exhibit_10-12.htm


    
      

    
EXHIBIT
10.12

     

    SECURITY
AGREEMENT

     

      
        

      

    

     

    THIS SECURITY AGREEMENT
(“Agreement”) is made and entered into as of October 12, 2007 (the “Effective
Date”), by and between: SKYE INTERNATIONAL, INC., a Nevada corporation with
offices at 7701 East Gray Road, Suite 4, Scottsdale, Arizona 85260 (“Debtor”);
and TED MAREK DEFINED BENEFIT PENSION PLAN dated December 23, 1993 and effective
January 1, 1994, with offices at 9977 North 90th Street,
Suite 220, Scottsdale, Arizona 85258 (“Secured Party”).

     

    RECITALS

     

    WHEREAS, contemporaneously
with the execution and delivery of this Agreement, Debtor and Secured Party are
entering into a certain Loan Agreement (“Loan Agreement”), under which, from
time to time, Debtor will execute and deliver to Secured Party evidence of
indebtedness in substantially the same form as that certain form of Secured
Convertible Promissory Note attached to the Loan Agreement as Exhibit A thereto
(“Note”). All initially capitalized terms not defined in this Agreement shall
have the meanings ascribed thereto in the Loan Agreement and in any Note, all of
which shall be deemed incorporated herein by this reference.

     

    WHEREAS, as of the Effective
Date, Debtor has executed and delivered to Secured Party a Note in the original
principal amount of One Hundred Thousand Dollars (US $100,000.00), the
performance of which shall be secured by this Agreement.

     

    WHEREAS, this Agreement
secures on behalf of Secured Party the performance of all of Debtor’s
obligations under the Loan Agreement, under each and every additional Note
(together, the “Notes”) that may be issued by Debtor from time to time, and
under this Agreement (each such obligation of Debtor, a “Secured Obligation”;
collectively, “Secured Obligations”).

     

    AGREEMENT

     

    NOW, THEREFORE, in consideration
of the foregoing recitals and the mutual covenants contained in this Agreement,
the parties hereto hereby agree as follows:

     

    1.    Collateral. For good and
valuable consideration, and to secure the full payment and other
performance of the Secured Obligations, Debtor hereby grants to Secured Party,
pursuant to Article 9 of the Arizona Uniform Commercial Code (“UCC”), a first
priority security interest (“Security Interest”) in all of the assets that
Debtor owns or to which Debtor otherwise has any right, title or interest, and
in all additional assets with respect to which Debtor hereafter may acquire any
right, title or interest, whether present, future or contingent, and in any and
all of Secured Party’s expectancy to acquire any such property, including,
without limitation, the following named asset classes (all such present or
future property of Debtor being referred to herein as
“Collateral”):


    
      
         


      

      
        1

        
          

        

      

      
         


      

    


    (a)           All
accounts, contract rights, rights to payment, documents of title, deposit
accounts, certificates of deposit, investment property, intellectual property,
patents, trademarks, copyrights, licenses, general intangibles, instruments,
documents and chattel paper (including all accounts receivable, notes, drafts,
lease agreements and security agreements), and all goods, if any, represented
thereby, whether now existing or hereafter acquired or created from time to
time;

     

    (b)           All
inventory now owned or hereafter acquired, including all goods held for sale or
lease in Debtor’s business, as now or hereafter conducted, and all materials,
work in process and finished goods used or to be consumed in Debtor’s business
(whether or not represented by warehouse receipts or bills of lading or any
other document or instrument, and whether or not placed in transit or delivered
to a public warehouse);

     

    (c)           All
equipment now owned or hereafter acquired, including all furniture, fixtures,
furnishings, vehicles (whether titled or non-titled), machinery, materials and
supplies, wherever located, together with all parts, accessories, attachments,
additions thereto and replacements therefor;

     

    (d)           All
negotiable and nonnegotiable documents of title;

     

    (e)           All
monies, securities, stocks, bonds, instruments, documents and chattel paper now
held by or hereafter delivered to Secured Party, together with all property
rights and security interests evidenced thereby, all increases thereof
(including, without limitation, stock dividends), all profits therefrom and all
transformations thereof;

