SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (the “Agreement”) is made as of April 11, 2005, by
Crystalix Group International, Inc., a Nevada corporation (“Debtor”), for the
benefit of Urban Casavant as Trustee of the UAJC 2005 Irrevocable Trust (the
“Secured Party” or “Lender”).

Factual Background

A.        This Agreement is executed by Debtor for the purpose of inducing
Lender to make a loan to Debtor in the sum of One Million Dollars ($1,000,000)
(“Loan”) evidenced by a certain Convertible Promissory Note executed by Debtor
in favor of Lender dated April 11, 2005 (referred to as the “Note”). Debtor has
agreed to grant to Secured Party a first lien perfected security interest in
certain property of Debtor as described in Exhibit A attached hereto
(collectively, the “Collateral”).

B.         The Collateral is or will be subject to the following additional
Security Interests (the “Permitted Security Interests”):

 

1.

A security interest in favor of Kevin T. Ryan under a certain Security Agreement
dated December 23, 2002, as amended, which secures a certain Amended and
Restated Convertible Promissory Note dated July 21, 2004, payable to Kevin T.
Ryan in the amount of Five Million Three Hundred Ninety-Six Thousand Seven
Hundred Sixty-Four Dollars ($5,396,764.00) (the “Ryan Security Interest”);

 

2.

A security interest to be granted to CMKXTREME, Inc., a Nevada corporation
(“CMKX”), as provided in a certain Security Agreement of even date herewith,
securing a certain Amended and Restated Convertible Promissory Note payable to
CMKX in the amount of Two Million Dollars ($2,000,000.00) (the “CMKX Security
Agreement”).

C.

The Security Interests granted herein shall be senior in priority to the
Permitted Security Interests, as provided in a Subordination Agreement by and
between Secured Party, Ryan and CMKX of even date herewith.

NOW, THEREFORE, with reference to the above recitals, and in reliance thereon,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties hereto agree as follows:

1.         Creation of Security Interest. Debtor hereby grants to Secured Party
a first lien perfected security interest in, and does hereby collaterally
assign, pledge, mortgage, convey and set over unto the Secured Party, the
Collateral as described in Exhibit A which Exhibit A is incorporated herein by
reference, and all of Debtor’s present and hereafter acquired right, title and
interest in and to the Collateral, for the purpose of securing payment of all
indebtedness, obligations and liabilities of Debtor to Secured Party arising
under or in connection with the Note, and all other obligations of Debtor under
the Note and all other agreements entered into concurrently therewith
(collectively the “Loan Documents”) and performance of all agreements,

 

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covenants, terms and conditions contained in the foregoing documents and
instruments (all obligations of Debtor as described in this Section 1 shall be
collectively referred to herein as the “Obligations”).

2.             Warranties, Representations and Covenants of Debtor. Debtor
hereby warrants, represents and covenants as follows:

(a)           Debtor is and will be the sole owner of the Collateral, free from
any lien, security interest, encumbrance or adverse claim of any kind, other
than the Permitted Security Interests. Debtor will not permit any financing
statement to be filed with respect to the Collateral or any portion thereof,
except in favor of Secured Party or pertaining to the Permitted Security
Interests. Debtor will notify Secured Party of, and will defend the Collateral
against, all claims and demands of all persons at any time claiming the same or
any interest therein, other than the Permitted Security Interests.

(b)           The Collateral will not be used and was not purchased for
personal, family or household purposes.

(c)           Debtor authorizes Secured Party to file one or more financing
statements identifying the Collateral and evidencing the security interest of
Secured Party in the Collateral pursuant to the requirements of the Uniform
Commercial Code and in form satisfactory to Secured Party. Debtor will pay cost
of filing the same in all public offices wherever filing is deemed by Secured
Party to be necessary or desirable.

