Document:

Unassociated Document

    
      

    

    Exhibit
      10.3

     

    THE
      SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
      ACT
      OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE
      SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
      THE
      ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
      THE
      SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR
      (B)
      AN OPINION OF COUNSEL, GENERALLY ACCEPTABLE IN FORM AND SUBSTANCE, THAT
      REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
      LAWS
      OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.  ANY
      TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
      INCLUDING SECTION 3(b) HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY
      THIS NOTE MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT
      TO
      SECTION 3(b) HEREOF.

     

    SENIOR
      SECURED CONVERTIBLE NOTE

     

    
      	
              September
                10, 2007

            	
              $500,000.00

            

    

     

    FOR
      VALUE RECEIVED, GULF WESTERN PETROLEUM
      CORPORATION, a Nevada corporation (the
“Company”), hereby promises to pay to the
      order of NCIM Limited
      and its permitted assigns (collectively, the “Holder”) the
      principal amount of Five Hundred Thousand Dollars and No/100 ($500,000.00)
      when
      due, whether upon maturity, acceleration, redemption or otherwise, and to pay
      interest (“Interest”) on the unpaid principal balance hereof on
      each Interest Payment Date (as defined in Section 2) and upon maturity, or
      earlier upon conversion, acceleration or prepayment pursuant to the terms
      hereof, at the Interest Rate (as defined in Section 2).  Interest on
      this Note payable on each Interest Payment Date (provided that, on the
      first Interest Payment Date, interest that has accrued from the date of this
      Note that has not been paid shall be paid on the first Interest Payment Date)
      and upon maturity, or earlier upon conversion, acceleration or prepayment
      pursuant to the terms hereof, shall accrue from the Issuance Date (as defined
      in
      Section 2) until paid and shall be computed on the basis of a 365-day year
      and
      actual days elapsed.

     

    (1)           Payments
      of Principal and Interest.  All payments under this Note (to the
      extent such principal is not converted into Shares (as defined in Section 2),
      in
      accordance with the terms hereof) shall be made in lawful money of the United
      States of America by wire transfer of immediately available funds to such
      account as the Holder may from time to time designate by written notice in
      accordance with the provisions of this Note.  Interest on the
      Principal shall be paid monthly in arrears on each Interest Payment Date (as
      defined in Section 2).  The Company may make payments of Principal of
      this Note prior to the Maturity Date (as defined in Section 2) at any time
      and
      from time to time after the six-month anniversary of the Closing Date with
      a
      prepayment premium in an amount equal to 2.50% of the Principal being
      prepaid.  Whenever any amount expressed to be due by the terms of this
      Note is due on any day that is not a Business Day (as defined in Section 2),
      the
      same shall instead be due on the next succeeding day that is a Business
      Day.  This Note and all notes issued in exchange or substitution
      therefor or replacement thereof are collectively referred to in this Note as
      the
“Note.”

    

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    (2)           Certain
      Defined Terms.  Each capitalized term used in this Note, and not
      otherwise defined, shall have the meaning ascribed thereto in the Securities
      Purchase Agreement, dated as of even date herewith, pursuant to which this
      Note
      was originally issued (as such agreement may be amended, restated, supplemented
      or modified from time to time as provided therein, the “Securities
      Purchase Agreement”).  For purposes of this Note, the
      following terms shall have the following meanings:

     

    (a)           
      “Business Day” means any day other than Saturday, Sunday or
      other day on which commercial banks in New York, New York are authorized or
      required by law to remain closed.

     

    (b)           “Capital
      Lease Obligation” means, as to any Person, any obligation that is
      required to be classified and accounted for as a capital lease on a balance
      sheet of such Person prepared in accordance with GAAP, and the amount of such
      obligation shall be the capitalized amount thereof, determined in accordance
      with GAAP.

     

    (c)           “Cash
      and Cash Equivalents” means (I) cash, (II) certificates of deposit or
      time deposits, having in each case a tenor of not more than six months, issued
      by any United States commercial bank or any branch or agency of a non-United
      States bank licensed to conduct business in the United States having combined
      capital and surplus of not less than $250,000,000, and (III) money market funds,
      provided that substantially all of the assets of such funds consist of
      securities of the type described in clauses (I) or (II) immediately above,
      all
      as determined in accordance with GAAP applied on a consistent
      basis.

     

    (d)           “Change
      of Control” means (i) the consolidation, merger or other business
      combination of the Company with or into another Person, (ii) the sale or
      transfer of all or substantially all of the Company’s assets (including, for the
      avoidance of doubt, the sale of all or substantially all of the assets of the
      Subsidiaries in the aggregate), or (iii) the consummation of a purchase, tender
      or exchange offer made to and accepted by the holders of more than 50% of the
      outstanding shares of Common Stock.

     

    (e)           “Collateral
      Agent” shall have the meaning ascribed to such term in the Security
      Agreement.

     

    (f)           “Common
      Stock” means (A) the Company’s common stock, $0.001 par value per
      share, and (B) any capital stock resulting from a reclassification of such
      common stock.

     

    (g)           “Contingent
      Obligation” means, as to any Person, any direct or indirect liability,
      contingent or otherwise, of that Person with respect to any indebtedness, lease,
      dividend or other obligation of another Person if the primary purpose or intent
      of the Person incurring such liability, or the primary effect thereof, is to
      provide assurance to the obligee of such liability that such liability will
      be
      paid or discharged, or that any agreements relating thereto will be complied
      with, or that the holders of such liability will be protected (in whole or
      in
      part) against loss with respect thereto. 

    

    
      
        
          
          

        

        
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    (h)           “Conversion
      Amount” means the sum of (1) the Principal of this Note to be
      converted, redeemed or otherwise with respect to which this determination is
      being made and (2) the Interest Amount with respect to the amount referred
      to in
      the immediately preceding clause (1).

     

    (i)           “Conversion
      Price” means $0.39, subject to adjustment in
      accordance with Section 4(e).

     

    (j)           “Current
      Market Price” means the higher of the five day arithmetic average of
      the share price at closing and the thirty day arithmetic average of the price
      at
      closing as found on the Bloomberg screen for Gulf Western under “Gulf US EQUITY
      HP.”

     

    (k)           “Current
      Report” means a current report on Form 8-K under the 1934
      Act.

     

    (l)           “Dollars”
      or “$” means United States Dollars.

     

    (m)           [Intentionally
      Omitted]

     

    (n)           
      “Governmental Authority” means the government of the United
      States of America or any other nation, or any political subdivision thereof,
      whether state, provincial or local, or any agency, authority, instrumentality,
      regulatory body, court, central bank or other entity exercising executive,
      legislative, judicial, taxing, regulatory or administration powers or functions
      of or pertaining to government over the Company or any of its Subsidiaries,
      or
      any of their respective properties, assets or undertakings.

     

    (o)           “Indebtedness”
      means, without duplication (A) all indebtedness for borrowed money, (B) all
      obligations issued, undertaken or assumed as the deferred purchase price of
      property or services (other than unsecured account trade payables that are
      (i)
      entered into or incurred in the ordinary course of the Company’s and its
      Subsidiaries’ business, (ii) on terms that require full payment within 90 days,
      and (iii) not unpaid in excess of 120 days from the receipt of invoice or are
      being contested in good faith and as to which such reserve as is required by
      GAAP has been made, (C) all reimbursement or payment obligations with respect
      to
      letters of credit, surety bonds and other similar instruments, (D) all
      obligations evidenced by notes, bonds, debentures, redeemable capital stock
      or
      similar instruments, including obligations so evidenced incurred in connection
      with the acquisition of property, assets or businesses, (E) all indebtedness
      created or arising under any conditional sale or other title retention
      agreement, or incurred as financing, in either case with respect to any property
      or assets acquired with the proceeds of such indebtedness (even though the
      rights and remedies of the seller or bank under such agreement in the event
      of
      default are limited to repossession or sale of such property), (F) all Capital
      Lease Obligations, (G) all indebtedness referred to in clauses (A) through
      (F)
      above secured by (or for which the holder of such Indebtedness has an existing
      right, contingent or otherwise, to be secured by) any mortgage, Lien, pledge,
      change, security interest or other encumbrance upon or in any property or assets
      (including accounts and contract rights) owned by any Person, even though the
      Person that owns such assets or property has not assumed or become liable for
      the payment of such indebtedness, and (H) all Contingent Obligations in respect
      of indebtedness or obligations of others of the kinds referred to in clauses
      (A)
      through (G) above.

    

    
      
        
          
          

        

        
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    (p)           [Intentionally
      Omitted]

     

    (q)           “Interest
      Amount” means as of any date, with respect to any Principal, all
      accrued and unpaid Interest on such Principal through and including such
      date.

     

    (r)           “Interest
      Payment Date” means the tenth day of each calendar month, beginning
      with March 10, 2008 through and including the Maturity Date; provided that
      if
      any such day is not a Business Day, the Interest Payment Date shall be the
      next
      succeeding Business Day.

     

    (s)           “Interest
      Rate” means a fixed interest rate equal to 15% per annum.

     

    (t)           “Irrevocable
      Transfer Agent Instructions” means the irrevocable transfer agent
      instructions issued by the Company pursuant to the Securities Purchase
      Agreement.

     

    (u)           “Issuance
      Date” means the original date of issuance of this Note pursuant to the
      Securities Purchase Agreement, regardless of any exchange or replacement
      hereof.

     

    (v)           “Lien”
      means, with respect to any asset, any mortgage, lien, pledge, hypothecation,
      charge, security interest, encumbrance or adverse claim of any kind and any
      restrictive covenant, condition, restriction or exception of any kind that
      has
      the practical effect of creating a mortgage, lien, pledge, hypothecation,
      charge, security interest, encumbrance or adverse claim of any kind (including
      any of the foregoing created by, arising under or evidenced by any conditional
      sale or other title retention agreement, the interest of a lessor with respect
      to a Capital Lease Obligation, or any financing lease having substantially
      the
      same economic effect as any of the foregoing).

     

    (w)          “Maturity
      Date” means September 10, 2008, unless such date is not a Business Day,
      in which case “Maturity Date” shall mean the first Business Day following
      September 10, 2008.

     

    (x)           “1934
      Act” means the Securities Exchange Act of 1934, as
      amended.

     

    (y)           “Original
      Principal Amount” means Five Hundred Thousand Dollars and No/100
      ($500,000.00).

     

    (z)           “Periodic
      Report” means a quarterly report on Form 10-Q (or Form 10-QSB), or an
      annual report on Form 10-K (or Form 10-KSB) under the 1934 Act.

    

    
      
        
          
          

        

        
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    (aa)           “Person”
      means an individual, a limited liability company, a partnership, a joint
      venture, a corporation, a trust, an unincorporated organization or a government
      or any department or agency thereof or any other legal entity.

     

    (bb)           “Principal”
      means the outstanding principal amount of this Note as of any date.

     

    (cc)           “Principal
      Market” means, with respect to the Common Stock or any other security,
      the principal securities exchange or trading market for the Common Stock or
      such
      other security.

     

    (dd)           
      “Registration Rights Agreement” means the Registration Rights
      Agreement among the parties to the Securities Purchase Agreement, entered into
      in connection therewith.

     

    (ee)           “SEC”
      means the U.S. Securities and Exchange Commission, or any successor
      thereto.

     

    (ff)           “Security
      Documents” means the Security Agreement and any other agreements,
      documents and instruments executed concurrently herewith or at any time
      hereafter pursuant to which the Company, its Subsidiaries or any other Person
      either (i) guarantees payment or performance of all or any portion of the
      obligations hereunder or under any other instruments delivered in connection
      with the transactions contemplated hereby and by the Securities Purchase
      Agreement, and/or (ii) provides, as security for all or any portion of such
      obligations, a Lien on any of its assets in favor of the Holder, as any or
      all
      of the same may be amended, supplemented, restated or otherwise modified from
      time to time.

     

    (gg)           “Shares”
      means shares of Common Stock.

     

    (hh)           “Subsidiary”
      means any entity in which the Company, directly or indirectly, owns capital
      stock or holds an equity or similar interest.

     

    (ii)           “Trading
      Day” means any day on which the Common Stock is traded on its Principal
      Market; provided that “Trading Day” shall not include any day on which the
      Principal Market is open for trading for less than 4.5 hours.

     

    (jj)           “Transaction
      Documents” means the Securities Purchase Agreement, the Registration
      Rights Agreement, the Irrevocable Transfer Agent Instructions, the Note, the
      Warrant, the Security Agreement, the Mortgages, the Guaranty, the Pledge
      Agreements and each of the other agreements or instruments to which the Company
      is a party or by which it is bound and which is entered into by the parties
      to
      the Securities Purchase Agreement in connection with the transactions
      contemplated hereby and thereby.

     

    (kk)           “U.S.”
      means the United States of America.

    

    
      
        
          
          

        

        
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    (ll)           “Warrant”
      means the warrant issued by the Company pursuant to the Securities Purchase
      Agreement and all warrants issued in exchange or substitution therefor or
      replacement thereof.

     

    (mm)       “Weighted
      Average Price” means, for any security as of any date, the dollar
      volume-weighted average price for such security on its Principal Market during
      the period beginning at 8:30 a.m. Houston time (or such other time as its
      Principal Market publicly announces is the official open of trading) and ending
      at 3:00 p.m. Houston time (or such other time as its Principal Market publicly
      announces is the official close of trading) as reported by Bloomberg through
      its
“Volume at Price” functions, or if the foregoing does not apply, the dollar
      volume-weighted average price of such security in the over-the-counter market
      on
      the electronic bulletin board for such security during the period beginning
      at
      8:30 a.m. Houston time (or such other time as such over-the-counter market
      publicly announces is the official open of trading), and ending at 3:00 p.m.
      Houston time (or such other time as such over-the-counter market publicly
      announces is the official close of trading) as reported by Bloomberg, or, if
      no
      dollar volume-weighted average price is reported for such security by Bloomberg
      for such hours, the average of the highest closing bid price and the lowest
      closing ask price of any of the market makers for such security as reported
      in
      the “pink sheets” by the National Quotation Bureau, Inc.  If the
      Weighted Average Price cannot be calculated for such security on such date
      on
      any of the foregoing bases, the Weighted Average Price of such security on
      such
      date shall be the fair market value as mutually determined by the Company and
      the Holder.  All such determinations shall be appropriately adjusted
      for any stock dividend, stock split, stock combination or other similar
      transaction during any period during which the Weighted Average Price is being
      determined.

     

    (3)           Principal
      Payment.