     

    (f)           All
tax refund claims, all policies and certificates of insurance covering any of
the Collateral, all contracts, agreements or rights of indemnification, guaranty
or surety relating to any of the Collateral, and all claims, awards, loss
payments, proceeds and premium refunds that may become payable with respect to
any such policies, certificates, contracts, agreements or rights;

     

    (g)           All
ledger cards, invoices, delivery receipts, worksheets, books of accounts,
statements, correspondence, customer lists, files, journals, data, ledgers and
records in any form, written or otherwise, including any computer readable
memory and any computer hardware or software necessary to utilize, create,
maintain and process such memory related to any of the Collateral;

     

    (h)           All
trademarks, tradenames, copyrights, patents, service marks, logos, insignia and
other distinctive marks or names;

     

    (i)           All
claims for loss or damage to or in connection with any of the Collateral, all
other claims in any form for the payment of money, including tort claims, and
all rights with respect to such claims and all proceeds thereof;

     

    (j)           All
Debtor’s rights to any insurance policies or proceeds paid from insurance
policies on Debtor’s assets, including all insured inventory;


    
      
         


      

      
        2

        
          

        

      

      
         


      

    


    (k)           All
attachments, accessions, tools, parts, supplies, increases and additions to and
replacements, extensions, renewals, modifications of and substitutions for any
of the Collateral;

     

    (l)           All
products and proceeds of the Collateral, in any form, including all proceeds
received, due or to become due from any sale, lease exchange or other
disposition of any of the Collateral, whether such proceeds are cash or noncash
in nature or are represented by checks, drafts, notes or other instruments for
the payment of money; and

     

    (m)           All
other things of value that Debtor has or holds or to which, in the future,
Debtor has or claims any right, title or interest.

     

    2.           Secured Obligations. The
Collateral shall secure, in such order of priority as Secured
Party may elect, the Secured Obligations of Debtor to Secured Party, including,
without limitation, the following:

     

    (a)           payment
and performance of all obligations of Debtor under the terms of the Loan
Agreement and under any and all Notes issued pursuant thereto, together with all
amendments, extensions, modifications, substitutions and renewals
thereof;

     

    (b)           payment
and performance of every obligation, covenant and agreement of Debtor contained
in this Agreement, together with all amendments, extensions, modifications,
substitutions and renewals hereof;

     

    (c)           payment
and performance of every obligation, covenant, and agreement of Debtor in favor
of Secured Party contained in any other instrument or other document, together
with all amendments, extensions, modifications, substitutions and renewals
thereof; and

     

    (d)           payment
and performance of all other obligations and liabilities of Debtor to Secured
Party, whether now existing or hereafter incurred or created and whether
voluntary or involuntary, whether due or not due, whether absolute or
contingent, and whether incurred directly or acquired by Secured Party by
assignment or otherwise.

     

    3.           
Certain Representations and
Warranties of Debtor. Debtor hereby represents and
warrants to Secured Party that:

     

    (a)           Organization; Qualification.
Debtor is a corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada and is properly qualified and in good
standing as a foreign corporation and is duly authorized to do business in each
jurisdiction where the nature of its properties or business requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, financial condition, assets or
properties of Debtor.

     

    (b)           Authority. Debtor has the
requisite corporate power and corporate authority to carry out the terms and
conditions applicable to Debtor under the Loan Agreement, each and all Notes,
this Agreement, and any additional documents to which Debtor is or may
become a
party and that relate in any manner to the subject matter hereof and thereof
(together, the Loan Agreement, all Notes (present and future), this Agreement,
and any additional documents relating in any manner hereto and thereto being
referred to herein as the “Loan Documents”). The execution, delivery and
performance by Debtor of the Loan Agreement, this Agreement, and the other Loan
Documents have been duly authorized by all requisite corporate action on the
part of Debtor, and have been duly executed and delivered by
Debtor.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (c)           No Conflict. The execution,
delivery, and performance by Debtor of this Agreement and the other Loan
Documents do not and will not conflict with or result in any breach of the terms
and conditions of or constitute a default under any other agreement or
instrument under which Debtor is a party or Debtor or its assets are otherwise
obligated. Debtor is not in default in the performance or observance of any
covenants, conditions or provisions of any such other agreement or
instrument.

