Document:

THIS
      NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
      “ACT”), OR ANY STATE SECURITIES LAWS. THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT
      AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED,
      PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED EXCEPT AS PROVIDED
      HEREIN AND (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH NOTE
      WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION
      FROM
      REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS RELATING TO
      THE
      DISPOSITION OF SECURITIES, PROVIDED THAT AN OPINION OF COUNSEL REASONABLY
      SATISFACTORY TO ITEX CORPORATION TO SUCH EFFECT IS PROVIDED TO ITEX CORPORATION
      IN CONNECTION THEREWITH.

    

    SENIOR
      SUBORDINATED SECURED PROMISSORY NOTE

     

    
      	
              $687,500

            	
              Bellevue,
                Washington

            
	 	
              August
                1, 2008

            

    

    

    This
      Senior Subordinated Secured Promissory Note (this “Note”)
      is
      being delivered pursuant to that certain Asset Purchase Agreement (the
"Purchase
      Agreement"), dated
      as
      of August 1, 2008, by and between ITEX Corporation, a Nevada corporation
      (“Maker”)
      and
      The Intagio Group, Inc., a Delaware corporation (“Intagio”).
      This
      Note is being issued as a non-negotiable senior subordinated secured obligation
      of Maker and ranks senior to all of Maker’s other obligations, whether now
      existing or hereinafter incurred or created, except that this Note is
      subordinated to the Bank Debt (as defined in Section 2 hereof) as set forth
      herein. The payment of all amounts due under this Note, including interest
      accrued thereon, is secured pursuant to the terms of that certain Security
      Agreement, dated as of the date hereof, by and between Maker and Intagio (the
      “Security
      Agreement”).
      Capitalized terms not otherwise defined herein shall have the meaning given
      such
      terms in the Purchase Agreement.

     

    1. Principal
      and Interest.
      Maker
      hereby promises to pay to Intagio, together with its successors and authorized
      assigns (“Payee”),
      in
      immediately available funds, the principal sum of $687,500, together with
      interest accrued on the unpaid principal of this Note at the rate of 8.0% per
      annum, commencing on the date hereof. Interest shall be computed based on the
      basis of a 365 day year for the actual number of days elapsed. Principal and
      interest on this Note shall be payable in 11 equal monthly installments of
      $65,027.68 (or such lesser amount as is then outstanding under this Note),
      payable on the last day of each calendar month commencing on August 31, 2008
      (each such date is herein referred to as a “Payment
      Date”).
      Any
      remaining unpaid amount of principal or interest shall be due and payable in
      full on July 31, 2009. All or any portion of the principal amount outstanding
      under this Note may be prepaid by Maker at any time without premium or penalty.
      Each such principal prepayment shall be accompanied by the interest accrued
      and
      outstanding with respect to such principal amount. Each such principal
      prepayment shall be applied to installments of principal payments in the inverse
      order of their maturity. As of and during the continuance of an Event of Default
      (as defined in section 6), interest on any principal or interest then
      outstanding shall accrue at a rate per annum equal to 14%.

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    2. Subordination.

     

    (a) Agreement
      to Subordinate.
      Maker,
      for itself and its successors, and Payee, by its acceptance of this Note, agrees
      that the payment of the principal of and interest on, and any other amounts
      due
      in respect of, this Note is subordinated in right of payment, to the extent
      and
      in the manner stated in this Section 2, to the prior payment in full of the
      Bank
      Debt. “Bank
      Debt”
means
      all amounts due and owing by Maker to U.S. Bank National Association (the
“Bank”),
      pursuant to that certain Term Note (the “Term
      Note”)
      and
      Term Loan Agreement dated as of June 27, 2005 between Maker and the Bank (the
      “Term
      Loan Agreement”).
      

     

    (b) No
      Payment on Note if Bank Debt is in Default.
      Notwithstanding anything in this Note to the contrary, no payment on account
      of
      principal of, interest on or other amounts due in respect of this Note, shall
      be
      made by or on behalf of Maker if, at the time of such payment, or immediately
      after giving effect thereto, there shall exist under the Bank Debt any default
      in the payment of all or any portion of principal of or interest thereon, which
      default shall have resulted in the full amount of the Bank Debt being declared
      due and payable and which default shall not have been cured or waived. The
      Maker
      shall notify Payee in writing promptly following the occurrence of the
      foregoing. In the event that, notwithstanding the provisions of this Section
      2(b), payments are made by or on behalf of Maker in contravention of the
      provisions of this Section 2(b), such payments shall be held by Payee in trust
      for the benefit of, and shall be paid over to and delivered to, the Bank, for
      application to the payment of the Bank Debt remaining unpaid to the extent
      necessary to pay the Bank Debt in full in accordance with the terms of the
      Bank
      Debt, after giving effect to any concurrent payment or distribution to the
      Bank.

     

    (c) Reliance
      by the Bank on Subordination Provisions.
      Payee,
      by its acceptance hereof, acknowledges and agrees that the foregoing
      subordination provisions are, and are intended to be, an inducement and a
      consideration for the Bank to continue to hold the Bank Debt, and the Bank
      shall
      be deemed conclusively to have relied on such subordination provisions in
      continuing to hold the Bank Debt. In furtherance hereof, it is expressly
      understood by all parties to this Note that the Bank is a third-party
      beneficiary to Section 2 of this Note and shall be fully entitled to enforce
      its
      provisions.

     

    (d) Subordination
      Rights Not Impaired by Acts or Omissions of Maker or the Bank.
      No
      right of the Bank to enforce subordination as provided herein shall at any
      time
      in any way be prejudiced or impaired by any act or failure to act on the part
      of
      Maker or by any act or failure to act, in good faith, by the Bank, or by any
      noncompliance by Maker with the terms of this Note, regardless of any knowledge
      thereof which the Bank may have or be otherwise charged with. 

     

    (e) Obligation
      of Maker Unconditional.
      Nothing
      contained in this Section 2 or elsewhere in this Note is intended to or shall
      impair, as between Maker and Payee, the obligation of Maker, which is absolute
      and unconditional, to pay to Payee the principal of and interest on this Note
      as
      and when the same shall become due and payable in accordance with its terms,
      or
      is intended to or shall affect the relative rights of Payee and creditors of
      Maker other than the Bank, nor shall anything herein prevent Payee from
      exercising all remedies otherwise permitted by applicable law upon an Event
      of
      Default, subject to the rights, if any, under this Section 2, of the Bank in
      respect of cash received upon the exercise of any such remedy.

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    3. Right
      of Offset.
      Maker
      shall have the right to withhold and set-off against any amount due or payable
      hereunder the amount of any claim for indemnification or payment of Losses
      to
      which Maker may be entitled under Section 6.2 of the Purchase Agreement. The
      withholding of all or any portion of the principal or interest due or payable
      under this Note pursuant to the terms of Article 6 of the Purchase Agreement
      shall not be deemed an Event of Default under this Note and shall not be the
      basis for any claim of acceleration hereunder.

     

    4. Conduct
      of Business of Maker.
      Except
      as contemplated by the Merger Agreement, during the period from the date hereof
      to the date on which all amounts due under this Note have been satisfied in
      full, Maker agrees as follows:

     

    (a) Maker
      will (i) preserve its existence, rights and franchises; (ii) not make any
      material change in the nature or manner of its business activities; (iii) not
      liquidate, dissolve, acquire another entity or merge or consolidate with or
      into
      another entity or change its form of organization; (iv) not amend its
      organizational documents in any manner that may conflict with any terms or
      condition of this Note, the Security Agreement or the Purchase Agreement; and
      (iv) not sell, lease transfer or otherwise dispose of all or substantially
      all
      of its assets.

     

    (b) Maker
      will not create, incur, assume or have outstanding any indebtedness for borrowed
      money (including capitalized leases) except (i) any indebtedness owing to the
      Bank and its affiliates, (ii) any indebtedness owing to Payee, and (iii) any
      other indebtedness outstanding on the date hereof, and shown on the Maker’s
      financial statements delivered to Payee prior to the date hereof, provided
      that
      such other indebtedness will not be increased.