     

    (a)           Redemption.
      Subject to the application of the amount of a Company Alternative Redemption
      pursuant to the Section 6(a) or a Mandatory Compliance Redemption pursuant
      to
      Section 7, the Company shall repay the Principal in a single installment on
      the
      Maturity Date. Notwithstanding anything to the contrary in this Section 3,
      but
      subject to Section 4(f), the Principal (together with any interest thereon)
      may
      be converted, in whole or in part, by the Holder into Common Stock pursuant
      to
      Section 4.  In the event the Holder delivers a Conversion Notice to
      the Company, the Conversion Amount specified in such Conversion Notice shall
      be
      deducted (1) first, from any Mandatory Compliance Redemption Amount which is
      the
      subject of a Mandatory Compliance Notice but which has not yet been redeemed,
      then (2) second, from any Redemption Amount which is the subject of a Company
      Alternative Redemption Notice but which has not yet been redeemed, and then
      (3)
      third, from the Principal.  If any Principal remains outstanding on
      the Maturity Date, then the Holder shall surrender this Note, duly endorsed
      for
      cancellation to the Company, and such Principal shall be redeemed by the Company
      as of the Maturity Date by payment on the Maturity Date to the Holder, by wire
      transfer of immediately available funds, of an amount equal to 100% of such
      Principal.

     

    (b)           Surrender
      of Note.  Notwithstanding anything to the contrary set forth in
      this Note, upon any prepayment of this Note in accordance with its terms, the
      Holder shall not be required to physically surrender this Note to the Company
      unless all of the Principal is being repaid and the related Interest Amount
      and
      all other obligations payable under this Note have been paid in
      full.  The Holder and the Company shall maintain records showing the
      Principal repaid and the date(s) of such repayments or shall use such other
      method, reasonably satisfactory to the Holder and the Company, so as not to
      require physical surrender of this Note upon each such repayment.  In
      the event of any dispute or discrepancy, such records of the Holder establishing
      the Principal to which the Holder is entitled shall be controlling and
      determinative in the absence of manifest error.  The Holder and any
      assignee, by acceptance of this Note, acknowledge and agree that, by reason
      of
      the provisions of this paragraph, following partial repayment of any portion
      of
      this Note, the Principal of this Note may be less than the principal amount
      stated on the face hereof.

    

    
      
        
          
          

        

        
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    (4)           Conversion
      of this Note.  This Note shall be converted into Shares on the
      terms and conditions set forth in this Section 4.

     

    (a)           Conversion
      at Option of the Holder.  Subject to the provisions of Section
      4(f), at any time or times on or after the Issuance Date, the Holder shall
      be
      entitled to convert all or any part of the Principal (and the Interest Amount
      relating thereto) into fully paid and nonassessable Shares in accordance with
      this Section 4, at the Conversion Rate (as defined in Section
      4(b)).  The Company shall not issue any fraction of a Share upon any
      conversion.  If the issuance would result in the issuance of a
      fraction of a Share, then the Company shall round such fraction of a Share
      up to
      the nearest whole number.  If any Principal remains outstanding on the
      Maturity Date, then all such Principal (and the Interest Amount relating
      thereto) shall be redeemed as of such date in accordance with Section
      4(c)(vii).

     

    (b)           Conversion
      Rate.  The number of Shares issuable upon a conversion of any
      portion of this Note pursuant to Section 4 shall be determined according to
      the
      following formula (the “Conversion Rate”):

     

     

    Conversion
      Amount

    Conversion
      Price

     

    (c)           Mechanics
      of Conversion.  The conversion of this Note shall be conducted in
      the following manner:

     

    (i)           Holder’s
      Delivery Requirements.  To convert a Conversion Amount into Shares
      on any date (the “Conversion Date”), the Holder shall
      (A) transmit by facsimile (or otherwise deliver), for receipt on or prior
      to 11:59 p.m. Houston time on such date, a copy of an executed conversion notice
      in the form attached hereto as Exhibit A (the “Conversion
      Notice”) to the Company (attention:  Chief Financial
      Officer), and (B) if required by Section 4(c)(vii), surrender to a common
      carrier for delivery to the Company, no later than three Business Days after
      the
      Conversion Date, the original Note being converted (or an indemnification
      undertaking reasonably acceptable to the Company with respect to this Note
      in
      the case of its loss, theft or destruction).

    

    
      
        
          
          

        

        
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    (ii)           Company’s
      Response.  Upon receipt or deemed receipt by the Company of a copy
      of a Conversion Notice, the Company (I) shall immediately send, via facsimile,
      a
      confirmation of receipt of such Conversion Notice to the Holder and the
      Company’s designated transfer agent (the “Transfer Agent”),
      which confirmation shall constitute an instruction to the Transfer Agent to
      process such Conversion Notice in accordance with the terms herein and (II)
      on
      or before the fifth Business Day following the date of receipt or deemed receipt
      by the Company of such Conversion Notice (the “Share Delivery
      Date”) (A) provided that the Transfer Agent is participating in The
      Depository Trust Company (“DTC”) Fast Automated Securities
      Transfer Program and provided that the Holder (or its designee or custodian)
      is
      eligible to receive Shares through DTC, credit such aggregate number of Shares
      to which the Holder shall be entitled to the Holder’s or its designee’s or
      custodian’s balance account with DTC through its Deposit Withdrawal Agent
      Commission system, or (B) if the foregoing shall not apply, issue and deliver
      to
      the address as specified in the Conversion Notice, a certificate, registered
      in
      the name of the Holder or its designee, for the number of Shares to which the
      Holder shall be entitled.  If this Note is submitted for conversion,
      as may be required by Section 4(c)(vii), and the Principal represented by this
      Note is greater than the Principal being converted, then the Company shall,
      as
      soon as practicable and in no event later than three Business Days after receipt
      of this Note (the “Note Delivery Date”) and at its own expense,
      issue and deliver to the Holder a new Note representing the Principal not
      converted and cancel this Note.

     

    (iii)           Dispute
      Resolution.  In the case of a dispute as to the arithmetic
      calculation of the Conversion Rate, the Company shall instruct the Transfer
      Agent to issue to the Holder the Shares representing the number of Shares that
      is not disputed and shall transmit an explanation of the disputed arithmetic
      calculations to the Holder via facsimile within five Business Days of receipt
      or
      deemed receipt of the Holder’s Conversion Notice or other date of
      determination.  If the Holder and the Company are unable to agree upon
      the arithmetic calculation of the Conversion Rate within three Business Days
      of
      such disputed determination or arithmetic calculation being transmitted to
      the
      Holder, then either the Company or the Holder shall promptly (and in any event
      within three Business Days) submit via facsimile the disputed arithmetic
      calculation of the Conversion Rate to an indepdent, reputable investment banking
      firm acceptable to the Company and the Holder.  The Company shall
      direct such firm to perform the determinations or calculations and notify the
      Company and the Holder of the results no later than five Business Days from
      the
      time it receives the disputed calculations.  Such firm’s determination
      or calculation, as the case may be, shall be binding upon all parties absent
      demonstrable error.

     

    (iv)           Record
      Holder.  The person or persons entitled to receive the Shares
      issuable upon a conversion of this Note shall be treated for all purposes as
      the
      legal and record holder or holders of such Shares on the Conversion
      Date.

    

    
      
        
          
          

        

        
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    (v)           Company’s
      Failure to Timely Convert.

     

    (A)           Cash
      Damages.  If within five Business Days after the Company’s receipt
      of the facsimile copy of a Conversion Notice or deemed receipt of a Conversion
      Notice the Company shall fail to issue and deliver a certificate to the Holder
      for, or credit the Holder’s or its designee’s balance account with DTC with, the
      number of Shares to which the Holder is entitled upon the Holder’s conversion of
      any Conversion Amount, or if the Company fails to issue and deliver a new Note
      representing the Principal to which such Holder is entitled on or before the
      Note Delivery Date pursuant to Section 4(c)(ii), then in addition to all other
      available remedies that the Holder may pursue hereunder and under the Securities
      Purchase Agreement (including indemnification pursuant to Section 8 thereof
      or
      at law or in equity), the Company shall pay additional damages to the Holder
      for
      each day after the Share Delivery Date such conversion is not timely effected
      and/or each day after the Note Delivery Date such Note is not delivered in
      an
      amount equal to 0.5% of the sum of (a) the product of (I) the number of Shares
      not issued to the Holder or its designee on or prior to the Share Delivery
      Date
      and to which the Holder is entitled and (II) the Weighted Average Price of
      the
      Common Stock on the Share Delivery Date (such product is referred to herein
      as
      the “Share Product Amount”), and (b) in the event the Company
      has failed to deliver a Note to the Holder on or prior to the Note Delivery
      Date, the product of (y) the number of Shares issuable upon conversion of the
      Principal represented by the Note as of the Note Delivery Date and (z) the
      Weighted Average Price of the Common Stock on the Note Delivery Date; provided
      that in no event shall cash damages accrue pursuant to this Section 4(c)(v)(A)
      with respect to the Share Product Amount during the period, if any, in which
      the
      arithmetic calculation of the Conversion Rate is subject to a bona fide dispute
      that is subject to and being resolved pursuant to, and in compliance with the
      time periods and other provisions of, the dispute resolution provisions of
      Section 4(c)(iii), provided that the Shares are delivered to the Holder within
      one Business Day of the resolution of such bona fide
      dispute.  Alternatively, subject to Section 4(c)(iii), at the election
      of the Holder made in the Holder’s sole discretion, the Company shall pay to the
      Holder, in lieu of the additional damages referred to in the preceding sentence
      (but in addition to all other available remedies that the Holder may pursue
      hereunder and under the Securities Purchase Agreement (including indemnification
      pursuant to Section 8 thereof or at law or in equity)), 110% of the amount
      by
      which (A) the Holder’s total purchase price for the Shares purchased to make
      delivery in satisfaction of a sale by the Holder of the Shares to which the
      Holder is entitled but has not received upon a conversion exceeds (B) the net
      proceeds received by the Holder from the sale of the Shares to which the Holder
      is entitled but has not received upon such conversion.  If the Company
      fails to pay the additional damages set forth in this Section 4(c)(v)(A) within
      five Business Days of the date incurred, then the Holder entitled to such
      payments shall have the right at any time, so long as the Company continues
      to
      fail to make such payments, to require the Company, upon written notice, to
      immediately issue, in lieu of such cash damages, the number of Shares equal
      to
      the quotient of (X) the aggregate amount of the damages payments described
      herein divided by (Y) the Conversion Price.

     

    (B)           Void
      Conversion Notice.  If for any reason the Holder (or its designee
      or custodian) has not received all of the Shares prior to the tenth Business
      Day
      after the Share Delivery Date with respect to a conversion of this Note, other
      than due to the pendency of a dispute being resolved in accordance with Section
      4(c)(iii) (a “Conversion Failure”), then the Holder, upon
      written notice to the Company (a “Void Conversion Notice”), may
      void its Conversion Notice with respect to, and retain or have returned, as
      the
      case may be, any portion of this Note that has not been converted pursuant
      to
      the Holder’s Conversion Notice.

    

    
      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

    

    

    (vi)           Book-Entry.  Notwithstanding
      anything to the contrary set forth herein, upon conversion of this Note in
      accordance with the terms hereof, the Holder shall not be required to physically
      surrender this Note to the Company unless all of the Principal is being
      converted.  The Holder and the Company shall maintain records showing
      the Principal converted or redeemed and the dates of such conversions or
      redemptions or shall use such other method, reasonably satisfactory to the
      Holder and the Company, so as not to require physical surrender of this Note
      upon each such conversion or redemption.  In the event of any dispute
      or discrepancy, such records of the Company establishing the Principal to which
      the Holder is entitled shall be controlling and determinative in the absence
      of
      demonstrable error.  Notwithstanding the foregoing, if this Note is
      converted or redeemed as aforesaid, the Holder may not transfer this Note unless
      the Holder first physically surrenders this Note to the Company, whereupon
      the
      Company will forthwith issue and deliver upon the order of the Holder a new
      Note
      of like tenor, registered as the Holder may request, representing in the
      aggregate the remaining Principal represented by this Note.  The
      Holder and any assignee, by acceptance of this Note, acknowledge and agree
      that,
      by reason of the provisions of this paragraph, following conversion or
      redemption of any portion of this Note, the Principal of this Note may be less
      than the principal amount stated on the face hereof.

     

    (d)           [Intentionally
      Omitted].

     

    (e)           Adjustments
      to Conversion Price.  The Conversion Price shall be subject to
      adjustment (“Antidilution Adjustment”) as follows:

     

    (i)           Declaration
      of Dividend in Common Stock or Free Distribution or Bonus Issue of Common
      Stock.

     

    (A)           If
      the Company shall declare a dividend in Common Stock or make a free distribution
      or bonus issue of Common Stock which is treated as a capitalization issue for
      accounting purposes (including but not limited to capitalization of capital
      reserves) then the Conversion Price in effect on the date when such dividend
      and/or distribution is declared (or, if the Company has fixed a prior record
      date for the determination of shareholders entitled to receive such dividend
      and/or distribution, on such record date) shall be adjusted in accordance with
      the following formula:

     

    NCP
      = OCP
      x [N/(N + n)]

     

    where:

     

    NCP
      = the
      Conversion Price after such adjustment.

    

    
      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

    

    

    OCP
      = the
      Conversion Price before such adjustment.

     

    N
      = the
      number of Common Stock outstanding (having regard in this case and in each
      subsection mentioned below to subsection (xiv) below) at the time of declaration
      of such dividend and/or distribution (or at the close of business in New York
      City on such record date as the case may be).

     

    n
      = the
      number of Common Stock to be distributed to the shareholders as a dividend
      and/or free distribution.

     

    (B)           An
      adjustment made pursuant to this subsection (i) shall become effective on the
      record date for determination of shareholders entitled to receive such dividend
      and/or distribution; provided that in the case of a dividend in Common Stock
      or
      capitalization of reserves which must, under applicable law of the United
      States, be submitted for approval to a meeting of shareholders of the Company
      or
      to competent regulatory authority before being legally paid or made, and which
      is so approved after the record date fixed for the determination of shareholders
      entitled to receive such dividend and/or distribution, such adjustment shall,
      immediately upon such approval being given by such meeting or such authority,
      become effective retroactively to immediately after such record
      date.

     

    (C)           If
      the Company shall declare a dividend in, or make a free distribution or bonus
      issue of, Common Stock which dividend, issue or distribution is to be paid
      or
      made to shareholders as of a record date that is also:

     

    (1)           the
      record date for the issue of any rights or warrants which requires an adjustment
      of the Conversion Price pursuant to subsection (iii), (iv) or (v) below;

     

    (2)           the
      day immediately before the date of issue of any securities convertible into
      or
      exchangeable for Common Stock that requires an adjustment of the Conversion
      Price pursuant to subsection (vii) below;

     

    (3)           the
      day immediately before the date of issue of any Common Stock that requires
      an
      adjustment of the Conversion Price pursuant to subsection (viii)
      below;

     

    (4)           the
      day immediately before the date of issue of any rights, options or warrants
      that
      requires an adjustment of the Conversion Price pursuant to subsection (ix)
      below; or

     

    (5)           determined
      by the Company to be the relevant date for an event or circumstance that
      requires an adjustment to the Conversion Price pursuant to subsection (x)
      below,

     

    then
      no
      adjustment of the Conversion Price in respect of such dividend, bonus issue
      or
      free distribution shall be made under this subsection (i), but in lieu thereof
      an adjustment shall be made under subsection (iii), (iv), (v), (vi), (vii),
      (viii) or (ix) below (as the case may require) by including in the denominator
      of the fraction described therein the aggregate number of Common Stock to be
      issued pursuant to such dividend, bonus issue or free distribution and, in
      the
      case of such dividend, including in the numerator of the fraction described
      therein the number of Common Stock which the aggregate par value of Common
      Stock
      to be so distributed would purchase at the Current Market Price per Common
      Stock.