     

    (d)           Priority. The Security
Interest in the Collateral granted to Secured Party constitutes, and at all
times hereafter shall constitute, a first priority security
interest.

     

    (e)           Title. Debtor is and shall be
the owner of, and has or shall continue to have, good and marketable title to
the Collateral, free and clear of all security interests, liens and other
encumbrances of any kind or description whatsoever, except the Security Interest
arising under this Agreement. No financing statement covering the Collateral is
or will be filed or recorded in any public office except with respect to the
Security Interest.

     

    4.          
Certain Covenants of
Debtor.

     

    (a)           Security Interests; Transfers.
Debtor shall keep the Collateral free of all security interests or other
encumbrances, other than the Security Interest arising under this Agreement.
Debtor shall not sell, transfer, assign or otherwise dispose of (each, a
“Transfer”) any Collateral or any interest therein without first notifying
Secured Party in writing providing, in reasonable detail, a description of the
Collateral to be Transferred, the nature of the proposed Transfer, and the
anticipated proceeds of such Transfer. Secured Party shall have the right to
reject any Transfer.

     

    (b)           Maintenance of Collateral.
Debtor shall keep the Collateral at the facilities of Debtor and shall keep and
maintain the Collateral in good condition and repair, except for ordinary wear
and tear. Debtor shall not use the Collateral in violation of any provision of
this Agreement or any of the other Loan Documents to which Debtor is a party or
any applicable statute, ordinance or regulation or any policy of insurance
insuring the Collateral.

     

    (c)           Maintenance of Corporate Name.
Debtor shall not change its corporate name or the name under which it does
business, without the prior written consent of Secured Party.

     

    (d)           Insurance. Debtor shall at all
times provide insurance coverage of the Collateral on terms acceptable to
Secured Party, at Secured Party’s sole discretion.

     

    (e)           Payments of Charges. Debtor
shall pay when due all taxes, assessments and other charges that may be levied
or assessed against the Collateral.


    
      
         


      

      
        4

        
          

        

      

      
         


      

    


    (f)           Fixtures. Debtor shall prevent
any portion of the Collateral that is not a fixture from being or becoming a
fixture.

     

    (g)           Notices to Secured Party.
Within ten (10) days after the end of each fiscal quarter during the term of
this Agreement, Debtor shall provide to Secured Party written notice of any
change in the location of any of the Collateral. Debtor shall promptly notify
Secured Party of all other matters for which notice is required under any of the
other Loan Documents.

     

    (h)           Inspections. Secured Party or
the agents of Secured Party may inspect the Collateral at reasonable times and
may enter into any premises where the Collateral is or may be located. Secured
Party or any representative of Secured Party may visit and inspect Debtor’s
other properties, examine its books of record and account and discuss its
affairs, finances and accounts with any of its officers, directors, employees
and agents.

     

    (i)           Defense of Collateral. Debtor,
at the sole cost and expense of Debtor, shall protect and defend this Agreement,
all of the rights of Secured Party, and the Collateral, against all claims and
demands of other parties. Debtor shall pay all claims and charges that in the
opinion of Secured Party might prejudice, imperil or otherwise affect the
Collateral or the Security Interest. Debtor shall promptly notify Secured Party
of any levy or other seizure by legal process or otherwise of all or any part of
the Collateral and of any threatened or filed claims or proceedings that might
in any way affect or impair the value of this Agreement to Secured
Party.

     

    (j)           Perfection of Security
Interest. The Security Interest, at all times, shall be perfected and
shall be prior to any and all other interests in the Collateral. Debtor shall
act and perform as necessary and shall execute and file all security agreements,
financing statements, continuation statements, and other documents requested by
Secured Party to establish, maintain and continue the perfected Security
Interest. Notwithstanding the foregoing, Debtor authorizes Secured Party to file
an unlimited number of financing statements and renewals thereof, without
Debtor’s signature, with respect to the Collateral. Debtor, on written demand,
shall promptly pay all reasonable costs and expenses of filing and recording,
including the reasonable costs of any searches, deemed necessary by Secured
Party from time to time to establish and determine the validity and the
continuing priority of the Security Interest.