     

    (c) Maker
      will not create, incur, assume or permit to exist any mortgage, pledge,
      encumbrance or other lien or levy upon or security interest in any of the
      Maker’s property now owned or hereafter acquired, except (i) taxes and
      assessments which are either not delinquent or which are being contested in
      good
      faith with adequate reserves provided, (ii) easements, restrictions and minor
      title irregularities which do not, as a practical matter, have an adverse effect
      upon the ownership and use of the affected property, (iii) liens in favor of
      the
      Bank and its affiliates, (iv) liens in favor of Payee; and (v) other liens
      disclosed in writing to the Payee prior to the date hereof.

     

    (d) Maker
      will not guarantee or become a surety or otherwise contingently liable for
      any
      obligations of others, except pursuant to the deposit and collection of checks
      and similar matters in the ordinary course of business.

     

    (e) Maker
      will maintain insurance to such extent, covering such risks and with such
      insurers as is usual and customary for businesses operating similar properties,
      including without limitation, insurance for fire and other risks insured against
      by extended coverage, public liability insurance and workers’ compensation
      insurance.

     

    (f) Maker
      will pay and discharge, when due, all of its taxes, assessments and other
      liabilities, except when the payment thereof is being contested in good faith
      by
      appropriate procedures which will avoid foreclosure of liens securing such
      items, and with adequate reserves provided therefor. 

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (g) Maker
      will maintain at all times a (i) Fixed Charge Coverage Ratio, as that term
      is
      defined in the Addendum to the Term Loan Agreement and Term Note dated as of
      June 27, 2005 (the “Addendum”),
      as of
      the end of each fiscal quarter for the four (4) fiscal quarters then ended
      of at
      least 1.25 to 1, and (ii) a Debt to Tangible Net Worth Ratio, as that term
      is
      defined in the Addendum, as of the end of each fiscal quarter of not more than
      2.0 to 1.

     

    (h) Maker
      will not declare, set aside or pay any dividend or other distribution (whether
      in cash, stock or property or any combination thereof) in respect of its capital
      stock, make any other actual, constructive or deemed distribution in respect
      of
      its capital stock or otherwise make any payments to any shareholders in their
      capacities as such, or redeem or otherwise acquire any of its outstanding
      securities. 

     

    5. No
      Usury.
      This
      Note is hereby expressly limited so that in no event whatsoever, whether by
      reason of deferment or advancement of loan proceeds, acceleration of maturity
      of
      the loan evidenced hereby, or otherwise, shall the amount paid or agreed to
      be
      paid to Payee hereunder for the loan, use, forbearance or detention of money
      exceed the maximum interest rate permitted by the laws of the State of
      Washington. If at any time the performance of any provision involves a payment
      exceeding the limit of the price that may be validly charged for the loan,
      use,
      forbearance or detention of money under applicable law, then automatically
      and
      retroactively, ipso facto, the obligation to be performed shall be reduced
      to
      such limit, it being the specific intent of Maker and Payee that all payments
      under this Note are to be credited first to interest as permitted by law, but
      not in excess of (i) the agreed rate of interest hereunder, or
      (ii) that permitted by law, whichever is the lesser, and the balance toward
      the reduction of principal.

     

    6. Events
      of Default.
      If an
      Event of Default (as defined below) occurs (unless all Events of Default have
      been cured or waived by Payee), Payee may, by notice to Maker, declare the
      principal amount then outstanding of, and the accrued interest and all other
      amounts payable on, this Note to be immediately due and payable. Maker will
      give
      Payee notice of the occurrence of an Event of Default promptly (setting forth
      in
      reasonable detail all facts related thereto) and in any event no later than
      five
      business days after Maker has knowledge of the occurrence of any such event.
      The
      then-outstanding principal balance of this Note, together with any interest
      accrued thereon shall, at the option of Payee, become immediately due and
      payable if any of the following events ("Events
      of Default") shall
      occur:

     

    (a) Maker
      shall fail to pay, when and as due, the principal or interest payable hereunder
      on any Payment Date, and such failure shall continue for fifteen days;
provided,
      however,
      that
      the exercise by Maker in good faith of its right of set-off pursuant to Section
      3 above, whether or not ultimately determined to be justified, shall not
      constitute an Event of Default; or

     

    (b) Maker
      shall default (as principal or guarantor or other surety) in the payment of
      any
      principal of or premium or interest on any debt which is outstanding in a
      principal amount of at least Twenty-Five Thousand Dollars ($25,000) in the
      aggregate, or if any event shall occur or condition shall exist in respect
      of
      any such debt or under any evidence of any such debt or of any mortgage,
      indenture or other agreement relating thereto which would permit or shall have
      caused the acceleration of the payment of such debt, and such default, event
      or
      condition shall continue for more than the period of grace, if any, specified
      therein and shall not have been waived pursuant thereto; provided,
      however,
      that if
      a default occurs under the Term Loan Agreement and Term Note and such default
      is
      waived by the Bank, Maker shall not be required to seek a like waiver from
      Payee
      and such default shall not constitute an Event of Default (and accordingly
      Maker
      shall not be required to have given Payee notice of the occurrence of such
      breach); or

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (c) If
      there
      shall exist final judgments against Maker aggregating in excess of Twenty Five
      Thousand Dollars ($25,000) and if any one of such judgments shall have been
      outstanding for any period of forty-five (45) days or more from the date of
      its
      entry and shall not have been discharged in full or stayed pending appeal;
      or

     

    (d) Maker
      shall have breached any material covenant in the Purchase Agreement, the
      Security Agreement, or this Note (other than such as are referred to above
      in
      Section 6), and, with respect to breaches capable of being cured, such
      breach shall not have been cured within fifteen (15) days following notice
      of
      such material breach to Maker by Payee; provided, however, that if (i) Maker
      breaches any of the provisions of Section 4 hereof, (ii) Maker is in default
      under the Term Loan Agreement and the Term Loan as a result of a breach of
      a
      substantially similar provision contained therein, and (iii) the Bank waives
      the
      default caused by such breach, then Maker shall not be required to seek a waiver
      from Payee with respect to such breach of Section 4 hereof and such breach
      shall
      not constitute an Event of Default hereunder (and accordingly Maker shall not
      be
      required to have given Payee notice of the occurrence of such breach);
      or

     

    (e) Any
      representation or warranty subject to a materiality qualification made by Maker
      herein or in the Purchase Agreement, the Security Agreement or any other
      document referred to herein or therein shall prove to have been incorrect in
      any
      respect, or any representation or warranty not subject to a materiality
      qualification made by the Company herein or in any other such document shall
      prove to have been incorrect in any material respect; or

     

    (f) Maker
      shall: (i) become insolvent or take any action which constitutes its admission
      of inability to pay its debts as they mature; (ii) make an assignment for the
      benefit of creditors, file a
      petition in bankruptcy, petition or apply to any tribunal for the appointment
      of
      a custodian, receiver or a trustee for it or a substantial portion of its
      assets; (iii) commence any proceeding under any bankruptcy, reorganization,
      arrangement, readjustment of debt, dissolution or liquidation or statute of
      any
      jurisdiction, whether now or hereafter in effect; (iv) have filed against it
      any
      such petition or application in which an order for relief is entered or which
      remains undismissed for a period of ninety (90) days or more; (v) indicate
      its
      consent to, approval of or acquiescence in any such petition, application,
      proceeding or order for relief or the appointment of a custodian, receiver
      or
      trustee for it or a substantial portion of its assets; or (vi) suffer any such
      custodianship, receivership or trusteeship to continue undischarged for a period
      of ninety (90) days or more; or

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (g) Maker
      shall take any corporate or partnership action authorizing, or in furtherance
      of, any of the foregoing.

