Document:

exhibi10-2.htm

     

     

    
      

    

    
      

    

    EXHIBIT 10.2

     

    

      THIS
SECURED CONVERTIBLE REDEEMABLE DEBENTURE AND THE SECURITIES INTO WHICH IT IS
CONVERTIBLE (COLLECTIVELY, THE “SECURITIES”), HAVE
NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE.  THE SECURITIES ARE BEING
OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION D
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THE
SECURITIES ARE “RESTRICTED” AND MAY
NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, OR
ELIGIBLE TO BE OFFERED OR SOLD PURSUANT TO AVAILABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH
OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.  FURTHER HEDGING
TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH
THE ACT.

       

       

      SECURED
CONVERTIBLE DEBENTURE

       

       

      NOVO
ENERGIES CORP.

       

       

      Effective
January 26, 2010

       

      

      
        	
                No.  1

              	
                US$500,000.00

              

      

      

      This
Secured Convertible Debenture (this “Debenture”) is issued
by Novo Energies Corp., a Florida corporation (the “Company”), to
Trafalgar Capital Specialized Investment Fund, FIS (together with its permitted
successors and assigns, the “Holder”) pursuant to
exemptions from registration under Section 4(2) and/or Regulation D as
promulgated by the U.S. Securities and Exchange Commission (the “SEC”) under the
Securities Act of 1933, as amended, in the amount of Five Hundred Thousand
United States Dollars (US$500,000) as follows:

       

      Section
1.01                      Principal
and Interest.  For value
received, the Company hereby promises to pay to the order of the Holder in
lawful money of the United States of America and in immediately available funds
the principal sum of Five Hundred Thousand United States
Dollars (US$500,000) together with interest on the unpaid principal of this
Debenture at ten percent (10%) per annum.  Commencing on January 31,
2010, monthly interest payments in the amount of Four Thousand One Hundred
Sixty-Six Dollars and 67/100 (US$4,166.67) shall be paid to the Holder on the
last day of each month from the date hereof until the Maturity
Date.  The Holder shall deduct the first two (2) interest payments
from the proceeds at the Closing (as defined in that certain Securities Purchase
Agreement, dated January 26, 2010, by and between the Company and the Holder
(the “Purchase
Agreement”)).  The entire principal amount outstanding and all
accrued but unpaid interest hereon and the associated ten percent (10%) premium
shall be paid to the Holder three-hundred sixty-five (365) days from the Closing
Date (the “Maturity
Date”).  Capitalized terms used but not defined in this
Debenture shall have the meaning ascribed to them in the Purchase
Agreement.

       

      
        
          
            MI-323695 v1

          

           

        

        
           

          
            

          

        

        
           

        

      

      

      

      Section
1.02                      Conversion
Upon Default.  Upon the earlier
of (i) one hundred twenty (120) days from the date hereof, or (ii) the
occurrence of an
Event of Default (defined below), the Holder is entitled to convert and sell on
the same day or at any subsequent time, all or any part of the principal amount
of the Debenture, plus accrued interest into shares (the “Conversion Shares”)
of common stock of the Company, par value $0.00001 per share (“Common
Stock”).  The number of shares of Common Stock issuable upon a
conversion hereunder shall equal the quotient obtained by dividing (a) the
outstanding amount of this Debenture to be converted by (y) the Conversion
Price.  The “Conversion Price”
shall mean the lower of (a) 100% of the Volume Weighted Average Price
(“VWAP”) of the
Common Stock as reported by Bloomberg, LP on the day prior to the Closing Date
(as defined in the Purchase Agreement) the (“Fixed Conversion
Price”) and (b) a fifteen percent (15%) discount to the lowest daily
closing VWAP of the Common Stock during the five (5) Trading Days (as defined in
the Purchase Agreement) prior to the Conversion Date (as defined
below).  No fraction of shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be
rounded to the nearest whole share.  To convert this Debenture, the
Holder hereof shall deliver written notice thereof, substantially in the form of
Exhibit A
to this Debenture, with appropriate insertions (the “Conversion Notice”),
to the Company at its address as set forth herein.  The date upon
which the conversion shall be effective (the “Conversion Date”)
shall be deemed to be the date set forth in the Conversion Notice.

       

      Section
1.03                      Limitations
on Conversion.

