buckeye_sb2-ex1012.htm


    Exhibit
      10.12

     

    
      


       

      SECURITY
        AGREEMENT

       

      THIS
        SECURITY AGREEMENT (the “Agreement”), is entered into and made
        effective as of June 29, 2007, by and between BUKEYE VENTURES, INC.,
(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 between the Company
        and
        the Secured Party (the “Securities Purchase Agreement”), and the Secured Party
        shall purchase up to Five Million Dollars ($5,000,000) of secured convertible
        debentures (the “Convertible Debentures”), which shall be convertible
        into shares of the Company’s common stock, par value $.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 Irrevocable Transfer Agent
        Instructions, the Warrant, the Pledge Agreement, and the Escrow Agreement,
        each
        as defined in the Securities Purchase Agreement (collectively referred to
        as the
“Transaction Documents”), the Company hereby grants to the Secured Party
        a security interest in and to the pledged collateral identified on Attachment
        1 hereto 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, without
        limitation, those obligations of the Company to the Secured Party under the
        Securities Purchase Agreement, the Secured Convertible Debenture,
        the

      


       

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

       

      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
        COLLATERAL, ADMINISTRATION OF COLLATERAL

      AND
        TERMINATION OF SECURITY INTEREST

       

      Section
        2.1. Grant of Security Interest.

       

      (a)  As
        security for the Obligations, Company hereby pledges to Secured Party and
        grants
        to Secured Party a security interest in all right, title and interests of
        Company (and of all companies acquired by the Company that result in funding
        being provided to the Company by the Buyer under the Securities Purchase
        Agreement) in and to the property described in Attachment 1 hereto, and the
        products thereof and the proceeds of all such items whether now existing
        or
        hereafter from time to time acquired (collectively, the “Pledged
        Collateral”).

       

      (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 Collateral. 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 Collateral, 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 Collateral 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 Collateral.

       

      (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 Collateral
        such
        payments; provided, however,
that if
        the Secured Party shall become entitled and

      


      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      shall
        elect to exercise its right to realize on the Pledged Collateral 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 Collateral at public or private sale in order to recoup all of
        the
        outstanding principal plus accrued interest owed pursuant to the Convertible
        Debenture as described herein

       

      (c)   
        An “Event of Default” shall have the same meaning as set forth in the
        Convertible Debentures.

       

      ARTICLE
        3.

      ATTORNEY-IN-FACT;
        PERFORMANCE 

       

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

       

      Upon
        the
        occurrence and during the continuance 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 Collateral or any part thereof and to
        give
        full discharge for the same. Upon the occurrence and during the continuance
        of
        any Event of Default: (a) the Secured Party may demand, collect, receipt
        for,
        settle, compromise, adjust, sue for, foreclose, or realize on the Pledged
        Collateral as and when the Secured Party may determine. and (b) to facilitate
        collection, the Secured Party may notify account debtors and obligors on
        any
        Pledged Collateral or Pledged Collateral to make payments directly to the
        Secured Party.

       

      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.

      


      
        
           

        

        
          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 Collateral.

       

      Except
        for the liens and security interests described on Schedule 7.1 attached hereto,
        the Company warrants and represents that it is the legal and beneficial owner
        of
        the Pledged Collateral 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.

       

      (a)  If
        an
        Event of Default described in Section 2.2(c)(i) and (ii) occurs, then in
        each
        such case the Secured Party may declare the Obligations to be due and payable
        immediately, by a notice in writing to the Company, and upon any such
        declaration, the Obligations shall become immediately due and payable. If
        an
        Event of Default described in Sections 2.2(c)(iii) or (iv) occurs and is
        continuing for the period set forth therein, then the Obligations shall
        automatically become immediately due and payable without declaration or other
        act on the part of the Secured Party.

       

      (b)  Upon
        the
        occurrence and during the continuance of an Event of Default, the Secured
        Party
        shall be entitled to; (i) receive all distributions with respect to the Pledged
        Collateral, (ii) cause the Pledged Collateral to be transferred to the Secured
        Party or its nominee, (iii) dispose of the Pledged Collateral, and (iv) realize
        upon any and all rights in the Pledged Collateral then held by the Secured
        Party.

       

      Section
        5.2. Method of Realizing Upon the Pledged Collateral: 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 Collateral:

       

      (a)
        Any
        item of the Pledged Collateral 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

      


      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

      may
        be
        made (the “Sale Notice”)), which notice period shall in any event is
        hereby agreed to be commercially reasonable. At any sale or sales of the
        Pledged
        Collateral, the Company may bid for and purchase the whole or any part of
        the
        Pledged Collateral 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 Collateral 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 Collateral 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.

       

      (d)  If
        the
        Company fails to pay any 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.

       

      (e)  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 senior or prior security holders, shall be entitled and empowered, by
        intervention in such proceeding or otherwise:

      


      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

      (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) deemed
        to be allowed claims, and

       

      (ii)  to
        the
        extent permitted by law, 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 Collateral.

       

      The
        Secured Party shall have no duty as to the collection or protection of the
        Pledged Collateral 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 Collateral 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 it
        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 to make payment as and when due of all or any part of the
        Obligations; or (c) the Pledged Collateral.