     

    (k)           Payment of Charges. If Debtor
fails to pay any taxes, assessments, expenses or charges, or fails to keep all
of the Collateral free from other security interests, encumbrances or claims, or
fails to keep the Collateral in good condition and repair, or fails to procure
and maintain insurance thereon, or to perform otherwise as required under this
Agreement, Secured Party may advance the monies necessary to pay the same, to
accomplish such repairs, to procure and maintain such insurance or to so
perform, all at the sole expense of Debtor. Secured Party is hereby authorized
to enter upon any property in the possession or control of Debtor for such
purposes.

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (l)           Rights and Powers. All rights,
powers, and remedies granted to Secured Party in this Agreement, or otherwise
available to Secured Party, are for the sole benefit and protection of Secured
Party, and Secured Party may exercise any such right, power or remedy at
the sole
option of Secured Party, and in the sole and absolute discretion of Secured
Party. In addition, if under the terms of this Agreement, Secured Party is given
two or more alternative courses of action, Secured Party may elect any
alternative or combination of alternatives at its option and in its sole and
absolute discretion. All monies advanced by Secured Party under the terms of
this Agreement and all amounts paid, suffered or incurred by Secured Party in
exercising any authority granted in this Agreement, including reasonable
attorneys’ fees, shall be added to the Secured Obligations, shall be secured by
the Collateral, shall bear interest at the highest rate payable on any of the
Secured Obligations until paid, and shall be due and payable by Debtor to
Secured Party immediately without demand.

     

    5.          
Payments and Collection.
Any payments with respect to or other proceeds of Collateral
received by Debtor shall be held by Debtor in trust for Secured Party in the
same form in which received, shall not be commingled with any assets of Debtor,
and shall be delivered into the possession of Secured Party not later than the
next business day following the day of receipt. All payments with respect to and
other proceeds of Collateral received by Secured Party directly or from Debtor
shall be applied to the Secured Obligations in such order and manner and at such
time as Secured Party, in its sole and absolute discretion, determines. Secured
Party, after the occurrence of an Event of Default and without notice to Debtor,
may demand, collect, and sue on the Collateral (either in Debtor’s or Secured
Party’s name), enforce, compromise, settle or discharge the Collateral, and
endorse Debtor’s name on any instruments or documents included in or pertaining
to the Collateral.

     

    6.          
Collateral in the Possession of
Secured Party.

     

    (a)           Care. Secured Party shall use
such reasonable care in handling, preserving and protecting Collateral in the
possession of Secured Party as Secured Party uses in handling similar property
for the account of Secured Party. Secured Party, however, shall have no
liability for the loss, destruction or disappearance of any Collateral unless
there is affirmative and persuasive proof of a lack of due care. A lack of due
care shall not be implied solely by virtue of any loss, destruction or
disappearance.

     

    (b)           Preservation of Collateral.
Debtor shall be solely responsible for taking any and all actions to preserve
rights under this Agreement against all persons other than Secured Party.
Secured Party shall not be obligated to take any such actions whether or not the
Collateral is in Secured Party’s possession. Debtor waives presentment and
protest with respect to any instrument included in the Collateral on which
Debtor is in any way liable and waives notice of any action taken by Secured
Party with respect to any instrument, document or chattel paper included in any
Collateral that is in the possession of Secured Party.

     

    7.          
Events of Default;
Remedies.

     

    (a)          
Events of Default. The
occurrence of any of the following events or conditions
shall constitute an “Event of Default” under this Agreement:

     

    (i)    The
occurrence of a breach, a default, an event of default, a Default,
or an Event of Default under (or as defined in) the Loan Agreement, any Note, or
any of the other Loan Documents.


    
      
         


      

      
        6

        
          

        

      

      
         


      

    


    (ii)           The
abandonment by Debtor of all or any part of the Collateral.

     

    (iii)          The
loss, theft or destruction of, or any substantial damage to, any material
portion of the Collateral that is not adequately covered by
insurance.

