible Debenture to be duly executed by
      a
      duly authorized officer as of the date set forth above. 

     
      

    
      	 	 	 
	 	
              ARIEL
                WAY, INC. 

            
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
              

              Name:
                 
                Leif
                T. Carlsson 

            
	 	
              Title:
                 
                Director
                

            

    

     

    

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    

     
      

     
      

    EXHIBIT
      “A” 

     
      

     
      

    NOTICE
      OF CONVERSION 

     
      

     
      

    (To
      be executed by the Holder in order to Convert the Debenture)

     
      

    

    
      	
               
                

              TO:
                

               
                

            	
               
                

            

    

    

    The
      undersigned hereby irrevocably elects to convert
      $__________________________  of the principal amount of the above Debenture
      into Shares of Common Stock of Ariel Way, Inc., according to the conditions
      stated therein, as of the Conversion Date written below. 

     
      

    
      	
               
                

              Conversion
                Date: 

            	
               
                

            
	
               
                

              Applicable
                Conversion Price: 

            	
               
                

            
	
               
                

              Signature:
                

            	
               
                

            
	
               
                

              Name:
                

            	
               
                

            
	
               
                

              Address:
                

            	
               
                

            
	
               
                

              Amount
                to be converted: 

            	
               
                

              $
                 
                               
                  

            
	
               
                

              Amount
                of Debenture unconverted: 

            	
               
                

              $
                 
                               
                  

            
	
               
                

              Conversion
                Price per share: 

            	
               
                

              $
                 
                               
                  

            
	
               
                

              Number
                of shares of Common Stock to be issued: 

            	 
	
               
                

              Please
                issue the shares of Common Stock in the following name and to the
                following address: 

            	
               
                

            
	
               
                

              Issue
                to: 

            	
               
                

            
	
               
                

              Authorized
                Signature: 

            	
               
                

            
	
               
                

              Name:
                

            	
               
                

            
	
               
                

              Title:
                

            	
               
                

            
	
               
                

              Phone
                Number: 

            	
               
                

            
	
               
                

              Broker
                DTC Participant Code: 

            	
               
                

            
	
               
                

              Account
                Number: 

            	
               
                

            

    

    

    

    
      
         

      

        17Exhibit
      10.01

    Goldman
      Loan Agreement

    

    LOAN
      AGREEMENT

     

    THIS
      LOAN
      AGREEMENT (this "Agreement"),
      is
      executed as of July ____, 2006, by and between Itec Environmental Group, Inc.,
      a
      Delaware corporation (the "Company"),
      and
      Leroy and Lois Goldman (the "Lender").

     

    WHEREAS,
      the Company wishes to borrow and the Lender wishes to lend $500,000 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 on the Closing Date in the aggregate amount
      of
      Five Hundred Thousand Dollars ($500,000) (the "Loan").
      The
      Loan shall be evidenced by a convertible promissory note in the form attached
      hereto as Exhibit
      A
      ("Note"),
      duly
      executed on behalf of the Company and dated as of the Closing Date.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    2.2  Interest.
      

     

    (a)  Interest
      Rate.
      The
      Loan shall bear interest ("Interest")
      from
      the date of payment by the Lender 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 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 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 Closing Date, the Lender shall have no obligation to
      make
      the Loan. 

     

    (a)  The
      Company shall have duly executed and delivered to the Lender the Note
      representing the Loan.

     

    (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; provided,
      however,
      that
      the Security Interest shall be subordinate to that of the security interest
      granted in connection with the $2,000,000 loan from the California Integrated
      Waste Management Board (the “CIWMB Security Interest”). Lender shall be entitled
      to a second position security interest pari
      passu
      with the
      investors participating in private placement pursuant to the 2006 Private
      Placement Memorandum (the “PPM”) of the Company, subject to the Company’s right
      to subordinate such security interest to Senior Debt, as hereafter defined.
      “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.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      3

    REPRESENTATIONS
      AND WARRANTIES

     

    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
      necessary to give effect to the provisions of this Agreement and to consummate
      the transactions contemplated hereunder. 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 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. 

