Exhibit 10.4

                               SECURITY AGREEMENT

     THIS  SECURITY  AGREEMENT  (the  "Agreement"),  is  entered  into  and made
effective as of August 10, 2005,  by and between  CITY  NETWORK,  INC., a Nevada
corporation with its principal place of business located at Taipei,  Taiwan (the
"COMPANY"),  and the  BUYER(S)  listed on Schedule I attached to the  Securities
Purchase Agreement dated the date hereof (the "SECURED PARTY").

     WHEREAS, the Company shall issue and sell to the Secured Party, as provided
in the  Securities  Purchase  Agreement  dated the date hereof,  and the Secured
Party shall  purchase  up to Two  Hundred  Fifty  Thousand  Dollars  ($250,000),
subject to the terms of the Securities Purchase Agreement, of seven percent (7%)
secured convertible  debentures (the "CONVERTIBLE  DEBENTURES"),  which shall be
convertible  into shares of the Company's  common  stock,  par value $0.001 (the
"COMMON  STOCK") (as  converted,  the  "CONVERSION  SHARES"),  in the respective
amounts  set forth  opposite  each  Buyer(s)  name on Schedule I attached to the
Securities Purchase Agreement;

     WHEREAS,  to  induce  the  Secured  Party  to enter  into  the  transaction
contemplated  by the  Securities  Purchase  Agreement,  the Secured  Convertible
Debenture,  the Investor  Registration  Rights Agreement,  the Pledge and Escrow
Agreement,   and  the  Escrow  Agreement   (collectively   referred  to  as  the
"TRANSACTION  DOCUMENTS"),  the Company  hereby  grants to the  Secured  Party a
security interest in and to the pledged property  identified on EXHIBIT A hereto
(collectively  referred to as the "PLEDGED  PROPERTY") until the satisfaction of
the Obligations, as defined herein below.

     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
herein contained,  and for other good and valuable  consideration,  the adequacy
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:

                                   ARTICLE 1.

                         DEFINITIONS AND INTERPRETATIONS

     Section 1.1. Recitals.

     The above  recitals are true and correct and are  incorporated  herein,  in
their entirety, by this reference.

     Section 1.2. Interpretations.

     Nothing  herein  expressed  or implied is intended or shall be construed to
confer upon any person other than the Secured  Party any right,  remedy or claim
under or by reason hereof.

     Section 1.3. Obligations Secured.

     The  obligations  secured hereby are any and all obligations of the Company
now  existing or  hereinafter  incurred to the Secured  Party,  whether  oral or
written  and whether  arising  before,  on or after the date  hereof  including,
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without limitation,  those obligations of the Company to the Secured Party under
this Agreement,  the Securities Purchase Agreement,  the Convertible Debentures,
the Investor  Registration  Rights  Agreement  and  Irrevocable  Transfer  Agent
Instructions,  and any other amounts now or hereafter  owed to the Secured Party
by the Company thereunder or hereunder (collectively, the "OBLIGATIONS").

                                   ARTICLE 2.

                 PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL
                      AND TERMINATION OF SECURITY INTEREST

     Section 2.1. Pledged Property.

     (a) Company hereby pledges to the Secured Party, and creates in the Secured
Party for its benefit,  a security  interest for such time until the Obligations
are paid in full,  in and to all of the  property of the Company as set forth in
EXHIBIT "A"  attached  hereto and the  products  thereof and the proceeds of all
such items (collectively, the "PLEDGED PROPERTY"):

     (b) Simultaneously  with the execution and delivery of this Agreement,  the
Company  shall  make,  execute,  acknowledge,  file,  record and  deliver to the
Secured Party any documents reasonably requested by the Secured Party to perfect
its security interest in the Pledged Property. Simultaneously with the execution
and delivery of this Agreement, the Company shall make, execute, acknowledge and
deliver to the Secured Party such documents and instruments,  including, without
limitation, financing statements, certificates,  affidavits and forms as may, in
the Secured Party's reasonable judgment, be necessary to effectuate, complete or
perfect, or to continue and preserve, the security interest of the Secured Party
in the Pledged  Property,  and the Secured  Party shall hold such  documents and
instruments  as secured  party,  subject to the terms and  conditions  contained
herein.

     Section 2.2. Rights; Interests; Etc.

     (a) So long as no Event of  Default  (as  hereinafter  defined)  shall have
occurred and be continuing:

         (i) the  Company  shall be  entitled  to  exercise  any and all  rights
pertaining  to the  Pledged  Property  or any part  thereof  for any purpose not
inconsistent with the terms hereof; and

         (ii) the  Company  shall be  entitled to receive and retain any and all
payments paid or made in respect of the Pledged Property.