     

    (iv)          Any
representation or warranty of Debtor in this Agreement was materially false or
misleading as of the date made or deemed made, or any statement made by Debtor
in connection with this Agreement is not true and correct in any material
respect.

     

    (v)           The
failure of Debtor to comply with any other provision of this
Agreement.

     

    (b)   Remedies. Upon the occurrence
of any Event of Default, and at any time while
such Event of Default is continuing, Secured Party shall have the following
cumulative rights and remedies and may do any one or more or all of the
following:

     

    (i)        
   Declare all or any part of the Secured Obligations to be
immediately due and payable, and the same, with all costs and charges, shall be
collectible thereupon by action at law.

     

    (ii)           Without
further notice or demand and without legal process, take possession of the
Collateral wherever found and, for this purpose, enter upon any property
occupied by or in the control of Debtor or that Debtor has the right to enter or
occupy. Debtor, upon demand by Secured Party, shall assemble the Collateral and
deliver it to Secured Party or to a place designated by Secured Party that is
reasonably convenient to both parties.

     

    (iii)          Exercise
its rights under the Loan Agreement and under any and all Notes and the other
Loan Documents. Secured Party shall not be liable for any depreciation, loss,
damage or injury to the Collateral or other property of Debtor as a result of
such action except if such depreciation, loss, damage, or injury is caused by
the negligence of Secured Party or any of its agents or representatives. Debtor
hereby waives any claim of trespass or replevin arising as a result of such
action.

     

    (iv)          Pursue
any legal or equitable remedy available to collect the Secured Obligations, to
enforce Secured Party’s title in and right to possession of the Collateral, and
to enforce any and all other rights or remedies available to it.

     

    (v)           Upon
obtaining possession of the Collateral or any part thereof, after written notice
to Debtor as provided in this Agreement, sell such Collateral at public or
private sale either with or without having such Collateral at the place of sale.
The proceeds of such sale, after deducting therefrom all expenses of Secured
Party in taking, storing, repairing, and selling the Collateral (including
reasonable attorneys’ fees) shall be applied to the payment of the Secured
Obligations, and any surplus thereafter remaining shall be paid to Debtor or any
other person that may be legally entitled thereto. In the event of a deficiency
between such net proceeds from the sale of the Collateral and the total amount
of the Secured Obligations, Debtor, upon demand, shall promptly pay the amount
of such deficiency to Secured Party.


    
      
         


      

      
        7

        
          

        

      

      
         


      

    


    (c)           Purchase of Collateral.
Secured Party, so far as may be lawful, may purchase all or any part of the
Collateral offered at any public or private sale made in the enforcement of
Secured Party’s rights and remedies under this Agreement.

     

    (d)           Notice. Any demand or notice
of sale, disposition or other intended action under or in connection with this
Agreement, whether required by the UCC or otherwise, shall be deemed to be
commercially reasonable and effective if such demand or notice is provided to
Debtor at least fifteen (15) days prior to such sale, disposition or other
intended action, in the manner provided in this Agreement for the giving of
notices.

     

    (e)           Costs and Expenses. Debtor
shall pay all reasonable costs and expenses of Secured Party, including costs of
uniform commercial code searches, court costs, and reasonable attorneys’ fees,
incurred by Secured Party in enforcing payment and performance of the Secured
Obligations or in exercising the rights and remedies of Secured Party. All such
reasonable costs and expenses shall be secured by this Agreement and by other
lien and security documents securing the Secured Obligations. In the event of
any court proceedings, court costs and attorneys’ fees shall be set by the court
and not by jury and shall be included in any judgment obtained by Secured
Party.

     

    (f)           Additional Remedies. In
addition to any remedies provided in this Agreement for an Event of Default,
Secured Party shall have all the rights and remedies afforded a secured party
under the UCC and all other legal and equitable remedies allowed under
applicable law. No failure on the part of Secured Party to exercise any of its
rights under this Agreement arising upon any Event of Default shall be construed
to prejudice its rights upon the occurrence of any other or subsequent Event of
Default. No delay on the part of Secured Party in exercising any such rights
shall be construed to preclude Secured Party from the exercise thereof at any
time while that Event of Default is continuing. Secured Party may enforce any
one or more rights or remedies under this Agreement successively or
concurrently. By accepting payment or performance of any of the Secured
Obligations after its due date, Secured Party shall not thereby waive the
agreement contained in this Agreement that time is of the essence, nor shall
Secured Party waive either its right to require prompt payment or performance
when due of the remainder of the Secured Obligations or its right to consider
the failure to so pay or perform an Event of Default.

