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
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$687,500
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Bellevue, Washington
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August 1,
2008
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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%.
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.
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 st