     (b) Upon the occurrence and during the continuance of an Event of Default:

         (i) All rights of the  Company to  exercise  the rights  which it would
otherwise be entitled to exercise  pursuant to Section  2.2(a)(i)  hereof and to
receive  payments  which it would  otherwise be authorized to receive and retain
pursuant to Section  2.2(a)(ii)  hereof shall be suspended,  and all such rights
shall thereupon  become vested in the Secured Party who shall thereupon have the
sole right to exercise  such rights and to receive and hold as Pledged  Property

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such  payments;  PROVIDED,  HOWEVER,  that if the  Secured  Party  shall  become
entitled  and shall  elect to  exercise  its  right to  realize  on the  Pledged
Property  pursuant  to  Article 5 hereof,  then all cash  sums  received  by the
Secured Party,  or held by Company for the benefit of the Secured Party and paid
over  pursuant  to  Section  2.2(b)(ii)  hereof,  shall be applied  against  any
outstanding Obligations; and

         (ii)  All   interest,   dividends,   income  and  other   payments  and
distributions  which are received by the Company  contrary to the  provisions of
Section  2.2(b)(i)  hereof  shall be  received  in trust for the  benefit of the
Secured Party,  shall be segregated from other property of the Company and shall
be forthwith paid over to the Secured Party; or

         (iii) The Secured Party in its sole  discretion  shall be authorized to
sell any or all of the Pledged  Property at public or private sale,  only to the
extent to recoup all of the outstanding  principal of the Convertible  Debenture
plus  accrued  interest and other  amounts owed in respect  thereof as described
herein.

     (c) Each of the  following  events shall  constitute  a default  under this
Agreement (each an "EVENT OF DEFAULT"):

         (i) an Event of Default shall occur under the Convertible Debentures;

         (ii) any  material  default  adversely  affecting  the Secured  Party's
security  interest in the Pledged  Property,  whether in whole or in part, shall
occur  in the  due  observance  or  performance  of  any  obligations  or  other
covenants,  terms or  provisions  to be performed  under this  Agreement,  which
continues  for thirty  (30) days after  notice  from the  Secured  Party of such
material default;

                                   ARTICLE 3.

                          ATTORNEY-IN-FACT; PERFORMANCE

     Section 3.1. Secured Party Appointed Attorney-In-Fact.

     Upon the occurrence of an Event of Default, the Company hereby appoints the
Secured  Party as its  attorney-in-fact,  with full  authority  in the place and
stead of the Company and in the name of the Company or  otherwise,  from time to
time in the  Secured  Party's  discretion  to take any action and to execute any
instrument  which the Secured Party may reasonably  deem necessary to accomplish
the purposes of this Agreement,  including,  without limitation,  to receive and
collect all instruments made payable to the Company representing any payments in
respect of the Pledged  Property or any part thereof and to give full  discharge
for the same.  The  Secured  Party may demand,  collect,  receipt  for,  settle,
compromise,  adjust, sue for,  foreclose,  or realize on the Pledged Property as
and when the Secured Party may determine. To facilitate collection,  the Secured
Party may notify  account  debtors and obligors on any Pledged  Property to make
payments directly to the Secured Party.

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     Section 3.2. Secured Party May Perform.

     If the Company fails to perform any agreement contained herein, the Secured
Party,  at its  option,  may  itself  perform,  or cause  performance  of,  such
agreement,  and  the  expenses  of the  Secured  Party  incurred  in  connection
therewith shall be included in the Obligations secured hereby and payable by the
Company under Section 8.3.

                                   ARTICLE 4.

                         REPRESENTATIONS AND WARRANTIES

     Section 4.1. Authorization; Enforceability.

     Each of the parties  hereto  represents  and warrants that it has taken all
action  necessary to authorize the execution,  delivery and  performance of this
Agreement  and the  transactions  contemplated  hereby;  and upon  execution and
delivery,  this Agreement shall constitute a valid and binding obligation of the
respective party, subject to applicable bankruptcy, insolvency,  reorganization,
moratorium  and similar laws  affecting  creditors'  rights or by the principles
governing the availability of equitable remedies.

     Section 4.2. Ownership of Pledged Property.

     The Company  warrants and  represents  that it is the legal and  beneficial
owner of the Pledged  Property  free and clear of any lien,  security  interest,
option or other charge or encumbrance  except for the security  interest created
by this Agreement.

                                   ARTICLE 5.

                    DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL

     Section 5.1. Default and Remedies.

     Upon the  occurrence of an Event of Default,  the Secured  Party shall,  in
addition to any other remedies available, if it has declared the Obligations due
and payable:  (i) be entitled to receive all  distributions  with respect to the
Pledged Property,  (ii) to cause the Pledged Property to be transferred into the
name of the  Secured  Party or its  nominee,  (iii) to  dispose  of the  Pledged
Property,  and (iv) to realize  upon any and all rights in the Pledged  Property
then held by the Secured Party.