(d)           Without the prior written consent of Secured Party, Debtor will
not sell, exchange, dispose of, lease, offer to sell or otherwise transfer or
otherwise deal with the Collateral or any portion or interest therein, unless
simultaneously therewith new items of Collateral, which items may be similar to
those proposed to be disposed of and which shall be of equal or greater value,
are substituted therefor. Debtor shall file with the Secured Party a certificate
signed by Debtor describing such portion of the Collateral as is being so
disposed of and stating that the same has become obsolete, worn out, damaged,
destroyed, sold, transferred, or exchanged, and that such portion of the
Collateral will be replaced immediately upon the removal thereof. Such
certificate likewise shall certify as to the reasonable and equivalent value of
the property as acquired or to be acquired in replacement or substitution. All
after-acquired property of the Debtor located on the Premises and all additions
or replacements acquired pursuant to the provisions of this paragraph shall
immediately be and become, without any other act on the part of the Debtor,
subject to the security interest and lien of this Security Agreement, which
security interest shall be prior to any other security interest or lien on such
property. Unless expressly recited or provided to the contrary in this Security
Agreement or in the other Loan Documents, Debtor may not hereafter acquire any
property to be located on the Premises subject to prior security interests. If
the Collateral or any part thereof is sold, transferred, exchanged, or otherwise
disposed of, the security interest of Secured Party shall extend to the proceeds
of such sale, transfer, exchange or other disposition.

(e)           Debtor will pay prior to delinquency all taxes and assessments
assessed against the Collateral, imposed on account of its use or operation or
imposed upon the Secured Party’s Note (“Impositions”) and shall deliver to
Secured Party, within ten (10) days after the

 

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due date of each Imposition, a receipt or other evidence satisfactory to Secured
Party of the payment thereof.

(f)            At the Secured Party’s request, Debtor will execute any document,
will procure any document and will do all other acts which from the character or
use of the Collateral may be reasonably necessary to protect the Collateral
against the rights, claims or interests of third persons, and will otherwise
preserve the Collateral as security hereunder.

(g)           Debtor shall furnish promptly to Secured Party such information
concerning the Collateral as Secured Party may from time to time request. Debtor
shall permit and hereby authorizes Secured Party to examine and inspect the
Collateral and any portion thereof wherever the same may be located. Following
an Event of Default (as hereinafter defined), Debtor shall, at the request of
Secured Party, assemble the Collateral or such portion thereof as may be
designated by Secured Party, together with all documents and records pertaining
thereto, at such place as Secured Party may designate.

(h)           The Debtor shall mark its books and records as may be necessary or
appropriate to evidence, protect and perfect the Lender’s security interest in
the Collateral. Such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will constitute a
valid, first priority security interest in Collateral acquired after the date
hereof, in each case, to the extent that a security interest in such Collateral
can be perfected by the filing of a financing statement or, in the case of
Collateral consisting of instruments, documents, chattel paper or certificated
securities, to the extent that Lender takes possession of such Collateral.

(i)            The Debtor shall take all action that may be necessary or
desirable, or that the Lender may request, so as at all times to maintain the
validity, perfection, enforceability and priority of the Lender’s security
interest in the Collateral or to enable the Lender to protect, exercise or
enforce its rights hereunder and in the Collateral. All charges, expenses and
fees the Lender may incur in doing any of the foregoing, and any taxes relating
thereto, shall, at Lender’s request, be charged to Debtor and added to the
Obligations and bear interest at the Default Interest Rate as specified in the
Note, or, at the Lender’s option, shall be paid to the Lender immediately upon
demand.

(j)            With respect to the Collateral, at the time the Collateral
becomes subject to the Lender’s security interest: (a) the Debtor shall be the
sole owner of and fully authorized and able to sell, transfer, pledge and/or
grant a first priority security interest in each and every item of the
Collateral to the Lender; (b) each document and agreement executed by the Debtor
or delivered to the Lender in connection with this Agreement shall be true and
correct in all respects; and (c) all signatures and endorsements of the Debtor
that appear on such documents and agreements shall be genuine and the Debtor
shall have full capacity to execute same.

