SECURITY AGREEMENT

SECURITY AGREEMENT (this “ Agreement ”), dated as of August __, 2008, by and among Shearson Financial Network, Inc., a Nevada corporation (“ Company ”), and the secured parties signatory hereto and their respective endorsees, transferee and assigns (collectively the “ Secured Party ”).

W I T N E S S E T H:

WHEREAS, on June 16, 2008 (the “ Petition Date ”), the Company filed petitions in the United States Bankruptcy Court for the District of Nevada (the “ Court ”) for relief under Chapter 11 of the Bankruptcy Code (“ Bankruptcy Code ”), thereby initiating Chapter 11 Case No. 08-16350 (the “ Chapter 11 Case ”).  The Company continues to operate its business, and manage its properties, as a debtor-in-possession pursuant to §§1107 and 1108 of the Bankruptcy Code;

WHEREAS, prior to the Petition Date, the Secured Party provided financing to the Company pursuant to that certain Securities Purchase Agreement dated June 30, 2006, that certain Callable Secured Convertible Note dated June 30, 2006, that certain Security Agreement dated June 30, 2006, and certain other agreements by and among the Company, Secured Party and certain other parties, as the same has been amended or modified from time to time by the parties thereto;

WHEREAS, the Company has requested that Secured Party provide a senior secured superpriority loan, to the Company in the form of a series of Senior Secured Superpriority Debtor-In-Possession Callable Secured Convertible Note in an aggregate amount up to $500,000;

WHEREAS, the Company has agreed to issue to the Secured Party and the Secured Party has agreed to purchase from the Company certain Senior Secured Superpriority Debtor-In-Possession Callable Secured Convertible Note in an aggregate amount up to $500,000 (the “ Notes ”), which are convertible into shares of the Company’s Common Stock, par value $.001 per share (the “ Common Stock ”); and

WHEREAS, in order to induce the Secured Party to purchase the Notes, the Company has agreed to execute and deliver to the Secured Party this Agreement for the benefit of the Secured Party and to grant to it a first priority security interest in certain property of the Company to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Notes.

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1.            Certain Definitions .  As used in this Agreement, the following terms shall have the meanings set forth in this Section 1.  Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC, including but not limited to  “ Account ”, “ Chattel Paper ”, “ Commercial Tort Claims ” , “ Deposit Accounts ” , “ Documents ” , “ Equipment ” , “ Fixtures ” , “ General Intangibles ” , “ Goods ” , “ Instruments ” , “ Inventory ” , “ Investment Property ” , “ Letter-of-Credit Right ”, and “ Proceeds ” and shall have the respective meanings assigned to such terms in the New York Uniform Commercial Code, as the same may be in effect from time to time.  Each capitalized term used herein, and not otherwise defined in this Agreement or the UCC, shall have the meaning ascribed thereto in the Notes.

“ Collateral ” means the collateral in which the Secured Party is granted a security interest by this Agreement and which shall include the following, whether presently owned or existing or hereafter acquired or coming into existence, and wherever now or hereafter located and all additions and accessions thereto and all substitutions and replacements thereof, and all Proceeds, products and accounts thereof, including, without limitation, all Proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith:  (a) all Accounts and all Goods whose sale, lease or other disposition by the Company has given rise to Accounts and have been returned to, or repossessed or stopped in transit by, the Company; (b) all Chattel Paper, Instruments, Documents and General Intangibles (including, without limitation, all patents, patent applications, trademarks, trademark applications, trade names, trade secrets, goodwill, copyrights, copyright applications, registrations, licenses, software, franchises, customer lists, tax refund claims, claims against carriers and shippers, guarantee claims, contract rights, payment intangibles, security interests, security deposits and rights to indemnification); (c) all Inventory (whether or not Eligible Cigarette and Tax Stamp Inventory or Eligible Sundry Inventory); (d) all Goods (other than Inventory), including, without limitation, Equipment, vehicles and Fixtures; (e) all Investment Property; (f) all Deposit Accounts, bank accounts, deposits and cash; (g)  all Letter-of-Credit Rights; (h)  Commercial Tort Claims; (i) any other property of the Company now or hereafter in the possession, custody or control of Lender or any agent or any parent, affiliate or subsidiary of Lender or any participant with Lender in the Loans, for any purpose (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise); (j) the Intellectual Property; and (k) all additions and accessions to, substitutions for, and replacements, products and Proceeds of the foregoing property, including, without limitation, proceeds of all insurance policies insuring the foregoing property, and all of Company’s books and records relating to any of the foregoing and to the Company’s business; together with all other real or personal property of the Company or any other Person now or hereafter pledged to Lender to secure, either directly or indirectly, repayment of any of the indebtedness or the Secured Obligations.

“ Company ” shall mean, collectively, the Company and all of the subsidiaries of the Company, a list of which is contained in Schedule A , attached hereto.