     Section 5.2. Method of Realizing Upon the Pledged Property: Other Remedies.

     Upon the  occurrence of an Event of Default,  in addition to any rights and
remedies  available at law or in equity,  the following  provisions shall govern
the Secured Party's right to realize upon the Pledged Property:

     (a) Any item of the Pledged Property may be sold for cash or other value in
any number of lots at brokers  board,  public auction or private sale and may be
sold without  demand,  advertisement  or notice  (except that the Secured  Party
shall give the Company ten (10) days' prior written notice of the time and place
or of the time  after  which a private  sale may be made (the  "SALE  NOTICE")),

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which notice period is hereby agreed to be commercially reasonable.  At any sale
or sales of the Pledged Property, the Company may bid for and purchase the whole
or any part of the Pledged  Property and, upon compliance with the terms of such
sale, may hold,  exploit and dispose of the same without further  accountability
to the Secured  Party.  The Company  will  execute and  deliver,  or cause to be
executed and  delivered,  such  instruments,  documents,  assignments,  waivers,
certificates,  and  affidavits  and supply or cause to be supplied  such further
information and take such further action as the Secured Party  reasonably  shall
require in connection with any such sale.

     (b) Any cash being held by the Secured  Party as Pledged  Property  and all
cash proceeds  received by the Secured Party in respect of, sale of,  collection
from, or other realization upon all or any part of the Pledged Property shall be
applied as follows:

         (i) to the  payment  of all  amounts  due  the  Secured  Party  for the
expenses  reimbursable  to it  hereunder  or owed to it  pursuant to Section 8.3
hereof;

         (ii) to the payment of the Obligations then due and unpaid.

         (iii) the balance,  if any, to the person or persons entitled  thereto,
including, without limitation, the Company.

     (c) In addition to all of the rights and remedies  which the Secured  Party
may have  pursuant to this  Agreement,  the Secured  Party shall have all of the
rights and remedies provided by law, including,  without limitation, those under
the Uniform Commercial Code.

         (i) If the Company fails to pay such amounts due upon the occurrence of
an Event of Default which is continuing,  then the Secured Party may institute a
judicial  proceeding  for the  collection  of the  sums so due and  unpaid,  may
prosecute  such  proceeding to judgment or final decree and may enforce the same
against the Company and collect the monies  adjudged or decreed to be payable in
the manner provided by law out of the property of Company, wherever situated.

         (ii) The  Company  agrees  that it shall be liable  for any  reasonable
fees,  expenses  and costs  incurred by the  Secured  Party in  connection  with
enforcement,   collection  and   preservation  of  the  Transaction   Documents,
including,  without  limitation,  reasonable  legal fees and expenses,  and such
amounts shall be deemed  included as  Obligations  secured hereby and payable as
set forth in Section 8.3 hereof.

     Section 5.3. Proofs of Claim.

     In case  of the  pendency  of any  receivership,  insolvency,  liquidation,
bankruptcy,  reorganization,   arrangement,  adjustment,  composition  or  other
judicial proceeding relating to the Company or the property of the Company or of
such other obligor or its creditors,  the Secured Party (irrespective of whether
the  Obligations  shall  then be due and  payable  as  therein  expressed  or by
declaration  or otherwise  and  irrespective  of whether the Secured Party shall
have made any demand on the Company for the payment of the Obligations), subject
to the rights of Previous Security Holders, shall be entitled and empowered,  by
intervention in such proceeding or otherwise:

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         (i) to file and prove a claim for the whole  amount of the  Obligations
and to file such other  papers or  documents as may be necessary or advisable in
order to have the  claims  of the  Secured  Party  (including  any claim for the
reasonable  legal fees and expenses and other  expenses  paid or incurred by the
Secured  Party  permitted  hereunder  and of the Secured  Party  allowed in such
judicial proceeding), and

         (ii) to collect  and receive  any monies or other  property  payable or
deliverable  on any such claims and to distribute  the same;  and any custodian,
receiver, assignee, trustee, liquidator,  sequestrator or other similar official
in any such  judicial  proceeding  is hereby  authorized by the Secured Party to
make such payments to the Secured Party and, in the event that the Secured Party
shall consent to the making of such payments  directed to the Secured Party,  to
pay to the Secured Party any amounts for expenses due it hereunder.

     Section 5.4. Duties Regarding Pledged Property.

     The Secured Party shall have no duty as to the  collection or protection of
the Pledged  Property  or any income  thereon or as to the  preservation  of any
rights pertaining thereto, beyond the safe custody and reasonable care of any of
the Pledged Property actually in the Secured Party's possession.