(j)            At any time during the continuance of an Event of Default, the
Debtor shall, and the Lender may, at its option, instruct all builders,
customers, suppliers, carriers, forwarders, warehousers or others receiving or
holding cash, checks, documents or instruments in which the Lender holds a
security interest to deliver same to the Lender and/or subject to the Lender’s
order and if they shall come into any Debtor Party’s possession, they, and each
of them,

 

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shall be held by such Debtor Party in trust as the Lender’s trustee, and such
Debtor Party will immediately deliver them to the Lender in their original form
together with any necessary endorsement.

(k)           At all reasonable times the Lender shall have full access to and
the right to audit, check, inspect and make abstracts and copies from the
Debtor’s books, records, audits, correspondence and all other papers relating to
the Collateral and the operation of the Debtor’s business. The Lender and its
agents may enter upon any of the Debtor Parties’ premises at any time during
business hours and at any other reasonable time, and from time to time, for the
purpose of inspecting the Collateral and any and all records pertaining thereto
and the operation of such Debtor ‘s business.

(l)            The Debtor’s chief executive office is located at 5275 South
Arville Street, Suite B116, Las Vegas, Nevada 89118. Until written notice is
given to the Lender by the Debtor of any other office at which the Debtor keeps
its records pertaining to the Collateral, all such records shall be kept at such
executive office.

(m)          At any time following the occurrence and continuance of an Event of
Default past any applicable cure period, the Lender shall have the right to send
notice of the assignment of, and the Lender’s security interest in, the
Collateral to any and all customers or any third party holding or otherwise
concerned with any of the Collateral. Thereafter, the Lender shall have the sole
right to collect any monies owed in connection with the Collateral, take
possession of the Collateral, or both.

(n)           At any time following the occurrence and continuance of an Event
of Default past any applicable cure period, the Lender shall have the right to
receive, endorse, assign and/or deliver in the name of the Lender or Debtor any
and all checks, drafts and other instruments for the payment of money relating
to the Collateral, and the Debtor, on behalf of the Debtor, hereby waives notice
of presentment, protest and non-payment of any instrument so endorsed. At any
time following the occurrence and continuance of an Event of Default, the Debtor
hereby constitutes the Lender or its designee as the Debtor’s attorney with
power (i) to endorse Debtor’s name upon any notes, acceptances, checks, drafts,
money orders or other evidences of payment or Collateral; (ii) to sign Debtor’s
name on any invoice or bill of lading relating to any of the Accounts, drafts
against customers, assignments and verifications of Accounts; (iii) to send
verifications of Accounts (as defined under the Nevada Uniform Commercial Code)
to any customer; (iv) to demand payment of the Accounts; (v) to enforce payment
of the Accounts by legal proceedings or otherwise; (vi) to exercise all of the
Debtor’s rights and remedies with respect to the collection of the Accounts and
any other Collateral; (vii) to settle, adjust, compromise, extend or renew the
Accounts; (viii) to settle, adjust or compromise any legal proceedings brought
to collect Accounts; (ix) to prepare, file and sign Debtor’s name on a proof of
claim in bankruptcy or similar document against any customer; (x) to prepare,
file and sign the Debtor’ s name on any notice of lien, assignment or
satisfaction of lien or similar document in connection with the Accounts; (xi)
to transfer the Collateral into the name of Lender; and (xii) to do all other
acts and things necessary to carry out this Agreement. All acts of said attorney
or designee are hereby ratified and approved, and said attorney or designee
shall not be liable for any acts of omission or commission nor for any error of
judgment or mistake of fact or of law, unless done maliciously or with gross
(not mere) negligence; this

 

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power being coupled with an interest is irrevocable while any of the Obligations
remain unpaid. The Lender shall have the right at any time following the
occurrence of an Event of Default, to change the address for delivery of mail
addressed to the Debtor to such address as the Lender may designate and to
receive, open and dispose of all mail addressed to the Debtor.