     

    8.    Termination and Release of
Collateral. If (a) no Default or Event has occurred and is
continuing under any of the Loan Documents and (b) all Obligations arising under
one or more of the Notes have been paid in full in cash, then, upon request from
Debtor, Secured Party shall release all of its interests in all or any portion
of the Collateral that Debtor purchased with the proceeds of such Note(s). This
Agreement and the Security Interest granted hereby then shall terminate, and
Secured Party then shall release all of its interests in the Collateral, upon
the payment or other satisfaction of all Secured Obligations arising under the
Notes or any of the other Loan Documents. Upon termination of this Agreement,
Secured Party shall, at the request and expense of Debtor, execute and deliver
to Debtor a proper instrument or instruments acknowledging the satisfaction and
termination of this Agreement and all obligations arising hereunder and under
the Notes, and will duly assign, transfer, and deliver to Debtor that portion of
the Collateral or the proceeds thereof that remains in the possession of Secured
Party and that has not otherwise been sold, transferred, applied or released
pursuant to this Agreement.


    
      
         


      

      
        8

        
          

        

      

      
         


      

    


    9.    General
Provisions.

     

    (a)           Power of Attorney. At any time
or times that an Event of Default has occurred and is continuing, Debtor hereby
appoints Secured Party as the true and lawful attorney-in-fact of Debtor, with
full power of substitution to do the following: (a) to demand, collect, receive,
give receipt for, sue, and recover all sums of money or other property that may
now or hereafter become due, owing or payable from the Collateral; (b) to
execute, sign, and endorse any and all claims, instruments, receipts, checks,
drafts or warrants issued in payment for the Collateral; (c) to settle or
compromise any and all claims arising under the Collateral, and, in the place
and stead of Debtor to execute and deliver its release and security for the
claim; (d) to file any claim or claims or to take any action or institute or
take part in any proceedings, either in the name of Secured Party or in the name
of Debtor, or otherwise, which in the sole and absolute discretion of Secured
Party may seem to be necessary or advisable; and (e) to execute any documents
necessary to perfect or continue the Security Interest. This power is a power
coupled with an interest and is given as security for the Secured Obligations,
and the authority hereby conferred is and shall be irrevocable and shall remain
in full force and effect until renounced by Secured Party, if ever.

     

    (b)           Indemnification. Debtor agrees
to indemnify, defend, protect and hold harmless Secured Party and its agents,
representatives, successors and assigns (collectively, the “Indemnified
Parties”) for, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses, and
disbursements of any kind or nature whatsoever (including the fees and
disbursements of counsel for such Indemnified Parties in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnified Parties are designated parties thereto) that may
be imposed on, incurred by, or asserted against the Indemnified Parties, in any
manner relating to, or arising out of, the Loan Agreement, any one or more
Notes, this Agreement and the other Loan Documents (the “Indemnified
Liabilities”); provided, however,
that Debtor shall have no obligation to an Indemnified Party with respect to
Indemnified Liabilities arising from the gross negligence or willful misconduct
of that Indemnified Party.

     

    (c)           Secured Party’s Right of
Setoff. Debtor grants Secured Party, as further security for the Secured
Obligations, a security interest and lien in any credit balance and other money
now or hereafter owed to Debtor by Secured Party. Debtor agrees that Secured
Party may, without prior notice or demand, charge against any such credit
balance or other money in the amount owing upon the Secured Obligations, whether
due or not.

     

    (d)           Other Security. The acceptance
of this Agreement by Secured Party shall not be considered a waiver of or in any
way to affect or impair any other security that Secured Party may have, acquire
simultaneously herewith, or hereafter acquire for the payment or performance of
the Secured Obligations, nor shall the taking by Secured Party at any time of
any such additional security be construed as a waiver of or in any way to affect
or impair the Security Interest. Secured Party may resort, for the payment or
performance of the Secured Obligations, to its several securities therefor in
such order and manner as Secured Party may determine in the sole and absolute
discretion of Secured Party.


