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EXHIBIT 10.3

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this “Agreement”), is entered into as of January 26,
2010, by and between Novo Energies Corp., a Florida corporation, with
headquarters located at Europa Place d’Armes 750 Code de Place d’Armes Suite 64,
Montreal, QC H2Y 2X8, Canada (the “Pledgor”) and Trafalgar Capital Specialized
Investment Fund, FIS (the “Secured Party”).  Capitalized words which are
otherwise undefined in this Agreement shall have the same definition as in the
Securities Purchase Agreement dated as of the date hereof entered into by the
parties hereto (the “Securities Purchase Agreement”).

RECITALS:
 
WHEREAS, the Pledgor issued and sold to the Secured Party, Five Hundred Thousand
U.S. Dollars (US$500,000) of secured convertible bridge debentures (the
“Debentures”) pursuant to the terms of the terms of the Securities Purchase
Agreement; and
 
WHEREAS, to induce the Secured Party to enter into the transactions contemplated
by the Securities Purchase Agreement and the Transaction Documents, the Pledgor
agreed to grant and to cause its subsidiaries to grant to the Secured Party a
first priority security interest in and to the pledged property identified on
Exhibit A hereto until the satisfaction of the Obligations (as defined herein
below).
 
AGREEMENT:
 
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 Pledgor to the Secured Party now
existing or hereinafter incurred to the Secured Party, whether oral or written
and whether arising on or after the date hereof including, without limitation,
those obligations of the Pledgor to the Secured Party under the Securities
Purchase Agreement, the Debenture and the Transaction Documents and any other
amounts now or hereafter owed to the Secured Party by the Pledgor thereunder or
hereunder (collectively, the “Obligations”).
 

 
 

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ARTICLE 2
PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL
AND TERMINATION OF SECURITY INTEREST
Section 2.1                       Grant of Security Interest.
 
(a)           The Pledgor 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 in the property described in
Exhibit A hereto, whether now existing or hereafter from time to time acquired
(collectively, the  “Pledged Property”).
 
(b)           Simultaneously with the execution and delivery of this Agreement,
the Pledgor 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 Pledgor shall make, execute,
acknowledge and deliver to the Secured Party such documents and instruments,
including, without limitation, financing statements, certificates, local lien
documents, 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 Pledgor shall be entitled to exercise any and all rights
pertaining to its Pledged Property or any part thereof for any purpose not
inconsistent with the terms hereof; and
 
(ii)           the Pledgor shall be entitled to receive and retain any and all
payments paid or made in respect of its Pledged Property.
 
(b)           Upon the occurrence and during the continuance of an Event of
Default:
 
(i)           All rights of the Pledgor to exercise the rights which it would
otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and to
receive payments which it would otherwise be authorized to receive and retain
pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights
shall thereupon become vested in the Secured Party who shall thereupon have the
sole right to exercise such rights and to receive and hold as Pledged Property
such payments; provided, however, that if the Secured Party shall become
entitled and shall elect to exercise its right to realize on the Pledged
Property pursuant to Article 5 hereof, then all cash sums received by the
Secured Party, or held by Pledgor 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
 

 
 

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(ii)           All interest, dividends, income and other payments and
distributions which are received by the Pledgor 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 Pledgor 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 a public or private sale in order to
recoup all of the outstanding Obligations.
 
(c)           Each of the following events, subject to the lapse of applicable
cure periods, 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 Pledgor 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 any of the Transaction
Documents;
 
(iii)           Any representation or warranty made or furnished by or on behalf
of the Pledgor in connection with this Agreement, the Securities Purchase
Agreement or any Transaction Document proves to have been incorrect or
misleading in any material respect when made or furnished; or
 
(iv)           Secured Party, reasonably and in good faith, deems itself to be
insecure;
 
(v)           the Pledgor 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 of the
proceedings set forth in this Section 2.2(c)(v) under any such applicable law,
or (6) be adjudicated a bankrupt or insolvent by a court of competent
jurisdiction; or
 
(vi)           any case, proceeding or other action shall be commenced against
the Pledgor 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)(v) hereof, or any receiver, trustee,
assignee, custodian, sequestrator, liquidator or other
 

 
 

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official shall be appointed with respect to the Pledgor, 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 Pledgor, and any of the foregoing shall
continue unstayed and in effect for any period of thirty (30) calendar days.
 