                                   ARTICLE 6.

                              AFFIRMATIVE COVENANTS

     The Company  covenants and agrees that,  from the date hereof and until the
Obligations  have been fully paid and satisfied,  unless the Secured Party shall
consent otherwise in writing (as provided in Section 8.4 hereof):

     Section 6.1. Existence, Properties, Etc.

     (a) The Company shall do, or cause to be done, all things,  or proceed with
due  diligence  with any  actions or courses of action,  that may be  reasonably
necessary (i) to maintain  Company's due organization,  valid existence and good
standing under the laws of its state of incorporation,  and (ii) to preserve and
keep in full force and effect all qualifications,  licenses and registrations in
those  jurisdictions in which the failure to do so could have a Material Adverse
Effect (as  defined  below);  and (b) the  Company  shall not do, or cause to be
done, any act impairing the Company's  corporate power or authority (i) to carry
on the Company's business as now conducted,  and (ii) to execute or deliver this
Agreement or any other  document  delivered in connection  herewith,  including,
without limitation, any UCC-1 Financing Statements required by the Secured Party
to which the Company is or will be a party,  or perform  any of its  obligations
hereunder  or  thereunder.  For purpose of this  Agreement,  the term  "MATERIAL
ADVERSE  EFFECT"  shall mean any material and adverse  affect as  determined  by
Secured Party in its sole discretion,  whether individually or in the aggregate,
upon (a) the Company's assets,  business,  operations,  properties or condition,
financial or otherwise;  (b) the  Company's  ability to make payment as and when
due of all or any part of the Obligations; or (c) the Pledged Property.

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     Section 6.2. Financial Statements and Reports.

     The Company  shall  furnish to the Secured  Party within a reasonable  time
such  financial  data as the Secured Party may  reasonably  request,  including,
without limitation, the following:

     (a) The balance  sheet of the Company as of the close of each fiscal  year,
the  statement of earnings and retained  earnings of the Company as of the close
of such fiscal year, and statement of cash flows for the Company for such fiscal
year, all in reasonable  detail,  prepared in accordance with generally accepted
accounting principles consistently applied, certified by the chief executive and
chief  financial  officers  of  the  Company  as  being  true  and  correct  and
accompanied by a certificate of the chief executive and chief financial officers
of the  Company,  stating  that the Company has kept,  observed,  performed  and
fulfilled each covenant, term and condition of this Agreement during such fiscal
year and that no Event of Default  hereunder has occurred and is continuing,  or
if an Event of Default has occurred and is continuing,  specifying the nature of
same,  the period of  existence  of same and the action the Company  proposes to
take in connection therewith;

     (b) A  balance  sheet of the  Company  as of the close of each  month,  and
statement of earnings  and  retained  earnings of the Company as of the close of
such month, all in reasonable detail,  and prepared  substantially in accordance
with generally accepted accounting principles consistently applied, certified by
the chief  executive and chief  financial  officers of the Company as being true
and correct; and

     (c) Copies of all accountants'  reports and accompanying  financial reports
submitted to the Company by  independent  accountants  in  connection  with each
annual examination of the Company.

     Section 6.3. Accounts and Reports.

     The Company  shall  maintain a standard  system of accounting in accordance
with generally accepted accounting principles  consistently applied and provide,
at its sole expense, to the Secured Party the following:

     (a) as soon as  available,  a copy of any  notice  or  other  communication
alleging any nonpayment or other material breach or default,  or any foreclosure
or other action  respecting any material  portion of its assets and  properties,
received  respecting any of the indebtedness of the Company in excess of $15,000
(other than the  Obligations),  or any demand or other request for payment under
any guaranty, assumption, purchase agreement or similar agreement or arrangement
respecting  the  indebtedness  or  obligations  of others in excess of  $15,000,
including  any received from any person acting on behalf of the Secured Party or
beneficiary thereof; and

     (b) within fifteen (15) days after the making of each submission or filing,
a copy of any report,  financial  statement,  notice or other document,  whether
periodic  or  otherwise,  submitted  to  the  shareholders  of the  Company,  or
submitted to or filed by the Company with any governmental  authority  involving
or affecting (i) the Company that could have a Material Adverse Effect; (ii) the
Obligations;  (iii)  any  part  of the  Pledged  Property;  or  (iv)  any of the
transactions contemplated in this Agreement.

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     Section 6.4. Maintenance of Books and Records; Inspection.

     The Company  shall  maintain its books,  accounts and records in accordance
with generally accepted accounting  principles  consistently applied, and permit
the Secured Party, its officers and employees and any  professionals  designated
by the  Secured  Party in  writing,  at any time to visit and inspect any of its
properties  (including but not limited to the collateral  security  described in
the  Transaction  Documents),  corporate  books and  financial  records,  and to
discuss  its  accounts,  affairs  and  finances  with any  employee,  officer or
director thereof.