    
      
         


      

      
        9

        
          

        

      

      
         


      

    


    (e)           Actions by Secured Party.
Without notice or demand, without affecting the obligations of Debtor under this
Agreement, and without affecting the Security Interest or the priority thereof,
Secured Party, from time to time, may (a) extend the time for payment of all or
any part of the Secured Obligations, accept a renewal note therefor, reduce the
payments thereon, release any person liable for all or any part thereof, or
otherwise change the terms of all or any part of the Secured Obligations; (b)
take and hold other security for the payment or performance of the Secured
Obligations and enforce, exchange, substitute, subordinate, waive or release any
such security; (c) join in any extension or subordination agreement; (d) release
any part of the Collateral from the Security Interest; or (e) assign its rights
under this Agreement, the Secured Obligations, or the Collateral to any third
party.

     

    (f)           Waivers. Debtor waives and
agrees not to assert (a) any right to require Secured Party to proceed against
any guarantor, to proceed against or exhaust any other security for the Secured
Obligations, to pursue any other remedy available to Secured Party, or to pursue
any remedy in any particular order or manner; (b) the benefits of any legal or
equitable doctrine or principle of marshalling; (c) the benefits of any statute
of limitations affecting the enforcement of this Agreement; (d) demand,
diligence, presentment for payment, protest and demand, and notice of extension,
dishonor, protest, demand and nonpayment, relating to the Secured Obligations;
and (e) any benefit of, and any right to participate in, any other security now
or hereafter held by Secured Party.

     

    (g)           Further Assurances. Debtor and
Secured Party each shall do all acts and things and make, execute, and deliver
such written documents and instruments as shall from time to time be reasonably
required by the other party to carry out the intent of this Agreement, including
but not limited to any acts and other things required under Arizona or other
applicable law to perfect the appointment of Secured Party as Debtor’s
attorney-in-fact.

     

    (h)           Governing Law; Consent to
Jurisdiction. This Agreement shall be construed as having been made in
State of Arizona, and Debtor agrees that, by entering into this Agreement,
Debtor has transacted business in Arizona. This Agreement is intended to take
effect and be governed by and construed in accordance with the laws of the State
of Arizona. Debtor agrees that any suit for the enforcement of this Agreement
may be brought in the courts of the State of Arizona or in the United States
District Court for the District of Arizona, and Debtor consents to the
jurisdiction of such courts and to service of process in any such suit being
made upon Debtor by mail at the address specified above. Debtor hereby waives
any objection that Debtor may now or hereafter have to the venue of any such
suit or any such court or that such suit was brought in an inconvenient court.
Each of the parties hereby waives the right to a jury trial and confirms their
intentions that the court shall bear any such case sitting without a
jury.

     

    (i)           Time of Essence. Time is of
the essence of this Agreement and each and every provision of this
Agreement.

     

    (j)          Conflicts; Inconsistency. In
the event any conflict or inconsistency between the provisions of this Agreement
and the provisions of the Loan Agreement or any Note, the provisions of the Loan
Agreement and the Note shall govern and control to the extent necessary to
resolve such conflict or inconsistency.


    
      
         


      

      
        10

        
          

        

      

      
         


      

    


    (k)          Amendments. No amendment,
modification, change, waiver, release of any provision of this Agreement shall
be effective unless evidenced by an instrument in writing and signed by the
party against whom enforcement is sought.

     

    (l)          Severability. If any provision
of this Agreement is invalid or unenforceable, the other provisions of this
Agreement shall remain in full force and effect and shall be liberally construed
in favor of Secured Party in order to effectuate the other provisions of this
Agreement.

     

    (m)          Entire Agreement. Any
schedules, exhibits or other attachments to this Agreement (as such schedules
may be modified, amended, or supplemented) are incorporated by reference into
this Agreement. This Agreement, including any attachments hereto (as such
attachments may be modified, amended, or supplemented), constitutes the entire
agreement between Debtor and Secured Party with respect to the subject matter of
this Agreement, supersedes all oral negotiations and prior and other writings
with respect to the subject matter of this Agreement, and is intended by Debtor
and Secured Party as the final, complete, and exclusive statement of the terms
agreed to by them with respect to such subject matter.