    

    
      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

    

    

    (ii)           Sub-division,
      Consolidation and Reclassification of Common Stock.

     

    (A)           If
      the Company shall (1) sub-divide its outstanding Common Stock, (2) consolidate
      its outstanding Common Stock into a smaller number of Common Stock, or (3)
      re-classify any of its Common Stock into other securities of the Company, then
      the Conversion Price shall be appropriately adjusted so that the Holder on
      the
      Conversion Date which occurs after the coming into effect of the adjustment
      described in this clause (A) shall be entitled to receive the number of Common
      Stock and/or other securities of the Company which it would have held or have
      been entitled to receive after the happening of any of the events described
      above had the Note been converted immediately prior to the happening of such
      event (or, if the Company has fixed a prior record date for the determination
      of
      shareholders entitled to receive any such securities issued upon any such
      sub-division, consolidation or re-classification, immediately prior to such
      record date), but without prejudice to the effect of any other adjustment to
      the
      Conversion Price made with effect from the date of the happening of such event
      (or such record date) or any time thereafter.

     

    (B)           An
      adjustment made pursuant to clause (A) above shall become effective immediately
      on the relevant event referred to above becoming effective or, if a record
      date
      is fixed therefor, immediately after such record date.

     

    (iii)           Issue
      of Securities Convertible into or Exchangeable for Common
      Stock.

     

    (A)           If
      the Company shall issue securities convertible into or exchangeable for Common
      Stock at a consideration per Common Stock receivable by the Company (determined
      as provided in subsection (xii) below) which is fixed:

     

    (1)           on
      or prior to the record date mentioned below and is less than the Current Market
      Price per Common Stock on such record date; or

     

    (2)           after
      the record date mentioned below and is less than the Current Market Price per
      share on the date the Company fixes the said consideration,

     

    then
      the
      Conversion Price in effect (in a case within (1) above) on the record date
      for
      the determination of shareholders entitled to receive such rights or (in a
      case
      within (2) above) on the date the Company fixes the said consideration shall
      be
      adjusted in accordance with the following formula:

    

    
      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

    

    

    NCP
      = OCP
      x [(N+v)/(N+n)]

     

    where:

     

    NCP
      and
      OCP have the meanings ascribed thereto in subsection (i) above (which may be
      further adjusted pursuant to the provisions of subsection (ii)
      above).

     

    N
      = the
      number of Common Stock outstanding (having regard to subsection (xiii) below)
      at
      the close of business in New York, New York (in a case within (1) above) on
      such
      record date or (in a case within (2) above) on the date the Company fixes the
      said consideration.

     

    n
      = the
      number of Common Stock to be initially issued upon conversion or exchange of
      such convertible or exchangeable securities at the said
      consideration.

     

    v
      = the
      number of Common Stock which the aggregate consideration receivable by the
      Company determined as provided in subsection (xii) below would purchase at
      such
      Current Market Price per Common Stock specified in (1) or, as the case may
      be,
      (2) above.

     

    (B)           Subject
      as provided below, such adjustment shall become effective immediately after
      the
      date the consideration for such Common Stock is received in full or (if later)
      immediately after the Company fixes the said consideration but retroactively
      to
      immediately after the record date mentioned above.

     

    (iv)           Issue
      of Options, Rights or Warrants.

     

    (A)           If
      the Company shall issue options, rights or warrants entitling holders of Common
      Stock to subscribe for or purchase Common Stock at a consideration per Common
      Stock receivable by the Company (determined as provided in subsection (xii)
      below) which is fixed:

     

    (1)           on
      or prior to the record date for the determination of shareholders entitled
      to
      receive such warrants or options and is less than the Current Market Price
      per
      Common Stock at such record date; or

     

    (2)           after
      the record date mentioned above and is less than the Current Market Price per
      Common Stock on the date the Company fixes the said consideration,

     

    then
      the
      Conversion Price in effect (in a case within (1) above) on the record date
      for
      the determination of shareholders entitled to receive such warrants or options
      or (in a case within (2) above) on the date the Company fixes the said
      consideration shall be adjusted in accordance with the following
      formula:

     

    NCP
      = OCP
      x [(N+v)/(N+n)]

    

    
      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

    

    

    where:

     

    NCP
      and
      OCP have the meanings ascribed thereto in subsection (i) above (which may be
      further adjusted pursuant to the provisions of subsection (ii)
      above).

     

    N
      = the
      number of Common Stock outstanding (having regard to subsection (xiii) below)
      at
      the close of business in New York, New York (in a case within (1) above) on
      such
      record date or (in a case within (2) above) on the date the Company fixes the
      said consideration.

     

    n
      = the
      number of Common Stock initially to be issued upon exercise of such warrants
      or
      options at the said consideration where no applications by shareholders entitled
      to such warrants or options are required.  Where applications by
      shareholders entitled to such warrants or options are required, n = the number
      of such Common Stock that equals (A) the number of warrants or options which
      underwriters have agreed to underwrite as referred to below or, as the case
      may
      be, (B) the number of warrants or options for which applications are received
      from shareholders as referred to below save to the extent already adjusted
      for
      under (A).

     

    v
      = the
      number of Common Stock which the aggregate consideration receivable by the
      Company (determined as provided in subsection (xii) below) would purchase at
      such Current Market Price per Common Stock specified in (1) or, as the case
      may
      be, (2) above.

     

    (B)           Subject
      as provided below, such adjustment shall become effective (A) where no
      applications for such warrants or options are required from shareholders
      entitled to the same, upon their issue and (B) where applications by
      shareholders entitled to the same are required as aforesaid, immediately after
      the latest date for the submission of such applications or (if later)
      immediately after the Company fixes the said consideration, but in all cases
      retroactively to immediately after the record date mentioned above.

     

    (C)           If,
      in connection with a grant, issue or offer to the holders of Common Stock of
      warrants or options entitling them to subscribe for or purchase Common Stock
      where applications by shareholders entitled to the same are required, any
      warrants or options which are not subscribed for or purchased by the
      shareholders entitled thereto are agreed to be underwritten by others prior
      to
      the latest date for the submission of applications for such warrants or options,
      an adjustment shall be made to the Conversion Price in accordance with the
      above
      provisions which shall become effective immediately after the date the
      underwriters agree to underwrite the same or (if later) immediately after the
      Company fixes the said consideration but retroactively to immediately after
      the
      record date mentioned above. If, in connection with a grant, issue or offer
      to
      the holders of Common Stock of warrants or options entitling them to subscribe
      for or purchase Common Stock where applications by shareholders entitled to
      the
      same are required, any warrants or options which are not subscribed for or
      purchased by the underwriters who have agreed to underwrite as referred to
      above
      or by the shareholders entitled thereto (or persons to whom shareholders have
      transferred the right to purchase such warrants) who have submitted applications
      for such warrants as referred to above are offered to and/or subscribed by
      others, no further adjustment shall be made to the Conversion Price by reason
      of
      such offer and/or subscription.

    

    
      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

    

    

    (v)           Issues
      of Options, Rights or Warrants for Equity-Related Securities.

     

    (A)           If
      the Company shall grant, issue or offer rights, options or warrants entitling
      holders of Common Stock to subscribe for or purchase any securities convertible
      into or exchangeable for Common Stock at a consideration per Common Stock
      receivable by the Company (determined as provided in subsection xii) below)
      which is fixed:

     

    (1)           on
      or prior to the record date mentioned below and is less than the Current Market
      Price per Common Stock at such record date; or

     

    (2)           after
      the record date mentioned below and is less than the Current Market Price per
      Common Stock on the date the Company fixes the said consideration,

     

    then
      the
      Conversion Price in effect (in a case within (1) above) on the record date
      for
      the determination of shareholders entitled to receive such rights or warrants
      or
      (in a case within (2) above) on the date the Company fixes the said
      consideration shall be adjusted in accordance with the following
      formula:

     

    NCP
      = OCP
      x [(N+v)/(N+n)]

     

    where:

     

    NCP
      and
      OCP have the meanings ascribed thereto in subsection (i) above (which may be
      further adjusted pursuant to the provisions of subsection (ii)
      above).

     

    N
      = the
      number of Common Stock outstanding (having regard to subsection (xiii) below)
      at
      the close of business in New York, New York (in a case within (1) above) on
      such
      record date or (in a case within (2) above) on the date the Company fixes the
      said consideration.

     

    n
      = the
      number of Common Stock initially to be issued upon exercise of such rights
      or
      warrants and conversion or exchange of such convertible or exchangeable
      securities at the said consideration which, in the case of rights, equals (A)
      the number of Common Stock initially to be issued upon conversion or exchange
      of
      the number of such convertible or exchangeable securities which the underwriters
      have agreed to underwrite as referred to below or, as the case may be, (B)
      the
      number of Common Stock initially to be issued upon conversion or exchange of
      the
      number of such convertible or exchangeable securities for which applications
      are
      received from shareholders as referred to below save to the extent already
      adjusted for under (A), and which, in the case of warrants where no applications
      by shareholders entitled to such warrants are required, equals such number
      of
      Common Stock initially to be issued upon such exercise and conversion or
      exchange.  Where applications by shareholders entitled to such
      warrants are required, n = the number of such Common Stock that equals (x)
      the
      number of warrants which underwriters have agreed to underwrite as referred
      to
      below or, as the case may be, (y) the number of warrants for which applications
      are received from shareholders as referred to below save to the extent already
      adjusted for under (x).

    

    
      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

    

    

    v
      = the
      number of Common Stock which the aggregate consideration receivable by the
      Company (determined as provided in subsection (xii) below) would purchase at
      such Current Market Price per Common Stock specified in (1) or, as the case
      may
      be, (2) above.

     

    (B)           Subject
      as provided below, such adjustment shall become effective (A) where no
      applications for such warrants are required from shareholders entitled to the
      same, upon their issue and (B) in the case of rights and where applications
      by
      shareholders entitled to the warrants are required as aforesaid, immediately
      after the latest date for the submission of applications or (if later)
      immediately after the Company fixes the said consideration, but in all cases
      retroactively to immediately after the record date mentioned above.

     

    (C)           If,
      in connection with a grant, issue or offer to the holders of Common Stock of
      rights or of warrants entitling them to subscribe for or purchase securities
      convertible into or exchangeable for Common Stock where applications by
      shareholders entitled to the same are required, any convertible or exchangeable
      securities or warrants which are not subscribed for or purchased by the
      shareholders entitled thereto are agreed to be underwritten by others prior
      to
      the latest date for the submission of applications for such convertible or
      exchangeable securities or warrants, an adjustment shall be made to the
      Conversion Price in accordance with the above provisions which shall become
      effective immediately after the date the underwriters agree to underwrite the
      same or (if later) immediately after the Company fixes the said consideration
      but retroactively to immediately after the record date mentioned above. If,
      in
      connection with a grant, issue or offer to the holders of Common Stock of rights
      or of warrants entitling them to subscribe for or purchase securities
      convertible into or exchangeable for Common Stock where applications by
      shareholders entitled to the same are required, any convertible or exchangeable
      securities or warrants which are not subscribed for or purchased by the
      underwriters who have agreed to underwrite as referred to above or by the
      shareholders entitled thereto (or persons to whom shareholders have transferred
      such rights or the right to purchase such warrants) who have submitted
      applications for such convertible or exchangeable securities or warrants as
      referred to above are offered to and/or subscribed by others, no further
      adjustment shall be made to the Conversion Price by reason of such offer and/or
      subscription.

     

    (vi)          Capital
      Distribution, Other Distributions to Common Stockholders.

     

    (A)           If
      the Company shall make any capital distribution or the distribution to the
      holders of Common Stock of evidences of indebtedness of the Company or of shares
      of capital stock of the Company (other than Common Stock) or of assets (other
      than regular annual and interim dividends in cash not constituting a capital
      distribution) or of options, rights or warrants to subscribe for or purchase
      shares (other than Common Stock) or securities (other than those mentioned
      in (iii), (iv) or (v) above):

    

    
      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

    

    

    NCP
      = OCP
      x [(CMP-fmv)/CMP]

     

    where:

     

    NCP
      and
      OCP have the meanings ascribed thereto in subsection (i) above (which may be
      further adjusted pursuant to the provisions of subsection (ii)
      above).

     

    CMP
      = the
      Current Market Price per Common Stock on the record date for the determination
      of shareholders entitled to receive such distribution.

     

    fmv
      = the
      amount of such distribution or the fair market value (as determined by the
      Company and notified to the Holder or, if pursuant to applicable law of the
      United States such determination is to be made by application to a court of
      competent jurisdiction, as determined by such court or by an appraiser appointed
      by such court) of the portion of the evidences of indebtedness, shares of
      capital stock, assets, rights or warrants so distributed applicable to one
      Common Stock, less any consideration payable for the same by the relevant
      stockholder.  In making a determination of the fair market value of
      any such evidences of indebtedness, shares of capital stock, assets, rights
      or
      warrants, the Company shall consult a leading independent securities company
      or
      bank or accounting firm selected by the Company and approved by the Holder
      (which approval shall not be unreasonably withheld, conditioned or delayed)
      and
      shall take fully into account the advice received from such company or bank
      or
      accounting firm.

     

    (B)           Such
      adjustment shall become effective immediately after the record date for the
      determination of shareholders entitled to receive such capital distribution
      or
      distribution, provided that (A) in the case of such a capital distribution
      or
      distribution which must, under applicable law of the United States, be submitted
      for approval to a meeting of shareholders of the Company or to competent
      regulatory authority before such capital distribution or distribution may
      legally be made and is so approved after the record date fixed for the
      determination of shareholders entitled to receive such capital distribution
      or
      distribution, such adjustment shall, immediately upon such approval being given
      by such meeting or such authority, become effective retroactively to immediately
      after such record date and (B) if the fair market value of the evidences of
      indebtedness, shares of capital stock, assets, rights or warrants so distributed
      cannot be determined until after the record date fixed for the determination
      of
      shareholders entitled to receive such distribution, such adjustment shall,
      immediately upon such fair market value being determined, become effective
      retroactively to immediately after such record date.

    

    
      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

    

    

    (vii)         Issue
      of Convertible or Exchangeable Securities Generally.

     

    (A)           If
      the Company shall issue any securities convertible into or exchangeable for
      Common Stock (other than the Note, or in any of the circumstances described
      in
      subsection (v) above and subsection (ix) below) and the consideration per Common
      Stock receivable by the Company (determined as provided in subsection (xii)
      below) shall be less than the Current Market Price per Common Stock on the
      date
      in the United States on which the Company fixes the said consideration (or,
      if
      the issue of such securities is subject to approval by a meeting of
      shareholders, on the date on which the board of directors of the Company fixes
      the consideration to be recommended at such meeting), then the Conversion Price
      in effect immediately prior to the date of issue of such convertible or
      exchangeable securities shall be adjusted in accordance with the following
      formula:

     

    NCP
      = OCP
      x [(N+v)/(N+n)]

     

    where:

     

    NCP
      and
      OCP have the meanings ascribed thereto in subsection (i) above (which may be
      further adjusted pursuant to the provisions of subsection (ii)
      above).