ARTICLE 3
 
 
ATTORNEY-IN-FACT; PERFORMANCE; AUTHORIZATION TO FILE FINANCING STATEMENTS
 
Section 3.1                       Secured Party Appointed
Attorney-In-Fact.  Upon the occurrence of an Event of Default, the Pledgor
hereby appoints the Secured Party as its attorney-in-fact, with full authority
in the place and stead of the Pledgor and in the name of the Pledgor 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 Pledgor
representing any payments in respect of its Pledged Property or any part thereof
and to give full discharge for the same.  The Secured Party may demand, collect,
receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the
Pledged Property as and when the Secured Party may determine.  To facilitate
collection, the Secured Party may notify account debtors and obligors on any
Pledged Property to make payments directly to the Secured Party.
 
Section 3.2                       Secured Party May Perform.  If the Pledgor
fails to perform any covenant, obligation or agreement contained herein, the
Secured Party, at its option, may itself perform, or cause performance of, such
covenant, obligation or agreement, and the expenses of the Secured Party
incurred in connection therewith shall be included in the Obligations secured
hereby and payable by the Pledgor under Section 8.3.
 
Section 3.3                       Authorization to file Financing
Statements.  The Pledgor hereby irrevocably authorizes the Secured Party at any
time and from time to time to file and amend financing statements, and do
whatever may be necessary under the Uniform Commercial Code as applicable in the
state of incorporation or organization of the relevant Pledgor or such other
state or country where the Pledged Property is or may be located or in each
jurisdiction of the principal place of business of the Pledgor to perfect and
continue the Secured Party’s interest in the Pledged Property.  The Pledgor
agrees to furnish any information required in connection with the foregoing to
the Secured Party promptly upon the Secured Party’s request. The Pledgor also
ratifies its authorization for the Secured Party to have filed in any Uniform
Commercial Code jurisdiction any like initial financing statements or amendments
thereto if filed prior to the date hereof and filed pursuant to the terms of
this Agreement.
 
Section 3.4                       No Duty on the Secured Party. The powers
conferred on the Secured Party hereunder are solely to protect its interests in
the Pledged Property and shall not impose any duty upon it to exercise any such
powers.  The Secured Party shall be accountable only for the amounts that it
actually receives as a result of the exercise of such powers, and neither it nor
any of its officers, directors, employees or agents shall be responsible to any
Pledgor for any act or failure to act, except for the Secured Party’s own gross
negligence or willful misconduct.
 

 
 

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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 Pledgor
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 and
for the Permitted Liens.  For purposes hereof, “Permitted Liens” means (i) liens
for taxes or other governmental charges which are not yet delinquent or are
being contested in good faith by appropriate proceedings, (ii) liens for
carriers, contractors, warehousemen, mechanics, materialmen, laborers,
employees, suppliers or other similar persons arising by operation of law and
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, (iii) liens relating to deposits made in the ordinary
course of business in connection with workers’ compensation, unemployment
insurance and other types of social security or to secure the performance of
leases, trade contracts or other similar agreements; and (iv) in the case of
real property, any matters, restrictions, covenants, conditions, limitations,
rights, rights of way, encumbrances, encroachments, reservations, easements,
agreements and other matters of record, such state of facts of which an accurate
survey or inspection of the property would reveal and do not materially
interfere with the use or value of the property; and (v) all security interests
granted by the Pledgor and its affiliates in favor of the Secured Party under
any 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), (ii), (iii)
or (iv) hereof 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
Pledgor, and upon any such declaration, the Obligations shall become immediately
due and payable.  If an Event of Default described in Sections 2.2(c)(v) or (vi)
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 be entitled to: (i)  receive all distributions with respect to the Pledged
Property, (ii)  cause the Pledged Property to be transferred into the name of
the Secured Party or its nominee, (iii)  dispose of the Pledged Property, and
(iv)  realize upon any and all rights in the Pledged Property then held by the
Secured Party as provided herein.
 

 
 

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Section 5.2                       Method of Realizing Upon the Pledged Property:
Other Remedies.
 