     

    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 the cause
      of action filed by George Gitchel against the Company. The Company anticipates
      that a settlement between the parties will be reached in the near future. 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
      such Proprietary Rights. 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

        
          

        

      

      
        
        

      

    

     

    3.6  Company's
      SEC Reports.
      The
      Company has timely filed with the Securities and Exchange Commission (the
“SEC”)
      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”),
      or
      the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”).
      As of
      their respective filing dates or, if amended, 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 SEC
      Reports (including, without limitation, any financial statements and schedules
      included therein) when filed or, if amended, 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.

     

    3.7  No
      Omissions or Misstatements.
      None of
      the information included in this Agreement, other documents or information
      furnished or to be furnished 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.

     

    ARTICLE
      4

    CONVERSION

     

    4.1  Conversion
      Right.
      Lender
      in their 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, Lender shall be entitled to
      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. 

     

    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;

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (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;
      and

     

    (c)  (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 this Agreement
      terminated and 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 five million (5,000,000) 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 Lenders (or their 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 ten (10) years following the
      Closing Date.

     

    6.2     
      Registration
      of Registrable Securities.
      The
      shares underlying the warrants shall be entitled to be registered pursuant
      to
      any registration statement filed by the Company, except for registrations filed
      on Form S-4 or Form S-8. Registration costs shall be borne by the Company.
      

     

    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. This Agreement may be assigned 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.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    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:

     

    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:

    

    Leroy
      and
      Lois Goldman 

    23808
      Ladrillo Street 

    Woodland
      Hills, CA 91376 

    

    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.

     

    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.

     

    [the
      remainder of this page intentionally left blank]

    
      
        
        

      

      
        6

        
          

        

      

       

    

    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:  	 
	 	
              
Gary
              M. De Laurentiis
	 	Chief
              Executive Officer

    

         

    
      
        
        

      

      
        7

        
          

        

      

       

    

    

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

     

    
      	 	 	 
	 	LEROY
              AND LOIS
              GOLDMAN 
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name: Leroy
              and Lois Goldman 
	 	 

 

    
      
        
        

      

      
        8

        
          

        

      

       

    

    Exhibit
      A

    

    ITEC
      ENVIRONMENTAL GROUP, INC.

    10%
      CONVERTIBLE DEBENTURE

    

      
        	
                $500,000

              	
                August
                  ___, 2006

              
	 	
                RIVERBANK,
                  CALIFORNIA

              

      

    

    

    ITEC
      ENVIRONMENTAL GROUP, INC. (“Maker” or the “Company”) hereby promises to pay to
      the order of Leroy and Lois Goldman (“Holder”), the sum of Five Hundred Thousand
      Dollars ($500,000), with interest at the rate of ten percent (10%) per annum
      until paid. All outstanding principal and accrued and unpaid interest shall
      become due eighteen months from the date upon which this 10% Convertible
      Debenture (“Debenture”) is executed (the “Maturity Date”). All payments due and
      owning under this Debenture shall be subject to the terms and conditions set
      forth herein. 

    

    
      	1.  	
              Agreement.

            

    

    

    The
      Debenture is issued pursuant to that certain Subscription Agreement (the
“Agreement”), dated the same date as first set forth herein, by and between
      Maker and Holder, which is hereby incorporated by reference.

    

    
      	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 Debenture or for the
      registration of a transfer of the Debenture to a different Holder.

    

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

            

    

    

    Upon
      receipt of evidence reasonably satisfactory to the Company of the loss, theft,
      destruction or mutilation of the Debenture 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 Debenture 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 Debenture, the Company will make and deliver, in lieu
      of
      such lost, stolen, destroyed or mutilated Debenture, a new Debenture of like
      tender and unpaid principal amount and dated as of the date to which interest
      has been paid on the Debenture so lost, stolen, destroyed or
      mutilated.