     

    7. Remedies
      on Default.
      In case
      any one or more Events of Default shall occur and be continuing, Payee may
      proceed to protect and enforce its rights by an action at law, suit in equity
      or
      other appropriate proceeding, whether for the specific performance of any
      agreement contained herein or in the Purchase Agreement or the Security
      Agreement or for an injunction against a violation of any of the terms hereof
      or
      thereof, or in aid of the exercise of any power granted hereby or thereby or
      by
      law or otherwise. In case of a default in the payment of any principal of or
      premium, if any, or interest on this Note, Maker will pay to Payee such further
      amount as shall be sufficient to cover the reasonable cost and expenses of
      collection, including, without limitation, reasonable attorneys’ fees, expenses
      and disbursements. No course of dealing and no delay on the part of Payee in
      exercising any right, power or remedy shall operate as a waiver thereof or
      otherwise prejudice Payee’s rights, powers or remedies. No right, power or
      remedy conferred by this Note, the Security Agreement or the Purchase Agreement
      upon Payee shall be exclusive of any other right, power or remedy referred
      to
      herein or therein or now or hereafter available at law, in equity, by statute
      or
      otherwise.

     

    8. Amendments
      and Waivers.
      Any
      term of this Note may be amended or waived only with the written consent of
      Maker and Payee. Any amendment or waiver effected in accordance with this
      Section 8 shall be binding upon Maker and Payee. No delay or omission on the
      part of Payee in exercising any right herein given to Payee shall impair such
      right or be considered as a waiver thereof or acquiescence in any default
      hereunder.

     

    9. Governing
      Law.
      This
      Note shall be governed by and construed in accordance with the internal laws
      of
      the State of Washington. Each party hereby irrevocably submits to the exclusive
      jurisdiction of the courts located in San Francisco County, the State of
California,
      and the
      federal courts sitting in San
      Francisco County,
      State
      of
California,
      over any action or proceeding arising out of or relating to this Note, and
      waives any claim that such proceedings have been brought in an inconvenient
      forum.

     

    10. Attorneys’
      Fees.
      If any
      suit or action is instituted to enforce or interpret this Note, the prevailing
      party shall be entitled to recover all reasonable expenses, including, without
      limitation, reasonable attorneys’ fees and expenses. 

     

    11. Parties
      in Interest.
      This
      Note is non-negotiable and shall not be assigned or transferred by Payee without
      the express prior written consent of Maker. The rights and obligations of Maker
      and Payee shall be binding upon and shall inure to the benefit of their
      successors and permitted assigns. The provisions of this Note may be amended,
      waived or modified only upon the written consent of Maker and
      Payee.

     

    12. Presentment.
      Maker
      waives presentment, demand, notice of dishonor, notice of default or
      delinquency, notice of acceleration, notice of protest and nonpayment, notice
      of
      costs, expenses or losses and interest thereon and diligence in taking any
      action to collect any sums owing under this Note or in proceeding against any
      of
      the rights or interests in or to properties securing payment of this Note.
      

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    13. Payment.
      Principal and interest on this Note shall be payable in lawful money of the
      United States and shall be made at the address of Payee set forth in the
      Purchase Agreement), or at such other place as Payee shall have designated
      to
      Maker in writing for such purpose.

     

    14. Notice.
      Except
      as otherwise expressly provided herein, all notices, requests and demands to
      or
      upon the respective parties hereto to be effective shall be in made in
      accordance with all of the provisions of Section 7.3 of the Purchase
      Agreement.

     

    ORAL
      AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
      FROM
      ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
      LAW.

     

    IN
      WITNESS WHEREOF, the undersigned duly authorized officer of Maker has executed
      this Senior Subordinated Secured Promissory Note as of the date first set forth
      above.

     

    
      	
              ITEX
                CORPORATION,

            
	
              a
                Nevada corporation

            
	 	 
	
              By:

            	
              /s/
                Steven White

            
	
              Name:

            	
              Steven
                White

            
	
              Its:

            	
              Chief
                Executive Officer

            

    

    
      
        
        

      

      
        7SECURITY
      AGREEMENT

     

    This
      SECURITY AGREEMENT, dated as of August 1, 2008 (as the same may from time to
      time be amended, supplemented or otherwise modified, this “Security
      Agreement”),
      by
      and between The Intagio Group, Inc., a Delaware corporation (the “Secured
      Party”),
      and
      ITEX Corporation, a Nevada corporation (the “Debtor”).

     

    W
      I T
      N E S S E T H:

     

    WHEREAS,
      the Debtor and the Secured Party are parties to the certain Asset Purchase
      Agreement, dated as of August 1, 2008 (the “Purchase
      Agreement”),
      which
      provides for, among other things, the issuance to the Secured Party of
      non-negotiable senior subordinated secured promissory note (the “Note”)
      in the
      aggregate principal amount of $687,500 (subject to adjustment as provided by
      the
      Purchase Agreement); and

     

    WHEREAS,
      it is a condition precedent to the consummation of the transactions contemplated
      by the Purchase Agreement that the Debtor execute and deliver this Security
      Agreement to the Secured Party.

     

    NOW,
      THEREFORE, the parties hereto hereby agree as follows:

     

    ARTICLE
      I

     

    DEFINITIONS

     

    1.1 Defined
      Terms.
      As used
      herein, capitalized terms defined in this Agreement and not otherwise defined
      herein are used herein as so defined.

     

    “Account
      Debtor”
shall
      mean the Person who is obligated on a Receivable.

     

    “Accounts”
shall
      mean “accounts” as such term is defined in Section 9-102(2) of the UCC.

     

    “Chattel
      Paper”
shall
      mean “chattel paper” as such term is defined in Section 9-102(11) of the
      UCC.

     

    “Collateral”
shall
      have the meaning assigned to it in Article II hereof.

     

    “Collateral
      Records”
shall
      mean books, records, computer software, computer printouts, customer lists,
      blueprints, technical specifications, manuals, and similar items which relate
      to
      any Collateral other than such items obtained under license or franchise
      security agreements which prohibit assignment or disclosure of such
      items.

     

    “Contracts”
means
      all contracts, undertakings, franchise agreements or other agreements in or
      under which the Debtor now holds or hereafter acquires any right, title or
      interest, including, without limitation, with respect to an Account, any
      agreement relating to the terms of payment or the terms of performance
      thereof.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Documents”
shall
      mean “documents” as such term is defined in Section 9-102(30) of the
      UCC.

     

    “Equipment”
shall
      mean “equipment” as such term is defined in Section 9-102(33) of the UCC,
      including, without limitation, machinery, manufacturing equipment, data
      processing equipment, computers, office equipment, furniture, appliances, and
      tools.

     

    “Event
      of Default”
shall
      have the meaning assigned to it in the Note.

     

    “Fixtures”
shall
      mean “fixtures” as such term is defined in Section 9-102(41) of the
      UCC.

     

    “General
      Intangibles”
shall
      mean “general intangibles” as such term is defined in Section 9-102(42) of
      the UCC, including, without limitation, rights to the payment of money (other
      than Receivables), trademarks, copyrights, patents, and contracts, licenses
      and
      franchises (except in the case of licenses and franchises in respect of which
      the Debtor is the licensee or franchisee if the agreement in respect of such
      license or franchise prohibits by its terms any assignment or grant of a
      security interest), limited and general partnership interests and joint venture
      interests, federal income tax refunds, trade names, distributions on
      certificated securities (as defined in § 8-102(a)(4) of the UCC) and
      uncertificated securities (as defined in § 8-102(a)(18) of the UCC),
      computer programs and other computer software, inventions, designs, trade
      secrets, goodwill, proprietary rights, customer lists, supplier contracts,
      sale
      orders, correspondence, advertising materials, payments due in connection with
      any requisition, confiscation, condemnation, seizure or forfeiture of any
      property, reversionary interests in pension and profit-sharing plans and
      reversionary, beneficial and residual interests in trusts, credits with and
      other claims against any Person, together with any collateral for any of the
      foregoing and the rights under any security agreement granting a security
      interest in such collateral.

     

    “Instruments”
shall
      mean “instruments” as such term is defined in Section 9-102(47) of the
      UCC.