     Section 6.5. Maintenance and Insurance.

     (a) The  Company  shall  maintain  or  cause to be  maintained,  at its own
expense,  all of its assets and  properties in good working order and condition,
making all necessary repairs thereto and renewals and replacements thereof.

     (b) The  Company  shall  maintain  or  cause to be  maintained,  at its own
expense, insurance in form, substance and amounts (including deductibles), which
the Company deems reasonably  necessary to the Company's business,  (i) adequate
to insure all assets and properties of the Company,  which assets and properties
are of a  character  usually  insured by persons  engaged in the same or similar
business  against loss or damage  resulting from fire or other risks included in
an extended coverage policy; (ii) against public liability and other tort claims
that may be incurred by the Company; (iii) as may be required by the Transaction
Documents  and/or  applicable  law and (iv) as may be  reasonably  requested  by
Secured Party, all with adequate, financially sound and reputable insurers.

     Section 6.6. Contracts and Other Collateral.

     The Company shall perform all of its  obligations  under or with respect to
each  instrument,  receivable,  contract  and other  intangible  included in the
Pledged  Property  to which the Company is now or  hereafter  will be party on a
timely basis and in the manner therein required,  including, without limitation,
this Agreement.

     Section 6.7. Defense of Collateral, Etc.

     The Company  shall defend and enforce its right,  title and interest in and
to any part of: (a) the Pledged  Property;  and (b) if not  included  within the
Pledged  Property,  those assets and properties whose loss could have a Material
Adverse Effect,  the Company shall defend the Secured  Party's right,  title and
interest in and to each and every part of the Pledged Property, each against all
manner of claims and demands on a timely  basis to the full extent  permitted by
applicable law.

     Section 6.8. Payment of Debts, Taxes, Etc.

     The Company  shall pay, or cause to be paid,  all of its  indebtedness  and
other liabilities and perform, or cause to be performed,  all of its obligations
in accordance with the respective terms thereof, and pay and discharge, or cause
to be paid or discharged,  all taxes, assessments and other governmental charges
and levies  imposed upon it, upon any of its assets and  properties on or before

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the last day on which the same may be paid without  penalty,  as well as pay all
other  lawful  claims  (whether  for  services,  labor,  materials,  supplies or
otherwise) as and when due.

     Section 6.9. Taxes and Assessments; Tax Indemnity.

     The  Company  shall  (a) file all tax  returns  and  appropriate  schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency,  (b) pay and  discharge  all taxes,  assessments  and  governmental
charges or levies imposed upon the Company,  upon its income and profits or upon
any  properties  belonging  to it, prior to the date on which  penalties  attach
thereto,  and (c) pay all taxes,  assessments and governmental charges or levies
that,  if  unpaid,  might  become a lien or charge  upon any of its  properties;
PROVIDED,  HOWEVER,  that the  Company in good faith may  contest  any such tax,
assessment,  governmental  charge or levy described in the foregoing clauses (b)
and (c) so long as appropriate reserves are maintained with respect thereto.

     Section 6.10. Compliance with Law and Other Agreements.

     The Company shall  maintain its business  operations  and property owned or
used in connection  therewith in  compliance  with (a) all  applicable  federal,
state and  local  laws,  regulations  and  ordinances  governing  such  business
operations and the use and ownership of such property,  and (b) all  agreements,
licenses,  franchises,  indentures and mortgages to which the Company is a party
or by which the Company or any of its properties is bound.  Without limiting the
foregoing,  the Company shall pay all of its indebtedness promptly in accordance
with the terms thereof.

     Section 6.11. Notice of Default.

     The  Company  shall  give  written  notice  to  the  Secured  Party  of the
occurrence  of any Event of Default  under this  Agreement  (including  defaults
which,  with  the  passage  of  time,  would  constitute  an  Event  of  Default
hereunder),  the Transaction Documents or any other agreement of Company for the
payment of money, promptly, in light of the circumstances, upon its knowledge of
the occurrence thereof.

     Section 6.12. Notice of Litigation.

     The Company shall give notice, in writing,  to the Secured Party of (a) any
actions,  suits or  proceedings  wherein  the  amount  at issue is in  excess of
$50,000,  instituted by any persons against the Company, or affecting any of the
assets of the Company,  and (b) any dispute,  not resolved  within  fifteen (15)
days of the  commencement  thereof,  between the Company on the one hand and any
governmental  or regulatory  body on the other hand,  which might  reasonably be
expected  to have a  material  adverse  effect  on the  business  operations  or
financial condition of the Company.

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                                   ARTICLE 7.