     

    N
      = the
      number of Common Stock outstanding (having regard to subsection (xiii) below)
      at
      the close of business in New York, New York on the day immediately prior to
      the
      date of such issue.

     

    n
      = the
      number of Common Stock initially to be issued upon conversion or exchange of
      such convertible or exchangeable securities at the initial conversion or
      exchange price or rate.

     

    v
      = the
      number of Common Stock which the aggregate consideration receivable by the
      Company (determined as provided in subsection (xii) below) would purchase at
      such Current Market Price per Common Stock.

     

    (B)           Such
      adjustment shall become effective as of the calendar day in the United States
      corresponding to the calendar day at the place of issue on which such
      convertible or exchangeable securities are issued.

     

    (viii) 
        Other Issues of
      Common Stock.

     

    (A)           If
      the Company shall issue any Common Stock (other than Common Stock issued upon
      conversion or exchange of any convertible or exchangeable securities (including
      the Note) issued by the Company or upon exercise of any rights or warrants
      granted, offered or issued by the Company or in any of the circumstances
      described in subsection (i), (ii) or (iii) above or issued to shareholders
      of
      any company which merges with the Company in proportion to their shareholdings
      in such company immediately prior to such merger, upon such merger) for a
      consideration per Common Stock receivable by the Company (determined as provided
      in subsection (xii) below) less than the Current Market Price per Common Stock
      on the date in the United States on which the Company fixes the said
      consideration (or, if the issue of such Common Stock is subject to approval
      by a
      meeting of shareholders, on the date on which the Board of Directors of the
      Company fixes the consideration to be recommended at such meeting), then the
      Conversion Price in effect immediately prior to the issue of such additional
      Common Stock shall be adjusted in accordance with the following
      formula:

    

    
      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

    

    

    NCP
      =OCP
      x [(N+v)/(N+n)]

     

    where:

     

    NCP
      and
      OCP have the meanings ascribed thereto in subsection (i) above (which may be
      further adjusted pursuant to the provisions of subsection (ii)
      above).

     

    N
      = the
      number of Common Stock outstanding (having regard to subsection (xiii) below)
      at
      the close of business in New York, New York on the day immediately prior to
      the
      date of such issue.

     

    n
      = the
      number of additional Common Stock issued as aforesaid.

     

    v
      = the
      number of Common Stock which the aggregate consideration receivable by the
      Company (determined as provided in subsection (xii) below) would purchase at
      such Current Market Price per Common Stock.

     

    (B)           Such
      adjustment shall become effective as of the calendar day in the United States
      corresponding to the calendar day at the place of issue on which such additional
      Common Stock are issued.

     

    (ix)           Issue
      of Equity Related Securities.

     

    (A)           If
      the Company shall grant, issue or offer options, rights or warrants to subscribe
      for or purchase Common Stock or securities convertible into or exchangeable
      for
      Common Stock and the consideration per Common Stock receivable by the Company
      (determined as provided in subsection (xii) below) shall be less than the
      Current Market Price per Common Stock on the date in the United States on which
      the Company fixes the said consideration (or, if the offer, grant or issue
      of
      such rights, options or warrants is subject to approval by a meeting of
      shareholders, on the date on which the board of directors of the Company fixes
      the consideration to be recommended at such meeting), then the Conversion Price
      in effect immediately prior to the date of the offer, grant or issue of such
      options, rights or warrants shall be adjusted in accordance with the following
      formula:

    

    
      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

    

    

    NCP
      = OCP
      x [(N+v)/(N+n)]

     

    where:

     

    NCP
      and
      OCP have the meanings ascribed thereto in subsection (i) above (which may be
      further adjusted pursuant to the provisions of subsection (ii)
      above).

     

    N
      = the
      number of Common Stock outstanding (having regard to subsection (xiii) below)
      at
      the close of business in New York, New York on the day immediately prior to
      the
      date of such issue.

     

    n
      = the
      number of Common Stock initially to be issued on exercise of such options,
      rights or warrants and (if applicable) conversion or exchange of such
      convertible or exchangeable securities.

     

    v
      = the
      number of Common Stock which the aggregate consideration receivable by the
      Company (determined as provided in subsection (xii) below) would purchase at
      such Current Market Price per Common Stock.

     

    (B)           Such
      adjustment shall become effective as of the calendar day in the United States
      corresponding to the calendar day at the place of issue on which such rights
      or
      warrants are issued.

     

    (x)           Analogous
      Events.

     

    If
      the
      Company determines that any other event or circumstance has occurred which
      has
      or would have an effect on the position of the Holder compared with the position
      of the holders of all the securities (and options and rights relating thereto)
      of the Company, taken as a class which is analogous to any of the events
      referred to in subsections (i) through (ix), then, in any such case, the Company
      will notify the Holder in writing thereof as soon as practicable and the Company
      will consult with a leading independent securities company or commercial bank
      or
      accounting firm selected by the Company as to what adjustment, if any, should
      be
      made to the Conversion Price to preserve the value of the Conversion Right
      of
      the Holder and will make any such adjustment.

     

    (xi)           Simultaneous
      Issues of Different Classes of Common Stock.

    

    
      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

    

    

    In
      the
      event of simultaneous issues of two or more classes of share capital comprising
      Common Stock or rights or warrants in respect of, or securities convertible
      into
      or exchangeable for, two or more classes of share capital comprising Common
      Stock, then, for the purposes of this Section 4(e), the formula:

     

    NCP
      = OCP
      x [(N+v)/(N+n)] shall be restated as NCP = OCP x
      [(N+v1+v2+v3)/(N+n1+n2+n3)]

     

    Where:

     

    v1
      and n1
      shall have the same meanings as “v” and “n” but by reference to one class of
      Common Stock.

     

    v2
      and n2
      shall have the same meanings as “v” and “n” but by reference to a second class
      of Common Stock.

     

    v3
      and n3
      shall have the same meanings as “v” and “n” but by reference to a third class of
      Common Stock and so on.

     

    (xii)          Consideration
      Receivable by the Company.

     

    For
      the
      purposes of any calculation of the consideration receivable by the Company
      pursuant to this Section 4(e), the following provisions shall be
      applicable:

     

    (A)           in
      the case of an issue of Common Stock for cash, the consideration shall be the
      amount of such cash, provided that in no such case shall any deduction be made
      for any commissions or any expenses paid or incurred by the Company for any
      underwriting of the issue or otherwise in connection therewith;

     

    (B)           in
      the case of an issue of Common Stock for a consideration in whole or in part
      other than cash, the consideration other than cash shall be deemed to be the
      fair value thereof as determined by the Company (and in making such
      determination the Company will consult a leading independent securities company
      or bank or accounting firm selected by the Company and approved by (which
      approval shall not be unreasonably withheld, conditioned or delayed) the Holder
      and will take fully into account the advice received from such company or bank
      or accounting firm) or, if pursuant to applicable law of the United States
      or
      any state thereof, such determination is to be made by application to a court
      of
      competent jurisdiction, as determined by such court or an appraiser appointed
      by
      such court, irrespective of the accounting treatment thereof;

     

    (C)           in
      the case of an issue (whether initially or upon the exercise of rights or
      warrants) of securities convertible into or exchangeable for Common Stock,
      the
      aggregate consideration receivable by the Company shall be deemed to be the
      consideration received by the Company for such securities and (if applicable)
      rights or warrants plus the additional consideration, if any, to be received
      by
      the Company upon (and assuming) the conversion or exchange of such securities
      at
      the initial conversion or exchange price or rate and (if applicable) the
      exercise of such rights or warrants at the initial subscription or purchase
      price (the consideration in each case to be determined in the same manner as
      provided in paragraphs (A) and (B) above) and the consideration per Common
      Stock
      receivable by the Company shall be such aggregate consideration divided by
      the
      number of Common Stock to be issued upon (and assuming) such conversion or
      exchange at the initial conversion or exchange price or rate and (if applicable)
      the exercise of such rights or warrants at the initial subscription or purchase
      price;

    

    
      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

    

    

    (D)           in
      the case of an issue of rights or warrants to subscribe for or purchase Common
      Stock, the aggregate consideration receivable by the Company shall be deemed
      to
      be the consideration received by the Company for any such rights or warrants
      plus the additional consideration to be received by the Company upon (and
      assuming) the exercise of such rights or warrants at the initial subscription
      or
      purchase price (the consideration in each case to be determined in the same
      manner as provided in paragraphs (A) and (B) above) and the consideration per
      Common Stock receivable by the Company shall be such aggregate consideration
      divided by the number of Common Stock to be issued upon (and assuming) the
      exercise of such rights or warrants at the initial subscription or purchase
      price;

     

    (E)           if
      any of the consideration referred to in any of the preceding paragraphs of
      this
      subsection (xii) is receivable in a currency other than US Dollars, such
      consideration shall, in any case where there is a fixed rate of exchange between
      the US Dollar and the relevant currency for the purposes of the issue of the
      Common Stock, the conversion or exchange of such securities or the exercise
      of
      such rights or warrants, be translated into US Dollars for the purposes of
      this
      subsection (xii) at such fixed rate of exchange and shall, in all other cases,
      be translated into US Dollars at the mean of the exchange rate quotations by
      a
      leading bank in the United States for buying and selling spot units of the
      relevant currency by telegraphic transfer against US Dollars on the date as
      of
      which the said consideration is required to be calculated as
      aforesaid;

     

    (F)           in
      the case of the issue of Common Stock to employees under any employee bonus
      or
      profit sharing arrangements where the Common Stock are credited as fully paid
      out of retained earnings at their par value and the Company would otherwise
      have
      been required to pay to those employees the cash equivalent of the aggregate
      par
      value of the number of Common Stock so issued had such Common Stock not been
      so
      issued, the aggregate consideration receivable per Common Stock by the Company
      shall be deemed to be the par value of such issued Common Stock;
      and

     

    (G)           in
      the case of the issue of Common Stock credited as fully paid out of retained
      earnings or capitalization or reserves at their par value, the aggregate
      consideration receivable by the Company shall be deemed to be zero (and
      accordingly the number of Common Stock which such aggregate consideration
      receivable by the Company could purchase at the relevant Current Market Price
      per Common Stock shall also be deemed to be zero).

     

    (xiii) 
        Cumulative
      Adjustments.

     

    If,
      at
      the time of computing an adjustment (the “later adjustment”) of
      the Conversion Price pursuant to any of subsections (iii), (iv) and (v) above,
      the Conversion Price already incorporates an adjustment (the “earlier
      adjustment”) made (or taken or to be taken into account pursuant to the
      proviso to subsection (xiv) below) to reflect an issue of Common Stock or of
      securities convertible into or exchangeable for Common Stock or of rights or
      warrants to subscribe for or purchase Common Stock or securities, to the extent
      that the number of such Common Stock or securities taken into account for the
      purposes of calculating the earlier adjustment exceeds the number of such Common
      Stock in issue at the time relevant for ascertaining the number of outstanding
      Common Stock for the purposes of computing the later adjustment, such excess
      Common Stock shall be deemed to be outstanding for the purposes of making such
      computation.

    

    
      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

    

    

    (xiv)    Reference
      to “fix”.

     

    Any
      reference herein to the date on which a consideration is
“fixed” shall, where the consideration is originally expressed
      by reference to a formula which cannot be expressed as an actual cash amount
      until a later date, be construed as a reference to the first day on which such
      actual cash amount can be ascertained.

     

    (xv)    Fractions.

     

    All
      fractions used in relation to the calculation of any adjustment of the
      Conversion Price set forth in this Section 4(e) shall be calculated to six
      decimal places; provided that, where there are two such nearest decimal points
      the fraction shall be rounded upwards to the higher decimal point.

     

    (f)           Exempted
      Issuances.  Notwithstanding any other provision of Section 4(e),
      no adjustment shall be made pursuant to Section 4(e) for Exempted
      Issuances.  “Exempted Issuances” means (I) shares of
      Common Stock issued or deemed to be issued by the Company upon the conversion,
      exchange or exercise of any option, obligation or security outstanding on the
      date prior to the Warrant Date and set forth in Schedule 3.3 to the Securities
      Purchase Agreement, provided that the terms of such option, obligation or
      security are not amended or otherwise modified on or after the date of the
      Securities Purchase Agreement, and provided that the conversion price, exchange
      price, exercise price or other purchase price is not reduced, adjusted or
      otherwise modified and the number of shares of Common Stock issued or issuable
      is not increased (whether by operation of, or in accordance with, the relevant
      governing documents or otherwise) on or after the date of the Securities
      Purchase Agreement; and (II) shares of Common Stock issued or deemed to be
      issued by the Company upon exercise of the Warrants or upon conversion of the
      Notes.

     

    (g)           Notices.  Promptly
      upon, but in no event later than two Business Days after, any adjustment of
      the
      Conversion Price, the Company will give written notice thereof to the Holder,
      setting forth in reasonable detail, and certifying, the calculation of such
      adjustment; provided, however, that neither the timing of giving any such
      notice, nor any failure by the Company to give such notice, shall effect any
      such adjustment on the effective date thereof.  The Company will give
      written notice to the Holder at least 10 Business Days prior to the date on
      which the Company closes its books or takes a record (I) with respect to any
      dividend or distribution upon the Common Stock, (II) with respect to any pro
      rata subscription offer to holders of Common Stock or (III) for determining
      rights to vote with respect to any Organic Change (as defined in Section 2),
      dissolution or liquidation, provided that such information shall be made known
      to the public prior to or in conjunction with such notice being provided to
      the
      Holder.  The Company will also give written notice to the Holder at
      least 10 Business Days prior to the date on which any Organic Change,
      dissolution or liquidation will take place, provided that such information
      shall
      be made known to the public prior to or in conjunction with such notice being
      provided to the Holder.

    

    
      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

    

    

    (h)           Timing
      of Adjustments.  The adjustments required pursuant to Section 4(e)
      shall be made (i) no less than once per year (on the date of, or immediately
      after, the filing of the Company’s audited financial statements) and (ii) on
      each date on which the Note is converted.

     

    (5)           Reorganization,
      Reclassification, Consolidation, Merger or Sale.  Any
      recapitalization, reorganization, reclassification, consolidation, merger,
      sale
      of all or substantially all of the Company’s assets to another Person or other
      transaction that is effected in such a way that holders of Common Stock are
      entitled to receive (either directly or upon subsequent liquidation) stock,
      securities or assets with respect to or in exchange for Common Stock is referred
      to herein as “Organic Change.”  Prior to the
      consummation of any Organic Change, the Company shall make appropriate provision
      (in form and substance satisfactory to the holder of this Note), to ensure
      that
      each holder of this Note will thereafter have the right to acquire and receive
      in lieu of or in addition to (as the case may be) the shares of Common Stock
      otherwise issuable upon such holder’s exercise of its conversion rights under
      this Note (without regard to any limitations on exercise), the kind and amount
      of shares of stock, securities or assets that would have been issued or payable
      in such Organic Change with respect to or in exchange for the number of shares
      of Common Stock such holder would have received or become entitled to receive
      (upon its exercise of the conversion rights under this Note) as of the date
      of
      such Organic Change (without taking into account any limitations or restrictions
      on the exerciseability of any such Note).