     

    “Inventory”
shall
      mean “inventory” as such term is defined in § 9-102(48) of the UCC,
      including without limitation, all goods (whether such goods are in the
      possession of the Debtor or of a bailee or other Person for sale, lease,
      storage, transit, processing, use or otherwise and whether consisting of whole
      goods, spare parts, components, supplies, materials or consigned or returned
      or
      repossessed goods), including without limitation, all such goods which are
      held
      for sale or lease or are to be furnished (or which have been furnished) under
      any contract of service or which are raw materials or work in progress or
      materials used or consumed in the Debtor’s business.

     

    “Investment
      Property”
shall
      mean “investment property” as such term is defined in Section 9-102(49) of
      the UCC.

     

    “Lien”
shall
      mean any mortgage, pledge, hypothecation, assignment, deposit arrangement,
      encumbrance, lien (statutory or other), or preference, priority or other
      security agreement of any kind or nature whatsoever, including, without
      limitation, the filing of any financing statement or similar instrument under
      the UCC or comparable law of any jurisdiction, domestic or foreign.

     

    
      
        
        

      

      
        -
          2
          -

        
          

        

      

      
        
        

      

    

     

    “Permitted
      Liens”
shall
      mean any of the following (1) Liens for taxes, fees, assessments or other
      governmental charges which are not yet due and payable or which are being
      contested in good faith with a reserve or other appropriate provision having
      been made therefor; (2) statutory liens of landlords, carriers,
      warehousemen, mechanics, materialmen and other similar liens imposed by law
      which are incurred in the ordinary course of business; (3) Liens incurred
      or deposits made in the ordinary course of business in connection with workers’
compensation, unemployment insurance and other types of social security;
      (4) easements, reservations, rights of way, restrictions, minor defects or
      irregularities in title and other similar Liens not interfering in any material
      respect with the ordinary conduct of the business of the Debtor; (5) Liens
      in favor of the Secured Party and the Senior Secured Party (as hereinafter
      defined); (6) Liens existing on the date hereof and set forth on
Schedule A
      hereto;
      (7) Liens (i) upon or in any Equipment acquired or held by the Debtor
      to secure the purchase price of such Equipment or indebtedness incurred solely
      for the purpose of financing the acquisition of such Equipment or
      (ii) existing on such Equipment at the time of its acquisition, provided
      that the Lien is confined solely to the Equipment so acquired, improvements
      thereon and the Proceeds of such Equipment; (8) Liens arising from
      judgments, decrees or attachments; and (9) other Liens not described above
      securing outstanding aggregate indebtedness of less than $50,000.

     

    “Person”
shall
      mean and include any individual, partnership, joint venture, firm, corporation,
      association, trust or other enterprise or any government or political
      subdivision or agency, department or instrumentality thereof. 

     

    “Proceeds”
shall
      mean “proceeds” as such term is defined in Section 9-102(64) of the
      UCC.

     

    “Receivables”
shall
      mean all rights to payment for goods sold or leased or services rendered,
      whether or not earned by performance and all rights in respect of the Account
      Debtor, including, without limitation, all such rights in which the Debtor
      has
      any right, title or interest by reason of the purchase thereof by the Debtor,
      and including, without limitation, all such rights constituting or evidenced
      by
      any Account, Chattel Paper, Instrument, General Intangible, note, contract,
      invoice, purchase order, draft, acceptance, book debt, intercompany account,
      security agreement, or other evidence of indebtedness or security, together
      with
      (1) any collateral assigned, hypothecated or held to secure any of the
      foregoing and the rights under any security agreement granting a security
      interest in such collateral; (2) all goods, the sale of which gave rise to
      any of the foregoing, including, without limitation, all rights in any returned
      or repossessed goods and unpaid seller’s rights; (3) all guarantees,
      endorsements and indemnifications on, or of, any of the foregoing; and
      (4) all powers of attorney for the execution of any evidence of
      indebtedness or security or other writing in connection therewith.

     

    “Receivables
      Records”
shall
      mean (1) all original copies of all documents, instruments or other
      writings evidencing the Receivables; (2) all books, correspondence, credit
      or other files, records, ledger sheets or cards, invoices, and other papers
      relating to Receivables, including, without limitation, all tapes, cards,
      computer tapes, computer discs, computer runs, record keeping systems and other
      papers and documents relating to the Receivables, whether in the possession
      or
      under the control of the Debtor or any computer bureau or agent from time to
      time acting for the Debtor or otherwise; (3) all evidences of the filing of
      financing statements and the registration of other instruments in connection
      therewith and amendments, supplements or other modifications thereto, notices
      to
      other creditors or secured parties, and certificates, acknowledgments, or other
      writings, including without limitation lien search reports, from filing or
      other
      registration officers; (4) all credit information, reports and memoranda
      relating thereto, and (5) all other written or non-written forms of
      information related in any way to the foregoing or any Receivable.

     

    
      
        
        

      

      
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    “Secured
      Obligations”
means
      the indebtedness and obligations of the Debtor evidenced by the Note, including
      all principal and interest, together with all other indebtedness and costs
      and
      expenses for which the Debtor is responsible under this Agreement or the Note.
      

     

    “UCC”
shall
      mean the Uniform Commercial Code as the same may, from time to time, be in
      effect in the State of Nevada; provided, however, in the event that any or
      all
      of the attachment, perfection or priority of the Secured Party’s security
      interest in any Collateral is governed by the Uniform Commercial Code as in
      effect in a jurisdiction other than the state of incorporation of the Debtor,
      the term “UCC” shall mean the Uniform Commercial Code as in effect in such other
      jurisdiction for purposes of the provisions hereof relating to such attachment,
      perfection or priority and for purposes of definitions related to such
      provisions.

     

    ARTICLE
      II

     

    GRANT
      OF
      SECURITY INTERESTS

     

    As
      security for the prompt and complete payment and performance in full of all
      the
      Secured Obligations, the Debtor hereby assigns, conveys, mortgages, and pledges,
      hypothecates and transfers to the Secured Party and hereby grants to the Secured
      Party a security interest in and continuing lien on all of the Debtor’s right,
      title and interest in, to and under the following, whether now owned or existing
      or hereafter acquired or arising, and wherever located (all of which being
      hereinafter collectively called the “Collateral”):

     

    (i) all
      Accounts;

     

    (ii) all
      Chattel Paper;

     

    (iii) all
      Collateral Records;

     

    (iv) Contracts

     

    (v) all
      Documents;

     

    (vi) all
      Equipment;

     

    (vii) all
      Fixtures;

     

    (viii) all
      General Intangibles;

     

    
      
        
        

      

      
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    (ix) all
      Instruments;

     

    (x) all
      Inventory;

     

    (xi) all
      Investment Property;

     

    (xii) all
      Receivables;

     

    (xiii) all
      Receivables Records;

     

    (xiv) all
      other
      tangible and intangible personal property; and 

     

    (xv) all
      accessions, attachments and additions to any or all of the foregoing, all
      substitutions and replacements for any or all of the foregoing and all Proceeds
      or products of any or all of the foregoing.

     

    The
      Secured Party acknowledges the security interest of U.S. Bank, N.A. (the
      "Senior
      Secured Party")
      in the
      Collateral and agrees and confirms that the security interest granted hereunder
      shall be subordinate in priority to the security interest of the Senior Secured
      Party in the Collateral.

     

    ARTICLE
      III

     

    RIGHTS
      OF
      THE SECURED PARTY; COLLECTION OF ACCOUNTS.

     

    (a) Notwithstanding
      anything contained in this Security Agreement to the contrary, the Debtor
      expressly agrees that it shall remain liable under each of its Contracts and
      each of its licenses to observe and perform all the conditions and obligations
      to be observed and performed by it thereunder and that it shall perform all
      of
      its duties and obligations thereunder, all in accordance with and pursuant
      to
      the terms and provisions of each such Contract or license. The Secured Party
      shall not have any obligation or liability under any Contract or license by
      reason of or arising out of this Security Agreement or the granting to the
      Secured Party of a lien therein or the receipt by the Secured Party of any
      payment relating to any contract or license pursuant hereto, nor shall the
      Secured Party be required or obligated in any manner to perform or fulfill
      any
      of the obligations of the Debtor under or pursuant to any Contract or license,
      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 Contract or license, 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.