                               NEGATIVE COVENANTS

     The Company  covenants  and agrees  that,  from the date  hereof  until the
Obligations  have been fully paid and satisfied,  the Company shall not,  unless
the Secured Party shall consent otherwise in writing:

     Section 7.1 Liens and Encumbrances.

     The Company shall not directly or indirectly make, create, incur, assume or
permit to exist any assignment, transfer, pledge, mortgage, security interest or
other  lien or  encumbrance  of any  nature  in, to or  against  any part of the
Pledged Property or of the Company's  capital stock, or offer or agree to do so,
or own or acquire or agree to acquire  any asset or  property  of any  character
having value  exceeding  $50,000  subject to any of the  foregoing  encumbrances
(including any conditional sale contract or other title retention agreement), or
assign,  pledge or in any way  transfer  or  encumber  its right to receive  any
income or other  distribution or proceeds from any part of the Pledged  Property
or the  Company's  capital  stock;  or enter into any  sale-leaseback  financing
respecting  any part of the Pledged  Property as lessee,  or cause or assist the
inception or continuation of any of the foregoing.

     Section 7.2 Articles of Incorporation,  By-Laws,  Mergers,  Consolidations,
                 Acquisitions and Sales.

     Without the prior express written consent of the Secured Party, the Company
shall not:  (a) Amend its  Articles  of  Incorporation  or By-Laws in any manner
adverse to the Secured  Party;  (b) be a party to any merger,  consolidation  or
corporate  reorganization,  unless  the  Company's  successor  pursuant  to such
transaction shall agree in writing to be bound hereby; (c) purchase or otherwise
acquire all or  substantially  all of the assets or stock of, or any partnership
or joint  venture  interest  in,  any other  person,  firm or  entity  for value
exceeding $1,000,000,  (d) sell, transfer,  convey, grant a security interest in
or lease all or any substantial part of its assets,  unless the transferee shall
acknowledge in writing the Secured Party's rights hereunder;  nor (e) create any
subsidiaries nor convey any of its assets to any subsidiary.

     Section 7.3 Management, Ownership.

     The Company shall not materially  change its ownership,  executive staff or
management  without  the  prior  written  consent  of  the  Secured  Party.  The
ownership, executive staff and management of the Company are material factors in
the Secured Party's willingness to institute and maintain a lending relationship
with the Company.

     Section 7.4 Dividends, Etc.

     The Company  shall not declare or pay any dividend of any kind,  in cash or
in property, on any class of its capital stock, nor purchase,  redeem, retire or
otherwise  acquire for value any shares of such stock, nor make any distribution
of any kind in respect  thereof,  nor make any return of capital to shareholders
(except as required or permitted hereunder) without the prior written consent of
the Secured Party.

                                       10
<PAGE>
     Section 7.5 Guaranties; Loans.

     The  Company  shall not  guarantee  nor be liable  in any  manner,  whether
directly or  indirectly,  or become  contingently  liable after the date of this
Agreement in connection with the obligations or indebtedness  for money borrowed
of any person or persons,  except for (i) the indebtedness  currently secured by
the liens identified on the Pledged Property  identified on Exhibit A hereto and
(ii) the  endorsement  of  negotiable  instruments  payable to the  Company  for
deposit or collection in the ordinary course of business.  The Company shall not
make any loan,  advance or  extension  of credit to any person other than in the
normal course of its business.

     Section 7.6 Debt.

     The  Company  shall  not  create,  incur,  assume  or  suffer  to exist any
additional  indebtedness  of any  description  whatsoever not outstanding on the
date hereof in an aggregate amount in excess of $50,000,  including commitments,
contingencies  and credit  availabilities,  or apply for or offer or agree to do
any of the forgoing  (excluding any  indebtedness  (i) for money borrowed of the
Company to the Secured  Party,  trade  accounts  payable  and  accrued  expenses
incurred in the ordinary  course of business and the  endorsement  of negotiable
instruments payable to the Company,  respectively,  for deposit or collection in
the ordinary  course of business or (ii) incurred under the facilities set forth
on SCHEDULE I hereto).

     Section 7.7 Conduct of Business.

     The Company will continue to engage, in an efficient and economical manner,
in a business of the same  general  type as  conducted by it on the date of this
Agreement and as described or contemplated in the SEC Documents.

     Section 7.8 Places of Business.

     The location of the  Company's  chief place of business is Taipei,  Taiwan.
The Company shall not change the location of its chief place of business,  chief
executive office or any place of business disclosed to the Secured Party or move
any of the Pledged  Property from its current location without thirty (30) days'
prior written notice to the Secured Party in each instance.

                                   ARTICLE 8.

                                  MISCELLANEOUS

     Section 8.1. Notices.