(o)           The Lender shall not, under any circumstances or in any event
whatsoever, have any liability for any error or omission or delay of any kind
occurring in the settlement, collection or payment of any of the Accounts or any
instrument received in payment thereof, or for any damage resulting therefrom.
Following the occurrence of an Event of Default, the Lender may, without notice
or consent from Debtor, sue upon or otherwise collect, extend the time of
payment of, compromise or settle for cash, credit or upon any terms any of the
Collateral or any other securities, instruments or insurance applicable thereto
and/or release any obligor thereof. The Lender is authorized and empowered to
accept following the occurrence of an Event of Default or Default the return of
the goods represented by any of the Accounts, without notice to or consent by
Debtor, all without discharging or in any way affecting the Debtor’s liability
hereunder.

3.             Preservation of Collateral by Secured Party. Should Debtor fail
or refuse to make any payment, perform or observe any other covenant, condition
or obligation, or take any other action required by the terms of this Agreement
at the time or in the manner herein provided, then Secured Party may, at Secured
Party’s sole discretion, without notice to or demand upon Debtor, and without
releasing Debtor from any obligation, covenant or condition hereof, make,
perform, observe, take or do the same in such manner and to such extent as
Secured Party may deem necessary to protect its security interest in or the
value of the Collateral. Furthermore, Secured Party may commence, defend, appeal
or otherwise participate in any action or proceeding purporting to affect its
security interest in or the value of the Collateral. Debtor hereby agrees to
reimburse Secured Party on demand for any payment made, or any expense incurred
by Secured Party pursuant to the foregoing authorization (including court costs
and attorneys’ fees and disbursements), and agrees further to pay interest
thereon from the date of said payment or expenditure at the Default Interest
Rate as specified in the Note.

4.             Use of Collateral by Debtor. Until occurrence of an Event of
Default hereunder, Debtor may have possession of the Collateral and use it in
any lawful manner contemplated in the Loan Documents and consistent with this
Agreement and any policy of insurance affecting the Collateral.

5.             Event of Default. The occurrence of any of the following shall
constitute an Event of Default (“Event of Default”) hereunder:

(a)           If an Event of Default (as therein defined) shall occur under any
of the Loan Documents and be continuing or if Debtor fails to observe or perform
any term, covenant or condition of the Note, this Agreement or any of the other
Loan Documents and such default is not cured within the time period expressly
established therefor, if any; or

(b)           If any writ or any distress warrant shall be issued against or
levied on the Collateral, or any part thereof; or if the Debtor shall sell or
assign or attempt to sell or assign the

 

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Collateral, or any interest therein in violation of Paragraph 2(d) hereof, which
event shall not be corrected or cured by Debtor within thirty (30) days after
notice thereof by Secured Party; or

(c)           If any representation or warranty made by Debtor herein, or in any
other instrument, agreement or written statement in any way related hereto, to
the Collateral or any portion thereof, or to the Loan, shall prove to have been
false or incorrect in any material respect on or after the date when made, which
representation or warranty is not corrected or made good within thirty (30) days
after written notice thereof to Debtor.

6.             Remedies upon Default. Upon the occurrence of an Event of
Default, Secured Party may, in addition to exercising those remedies specified
in the Note and the other Loan Documents, at any time, at its election, without
further notice, and to the extent permitted by law:

(a)           Foreclose this Agreement and the security interest granted hereby,
as provided herein, or in any manner permitted by law, either personally,
through agents or by means of a court appointed receiver, and take possession of
all or any of the Collateral and exclude therefrom Debtor and all others
claiming through or under Debtor, and exercise any and all of the rights and
remedies conferred upon Secured Party by the Note, and the other Loan Documents
or by applicable law, either concurrently or in such order as Secured Party may
determine. Secured Party may sell, lease or otherwise dispose of, or cause to be
sold, leased, or otherwise disposed of in such order as Secured Party may
determine, as a whole or in such parcels as Secured Party may determine, the
Collateral described in this Agreement, or exercise any of the rights conferred
upon the Secured Party by this Agreement, the Note, or other Loan Documents
without affecting in any way the rights or remedies to which Secured Party may
be entitled under any other Loan Document; and/or