      


      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

      Section
        6.2. Financial Statements and Reports.

       

      The
        Company shall furnish to the Secured Party such financial data as the Secured
        Party may reasonably request. Without limiting the foregoing, the Company
        shall
        furnish to the Secured Party (or cause to be furnished to the Secured Party)
        the
        following:

       

      (a)  as
        soon
        as practicable and in any event within ninety (90) days after the end of
        each
        fiscal year of the Company, the balance sheet of the Company as of the close
        of
        such 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)  within
        thirty (30) days of the end of each calendar month, a balance sheet of the
        Company as of the close of such 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)  promptly
        upon receipt thereof, 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 $25,000 (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 $25,000
        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 Collateral; or (iv) any of the transactions
        contemplated in this Agreement or the Transaction Documents.

      


      
        
           

        

        
          7

          
            

          

        

        
           

        

      

       

      Section
        6.4. Maintenance of Books and Records; Inspection.

       

      The
        Company shall permit the Secured Party, its officers and employees and any
        professionals designated by the Secured Party in writing, at any time following
        the occurrence of an Event of Default and once every six (6) month period
        before
        the occurrence of an Event of Default to visit and inspect any of its properties
        (including but not limited to the Pledged collateral), corporate books and
        financial records, and to discuss its accounts, affairs and finances with
        any
        employee, officer or director thereof; provided that Secured Party shall
        give
        the Company reasonable prior notice of any visit or inspection and such visits
        and inspections shall take place during normal business hours.

       

      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, normal wear and
        tear
        excepted, 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; and (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
        Collateral 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, to the extent the failure to perform would have a Material Adverse
        Effect.

       

      Section
        6.7. Defense of Collateral, Etc.

       

      The
        Company shall defend and enforce its right, title and interest in and to
        any
        part of its assets and properties, including specifically the Pledged Collateral
        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 Collateral, 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

      


      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

      or
        before
        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, to the extent the failure to do so would have
        a
        Material Adverse Effect.

       

      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 material 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
        default or Event of Default under this Agreement, the Transaction Documents
        or
        any other agreement of Company for the payment of money, promptly upon 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.

       

      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:

      


      
        
           

        

        
          9

          
            

          

        

        
           

        

      

       

      Section
        7.1.  Indebtedness.

       

      Other
        than in the ordinary course of business consistent with past practice, the
        Company shall not directly or indirectly permit, create, incur, assume, permit
        to exist, increase, renew or extend on or after the date hereof any indebtedness
        on its part, including commitments, contingencies and credit availabilities,
        or
        apply for or offer or agree to do any of the foregoing.

       

      Section
        7.2.  Liens and Encumbrances.

       

      Except
        for the liens and security interests described on Schedule 7.1 attached hereto,
        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 Collateral 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
        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 Collateral or the Company’s capital stock;
        or enter into any sale-leaseback financing respecting any part of the Pledged
        Collateral as lessee, or cause or assist the inception or continuation of
        any of
        the foregoing.

       

      Section
        7.3. Certificate of Incorporation, By-Laws, Mergers,
        Consolidations,Acquisitions and Sales.

       

      Other
        than in the ordinary course of business consistent with past practice, without
        the prior express written consent of the Secured Party, the Company shall
        not:
        (a) Amend its Certificate of Incorporation or By-Laws; (b) issue or sell
        its
        stock, stock options, bonds, notes or other corporate securities or obligations;
        (c) be a party to any merger, consolidation or corporate reorganization,
        (d)
        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, (e) sell, transfer, convey, grant a security interest in or lease
        all or
        any substantial part of its assets, nor (f) create any subsidiaries nor convey
        any of its assets to any subsidiary.

       

      Section
        7.4. 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
        7.5. 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,
        nor make any payments in respect of any pension, profit sharing, retirement,
        stock option, stock bonus, incentive compensation or similar plan (except
        as
        required or permitted hereunder), without the prior written consent of the
        Secured Party.

      


      
        
           

        

        
          10

          
            

          

        

        
           

        

      

       

      Section
        7.6. 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 of any person or persons,
        except
        for (i) the indebtedness currently secured by the liens identified on the
        Pledged Collateral 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
        7.7. Debt.

       

      Other
        than in the ordinary course of business, the Company shall not create, incur,
        assume or suffer to exist any additional indebtedness of any description
        whatsoever in an aggregate amount in excess of $25,000 (excluding any
        indebtedness 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).

       

      Section
        7.8. Conduct of Business.

       

      The
        Company will continue to engage in a business of the same general type as
        conducted by it on the date of this Agreement.

       

      Section
        7.9. Places of Business.

       

      The
        location of the Company’s chief place of business is at the address set forth in
        Section 8.1 hereof. 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 Collateral from its current location
        (other than in the ordinary course of business) without thirty (30) days'
        prior
        written notice to the Secured Party in each instance.

       

      ARTICLE
        8.

      MISCELLANEOUS 

       

      Section
        8.1.  Notices.