     Any  notices,  consents,  waivers,  or  other  communications  required  or
permitted to be given under the terms of this  Agreement  must be in writing and
will be  deemed  to  have  been  delivered  (i)  upon  receipt,  when  delivered
personally or by a nationally  recognized overnight or world wide courier;  (ii)
upon  confirmation  of receipt,  when sent by facsimile;  or (iii) ten (10) days
after being sent by U.S. certified mail, return receipt requested,  in each case
properly addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be::

                                       11
<PAGE>
     If to the Secured Party:   Highgate House Funds, Ltd.
                                101 Hudson Street-Suite 3700
                                Jersey City, New Jersey 07302
                                Attention: Mark Angelo
                                           Portfolio Manager
                                Telephone: (201) 986-8300
                                Facsimile: (201) 985-8266

     With a copy to:            David Gonzalez, Esq.
                                101 Hudson Street, Suite 3700
                                Jersey City, NJ 07302
                                Telephone: (201) 985-8300
                                Facsimile: (201) 985-8266

     And if to the Company:     City Network, Inc
                                6F-3, No.16, Jian Ba Road
                                Jhonghe City, Taipei County, 235
                                Taiwan, ROC F5 235
                                Attention: Mr Tiao-Tsan Lai
                                Telephone: 886-2-8226-5566
                                Facsimile: 886-2-8226-8585

     With a copy to:            Loeb & Loeb, LLP
                                345 Park Avenue
                                New York, NY 10154-0037
                                Attention: Mitchell Nussbaum, Esq.
                                Telephone: (212) 407-4159
                                Facsimile: (212) 407.4990

     Each Party shall provide five (5) days' prior  written  notice to the other
party of any change in address or facsimile number.

     Section 8.2. Severability.

     If any provision of this Agreement shall be held invalid or  unenforceable,
such  invalidity  or  unenforceability  shall attach only to such  provision and
shall not in any  manner  affect or render  invalid or  unenforceable  any other
severable  provision of this Agreement,  and this Agreement shall be carried out
as if any such invalid or unenforceable provision were not contained herein.

     Section 8.3. Expenses.

     In the event of an Event of Default,  the  Company  will pay to the Secured
Party the amount of any and all  reasonable  expenses,  including the reasonable
fees  and  expenses  of its  counsel,  which  the  Secured  Party  may  incur in
connection  with: (i) the custody or  preservation  of, or the sale,  collection

                                       12
<PAGE>
from, or other realization upon, any of the Pledged Property;  (ii) the exercise
or enforcement of any of the rights of the Secured Party  hereunder or (iii) the
failure by the Company to perform or observe any of the provisions hereof.

     Section 8.4. Waivers, Amendments, Etc.

     The  Secured  Party's  delay or failure at any time or times  hereafter  to
require  strict  performance  by  Company  of any  undertakings,  agreements  or
covenants shall not waiver,  affect,  or diminish any right of the Secured Party
under this Agreement to demand strict compliance and performance  herewith.  Any
waiver by the  Secured  Party of any Event of Default  shall not waive or affect
any other Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type.  None of the  undertakings,
agreements  and  covenants of the Company  contained in this  Agreement,  and no
Event of Default,  shall be deemed to have been waived by the Secured Party, nor
may this  Agreement  be  amended,  changed  or  modified,  unless  such  waiver,
amendment,  change or  modification  is  evidenced by an  instrument  in writing
specifying  such waiver,  amendment,  change or  modification  and signed by the
Secured Party.

     Section 8.5. Continuing Security Interest.

     This Agreement shall create a continuing  security  interest in the Pledged
Property and shall: (i) remain in full force and effect until payment in full of
the  Obligations;  and (ii) be binding upon the Company and its  successors  and
heirs and (iii) inure to the benefit of the Secured Party and its successors and
assigns.  Upon the  payment  or  satisfaction  in full of the  Obligations,  the
Company shall be entitled to the return, at its expense,  of such of the Pledged
Property as shall not have been sold in  accordance  with  Section 5.2 hereof or
otherwise applied pursuant to the terms hereof.

     Section 8.6. Independent Representation.

     Each party hereto  acknowledges  and agrees that it has received or has had
the opportunity to receive  independent legal counsel of its own choice and that
it has been sufficiently apprised of its rights and responsibilities with regard
to the substance of this Agreement.

     Section 8.7. Applicable Law: Jurisdiction.

     This Agreement  shall be governed by and interpreted in accordance with the
laws of the State of New Jersey  without regard to the principles of conflict of
laws.  The parties  further agree that any action between them shall be heard in
Hudson County,  New Jersey,  and expressly consent to the jurisdiction and venue
of the  Superior  Court of New Jersey,  sitting in Hudson  County and the United
States  District  Court for the  District of New Jersey  sitting in Newark,  New
Jersey  for the  adjudication  of any civil  action  asserted  pursuant  to this
Paragraph.

