Document:

scoutexh10_3.htm

    
      

    

    Exhibit
10.3

    
 

    THIS
GENERAL SECURITY AGREEMENT made this 18th day of
June, 2008, (hereinafter the “Agreement”).

    

    BY:

    

    

    KERRISDALE
RESOURCES LTD.

    (hereinafter
referred to as the "Debtor")

    

    - in favour of -

    

    

    BRIAN
MAHOOD

    (hereinafter
referred to as the "Secured
Party")

    

    

    

    GENERAL SECURITY
AGREEMENT

    

    WHEREAS all of the shares of
the Debtor (hereinafter “the Shares”) were sold by the Secured Party to Scout
Exploration Inc. (hereinafter the “Purchaser”)
pursuant to a Share Purchase Agreement dated effective the 1st day of January,
2008 (hereinafter the “Effective Date”).

    

    AND WHEREAS Three Hundred
Fifty Thousand ($350,000.00) Dollars of the purchase price for the Shares
remained outstanding following the closing of the above-referenced share
purchase transaction (hereinafter the “Principal
Amount”) and the Debtor has assumed and accepted the obligation of the
Purchaser to the Secured Party of all the Purchaser’s obligations to the Secured
Party under the Share Purchase Agreement including the obligation to issue this
Agreement to the Secured Party;

    

    AND WHEREAS, due to the
Debtor’s assumption of the obligations of the Purchaser to the Secured Party,
the Debtor intends to grant to the Secured Party a security interest in all of
real and personal assets of the Debtor owned as of the date upon which this
Agreement is executed, specifically including a number of oil and gas leases
owned by the Debtor or in which the Debtor holds beneficial interests to
petroleum and natural gas leases legally described in Schedule “B“ attached
hereto and made a part hereof;

    

    NOW THEREFORE IN CONSIDERATION
of the recitals hereto, included herein, the representations, warranties,
covenants and agreements set forth in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:

    

    
      
         

      

      
         

        
          

        

      

      
        -
2 -  

      

    

                          

       

      
        	1.	Definitions

      

       

    

    In
construing this Agreement:

    

    
      	
               
      

            	
              (a)

            	
              “Act”
      means the Personal
      Property Security Act, Statutes of Alberta, 2000, c. P-7 as
      amended;

            

    

    

    
      	
               
      

            	
              (b)

            	
              “Collateral”
      means all personal property of the Debtor as of the date this Agreement is
      executed including all Goods, Chattel Paper, Securities, Documents of
      Title, Instruments, Money, Intangibles; and all real property of the
      Debtor including all charges on land or interests in land and petroleum
      and natural gas leases described in Schedule "A" attached hereto and
      forming part of this Agreement; and all parts, accessories, attachments,
      equipment, additions, accretions thereto and property thereof, together
      with any equipment or accessories placed upon or repairs made to the
      foregoing during the continuance of this
  Agreement;

            

    

    

    
      	
               
      

            	
              (c)

            	
              “Indebtedness”
      means the Principal Amount or aggregate outstanding at any given time of
      all loans and advances made or credit granted, or which may be made or
      granted, by the Secured Party to the Debtor under the Share Purchase
      Agreement and otherwise and interest on such loans and advances or credit
      granted and all costs, charges and expenses of, or incurred by the Secured
      Party, in connection with protecting, preserving, realizing upon or
      collecting the Collateral or attempting to do so or otherwise and all
      other obligations and liabilities, present or future, direct or indirect,
      absolute or contingent, matured or not, of the Debtor to the Secured Party
      arising from this or any other agreement or dealings between the Secured
      Party and the Debtor or from any agreement or dealings with any person by
      which the Secured Party may be or become in any manner whatsoever a
      creditor of the Debtor or otherwise howsoever arising and whether the
      Debtor be bound alone or with another or others and whether as principal
      or surety including all reasonable legal fees and disbursements incurred
      by the Secured Party in connection with all of the foregoing as between a
      solicitor and his own client;

            

    

    

    
      	
               
      

            	
              (d)

            	
              Unless
      specifically defined herein, all capitalized terms used herein shall have
      the same meaning as ascribed to them in the
Act.

            

    

    

    

    
      
         

      

      
         

        
          

        

      

      
        -
3 -  

      

    

           

      
        	2.	Security
      Interest

      

    

    

    For Value
given by the Secured Party to the Debtor, the receipt and sufficiency of which
the Debtor hereby acknowledges, the Debtor hereby grants to the Secured Party a
Security Interest in the Collateral and Proceeds to secure payment of the
Indebtedness and performance of any and all obligations of the Debtor to the
Secured Party.

     

    
      
        	3.	Covenants

      

    

    

    The
Debtor covenants and agrees with the Secured Party:

    

    
      	
               
      

            	
              (a)

            	
              that
      on execution of this Agreement the Debtor will be in possession of the
      Collateral or be entitled to possession of the
  Collateral;

            

    

    

    
      	
               
      

            	
              (b)

            	
              to
      do, execute, acknowledge and deliver such financing statements and further
      assignments, transfers, conveyances, documents, acts, matters and things
      as may be reasonably requested by the Secured Party of or with respect to
      the Collateral in order to give effect to these presents and to pay all
      costs for searches and filings in connection therewith and for the
      preparation of this Agreement, including solicitor's fees and
      disbursements incurred by the Secured Party in connection with the
      foregoing, as between a solicitor and his own client; and including the
      issuance of notices of the filing of a financing statement in the PPR
      Alberta in respect of this Agreement to the lessors of freehold petroleum
      and natural gas leases included in the real property interests described
      in Schedule “A” hereto and the filing of Security Notices with Alberta
      Energy in respect of all Alberta Crown petroleum and natural gas leases
      included in the real property interests described in Schedule “A” hereto
      in which the Corporation holds a working interest of record with Alberta
      Energy;

            

    

    

    
      	
               
      

            	
              (c)

            	
              to
      deliver to the Secured Party from time to time, forthwith upon request,
      any Documents of Title, Instruments, Securities and Chattel Paper
      constituting, representing or relating to the
  Collateral;

            

    

    

    
      	
               
      

            	
              (d)

            	
              to
      give the Secured Party prompt and immediate notice
  of:

            

    

    

    
      	
               
      

            	
              (i)

            	
              the
      occurrence of any event of default hereunder or of any other event which,
      with the giving of notice or the lapse of time, would constitute an event
      of default hereunder;

            

    

    

    
      	
               
      

            	
              (ii)

            	
              any
      loss or damage to the Collateral;

            

    

    

    
      	
               
      

            	
              (iii)

            	
              any
      change of the Debtor's name; and,

            

    

    

    
      	
               
      

            	
              (iv)

            	
              any
      change in the information contained herein or in the Schedules hereto
      relating to the Debtor's business or the
  Collateral;

            

    

    

    
      
         

      

      
         

        
          

        

      

      
        -
4 -  

      

    

    
      	
               
      

            	
              (e)

            	
              to
      prevent the Collateral, or any part thereof, from being or becoming an
      Accession or Fixture to other property not covered by this Agreement, if
      applicable;

            

    

    

    
      	
               
      

            	
              (f)

            	
              that
      if by reason of location of the Collateral or otherwise the creation,
      validity or perfection of the Security Interest provided for herein is
      governed by a law of a jurisdiction other than Alberta, then the Debtor
      shall take such steps and execute and deliver such papers as the Secured
      Party may from time to time request to comply with the Personal Property
      Security Act and other laws of another province or provinces, or the laws
      of Canada.

            

    

    

    
      	
               
      

            	
              (g)

            	
              To
      diligently maintain, use and operate the Collateral and to conduct the
      Debtor’s affairs in a proper and efficient manner so as to preserve and
      protect the Collateral and the earnings, income, rents and profits
      thereof;

            

    

    

    
      	
               
      

            	
              (h)

            	
              Not
      to sell, exchange, transfer, assign, lease or otherwise dispose of the
      Collateral or any interest therein other than in the ordinary course of
      the Debtor’s business UNLESS with the prior written consent of the Secured
      Party had and delivered, not to be unreasonably
  withheld;

            

    

    

    
      	
               
      

            	
              (i)

            	
              To
      maintain insurance on all of the Collateral which is of a character
      usually insured in comparable circumstances with reputable insurers
      against loss or damage by fire or other hazards and to deliver to the
      Secured Party evidence of such insurance satisfactory to the Secured
      Party;

            

    

    

    
      	
               
      

            	
              (j)

            	
              To
      pay all rents, taxes, rates, levies, assessments and government fees or
      dues lawfully levied, assessed or imposed in respect of the Collateral or
      any part thereof as and when the same shall become due and payable and to
      exhibit to the Secured Party, on demand, the receipts and vouchers
      establishing such payments;

            

    

    

    
      	
               
      

            	
              (k)

            	
              To
      keep proper books of accounts in accordance with generally accepted
      accounting principals, consistently applied,  and to furnish to
      the Secured Party, within 48 hours following the Secured Party’s request
      during normal business hours,  such financial information and
      statements relating to the Collateral as the Secured Party may from time
      to time require;

            

    

    

    
      	
               
      

            	
              (l)

            	
              To
      notify the Secured Party promptly
of:

            

    

    

    
      	
               
      

            	
              (i)

            	
              Any
      significant default in the payment to the Debtor of accounts which are
      part of the Collateral; and

            

    

    

    
      	
               
      

            	
              (ii)

            	
              All
      litigation before any court, administrative board or other tribunal
      affecting the Debtor or the
Collateral;

            

    

    

    
      	
               
      

            	
              (m)

            	
              To
      furnish to the Secured Party such other information with respect to the
      Collateral as the Secured Party may from time to time
    require;

            

    

    

    
      	
               
      

            	
              (n)

            	
              Not
      to, without the prior written consent of the Secured Party, create any
      other

            

    

    
      
         

      

      
         

        
          

        

      

      
        -
5 -  

      

    

    
      	
               
      

            	
              security
      interest, mortgage, hypothec charge, lien or other encumbrance upon the
      Collateral or any part thereof ranking or purporting to rank in priority
      to or equally with the Security Interest;
and

            

    

    

    
      	
               
      

            	
              (o)

            	
              To
      defend the title to the Collateral against all persons and, upon demand by
      the Secured Party, to furnish such further assurance of title and to
      execute any written instruments or do any other acts necessary to make
      effective the purposes and provisions of this
  Agreement.

