exhibit_10-38.htm


    
      

    

    Exhibit
      10.38

     

     

    SECURITY
      AGREEMENT

     

    THIS
      SECURITY AGREEMENT (the “Agreement”), is
      entered into and made effective as of August 6, 2007, by and between
C-MARK INTERNATIONAL, INC., (the “Company”), and the
BUYER(S) listed on Schedule I attached
      to the Securities
      Purchase Agreement dated as of July 13, 2007 (the “Secured
      Party”).

     

    WHEREAS,
      the Company shall issue and sell to the Secured Party, as provided
      in
      the Securities Purchase Agreement dated as of July 13, 2007 (the “Securities
      Purchase Agreement”), and the Secured Party shall purchase up to One Million
      Dollars ($1,000,000) of secured debentures (the “Secured
      Debentures”), for a total purchase price of One Million Dollars
      ($1,000,000), 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 Debenture, the Investor
      Registration Rights Agreement, the Irrevocable Transfer Agent Instructions,
      and
      the Escrow Agreement (collectively referred to as the “Transaction
      Documents”), the Company hereby grants to the Secured Party a security
      interest in and to the pledged property identified on Exhibit “A” hereto
      (collectively referred to as the “Pledged Property”) until the
      satisfaction of the Obligations, as defined herein below.

     

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

     

    ARTICLE
      1.

     

    DEFINITIONS
      AND INTERPRETATIONS

     

    
      	
            	
              Section
                1.1.

            	
              Recitals.

            


    

     

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

     

    
      	
            	
              Section
                1.2.

            	
              Interpretations.

            


    

     

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

     

    
      	
            	
              Section
                1.3.

            	
              Obligations
                Secured.

            


    

     

    The
      obligations secured hereby are the 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 Debenture, the Investor Registration Rights Agreement
      and
      Irrevocable Transfer Agent Instructions, and any other amounts
      now or hereafter owed to the Secured Party by the Company thereunder or
      hereunder which are a direct result of C-Mark Job No. 4486 for Quantico,
      VA (collectively, the “Obligations”).

     

    


    
      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

    

    


     

    ARTICLE
      2.

     

    PLEDGED
      COLLATERAL, ADMINISTRATION OF COLLATERAL

    AND
      TERMINATION OF SECURITY INTEREST

     

    
      	
            	
              Section
                2.1.

            	
              Pledged
                Property.

            


    

     

    (a)           Company
      hereby pledges to the Secured Party, and creates in the Secured Party for its
      benefit, a security interest for such time until the Obligations are paid in
      full, in and to all of the property of the Company as set forth in
Exhibit “A” attached hereto (collectively, the “Pledged
      Property”):

     

    The
      Pledged Property, as set forth in Exhibit “A” attached hereto, and
      the products thereof and the proceeds of all such items are hereinafter
      collectively referred to as 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 Property.  Simultaneously with the execution
      and delivery of this Agreement, the Company shall make, execute, acknowledge
      and
      deliver to the Secured Party such documents and instruments, including, without
      limitation, financing statements, certificates, affidavits and forms as may,
      in
      the Secured Party’s reasonable judgment, be necessary to effectuate, complete or
      perfect, or to continue and preserve, the security interest of the Secured
      Party
      in the Pledged Property, and the Secured Party shall hold such documents and
      instruments as secured party, subject to the terms and conditions contained
      herein.

     

    
      	
            	
              Section
                2.2.

            	
              Rights;
                Interests; Etc.

            


    

     

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

     

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

     

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

     

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

     

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

     

    


    
      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

    

     

     

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

     

    (iii)           The
      Secured Party in its sole discretion shall be authorized to sell any or all
      of
      the Pledged Property at public or private sale in order to recoup all of the
      outstanding principal plus accrued interest owed pursuant to the Secured
      Debenture as described herein

     

    (c)           Each
      of the following events shall constitute a default under this Agreement (each
      an
“Event of Default”):

     

    (i)           any
      default, whether in whole or in part, shall occur in the payment to the Secured
      Party of principal, interest or other item comprising the Obligations as and
      when due or with respect to any other debt or obligation of the Company to
      a
      party other than the Secured Party;

     

    (ii)           any
      default, whether in whole or in part, shall occur in the due observance or
      performance of any obligations or other covenants, terms or provisions to be
      performed under this Agreement or the Transaction Documents;

     

    (iii)           the
      Company shall:  (1) make a general assignment for the benefit of
      its creditors; (2) apply for or consent to the appointment of a receiver,
      trustee, assignee, custodian, sequestrator, liquidator or similar official
      for
      itself or any of its assets and properties; (3) commence a voluntary case
      for relief as a debtor under the United States Bankruptcy Code; (4) file
      with or otherwise submit to any governmental authority any petition, answer
      or
      other document seeking:  (A) reorganization, (B) an
      arrangement with creditors or (C) to take advantage of any other present or
      future applicable law respecting bankruptcy, reorganization, insolvency,
      readjustment of debts, relief of debtors, dissolution or liquidation;
      (5) file or otherwise submit any answer or other document admitting or
      failing to contest the material allegations of a petition or other document
      filed or otherwise submitted against it in any proceeding under any such
      applicable law, or (6) be adjudicated a bankrupt or insolvent by a court of
      competent jurisdiction; or