     

    (6)           Company
      Alternative Redemption.

     

    (a)           General.  At
      any time after the six-month anniversary of the Issuance Date, the Company
      shall
      have the right to redeem some or all of the Principal (a “Company
      Alternative Redemption”) by payment to the Holder of an amount in cash
      equal to the sum of (i) the outstanding Principal being redeemed pursuant to
      this Section 6, (ii) the Interest Amount with respect to such Principal as
      of
      the Company Alternative Redemption Date (as defined below) and 2.50% of such
      Principal (the “Company Alternative Redemption Price”);
      provided that the conditions of this Section 6(a) and Section 6(b) are satisfied
      (or waived in writing by the Holder).  The Company may exercise its
      right to Company Alternative Redemption by delivering to the Holder written
      notice (the “Company Alternative Redemption Notice”) at least
      10 Trading Days prior to the date of consummation of such redemption
      (“Company Alternative Redemption Date”).  The date on
      which the Holder receives the Company Alternative Redemption Notice is referred
      to as the “Company Alternative Redemption Notice
      Date.”  The Company Alternative Redemption Notice shall state
      (i) the date selected by the Company for the Company Alternative Redemption
      Date
      in accordance with this Section 6(a) and (ii) the aggregate Principal that
      the
      Company has elected to redeem pursuant to this Section 6.  Any Company
      Alternative Redemption shall be applied to the Principal.

    

    
      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

    

    

    (b)           Mechanics
      of Company Alternative Redemption.  If the Company has exercised
      its right to Company Alternative Redemption in accordance with Section 6(a)
      and
      the conditions of this Section 6 are satisfied on the Company Alternative
      Redemption Date (or waived in writing by the Holder), then the Redemption
      Amount, if any, that remains outstanding on the Company Alternative Redemption
      Date shall be redeemed by the Company on such Company Alternative Redemption
      Date by the payment by the Company to the Holder on such Company Alternative
      Redemption Date, by wire transfer of immediately available funds, of an amount
      equal to the Company Alternative Redemption Price for the Redemption
      Amount.  Notwithstanding anything contained herein to the contrary, if
      the Holder delivers a Conversion Notice after a Company Alternative Redemption
      Notice Date, but prior to the Company Alternative Redemption Date, then the
      Conversion Amount specified in such Conversion Notice shall be deducted (1)
      first, from the Redemption Amount, and then (2) second, from the
      Principal.  In the event that all of the Redemption Amount is
      converted prior to the Company Alternative Redemption Date, then the Company
      Alternative Redemption Notice shall be of no further effect.

     

    (7)           Reservation
      of Shares.

     

    (a)           Reservation.  The
      Company shall, so long as this Note is outstanding, take all action necessary
      to
      reserve and keep available out of its authorized and unissued Common Stock,
      solely for the purpose of effecting the conversion of this Note, such number
      of
      Shares as shall from time to time be sufficient to effect the conversion of
      all
      of the principal amount then outstanding under this Note (together with accrued
      and unpaid Interest thereon)(the “Required Reserve
      Amount”).

     

    (b)           Insufficient
      Authorized Shares.  If at any time while the Note remains
      outstanding the Company does not have a sufficient number of authorized and
      unreserved Shares to satisfy its obligation to reserve for issuance upon
      conversion of the Note at least a number of Shares equal to the Required Reserve
      Amount, then the Company shall within a reasonable time take all action
      necessary to increase the Company’s authorized Shares to an amount sufficient to
      allow the Company to reserve the Required Reserve Amount for the Note then
      outstanding.

     

    (8)           Voting
      Rights.  The Holder shall have no voting rights with respect to
      the Shares underlying the Note, except as required by law.

     

    (9)           Defaults
      and Remedies.

     

    (a)           Events
      of Default.  An “Event of Default” shall mean any
      of:

     

    (i)           default
      in payment of any Principal under this Note or any other Note when and as
      due;

     

    (ii)           default
      in payment of any Interest or other amount due on this Note or any other Note
      that is not included in an amount described in the immediately preceding clause
      (i) that is not cured within five (5) Business Days from the date such Interest
      or other amount was due;

    

    
      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

    

    

    (iii)           failure
      by the Company for thirty (30) days to comply with any other provision of this
      Note in all material respects;

     

    (iv)           any
      default in payment under any Indebtedness (other than as specified in clause
      (ii) of this Section 9) with a principal balance of at least $250,000,
      individually or in the aggregate, or acceleration prior to maturity of, or
      any
      event or circumstances arising such that, any Person is entitled, or could,
      with
      the giving of notice and/or lapse of time and/or the fulfillment of any
      condition and/or the making of any determination, become entitled, to require
      repayment before its stated maturity of, or to take any step to enforce any
      security for, any mortgage, indenture or instrument under which there may be
      issued or by which there may be secured or evidenced any Indebtedness with
      a
      principal balance of at least $250,000 by the Company or any of its
      Subsidiaries, or for Indebtedness with a principal balance of at least $250,000
      which is guaranteed by the Company or any of its Subsidiaries, whether such
      Indebtedness or guarantee now exists or shall be created hereafter;

     

    (v)           the
      Company or any of its Subsidiaries pursuant to or within the meaning of any
      Bankruptcy Law (as defined below) (A) commences a voluntary case or applies
      for
      a receiving order; (B) consents to the entry of an order for relief against
      it
      in an involuntary case or consents to any involuntary application for a
      receiving order; (C) consents to the appointment of a Custodian of it or any
      of
      its Subsidiaries for all or substantially all of its property; (D) makes a
      general assignment for the benefit of its creditors; or (E) admits in writing
      that it is generally unable to pay its debts as the same become
      due;

     

    (vi)           an
      involuntary case or other proceeding is commenced against the Company or any
      of
      its Subsidiaries seeking liquidation, reorganization or other relief with
      respect to it or its Indebtedness under any Bankruptcy Law now or hereafter
      in
      effect or seeking the appointment of a trustee, receiver, liquidator, custodian
      or other similar official of it or any substantial part of its property, and
      such involuntary case or other Bankruptcy Law proceeding remains undismissed
      and
      unstayed for a period of sixty (60) days, or an order of relief is entered
      against the Company or any of its Subsidiaries as debtor under the Bankruptcy
      Laws as are now or hereafter in effect;

     

    (vii)           the
      Company or any of its Subsidiaries breaches any covenant or other term or
      condition of the Securities Purchase Agreement, the Registration Rights
      Agreement, the Warrant, this Note, the Security Documents, or any of the other
      Transaction Documents and such breach continues beyond any applicable grace
      period;

     

    (viii)    one
      or more
      judgments, non-interlocutory orders or decrees shall be entered by a U.S. state
      or federal or a foreign court or administrative agency of competent jurisdiction
      against the Company or any of its Subsidiaries involving, in the aggregate,
      liability (to the extent not covered by independent third-party insurance for
      which the insurance carrier has acknowledged liability) as to any single or
      related series of transactions, incidents or conditions, of $250,000 or more,
      and the same shall remain unsatisfied, unvacated, unbonded or unstayed pending
      appeal for a period of sixty (60) days after the entry thereof;

    

    
      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

    

    

    (ix)           there
      shall occur a Change of Control;

     

    (x)           any
      representation, warranty, certification or statement made by the Company or
      any
      of its Subsidiaries in the Securities Purchase Agreement, the Registration
      Rights Agreement, the Warrant, this Note, the Security Documents or any other
      Transaction Documents or in any certificate, financial statement or other
      document delivered pursuant to any such Transaction Document is incorrect in
      any
      material respect when made (or deemed made);

     

    (xi)           any
      Lien created by any of the Security Documents shall at any time fail to
      constitute a valid and perfected Lien on any material portion of the collateral
      purported to be secured thereby, subject to no prior or equal Lien except
      Permitted Liens, or the Company or any of its Subsidiaries shall so
      assert,

     

    (xii)           the
      Company fails to file, or is determined to have failed to file any Periodic
      Report or Current Report  when required to be filed with the
      SEC;

     

    (xiii)    the
      Common
      Stock is not traded on the OTC Bulletin Board or listed on a national securities
      exchange, or if the Common Stock has been listed on a national securities
      exchange, the trading of the Common Stock on such exchange or market is
      terminated or suspended for a period of five consecutive Trading Days or for
      more than an aggregate of 20 Trading Days in any 365-day period;

     

    (xiv)    the
      Company’s
      or the Transfer Agent’s notice to any holder of this Note, including by way of
      public announcement, at any time, of its intention not to comply with a request
      for conversion of this Note into Shares that is tendered in accordance with
      the
      provisions of this Note (excluding, however, a notice that relates solely to
      a
      bona fide dispute that is subject to and being resolved pursuant to, and in
      compliance with the time periods and other provisions of the dispute resolution
      provisions of Section 4(c)(iii), provided neither such dispute nor such notice
      is publicly disclosed);

     

    (xv)    there
      shall
      occur a Conversion Failure;

     

    (xvi)    upon
      the
      Company’s receipt or deemed receipt of a Conversion Notice, the Company not
      being obligated to issue Shares upon such conversion due to the provisions
      of
      Section 4;

     

    (xvii)    the
      Company
      or any of its Subsidiaries breaches any representation, warranty, covenant
      or
      other term or condition of the Securities Purchase Agreement, the Registration
      Rights Agreement, the Warrant, this Note, the Security Documents or any other
      agreement, document, certificate or other instrument delivered in connection
      with the transactions contemplated thereby and hereby, and except, in the case
      of a breach of a covenant or other term that is curable, only if such breach
      continues for a period of at least 20 days or such other cure period as may
      be
      provided therein; or

    

    
      
        
          
          

        

        
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    The
      term
“Bankruptcy Law” means Title 11, U.S. Code, or any similar U.S.
      federal or state law or law of any applicable foreign government or political
      subdivision thereof for the relief of debtors.  The term
“Custodian” means any receiver, trustee, assignee, liquidator
      or similar official under any Bankruptcy Law.

     

    (b)           Remedies.  Within
      three (3) Business Days after the occurrence of an Event of Default, the Company
      shall deliver written notice thereof via facsimile and overnight courier
      (“Notice of Event of Default”) to the Holder. During the
      continuation of an Event of Default, at the Holder’s option, interest shall
      accrue at the lesser of (i) the maximum rate of interest allowed by applicable
      law and (ii) the rate 18% per annum (prorated for partial months), based on
      actual days elapsed and a 365 day year, until such Event of Default shall have
      been cured or waived in writing.  If an Event of Default occurs and is
      continuing, the Holder shall have the right, at the Holder’s option by delivery
      of written notice (“Notice of Redemption on Event of Default”)
      to the Company, to require the Company to redeem all or a portion of the
      Principal at a price (“Redemption Price”) equal to the greater
      of (i) the sum of (x) 125% of such Principal plus (y) all accrued and unpaid
      Interest with respect to such Principal and (ii) the product of (A) the
      Conversion Rate in effect at such time as the Holder delivers a Notice of
      Redemption at Option of Holder (as defined below), multiplied by (B) the
      Weighted Average Price of the Common Stock on the Trading Day immediately
      preceding such Event of Default; provided, however, that in the case of an
      Event
      of Default arising from events described in clauses (v) and (vi) of Section
      9(a)
      above, all amounts due hereunder shall immediately become due and payable
      without further action or notice.  Nothing in this Section 9 shall
      limit any other rights the Holder may have under this Note, the Security
      Documents or the other Transaction Documents.

     

    (c)           Void
      Optional Redemption.  In the event that the Company does not pay
      the Redemption Price within five Business Days of receipt of a Notice of
      Redemption on Event of Default, at any time thereafter and until the Company
      pays such unpaid Redemption Price in full, the Holder shall have the option
      to,
      in lieu of redemption, require the Company to promptly return this Note (to
      the
      extent this Note has been previously delivered to the Company), in whole or
      any
      portion thereof, to the Holder, by sending written notice thereof to the Company
      via facsimile (the “Void Optional Redemption
      Notice”).  Upon the Company’s receipt of such Void Optional
      Redemption Notice, (i) the acceleration pursuant to Section 9(b) shall be
      null and void with respect to the portion of this Note subject to such Void
      Optional Redemption Notice, (ii) the Company shall promptly return the portion
      of this Note (to the extent this Note has been previously delivered to the
      Company) subject to such Void Optional Redemption Notice, and (iii) the
      Conversion Price with respect to all of the Principal shall be adjusted to
      the
      lesser of (A) the Conversion Price as in effect on the date on which the Void
      Optional Redemption Notice is delivered to the Company and (B) the lowest
      Weighted Average Price of the Common Stock during the period beginning on and
      including the date on which this Note became due under Section 9(b) and ending
      on and including the date on which the Void Optional Redemption Notice is
      delivered to the Company.

    

    
      
        
          
          

        

        
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    (10)           Change
      in the Terms of the Note.  The written consent of the Company and
      the Holder shall be required in order to effect any amendment, waiver or other
      modification of this Note.

     

    (11)           Lost
      or Stolen Note.  Upon receipt by the Company of evidence
      reasonably satisfactory to the Company of the loss, theft, destruction or
      mutilation of this Note, and, in the case of loss, theft or destruction, of
      an
      indemnification undertaking by the Holder to the Company in customary form
      and
      reasonably satisfactory to the Company and, in the case of mutilation, upon
      surrender and cancellation of this Note, the Company shall execute and deliver
      a
      new Note of like tenor and date; provided, however, the Company shall not be
      obligated to re-issue a Note if the Holder contemporaneously requests the
      Company to convert this Note in its entirety into Shares as permitted
      hereunder.

     

    (12)           Remedies,
      Characterizations, Other Obligations, Breaches and Injunctive
      Relief.  The remedies provided in this Note shall be cumulative
      and in addition to all other remedies available under the Securities Purchase
      Agreement and the other Security Documents, and Transaction Documents, at law
      or
      in equity (including a decree of specific performance and/or other injunctive
      relief), and no remedy contained herein shall be deemed a waiver of compliance
      with the provisions giving rise to such remedy, and nothing herein shall limit
      the Holder’s right to pursue actual damages for any failure by the Company to
      comply with the terms of this Note.  The Company covenants to the
      Holder that there shall be no characterization concerning this instrument other
      than as expressly provided herein.  Amounts set forth or provided for
      herein with respect to payments, conversion and the like (and the computation
      thereof) shall be the amounts to be received by the Holder and shall not, except
      as expressly provided herein, be subject to any other obligation of the Company
      (or the performance thereof).  The Company acknowledges that a breach
      by it of its obligations hereunder will cause irreparable harm to the Holder
      and
      that the remedy at law for any such breach may be inadequate.  The
      Company therefore agrees that, in the event of any such breach or threatened
      breach, the Holder shall be entitled, in addition to all other available
      remedies, to an injunction restraining any breach, without the necessity of
      showing economic loss and without any bond or other security being
      required.