            

    

     

    
      
        	4.	Default

      

       

    

    The
happening of any of the following shall constitute default by the Debtor
hereunder:

    

    
      	
               
      

            	
              (a)

            	
              if
      the Debtor shall default in making any payment due to the Secured Party
      with respect to the Indebtedness;

            

    

    

    
      	
               
      

            	
              (b)

            	
              if
      the Debtor shall be in default under or be in breach of any provision of
      this Agreement or of any other agreement between the Debtor and the
      Secured Party including any promissory
note;

            

    

    

    
      	
               
      

            	
              (c)

            	
              if
      the Debtor shall fail to pay any charges, rents, taxes, or rates on
      leasehold property, or other charges of a like nature, or if the Debtor
      fails to observe and perform any of the covenants, payments or conditions
      in any lease, license, concession, agreement, mortgage, agreement for
      sale, charge or encumbrance;

            

    

    

    
      	
               
      

            	
              (d)

            	
              if
      the Debtor makes default in the payment of the principal or interest
      forming part of the Indebtedness;

            

    

    

    
      	
               
      

            	
              (e)

            	
              if
      an order shall be made or an effective resolution passed for the winding
      up of the Debtor, or if a petition is filed for the winding-up of the
      Debtor;

            

    

    

    
      	
               
      

            	
              (f)

            	
              if
      the Debtor shall make an assignment for the benefit of creditors or be
      declared bankrupt, or if a custodian or receiver or receiver and manager
      or other officer with similar powers be appointed with respect to the
      Debtor or any of the Debtor's property or if the Debtor voluntarily files
      a petition in bankruptcy, or commits any act of bankruptcy or proposes to
      take the benefit of any provision of the Companies Creditors Arrangement
      Act as now or hereafter in force or makes any arrangement with its
      creditors pursuant to the terms of the Business Corporations Act of
      Alberta or the Canada Business Corporations Act as now or hereafter in
      force;

            

    

    

    
      	
               
      

            	
              (g)

            	
              if
      the Debtor ceases or demonstrates an intention to cease carrying on
      business;

            

    

    

    
      	
               
      

            	
              (h)

            	
              if
      the Debtor passes or purports to pass any resolution or takes or purports
      to take any corporate proceedings to enable it to take proceedings for its
      dissolution, liquidation or
amalgamation;

            

    

    
      
         

      

      
         

        
          

        

      

      
        - 6
-  

      

    

     

    
      	
               
      

            	
              (i)

            	
              if
      the Debtor shall lose its charter by expiration, forfeiture or otherwise
      or if a receiver or a receiver-manager for all or any part of the Debtor's
      assets or any other party with like powers shall be
    appointed;

            

    

    

    
      	
               
      

            	
              (j)

            	
              except
      for sales of Inventory in the ordinary course of business, if any assets
      of the Debtor are either directly or indirectly (including, without
      limitation, by way of transfer or sale of shares) sold, transferred,
      removed, alienated or disposed of in any manner whatsoever by the Debtor
      without the written consent of the Secured Party, not to be unreasonably
      withheld, or if the Secured Party, in its sole discretion, deems the
      Debtor's assets or any part thereof are in danger of being sold,
      transferred, assigned, conveyed, removed, alienated or disposed
      of;

            

    

    

    
      	
               
      

            	
              (k)

            	
              if
      the Secured Party, acting commercially reasonably, deems itself insecure
      or decides that the Collateral is or is likely to be in jeopardy or the
      Secured Party has commercially reasonable grounds to believe that the
      prospect of payment or performance of the obligations of the Debtor is or
      is likely to be impaired;

            

    

    

    
      	
               
      

            	
              (l)

            	
              if
      the Security Interest granted to the Secured Party hereunder shall cease
      to be in full force and effect or the validity thereof or of any of the
      obligations of the Debtor hereunder shall be disaffirmed by or on behalf
      of the Debtor;

            

    

    

    
      	
               
      

            	
              (m)

            	
              Any
      of the representations and warranties in this agreement were incorrect in
      any material respect when made or deemed to have been
  made;

            

    

    

    
      	
               
      

            	
              (n)

            	
              Any
      encumbrancer takes possession or purports to or attempts to take
      possession of the Collateral or any part thereof without the prior written
      consent of the Secured Party had and
received;

            

    

    

    
      	
               
      

            	
              (o)

            	
              Any
      execution or other process of any court becomes enforceable against the
      Debtor or any distress or analogous process is levied upon the Collateral
      or any part thereof.

            

    

     

    
      
        	5. 	Remedies

      

       

    

    Upon
default by the Debtor hereunder:

    

    
      	
               
      

            	
              (a)

            	
              the
      Secured Party, at its sole discretion, may declare any or all of the
      Indebtedness, which is not by its terms payable on demand, to be
      immediately due and payable, without demand or notice of any
      kind.  Notwithstanding the foregoing, the Debtor acknowledges
      that the Secured Party may in its sole, absolute and unfettered discretion
      demand payment with respect to any portion of the Indebtedness which may
      now or hereafter be payable on
demand;

            

    

    

    
      	
               
      

            	
              (b)

            	
              the
      Debtor will forthwith upon demand transfer to the Secured Party title to
      all of the Collateral. In any event, at its option, the Secured Party may
      take such steps as it considers necessary or desirable to obtain
      possession of all or any part of the
Collateral;

            

    

    
      
         

      

      
         

        
          

        

      

      
        -
7 -  

      

    

     

    
      	
               
      

            	
              (c)

            	
              the
      Secured Party may proceed to enforce payment of the Indebtedness and
      exercise all of the rights and remedies of the Secured Party provided for
      in this Agreement and in the Act, as well as any and all other rights and
      remedies available to the Secured Party at law or in equity, and may
      proceed to enforce any other Security Agreement entered into between the
      Debtor and the Secured Party;

            

    

    

    
      	
               
      

            	
              (d)

            	
              the
      Debtor agrees to assign to the Secured Party, in writing, at the Secured
      Party's option, any rental or royalty payments due or to become due to the
      Debtor from or under any lease of the Collateral, if
      applicable;

            

    

    

    
      	
               
      

            	
              (e)

            	
              the
      Secured Party may by instrument in writing appoint any person or persons,
      a Receiver or Manager or Receiver and Manager (hereinafter called the
      "Receiver") of the Collateral or any part thereof and may remove the
      Receiver so appointed by it and appoint another or others in his or their
      stead or may take proceedings in any court of competent jurisdiction for
      the appointment of a Receiver of all or any part of the Collateral
      and:

            

    

    

    
      	
               
      

            	
              (i)

            	
              the
      Secured Party may from time to time fix the remuneration of the
      Receiver;

            

    

    

    
      	
               
      

            	
              (ii)

            	
              the
      Receiver shall so far as concerns responsibility for his acts and
      omissions be deemed to be the agent of the Debtor and not the agent of the
      Secured Party and the Secured Party shall not be responsible in any way
      for any misconduct or negligence on the part of the
    Receiver;

            

    

    

    
      	
               
      

            	
              (iii)

            	
              the
      Debtor shall cooperate fully with and assist the Receiver forthwith upon
      request and shall promptly confirm and ratify all acts of the
      Receiver;

            

    

    

    
      	
               
      

            	
              (iv)

            	
              the
      Secured Party shall not be responsible or liable for any debts contracted
      by the Receiver or for damages to persons or property or for salaries or
      for non-fulfillment of contracts during any period when the Receiver is in
      possession of the Collateral;

            

    

    

    
      	
               
      

            	
              (v)

            	
              the
      Debtor shall yield up possession of the Collateral and the conduct of the
      Debtor's business in connection therewith to the Receiver upon demand to
      the extent that possession or management is, in the sole discretion of the
      Receiver, necessary for or incidental to realizing on or dealing with the
      Collateral or the exercise of any rights or duties granted to or imposed
      upon the Receiver under this Agreement and the Debtor shall facilitate by
      all legal means the actions of the Receiver and shall not interfere with
      the carrying out of the powers hereby granted to the Receiver and the
      Debtor shall forthwith execute such documents and transfers as may be
      necessary to place the Receiver in legal possession of the
      Collateral;

            

    

    

    
      	
               
      

            	
              (vi)

            	
              the
      Secured Party or any subsidiary, agent or representative thereof may
      become purchasers at any sale of the Collateral whether such sale is
      made

            

    

    
      
         

      

      
         

        
          

        

      

      
        -
8 -  

      

    

    
      	
               
      

            	
              under
      any power of sale contained in this Agreement or pursuant to judicial
      proceedings;

            

    

    

    
      	 	
              (vii)

            	
              to
      enable the Receiver to exercise the powers granted pursuant to the terms
      of this Agreement the Debtor hereby irrevocably appoints the Receiver
      attorney on the Debtor's behalf to do all acts and things on behalf of and
      in the name of the Debtor as may be authorized by the provisions of this
      Agreement, including carrying out any sale of any or all of the Collateral
      and affixing the seal of the Debtor, if a corporation, to any deeds,
      transfers, conveyances, assignments, assurances, documents and things
      which in the Receiver's discretion ought to be executed to complete any
      sale or transfer of any or all of the Collateral or alternatively, to
      execute the same under the Receiver's own seal, by conveying in the name
      of and on behalf of the Debtor; and any deed, transfer or other instrument
      signed by the Receiver under his seal shall have the same effect as if it
      were validly executed by the
Debtor;

            

    

    

    
      	
               
      

            	
              (f)

            	
              subject
      to the Act, all monies collected or received by the Secured Party pursuant
      to or in exercise of any right it possesses with respect to the Collateral
      shall be applied to the Indebtedness in such manner as the Secured Party
      deems appropriate or, at the option of the Secured Party, may be held
      unappropriated in a collateral account or released to the Debtor, all
      without prejudice to the liability of the Debtor or the rights of the
      Secured Party hereunder and any surplus shall be accounted for as required
      by law;

            

    

    

    
      	
               
      

            	
              (g)

            	
              at
      the option of the Secured Party, and to the extent and in the manner
      provided in the Act, the Secured Party may elect to retain all or any part
      of the Collateral in satisfaction of the Indebtedness or any part
      thereof;

            

    

    

    
      	
               
      

            	
              (h)

            	
              in
      the event of the Secured Party’s taking possession of the Collateral, or
      any part thereof, in accordance with the provisions of this Agreement, if
      applicable, the Secured Party shall have the right to maintain the same
      upon the premises on which the Collateral may then be situate, and for the
      purpose of such maintaining shall be entitled to the free use and
      enjoyment of all necessary buildings, premises, housing, and accommodation
      for the proper maintaining, housing and protection of the
      Collateral;

            

    

    

    
      	
               
      

            	
              (i)

            	
              the
      Secured Party shall not be liable or accountable for any failure to seize,
      collect, realize, sell or obtain possession or payment of the Collateral
      or any part thereof and shall not be bound to institute proceedings for
      the purpose of seizing, collecting, realizing or obtaining possession or
      payment of the same or for the purpose of preserving any rights of the
      Secured Party, the Debtor or any other person, firm or corporation in
      respect to the same;

            

    

    

    
      	
               
      

            	
              (j)

            	
              the
      Secured Party may grant extensions of time and other indulgences, take and
      give up securities, accept compositions, grant releases and discharges,
      release any part of the Collateral to third parties and otherwise deal
      with the debtors of the Debtor,

            

    

    
      
         

      

      
         

        
          

        

      

      
        -
9 -

      

    

    
      	
               
      

            	
              sureties
      and others and with the Collateral and other securities as the Secured
      Party may see fit without prejudice to the liability of the Debtor or the
      Secured Party's right to hold and realize the
  Collateral;

            

    

    

    
      	
               
      

            	
              (k)

            	
              the
      Secured Party may, either directly or through its agents or nominees,
      exercise any or all of the powers and rights given to a Receiver under
      this Agreement;

            

    

    

    
      	
               
      

            	
              (l)

            	
              the
      rights and remedies herein conferred upon the Secured Party shall be
      cumulative and not alternative and shall be in addition to and not in
      substitution or derogation of rights and remedies conferred by the Act and
      any other applicable law.