“ Copyrights ” shall mean (a) all copyrights, registrations and applications for registration, issued or filed, including any reissues, extensions or renewals thereof, by or with the United States Copyright Office or any similar office or agency of the United States, any state thereof, or any other country or political subdivision thereof, or otherwise, including, all rights in and to the material constituting the subject matter thereof, and (b) any rights in any material which is copyrightable or which is protected by common law, United States copyright laws or similar laws or any law of any State, including, without limitation, any thereof referred to in Schedule B hereto.

“ Copyright License ” shall mean any agreement, written or oral, providing for a grant by the Company of any right in any Copyright, including, without limitation, any thereof referred to in Schedule B hereto.

“ Intellectual Property ” shall means, collectively, the Software Intellectual Property, Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks, Trademark Licenses and Trade Secrets.

“ Obligations ” means all of the Company’s obligations under this Agreement, the Loan Documents and the Notes, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later decreased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from the Secured Party as a preference, fraudulent transfer or otherwise as such obligations may be amended; supplemented, converted, extended or modified from time to time.

“ Patents ” shall mean (a) all letters patent of the United States or any other country or any political subdivision thereof, and all reissues and extensions thereof, and (b) all applications for letters patent of the United States and all divisions, continuations and continuations-in-part thereof or any other country or any political subdivision.

“ Patent License ” shall mean all agreements, whether written or oral, providing for the grant by the Company of any right to manufacture, use or sell any invention covered by a Patent.

“ Software Intellectual Property ”  shall mean:

(a)           all software programs (including all source code, object code and all related applications and data files), whether now owned, upgraded, enhanced, licensed or leased or hereafter acquired by the Company, above;

(b)           all computers and electronic data processing hardware and firmware associated therewith;

(c)           all documentation (including flow charts, logic diagrams, manuals, guides and specifications) with respect to such software, hardware and firmware described in the preceding clauses (a) and (b); and

(d)           all rights with respect to all of the foregoing, including, without limitation, any and all upgrades, modifications, copyrights, licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications and substitutions, replacements, additions, or model conversions of any of the foregoing.

“ Trademarks ” shall mean (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and the goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state thereof or any other country or any political subdivision thereof, or otherwise, and (b) all reissues, extensions or renewals thereof.

“ Trademark License ” shall mean any agreement, written or oral, providing for the grant by the Company of any right to use any Trademark.

“ Trade Secrets ” shall mean common law and statutory trade secrets and all other confidential or proprietary or useful information and all know-how obtained by or used in or contemplated at any time for use in the business of the Company (all of the foregoing being collectively called a “ Trade Secret ”), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating or referring in any way to such Trade Secret, all Trade Secret licenses, and including the right to sue for and to enjoin and to collect damages for the actual or threatened misappropriation of any Trade Secret and for the breach or enforcement of any such Trade Secret license.

“ UCC ” means the Uniform Commercial Code, as currently in effect in the State of New York.

“ Unencumbered Property ” means all property of the Company acquired prior to the Petition Date or thereafter, that, on or as of the Petition Date are not subject to any valid, perfected and non-avoidable liens, including, without limitation: (a) all Accounts and all Goods whose sale, lease or other disposition by the Company has given rise to Accounts and have been returned to, or repossessed or stopped in transit by, the Company; (b) all Chattel Paper, Instruments, Documents and General Intangibles; (c) all Inventory; (d) all Goods (other than Inventory), including, without limitation, Equipment, vehicles and Fixtures; (e) all Investment Property; (f) all Deposit Accounts, bank accounts, deposits and cash; (g) all Letter-of-Credit Rights; (h) Commercial Tort Claims; (i) any other property of the Company now or hereafter in the possession, custody or control of Lender or any agent or any parent, affiliate or subsidiary of Lender or any participant with Lender in the Loans, for any purpose; (j) the Intellectual Property; and (k) all additions and accessions to, substitutions for, and replacements, products and Proceeds of the foregoing property, including, without limitation, proceeds of all insurance policies insuring the foregoing property, and all of Company’s books and records relating to any of the foregoing and to the Company’s business.  Additionally, Unencumbered Property shall include the Company’s claims and causes of action under sections 502(d), 544, 545, 547, 548, 549, 550 and 553(b) of the Bankruptcy Code, and/or any other avoidance claims and/or actions under the Bankruptcy Code, and any proceeds or property recovered, unencumbered or otherwise the subject of successful claims and/or actions.