     

    (b) The
      Secured Party authorizes the Debtor, upon the occurrence and continuance of
      an
      Event of Default, to collect its Accounts, provided that such collection is
      performed in a prudent and businesslike manner, and the Secured Party may,
      upon
      the occurrence and during the continuation of any Event of Default and without
      notice, limit or terminate said authority at any time. Upon the occurrence
      and
      during the continuance of any Event of Default, at the request of the Secured
      Party, the Debtor shall deliver to the Secured Party all original and other
      documents evidencing and relating to the performance of labor or service which
      created such Accounts, including, without limitation, all original orders,
      invoices and shipping receipts.

     

    
      
        
        

      

      
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    (c) The
      Secured Party may at any time, upon the occurrence and during the continuance
      of
      any Event of Default, after notifying the Debtor of its intention to do so,
      notify Account Debtors of the Debtor, parties to the Contracts of the Debtor,
      obligors in respect of Instruments of the Debtor and obligors in respect of
      Chattel Paper of the Debtor that the Accounts and the right, title and interest
      of the Debtor in and under such Contracts, Instruments and Chattel Paper have
      been assigned to the Secured Party and that payments shall be made directly
      to
      the Secured Party. Upon the request of the Secured Party, the Debtor shall
      so
      notify such Account Debtors, parties to such Contracts, obligors in respect
      of
      such Instruments and obligors in respect of such Chattel Paper. Upon the
      occurrence and during the continuance of any Event of Default, the Secured
      Party
      may, in its name or in the name of others, communicate with such Account
      Debtors, parties to such Contracts, obligors in respect of such Instruments
      and
      obligors in respect of such Chattel Paper to verify with such parties, to the
      Secured Party’s satisfaction, the existence, amount and terms of any such
      Accounts, Contracts, Instruments or Chattel Paper.

     

    ARTICLE
      IV

     

    REPRESENTATIONS
      AND WARRANTIES

     

    The
      Debtor has delivered to the Secured Party a certificate signed by the Debtor
      and
      entitled “Perfection Certificate” (the “Perfection Certificate”) attached as
      Annex A. The Debtor represents and warrants to the Secured Party as follows:
      (a)
      the Debtor’s exact legal name is that indicated on the Perfection Certificate
      and on the signature page hereof, (b) the Debtor is an organization of the
      type,
      and is organized in the jurisdiction set forth in the Perfection Certificate,
      (c) the Perfection Certificate accurately sets forth the Debtor’s organizational
      identification number or accurately states that the Debtor has none, (d) the
      Perfection Certificate accurately sets forth the Debtor’s place of business or,
      if more than one, its chief executive office, as well as the Debtor’s mailing
      address, if different, (e) all other information set forth on the Perfection
      Certificate pertaining to the Debtor is accurate and complete, and (f) that
      there has been no change in any information provided in the Perfection
      Certificate since the date on which it was executed by the Debtor.

     

    ARTICLE
      V

     

    COVENANTS

     

    The
      Debtor covenants and agrees with the Secured Party that from and after the
      date
      of this Security Agreement:

     

    5.1 Further
      Assurances.
      The
      Debtor will from time to time at the expense of the Debtor, promptly execute,
      deliver, file and record all further instruments, endorsements and other
      documents, and take such further action as the Secured Party may deem reasonably
      desirable in obtaining the full benefits of this Security Agreement and of
      the
      rights, remedies and powers herein granted, including, without limitation,
      the
      following:

     

    
      
        
        

      

      
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    (i) The
      filing of any financing statements, in a form reasonably acceptable to the
      Secured Party under the UCC or applicable law, rule or regulation in effect
      in
      any jurisdiction with respect to the Liens and security interests granted
      hereby. The Debtor also hereby authorizes the Secured Party to file any such
      financing statements, including without limitation continuation statements,
      and
      amendments thereto, in all jurisdictions and with all filing offices as the
      Secured Party may determine, in its reasonable discretion are necessary or
      advisable to perfect the security interests granted to the Secured Party in
      connection herewith without the signature of the Debtor to the extent permitted
      by applicable law. Such financing statements may describe the Collateral in
      the
      same manner as described in this Security Agreement or may contain an indication
      or description of Collateral that describes such property in any other manner
      as
      the Secured Party may determine, in its reasonable discretion, is necessary,
      advisable or prudent to ensure the perfection of the security interests in
      the
      Collateral granted to the Secured Party in connection herewith, including,
      without limitation, describing such property as “all assets” or “all personal
      property.” A photocopy or other reproduction of this Security Agreement shall be
      sufficient as a financing statement and may filed in lieu of the original to
      the
      extent permitted by applicable law. The Debtor will pay or reimburse the Secured
      Party for all filing fees and related expenses reasonably incurred in connection
      therewith; and

     

    (ii) Furnish
      to the Secured Party from time to time statements and schedules further
      identifying and describing the Collateral and its location and such other
      reports in connection with the Collateral as the Secured Party may reasonable
      request, all in reasonable detail and in form reasonably satisfactory to the
      Secured Party. 

     

    5.2 Covenants
      Concerning Debtor’s Legal Status.
      Without
      providing at least 30 days’ prior written notice to the Secured Party, the
      Debtor will not change its name, its place of business or, if more than one,
      chief executive office, or its mailing address or organizational identification
      number if it has one. If the Debtor does not have an organizational
      identification number and later obtains one, the Debtor shall forthwith notify
      the Secured Party of such organizational identification number. The Debtor
      will
      not change its type of organization, jurisdiction of organization or other
      legal
      structure.

     

    5.3 Covenants
      Concerning Collateral.
      The
      Collateral, to the extent not delivered to the Secured Party, will be kept
      at
      those locations listed on the Perfection Certificate and the Debtor will not
      remove the Collateral from such locations, without providing at least thirty
      days prior written notice to the Secured Party. Except as previously pledged
      and
      assigned to the Senior Secured Party, and except for the security interest
      herein granted, the Debtor shall be the owner of or have other rights in the
      Collateral free from any right or claim of any other Person, lien, security
      interest or other encumbrance, and the Debtor shall defend the same against
      all
      claims and demands of all Persons at any time claiming the same or any interests
      therein adverse to the Secured Party. The Debtor (i) shall not pledge, mortgage
      or create, or suffer to exist any right of any Person in or claim by any Person
      to the Collateral, or any security interest, lien or encumbrance in the
      Collateral in favor of any Person, other than the Senior Secured Party and
      the
      Secured Party; (ii) will keep the Collateral in good order and repair and will
      not use the same in violation of law or any policy of insurance thereon; (iii)
      will permit the Secured Party, or its designee, to inspect the Collateral at
      any
      reasonable time, wherever located; (iv) will pay promptly when due all taxes,
      assessments, governmental charges and levies upon the Collateral or incurred
      in
      connection with the use or operation of such Collateral or incurred in
      connection with this Agreement; (v) will continue to operate its business in
      compliance with all applicable provisions of the federal Fair Labor Standards
      Act, as amended, and with all applicable provisions of federal, state and local
      statutes and ordinances dealing with the control, shipment, storage or disposal
      of hazardous materials or substances; and (vi) will not sell or otherwise
      dispose, or offer to sell or otherwise dispose, of the Collateral or any
      interest therein except for sales and leases of inventory in the ordinary course
      of business.

     

    
      
        
        

      

      
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    5.4 Maintain
      Records.
      The
      Debtor will keep and maintain at its own cost and expense reasonably
      satisfactory and complete records of the Collateral.