    

    
      	4.  	
              Registered
                Holder.

            

    

    

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

    

    
      	5.  	
              Surrender
                of the Debenture.

            

    

    

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

    

    
      	6.  	
              Subordination.

            

    

    

    The
      Company, in its sole discretion, may subordinate the Debenture to any Senior
      Debt of the Company. For purposes of the Debenture, “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.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    
 

    
      	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 Debenture (the “Convertible Amount”)
      may be converted at $0.0975 per share.

     

    If,
      upon
      the expiration of the Maturity Date or the Listing, Holder elects NOT to convert
      this Debenture, all outstanding principal and accrued and unpaid interest shall
      become due and payable. Holder shall provide fifteen (15) days written notice
      to
      the Company of Holder’s election to convert the Debenture.

     

    The
      Conversion Amount shall be adjusted downward in the event the Company issues
      common stock (or securities exercisable for convertible into or exchangeable
      for
      common stock) at a price below the Conversion Amount, to a price equal to such
      issue price.

     

    
      	8.  	
              Mechanics
                of Conversion.

            

    

    

    Upon
      the
      Company’s receipt of written notice of Holder’s election to convert the
      Debenture, the principal amount of this Debenture 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 Debenture. The entire balance due and
      owing under the Debenture must be converted to Common Stock; no partial
      conversions will be allowed. Holder shall return this Debenture 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 Debenture, 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 evidencing the securities to which Holder
      is entitled. No fractional securities will be issued upon conversion of the
      Debenture. If on conversion of the Debenture 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, sent by an overnight
      courier service, or sent by certified or registered mail to the addresses set
      forth below, or such other address as to which one party may have notified
      the
      other in such manner.

    

    
      	10.  	
              Default.

            

    

    

    The
      following will be “Events of Default” under the Debenture: (a) the Company shall
      default on the payment of principal or interest on the Debenture or on any
      other
      indebtedness of the Company when due; (b) the Company shall default on the
      observance or performance of any other covenant set forth in the Debenture;
      (c)
      the Company shall issue any indebtedness senior to the Debenture or grant any
      security for any other indebtedness (other than in connection with operating
      leases such as stand-alone office equipment leases); (d) the Company shall
      become insolvent or file a voluntary petition in bankruptcy (or have such a
      petition filed against it) or have an assignment for the benefit of creditors
      or
      other creditor arrangement or similar event occur with respect to it or its
      assets; or (e) failure to comply with any other term or condition of the
      Debenture, which shall not have been cured within ten (10) business days receipt
      of written notice to the Company.

    

    Upon
      Default, and
      at
      the option of Holder, or Holder’s successors or assigns, with
      fifteen (15) days written notice to the Company, demand or presentment, Holder
      may (i) accelerate all amounts due and owing under this Debenture and demand
      payment immediately and/or (ii) declare the right to exercise any and all
      remedies available to Holder under applicable law.

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

     

    
      	 	
              11.

            	
              Miscellaneous.

            

    

    

    (a) 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 shall 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 Debenture without
      suit or action in attempting to collect funds due under this Debenture 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 Debenture 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 Debenture 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 Debenture, or of the performance of any covenants, conditions
      or
      agreements hereof or thereof or the taking or release of collateral securing
      this Debenture. Any such action taken by Holder shall not discharge the
      liability of any party to this Debenture.

    

    (d) This
      Debenture shall be governed by and construed in accordance with the laws of
      the
      state of California without regard to conflict of law principles.

    

    (e) All
      payments due and owing under this Debenture shall be delivered to the following:
      

     

    ____________________________

    ____________________________

    ____________________________

     

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

    
       

    

    
      	 	 	 
	
              Maker:

            	
              ITEC
                ENVIRONMENTAL GROUP, INC.

            
	 
 	 
 	 
 
	 	By:  	 
	 	
              Its:
                

            	
              

            

    

     

    Holder:_________________________________

    Holder’s
      address: ________________________

    ________________________

    ________________________

    

    Maker’s
      address: Itec
      Environmental Group

    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

    
      
        
        

      

      
        11

        
          

        

      

       

    

    Exhibit
      B

    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.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    “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;

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    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:

     

    (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.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (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.