(b)           Make such payments and do such acts as Secured Party may deem
necessary to protect its security interest in the Collateral, including without
limitation paying, purchasing, contesting or compromising any encumbrance,
charge, claim or lien which is prior to or superior to the security interest
granted hereunder, and, in exercising any such powers or authority, pay all
expenses incurred in connection therewith, and all funds expended by Secured
Party in protecting its security interest shall be deemed additional
indebtedness secured by this Agreement; and/or

(c)           Require Debtor to assemble the Collateral, or any portion thereof,
at any place or places designated by Secured Party, and promptly to deliver such
Collateral to Secured Party, or an agent or representative designated by it;
and/or

(d)           Publicly or privately sell, lease or otherwise dispose of the
Collateral, without necessarily having the Collateral at the place of sale,
lease or disposition, and upon terms and in such manner as Secured Party may
determine. Secured Party may be a purchaser of the Collateral at any public
sale. Unless the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market, Secured Party
will give Debtor reasonable notice of the time and place of any public sale
thereof or of the time after which any private sale or any other intended
disposition thereof is to be made, and such notice, if given to the Debtor
pursuant to the provisions of Paragraph 8 hereof at least ten (10) days prior to
the date

 

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of any public sale or disposition or the date after which any private sale or
disposition may occur, shall constitute reasonable notice of such sale, lease or
other disposition; and/or

(e)           Notify any account debtor or any other Party obligated on or with
respect to any of the Collateral to make payment to Secured Party or its nominee
of any amounts due or to become due thereunder or with respect thereto and
otherwise perform its obligations with respect to the Collateral on behalf of
and for the benefit of Secured Party. Secured Party may enforce collection and
performance with respect to any of the Collateral by suit or otherwise, in its
own name or in the name of Debtor or a nominee, and surrender, release, or
exchange all or any part thereof; and compromise, extend or renew (whether or
not for longer than the original period) or transfer, assign or endorse for
collection or otherwise, any indebtedness or obligation with respect to the
Collateral, or evidenced thereby, and upon request of Secured Party, Debtor
will, at its own expense, notify any person obligated on or with respect to any
of the Collateral to make payment and performance directly to, in the name of,
and on behalf of Secured Party of any amounts or performance due or to become
due thereunder or with respect thereto; and/or

(f)            Exercise any remedies of a secured party under the Nevada Uniform
Commercial Code or any other applicable law.

To effectuate the foregoing, Debtor hereby agrees that if the Secured Party
demands or attempts to take possession of the Collateral or any portion thereof
in exercise of its rights and remedies hereunder and under any other Loan
Document, Debtor will promptly turn over and deliver possession thereof to
Secured Party, and Debtor authorizes, to the extent Debtor may now or hereafter
lawfully grant such authority, Secured Party, its employees and agents, and
potential bidders or purchasers to enter upon any or all of the premises where
the Collateral or any portion thereof may at the time be located (or believed to
be located) and Secured Party may (i) remove the same therefrom or render the
same inoperable (with or without removal from such location), (ii) repair,
operate, use or manage the Collateral or any portion thereof, (iii) maintain,
repair or store the Collateral or any portion thereof, (iv) view, inspect and
prepare for sale, lease or disposition the Collateral or any portion thereof,
(v) sell, lease, dispose of or consume the same or bid thereon, or (vi)
incorporate the Collateral or any portion thereof into the Premises.

Debtor hereby agrees to indemnify, defend, protect and hold harmless Secured
Party and its employees, officers and agents for and against any and all
liabilities, claims and obligations which may be incurred, asserted or imposed
upon them or any of them as a result of or in connection with any use,
operation, lease or consumption of any of the Collateral or as a result of
Secured Party’s seeking to obtain performance of any of the obligations due with
respect to the Collateral, except from such liabilities, claims or obligations
as result from gross negligence or intentional misconduct of Secured Party, its
employees, officers or agents.

The proceeds of any sale under this Paragraph 6 shall be applied first to the
payment of any sums owing to Secured Party pursuant to the provisions of the
Note, this Agreement, or any of the other Loan Documents in such manner as
Secured Party may elect, with any funds remaining after payment of the foregoing
to be paid to Debtor.