       

      (1)      The
Holder shall not have the right to convert more than Fifty Thousand United
States Dollars (US$50,000) of the principal amount of the Debenture plus accrued
interest per week unless (i) the foregoing restriction is waived by the Company,
and (ii) the shares of Common Stock of the Company are trading above 100% of the
VWAP of the Common Stock on the day prior to the Closing Date.

       

      (2)      The
Company shall not effect any conversions of this Debenture and the Holder shall
not have the right to convert any portion of this Debenture or receive shares of
Common Stock as payment of interest hereunder to the extent that after giving
effect to such conversion or receipt of such interest payment, the Holder
together with any affiliate thereof, would beneficially own (as determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules promulgated thereunder) in excess of 4.99% of the number
of shares of Common Stock outstanding immediately after giving effect to such
conversion or receipt of shares as payment of interest unless the Company is in
default.  Since the Holder will not be obligated to report to the
Company the number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 4.99% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the principal amount of this
Debenture is convertible shall be the responsibility and obligation of the
Holder.  If the Holder has delivered a Conversion

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       Notice
for an outstanding amount of this Debenture that, without regard to any other
shares that the Holder or its affiliates may beneficially own, would result in
the issuance in excess of the permitted amount hereunder, the Company shall
notify the Holder of this fact and shall honor the conversion for the maximum
principal amount permitted to be converted on such Conversion Date in accordance
with the terms of this Debenture and, any principal amount tendered for
conversion in excess of the permitted amount hereunder shall remain outstanding
under this Debenture.  The provisions in this Section 1.03(2) may be
waived by a Holder (but only as to itself and not to any other Holder) upon not
less than sixty-six (66) days prior notice to the Company.  Other
Holders shall be unaffected by such waiver.

       

      Section
1.04                      Reservation
of Common Stock.  The Company shall
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of this Debenture,
such number of shares of Common Stock as shall from time to time be sufficient
to effect such conversion, based upon the Conversion Price.  If at any
time the Company does not have a sufficient number of Conversion Shares
authorized and available, then the Company shall take any and all actions
required by Section 4(e) of the Purchase Agreement.

       

      Section
1.05                      Optional
Redemption; Premium. The Company may redeem
this Debenture, in whole or in part, at any time after the Closing Date by
providing the Holder with three (3) days advance notice (the “Redemption Notice”)
and by paying unpaid principal and interest accrued to the date of such
redemption and a ten percent (10%) premium on the principal amount
redeemed.  On the Maturity Date, the Company shall pay a premium of
ten percent (10%) of the then outstanding principal amount of the Debenture in
addition to the outstanding principal and accrued but unpaid interest due
hereunder. The date upon which a redemption or payment of principal and/or
interest is made shall be referred to as a “Repayment
Date”.

       

      Section
1.06                      Paying
Agent and Registrar.  Initially, the Company will act as paying
agent and registrar.  The Company may change any paying agent,
registrar, or Company-registrar by giving the Holder not less than ten (10)
business days’ written notice of its election to do so, specifying the name,
address, telephone number and facsimile number of the paying agent or
registrar.  The Company may act in any such capacity.

       

      Section
1.07                      Secured
Nature of Debenture.  This Debenture is secured by those
certain Security Instruments (as defined in the Purchase
Agreement).

       

      Section
1.08                      Currency
Exchange Rate Protections.

       

      
        (a)           “Closing Date Exchange
Rate” means the Euro to US dollar spot exchange rate as determined by the
Holder’s custodian bank on the date of funds transfer to the Escrow Agent’s
account .

         

        (b)           “Repayment Exchange
Rate” means
in relation to each date of a Conversion Notice or date of a Redemption Notice,
the Euro to US
dollar spot exchange rate as quoted by the Holder’s custodian bank on such date
or other such similar source.

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      (c)           If
on the date of any Conversion Notice or Redemption Notice, the Repayment
Exchange Rate is less than the Closing Date Exchange Rate then the number of
Shares to be issued shall be increased by the same percentage as results from
dividing the Closing Date Exchange Rate by the relevant Repayment Exchange
Rate.  By way of example, if the number of Shares to be issued in
respect of a particular Conversion Notice or Redemption Notice would, but for
this Section 1.08, be 1,000 and if the Closing Date Exchange Rate is 1.80 and
the relevant Repayment Exchange Rate is 1.75, then 1,029 shares of Common Stock
will be issued in relation to that Conversion Notice or Redemption Notice, as
the case may be.  For the avoidance of doubt, the formula for such
calculation, by way of example for this Section, equals ((1.80 /1.75)-1)*1000 =
29 additional shares.