Upon the occurrence of an Event of Default, in addition to any rights and
remedies available at law or in equity, the following provisions shall govern
the Secured Party’s right to realize upon the Pledged Property:
 
(a)           Any item of the Pledged Property may be sold for cash or other
value in any number of lots at brokers board, public auction or private sale and
may be sold without demand, advertisement or notice (except that the Secured
Party shall give the Pledgor ten (10) calendar 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 is hereby agreed to be commercially
reasonable.  At any sale or sales of the Pledged Property, the Pledgor may bid
for and purchase the whole or any part of its 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 Pledgor will
execute and deliver, or cause to be executed and delivered, such instruments,
documents, assignments, waivers, certificates, and affidavits and supply or
cause to be supplied such further information and take such further action as
the Secured Party reasonably shall require in connection with any such sale.
 
(b)           Any cash being held by the Secured Party as Pledged Property and
all cash proceeds received by the Secured Party in respect of, sale of,
collection from, or other realization upon all or any part of the Pledged
Property shall be applied as follows:
 
(i)           to the payment of all amounts due the Secured Party for the
expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3
hereof;
 
(ii)           to the payment of the Obligations then due and unpaid; and
 
(iii)           the balance, if any, to the person or persons entitled thereto,
including, without limitation, the Pledgor.
 
(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 Pledgor 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 Pledgor and collect the monies adjudged or decreed to be payable in
the manner provided by law out of the property of Pledgor, wherever situated.
 
(e)           The Pledgor 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.
 

 
 

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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 Pledgor or the property of the Pledgor 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
Pledgor for the payment of the Obligations), shall be entitled and empowered, by
intervention in such proceeding or otherwise:
 
(a)           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
 
(b)           to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by the Secured Party to
make such payments to the Secured Party and, in the event that the Secured Party
shall consent to the making of such payments directed to the Secured Party, to
pay to the Secured Party any amounts for expenses due it hereunder.
 
Section 5.4                       Duties Regarding Pledged Property.  The
Secured Party shall have no duty as to the collection or protection of the
Pledged Property or any income thereon or as to the preservation of any rights
pertaining thereto, beyond the safe custody and reasonable care of any of the
Pledged Property actually in the Secured Party’s possession.
 
ARTICLE 6
 
AFFIRMATIVE COVENANTS
 
The Pledgor covenants and agrees that, from the date hereof (or from the date of
the applicable Joinder for Pledgors that become parties hereto by signing a
Joinder) 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.  The Pledgor 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
the Pledgor’s due organization, valid existence and good standing under the laws
of its state or country of incorporation, as applicable, 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 Pledgor shall not do, or cause to
be done, any act impairing the Pledgor’s corporate power or authority (i) to
carry on the Pledgor’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” means any material and adverse
 

 
 

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affect, whether individually or in the aggregate, upon (a) the Pledgor’s assets,
business, operations, properties or condition, financial or otherwise or results
of operations of the Pledgor, taken as a whole, excluding any change, event,
circumstance or effect that is caused by changes in general economic conditions
or changes generally affecting the industry in which the Pledgor operates
(provided that such changes do not affect the Pledgor in a materially
disproportionate manner); or (b) the Pledgor’s ability to make payment as and
when due of all or any part of the Obligations; or (c) the Pledged Property.
 
Section 6.2                       Accounts and Reports.  The Pledgor 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 Pledgor in excess of
US$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
US$25,000, including any received from any person acting on behalf of the
Secured Party or beneficiary thereof, except for supplier requests in the normal
course of business for payment of past due accounts payable invoices so long as
such past due amounts do not exceed in the aggregate US$50,000 at any time; and
 
(b)           within fifteen (15) calendar 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
Pledgor, or submitted to or filed by the Pledgor with any governmental authority
involving or affecting (i) the Pledgor that could have a Material Adverse
Effect; (ii) the Obligations; or (iii) any part of the Pledged Property.
 
Section 6.3                       Maintenance of Books and Records;
Inspection.  The Pledgor shall maintain its books, accounts and records in
accordance with United States 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, during
business hours and upon reasonable notice to visit and inspect any of its
properties (including but not limited to the Pledged Property), corporate books
and financial records, and to discuss its accounts, affairs and finances with
any employee, officer or director thereof.
 
Section 6.4                       Maintenance and Insurance.
 
(a)           The Pledgor shall maintain or cause to be maintained, at its own
expense, all of its assets and properties in good working order and condition,
making all necessary repairs thereto and renewals and replacements thereof.
 