Secured Party shall have the right to enforce one or more remedies hereunder,
successively or concurrently, and such action shall not operate to estop or
prevent Secured Party

 

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from pursuing any further remedy which it may have, and any repossession or
retaking or sale of the Collateral pursuant to the terms hereof shall not
operate to release Debtor until full payment of any deficiency has been made in
cash.

7.             Other Remedies. Any and all remedies herein expressly conferred
upon Secured Party shall be deemed cumulative with, and not exclusive of, any
other remedy conferred hereby or by law or equity on Secured Party, and the
exercise of any one remedy shall not preclude the exercise of any other. Except
as otherwise specifically required herein, notice of the exercise of any right,
remedy or power granted to Secured Party by this Agreement is not required to be
given.

8.             Notice.  All notices, consents, approvals or other instruments
required or permitted to be given by either party pursuant to this Agreement
shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii)
express overnight delivery service or (iv) certified or registered mail, return
receipt requested, and shall be deemed to have been delivered upon (a) receipt,
if hand delivered, (b) transmission, if delivered by facsimile (and if a copy of
such notice is also mailed by certified or registered mail, return receipt
requested, and deposited with the U.S. Postal Service no later than the first
business day after the notice was transmitted by facsimile), (c)the next
business day following the date of deposit with the delivery service, if
delivered by express overnight delivery service, or (d) the third business day
following the day of deposit of such notice with the United States Postal
Service, if sent by certified or registered mail, return receipt requested.
Notices shall be provided to the parties and addresses (or facsimile numbers, as
applicable) specified below:

If to Debtor:

Crystalix Group International, Inc.

5275 South Arville Street, Suite B116

Las Vegas, Nevada 89118

Attn: Doug Lee, President

Fax No.: (702) 740-4611

with a copy to:

Snell & Wilmer L.L.P.

3800 Howard Hughes Parkway, Suite 1000

Las Vegas, Nevada 89109

Attn: Stephen B. Yoken, Esq.

Fax No.: (702) 784-5252

If to Lender:

Urban Casavant as Trustee

30 Princeville Lane

Las Vegas, Nevada 89113

Fax. No.: (702) 247-1307

Any party may change the address specified above by written notice to the other
parties. Notices shall be deemed received when actually delivered to the
addressee, or if earlier, three days after depositing in the United States mail,
registered or certified, return receipt requested, addressed in accordance with
this Paragraph.

 

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9.             Waiver. By exercising or failing to exercise any of its rights,
options or elections hereunder, Secured Party shall not be deemed to have waived
any breach or default on the part of Debtor or to have released Debtor from any
of its obligations hereunder, unless such waiver or release is in writing and
signed by Secured Party. In addition, the waiver by Secured Party of any breach
hereof or default in payment of any amounts due under the Note or this Agreement
shall not be deemed to constitute a waiver of any succeeding breach or default.

10.           Governing Law; Interpretation. This Security Agreement shall be
governed by the laws of the State of Nevada without reference to the conflicts
of law principles of that State. The headings of sections and paragraphs in this
Security Agreement are for convenience only and shall not be construed in any
way to limit or define the content, scope, or intent of the provisions hereof.
As used in this Security Agreement, the singular shall include the plural, and
masculine, feminine, and neuter pronouns shall be fully interchangeable, where
the context so requires. If any provision of this Security Agreement, or any
paragraph, sentence, clause, phrase, or word, or the application thereof, in any
circumstances, is adjudicated by a court of competent jurisdiction to be
invalid, the validity of the remainder of this Security Agreement shall be
construed as if such invalid part were never included herein. Time is of the
essence of this Security Agreement. The security interest created hereby is
intended to attach when this Agreement is executed by the Debtor and delivered
to the Lender.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the day and year
first above written.

 

BORROWER:

 

Crystalix Group International, Inc.

 

By: _________________________________

Doug Lee, President

 

By: _________________________________

Patty Hill, Secretary

 

 

 

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