            

    

     

    
      
        	6.	Powers of
      Receiver

      

       

    

    Any
Receiver appointed by the Secured Party shall have the power:

    

    
      	
               
      

            	
              (a)

            	
              to
      take possession of and get in all or any part of the
      Collateral;

            

    

    

    
      	
               
      

            	
              (b)

            	
              to
      carry on, manage and conduct or to concur in the carrying on, management
      and conduct of the business of the Debtor and to receive the revenues,
      incomes, issues and profits of the Collateral and of carrying on the
      business of the Debtor and to pay therefrom all expenses, charges and
      borrowings incurred or payable in carrying on the business or
      otherwise;

            

    

    

    
      	
               
      

            	
              (c)

            	
              to
      borrow monies for the purposes of the business of the Debtor, the
      maintenance and preservation of the Collateral or any part thereof and in
      so doing the Receiver may issue certificates payable when the Receiver
      thinks expedient and bearing interest as stated therein and the amounts
      from time to time payable thereunder shall charge the Collateral in
      priority to this Agreement;

            

    

    

    
      	
               
      

            	
              (d)

            	
              to
      sell and dispose of any or all of the Collateral at public auction, by
      public or private tender or by private sale at such time and on such terms
      and conditions as to credit or otherwise and as to upset or reserve bid or
      price, and as to method of payment whether by way of deferred payment or
      otherwise, as the Receiver shall in its sole discretion determine and to
      deliver to the purchaser or purchasers of the Collateral good and
      sufficient deeds or title documents for the same, the Receiver being
      hereby constituted the irrevocable attorney of the Debtor for the purpose
      of making such sale and executing such deeds and transfer documents and
      any such sale shall be absolute and conclusive as against the Debtor or
      any person claiming by, from, through or under the Debtor and the Debtor's
      assigns;

            

    

    

    
      	
               
      

            	
              (e)

            	
              to
      make any arrangement or compromise which the Receiver shall deem
      expedient;

            

    

    

    
      	
               
      

            	
              (f)

            	
              to
      sue or defend any action in the name of the
  Debtor;

            

    

    

    
      	
               
      

            	
              (g)

            	
              to
      lease or concur in the leasing of the whole or any part of the
      Collateral;

            

    

    
      
         

      

      
         

        
          

        

      

      
        -
10 -

      

    

    
       

      
        	  	(h) 	to exercise all or
      any of the powers or rights incident to the ownership of the
      Collateral;

      

    

    

    
      	
               
      

            	
              (i)

            	
              to
      employ or retain for the execution of the duties and powers conferred upon
      him hereunder such agents, assistants, professional advisors or other
      persons as required on the terms and at the remuneration the Receiver
      considers proper;

            

    

    

    
      	
               
      

            	
              (j)

            	
              to
      release any of the Collateral which in the Receiver's opinion is
      unprofitable or unrealizable or a source of loss or
  danger;

            

    

    

    
      	
               
      

            	
              (k)

            	
              to
      exercise all rights and powers of the Secured Party hereunder and to act
      generally in relation to the Collateral in such manner and on such terms
      as may be expedient and in the best interests of the Secured
      Party;

            

    

    

    
      	
               
      

            	
              (l)

            	
              to
      agree to any modification, compromise, release or waiver of the rights of
      the Secured Party against the Debtor or against the Collateral whether
      such rights shall arise under this Agreement or
  otherwise;

            

    

    

    
      	 	
              (m)

            	
              if
      a sale is on credit, the Receiver shall not be accountable for any monies
      until actually received.

            

    

     

    
      
        	7.	Perform Obligations
      of Debtor

      

    

    

    The
Secured Party shall have the right, but shall not be obliged to perform any of
the obligations of the Debtor hereunder and the Debtor shall forthwith pay to
the Secured Party upon written demand therefor, an amount equal to the expense
incurred by the Secured Party in so doing, together with interest from the date
such expense is incurred until it is paid at a rate equal to six and three
quarters (6.75%) percent per annum and which shall be added to the Indebtedness
secured by this Agreement.

     

    
      
        	8. 	Proceeds in
      Trust

      

       

    

    All
Proceeds from the sale or other disposition of the Collateral hereunder realized
by the Secured Party or any agent on the Debtor's behalf shall be held in trust
by the Debtor for the Secured Party.

     

    
      
        	9. 	Collection of
      Debts

      

       

    

    In the
event of a default under this Agreement, the Secured Party may notify all or any
Account Debtors of the Security Interest and may also direct such Account
Debtors to make all payments on the Collateral to the Secured
Party.

     

    
      
        	10.	No Obligation to
      Advance

      

       

    

    Nothing
herein shall obligate the Secured Party to make any advance or loan or future
advance or loan or to renew any note or extend any time for payment of any
indebtedness or liability of the Debtor to the Secured Party.

    
      
         

      

      
         

        
          

        

      

      
        -
11 -

      

    

    
       

      
        	11. 	Notice

      

       

    

    Any
demand or notice referred to in this Agreement may be effectively given in the
manner provided for in the Act.

     

    
      
        	
                12. 

              	Governing
    Law

      

       

    

    This
Agreement shall be governed and construed in accordance with the laws of the
Province of Alberta and the parties hereby attorn to the exclusive jurisdiction
of the courts of the Province of Alberta.

    
       

      
        	13. 	Joint and
      Several

      

       

    

    If one or
more persons executes this Security Agreement, their obligation shall be joint
and several and each shall remain liable hereunder until all are released in
full.

     

    
      
        	14.	No
  Waiver

      

    

    

    No
consent or waiver, express or implied, by the Secured Party of any breach or
default by the Debtor in the performance by the Debtor of its obligations
hereunder shall be deemed or construed to be a consent or waiver to or of any
other breach or default in the performance of the Debtor's obligations
hereunder.  Failure by the Secured Party to complain of any act or
failure to act on the part of the Debtor or to declare the Debtor in default,
irrespective of how long such failure continues, shall not constitute a waiver
by the Secured Party of its rights hereunder.

     

    
      
        	15.	Number and
      Gender

      

    

    

    Wherever
the singular, plural, masculine, feminine or neuter is used throughout this
Agreement, the same shall be construed as meaning the singular, plural,
masculine, feminine, neuter, body politic or body corporate where the facts or
context so requires.

     

    
      
        	16. 	Headings

      

       

    

    The
headings in this Agreement have been inserted for reference and as a matter of
convenience only and in no way define, limit or enlarge the scope or meaning of
this Agreement or any provisions hereof.

     

    
      
        	
                17. 

              	Time of
      Essence

      

    

    

    Time
shall be of the essence of this Agreement.

     

    
      
        	18.	No
      Modification

      

       

    

    No
modification, variation or amendment of any provision of this Agreement shall be
made except by a written agreement executed by the parties hereto and no waiver
of any provision hereof shall be effective unless in writing.

    
      
         

      

      
         

        
          

        

      

      
        -
12 -

      

    

    
       

      
        	19.	No
      Representations

      

    

    

    There are
no representations, warranties, agreements or conditions, express or implied,
statutory or otherwise, affecting the rights and liabilities of the parties
hereto or the attributes of the Collateral other than as specifically contained
or referred to herein, or as specifically contained in other Security Agreements
now or hereafter entered into between the Secured Party and the
Debtor.

    

    
       

      
        	20.	Continuing
      Security

      

       

    

    This
Agreement and the security afforded hereby is in addition to and not in
substitution for any other security now or hereafter held by the Secured Party
and is intended to be a continuing security agreement and shall remain in full
force and effect until the Indebtedness is repaid and the obligations of the
Debtor to the Secured Party performed notwithstanding that the Indebtedness is
reduced from time to time and thereafter increased or entirely extinguished, or
the Secured Party, by instrument in writing terminates this
Agreement.

     

    
      
        	21. 	Attachment

      

       

    

    The
Security Interest created hereby is intended to attach when this Agreement is
signed by the Debtor and delivered to the Secured Party.

     

    
      
        	22. 	Unenforceable
      Terms

      

       

    

    If any
term, covenant or condition of this Agreement or the application thereof to any
party or circumstance shall be invalid or unenforceable to any extent the
remainder of this Agreement or the application of such term, covenant or
condition to a party or a circumstance other than those to which it is held
invalid or unenforceable shall not be affected thereby and each remaining term,
covenant or condition of this Agreement shall be valid and shall be enforceable
to the fullest extent permitted by law.

    
       

      
        	23. 	Assignment

      

       

    

    This
Agreement is not assignable by the Debtor without the express prior written
consent of the Secured Party, not to be unreasonably withheld.

    
       

      
        	24. 	Law of Property
      Act

      

       

    

    The
Debtor covenants and agrees that the provisions of the Law of Property Act of
the Province of Alberta shall apply to this Agreement and to the Collateral
secured hereby or to any agreement or instrument renewing or extending or
collateral to this Agreement or to the Collateral.

    
       

      
        	25.	Unreasonable

      

       

    

    Nothing
in this Agreement shall be construed to mean that the Secured Party may act in a
commercially unreasonable manner or in bad faith.

    
      
         

      

      
         

        
          

        

      

      
        -
13 -

      

    

    
       

      
        	26. 	Enurement

      

       

    

    This
Agreement shall enure to the benefit of and be binding upon the parties hereto
and their respective successors and assigns.

     

    
      
        	
                27.