(b)           The Pledgor shall maintain or cause to be maintained, at its own
expense, insurance in form, substance and amounts (including deductibles), which
the Pledgor deems reasonably necessary to the Pledgor’s business, (i) adequate
to insure all assets and properties of the Pledgor, 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
 

 
 

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an extended coverage policy; (ii) against public liability and other tort claims
that may be incurred by the Pledgor; (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 6.5                       Contracts and Other Collateral.  The Pledgor
shall perform all of its obligations under or with respect to each instrument,
receivable, contract and other intangible included in its Pledged Property to
which the Pledgor is now or hereafter will be party on a timely basis and in the
manner therein required, including, without limitation, this Agreement.
 
Section 6.6                       Defense of Collateral, Etc.  The Pledgor shall
defend and enforce its right, title and interest in and to any part of:  (a) its
Pledged Property; and (b) if not included within its Pledged Property, those
assets and properties whose loss could have a Material Adverse Effect, the
Pledgor shall defend the Secured Party’s right, title and interest in and to
each and every part of its Pledged Property, each against all manner of claims
and demands on a timely basis to the full extent permitted by applicable law.
 
Section 6.7                       Payment of Debts, Taxes, Etc.  The Pledgor
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 (other than those being contested by the Pledgor in good faith),
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 6.8                       Taxes and Assessments; Tax Indemnity.  The
Pledgor 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 Pledgor, 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 Pledgor 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 6.9                       Compliance with Law and Other Agreements.  The
Pledgor 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 Pledgor is a party or by which
the Pledgor or any of its properties is bound.  Without limiting the foregoing,
the Pledgor shall pay all of its indebtedness promptly in accordance with the
terms thereof.
 
Section 6.10                       Notice of Default.  The Pledgor shall give
written notice to the Secured Party of the occurrence of any default or Event of
Default under this Agreement or any of the Transaction Documents, promptly upon
the occurrence thereof.
 

 
 

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Section 6.11                       Notice of Litigation.  The Pledgor 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 US$50,000, instituted by
any persons against the Pledgor, or affecting any of the assets of the Pledgor,
and (b) any dispute, not resolved within fifteen (15) calendar days of the
commencement thereof, between the Pledgor 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 Pledgor.
 
Section 6.12                       Joinder of New Subsidiaries.  The Company
shall cause each of its Subsidiaries to execute a joinder to this Agreement,
(“Joinder”) within five (5) business days of each such subsidiary becoming a
Subsidiary of the Company, whereby each such future Subsidiary shall become a
party to this Agreement and shall thereby grant to the Company a first priority
security interest in and to each such future Subsidiary’s Pledged Property and
collateral as set forth herein.  A form of the Joinder is attached hereto as
Exhibit B.   For purposes of this Agreement and the Joinder, a “Subsidiary”
means (a) any corporation, partnership, limited liability company or other
entity of which more than 50% of the outstanding equity interests having
ordinary voting power to elect a majority of the board of directors or other
governing body of such entity is at the time owned, or the management of which
is otherwise controlled, directly or indirectly through one or more
intermediaries, by the Company, or with respect to which the Company, directly
or indirectly through one or more intermediaries, has the right to vote or
designate the vote of more than 50% of such equity interests (whether by proxy,
agreement, operation of law or otherwise), and (b) any corporation, partnership,
limited liability company or other entity in which the Company, directly or
indirectly, shall have an interest (whether in the form of voting or
participation in profits or capital contribution) of more than 50% or of which
the Company is a general partner or may exercise the powers of a general
partner.
 
ARTICLE 7
 
NEGATIVE COVENANTS
 
The Pledgor covenants and agrees that, from the date hereof (or from the date of
the applicable Joinder for Pledgors that become parties hereto by signing a
Joinder) and until the Obligations have been fully paid and satisfied, the
Pledgor shall not, unless the Secured Party shall consent otherwise in writing:
 
Section 7.1                       Indebtedness.  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 Permitted
Liens and for transfers in the ordinary course of business, 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 its Pledged Property or of the
Pledgor’s capital stock, or offer or agree to do so, or own or acquire or agree
to acquire any asset or
 

 
 

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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 its Pledged Property;
or enter into any sale-leaseback financing respecting any part of its Pledged
Property as lessee, or cause or assist the inception or continuation of any of
the foregoing.
 
Section 7.3                       Articles of Incorporation, Bylaws, Mergers,
Consolidations, Acquisitions and Sales, Sales of Capital Stock, Incurrence of
Debt.
 