     

    5.5 Other
      Actions as to Any and All Collateral.
      The
      Debtor will, at the request and option of the Secured Party, take any and all
      other actions the Secured Party may determine to be necessary or useful for
      the
      attachment and perfection of, and the ability of the Secured Party to enforce,
      the Secured Party’s security interest in any and all of the Collateral,
      including, without limitation, (i) executing, delivering and, where appropriate,
      filing financing statements and amendments relating thereto under the Uniform
      Commercial Code, to the extent, if any, that the Debtor’s signature thereon is
      required therefor, (ii) causing the Secured Party’s name to be noted as secured
      party on any certificate of title for a titled good if such notation is a
      condition to attachment, perfection or priority of, or ability of the Secured
      Party to enforce, the Secured Party’s security interest in such Collateral,
      (iii) complying with any provision of any statute, regulation or treaty of
      the
      United States as to any Collateral if compliance with such provision is a
      condition to attachment, perfection or priority of, or ability of the Secured
      Party to enforce, the Secured Party’s security interest in such Collateral, (iv)
      obtaining governmental and other third party waivers, consents and approvals
      in
      form and substance satisfactory to Secured Party, including, without limitation,
      any consent of any licensor, lessor or other Person obligated on Collateral,
      (v)
      obtaining waivers from mortgagees and landlords in form and substance
      satisfactory to the Secured Party and (vi) taking all actions under any earlier
      versions of the Uniform Commercial Code or under any other law, as reasonably
      determined by the Secured Party to be applicable in any relevant Uniform
      Commercial Code or other jurisdiction, including any foreign
      jurisdiction.

     

    5.6 Right
      of Inspection.
      The
      Secured Party shall at all times on a confidential basis have full and free
      access during normal business hours to the Collateral and to all the books,
      correspondence and records of the Debtor, and the Secured Party and its
      representatives may examine the same, take extracts therefrom and make
      photocopies thereof, and the Debtor agrees to render the Secured Party, at
      the
      Debtor’s cost and expense, such clerical and other assistance as may be
      reasonably requested with regard thereto. The Secured Party and its
      representatives shall (i) at all times also have the right to enter into and
      upon any premises where any of the Inventory or Equipment is located for the
      purpose of inspecting the same or observing its use, and (ii) after an Event
      of
      Default has occurred, to repossess any or all of the Collateral.

     

    5.7 Payment
      of Obligations.
      The
      Debtor will pay promptly when due all taxes, assessments and governmental
      charges or levies imposed upon the Collateral, as well as all claims of any
      kind
      (including, without limitation, claims for labor, materials, supplies and
      services) against or with respect to the Collateral, except that no such charge
      need be paid if (i) the validity thereof is being contested in good faith by
      appropriate proceedings, (ii) the Debtor has promptly notified the Secured
      Party
      of the existence of such proceedings and such proceedings do not involve, in
      the
      good faith and reasonable opinion of the Secured Party, any material danger
      for
      the sale, forfeiture or loss of any material portion of the Collateral or any
      material interest therein and (iii) such charge is adequately reserved against
      on the Debtor’s books in accordance with generally accepted accounting
      principles.

     

    
      
        
        

      

      
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    5.8 Negative
      Pledge.
      Without
      the consent of the Secured Party, the Debtor will not create, incur or permit
      to
      exist, will defend the Collateral against, and will take such other action
      as is
      necessary to remove, any Lien or claim on or to the Collateral, other than
      the
      Liens created hereby and other than Permitted Liens.

     

    5.9 Limitations
      on Dispositions of Collateral.
      Without
      the express prior written consent of the Secured Party (which consent the
      Secured Party may withhold or delay in its complete and sole discretion), the
      Debtor will not sell, transfer, lease or otherwise dispose of any of the
      Collateral, or attempt, offer or contract to do so, except for sales Inventory
      in the ordinary course of its business and except for, so long as no Event
      of
      Default shall have occurred and be continuing, the disposition in the ordinary
      course of business of items of Equipment which have become worn out or
      obsolete.

     

    5.10 Expenses
      Incurred by Secured Party.
      In the
      Secured Party’s discretion, if the Debtor fails to do so, the Secured Party may
      discharge taxes and other encumbrances at any time levied or placed on any
      of
      the Collateral, maintain any of the Collateral, make repairs thereto and pay
      any
      necessary filing fees or insurance premiums. The Debtor agrees to reimburse
      the
      Secured Party on demand for all expenditures so made. The Secured Party shall
      have no obligation to the Debtor to make any such expenditures, nor shall the
      making thereof be construed as the waiver or cure of any Default or Event of
      Default.

     

    5.11 Secured
      Party’s Obligations and Duties.
      Anything herein to the contrary notwithstanding, the Debtor shall remain
      obligated and liable under each contract or agreement comprised in the
      Collateral to be observed or performed by the Debtor thereunder. The Secured
      Party shall not have any obligation or liability under any such contract or
      agreement by reason of or arising out of this Agreement or the receipt by the
      Secured Party of any payment relating to any of the Collateral, nor shall the
      Secured Party be obligated in any manner to perform any of the obligations
      of
      the Debtor under or pursuant to any such contract or agreement, to make inquiry
      as to the nature or sufficiency of any payment received by the Secured Party
      in
      respect of the Collateral or as to the sufficiency of any performance by any
      party under any such contract or agreement, to present or file any claim, to
      take any action to enforce any performance or to collect the payment of any
      amounts which may have been assigned to the Secured Party or to which the
      Secured Party may be entitled at any time or times. The Secured Party’s sole
      duty with respect to the custody, safe keeping and physical preservation of
      the
      Collateral in its possession, under Section 9-207 of the Uniform Commercial
      Code
      of the State or otherwise, shall be to deal with such Collateral in the same
      manner as the Secured Party deals with similar property for its own
      account.

     

    
      
        
        

      

      
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    ARTICLE
      VI

     

    POWER
      OF
      ATTORNEY

     

    6.1 Following
      the occurrence and continuance of an Event of Default, Debtor hereby irrevocably
      constitutes and appoints the Secured Party and any officer or agent thereof,
      with full power of substitution, as its true and lawful attorney-in-fact with
      full irrevocable power and authority in the place and stead of the Debtor and
      in
      the name of the Debtor or in its own name, from time to time in the Secured
      Party’s reasonable discretion, for the purpose of enforcing the Secured Party’s
      rights under Article VII below, to take any and all appropriate action by any
      technologically available means, which may include, without limitation, any
      form
      of electronic data transmission, and to execute in any appropriate manner,
      which
      may include, without limitation, using any symbol that the Secured Party may
      adopt to signify the Debtor’s intent to authenticate, any and all documents and
      instruments which may be reasonably necessary or desirable to enforce Secured
      Party’s rights under Article VII below.

     

    The
      Debtor hereby ratifies all that said attorneys shall lawfully do or cause to
      be
      done by virtue hereof. This power of attorney is a power coupled with an
      interest and shall be irrevocable. 

     

    ARTICLE
      VII

     

    REMEDIES;
      RIGHTS UPON DEFAULT

     

    7.1 Rights
      and Remedies Generally.
      If an
      Event of Default shall occur and be continuing, then and in every such case,
      the
      Secured Party shall have all the rights and remedies of a secured party under
      the UCC, shall have all rights now or hereafter existing under all other
      applicable laws, and, subject to any mandatory requirements of applicable law
      then in effect, shall have all the rights set forth in this Security Agreement
      or the Note and all the rights set forth with respect to the Collateral or
      this
      Security Agreement in any other security agreement between the
      parties.

     

    7.2 Assembly
      of Collateral.
      If an
      Event of Default shall occur and be continuing, upon five (5) days’ notice to
      the Debtor, the Debtor shall, at its own expense, assemble the Collateral (or
      from time to time any portion thereof) and make it available to the Secured
      Party at any place or places designated by the Secured Party which is reasonably
      convenient to both parties.

     

    7.3 Disposition
      of Collateral.
      The
      Secured Party will give the Debtor reasonable notice of the time and place
      of
      any public sale of the Collateral or any part thereof or the time after which
      any private sale or any other intended disposition thereof is to be made. The
      Debtor agrees that the requirements of reasonable notice to it shall be met
      if
      such notice is mailed, postage prepaid to its address specified in
      Section 7.3 of the Purchase Agreement (or such other address that the
      Debtor may provide to the Secured Party in writing) at least ten (10) days
      before the time of any public sale or after which any private sale may be made.
      The Proceeds of any sale, disposition or other realization upon all or any
      part
      of the Collateral shall be distributed by the Secured Party in the following
      order of priorities: First, to the Secured Party in an amount sufficient to
      pay
      in full the reasonable costs of the Secured Party in connection with such sale,
      disposition or other realization, including all fees, costs, expenses,
      liabilities and advances reasonably incurred or made by the Secured Party in
      connection therewith, including, without limitation, reasonable attorneys’ fees;
      Second, to the Secured Party in an amount equal to the then unpaid Secured
      Obligations; and Finally, upon payment in full of the Secured Obligations,
      to
      the Debtor or its representatives, in accordance with the UCC or as a court
      of
      competent jurisdiction may direct.