              	Acknowledgement of
      Receipt

      

       

    

    The
Debtor acknowledges having received a duplicate executed copy of this Agreement
on the date of its execution and the Debtor waives any right it may have to
receive a Financing Statement or Financing Change Statement.

     

    
      
        	28. 	Preamble and
      Schedules

      

       

    

    The Preamble to this Agreement and all
of the schedules attached hereto form a part of this Agreement and are binding
on the parties hereto.

    

    IN WITNESS WHEREOF the Debtor has
executed this Agreement the day and year first above written.

    

    KERRISDALE
RESOURCES LTD.

    

    

    

    Per:
_______________________________________

    JASON WALSH

     

     

     

    
 

    
      
         

      

      
         

        
          

        

      

      
        
        

      

    

    SCHEDULE
"A"

    

    

    Description of
Collateral

    

    

    1.           All
of the Debtor's present personal property being Goods, Documents of Title,
Securities, Chattel Paper, Instruments, Money and Intangibles, including,
without limitation, the following:

    

    
      	 	
              (a)

            	
              All
      present Equipment, and any Proceeds therefrom, including, without limiting
      the generality of the foregoing, all fixtures, plant, machinery, tools and
      furniture owned or acquired as of the Effective
  Date.

            

    

    

    
      	 	
              (b)

            	
              All
      present Inventory and any Proceeds therefrom, including, without limiting
      the generality of the foregoing, all raw materials, Goods in process,
      finished Goods and packaging material and Goods acquired or held for sale
      or furnished or to be furnished under contracts of rental or service;
      and

            

    

    

    
      	 	
              (c)

            	
              All
      present Intangibles and Proceeds therefrom, including, without limiting
      the generality of the foregoing, all debts, accounts, choses in action,
      claims, demands and monies now due or owing or accruing due or which may
      hereafter become due or owing to the Debtor, including (without limiting
      the foregoing) claims against the Crown in the Right of Canada or of any
      province, monies which may become payable under any policy or insurance in
      respect of any loss by fire or other cause which has been or may be
      incurred by the Debtor (collectively called "Book Debts"), together with
      all contracts, securities, bills, notes, lien notes, judgments, chattel
      mortgages, mortgages and all other rights, benefits and documents now or
      hereafter taken, vested in or held by the Debtor in respect of or as
      security for the Book Debts hereby assigned or intended so to be or any
      part thereof and the full benefit and advantage
  thereof.

            

    

     

    2.         
Notwithstanding the generality of the foregoing, the Collateral shall
specifically include all of the presently owned and earned leasehold Mineral
interests of the Debtor on all of those lands legally described in Schedule “B”
attached hereto (hereinafter the “Leases”), and any and all Proceeds therefrom,
including, and without limiting the generality of the foregoing, any royalties
earned by the Debtor pursuant to any of the Leases, and all proceeds from a
conveyance, transfer or sub-lease of any of the Leases.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    DATED:
18th
day of June, 2008.

    
      

    

     

    BETWEEN:

    
 

    KERRISDALE RESOURCES
LTD.

     

                              
- and -

     

                   
BRIAN
MAHOOD

    

    
 

    

    
      

    

     

    GENERAL SECURITY AGREEMENT

     

    
      
 

    

    

    
 

    

    
       

      
        	
                HUSTWICK HODGSON &
      PAYNE

                
                  BARRISTERS
      & SOLICITORS

                  600
      CAPITAL PLACE

                  9707
      - 110 STREET

                  EDMONTON,
      ALBERTA

                  T5K
      2L9

                   

                   

                   

                  FILE:  76950
      LRC

                

              

      

       

    

    

    

    

     

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      Schedule
"B"

       

      Real
Property Assets of Kerrisdale Resources Ltd.

    

     

    
      	 
      	 
      	 
      	 
      	 
      	
              Working
      Interests

            
	
              Lands

            	
              P&NG
      Rights

            	
              Wells

            	
              Well
      Status

            	
              Producing
      Zone

            	
              and GORR
      received

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              SW1⁄4
      26-18-1W4

            	
              P&NG
      to Base Medicine Hat

            	
              6-26-18-1W4

            	
              Producing
      gas

            	
              Milk
      River & Medicine Hat

            	
              100%

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              SE1⁄4
      26-18-1W4

            	
              P&NG
      to Base Medicine Hat

            	
              8-26-18-1W4

            	
              Producing
      gas

            	
              Milk
      River & Medicine Hat

            	
              20%
      BPO, 30% APO + 5%

            
	 
      	 
      	 
      	 
      	 
      	
              non-convertible
      GORR

            
	 
      	 
      	 
      	 
      	 
      	
              (Paid
      Out)

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              NW1⁄4
      26-18-1W4

            	
              P&NG
      to Base Medicine Hat

            	
              14-26-18-1W4

            	
              Producing
      gas

            	
              Milk
      River & Medicine Hat

            	
              10%
      W.I. + 10%

            
	 
      	 
      	 
      	 
      	 
      	
              non-convertible
      GORR

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              NE1⁄4
      26-18-1W4

            	
              P&NG
      to Base Medicine Hat

            	
              16-26-18-1W4

            	
              Producing
      gas

            	
              Milk
      River & Medicine Hat

            	
              20%
      BPO, 30% APO + 5%

            
	 
      	 
      	 
      	 
      	 
      	
              non-convertible
      GORR

            
	 
      	 
      	 
      	 
      	 
      	
              (Paid
      Out)

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              SE1⁄4
      8-19-1W4

            	
              P&NG
      to Base Medicine Hat

            	
              8-8-18-1W4

            	
              Producing
      gas

            	
              Milk
      River & Medicine Hat

            	
              20%
      BPO, 30% APO + 5%

            
	 
      	 
      	 
      	 
      	 
      	
              non-convertible
      GORR

            
	 
      	 
      	 
      	 
      	 
      	
              (Paid
      Out)

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              SW1⁄4
      8-19-1W4

            	
              P&NG
      to Base Medicine Hat

            	
              6-8-19-1W4

            	
              Producing
      gas

            	
              Milk
      River & Medicine Hat

            	
              100%

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              NE1⁄4
      8-19-1W4

            	
              P&NG
      to Base Medicine Hat

            	
              10-8-19-1W4

            	
              Producing
      gas

            	
              Milk
      River & Medicine Hat

            	
              100%

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              NW1⁄4
      8-19-1W4

            	
              P&NG
      to Base Medicine Hat

            	
              13-8-19-1W4

            	
              Producing
      gas

            	
              Milk
      River & Medicine Hat

            	
              20%
      BPO, 30% APO + 5%

            
	 
      	 
      	 
      	 
      	 
      	
              non-convertible
      GORR

            
	 
      	 
      	 
      	 
      	 
      	
              (Paid
      Out)

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              SE1⁄4
      26-20-4W4

            	
              P&NG
      to Base Medicine Hat

            	
              8-26-20-4W4

            	
              Producing
      gas

            	
              Milk
      River

            	
              20%

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              SW1⁄4
      26-20-4W4

            	
              P&NG
      to Base Medicine Hat

            	
              6-26-20-4W4

            	
              Producing
      gas

            	
              Milk
      River

            	
              20%

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              NE1⁄4
      26-20-4W4

            	
              P&NG
      to Base Medicine Hat

            	
              16-26-20-4W4

            	
              Producing
      gas

            	
              Milk
      River

            	
              20%

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              NW1⁄4
      26-20-4W4

            	
              P&NG
      to Base Medicine Hat

            	
              14-26-20-4W4

            	
              Producing
      gas

            	
              Milk
      River

            	
              20%

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              NE1⁄4
      26-20-8W4

            	
              P&NG
      to Base Medicine Hat

            	
              10-26-20-8W4

            	
              Producing
      gas

            	
              Milk
      River & Medicine Hat

            	
              100%

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              12-46-11W4

            	
              P&NG
      to Base Mannville

            	
              6-12-46-11W4

            	
              Producing
      gas

            	
              Colony

            	
              10%
      BPO, 6% APO

            
	 
      	
              except
      Nat Gas in Viking

            	 
      	 
      	
              Sparky

            	
              (Paid
      Out)

            
	 
      	 
      	 
      	 
      	
              Lloydminster

            	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	
              6-57-21W4

            	
              P&NG
      below Base of Viking

            	
                 Nil

            	 
      	 
      	
              25%

            
	 
      	
              to
      Basement

            	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	
              S1⁄2
      & NW1⁄4 31-39-4W4

            	
              P&NG
      to Base Mannville

            	
              2-31-39-4W4

            	
              Abandoned

            	 
      	
              5%

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              10-47-21W4

            	
              P&NG
      to Base Edmonton

            	
              6-10-47-21W4

            	
              Standing

            	
              Edmonton

            	
              25%

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              W1⁄2
      & all 32-6-6W2

            	
              N.A.

            	 
      	
              Producing
      oil

            	
              Mississippian

            	
              2.0%
      GORR

            
	 
      	 
      	 
      	 
      	 
      	 
      
	
              Lsd
      5 & N1⁄2 33-3-31W1

            	
              N.A.

            	 
      	
              Producing
      oil

            	
              Mississippian

            	
              1.0%
      GORRex4_1.htm

    
      

    

    EXHIBIT NO. 4.1

     

     

    SECURITY
AGREEMENT

     

    SECURITY
AGREEMENT (this “Agreement”), dated as of
August __, 2008, by and among Shearson Financial Network, Inc., a Nevada
corporation (“Company”),
and the secured parties signatory hereto and their respective endorsees,
transferee and assigns (collectively the “Secured Party”).

     

    W I T N E
S S E T H:

     

    WHEREAS,
on June 16, 2008 (the “Petition
Date”), the Company filed petitions in the United States Bankruptcy Court
for the District of Nevada (the “Court”) for relief under
Chapter 11 of the Bankruptcy Code (“Bankruptcy Code”), thereby
initiating Chapter 11 Case No. 08-16350 (the “Chapter 11
Case”).  The Company continues to operate its business, and
manage its properties, as a debtor-in-possession pursuant to §§1107 and 1108 of
the Bankruptcy Code;

     

    WHEREAS,
prior to the Petition Date, the Secured Party provided financing to the Company
pursuant to that certain Securities Purchase Agreement dated June 30, 2006, that
certain Callable Secured Convertible Note dated June 30, 2006, that certain
Security Agreement dated June 30, 2006, and certain other agreements by and
among the Company, Secured Party and certain other parties, as the same has been
amended or modified from time to time by the parties thereto;

     

    WHEREAS,
the Company has requested that Secured Party provide a senior secured
superpriority loan, to the Company in the form of a series of Senior Secured
Superpriority Debtor-In-Possession Callable Secured Convertible Note in an
aggregate amount up to $500,000;

     

    WHEREAS,
the Company has agreed to issue to the Secured Party and the Secured Party has
agreed to purchase from the Company certain Senior Secured Superpriority
Debtor-In-Possession Callable Secured Convertible Note in an aggregate amount up
to $500,000 (the “Notes”), which are convertible
into shares of the Company’s Common Stock, par value $.001 per share (the “Common Stock”);
and

     

    WHEREAS,
in order to induce the Secured Party to purchase the Notes, the Company has
agreed to execute and deliver to the Secured Party this Agreement for the
benefit of the Secured Party and to grant to it a first priority security
interest in certain property of the Company to secure the prompt payment,
performance and discharge in full of all of the Company’s obligations under the
Notes.