(a)           Except as may be required to comply with the terms of the
Transaction Documents, Pledgor shall not:
 
(i)           Amend its Articles of Incorporation or Bylaws;
 
(ii)           Issue or sell its Common Stock, as defined in the Securities
Purchase Agreement;
 
(iii)           Issue or sell shares of the Pledgor’s capital stock;
 
(iv)           Issue or sell any warrant, option, right, contract, call, or
other security instrument granting the holder thereof, the right to acquire
Common Stock;
 
(v)           Incur any additional debt or permit any subsidiary of the Pledgor
to incur any additional debt;
 
(vi)           Be a party to any merger, consolidation or corporate
reorganization; or.
 
(vii)           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, (viii) sell, transfer, convey, grant a security interest
in (except for Permitted Liens) or lease all or any substantial part of its
assets, or (ix) create any new subsidiaries nor convey any of its assets to any
subsidiary.
 
Section 7.4                       Management, Ownership.  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 Pledgor
are material factors in the Secured Party's willingness to institute and
maintain a lending relationship with the Pledgor.
 
Section 7.5                       Dividends, Etc.  Declare or pay any
distribution or dividend of any kind, in cash or in property, on any class of
its capital stock or ownership interests, nor purchase, redeem, retire or
otherwise acquire for value any shares or ownership interests, nor make any
distribution of any kind in respect thereof, nor make any return of capital to
shareholders or owners, 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).
 

 
 

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Section 7.6                       Guaranties; Loans.  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) guaranties or liabilities as are
outstanding on the date of this Agreement, (ii) the endorsement of negotiable
instruments payable to the Pledgor for deposit or collection in the ordinary
course of business, and (iii) accounts payable of the Pledgor incurred in the
ordinary course of the business of the Pledgor.  The Pledgor 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.  Except for such indebtedness as is
outstanding on the date of this Agreement and listed on the attached Schedule
7.7 (other than trade payables), create, incur, assume or suffer to exist any
additional indebtedness of any description whatsoever (excluding any
indebtedness of the Pledgor to the Secured Party, indebtedness otherwise
permitted by the terms of this Agreement, trade accounts payable and accrued
expenses incurred in the ordinary course of business and the endorsement of
negotiable instruments payable to the Pledgor, respectively for deposit or
collection in the ordinary course of business).
 
Section 7.8                       Conduct of Business.  The Pledgor will
continue to engage in a business of the general type as conducted by it on the
date of this Agreement.
 
Section 7.9                       Places of Business; Location of Assets.  The
location of the Pledgor’s chief place of business is at the address set forth in
Section 8.1 hereof.  The location(s) of Pledgor’s assets is listed on the
attached Schedule 7.9.  The Pledgor shall not change the location of its
respective 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) calendar 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:
 

 
 

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If to the Pledgor, to:
Novo Energies Corp.
Europa Place d’Armes 750 Cote de Place d’Armes 64
Montreal, QC H2Y 2X8, Canada
Attention:  Mr. Antonio Treminio, CEO
Telephone: (514) 840-3697
Facsimile:  (917) 591-8886
With a copy to:
 
Sanders Ortoli Vaughn-Flam Rosenstadt LLP
501 Madison Avenue, 14th Floor
New York, NY 10022
Attention: William S. Rosenstadt, Esq.
Telephone: (212) 588-0022
Facsimile: (212) 826-9307
 
  If to the Secured Party, to:
Trafalgar Capital Specialized Investment Fund
8 The Dickens, Kirk Street
16 Northington Street
London WC1N 2DG
Attention: Andrew Garai, Chairman of the Board of Trafalgar Capital Sarl,
General Partner
Facsimile:                      011-44-207-405-0161 and
                        001-786-323-1651
     
With Copy to:
K&L Gates LLP
200 South Biscayne Blvd., Suite 3900
Miami, Florida 33131
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3306
Facsimile:  (305) 358-7095

Any party may change its address by giving notice to the other party stating its
new address.  Commencing on the tenth (10th) calendar 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.
 
Section 8.3                       Expenses.  In the event of an Event of
Default, the Pledgor shall pay to the Secured Party the amount of any and all
reasonable expenses, including the reasonable fees, costs 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
 

 
 

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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
Pledgor 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 the Pledgor 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 Pledgor contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by the
Secured Party.
 