2.            Grant of Security Interest .  As an inducement for the Secured Party to purchase the Note and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations and the Secured Obligations, the Company hereby, unconditionally and irrevocably, pledges, grants and hypothecates to the Secured Party: (i)  a continuing security interest, in a continuing first lien upon, an unqualified right to possession and disposition of and a right of set-off against, in each case to the fullest extent permitted by law, all of the Company’s right, title and interest of whatsoever kind and nature in and to the Unencumbered Property; and (ii) a continuing security interest, in a continuing lien upon, an unqualified right to possession and disposition of and a right of set-off against, in each case to the fullest extent permitted by law, all of the Company’s right, title and interest of whatsoever kind and nature in and to the Collateral, other than the Unencumbered Property (collectively, the “ Security Interest ”) provided that such lien is junior to certain liens as provided in clause (ii) of Section 3(f).  The Company hereby authorizes Secured Party to file such financing statements showing Company as debtor and Secured Party as secured party describing the Collateral in such jurisdictions as Secured Party reasonably deems appropriate.

3.            Representations, Warranties, Covenants and Agreements of the Company .  The Company represents and warrants to, and covenants and agrees with, the Secured Party as follows:

(a)           Subject to the Order Authorizing the DIP Financing entered on August 11, 2008 by the United States Bankruptcy Court for the District of Nevada (the “ Bankruptcy Court ”) in connection with the filing of a Chapter 11 Case  authorizing Company, debtor and debtor in possession, to obtain initial financing in from Secured Party and the evidence of any additional indebtedness authorized by a final hearing and entry of a final order (the “ Final Order ”) by the Bankruptcy Court, Company has the requisite corporate power and authority to enter into this Agreement and otherwise to carry out its obligations thereunder.  The execution, delivery and performance by the Company of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company.  This Agreement constitutes a legal, valid and binding obligation of the Company enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor’s rights generally.

(b)           To the knowledge of the Company (as defined below in this Section), the Company represents and warrants that it has no place of business or offices where its respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto.  “ knowledge of the Company ” shall mean the actual knowledge of the officers of the Company without the duty to investigate.

(c)           To the knowledge of the Company, the Company is the sole owner of the Collateral free and clear of any liens, security interests, encumbrances, rights or claims (except for non-exclusive licenses granted by the Company in the ordinary course of business and except with respect to any liens, security interests, encumbrances, rights or claims granted by the Company prior to the date of this Agreement encumbering the Collateral (collectively, “ Permitted Liens ”)), and, to the knowledge of the Company, is fully authorized to grant the Security Interest in and to pledge the Collateral, except as otherwise provided under any agreement relating to the Permitted Liens.  There is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that have been filed relating to or may be filed relating to the Permitted Liens or have been filed in favor of Secured Party relating to this Agreement) covering or affecting any of the Collateral.  So long as this Agreement shall be in effect, the Company shall not execute and shall not knowingly file in any such office or agency any such financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Party pursuant to the terms of this Agreement).

(d)           To the knowledge of the Company, (i) no part of the Collateral has been judged invalid or unenforceable; (ii) no written claim has been received that any Collateral or the Company’s use of any Collateral violates the rights of any third party, excluding a claim relating to the Collateral asserted by Christopher P. Baker, C.P. Baker & Company, Ltd. and/or any affiliate thereof (“ Baker Parties ”); (iii) there has been no adverse written decision to the Company’s claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to the Company’s right to keep and maintain such Collateral in full force and effect; and (iv) there is no proceeding involving said rights pending or threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority, other than a claim relating to the Collateral that may be asserted by any of the Baker Parties.

(e)           To the knowledge of the Company, the Company maintains a majority of its books of account and records relating to the Collateral at its principal place of business and the locations set forth on Schedule A attached hereto, shall maintain its books and records located at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Party at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements and other necessary documents have been filed and recorded to perfect the Security Interest to create in favor of the Secured Party valid, perfected and continuing first priority liens in the Unencumbered Property and liens in the Collateral, excluding the Unencumbered Property.

(f)           Upon the Bankruptcy Court’s issuance of the Final Order, this Agreement creates in favor of the Secured Party a valid security interest in the Collateral securing the payment and performance of the Obligations and, upon making the filings described in the immediately following sentence, (i) a perfected first priority security interest in all Unencumbered Property; and (ii) a perfected security interest in all property comprising of the Collateral, excluding the Unencumbered Property, that is subject to valid, perfected and unavoidable liens in existence immediately prior to the Petition Date or to valid and unavoidable liens in existence immediately prior to the Petition Date that are perfected subsequent to the Petition Date, as permitted by section 546(b) of the Bankruptcy Code, which are junior to such valid, perfected and unavoidable liens.  Except as required to be approved by the Bankruptcy Code and except for the filing of financing statements on Form-1 under the UCC, attached hereto, no authorization or approval of or filing with or notice to any governmental authority or regulatory body is required either (y) for the grant by the Company of the Security Interest granted hereby or for the execution, delivery and performance of this Agreement by the Company or (z) for the perfection of or exercise by the Secured Party of its rights and remedies hereunder.

(g)           On the date of e