     

    NOW,
THEREFORE, in consideration of the agreements herein contained and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:

     

    1.           
Certain
Definitions.  As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1.  Terms used but
not otherwise defined in this Agreement that are defined in Article 9 of the
UCC, including but not limited to  “Account”, “Chattel Paper”, “Commercial Tort Claims”, “Deposit Accounts”, “Documents”, “Equipment”, “Fixtures”, “General Intangibles”, “Goods”, “Instruments”, “Inventory”, “Investment Property”, “Letter-of-Credit Right”, and
“Proceeds” and shall
have the respective meanings assigned to such terms in the New York Uniform
Commercial Code, as the same may be in effect from time to time.  Each
capitalized term used herein, and not otherwise defined in this Agreement or the
UCC, shall have the meaning ascribed thereto in the Notes.

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    “Collateral”
means the collateral in which the Secured Party is granted a security interest
by this Agreement and which shall include the following, whether presently owned
or existing or hereafter acquired or coming into existence, and wherever now or
hereafter located and all additions and accessions thereto and all substitutions
and replacements thereof, and all Proceeds, products and accounts thereof,
including, without limitation, all Proceeds from the sale or transfer of the
Collateral and of insurance covering the same and of any tort claims in
connection therewith:  (a) all Accounts and all Goods whose sale,
lease or other disposition by the Company has given rise to Accounts and have
been returned to, or repossessed or stopped in transit by, the Company; (b) all
Chattel Paper, Instruments, Documents and General Intangibles (including,
without limitation, all patents, patent applications, trademarks, trademark
applications, trade names, trade secrets, goodwill, copyrights, copyright
applications, registrations, licenses, software, franchises, customer lists, tax
refund claims, claims against carriers and shippers, guarantee claims, contract
rights, payment intangibles, security interests, security deposits and rights to
indemnification); (c) all Inventory (whether or not Eligible Cigarette and Tax
Stamp Inventory or Eligible Sundry Inventory); (d) all Goods (other than
Inventory), including, without limitation, Equipment, vehicles and Fixtures; (e)
all Investment Property; (f) all Deposit Accounts, bank accounts, deposits and
cash; (g)  all Letter-of-Credit Rights; (h)  Commercial Tort
Claims; (i) any other property of the Company now or hereafter in the
possession, custody or control of Lender or any agent or any parent, affiliate
or subsidiary of Lender or any participant with Lender in the Loans, for any
purpose (whether for safekeeping, deposit, collection, custody, pledge,
transmission or otherwise); (j) the Intellectual Property; and (k) all additions
and accessions to, substitutions for, and replacements, products and Proceeds of
the foregoing property, including, without limitation, proceeds of all insurance
policies insuring the foregoing property, and all of Company’s books and records
relating to any of the foregoing and to the Company’s business; together with
all other real or personal property of the Company or any other Person now or
hereafter pledged to Lender to secure, either directly or indirectly, repayment
of any of the indebtedness or the Secured Obligations.

     

    “Company”
shall mean, collectively, the Company and all of the subsidiaries of the
Company, a list of which is contained in Schedule A, attached
hereto.

     

    “Copyrights”
shall mean (a) all copyrights, registrations and applications for registration,
issued or
filed, including any reissues, extensions or renewals thereof, by or with the
United States Copyright Office or any similar office or agency of the United
States, any state thereof, or any other country or political subdivision
thereof, or otherwise, including, all rights in and to the material constituting
the subject matter thereof, and (b) any rights in any material which is
copyrightable or which is protected by common law, United States copyright laws
or similar laws or any law of any State, including, without limitation, any
thereof referred to in Schedule B
hereto.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    “Copyright
License” shall mean any agreement, written or oral, providing for a grant
by the Company of any right in any Copyright, including, without limitation, any
thereof referred to in Schedule B
hereto.

     

    “Intellectual
Property” shall means, collectively, the Software Intellectual Property,
Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks, Trademark
Licenses and Trade Secrets.

     

    “Obligations”
means all of the Company’s obligations under this Agreement, the Loan Documents
and the Notes, in each case, whether now or hereafter existing, voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later decreased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from the Secured Party as a preference, fraudulent transfer or
otherwise as such obligations may be amended; supplemented, converted, extended
or modified from time to time.

     

    “Patents”
shall mean (a) all letters patent of the United States or any other country or
any political subdivision thereof, and all reissues and extensions thereof, and
(b) all applications for letters patent of the United States and all divisions,
continuations and continuations-in-part thereof or any other country or any
political subdivision.

     

    “Patent
License” shall mean all agreements, whether written or oral, providing
for the grant by the Company of any right to manufacture, use or sell any
invention covered by a Patent.

     

    “Software Intellectual
Property”  shall
mean:

     

    (a)           all
software programs (including all source code, object code and all related
applications and data files), whether now owned, upgraded, enhanced, licensed or
leased or hereafter acquired by the Company, above;

     

    (b)           all
computers and electronic data processing hardware and firmware associated
therewith;

     

    (c)           all
documentation (including flow charts, logic diagrams, manuals, guides and
specifications) with respect to such software, hardware and firmware described
in the preceding clauses (a) and (b); and

     

    (d)           all
rights with respect to all of the foregoing, including, without limitation, any
and all upgrades, modifications, copyrights, licenses, options, warranties,
service contracts, program services, test rights, maintenance rights, support
rights, improvement rights, renewal rights and indemnifications and
substitutions, replacements, additions, or model conversions of any of the
foregoing.

    
      
         

      

      
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    “Trademarks”
shall mean (a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, logos
and other source or business identifiers, and the goodwill associated therewith,
now existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any state thereof or any other country or any political
subdivision thereof, or otherwise, and (b) all reissues, extensions or renewals
thereof.

     

    “Trademark License”
shall mean any agreement, written or oral, providing for the grant by the
Company of any right to use any Trademark.

     

    “Trade Secrets” shall
mean common law and statutory trade secrets and all other confidential or
proprietary or useful information and all know-how obtained by or used in or
contemplated at any time for use in the business of the Company (all of the
foregoing being collectively called a “Trade Secret”), whether or not
such Trade Secret has been reduced to a writing or other tangible form,
including all documents and things embodying, incorporating or referring in any
way to such Trade Secret, all Trade Secret licenses, and including the right to
sue for and to enjoin and to collect damages for the actual or threatened
misappropriation of any Trade Secret and for the breach or enforcement of any
such Trade Secret license.

     

    “UCC” means the
Uniform Commercial Code, as currently in effect in the State of New
York.

     

    “Unencumbered
Property” means all property of the Company acquired prior to the
Petition Date or thereafter, that, on or as of the Petition Date are not subject
to any valid, perfected and non-avoidable liens, including, without limitation:
(a) all Accounts and all Goods whose sale, lease or other disposition by the
Company has given rise to Accounts and have been returned to, or repossessed or
stopped in transit by, the Company; (b) all Chattel Paper, Instruments,
Documents and General Intangibles; (c) all Inventory; (d) all Goods (other than
Inventory), including, without limitation, Equipment, vehicles and Fixtures; (e)
all Investment Property; (f) all Deposit Accounts, bank accounts, deposits and
cash; (g) all Letter-of-Credit Rights; (h) Commercial Tort Claims; (i) any other
property of the Company now or hereafter in the possession, custody or control
of Lender or any agent or any parent, affiliate or subsidiary of Lender or any
participant with Lender in the Loans, for any purpose; (j) the Intellectual
Property; and (k) all additions and accessions to, substitutions for, and
replacements, products and Proceeds of the foregoing property, including,
without limitation, proceeds of all insurance policies insuring the foregoing
property, and all of Company’s books and records relating to any of the
foregoing and to the Company’s business.  Additionally, Unencumbered
Property shall include the Company’s claims and causes of action under sections
502(d), 544, 545, 547, 548, 549, 550 and 553(b) of the Bankruptcy Code, and/or
any other avoidance claims and/or actions under the Bankruptcy Code, and any
proceeds or property recovered, unencumbered or otherwise the subject of
successful claims and/or actions.

    
      
         

      

      
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    2.           
Grant of Security
Interest.  As an inducement for the Secured Party to purchase
the Note and to secure the complete and timely payment, performance and
discharge in full, as the case may be, of all of the Obligations and the Secured
Obligations, the Company hereby, unconditionally and irrevocably, pledges,
grants and hypothecates to the Secured Party: (i)  a continuing
security interest, in a continuing first lien upon, an unqualified right to
possession and disposition of and a right of set-off against, in each case to
the fullest extent permitted by law, all of the Company’s right, title and
interest of whatsoever kind and nature in and to the Unencumbered Property; and
(ii) a continuing security interest, in a continuing lien upon, an unqualified
right to possession and disposition of and a right of set-off against, in each
case to the fullest extent permitted by law, all of the Company’s right, title
and interest of whatsoever kind and nature in and to the Collateral, other than
the Unencumbered Property (collectively, the “Security Interest”) provided
that such lien is junior to certain liens as provided in clause (ii) of Section
3(f).  The Company hereby authorizes Secured Party to file such
financing statements showing Company as debtor and Secured Party as secured
party describing the Collateral in such jurisdictions as Secured Party
reasonably deems appropriate.

     

    3.           
Representations,
Warranties, Covenants and Agreements of the Company.  The
Company represents and warrants to, and covenants and agrees with, the Secured
Party as follows:

     

    (a)           Subject
to the Order Authorizing the DIP Financing entered on August 11, 2008 by the
United States Bankruptcy Court for the District of Nevada (the “Bankruptcy Court”) in
connection with the filing of a Chapter 11 Case  authorizing Company,
debtor and debtor in possession, to obtain initial financing in from Secured
Party and the evidence of any additional indebtedness authorized by a final
hearing and entry of a final order (the “Final Order”) by the
Bankruptcy Court, Company has the requisite corporate power and authority to
enter into this Agreement and otherwise to carry out its obligations
thereunder.  The execution, delivery and performance by the Company of
this Agreement and the filings contemplated therein have been duly authorized by
all necessary action on the part of the Company and no further action is
required by the Company.  This Agreement constitutes a legal, valid
and binding obligation of the Company enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditor’s rights generally.