Section 8.5                       Continuing Security Interest.  This Agreement
shall create a continuing security interest in the Pledged Property and shall:
(i) remain in full force and effect until payment in full of the Obligations
(whether by payment of cash, redemption or conversion); and (ii) be binding upon
the Pledgor 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 Pledgor 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. Upon payment in full of all Obligations, the Secured Party shall execute
and deliver to the Pledgor, within three business days, all instruments and
other documents as may be necessary or proper to release the lien on and
security interest in the Pledged Property which has been granted hereunder.
 
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 deemed to be made under and shall be construed in accordance with the
laws of the State of Florida without giving effect to the principals of conflict
of laws thereof.  Each of the parties consents to the jurisdiction of the U.S.
District Court sitting in the Southern District of the State of Florida or the
state courts of the State of Florida sitting in Miami-Dade County, Florida in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens to the bringing of any such proceeding in such
jurisdictions.
 
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
ACCOMODATIONS TO THE PLEDGOR, THE PLEDGOR 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.
 

 
 

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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.
 
Section 8.10                       Further Assurances.  The Pledgor shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the Secured Party may reasonably request in order
to carry out the intent and accomplish the purposes of this
Agreement.   Furthermore, the Pledgor agrees to execute such other documents as
are reasonably required by the Secured Party.  It shall be deemed a default of
this Agreement if the Pledgor fails to sign any such agreement within one
business day of the date of request by Secured Party.
 

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

 
THE PLEDGOR:
 
   
NOVO ENERGIES CORP.
       
By: _________________ 
 
Name: Antonio Treminio
 
Title: Chief Executive Officer
       
THE SECURED PARTY:
 
   
TRAFALGAR CAPITAL SPECIALIZED
   
INVESTMENT FUND, FIS
 
   
By:           Trafalgar Capital Sarl
   
Its:           General Partner
         
By: _________________                                                               
   
Name:           
   
Title:

 
 
 

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EXHIBIT A
 
DEFINITION OF PLEDGED PROPERTY
 
For the purpose of securing prompt and complete payment and performance by the
Pledgor of all of the Obligations, the Pledgor unconditionally and irrevocably
hereby grants to the Secured Party a continuing security interest in and to, and
lien upon, all of Pledgor’s and its current or future acquired subsidiaries’
assets, including specifically the following Pledged Property of the Pledgor:
 
a.            All of the Pledgor’s cash, including cash on deposit and cash on
hand;
 
b.            All goods of the Pledgor, 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 Pledgor wherever located or in which the Pledgor 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;
 
c.            All now owned or hereafter acquired inventory of the Pledgor,
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 the Pledgor’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;
 
d.            All contract rights and general intangibles of the Pledgor,
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;
 
e.            All documents, warehouse receipts, instruments and chattel paper
of the Pledgor whether now owned or hereafter created;
 
f.            All accounts and other receivables, instruments or other forms of
obligations and rights to payment of the Pledgor, (collectively, the “Accounts”)
together with the proceeds thereof, all goods represented by such Accounts and
all such goods that may be returned by the Pledgor’s customers, and all proceeds
of any insurance thereon, and all guarantees, securities and liens which the
Pledgor 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 Pledgor represents and warrants
will be bona fide and existing obligations of its respective customers, arising
out of the sale of goods by the Pledgor in the ordinary course of business;
 
g.            To the extent assignable, all of the Pledgor’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;
 
h.            All of the Pledgor’s ledger sheets, ledger cards, files,
correspondence, records, books of account, and computers, computer software,
computer programs, data processing records, correspondence, tapes, disks and
documents (including, without limitation, electronic documents) relating to the
above-described Pledged Property;
 
i.            All equity interests, securities or other instruments in other
companies, including, without limitation, any subsidiaries, investments or other
entities (whether or not controlled);
 
j.            All real estate property owned by such Pledgor and the interest of
such Pledgor in fixtures related to such real property; and
 
k.            All products and proceeds (including, without limitation,
insurance proceeds) from the above-described Pledged Property.
 