     

    (iv)           any
      case, proceeding or other action shall be commenced against the Company for
      the
      purpose of effecting, or an order, judgment or decree shall be entered by any
      court of competent jurisdiction approving (in whole or in part) anything
      specified in Section 2.2(c)(iii) hereof, or any receiver, trustee,
      assignee, custodian, sequestrator, liquidator or other official shall be
      appointed with respect to the Company, or shall be appointed to take or shall
      otherwise acquire possession or control of all or a substantial part of the
      assets and properties of the Company, and any of the foregoing shall continue
      unstayed and in effect for any period of thirty (30) days.

     

    


    
      
        
          
          

        

        
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    ARTICLE
      3.

     

    ATTORNEY-IN-FACT;
      PERFORMANCE

     

    
      	
            	
              Section
                3.1.

            	
              Secured
                Party Appointed
                Attorney-In-Fact.

            


    

     

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

     

    ARTICLE
      4.

     

    REPRESENTATIONS
      AND WARRANTIES

     

    
      	
            	
              Section
                4.1.

            	
              Authorization;
                Enforceability.

            


    

     

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

     

    
      	
            	
              Section
                4.2.

            	
              Ownership
                of Pledged Property.

            


    

     

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

     

    


    
      
        
          
          

        

        
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    ARTICLE
      4.2.1.

     

    DEFAULT;
      REMEDIES; SUBSTITUTE COLLATERAL

     

    
      	
            	
              Section
                4.3.

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

     

    
      	
            	
              Section
                4.4.

            	
              Method
                of Realizing Upon the Pledged Property: Other
                Remedies.

            


    

     

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

     

    (a)           Any
      item of the Pledged Property may be sold for cash or other value in any number
      of lots at brokers board, public auction or private sale and may be sold without
      demand, advertisement or notice (except that the Secured Party shall give the
      Company ten (10) days’ prior written notice of the time and place or
      of the time after which a private sale may be made (the “Sale Notice”)),
      which notice period shall in any event is hereby agreed to be commercially
      reasonable.  At any sale or sales of the Pledged Property, the Company
      may bid for and purchase the whole or any part of the Pledged Property and,
      upon
      compliance with the terms of such sale, may hold, exploit and dispose of the
      same without further accountability to the Secured Party.  The Company
      will execute and deliver, or cause to be executed and delivered, such
      instruments, documents, assignments, waivers, certificates, and affidavits
      and
      supply or cause to be supplied such further information and take such further
      action as the Secured Party reasonably shall require in connection with any
      such
      sale.

     

    (b)           Any
      cash being held by the Secured Party as Pledged 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.

     

    


    
      
        
          
          

        

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

     

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

     

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

     

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

     

    
      	
            	
              Section
                4.5.

            	
              Proofs
                of Claim.

            


    

     

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

     

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

     

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

     

    
      	
            	
              Section
                4.6.

            	
              Duties
                Regarding Pledged Collateral.

            


    

     

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

     

    


    
      
        
          
          

        

        
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    ARTICLE
      5.

     

    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
                5.1.

            	
              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 Property.

     

    
      	
            	
              Section
                5.2.

            	
              Financial
                Statements and Reports.

            


    

     

    The
      Company shall furnish to the Secured Party such financial data as the Secured
      Party may reasonably request in writing.  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;

     

    


    
      
        
          
          

        

        
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    (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
                5.3.

            	
              Accounts
                and Reports.

            


    

     

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

     

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

     

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

     

    
      	
            	
              Section
                5.4.

            	
              Maintenance
                of Books and Records;
                Inspection.

            


    

     

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

     

    
      	
            	
              Section
                5.5.

            	
              Maintenance
                and Insurance.

            


    

     

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

     

    


    
      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

    

    


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

     

    
      	
            	
              Section
                5.6.

            	
              Contracts
                and Other Collateral.

            


    

     

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

     

    
      	
            	
              Section
                5.7.

            	
              Defense
                of Collateral, Etc.

            


    

     

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

     

    
      	
            	
              Section
                5.8.

            	
              Payment
                of Debts, Taxes, Etc.

            


    

     

    The
      Company shall pay, or cause to be paid, all of its indebtedness and other
      liabilities and perform, or cause to be performed, all of its obligations in
      accordance with the respective terms thereof, and pay and discharge, or cause
      to
      be paid or discharged, all taxes, assessments and other governmental charges
      and
      levies imposed upon it, upon any of its assets and properties on or before
      the
      last day on which the same may be paid without penalty, as well as pay all
      other
      lawful claims (whether for services, labor, materials, supplies or
      otherwise) as and when due.

     

    
      	
            	
              Section
                5.9.

            	
              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.

     

    


    
      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

    

     

    
      	
            	
              Section
                5.9.1.