     

    (b)           To
the knowledge of the Company (as defined below in this Section), the Company
represents and warrants that it has no place of business or offices where its
respective books of account and records are kept (other than temporarily at the
offices of its attorneys or accountants) or places where Collateral is stored or
located, except as set forth on Schedule A attached
hereto.  “knowledge
of the Company” shall mean the actual knowledge of the officers of the
Company without the duty to investigate.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    (c)           To
the knowledge of the Company, the Company is the sole owner of the Collateral
free and clear of any liens, security interests, encumbrances, rights or claims
(except for non-exclusive licenses granted by the Company in the ordinary course
of business and except with respect to any liens, security interests,
encumbrances, rights or claims granted by the Company prior to the date of this
Agreement encumbering the Collateral (collectively, “Permitted Liens”)), and, to
the knowledge of the Company, is fully authorized to grant the Security Interest
in and to pledge the Collateral, except as otherwise provided under any
agreement relating to the Permitted Liens.  There is not on file in
any governmental or regulatory authority, agency or recording office an
effective financing statement, security agreement, license or transfer or any
notice of any of the foregoing (other than those that have been filed relating
to or may be filed relating to the Permitted Liens or have been filed in favor
of Secured Party relating to this Agreement) covering or affecting any of the
Collateral.  So long as this Agreement shall be in effect, the Company
shall not execute and shall not knowingly file in any such office or agency any
such financing statement or other document or instrument (except to the extent
filed or recorded in favor of the Secured Party pursuant to the terms of this
Agreement).

     

    (d)           To
the knowledge of the Company, (i) no part of the Collateral has been judged
invalid or unenforceable; (ii) no written claim has been received that any
Collateral or the Company’s use of any Collateral violates the rights of any
third party, excluding a claim relating to the Collateral asserted by
Christopher P. Baker, C.P. Baker & Company, Ltd. and/or any affiliate
thereof (“Baker
Parties”); (iii) there has been no adverse written decision to the
Company’s claim of ownership rights in or exclusive rights to use the Collateral
in any jurisdiction or to the Company’s right to keep and maintain such
Collateral in full force and effect; and (iv) there is no proceeding involving
said rights pending or threatened before any court, judicial body,
administrative or regulatory agency, arbitrator or other governmental authority,
other than a claim relating to the Collateral that may be asserted by any of the
Baker Parties.

     

    (e)           To
the knowledge of the Company, the Company maintains a majority of its books of
account and records relating to the Collateral at its principal place of
business and the locations set forth on Schedule A attached
hereto, shall maintain its books and records located at the locations set forth
on Schedule A
attached hereto and may not relocate such books of account and records or
tangible Collateral unless it delivers to the Secured Party at least 30 days
prior to such relocation (i) written notice of such relocation and the new
location thereof (which must be within the United States) and (ii) evidence that
appropriate financing statements and other necessary documents have been filed
and recorded to perfect the Security Interest to create in favor of the Secured
Party valid, perfected and continuing first priority liens in the Unencumbered
Property and liens in the Collateral, excluding the Unencumbered
Property.

     

    (f)           Upon
the Bankruptcy Court’s issuance of the Final Order, this Agreement creates in
favor of the Secured Party a valid security interest in the Collateral securing
the payment and performance of the Obligations and, upon making the filings
described in the immediately following sentence, (i) a perfected first priority
security interest in all Unencumbered Property; and (ii) a perfected security
interest in all property comprising of the Collateral, excluding the
Unencumbered Property, that is subject to valid, perfected and unavoidable liens
in existence immediately prior to the Petition Date or to valid and unavoidable
liens in existence immediately prior to the Petition Date that are perfected
subsequent to the Petition Date, as permitted by section 546(b) of the
Bankruptcy Code, which are junior to such valid, perfected and unavoidable
liens.  Except as required to be approved by the Bankruptcy Code and
except for the filing of financing statements on Form-1 under the UCC, attached
hereto, no authorization or approval of or filing with or notice to any
governmental authority or regulatory body is required either (y) for the grant
by the Company of the Security Interest granted hereby or for the execution,
delivery and performance of this Agreement by the Company or (z) for the
perfection of or exercise by the Secured Party of its rights and remedies
hereunder.

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    (g)           On
the date of execution of this Agreement, the Company will deliver to the Secured
Party one or more executed UCC financing statements, attached hereto and in such
other jurisdictions as may reasonably be requested by the Secured
Party.

     

    (h)           Upon
request of the Secured Party, the Company shall execute and deliver any and all
agreements, instruments, documents, and papers as the Secured Party may request
to evidence the Secured Party’s security interest in the Intellectual Property
and the goodwill and general intangibles of the Company relating thereto or
represented thereby, and the Company hereby appoints the Secured Party its
attorney-in-fact to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed; such
power being coupled with an interest is irrevocable until the Obligations have
been fully satisfied and are paid in full.

     

    (i)           To
the knowledge of the Company, the execution, delivery and performance of this
Agreement does not conflict with or cause a breach or default, or an event that
with or without the passage of time or notice, shall constitute a breach or
default, under any agreement to which the Company is a party or by which the
Company is bound.  To the knowledge of the Company, no consent
(including, without limitation, from stock holders or creditors of the Company)
is required for the Company to enter into and perform its obligations hereunder
other than approval obtained by the Bankruptcy Court.

     

    (j)           Subject
to the terms of the Final Order, until this Agreement and the Security Interest
hereunder shall terminate pursuant to Section 11, (i) the Company shall at all
times maintain the liens and Security Interest provided for hereunder as valid
and perfected first priority liens and security interests in the Unencumbered
Property in favor of the Secured Party; and (ii) the Company shall at all times
maintain the liens and Security Interest provided for hereunder as valid and
perfected liens and security interests in Collateral in favor of Secured
Party.  Without limiting the generality of the foregoing, the Company
shall pay all fees, taxes and other amounts necessary to maintain the Collateral
and the Security Interest hereunder.

     

    (k)           The
Company will not transfer, pledge, hypothecate, encumber, license (except for
non-exclusive licenses granted by the Company in the ordinary course of
business), sell or otherwise dispose of any of the Intellectual Property without
the prior written consent of the Secured Party.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    (l)          
 The Company will not transfer, pledge, hypothecate, encumber, license
(except for non-exclusive licenses granted and sales made by the Company in the
ordinary course of business), sell or otherwise dispose of any of the Collateral
without the prior written consent of the Secured Party.

     

    (m)           The
Company shall keep and preserve its Equipment, Inventory and other tangible
Collateral in good condition, repair and order and shall not conduct business
with respect to such Collateral (or cause to be operated or located) in any area
excluded from insurance coverage.

     

    (n)           The
Company shall, within ten (10) days of obtaining knowledge thereof, advise the
Secured Party promptly, in sufficient detail, of any substantial change in the
Collateral, and of the occurrence of any event which would have a material
adverse effect on the value of the Collateral or on the Secured Party’s security
interest therein.

     

    (o)           The
Company shall permit the Secured Party and its representatives and agents to
inspect the Collateral at any time, and to make copies of records pertaining to
the Collateral as may be requested by the Secured Party from time to
time.

     

    (p)           The
Company will take all commercially reasonably steps to pursue and seek to
preserve, enforce and collect any rights, claims, causes of action and accounts
receivable in respect of the Collateral.

     

    (q)           Excluding
any proceedings filed in the Bankruptcy Court, which Secured Party shall receive
notice of such filing or proceeding, the Company shall notify the Secured Party
in reasonably sufficient detail upon receiving written notice of any attachment,
garnishment, execution or other legal process levied against any Collateral that
may materially affect the value of the Collateral, the Security Interest or the
rights and remedies of the Secured Party hereunder.

     

    (r)           To
the knowledge of the Company, all information heretofore, herein or hereafter
supplied to the Secured Party by or on behalf of the Company with respect to the
Collateral is accurate and complete in all material respects as of the date
furnished.

     

    (s)           To
the knowledge of the Company, Schedule A attached
hereto contains a list of all of wholly-owned subsidiaries of Company and a list
of entities in which the Company holds at least a 70% equity
interest.

     

    (t)           To
the knowledge of the Company, none of such Licenses, Patents, Trademarks,
Copyrights and Trade Secrets is the subject of any licensing or franchise
agreement.  To the knowledge of the Company, no holding, decision or
judgment has been rendered by any Governmental Body which would limit, cancel or
question the validity of any License, Patent, Trademark, Copyright and Trade
Secrets. To the knowledge of the Company, no action or proceeding is pending (i)
seeking to limit, cancel or question the validity of any License, Patent,
Trademark, Copyright or Trade Secret, or (ii) which, if adversely determined,
would have a material adverse effect on the value of any License, Patent,
Trademark, Copyright or Trade Secret.  To the knowledge of the
Company, the Company has used and will continue to use for the duration of this
Agreement, proper statutory notice in connection with its use of the Patents,
Trademarks and Copyrights and consistent standards of quality in products leased
or sold under the Patents, Trademarks and Copyrights.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    (u)           With
respect to any Intellectual Property, to the knowledge of the
Company:

     

    (i)           such
Intellectual Property is subsisting and has not been adjudged invalid or
unenforceable, in whole or in part;

     

    (ii)          such
Intellectual Property is valid and enforceable;

     

    (iii)         other
than Permitted Liens and any lien filed pursuant to this Agreement, the Company
is the owner of the entire and unencumbered right, title and interest in and to
such Intellectual Property and no claim has been made that the use of such
Intellectual Property infringes on the asserted rights of any third party;
and

     

    (iv)      
  the Company will use its commercially reasonable efforts to perform
all acts to maintain each and every item of Intellectual Property in full force
and effect throughout the United States.