       

      All
        notices or other communications required or permitted to be given pursuant
        to
        this Agreement shall be in writing and shall be considered as duly given
        on: (a)
        the date of delivery, if delivered in person, by nationally recognized overnight
        delivery service or (b) five (5) days after mailing if mailed from within
        the
        continental United States by certified mail, return receipt requested to
        the
        party entitled to receive the same:

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      


      
        
          	
                  If
                    to the Secured Party:

                	
                  Trafalgar
                    Capital Specialized Investment Fund 8-10 Rue Mathias
                    Hardt

                
	 	
                  BP
                    3023

                
	 	
                  L-1030
                    Luxembourg

                
	 	
                  Attention:

                	
                  Andrew
                    Garai, Chairman of the Board of Trafalgar Capital Sarl, General
                    Partner

                
	 	
                  Facsimile:

                	
                  011-44-207-405-0161
                    and

                
	 	 	
                  001-786-323-165
                    1

                
	 	 	 
	
                  With
                    Copy to:

                	
                  James
                    G. Dodrill II, P.A.

                
	 	
                  5800
                    Hamilton Way

                
	 	
                  Boca
                    Raton, FL 33496

                
	 	
                  Attention:

                	
                  James
                    Dodrill, Esq.

                
	 	
                  Telephone:

                	
                  (561)
                    862-0529

                
	 	
                  Facsimile:

                	
                  (561)
                    892-7787

                
	 	 	 
	
                  If
                    to the Company, to:

                	
                  Buckeye
                    Ventures, Inc.

                
	 	
                  4455
                    Lamont Street, Suite 3

                
	 	
                  San
                    Diego, CA 92109

                
	 	
                  Attention:
                    

                	
                  Larry
                    Weinstein

                
	 	
                  Telephone:

                	
                  (858)
                    272-6600

                
	 	
                  Facsimile:

                	
                  (858)
                    272-9714

                
	 	 	 
	
                  With
                    a copy to:

                	
                  Neil
                    W. Gurney, Esq.

                
	 	
                  Ulmer
                    & Berne LLP

                
	 	
                  1660
                    West Second St., Ste. 1100

                
	 	
                  Cleveland,
                    Ohio 44113-1448

                
	 	
                  Telephone:

                	
                  (216)
                    583-7028

                
	 	
                  Facsimile:

                	
                  (216)
                    583-7029

                


        

      

       

      Any
        party
        may change its address by giving notice to the other party stating its new
        address. Commencing on the tenth (10th) day
        after the
        giving of such notice, such newly designated address shall be such party’s
        address for the purpose of all notices or other communications required or
        permitted to be given pursuant to this Agreement.

       

      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.

      


      
        
           

        

        
          12

          
            

          

        

        
           

        

      

       

      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 from, or other
        realization upon, any of the Pledged Collateral; (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 Collateral
        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
        Collateral 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 Florida without regard to the principles of conflict of laws.
        The
        parties further agree that any action between them shall be heard in Florida
        and
        expressly consent to the jurisdiction and venue of the Florida State Court
        sitting in Broward County, Florida and the United States District Court for
        the
        Southern District of Florida for the adjudication of any civil action asserted
        pursuant to this Paragraph.

      


      
        
           

        

        
          13

          
            

          

        

        
           

        

      

       

      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 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

          
            

          

        

        
           

        

      

       

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

       

      
        	 	
                COMPANY:

                BUCKEYE VENTURES, INC.

              	 
	 	 	 	 
	
                 

              	
                By:
                  

              	 	 
	 	Name:	 	 
	 	Title:	CEO	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	SECURED
                PARTY:	 
	 	TRAFALGAR
                CAPITAL SPECIALIZED INVESTMENT FUND, LUXEMBOURG 	 
	 	By:
                Trafalgar Capital Sarl	 
	 	Its:
                General Partner	 
	 	 	 	 
	 	By:	 	 
	 	Name:	 	 
	 	Title:
                Portfolio Manager	 


      

       

       

      


      
        
           

        

        
          15

          
            

          

        

        
           

        

      

       

      EXHIBIT
        A

      DEFINITION
        OF PLEDGED COLLATERAL

       

      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, all of the assets of the Company and of any company acquired by the
        Company which results in funding being provided to the Company by the Buyers
        under the Securities Purchase Agreement, including specifically the following
        pledged collateral of the Company and any such acquired
        company(ies):

       

      (a)  all
        goods
        of the Company and such acquired company(ies), 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 such acquired company(ies) or in which
        the
        Company or such acquired company(ies) 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 and such acquired company(ies) , 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 or such acquired 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 or such acquired
        company(ies), 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
        or
        such acquired company(ies) 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 or such acquired company(ies) (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 or such acquired company’s customers, and all proceeds
        of any insurance thereon, and all guarantees, securities and liens which
        the
        Company or such acquired company(ies) 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 or such acquired company(ies) represent and warrant 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 and such acquired 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 Collateral.

       

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

       

      Schedule
        7.1

       

      Purchase
        money security interests granted in the ordinary course of business to secure
        the acquisition of equipment and vehicles.

       

       

       

       

       

       

       

       

       

      17