       

      (d)           If
on any Repayment Date, the Cash Payment Date Exchange Rate, as defined below is
less than the Closing Date Exchange Rate then the amount of cash required to
satisfy the amounts due at such time shall be increased by the same percentage
as results from dividing the Closing Date Exchange Rate by the relevant Cash
Payment Date Exchange Rate. “Cash Payment Date Exchange
Rate” means in relation to each
Repayment Date the Euro to US dollar spot
exchange rate as quoted in the London edition of the Financial Times on such
date.  By way of example, if the amount of cash required to repay all
amounts due on such date would, but for this Section 1.08, be US$1,000 and if
the Closing Date Exchange Rate is 1.80 and the relevant Repayment Exchange Rate
is 1.75 then the amount of cash from the cash payment required to repay all
amounts due on such date will be US$1,028.57. For the avoidance of doubt, the
formula for such calculation, by way of example for this Section, equals
((1.80/1.75)-1)*US$1000 = US$28.57 additional dollars.

       

       

      ARTICLE
II.

       

      Section
2.01                      Amendments
and Waiver of Default.  The Debenture may
not be amended without the written consent of the Holder.

       

       

      ARTICLE
III.

       

      Section
3.01                      Events of
Default.  An “Event of Default” is
defined as follows: (a) failure by the Company to pay amounts due hereunder
within two (2) calendar days of the required payment date; (b) failure by
the Company’s transfer agent to issue Common Stock (which shall be freely
tradable, if permitted by applicable laws) to the Holder within five (5)
calendar days from the Conversion Date; (c) failure by the Company for ten (10)
calendar days after notice to it to comply with any of its other agreements in
this Debenture; (d) events of bankruptcy or insolvency of the Company; and
(e) a breach by the Company of its obligations under any of the Transaction
Documents (as such term is defined in the Purchase Agreement) if such breach is
not cured by the Company within fifteen (15) calendar days after receipt of
written notice thereof.  Upon the occurrence of an Event of Default,
all interest accrued as of the Closing Date shall be accrued at fifteen percent
(15%) per annum (the “Default Rate”) and
the Company shall be liable to the Holder for a five percent (5%) redemption
premium on any

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      outstanding
principal.  In addition, the Holder may, in its sole discretion,
accelerate full repayment of all debentures (including, without limitation, this
Debenture) outstanding and accrued interest thereon (at the Default Rate) or
may, notwithstanding any limitations contained in this Debenture, the Purchase
Agreement or any other Transaction Document, convert all debentures (including,
without limitation, this Debenture) outstanding and accrued interest thereon
into shares of Common Stock pursuant to Section 1.02 herein.

      

       

      Section
3.02                      Failure
to Issue Common Stock.
The Company acknowledges that failure to honor a Notice of Conversion
shall cause irreparable harm to the Holder.

       

       

      ARTICLE
IV.

       

      Section
4.01                      Re-issuance
of Debenture.  When the Holder
elects to convert a part of the Debenture or the Company redeems a part of the
Debenture, then the Company shall reissue a new Debenture in the same form as
this Debenture to reflect the new principal amount.

       

       

      ARTICLE
V.

       

      Section
5.01 Restriction
on Issuance of the Capital Stock, Incurring Debt or Granting of Security
Interests. So long as any of the
principal of or interest on any debentures (including, without limitation, this
Debenture) remain unpaid, the Company shall  (i) not enter into any
security instrument granting a third party a security interest in any and all
assets of the Company or any subsidiary of the Company (whether now owned or
acquired in the future while any debentures (including, without limitation, this
Debenture) are outstanding without the prior written consent of the Holder),
(ii) not permit any subsidiary of the Company (whether now owned or acquired in
the future while any debentures (including, without limitation, this Debenture)
to enter into any security instrument granting a third party a security interest
in any and all assets of such subsidiary without the prior written consent of
the Holder or (iii) not incur any additional debt or permit any subsidiary of
the Company to incur any additional debt without the prior written consent of
the Holder.

       

       

      ARTICLE
VI.

       

      Section
6.01                      Notice.  Notices regarding
this Debenture shall be sent to the parties at the following addresses, unless a
party notifies the other parties, in writing, of a change of
address:

       

      
        	
                If
      to the Company, to:

              	
                Novo
      Energies Corp.