     

    (v)           Except
with respect to any Trademark or Copyright that the Company shall reasonably
determine is of negligible economic value to the Company, the Company
shall:

     

    (i)           use
its commercially reasonable efforts to: (a) maintain each Trademark and
Copyright in full force free from any claim of abandonment for non-use, maintain
as in the past the quality of products and services offered under such Trademark
or Copyright, (b) employ such Trademark or Copyright with the appropriate notice
of registration, (c) not adopt or use any mark which is confusingly similar or a
colorable imitation of such Trademark or Copyright unless the Secured Party
shall obtain a perfected security interest in such mark pursuant to this
Agreement, and (d) not (and not permit any licensee or sublicensee thereof to)
do any act or knowingly omit to do any act whereby any Trademark or Copyright
may become invalidated;

     

    (ii)          use
its commercially reasonable efforts to not, except with respect to any Patent
that it shall reasonably determine is of negligible economic value to it, do any
act, or omit to do any act, whereby any Patent may become abandoned or
dedicated; and

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    (iii)           notify
the Secured Party immediately if it knows, or has reason to know, that any
application or registration relating to any Patent, Trademark or Copyright may
become abandoned or dedicated, or of any adverse determination or development
(including, without limitation, the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark Office,
United States Copyright Office or any court or tribunal in any country)
regarding its ownership of any Patent, Trademark or Copyright or its right to
register the same or to keep and maintain the same.

     

    (w)           Whenever
the Company, either by itself or through any agent, employee, licensee or
designee, shall file an application for the registration of any Patent,
Trademark or Copyright with the United States Patent and Trademark Office,
United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof or acquire rights to any new
Patent, Trademark or Copyright whether or not registered, report such filing to
the Secured Party within five business days after the last day of the fiscal
quarter in which such filing occurs.

     

    (x)      
     The Company shall take all commercially reasonable
steps, including, without limitation, in any proceeding before the United States
Patent and Trademark Office, United States Copyright Office or any similar
office or agency in any other country or any political subdivision thereof, to
maintain and pursue each application (and to obtain the relevant registration)
and to maintain each registration of the Patents, Trademarks and Copyrights,
including, without limitation, filing of applications for renewal, affidavits of
use and affidavits of incontestability.

     

    (y)         
  In the event that any Patent, Trademark or Copyright included in the
Intellectual Property is infringed, misappropriated or diluted by a third party,
promptly notify the Secured Party after it learns thereof and shall, unless it
shall reasonably determine that such Patent, Trademark or Copyright is of
negligible economic value to it, which determination it shall promptly report to
the Secured Party, promptly sue for infringement, misappropriation or dilution,
to seek injunctive relief where appropriate and to recover any and all damages
for such infringement, misappropriation or dilution, or take such other actions
as it shall reasonably deem appropriate under the circumstances to protect such
Patent, Trademark or Copyright.

     

    4.          
 Defaults.  The
following events shall be “Events of
Default”:

     

    (a)          
 The occurrence of an Event of Default (as defined in the Notes) under the
Notes;

     

    (b)          
 Any representation or warranty of the Company in this Agreement shall
prove to have been incorrect in any material respect when made; and

     

    (c)          
 The failure by the Company to observe or perform any of its obligations
hereunder for ten (10) days after receipt by the Company of notice of such
failure from the Secured Party.

    
      
         

      

      
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    5.           
Duty To Hold In
Trust.  Upon the occurrence of any Event of Default and at any
time thereafter, the Company shall, upon receipt by it of any revenue, income or
other sums subject to the Security Interest, whether payable pursuant to the
Notes or otherwise, or of any check, draft, note, trade acceptance or other
instrument evidencing an obligation to pay any such sum, hold the same in trust
for the Secured Party and shall forthwith endorse and transfer any such sums or
instruments, or both, to the Secured Party for application to the satisfaction
of the Obligations.

     

    6.          
 Rights and
Remedies Upon Default.  Upon occurrence of any Event of Default
and at any time thereafter, the Secured Party shall have the right to exercise
all of the remedies conferred hereunder and under the Notes, and the Secured
Party shall have all the rights and remedies of a secured party under the UCC
and/or any other applicable law (including the Uniform Commercial Code of any
jurisdiction in which any Collateral is then located).  Without
limitation, the Secured Party shall have the following rights and
powers:

     

    (a)           The
Secured Party shall have the right to take possession of the Collateral and, for
that purpose, enter, with the aid and assistance of any person, any premises
where the Collateral, or any part thereof, is or may be placed and remove the
same, and the Company shall assemble the Collateral and make it available to the
Secured Party at places which the Secured Party shall reasonably select, whether
at the Company’s premises or elsewhere, and make available to the Secured Party,
without rent, all of the Company’s respective premises and facilities for the
purpose of the Secured Party taking possession of, removing or putting the
Collateral in saleable or disposable form.

     

    (b)           The
Secured Party shall have the right to operate the business of the Company using
the Collateral and shall have the right to assign, sell, lease or otherwise
dispose of and deliver all or any part of the Collateral, at public or private
sale or otherwise, either with or without special conditions or stipulations,
for cash or on credit or for future delivery, in such parcel or parcels and at
such time or times and at such place or places, and upon such terms and
conditions as the Secured Party may deem commercially reasonable, all without
(except as shall be required by applicable statute and cannot be waived)
advertisement or demand upon or notice to the Company or right of redemption of
the Company, which are hereby expressly waived.  Upon each such sale,
lease, assignment or other transfer of Collateral, the Secured Party may, unless
prohibited by applicable law which cannot be waived, purchase all or any part of
the Collateral being sold, free from and discharged of all trusts, claims, right
of redemption and equities of the Company, which are hereby waived and
released.

     

    7.         
  Applications of
Proceeds.  The proceeds of any such sale, lease or other
disposition of the Collateral hereunder shall be applied first, to the expenses
of retaking, holding, storing, processing and preparing for sale, selling, and
the like (including, without limitation, any taxes, fees and other costs
incurred in connection therewith) of the Collateral, to the reasonable
attorneys’ fees and expenses incurred by the Secured Party in enforcing its
rights hereunder and in connection with collecting, storing and disposing of the
Collateral, and then to satisfaction of the Obligations, and to the payment of
any other amounts required by applicable law, after which the Secured Party
shall pay to the Company any surplus proceeds.  If, upon the sale,
license or other disposition of the Collateral, the proceeds thereof are
insufficient to pay all amounts to which the Secured Party is legally entitled,
the Company will be liable for the deficiency, together with interest thereon,
at the rate of 15% per annum (the “Default Rate”), and the
reasonable fees of any attorneys employed by the Secured Party to collect such
deficiency.  To the extent permitted by applicable law, the Company
waives all claims, damages and demands against the Secured Party arising out of
the repossession, removal, retention or sale of the Collateral, unless due to
the gross negligence or willful misconduct of the Secured Party.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    8.           
Costs and
Expenses.  The Company agrees to pay all reasonable
out-of-pocket fees, costs and expenses incurred in connection with any filing
required hereunder, including without limitation, any financing statements,
continuation statements, partial releases and/or termination statements related
thereto or any expenses of any searches reasonably required by the Secured
Party.  The Company shall also pay all other claims and charges which
in the reasonable opinion of the Secured Party might prejudice, imperil or
otherwise affect the Collateral or the Security Interest therein.  The
Company will also, upon demand, pay to the Secured Party the amount of any and
all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which the Secured Party may incur in
connection with (i) the enforcement of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the Collateral, or (iii) the exercise or enforcement of any of the rights of
the Secured Party under the Notes.  Until so paid, any fees payable
hereunder shall be added to the principal amount of the Notes and shall bear
interest at the Default Rate.

     

    9.            Responsibility for
Collateral.  The Company assumes all liabilities and
responsibility in connection with all Collateral, and the obligations of the
Company hereunder or under the Notes shall in no way be affected or diminished
by reason of the loss, destruction, damage or theft of any of the Collateral or
its unavailability for any reason.

     

    10.          Security Interest
Absolute.  All rights of the Secured Party and all Obligations
of the Company hereunder, shall be absolute and unconditional, irrespective of
(a) any lack of validity or enforceability of this Agreement, the Notes or any
agreement entered into in connection with the foregoing, or any portion hereof
or thereof; (b) any change in the time, manner or place of payment or
performance of, or in any other term of, all or any of the Obligations, or any
other amendment or waiver of or any consent to any departure from the Notes or
any other agreement entered into in connection with the foregoing; (c) any
exchange, release or nonperfection of any of the Collateral, or any release or
amendment or waiver of or consent to departure from any other collateral for, or
any guaranty, or any other security, for all or any of the Obligations; (d) any
action by the Secured Party to obtain, adjust, settle and cancel in its sole
discretion any insurance claims or matters made or arising in connection with
the Collateral; or (e) any other circumstance which might otherwise constitute
any legal or equitable defense available to the Company, or a discharge of all
or any part of the Security Interest granted hereby.  Until the
Obligations shall have been paid and performed in full, the rights of the
Secured Party shall continue even if the Obligations are barred for any reason,
including, without limitation, the running of the statute of limitations or
bankruptcy.  The Company expressly waives presentment, protest, notice
of protest, demand, notice of nonpayment and demand for
performance.  In the event that at any time any transfer of any
Collateral or any payment received by the Secured Party hereunder shall be
deemed by final order of a court of competent jurisdiction to have been a
voidable preference or fraudulent conveyance under the bankruptcy or insolvency
laws of the United States, or shall be deemed to be otherwise due to any party
other than the Secured Party, then, in any such event, the Company’s obligations
hereunder shall survive cancellation of this Agreement, and shall not be
discharged or satisfied by any prior payment thereof and/or cancellation of this
Agreement, but shall remain a valid and binding obligation enforceable in
accordance with the terms and provisions hereof.  The Company waives
all right to require the Secured Party to proceed against any other person or to
apply any Collateral which the Secured Party may hold at any time, or to marshal
assets, or to pursue any other remedy.  The Company waives any defense
arising by reason of the application of the statute of limitations to any
obligation secured hereby.

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    11.           Term of
Agreement.  This Agreement and the Security Interest shall
terminate on the date on which all payments under the Notes have been made in
full and all other Obligations have been paid or discharged.  Upon
such termination, the Secured Party, at the request and at the expense of the
Company, will join in executing any termination statement with respect to any
financing statement executed and filed pursuant to this Agreement.

     

    12.           Power of Attorney; Further
Assurances.

     

    (a)           The
Company authorizes the Secured Party, and does hereby make, constitute and
appoint it, and its respective officers, agents, successors or assigns with full
power of substitution, as the Company’s true and lawful attorney-in-fact, with
power, in its own name or in the name of the Company, to, after the occurrence
and during the continuance of an Event of Default, (i) endorse any notes,
checks, drafts, money orders, or other instruments of payment (including
payments payable under or in respect of any policy of insurance) in respect of
the Collateral that may come into possession of the Secured Party; (ii) to sign
and endorse any UCC financing statement or any invoice, freight or express bill,
bill of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts, and other
documents relating to the Collateral; (iii) to payor discharge taxes, liens,
security interests or other encumbrances at any time levied or placed on the
Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for
monies due in respect of the Collateral; and (v) generally, to do, at the option
of the Secured Party, and at the Company’s expense, at any time, or from time to
time, all acts and things which the Secured Party deems necessary to protect,
preserve and realize upon the Collateral and the Security Interest granted
therein in order to effect the intent of this Agreement and the Notes, all as
fully and effectually as the Company might or could do; and the Company hereby
ratifies all that said attorney shall lawfully do or cause to be done by virtue
hereof.  This power of attorney is coupled with an interest and shall
be irrevocable for the term of this Agreement and thereafter as long as any of
the Obligations shall be outstanding.