     

    
      
        
        

      

      
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    7.4 Recourse.
      The
      Debtor shall remain liable for any deficiency if the proceeds of any sale or
      other disposition of the Collateral are insufficient to satisfy the Secured
      Obligations. The Debtor shall also be liable for all expenses of the Secured
      Party reasonably incurred in connection with collecting such deficiency,
      including, without limitation, the reasonable fees and disbursements of
      attorneys employed by the Secured Party to collect such deficiency.

     

    7.5 Expenses;
      Attorneys’ Fees.
      The
      Debtor shall reimburse the Secured Party for all its reasonable expenses in
      connection with the exercise of its rights under this Article VII, including,
      without limitation, all reasonable attorneys’ fees and legal expenses incurred
      by the Secured Party. Expenses of retaking, holding, preparing for sale, selling
      or the like shall include the reasonable attorneys’ fees and legal expenses of
      the Secured Party. All such expenses shall be secured hereby.

     

    7.6 Limitation
      on Duties Regarding Preservation of Collateral.
      The
      Secured Party’s sole duty with respect to the custody, safekeeping and physical
      preservation of the Collateral in its possession, under Section 9-207 of
      the UCC or otherwise, shall be to deal with it in the same manner as the Secured
      Party deals with similar property for its own account.

     

    (a) The
      Secured Party shall have no obligation to take any steps to preserve rights
      against prior parties to any Collateral.

     

    (b) Neither
      the Secured Party nor any of its directors, officers, employees or agents shall
      be liable for failure to demand, collect or realize upon all or any part of
      the
      Collateral or for any delay in doing so or shall be under any obligation to
      sell
      or otherwise dispose of any Collateral upon the request of the Debtor or
      otherwise.

     

    ARTICLE
      VIII

     

    MISCELLANEOUS

     

    8.1 Limitation
      on the Secured Party’s Duty in Respect of Collateral.
      The
      Secured Party shall be deemed to have acted reasonably in the custody,
      preservation and disposition of any of the Collateral if it takes such action
      as
      the Debtor requests in writing, but failure of the Secured Party to comply
      with
      any such request shall not in itself be deemed a failure to act reasonably,
      and
      no failure of the Secured Party to do any act not so requested shall be deemed
      a
      failure to act reasonably.

     

    8.2 Reinstatement.
      This
      Security Agreement shall remain in full force and effect and continue to be
      effective should any petition be filed by or against the Debtor for liquidation
      or reorganization, should the Debtor become insolvent or make an assignment
      for
      the benefit of creditors or should a receiver or trustee be appointed for all
      or
      any significant part of the Debtor’s property and assets, and shall continue to
      be effective or be reinstated, as the case may be, if at any time payment and
      performance of the Secured Obligations, or any part thereof, is, pursuant to
      applicable law, rescinded or reduced in amount, or must otherwise be restored
      or
      returned by any obligee of the Secured Obligations, whether as a “voidable
      preference,” “fraudulent conveyance,” or otherwise, all as though such payment
      or performance had not been made. In the event that any payment, or any part
      thereof, is rescinded, reduced, restored or returned, the Secured Obligations
      shall be reinstated and deemed reduced only by such amount paid and not so
      rescinded, reduced, restored or returned.

     

    
      
        
        

      

      
        -
          11
          -

        
          

        

      

      
        
        

      

    

     

    8.3 Governing
      Law; Waiver of Jury Trial.

     

    (i) This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of Washington without regard to the principles of conflicts of law
      thereof.

     

    (ii) Each
      of
      the parties hereto consents to the jurisdiction of any state or federal court
      located within the county of San Francisco in the State of California, and
      irrevocably agrees that all actions or proceedings relating to this Agreement
      or
      the transactions contemplated hereby shall be litigated in one of such courts,
      and each of the parties waives any objection that it may have based on improper
      venue or forum
      non conveniens
      to the
      conduct of any such action or proceeding in any such court and waives personal
      service of any and all process upon it, and consents to all such service of
      process made in the manner set forth in Section 8.4. Nothing contained in this
      Section 8.3(ii) shall affect the right of any party to serve legal process
      on
      any other party in any other manner permitted by law.

     

    8.4 Notices.
      Except
      as otherwise expressly provided herein, all notices, requests and demands to
      or
      upon the respective parties hereto to be effective shall be in made in
      accordance with all of the provisions of Section 7.3 of the Purchase
      Agreement. 

     

    8.5 Successors
      and Assigns.
      This
      Security Agreement shall be binding upon and inure to the benefit of the Debtor,
      the Secured Party, all future holders of the Secured Obligations and their
      respective successors and assigns, except that the Debtor may not assign or
      transfer any of its rights or obligations under this Security Agreement without
      the prior written consent of the Secured Party, which consent the Secured Party
      may withhold or delay in its sole and complete discretion.

     

    8.6 Waivers
      and Amendments.
      None of
      the terms or provisions of this Security Agreement may be waived, amended,
      supplemented or otherwise modified except by a written instrument executed
      by
      the party against whom enforcement is sought. In the case of any waiver, the
      Debtor and the Secured Party shall be restored to their former position and
      rights hereunder and under the outstanding Secured Obligations, and any Event
      of
      Default waived shall be deemed to be cured and not continuing, but no such
      waiver shall extend to any subsequent or other Event of Default, or impair
      any
      right consequent thereon.

     

    8.7 No
      Waiver; Remedies Cumulative.
      No
      failure or delay on the part of the Secured Party in exercising any right,
      power
      or privilege hereunder and no course of dealing between the Debtor and the
      Secured Party shall operate as a waiver thereof; nor shall any single or partial
      exercise of any right, power or privilege hereunder preclude any other or
      further exercise thereof or the exercise of any other right, power or privilege.
      A waiver by the 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 Party would otherwise have on any future occasion. The rights and
      remedies herein expressly provided are cumulative and may be exercised singly
      or
      concurrently and as often and in such order as the Secured Party deems expedient
      and are not exclusive of any rights or remedies which the Secured Party would
      otherwise have whether by security agreement or now or hereafter existing under
      applicable law. No notice to or demand on the Debtor in any case shall entitle
      the Debtor to any other or further notice or demand in similar or other
      circumstances or constitute a waiver of the rights of the Secured Party to
      any
      other or future action in any circumstances without notice or
      demand.

     

    
      
        
        

      

      
        -
          12
          -

        
          

        

      

      
        
        

      

    

     

    8.8 Termination;
      Release.
      When
      the Secured Obligations have been indefeasibly paid and performed in full this
      Security Agreement shall terminate, and the Secured Party, at the request and
      sole expense of the Debtor, will execute and deliver to the Debtor the proper
      instruments (including UCC termination statements) acknowledging the termination
      of this Security Agreement, and will duly assign, transfer and deliver to the
      Debtor, without recourse, representation or warranty of any kind whatsoever,
      such of the Collateral as may be in the possession of the Secured Party and
      has
      not theretofore been disposed of, applied or released.

     

    8.9 Headings
      Descriptive.
      The
      headings of the several Sections and subsections of this Security Agreement
      are
      inserted for convenience only and shall not in any way affect the meaning or
      construction of any provision of this Security Agreement.

     

    8.10 Severability.
      In case
      any provision in or obligation under this Security Agreement or the Secured
      Obligations shall be invalid, illegal or unenforceable in any jurisdiction,
      the
      validity, legality and enforceability of the remaining provisions or
      obligations, or of such provision or obligation in any other jurisdiction,
      shall
      not in any way be affected or impaired thereby.