     

    (13)           Specific
      Shall Not Limit General; Construction.  No specific provision
      contained in this Note shall limit or modify any more general provision
      contained herein.  This Note shall be deemed to be jointly drafted by
      the parties to the Securities Purchase Agreement and shall not be construed
      against any Person as the drafter hereof.

     

    (14)           Failure
      or Indulgence Not Waiver.  No failure or delay on the part of the
      Holder in the exercise of any power, right or privilege hereunder shall operate
      as a waiver thereof, nor shall any single or partial exercise of any such power,
      right or privilege preclude other or further exercise thereof or of any other
      right, power or privilege.

    

    
      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

      

    

    

    (15)           Notice.  Whenever
      notice is required to be given under this Note, unless otherwise provided
      herein, such notice shall be given in accordance with Section
      9(f) of the Securities Purchase Agreement.

     

    (16)           Transfer
      of this Note.  The Holder may assign or transfer some or all of
      its rights hereunder, subject to compliance with applicable Securities Laws
      (if
      applicable) and the provisions of the Securities Purchase Agreement without
      the
      consent of the Company.  Notwithstanding anything to the contrary
      contained in this Section 16, each such assignee or transferee, upon becoming
      a
      Holder hereunder, acknowledges that it is bound by the terms and conditions
      of
      Section 5.12 of the Security Agreement and agrees to, promptly upon the request
      of the Collateral Agent, deliver to Collateral Agent a written Joinder to the
      Security Agreement and other Security Documents.

     

    (17)           Payment
      of Collection, Enforcement and Other Costs.  Without limiting the
      provisions of the Securities Purchase Agreement and the other Transaction
      Documents, if (a) this Note is placed in the hands of an attorney for collection
      or enforcement or is collected or enforced through any legal proceeding; or
      (b)
      an attorney is retained to represent the Holder in any bankruptcy,
      reorganization, receivership of the Company or other proceedings affecting
      Company creditors’ rights and involving a claim under this Note, then the
      Company shall pay the costs incurred by the Holder for such collection,
      enforcement or action, including reasonable attorneys’ fees and disbursements of
      outside counsel based on actual time billed at customary rates.

     

    (18)           Cancellation.  After
      all principal and other amounts at any time owed under this Note have been
      paid
      in full or converted into Shares in accordance with the terms hereof, this
      Note
      shall automatically be deemed canceled, shall be surrendered to the Company
      for
      cancellation and shall not be reissued.

     

    (19)           Note
      Exchangeable for Different Denominations.  Subject to
      Section 3(b), in the event of a conversion, a Company Alternative
      Redemption or a mandatory or scheduled payment of less than all of the Principal
      pursuant to the terms hereof, the Company shall, upon the request of Holder
      and
      tender of this Note promptly cause to be issued and delivered to the Holder,
      a
      new Note of like tenor representing the remaining Principal that has not been
      so
      converted or repaid.  This Note is exchangeable, upon the surrender
      hereof by the Holder at the principal office of the Company, for a new Note
      or
      Notes containing the same terms and conditions and representing in the aggregate
      the Principal, and each such new Note will represent such portion of such
      Principal as is designated by the Holder at the time of such
      surrender.  The date the Company initially issued this Note shall be
      the “Issuance Date” hereof regardless of the number of times a new Note shall be
      issued.

     

    (20)           
      [Intentionally Omitted]

     

    (21)           Waiver
      of Notice.  To the extent permitted by law, the Company hereby
      waives demand, notice, protest and all other demands and notices in connection
      with the delivery, acceptance, performance, default or enforcement of this
      Note,
      the Security Documents, the Securities Purchase Agreement and the other
      Transaction Documents.

    

    
      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

      

    

    

    (22)           Governing
      Law.  This Note shall be construed and enforced in accordance
      with, and all questions concerning the construction, validity, interpretation
      and performance of this Note shall be governed by, the internal laws of the
      State of New York, without giving effect to any choice of law or conflict of
      law
      provision or rule (whether of the State of New York or any other country or
      jurisdiction) that would cause the application of the laws of any jurisdiction
      or country other than the State of New York.  Each party hereby
      irrevocably submits to the exclusive jurisdiction of the state and federal
      courts sitting in the City of New York (Borough of Manhattan), New York, for
      the
      adjudication of any dispute hereunder or in connection herewith or with any
      transaction contemplated hereby or discussed herein, and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is brought in an inconvenient forum or that
      the
      venue of such suit, action or proceeding is improper.  Each party
      hereby irrevocably waives personal service of process and consents to process
      being served in any such suit, action or proceeding by mailing a copy thereof
      to
      such party at the address for such notices to it under this Note and agrees
      that
      such service shall constitute good and sufficient service of process and notice
      thereof.  Nothing contained herein shall be deemed to limit in any way
      any right to serve process in any manner permitted by law.  EACH PARTY
      HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST,
      A
      JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
      HEREWITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED
      HEREBY.

     

    (23)           Effect
      of Redemption or Conversion.  Upon payment of the Company
      Alternative Redemption Price in accordance with the terms hereof with respect
      to
      any portion of the Principal of this Note, or delivery of Shares upon conversion
      of any portion of the Principal in accordance with the terms hereof, such
      portion of the Principal of this Note shall be deemed paid in full and shall
      no
      longer be deemed outstanding for any purpose.

     

    (24)           Further
      Assurances.  The Company shall do and perform, or cause to be done
      and performed, all such further acts and things, and shall execute and deliver
      all such other agreements, certificates, instruments and documents, as the
      Holder may reasonably request in order to carry out the intent and accomplish
      the purposes of this Note and the consummation of the transactions contemplated
      hereby.

     

    (25)           Payment
      Set Aside.  To the extent that the Company makes a payment or
      payments to the Holder hereunder or the Holder enforces or exercises its rights
      hereunder, and such payment or payments or the proceeds of such enforcement
      or
      exercise or any part thereof are subsequently invalidated, declared to be
      fraudulent or preferential, set aside, recovered from, disgorged by or are
      required to be refunded, repaid or otherwise restored to the Company, by a
      trustee, receiver or any other person under any law (including any Bankruptcy
      Law, U.S. state or federal law, the laws of any foreign government or any
      political subdivision thereof, common law or equitable cause of action), then
      to
      the extent of any such restoration the obligation or part thereof originally
      intended to be satisfied shall be revived and continued in full force and effect
      as if such payment had not been made or such enforcement or setoff had not
      occurred.

     

    (26)           Interpretative
      Matters.  Unless the context otherwise requires, (a) all
      references to Sections, Schedules or Exhibits are to Sections, Schedules or
      Exhibits contained in or attached to this Note, (b) words in the singular or
      plural include the singular and plural and pronouns stated in either the
      masculine, the feminine or neuter gender shall include the masculine, feminine
      and neuter and (d) the use of the word “including” in this Note shall be by way
      of example rather than limitation.

    

    
      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      

    

    

    (27)           Signatures.  In
      the event that any signature to this Note or any amendment hereto is delivered
      by facsimile transmission or by e-mail delivery of a “.pdf” format data file,
      such signature shall create a valid and binding obligation of the party
      executing (or on whose behalf such signature is executed) with the same force
      and effect as if such facsimile or “.pdf” signature page were an original
      thereof.  Notwithstanding the foregoing, the Company shall be required
      to deliver an originally executed Note to the Holder.  At the request
      of any party each other party shall promptly re-execute an original form of
      this
      Note or any amendment hereto and deliver the same to the other
      party.  No party hereto shall raise the use of a facsimile machine or
      e-mail delivery of a “.pdf” format data file to deliver a signature to this Note
      or any amendment hereto or the fact that such signature was transmitted or
      communicated through the use of a facsimile machine or e-mail delivery of a
      “.pdf” format data file as a defense to the formation or enforceability of a
      contract and each party hereto forever waives any such defense.

     

    (28)           Replacement
      of Prior Agreement.  This Note, the other Transaction Documents
      and the transactions consummated hereby and thereby are issued, executed and
      delivered as, and hereby shall constitute and be deemed to be, a replacement
      for, and an increase of (and not a novation of or an accord and satisfaction
      of), that certain financing transaction consummated by the Company with NCIM
      Capital Limited pursuant to that certain Convertible Secured Note Terms and
      Conditions Dated on or about July 3, 2007, between NCIM Capital Limited and
      the
      Company (as amended, collectively, the “Prior Agreement”) pertaining to a
      certain US$500,000 loan convertible into common stock of the Company pursuant
      to
      the terms of such Prior Agreement.  All agreements pertaining to the
      Prior Agreement are hereby amended and restated in their entirety in this Note
      and the other Transaction Documents.

     

    [
      Remainder of Page Intentionally Left Blank; Signature Page Follows
      ]

    

    
      
        
          
          

        

        
          32

          
            

          

        

        
          
          

        

      

    

    

    IN
      WITNESS WHEREOF, the Company has caused this Note to be executed on its
      behalf by the undersigned as of the year and date first above
      written.

    

     

    
      	 	
              GULF
                WESTERN PETROLEUM CORPORATION

            
	 	 	 	 
	 	
              By:

            	
              /s/
                Donald L. Sytsma

            	 
	 	
              Name:

            	
              Donald
                L. Sytsma

            	 
	 	
              Title:

            	
              CFO

            	 

    

     

     

    Signature
      Page to NCIM Promissory Note

    

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    EXHIBIT
      A

    GULF
      WESTERN PETROLEUM CORPORATION

    CONVERSION
      NOTICE

    

    Reference
      is made to the Senior Secured Convertible Note (the “Note”) of
GULF WESTERN PETROLEUM CORPORATION, a Nevada corporation (the
“Company”), in the original principal
      amount of
      $500,000.  In accordance with and pursuant to the Note, the
      undersigned hereby elects to convert the Conversion Amount (as defined in the
      Note) of the Note indicated below into Shares of Common Stock, par value $0.001
      per share (the “Common Stock”), of the Company, as of the date
      specified below.

     

    Date
      of
      Conversion:__________

     

    Aggregate
      Conversion Amount to be converted :________________________

     

    Principal,
      applicable thereto, to be
      converted:___________________________

     

    Please
      confirm the number of shares of Common Stock to be
      issued:______________________________

     

    Please
      issue the Common Stock into which the Note is being converted in the following
      name and to the following address:

     

    Issue
      to:____________________________________________________________

     

    Facsimile
      Number:____________________________________________________

     

    Authorization:_________________________

     

    By:___________________________

     

    Title:__________________________

     

    Dated:_______________________________

     

    DTC
      Participant Number and Name (if electronic book entry
      transfer):_____________

     

    Account
      Number  (if electronic book entry
      transfer):___________________________

    

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    ACKNOWLEDGMENT

     

    The
      Company hereby acknowledges this Conversion Notice and hereby directs Nevada
      Agency and Trust Company to issue the above indicated number of shares of Common
      Stock in accordance with the Transfer Agent Instructions dated _____________
      ___, 200__ from the Company and acknowledged and agreed to by Nevada Agency
      and
      Trust Company.

    

     

    
      	 	
              GULF
                WESTERN PETROLEUM CORPORATION

            
	 	 	 	 
	 	
              By:

            	 	 
	 	
              Name:

            	 	 
	 	
              Title:Unassociated Document

    
      

    

    Exhibit
      10.5

     

    SECURITY
      AGREEMENT

     

    THIS
      SECURITY AGREEMENT (as amended, restated, supplemented or otherwise modified
      from time to time, this “Agreement”) dated as of September 10,
      2007 among GULF WESTERN PETROLEUM CORPORATION, a Nevada
      corporation (the “Company”), GULF WESTERN PETROLEUM
      LP, a Texas limited partnership (“Gulf Western”),
WHARTON RESOURCES LLC, a Delaware limited liability
      company
      (“Wharton GP”), WHARTON RESOURCES CORP., a
      Delaware corporation (“Wharton LP”, together with Company, Gulf
      Western, Wharton GP and each other Person who becomes a party to this Agreement
      by execution of a joinder in the form of Exhibit A attached hereto, is
      hereinafter sometimes referred to individually as a “Debtor”
and, collectively, as the “Debtors”), and METAGE FUNDS LIMITED,
      in its  capacity as Collateral Agent (as set forth in Section 5.12
      hereof, together with its successors and assigns in such capacity, the
“Secured Party”) for the benefit of itself and each of the
      Buyers (as hereinafter defined).

     

    W
      I T N E
      S S E T H:

     

    WHEREAS,
      on the date hereof, Metage
      Funds Limited and NCIM Limited (together with their successors and assigns
      and
      each other holder of a Note (as defined below) and their respective successors
      and assigns, individually and collectively, the “Buyers”)
      have made loans and certain other financial accommodations to the Company,
      as
      evidenced by those certain senior secured convertible notes in an original
      aggregate principal amount of $3,700,000 (such notes,
      together with any promissory notes or other securities issued in exchange or
      substitution therefor or replacement thereof, and as any of the same may be
      amended, supplemented, restated or modified and in effect from time to time,
      the
“Notes”);

     

    WHEREAS,
      the Notes are being acquired
      by Buyers and Buyers have made certain financial accommodations to the Company
      pursuant to a Securities Purchase Agreement of even date herewith among the
      Company and the Buyers (as the same may be amended, restated, supplemented
      or
      otherwise modified from time to time, the “Purchase
      Agreement”);

    

    WHEREAS,
      each Debtor (other than the Company) from time to time party hereto is a direct
      or indirect subsidiary of the Company and, as such, will derive substantial
      benefit and advantage from the financial accommodations to the Company set
      forth
      in the Purchase Agreement and the Notes, and it will be to each such Debtor’s
      direct interest and economic benefit to assist the Company in procuring said
      financial accommodations from Buyers; and

     

    WHEREAS,
      to induce the Buyers to enter into the Purchase Agreement and purchase the
      Notes, (i) each Debtor (other than the Company) has agreed to guaranty the
      Liabilities (as hereinafter defined) of the Company pursuant to the terms of
      a
      guaranty (such guaranty(ies), as they may be amended, restated, modified or
      supplemented and in effect from time to time, individually and collectively,
      the
“Guaranty”) by each such Debtor in favor of Secured Party (on
      its behalf and on behalf of the Buyers) and (ii) each Debtor has agreed to
      pledge and grant a security interest in all of its right, title and interest
      in
      and to the Collateral (as hereinafter defined) as security for its Liabilities
      for the benefit of the Secured Party, and the Buyers.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    NOW,
      THEREFORE, in consideration of the foregoing and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereto agree as follows:

     

    Section
      1.  Definitions.  Capitalized terms used herein
      without definition and defined in the Purchase Agreement are used herein as
      defined therein.  In addition, as used herein:

     

    “Accounts”
      means any “account,” as such term is defined in the Uniform Commercial Code,
      and, in any event, shall include, without limitation, “supporting obligations”
as defined in the Uniform Commercial Code.