     

    (n)          Binding Nature of Agreement;
Assignment. This Agreement shall be binding upon Debtor and its
successors and assigns, and shall inure to the benefit of Secured Party and its
successors and assigns; provided, however,
that (i) Debtor shall not assign or otherwise transfer its obligations under
this Agreement and no such purported assignment shall be effective without
Secured Party’s prior written consent, which consent may be withheld in Secured
Party’s sole and absolute discretion; and (ii) no assignment or other transfer
by Debtor of any of its obligations under this Agreement shall relieve Debtor of
any of its obligations hereunder. Secured Party, at any time and from time to
time, may assign or transfer any or all of its rights under this Agreement to
any Person without notice to or consent of Debtor, and no such assignment or
transfer shall relieve Debtor of any of its obligations hereunder.

     

    (o)          Notices. All notices, demands,
requests, and other communications required or permitted hereunder shall be in
writing and shall be delivered by hand, telegram, facsimile or deposited with
the United States Postal Service postage prepaid, registered or certified mail,
return receipt requested, or delivered by courier or personal delivery, in each
case addressed as indicated on the first page of this Agreement. All notices
shall be deemed delivered five (5) days after deposit with the United States
Postal Service, or if delivered by personal delivery, then notice is deemed
delivered upon the date and time of actual receipt or refusal of delivery by the
representatives, agents, and employees of the party to which such notice is
addressed. Any party may designate a different address or person to whom such
notices should be sent by giving notice thereof as provided herein, which change
of address shall be effective upon receipt.

     

    (p)          Section Headings. The section
headings set forth in this Agreement are for convenience only and shall not have
substantive meaning under this Agreement or be deemed part of this
Agreement.

     

    (q)          Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original as against any Party whose signature appears
thereon, and all of which shall together constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts hereof,
individually
or taken together, shall bear the signatures of all of the parties reflected
hereon as the signatories. Signatures may be given by facsimile or other
electronic transmission, and such signatures shall be fully binding on the party
sending the same.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (r)   
       Construction. Each of the
parties to this Agreement acknowledges that it has had the opportunity to review
this Agreement and has had the opportunity to have its counsel review this
Agreement, and that the rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be applied to the
interpretation of this Agreement. This Agreement shall be construed as a whole,
in accordance with its fair meaning, and without regard to or taking into
account any presumption or other rule of law requiring construction against the
Party preparing this Agreement. As used in this Agreement, the word “include(s)”
means “include(s), without limitation,” and the word “including” means
“including, but not limited to.”

     

    (s)          No Setoffs by Debtor. No
setoff or claim that Debtor now has or may in the future have against Secured
Party shall relieve Debtor from paying or performing the Secured
Obligations.

     

    (t)     
     Copies. A copy of this
Agreement and any financing statement relating to this Agreement shall be
sufficient for filing and recording as a financing statement.

     

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

     

    
      
        
          
            
              
                
                  
                    
                      
                        	 	DEBTOR:	 
	 	 	 
	 	SKYE INTERNATIONAL, INC.,
      a Nevada	 
	 	corporation	 
	 	 	 	 
	
                                 

                              	
                                By:
      

                              	/s/  Mark D.
      Chester	 
	 	 	 	 
	 	Name:	Mark D.
      Chester	 
	 	 	 	 
	 	Title:	Chairman	 


                      

                       

                       

                      
                        
                          	 	SECURED PARTY:	 
	 	 	 
	 	TED MAREK DEFINED
      BENEFIT	 
	 	PENSION PLAN dated
      December 23, 1993	 
	 	and
      effective January 1, 1994	 
	 	 	 	 
	
                                   

                                	
                                  By:
      

                                	/s/  Ted
      Marek	 
	 	 	 	 
	 	Name:	Ted Marek	 
	 	 	 	 
	 	Title:	Beneficiary	 


                        

                         

                         

                        12