            	
              Compliance
                with Law and Other Agreements.

            


    

     

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

     

    
      	
            	
              Section
                5.10.

            	
              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 Loan Instrument or any other agreement of Company for the payment
      of
      money, promptly upon the occurrence thereof.

     

    
      	
            	
              Section
                5.11.

            	
              Notice
                of Litigation.

            


    

     

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

     

    ARTICLE
      6.

     

    NEGATIVE
      COVENANTS

     

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

     

    
      	
            	
              Section
                6.1.

            	
              Indebtedness.

            


    

     

    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
                6.2.

            	
              Liens
                and Encumbrances.

            


    

     

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

     

    


    
      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

    

     

    
      	
            	
              Section
                6.3.

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

            


    

     

    Without
      the prior express written consent of the Secured Party, the Company shall
      not:  (a) Amend its 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
                6.4.

            	
              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
                6.5.

            	
              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.

     

    
      	
            	
              Section
                6.6.

            	
              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 Property identified on Exhibit A hereto and (ii) the endorsement of
      negotiable instruments payable to the Company for deposit or collection in
      the
      ordinary course of business.  The Company shall not make any loan,
      advance or extension of credit to any person other than in the normal course
      of
      its business, without the express written consent of the Secured
      Party.

     

    


    
      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

    

     

    
      	
            	
              Section
                6.6.1.

            	
              Debt.

            


    

     

    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)
      without the express written consent of the Secured Party..

     

    
      	
            	
              Section
                6.7.

            	
              Conduct
                of Business.

            


    

     

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

     

    
      	
            	
              Section
                6.8.

            	
              Places
                of Business.

            


    

     

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

     

    ARTICLE
      7.

     

    MISCELLANEOUS

     

    
      	
            	
              Section
                7.1.

            	
              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:

     

    
      	 	
              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

                                      001-786-323-1651

            


    

    


    
      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

    

    


    


    
      	 	 	 
	 	
              With
                a 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

            
	 	 	 
	 	 	 
	 	
              And
                if to the Company:

            	
              C-Mark
                International, Inc.

            
	 	 	
              4130
                E. Van Buren, Suite 325

            
	 	 	
              Phoenix,
                AZ 85008

            
	 	 	
              Attn:
                Mr. Charles Jones, CEO

            
	 	 	
              Telephone:
                (602) 443-8640

            
	 	 	
              Facsimile:
                (602) 443-8646

            
	 	 	 
	 	
              With
                a copy to:

            	
              The
                O’Neal Law Firm, P.C.

            
	 	 	
              17100
                E. Shea Blvd., Suite 400-D

            
	 	 	
              Fountain
                Hills, AZ  85268

            
	 	 	
              Attention:  William
                D. O’Neal, Esq.

            
	 	 	
              Telephone:
                (480) 812-5058

            
	 	 	
              Facsimile:
                (480) 816-9241

            


    

    


    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
                7.2.

            	
              Severability.

            


    

     

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

     

    
      	
            	
              Section
                7.3.

            	
              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 Property;
      (ii) the exercise or enforcement of any of the rights of the Secured Party
      hereunder or (iii) the failure by the Company to perform or observe any of
      the provisions hereof.

     

    


    
      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

    

     

    
      	
            	
              Section
                7.3.1.

            	
              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
                7.4.

            	
              Continuing
                Security Interest.

            


    

     

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

     

    
      	
            	
              Section
                7.5.

            	
              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
                7.6.

            	
              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.

     

    
      	
            	
              Section
                7.7.

            	
              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.

     

    


    
      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

    

     

    
      	
            	
              Section
                7.7.1.

            	
              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.

     

    


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

     

    


    
      	 	
              COMPANY:

            
	 	
              CMARK
                INTERNATIONAL, INC.

            
	 	 
	 	
              By:    /s/
                Charles W. Jones,
                Jr.              

            
	 	
              Name:    
                Charles W. Jones, Jr.

            
	 	
              Title:      
                President

            
	 	 
	 	 
	 	
              SECURED
                PARTY:

            
	 	
              TRAFALGAR
                CAPITAL SPECIALIZED

            
	 	
              INVESTMENT
                FUND, LUXEMBOURG

            
	 	
              By:           Trafalgar
                Capital Sarl

            
	 	
              Its:           General
                Partner

            
	 	 
	 	
              By:     /s/ 
                Andrew
                Garai                   
                

            
	 	
              Name:       Andrew
                Garai

            
	 	
              Title:         Chairman
                of the Board

            


    

    


    


    


    


    


    
      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

    

    


    


     

    EXHIBIT
      A

     

    DEFINITION
      OF PLEDGED PROPERTY

     

     

    For
      the
      purpose of securing prompt and complete payment and performance by the Company
      of all of the Obligations, the Company unconditionally and irrevocably hereby
      grants to the Secured Party a continuing security interest in and to, and lien
      upon, and a direct right of participation in and the direct right of redirection
      of the payments relating to C-Mark Job No. 4486 for Quantico, VA.

     

     

     

     

     

     

     

    
      A-1