              
	 
      	
                Europa
      Place D’Armes 750 Cote de Place d’Armes Suite 64

              
	 
      	
                Montreal,
      QC H2Y 2X8, Canada

              
	 
      	
                Attention:  Antonio
      Treminio, CEO

              
	 
      	
                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 Holder:

              	
                Trafalgar
      Capital Specialized Investment Fund, FIS

              
	 
      	
                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
      a copy to:

              	
                K&L
      Gates LLP

              
	 
      	
                200
      South Biscayne Blvd., Suite 3900

              
	 
      	
                Miami,
      FL 33131

              
	 
      	
                Attention:  Clayton
      Parker, Esq.

              
	 
      	
                Telephone:
      305-539-3306

              
	 
      	
                Facsimile:
      305-358-7095

              
	 
      	 
      

      

      

      Section
6.02                      Governing
Law.  This Debenture
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 Debenture 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
6.03                      Severability.  The invalidity of
any of the provisions of this Debenture shall not invalidate or otherwise affect
any of the other provisions of this Debenture, which shall remain in full force
and effect.

       

      Section
6.04                      Entire
Agreement and Amendments.  This Debenture
and the other Transaction Documents represent the entire agreement between the
parties hereto with respect to the subject matter hereof and there are no
representations, warranties or commitments, except as set forth
herein.  This Debenture may be amended only by an instrument in
writing executed by the parties hereto.

       

      Section
6.05                      Counterparts.  This Debenture
may be executed in multiple counterparts, each of which shall be an original,
but all of which shall be deemed to constitute on instrument.

       

      Section
6.06                      Usury
Laws.  If, under any circumstances, it shall be found that any
interest or other amount deemed interest hereunder or in connection with any
other agreement pertaining to this Debenture, shall violate applicable laws
governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum permitted rate of interest. The
Company covenants (to the extent that it may lawfully do so) that it shall not
at any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of,

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      any stay,
extension or usury law or other law which would prohibit or forgive the Company
from paying all or any portion of the principal of or interest on this Debenture
as contemplated herein, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this indenture, and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will not, resort to
any such law, hinder, delay or impede the execution of any power herein granted
to the Holder, but will suffer and permit its execution as though no such law
had been enacted.  This provision shall control every other provision
of all agreements between the Company and the Holder.

      

      [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      IN WITNESS WHEREOF, with the
intent to be legally bound hereby, the Company as executed this Debenture as of
the date first written above.

       

      
        	 
      	
                NOVO
      ENERGIES CORP.

              
	 
      	 
      
	 
      	 
      
	 
      	
                By:                _________________

              
	 
      	
                Name:           Antonio
      Treminio

              
	 
      	
                Title:            
      Chief Executive Officer

              

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

       

      EXHIBIT
A

       

       

      NOTICE OF
CONVERSION

       

       

      (To
be executed by the Holder in order to Convert the Debenture)

       

      

      
        	
                TO:

              	 
      

      

      

      The
undersigned hereby irrevocably elects to convert US$_____________ of the
principal amount of the above Debenture into Shares of Common Stock of Novo
Energies Corp., according to the conditions stated therein, as of the Conversion
Date written below.

       

      
        	
                Conversion
      Date:

              	 
      
	
                Applicable
      Conversion Price:

              	 
      
	
                Signature:

              	 
      
	
                Name:

              	 
      
	
                Address:

              	 
      
	
                Amount
      to be converted:

              	
                US$                                                                                      

              
	
                Amount
      of Debenture unconverted:

              	
                US$                                                                                      

              
	
                Conversion
      Price per share:

              	
                US$                                                                                      

              
	
                Number
      of shares of Common Stock to be issued:

              	 
      
	
                Please
      issue the shares of Common Stock in the following name and to the
      following address:

              	 
      
	
                Issue
      to:

              	 
      
	
                Authorized
      Signature:

              	 
      
	
                Name:

              	 
      
	
                Title:

              	 
      
	
                Phone
      Number:

              	 
      
	
                Broker
      DTC Participant Code:

              	 
      
	
                Account
      Number:exhibit10-3.htm

     

     

    
      

      

    

    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”).

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

       

      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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

       

      (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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      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.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      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.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      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.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

       

      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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      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.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      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).

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      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:

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

       

      
        	
                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

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      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.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

       

      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.

       

      

      [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      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:

              

      

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

       

      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.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      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]

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      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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