 
 

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EXHIBIT B
 
 
FORM OF JOINDER AGREEMENT
 
This Joinder Agreement (the “Joinder”) is made as of [________, 20__] (the
“Joinder Effective Date”) by [____________________], organized under the laws of
[___________] (the “Joining Party”), and Novo Energies Corp., an entity
organized under the laws of Florida (“Novo” or the “Company”), in favor of
Trafalgar Capital Specialized Investment Fund, in its capacity as the Secured
Party.  All capitalized terms used but not defined in this Joinder shall have
the meanings given to them in that certain Security Agreement dated January 26,
2010, executed by and among Novo and the Secured Party (the “Security
Agreement”).
 
Preliminary Statements
 
(a)           Novo is a party to the Security Agreement referred to above.
 
(b)           The Joining Party is a direct or indirect Subsidiary of the
Company.
 
(c)           It is a condition to the obligations of the Secured Party under
the Security Agreement and the Securities Purchase Agreement dated January 26,
2010, (“Securities Purchase Agreement”) by and between Novo and the Secured
Party, that each Subsidiary of the Company execute a Joinder whereby such
Subsidiary becomes a party to the Security Agreement and is bound by the terms
and conditions therein, which the Joining Party is willing to do.
 
 Now therefore, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Joining Party agrees as follows:

1.           Status and Obligations. The Joining Party hereby acknowledges,
agrees and confirms that:

(a)           Guarantee.  The Joining Party hereby unconditionally guarantees,
as a primary obligor and not merely as a surety, jointly and severally with each
other direct or indirecty subsidiary of the Company when and as due, whether at
maturity, by acceleration, by notice of prepayment or otherwise, the due and
punctual performance of all Obligations.   The guaranty hereunder is one of
payment and performance, not collection.
 
(b)           Security Agreement.  As of the Joinder Effective Date, the Joining
Party (i) will be deemed to be a party to the Security Agreement and a “Pledgor”
for all purposes of (and as the term is defined in) the Security Agreement as if
it had executed the same, (ii) has all of the obligations of a Pledgor under the
Security Agreement, (iii) makes each representation and warranty set forth in
the Security Agreement applicable to any Pledgor as of the Joinder Effective
Date, and (iv) is bound by all of the covenants, waivers, releases,
indemnifications and all other terms and provisions of the Security Agreement
given by, agreed to, binding on, or otherwise applicable to, any Pledgor.

(c)           Place of Business.  The location of the Joining Party’s chief
place of business is [_______].  The Joining Party 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 its Pledged Property from its
current location without thirty (30) calendar days’ prior written notice to the
Secured Party in each instance.

2.           Representations and Warranties.  The Joining Party hereby
represents and warrants that:
(a)           this Joinder has been duly authorized, executed and delivered by
the Joining Party and constitutes a legal, valid and binding obligation of the
Joining Party, enforceable against the Joining Party in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforceability of creditors’ rights generally and subject to the discretion of
the courts in applying equitable remedies; and
 
(b)           neither the execution or delivery by the Joining Party of, nor the
performance by the Joining Party of its obligations under, this Agreement
contravenes any contractual or legal restriction binding on the Joining Party,
or gives rise to any default under any agreement binding on the Joining Party,
or results in any lien or other rights in favor of any person (other than the
Company).
 
3.           Miscellaneous.
(a)           Integration; Confirmation. On and after the date hereof, the
Security Agreement shall be supplemented as expressly set forth herein; and all
other terms and provisions of the Security Agreement continue in full force and
effect and unchanged and are hereby confirmed in all respects.
(b)           Section Captions. Section captions used in this Joinder are for
convenience of reference only, and shall not affect the construction of this
Joinder.
 
(c) Counterparts. This Joinder may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall
constitute a single contract. Delivery of an executed counterpart of a signature
page of this Joinder by telecopy or other electronic means shall be effective as
delivery of a manually executed counterpart of this Joinder.
 
(d)           GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO ANY CHOICE
OF LAW RULE THEREOF.
 
[Signature pages follow]
 

 
 

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In Witness Whereof, each Joining Party has caused this Joinder to be duly
executed by its authorized officer as of the day and year first above written.
 
NOVO ENERGIES CORP.

By:________________                                                                
Name:______________                                                                           
Title:_______________                                                                

[NAME OF JOINING PARTY]

By:________________                                                                
Name:______________                                                                           
Title:_______________                                                                

Accepted as of ______, 20__:
 
Trafalgar Capital Specialized Investment Fund, FIS

By:                                                                
Name:                                                                
Title:                                                                           

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