     

    “As-extracted
      Collateral” means any “as-extracted collateral,” as such term is
      defined in the Uniform Commercial Code.

     

    “Chattel
      Paper” means any “chattel paper,” as such term is defined in the
      Uniform Commercial Code.

     

    “Collateral”
      shall have the meaning ascribed thereto in Section 3 hereof.

     

    “Commercial
      Tort Claims” means “commercial tort claims”, as such term is defined in
      the Uniform Commercial Code.

     

    “Contracts”
      means all contracts, undertakings, or other agreements (other than rights
      evidenced by Chattel Paper, Documents or Instruments) in or under which a Debtor
      may now or hereafter have any right, title or interest, including, without
      limitation, with respect to an Account, any agreement relating to the terms
      of
      payment or the terms of performance thereof.

     

    “Copyrights”
      means any copyrights, rights and interests in copyrights, works protectable
      by
      copyrights, copyright registrations and copyright applications, including,
      without limitation, the copyright registrations and applications listed on
      Schedule III attached hereto (if any), and all renewals of any of the
      foregoing, all income, royalties, damages and payments now and hereafter due
      and/or payable under or with respect to any of the foregoing, including, without
      limitation, damages and payments for past, present and future infringements
      of
      any of the foregoing and the right to sue for past, present and future
      infringements of any of the foregoing.

     

    “Deposit
      Accounts” means all “deposit accounts” as such term is defined in the
      Uniform Commercial Code, now or hereafter held in the name of a
      Debtor.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Documents”
      means any “documents,” as such term is defined in the Uniform Commercial Code,
      and shall include, without limitation, all documents of title (as defined in
      the
      Uniform Commercial Code), bills of lading or other receipts evidencing or
      representing Inventory or Equipment.

     

    “Equipment”
      means any “equipment,” as such term is defined in the Uniform Commercial Code
      and, in any event, shall include, Motor Vehicles.

     

    “Event
      of Default” shall have the meaning set forth in the Notes.

     

     “General
      Intangibles” means any “general intangibles,” as such term is defined
      in the Uniform Commercial Code, and, in any event, shall include, without
      limitation, all right, title and interest in or under any Contract, models,
      drawings, materials and records, claims, literary rights, goodwill, rights
      of
      performance, Copyrights, Trademarks, Patents, warranties, rights under insurance
      policies and rights of indemnification.

     

    “Goods”
      means any “goods”, as such term is defined in the Uniform Commercial Code,
      including, without limitation, fixtures and embedded Software to the extent
      included in “goods” as defined in the Uniform Commercial Code.

     

    “Governmental
      Authority” means the government of the United States of America or any
      other nation, or any political subdivision thereof, whether state or local,
      or
      any agency, authority, instrumentality, regulatory body, court, central bank
      or
      other entity exercising executive, legislative, judicial, taxing, regulatory
      or
      administration powers or functions of or pertaining to government over any
      Debtor or any of its Subsidiaries, or any of their respective properties, assets
      or undertakings.

     

    “Instruments”
      means any “instrument,” as such term is defined in the Uniform Commercial Code,
      and shall include, without limitation, promissory notes, drafts, bills of
      exchange, trade acceptances, letters of credit, letter of credit rights (as
      defined in the Uniform Commercial Code), and Chattel Paper.

     

    “Inventory”
      means any “inventory,” as such term is defined in the Uniform Commercial
      Code.

     

    “Investment
      Property” means any “investment property”, as such term is defined in
      the Uniform Commercial Code.

     

    “Liabilities”
      shall mean all obligations, liabilities and indebtedness of every nature of
      Debtors from time to time owed or owing under or in respect of this Agreement,
      the Purchase Agreement, the Notes, the Warrants, the Registration Rights
      Agreement, the Guaranty, any of the other Security Documents and any of the
      other Transaction Documents, as the case may be, including, without limitation,
      the principal amount of all debts, claims and indebtedness, accrued and unpaid
      interest and all fees, costs and expenses, whether primary, secondary, direct,
      contingent, fixed or otherwise, heretofore, now and/or from time to time
      hereafter owing, due or payable whether before or after the filing of a
      bankruptcy, insolvency or similar proceeding under applicable federal, state,
      foreign or other law and whether or not an allowed claim in any such
      proceeding.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Lien”
      shall have the meaning set forth in the Purchase Agreement.

     

    “Motor
      Vehicles” shall mean motor vehicles, tractors, trailers and other like
      property, whether or not the title thereto is governed by a certificate of
      title.

     

    “Patents”
      means any patents and patent applications, including, without limitation, the
      inventions and improvements described and claimed therein, all patentable
      inventions and those patents and patent applications listed on
Schedule IV attached hereto (if any), and the reissues, divisions,
      continuations, renewals, extensions and continuations-in-part of any of the
      foregoing, and all income, royalties, damages and payments now or hereafter
      due
      and/or payable under or with respect to any of the foregoing, including, without
      limitation, damages and payments for past, present and future infringements
      of
      any of the foregoing and the right to sue for past, present and future
      infringements of any of the foregoing.

     

    “Permitted
      Lien” shall have the meaning set forth in the Purchase
      Agreement.

     

    “Proceeds”
      means “proceeds,” as such term is defined in the Uniform Commercial Code and, in
      any event, includes, without limitation, (a) any and all proceeds of any
      insurance, indemnity, warranty or guaranty payable with respect to any of the
      Collateral, (b) any and all payments (in any form whatsoever) made or due and
      payable from time to time in connection with any requisition, confiscation,
      condemnation, seizure or forfeiture of all or any part of the Collateral by
      any
      governmental body, authority, bureau or agency (or any person acting under
      color
      of governmental authority), and (c) any and all other amounts from time to
      time
      paid or payable under, in respect of or in connection with any of the
      Collateral.

     

    “Representative”
      means any Person acting as agent, representative or trustee on behalf of the
      Secured Party from time to time.

     

    “Requisite
      Buyers” means buyers having more than 66.67% of the sum of the
      aggregate outstanding principal balance of the Notes.

     

    “Software”
      means all “software” as such term is defined in the Uniform Commercial Code, now
      owned or hereafter acquired by a Debtor, other than software embedded in any
      category of Goods, including, without limitation, all computer programs and
      all
      supporting information provided in connection with a transaction related to
      any
      program.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Trademarks”
      means any trademarks, trade names, corporate names, company names, business
      names, fictitious business names, trade styles, service marks, logos, other
      business identifiers, prints and labels on which any of the foregoing have
      appeared or appear, all registrations and recordings thereof, and all
      applications in connection therewith, including, without limitation, the
      trademarks and applications listed in Schedule V attached hereto (if any)
      and renewals thereof, and all income, royalties, damages and payments now or
      hereafter due and/or payable under or with respect to any of the foregoing,
      including, without limitation, damages and payments for past, present and future
      infringements of any of the foregoing and the right to sue for past, present
      and
      future infringements of any of the foregoing.

     

    “Uniform
      Commercial Code” shall mean the Uniform Commercial Code as in effect
      from time to time in the State of Texas; provided, that to the extent that
      the
      Uniform Commercial Code is used to define any term herein and such term is
      defined differently in different Articles or Divisions of the Uniform Commercial
      Code, the definition of such term contained in Article or Division 9 shall
      govern.

     

    Section
      2.  Representations, Warranties and Covenants of
      Debtors.  Each Debtor represents and warrants to, and covenants
      with, the Secured Party as follows:

     

    (a)           Such
      Debtor has rights in and the power to transfer the Collateral in which it
      purports to grant a security interest pursuant to Section 3 hereof
      (subject, with respect to after acquired Collateral, to such Debtor acquiring
      the same) and no Lien other than Permitted Liens exists or will exist upon
      such
      Collateral at any time.

     

    (b)           This
      Agreement is effective to create in favor of Secured Party a valid security
      interest in and Lien upon all of such Debtor’s right, title and interest in and
      to the Collateral, and upon (i) the filing of appropriate Uniform Commercial
      Code financing statements in the jurisdictions listed on Schedule I
      attached hereto, and (ii) each Deposit Account being subject to an Account
      Control Agreement (as hereinafter defined) between the applicable Debtor and
      depository institution and the Secured Party on behalf of the Buyers, such
      security interest will be a duly perfected first priority security interest
      in
      all of the Collateral (other than Instruments not constituting Chattel Paper),
      and upon delivery of the Instruments to the Secured Party or its Representative,
      duly endorsed by such Debtor or accompanied by appropriate instruments of
      transfer duly executed by such Debtor, the security interest in the Instruments
      will be duly perfected.

     

    (c)           All
      of the Equipment, Inventory and Goods owned by such Debtor is located at the
      places as specified on Schedule I attached hereto.  Except as
      disclosed on Schedule I, none of the Collateral is in the possession of
      any bailee, warehousemen, processor or consignee.  Schedule I
      discloses such Debtor’s name as of the date hereof as it appears in official
      filings in the state or province, as applicable, of its incorporation, formation
      or organization, the type of entity of such Debtor (including corporation,
      partnership, limited partnership or limited liability company), organizational
      identification number issued by such Debtor’s state of incorporation, formation
      or organization (or a statement that no such number has been issued), such
      Debtor’s state or province, as applicable, of incorporation, formation or
      organization and the chief place of business, chief executive office and the
      office where such Debtor keeps its books and records and the states in which
      such Debtor conducts its business.  Such Debtor has only one state or
      province, as applicable, of incorporation, formation or organization. Such
      Debtor does not do business and has not done business during the past five
      (5)
      years under any trade name or fictitious business name except as disclosed
      on
Schedule II attached hereto.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (d)           No
      Copyrights, Patents or Trademarks listed on Schedules III, IV and V,
      respectively, if any, have been adjudged invalid or unenforceable or have been
      canceled, in whole or in part, or are not presently subsisting.  Each
      of such Copyrights, Patents and Trademarks (if any) is valid and
      enforceable.  Such Debtor is the sole and exclusive owner of the
      entire and unencumbered right, title and interest in and to each of such
      Copyrights, Patents and Trademarks, identified on Schedules III, IV and
      V, as applicable, as being owned by such Debtor, free and clear of any
      liens, charges and encumbrances, including without limitation licenses, shop
      rights and covenants by such Debtor not to sue third persons.  Such
      Debtor has adopted, used and is currently using, or has a current bona fide
      intention to use, all of such Trademarks and Copyrights.  Such Debtor
      has no notice of any suits or actions commenced or threatened in writing with
      reference to the Copyrights, Patents or Trademarks owned by it.

     

    (e)           Each
      Debtor agrees to deliver to the Secured Party an updated Schedule I, II, III,
      IV and/or V within ten (10) Business Days of any change thereto, and such
      updates shall be deemed to be a part of such Schedules for purposes of this
      Agreement.

     

    (f)           All
      depositary and other accounts including, without limitation, Deposit Accounts,
      securities accounts, brokerage accounts and other similar accounts, maintained
      by each Debtor are described on Schedule VI hereto, which description
      includes for each such account the name of the Debtor maintaining such account,
      the name, address and telephone and telecopy numbers of the financial
      institution at which such account is maintained, the account number and the
      account officer, if any, of such account.  No Debtor shall open any
      new Deposit Accounts, securities accounts, brokerage accounts or other accounts
      that will hold in excess of $10,000 at any time, unless such Debtor shall have
      given Secured Party ten (10) Business Days’ prior written notice of its
      intention to open any such new accounts.  Each Debtor shall deliver to
      Secured Party a revised version of Schedule VI showing any changes
      thereto within ten (10) Business Days of any such change and such updates shall
      be deemed to be a part of such Schedules for purposes of this
      Agreement.  Each Debtor hereby authorizes the financial institutions
      at which such Debtor maintains an account to provide Secured Party with such
      information with respect to such account as Secured Party from time to time
      reasonably may request, and each Debtor hereby consents to such information
      being provided to Secured Party.  In addition, all of such Debtor’s
      depositary, security, brokerage and other accounts including, without
      limitation, Deposit Accounts, in each case that holds in excess of $10,000
      at
      any time, shall be subject to the provisions of Section 4.5
      hereof.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (g)           Such
      Debtor does not own any Commercial Tort Claim except for those disclosed on
      Schedule VII hereto (if any).  Need to able to
      update.

     

    (h)           Such
      Debtor does not have any interest in real property or mining rights with respect
      to real property except as disclosed on Schedule VIII (if
      any).  Each Debtor shall deliver to Secured Party a revised version of
Schedule VIII showing any changes thereto within ten (10) Business Days
      of any such change.  Except as otherwise agreed to by Secured Party,
      all such interests in real property or mining rights with respect to such real
      property are subject to a mortgage, deed of trust and assignment of production
      proceeds (in form and substance satisfactory to Secured Party) in favor of
      Secured Party (hereinafter, a “Mortgage”).

     

    (i)           Each
      Debtor shall duly and properly record each interest in real property held
      by such Debtor except with respect to easements, rights of way, access
      agreements, surface damage agreements, surface use agreements or similar
      agreements that such Debtor, using prudent customs and practices in the
      industry in which it operates, does not believe are of material value or
      material to the operation of such Debtor's business or, with respect to
      state and federal rights of way, are not capable of being recorded as a matter
      of state and federal law.

    

    (j)           All
      Equipment (including, without limitation, Motor Vehicles) owned by a Debtor
      and
      subject to a certificate of title or ownership statute is described on
Schedule IX hereto.  Need the ability to update.

    

    Section
      3.  Collateral.  As collateral security for the
      prompt payment in full when due (whether at stated maturity, by acceleration
      or
      otherwise) of the Liabilities, each Debtor hereby pledges and grants to the
      Secured Party, for the benefit of itself and the Buyers, a Lien on and security
      interest in and to all of such Debtor’s right, title and interest in the
      personal property and assets of such Debtor, whether now owned by such Debtor
      or
      hereafter acquired and whether now existing or hereafter coming into existence
      and wherever located (all being collectively referred to herein as
“Collateral”), including, without limitation:

     

    (a)           all
      Instruments, together with all payments thereon or thereunder:

     

    (b)           all
      Accounts;

     

    (c)           all
      Inventory;

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (d)           all
      General Intangibles (including payment intangibles (as defined in the Uniform
      Commercial Code) and Software);

     

    (e)           all
      Equipment;

     

    (f)           all
      Documents;

     

    (g)           all
      Contracts;

     

    (h)           all
      Goods;

     

    (i)           all
      Investment Property;

     

    (j)           all
      Deposit Accounts, including, without limitation, the balance from time to time
      in all bank accounts maintained by such Debtor;

     

    (k)           all
      Commercial Tort Claims specified on Schedule VII;

     

    (l)           all
      As-extracted Collateral;

     

    (m)           all
      Trademarks, Patents and Copyrights; and

     

    (n)           all
      other tangible and intangible property of such Debtor, including, without
      limitation, Proceeds, products, accessions, rents, profits, income, benefits,
      substitutions, additions and replacements of and to any of the property of
      such
      Debtor described in the preceding clauses of this Section 3 (including,
      without limitation, any proceeds of insurance thereon, insurance claims and
      all
      rights, claims and benefits against any Person relating thereto), other rights
      to payments not otherwise included in the foregoing, and all books,
      correspondence, files, records, invoices and other papers, including without
      limitation all tapes, cards, computer runs, computer programs, computer files
      and other papers, documents and records in the possession or under the control
      of such Debtor, any computer bureau or service company from time to time acting
      for such Debtor.