     

    (b)           On
a continuing basis, the Company will take all such action as may reasonably be
deemed necessary or advisable, or as reasonably requested by the Secured Party,
to perfect the Security Interest granted hereunder and otherwise to carry out
the intent and purposes of this Agreement, or for assuring and confirming to the
Secured Party the grant or perfection of a security interest in all the
Collateral.

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    (c)           The
Company hereby irrevocably appoints the Secured Party as the Company’s
attorney-in-fact, with full authority in the place and stead of the Company and
in the name of the Company, from time to time in the Secured Party’s discretion,
to take any action and to execute any instrument which the Secured Party may
deem necessary or advisable to accomplish the purposes of this Agreement,
including the filing, in its sole discretion, of one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of the Company where permitted by
law.

     

    13.           Notices.  All
notices, requests, demands and other communications hereunder shall be in
writing, with copies to all the other parties hereto, and shall be deemed to
have been duly given when (i) if delivered by hand, upon receipt, (ii) if sent
by facsimile, upon receipt of proof of sending thereof, (iii) if sent by
nationally recognized overnight delivery service (receipt requested), the next
business day or (iv) if mailed by first-class registered or certified mail,
return receipt requested, postage prepaid, four days after posting in the
U.S.  mails, in each case if delivered to the following
addresses:

     

    
      	
              If
      to the Company:

            	 
      	
              Shearson
      Financial Network, Inc.

            
	 
      	 
      	
              921
      Front Street

            
	 
      	 
      	
              San
      Francisco, California 94111

            
	 
      	 
      	
              Attention:
      Harry Kraatz

            
	 
      	 
      	
              Telephone:
      (415) 296-5127

            
	 
      	 
      	
              Facsimile:
      (415) 634-1306

            
	 	 	 
	
              With
      a copy to:

            	 
      	
              Gordon
      Silver

            
	 
      	 
      	
              3960
      Howard Hughes Parkway, 9th Floor

            
	 
      	 
      	
              Las
      Vegas, Nevada

            
	 
      	 
      	
              Attention:
      Gregory E. Garman

            
	 
      	 
      	
              Telephone:
      (702) 796-5555

            
	 
      	 
      	
              Facsimile:
      (702) 369-2666

            
	 	 	 
	
              If
      to the Secured Party:

            	 
      	
              AJW
      Partners, LLC

            
	 
      	 
      	
              AJW
      Offshores, Ltd.

            
	 
      	 
      	
              AJW
      Qualified Partners, LLC

            
	 
      	 
      	
              New
      Millennium Capital Partners II, LLC

            
	 
      	 
      	
              AJW
      Master Fund, Ltd.

            
	 
      	 
      	
              1044
      Northern Boulevard

            
	 
      	 
      	
              Suite
      302

            
	 
      	 
      	
              Roslyn,
      New York 11576

            
	 
      	 
      	
              Attention:  Corey
      Ribotsky

            
	 
      	 
      	
              Facsimile:  516-739-7115

            
	 	 	 
	
              With
      a copy to:

            	 
      	
              Bryan
      Cave LLP

            
	 
      	 
      	
              1200
      Main Street, Suite 3500

            
	 
      	 
      	
              Kansas
      City, Missouri 64105

            
	 
      	 
      	
              Attention:
      Mark Stingley, Esq.

            
	 
      	 
      	
              Telephone:
      (816) 391-7649

            
	 
      	 
      	
              Facsimile:
      (816) 855-3649

            

    

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    14.           Other
Security.  To the extent that the Obligations are now or
hereafter secured by property other than the Collateral, then the Secured Party
shall have the right, in its sole discretion, to pursue, relinquish,
subordinate, modify or take any other action with respect thereto, without in
any way modifying or affecting any of the Secured Party’s rights and remedies
hereunder.

     

    15.           Miscellaneous.

     

    (a)           No
course of dealing between the Company and the Secured Party, nor any failure to
exercise, nor any delay in exercising, on the part of the Secured Party, any
right, power or privilege hereunder or under the Notes shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.

     

    (b)           All
of the rights and remedies of the Secured Party with respect to the Collateral,
whether established hereby or by the Notes or by any other agreements,
instruments or documents or by law shall be cumulative and may be exercised
singly or concurrently.

     

    (c)           This
Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof and is intended to supersede all prior negotiations,
understandings and agreements with respect thereto.  Except as
specifically set forth in this Agreement, no provision of this Agreement may be
modified or amended except by a written agreement specifically referring to this
Agreement and signed by the parties hereto.

     

    (d)           In
the event that any provision of this Agreement is held to be invalid, prohibited
or unenforceable in any jurisdiction for any reason, unless such provision is
narrowed by judicial construction, this Agreement shall, as to such
jurisdiction, be construed as if such invalid, prohibited or unenforceable
provision had been more narrowly drawn so as not to be invalid, prohibited or
unenforceable.  If, notwithstanding the foregoing, any provision of
this Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective to
the extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other provisions of
this Agreement and without affecting the validity or enforceability of such
provision or the other provisions of this Agreement in any other
jurisdiction.

     

    (e)           No
waiver of any breach or default or any right under this Agreement shall be
considered valid unless in writing and signed by the party giving such waiver,
and no such waiver shall be deemed a waiver of any subsequent breach or default
or right, whether of the same or similar nature or otherwise.

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    (f)           This
Agreement shall be binding upon and inure to the benefit of each party hereto
and its successors and assigns.

     

    (g)           Each
party shall take such further action and execute and deliver such further
documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.

     

    (h)           This
Agreement shall be construed in accordance with the laws of the State of New
York, except to the extent the validity, perfection or enforcement of a security
interest hereunder in respect of any particular Collateral which are governed by
a jurisdiction other than the State of New York in which case such law shall
govern.  Each of the parties hereto irrevocably submit to the
exclusive jurisdiction of the United States Bankruptcy Court for the District of
Nevada or any New York State or United States Federal court sitting in Manhattan
County, New York over any action or proceeding arising out of or relating to
this Agreement, and the parties hereto hereby irrevocably agree that all claims
in respect of such action or proceeding may be heard and determined in such
aforesaid State or Federal court.  The parties hereto agree that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.  The parties hereto further waive any objection to
venue in the State of New York and any objection to an action or proceeding in
the State of New York on the basis of forum non conveniens.

     

    (i)           
EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO
THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND
STATUTORY CLAIMS.  EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS
A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
EACH PARTY HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND
THAT EACH PARTY WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE
DEALINGS.  EACH PARTY FURTHER WARRANTS AND REPRESENTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY HAS KNOWINGLY
AND VOLUNTARILY WAIVES ITS RIGHTS TO A JURY TRIAL FOLLOWING SUCH
CONSULTATION.  THIS WAIVER IS IRREVOCABLE, MEANING THAT,
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS AND SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.  IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT.

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    (j)           This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement.  In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
duly executed on the day and year first above written.

     

    
      	 
      	
              COMPANY:

            
	 
      	 
      	 
      
	 
      	
              SHEARSON
      FINANCIAL NETWORK, INC.

            
	 
      	 
      	 
      
	 
      	
              By:

            	 
      
	 
      	
              Name:

            	 
      
	 
      	
              Its:

            	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              SECURED
      PARTIES:

            
	 
      	 
      	 
      
	 
      	
              AJW
      PARTNERS, LLC

            
	 
      	
              By:

            	
              SMS
      Group, LLC

            
	 
      	 
      	 
      
	 
      	
              By:

            	 
      
	 
      	 
      	
              Corey
      S. Ribotsky

            
	 
      	 
      	
              Manager

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              AJW
      OFFSHORES, LTD.

            
	 
      	
              By:

            	
              First
      Street Manager II, LLC

            
	 
      	 
      	 
      
	 
      	
              By:

            	 
      
	 
      	 
      	
              Corey
      S. Ribotsky

            
	 
      	 
      	
              Manager

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              AJW
      QUALIFIED PARTNERS, LLC

            
	 
      	
              By:

            	
              AJW
      Manager, LLC

            
	 
      	 
      	 
      
	 
      	
              By:

            	 
      
	 
      	 
      	
              Corey
      S. Ribotsky

            
	 
      	 
      	
              Manager

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
              NEW
      MILLENNIUM CAPITAL PARTNERS II, LLC

            
	 
      	
              By:

            	
              First
      Street Manager II, LLC

            
	 
      	 
      	 
      
	 
      	
              By:

            	 
      
	 
      	 
      	
              Corey
      S. Ribotsky

            
	 
      	 
      	
              Manager

            

    

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    
      	 
      	
              AJW
      MASTER FUND, LTD.

            
	 
      	
              By:  FIRST
      STREET MANAGER II, LLC

            
	 
      	 
      	 
      
	 	 	 
	 
      	
              By:

            	 
      
	 
      	 
      	
              Corey
      S. Ribotsky

            
	 
      	 
      	
              Manager

            

    

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

    
      	
              STATE
      OF _____________

            	
              )

            	 
	 
      	
              )

            	 
	
              COUNTY
      OF ___________

            	
              )

            	 

    

     

    The
foregoing instrument was acknowledged before me this __ day of _________, 2008,
by _______________, the _________________ of Shearson Financial Network, Inc., a
Nevada corporation, on behalf of the company.

     

     

    
      	 
      	 
      
	 
      	
              Notary
      Public

            

    

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    SCHEDULE
A

     

    Principal Place of Business
of the Company:

     

    921 Front
Street

    San
Francisco, CA 94111

    

    

    Locations Where Collateral
is Located or Stored:

    

    2470 St.
Rose Parkway - Suite 314 (held by Liberty Capital)

    Henderson,
Nevada  89074

    

    3290 E.
Oleta Ave. (Best Storage)

    Henderson,
NV 89074

    

    3869 E.
Sunset Road (Storage West)

    Las
Vegas, NV 89120

    

    

    List of Wholly-Owned
Subsidiaries of Company and entities in which the Company holds a 70% equity
interest:

    

    Shearson
Home Loans (wholly-owned subsidiary)

    Allstate
Home Loans (the Company owns at least a 70% equity interest)

     

     

    21

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