     Section 8.8. Waiver of Jury Trial.

     AS A FURTHER  INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT
AND TO MAKE THE  FINANCIAL  ACCOMMODATIONS  TO THE COMPANY,  THE COMPANY  HEREBY

                                       13
<PAGE>
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING  RELATED IN ANY WAY TO
THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.

     Section 8.9. Entire Agreement.

     This  Agreement  constitutes  the entire  agreement  among the  parties and
supersedes any prior agreement or  understanding  among them with respect to the
subject matter hereof.



                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       14
<PAGE>
     IN  WITNESS  WHEREOF,  the  parties  hereto  have  executed  this  Security
Agreement as of the date first above written.

                                    COMPANY:
                                    CITY NETWORK, INC.


                                    By: /s/ Tiao-Tsan Lai
                                       --------------------------------
                                    Name:  Mr Tiao-Tsan Lai
                                    Title: Chief Executive Officer


                                    SECURED PARTY:
                                    HIGHGATE HOUSE FUND, LTD.


                                    By:  Yorkville Advisors, LLC
                                    Its: General Partner


                                    By: /s/ Mark Angello
                                       --------------------------------
                                    Name:  Mark Angello
                                    Title: Portfolio Manager

                                       15
<PAGE>
                                    EXHIBIT A
                         DEFINITION OF PLEDGED PROPERTY

     For the purpose of securing prompt and complete  payment and performance by
the  Company  of  all  of  the  Obligations,  the  Company  unconditionally  and
irrevocably hereby grants to the Secured Party a continuing security interest in
and to, and lien upon, the following Pledged Property of the Company:

          (a)  all  goods  of  the  Company,   including,   without  limitation,
machinery,  equipment, furniture,  furnishings,  fixtures, signs, lights, tools,
parts,  supplies  and  motor  vehicles  of every  kind and  description,  now or
hereafter owned by the Company or in which the Company may have or may hereafter
acquire any interest, and all replacements, additions, accessions, substitutions
and proceeds thereof,  arising from the sale or disposition  thereof,  and where
applicable,  the proceeds of insurance  and of any tort claims  involving any of
the foregoing;

          (b) all inventory of the Company,  including,  but not limited to, all
goods, wares,  merchandise,  parts, supplies,  finished products, other tangible
personal  property,  including such inventory as is temporarily out of Company's
custody or  possession  and  including  any returns  upon any  accounts or other
proceeds,  including insurance proceeds,  resulting from the sale or disposition
of any of the foregoing;

          (c) all  contract  rights  and  general  intangibles  of the  Company,
including, without limitation,  goodwill, trademarks, trade styles, trade names,
leasehold interests,  partnership or joint venture interests, patents and patent
applications,  copyrights,  deposit  accounts  whether  now  owned or  hereafter
created;

          (d) all documents,  warehouse receipts,  instruments and chattel paper
of the Company whether now owned or hereafter created;

          (e) all accounts and other receivables,  instruments or other forms of
obligations and rights to payment of the Company (herein  collectively  referred
to as "ACCOUNTS"),  together with the proceeds thereof, all goods represented by
such  Accounts  and  all  such  goods  that  may be  returned  by the  Company's
customers,  and all  proceeds  of any  insurance  thereon,  and all  guarantees,
securities  and liens  which the  Company  may hold for the  payment of any such
Accounts  including,  without  limitation,  all rights of  stoppage  in transit,
replevin and reclamation and as an unpaid vendor and/or lienor, all of which the
Company  represents  and warrants will be bona fide and existing  obligations of
its respective customers, arising out of the sale of goods by the Company in the
ordinary course of business;

          (f) to the extent  assignable,  all of the Company's  rights under all
present and future  authorizations,  permits,  licenses and franchises issued or
granted in connection with the operations of any of its facilities;

          (g)  all  products  and  proceeds   (including,   without  limitation,
insurance proceeds) from the above-described Pledged Property.

                                      A-1
<PAGE>
                                SCHEDULE I

                              DEBT FACILITIES


No.               Lender                        Availability from Lender
---               ------                        ------------------------

1.     Hua Nan Commercial Bank, LTD       (a) up to New Taiwan Dollars ("NTD")
                                          $80,000,000 in letters of credit

                                          (b) up to NTD $20,000,000 in immediate
                                          loan allowances

2.     Jih Sun International Bank
       Tun Hua Branch                     up to NTD $20,000,000 in standby
                                          letters of credit

3.     Chiao Tong Bank                    up to NTD $30,000,000 in immediately
                                          available funds

                                      A-2