     

    8.11 

     

    [THIS
      SPACE INTENTIONALLY LEFT BLANK]

     

    
      
        
        

      

      
        -
          13
          -

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the Debtor and the Secured Party have caused this Security
      Agreement to be duly executed and delivered as of the date first above
      written.

    

    
      	
              THE
                DEBTOR

            
	
              ITEX
                CORPORATION

            
	 
	
              By:
                

            	
              /s/
                Steven White

            
	
              Name:
                Steven White

            
	
              Title:  
                Chief Executive Officer

            
	
              Address:

            
	
              3326 –
                160th Ave SE, Suite 100

            
	
              Bellevue,
                WA 98008-6418

            

    

    

      
        	
                SECURED
                  PARTY

              
	 
	
                THE
                  INTAGIO GROUP, INC.

              
	 
	
                By:
                  

              	
                /s/
                  Eric Jeck

              
	
                Eric
                  Jeck

              
	
                Title:
                  President

              

      

    

     

    
      
        
        

      

      
        -
          14
          -

        
          

        

      

      
        
        

      

    

     

    ANNEX
      A

     

    PERFECTION
      CERTIFICATE(UCC Financing Statements)

     

    The
      undersigned, the President of ITEX Corporation, a Nevada corporation (the
“Debtor”), hereby certifies, with reference to a certain Security Agreement
      dated August 1, 2008 (the “Security Agreement”) (terms defined in such Security
      Agreement having the same meanings herein as specified therein), between the
      Debtor and The Intagio Group, Inc., a Delaware corporation (the “Secured
      Party”),
      to
      the Secured Party as follows:

     

    1. Name.
      The
      exact legal name of the Debtor as that name appears on its Restated Articles
      of
      Incorporation filed with the Nevada Secretary of State is as follows: ITEX
      Corporation.

     

    2. Other
      Identifying Factors. 

     

    
      	
            	(a)	
              The
                following is a mailing address for the Debtor: 3326 – 160th
                Ave SE, Suite 100, Bellevue, WA
                98008-6418.

            

    

     

    
      	 	
              (b)

            	
              If
                different from its indicated mailing address, the Debtor’s place of
                business or, if more than one, its chief executive office is located
                at
                the following address:

            

    

     

    
      	
              Address

            	
              County

            	
              State

            
	 	 	 
	
              Not
                applicable

            	 	 

    

    

    
      	 	
              (c)

            	
              The
                following is the type of organization of the Debtor:
                Corporation

            

    

     

    
      	 	
              (d)

            	
              The
                following is the jurisdiction of the Debtor’s organization:
                Nevada

            

    

     

    
      	 	
              (e)

            	
              The
                following is the Debtor’s state issued organizational identification
                number: C6527-1985

            

    

     

    3. Other
      Names.

     

    (a) The
      following is a list of all other names (including trade names or similar
      appellations) used by the Debtor, or any other business or organization to
      which
      the Debtor became the successor by merger, consolidation, acquisition, change
      in
      form, nature or jurisdiction of organization or otherwise, now or at any time
      during the past five years:

     

    ITEX
      Payment Systems

     

    (b) Attached
      hereto as Schedule
      3
      is the
      information required in Section 2 for any other business or organization to
      which the Debtor became the successor by merger, consolidation, acquisition
      of
      assets, change in form, nature or jurisdiction of organization or otherwise,
      now
      or at any time during the past five years: None

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    4. Other
      Current Locations. 

     

    (a) The
      following are all other locations in the United States of America in which
      the
      Debtor maintains any books or records relating to any of the Collateral
      consisting of accounts, instruments, chattel paper, general intangibles or
      mobile goods:

     

    
      	
              Address

            	
              County

            	
              State

            
	
               

              None

            	 	 

    

     

    (b) The
      following are all other places of business of the Debtor in the United States
      of
      America:

     

    
      	
              Address

            	
              County

            	
              State

            
	
               

              None

            	 	 

    

    (c) The
      following are all other locations in the United States of America where any
      of
      the Collateral consisting of inventory or equipment is located:

     

    
      	
              Address

            	
              County

            	
              State

            
	
               

              None

            	 	 

    

     

    (d) The
      following are the names and addresses of all Persons or entities other than
      the
      Debtor, such as lessees, consignees, warehousemen or purchasers of chattel
      paper, which have possession or are intended to have possession of any of the
      Collateral consisting of instruments, chattel paper, inventory or
      equipment:

     

    
      	
              Name

            	
              Mailing
                Address

            	
              County

            	
              State

            
	
               

              None

            	 	 	 

    

     

    5. Prior
      Locations. 

     

    (a) Set
      forth
      below is the information required by Section 4 (a) or (b) with respect to each
      location or place of business previously maintained by the Debtor at any time
      during the past five years in a state in which the Debtor has previously
      maintained a location or place of business at any time during the past four
      months:

     

    
      	
              Address

            	
              County

            	
              State

            
	
               

              Not
                applicable

            	 	 

    

     

    (b) Set
      forth
      below is the information required by Section 4(c) or (d) with respect to each
      other location at which, or other Person or entity with which, any of the
      Collateral consisting of inventory or equipment has been previously held at
      any
      time during the past twelve months:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              Name

            	
              Mailing
                Address

            	
              County

            	
              State

            
	
               

              Not
                applicable

            	 	 	 

    

     

    6. Fixtures.
      Attached
      hereto as Schedule
      6 is
      the
      information required by UCC Section 9-502(b) or Section 9-402(5) of each state
      in which any of the Collateral consisting of fixtures are or are to be located
      and the name and address of each real estate recording office where a mortgage
      on the real estate on which such fixtures are or are to be located would be
      recorded.

     

    7. Unusual
      Transactions.
      Except
      for those purchases, acquisitions and other transactions described on
Schedule
      3
      or on
Schedule
      7
      attached
      hereto, all of the Collateral has been originated by the Debtor in the ordinary
      course of the Debtor’s business or consists of goods which have been acquired by
      the Debtor in the ordinary course from a Person in the business of selling
      goods
      of that kind.

     

    8. UCC
      Filings. A
      duly
      authorized financing statement, in a form acceptable to the Secured Party and
      containing the indication of the Collateral set forth on Schedule
      8(A)
      has
      been, or will be as of the Closing Date, duly filed in the central Uniform
      Commercial Code filing office in the jurisdiction identified in Section 2(d)
      and
      in each real estate recording office referred to on Schedule
      6
      hereto.

     

    IN
      WITNESS WHEREOF, I have hereunto signed this Certificate on August 1,
      2008.

    

      
        	
                ITEX
                  Corporation

              
	 	 
	
                /s/
                  Steven White

              
	
                By:

              	
                Steven
                  White

              
	 	
                Chief
                  Executive Officer

              

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Schedule
      3 – Other Names

    

    None

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Schedule
      6 – Fixtures

    

    None

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Schedule
      7 – Unusual Transactions

    

    None

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Schedule
      8(A) – Collateral Description

     

    Debtor:
        ITEX
      Corporation

     

    Secured
      Party:  The
      Intagio Group, Inc.

     

    The
      collateral covered by this Financing Statement is all of the Debtor’s right,
      title and interest in, to and under the following, whether now owned or existing
      or hereafter acquired or arising, and wherever located (all of which being
      hereinafter collectively called the “Collateral”):

     

    (i) all
      Accounts;

     

    (ii) all
      Chattel Paper;

     

    (iii) all
      Collateral Records;

     

    (iv) Contracts

     

    (v) all
      Documents;

     

    (vi) all
      Equipment;

     

    (vii) all
      Fixtures;

     

    (viii) all
      General Intangibles;

     

    (ix) all
      Instruments;

     

    (x) all
      Inventory;

     

    (xi) all
      Investment Property;

     

    (xii) all
      Receivables;

     

    (xiii) all
      Receivables Records;

     

    (xiv) all
      other
      tangible and intangible personal property; and 

     

    (xv) all
      accessions, attachments and additions to any or all of the foregoing, all
      substitutions and replacements for any or all of the foregoing and all Proceeds
      or products of any or all of the foregoing.

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