     

    7.  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).

     

    (b)
        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.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (c)
        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.

     

    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:

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    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.

    

    11.  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).

     

    12.  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.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    13.  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. 

     

    14.  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.

     

    15.  
      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.

     

    16.  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.

     

    17.  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.

     

    18.  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.

     

    19.  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.

     

    
      
        
        

      

      
        19

        
          

        

      

       

    

    

    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:	
              

            
	 	
              
 

    

             

              

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    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

            	 

    

    

    
      
        
        

      

      
        21

        
          

        

      

       

    

    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

            
	
              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

            

    

    

     

    
      
        
        

      

      
        22

        
          

        

      

       

    

    Exhibit
      C

    

    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 IN ACCORDANCE WITH THE PROVISIONS OF REGULATION
      S
      UNDER THE ACT, 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 5,000,000 Shares of Common Stock

    

    Itec
      Environmental Group, inc.

    

    Date
      of
      Issuance: July ___, 2006

    

    No.
      90

    

    THIS
      CERTIFIES that, for value received, Leroy and Lois Goldman, or their 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. 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
      (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, (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 shares of Common Stock specified in such
      notice, provided this Warrant has vested on or prior to the date such notice
      is
      delivered. Each certificate representing Warrant Shares shall bear the legend
      or
      legends required by applicable securities laws as well as such other legend(s)
      the Company requires to be included on certificates for its Common Stock. 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 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. All shares
      of
      Common Stock issued upon the exercise of this Warrant shall be validly issued,
      fully paid, and nonassessable. 

    

    The
      Warrant shall expire on July ___, 2010 (the “Expiration Date”). The Investor may
      exercise the warrant at any time prior to the Expiration Date. The Company
      has
      no restriction on the sale or transfer of the Warrant or Warrant Shares;
      however, the Investor is required to comply with all state and U.S. laws and
      regulations relating to security sales and transfers.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    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 this Warrant, in
      whole, in accordance with and subject to the terms and conditions set forth
      in
      the Subscription Agreement and then 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.

    

    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 5,000,000 shares of the Company’s Common Stock,
      as adjusted in accordance with this Agreement. 

    

    8.
       Exercise
      Price; Adjustment of Warrants.
      

    

    a.
       Determination
      of 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. 

     

    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.
       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.
      

    

    d. 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. 

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    e.
       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. 

    

    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 purchase the kind and amount of shares of stock and other securities
      and PROPERTY RECEIVABLE UPON SUCH RECLASSIFICATION, CAPITAL REORGANIZATION
      OR
      OTHER CHANGE, BY 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. 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 12 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. 

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    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 each of the Investors in accordance
      with
      the provisions of this Section; and (ii) if to the Warrant holder, at the
      address indicated on the signature page hereof, or at such other addresses
      as
      such 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 a majority in interest of the Holders. 

    

    g.
       Entire
      Agreement.
      This
      Agreement, that certain Loan Agreement (including the exhibits and schedules
      thereto) by and between the Company and the Holder, constitute the entire
      agreement among the parties hereto with respect to the subject matter hereof
      and
      thereof and supersede all prior agreements, understandings, negotiations and
      discussions, whether oral or written, of the parties hereto. 

    

    IN
      WITNESS WHEREOF, the undersigned hereby sets is hand and seal this ___ day
      of
      July, 2006. 

     

    
      	Itec Environmental Group,
              Inc.
              	 	 	 
	 	 	 	 
	 	 	 	 
	By:	 	 	 
	
              
                

              

              Name:
                Gary De Laurentiis 

            	 	
            
	
              Title:
                President
                and Chief Executive Officer

            	 	 	 

    

     

    Investor Name:
      _____________________________________

     

    Investor
      Address:____________________________________

     

    __________________________________________

     

    __________________________________________

     

    

      
        
          
          

        

        
          26

          
            

          

        

         

      

    

    

    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. 

    

    
      
        
        

      

      
        27

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