     

    Section
      4.  Covenants; Remedies.  In furtherance of the grant
      of the pledge and security interest pursuant to Section 3 hereof, each
      Debtor hereby agrees with the Secured Party as follows:

     

    4.1.  Delivery
      and Other Perfection; Maintenance, etc.

     

    (a)           Delivery
      of Instruments, Documents, Etc.  Each Debtor shall deliver and
      pledge to the Secured Party or its Representative any and all Instruments,
      negotiable Documents, Chattel Paper and certificated securities (accompanied
      by
      stock powers executed in blank) duly endorsed and/or accompanied by such
      instruments of assignment and transfer executed by such Debtor in such form
      and
      substance as the Secured Party or its Representative may request;
provided, that so long as no Event of Default shall have occurred and be
      continuing, each Debtor may retain for collection in the ordinary course of
      business any Instruments, negotiable Documents and Chattel Paper received by
      such Debtor in the ordinary course of business, and the Secured Party or its
      Representative shall, promptly upon request of a Debtor, make appropriate
      arrangements for making any other Instruments, negotiable Documents and Chattel
      Paper pledged by such Debtor available to such Debtor for purposes of
      presentation, collection or renewal (any such arrangement to be effected, to
      the
      extent deemed appropriate by the Secured Party or its Representative, against
      trust receipt or like document).

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b)           Other
      Documents and Actions.  Each Debtor shall give, execute, deliver,
      file and/or record any financing statement, notice, instrument, document,
      agreement, Mortgage or other papers that may be necessary or desirable (in
      the
      reasonable judgment of the Secured Party or its Representative) to create,
      preserve, perfect or validate the security interest granted pursuant hereto
      (or
      any security interest or mortgage contemplated or required hereunder, including
      with respect to Section 2(h) of this Agreement) or to enable the Secured
      Party or its Representative to exercise and enforce the rights of the Secured
      Party hereunder with respect to such pledge and security interest,
provided that notices to account debtors in respect of any Accounts or
      Instruments shall be subject to the provisions of clause (e)
      below.  Notwithstanding the foregoing each Debtor hereby irrevocably
      authorizes the Secured Party at any time and from time to time to file in any
      filing office in any jurisdiction any initial financing statements and
      amendments thereto that (a) indicate the Collateral (i) as all assets of such
      Debtor or words of similar effect, regardless of whether any particular asset
      comprised in the Collateral falls within the scope of Article 9 of the Uniform
      Commercial Code or such jurisdiction, or (ii) as being of an equal or lesser
      scope or with greater detail, and (b) contain any other information required
      by
      part 5 of Article 9 of the Uniform Commercial Code or any other State for the
      sufficiency or filing office acceptance of any financing statement or amendment,
      including (i) whether such Debtor is an organization, the type of organization
      and any organization identification number issued to such Debtor, and (ii)
      in
      the case of a financing statement filed as a fixture filing or indicating
      Collateral as As-extracted Collateral or timber to be cut, a sufficient
      description of real property to which the Collateral relates.  Each
      Debtor agrees to furnish any such information to the Secured Party promptly
      upon
      request.  Each Debtor also ratifies its authorization for the Secured
      Party to have filed in any jurisdiction any like initial financing statements
      or
      amendments thereto if filed prior to the date hereof.

     

    (c)           Books
      and Records.  Each Debtor (or the Company on behalf of a Debtor)
      shall maintain at its own cost and expense complete and accurate books and
      records of the Collateral, including, without limitation, a record of all
      payments received and all credits granted with respect to the Collateral and
      all
      other dealings with the Collateral.  Upon the occurrence and during
      the continuation of any Event of Default, each Debtor shall deliver and turn
      over any such books and records (or true and correct copies thereof) to the
      Secured Party or its Representative at any time on demand.  Each
      Debtor shall permit any Representative of the Secured Party to inspect such
      books and records at any time during reasonable business hours and will provide
      photocopies thereof at such Debtor’s expense to the Secured Party upon request
      of the Secured Party.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (d)           Motor
      Vehicles.  Each Debtor shall, promptly upon acquiring same, cause
      the Secured Party to be listed as the lienholder on each certificate of title
      or
      ownership covering any items of Equipment, including Motor Vehicles, having
      a
      value in excess of $100,000 in the aggregate for all such items of Equipment
      of
      the Debtor, or otherwise comply with the certificate of title or ownership
      laws
      of the relevant jurisdiction issuing such certificate of title or ownership in
      order to properly evidence and perfect Secured Party’s security interest in the
      assets represented by such certificate of title or ownership.

     

    (e)           Notice
      to Account Debtors; Verification.  (i) Upon the occurrence and
      during the continuance of any Event of Default (or if any rights of set-off
      (other than set-offs against an Account arising under the Contract giving rise
      to the same Account) or contra accounts may be asserted), upon request of the
      Secured Party or its Representative, each Debtor shall promptly notify (and
      each
      Debtor hereby authorizes the Secured Party and its Representative so to notify)
      each account debtor in respect of any Accounts or Instruments or other Persons
      obligated on the Collateral that such Collateral has been assigned to the
      Secured Party hereunder, and that any payments due or to become due in respect
      of such Collateral are to be made directly to the Secured Party, and (ii) when
      an Event of Default exists, the Secured Party and its Representative shall
      have
      the right at any time or times to make direct verification with the account
      debtors or other Persons obligated on the Collateral of any and all of the
      Accounts or other such Collateral.

     

    (f)           Intellectual
      Property.  Each Debtor represents and warrants that the
      Copyrights, Patents and Trademarks listed on Schedules III, IV and V,
      respectively (if any), constitute all of the registered Copyrights and all
      of
      the Patents and Trademarks now owned by such Debtor.  If such Debtor
      shall (i) obtain rights to any new patentable inventions, any registered
      Copyrights or any Patents or Trademarks, or (ii) become entitled to the benefit
      of any registered Copyrights or any Patents or Trademarks or any improvement
      on
      any Patent, the provisions of this Agreement above shall automatically apply
      thereto and such Debtor shall give to Secured Party prompt written notice
      thereof.  Each Debtor hereby authorizes Secured Party to modify this
      Agreement by amending Schedules III, IV and V, as applicable, to include
      any such registered Copyrights or any such Patents and
      Trademarks.  Each Debtor shall have the duty (i) to prosecute
      diligently any patent, trademark, or service mark applications pending as of
      the
      date hereof or hereafter, (ii) to make application on unpatented but patentable
      inventions and on trademarks, copyrights and service marks, as appropriate,
      (iii) to preserve and maintain all rights in the Copyrights, Patents and
      Trademarks, to the extent material to the operations of the business of such
      Debtor and (iv) to ensure that the Copyrights, Patents and Trademarks are and
      remain enforceable, to the extent material to the operations of the business
      of
      such Debtor.  Any expenses incurred in connection with such Debtor’s
      obligations under this Section 4.1(f) shall be borne by such
      Debtor.  Except for any such items that a Debtor reasonably believes
      (using prudent industry customs and practices) are no longer necessary for
      the
      on-going operations of its business, no Debtor shall abandon any right to file
      a
      patent, trademark or service mark application, or abandon any pending patent,
      trademark or service mark application or any other Copyright, Patent or
      Trademark without the written consent of Secured Party, which consent shall
      not
      be unreasonably withheld, conditioned or delayed.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (g)           Further
      Identification of Collateral.  Each Debtor will, when and as often
      as reasonably requested by the Secured Party or its Representative, furnish
      to
      the Secured Party or such Representative, statements and schedules further
      identifying and describing the Collateral and such other reports in connection
      with the Collateral as the Secured Party or its Representative may reasonably
      request, all in reasonable detail.

     

    (h)           Investment
      Property.  Each Debtor will take any and all actions required or
      requested by the Secured Party, from time to time, to (i) cause the Secured
      Party to obtain exclusive control of any Investment Property owned by such
      Debtor in a manner acceptable to the Secured Party and (ii) obtain from any
      issuers of Investment Property and such other Persons, for the benefit of the
      Secured Party, written confirmation of the Secured Party’s control over such
      Investment Property.  For purposes of this Section 4.1(h), the
      Secured Party shall have exclusive control of Investment Property if (i) such
      Investment Property consists of certificated securities and a Debtor delivers
      such certificated securities to the Secured Party (with appropriate endorsements
      if such certificated securities are in registered form); (ii) such Investment
      Property consists of uncertificated securities and either (x) a Debtor delivers
      such uncertificated securities to the Secured Party or (y) the issuer thereof
      agrees, pursuant to documentation in form and substance satisfactory to the
      Secured Party, that it will comply with instructions originated by the Secured
      Party without further consent by such Debtor, and (iii) such Investment Property
      consists of security entitlements and either (x) the Secured Party becomes
      the
      entitlement holder thereof or (y) the appropriate securities intermediary
      agrees, pursuant to the documentation in form and substance satisfactory to
      the
      Secured Party, that it will comply with entitlement orders originated by the
      Secured Party without further consent by any Debtor.

     

    (i)    Reserved.

     

    (j)    Commercial
      Tort Claims.  Each Debtor shall promptly notify Secured Party of
      any Commercial Tort Claim acquired by it that concerns a claim in excess of
      $100,000 and unless otherwise consented to by Secured Party, such Debtor shall
      enter into a supplement to this Agreement granting to Secured Party a Lien
      on
      and security interest in such Commercial Tort Claim.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.2  Other
      Liens.  Debtors will not create, permit or suffer to exist, and
      will defend the Collateral against and take such other action as is necessary
      to
      remove, any Lien on the Collateral except Permitted Liens, and will defend
      the
      right, title and interest of the Secured Party in and to the Collateral and
      in
      and to all Proceeds thereof against the claims and demands of all Persons
      whatsoever.

     

    4.3  Preservation
      of Rights.  Whether or not any Event of Default has occurred or is
      continuing, the Secured Party and its Representative may, but shall not be
      required to, take any steps the Secured Party or its Representative deems
      necessary or appropriate to preserve any Collateral or any rights against third
      parties to any of the Collateral, including obtaining insurance for the
      Collateral at any time when such Debtor has failed to do so, and Debtors shall
      promptly pay, or reimburse the Secured Party for, all expenses incurred in
      connection therewith.

     

    4.4  Formation
      of Subsidiaries; Name Change; Location; Bailees.

     

    (a)           No
      Debtor shall form or acquire any Subsidiary unless (i) such Debtor pledges
      all
      of the stock of such Subsidiary to the Secured Party (in the case of Company,
      pursuant to the existing pledge agreement by Company in favor of the Secured
      Party or, with respect to a Debtor other than Company, pursuant to a pledge
      agreement in form and substance acceptable to Secured Party), (ii) such
      Subsidiary becomes a party to this Agreement and all other applicable Security
      Documents and (iii) the formation or acquisition of such Subsidiary is not
      prohibited by the terms of the Transaction Documents.

     

    (b)           No
      Debtor shall (i) reincorporate or reorganize itself under the laws of any
      jurisdiction other than the jurisdiction in which it is incorporated or
      organized as of the date hereof without the prior written consent of Secured
      Party, or (ii) except for mergers between Debtors, otherwise change its name,
      identity or corporate structure.  Each Debtor will notify Secured
      Party promptly in writing prior to any such change in the proposed use by such
      Debtor of any trade name or fictitious business name other than any such name
      set forth on Schedule II attached hereto.

     

    (c)           Except
      for the sale of Inventory in the ordinary course of business and other sales
      of
      assets expressly permitted by the terms of the Purchase Agreement, each Debtor
      will keep the Collateral at the locations specified in Schedule
      I.  Each Debtor will give Secured Party thirty (30) day’s prior
      written notice of any change in such Debtor’s chief place of business or of any
      new location for any of the Collateral.

     

    (d)           If
      any Collateral is at any time in the possession or control of any warehousemen,
      bailee, consignee or processor, such Debtor shall, upon the request of Secured
      Party or its Representative, notify such warehousemen, bailee, consignee or
      processor of the Lien and security interest created hereby and shall instruct
      such Person to hold all such Collateral for Secured Party’s account subject to
      Secured Party’s instructions.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (e)           Each
      Debtor acknowledges that it is not authorized to file any financing statement
      or
      amendment or termination statement with respect to any financing statement
      without the prior written consent of Secured Party and agrees that it will
      not
      do so without the prior written consent of Secured Party, subject to such
      Debtor’s rights under Section 9-509(d)(2) to the Uniform Commercial
      Code.

     

    (f)           No
      Debtor shall enter into any Contract that restricts or prohibits the grant
      to
      Secured Party of a security interest in Accounts, Chattel Paper, Instruments
      or
      payment intangibles or the proceeds of the foregoing.

     

    4.5 
      Bank Accounts and Securities Accounts.

     

    (a)           On
      or prior to the date hereof, the Secured Party and each Debtor, as applicable,
      shall enter into an account control agreement or securities account control
      agreement, as applicable (each an “Account Control Agreement”),
      in a form specified by the Secured Party, with each financial institution with
      which such Debtor maintains from time to time any Deposit Accounts (general
      or
      special), securities accounts, brokerage accounts or other similar accounts,
      which financial institutions are set forth on Schedule VI attached
      hereto.  Pursuant to the Account Control Agreements and pursuant
      hereto, each such Debtor grants and shall grant to the Secured Party a
      continuing lien upon, and security interest in, all such accounts and all funds
      at any time paid, deposited, credited or held in such accounts (whether for
      collection, provisionally or otherwise) or otherwise in the possession of such
      financial institutions, and each such financial institution shall act as the
      Secured Party’s agent in connection therewith.  Following the Closing
      Date, no Debtor shall establish any Deposit Account, securities account,
      brokerage account or other similar account that will hold in excess of $10,000
      at any time with any financial institution unless prior thereto, the Secured
      Party and such Debtor shall have entered into an Account Control Agreement
      with
      such financial institution which purports to cover such account.  Each
      Debtor shall deposit and keep on deposit all of its funds in excess of $10,000
      in the aggregate into a Deposit Account which is subject to an Account Control
      Agreement.

     

    (b)           Upon
      the Secured Party’s request following the occurrence and during the continuance
      of an Event of Default, each Debtor shall establish lock-box or blocked accounts
      (collectively, “Blocked Accounts”) in such Debtor’s name with
      such banks as are reasonably acceptable to the Secured Party
      (“Collecting Banks”), subject to irrevocable instructions in a
      form reasonably acceptable to the Secured Party, to which the obligors of all
      Accounts shall directly remit all payments on Accounts and in which such Debtor
      will immediately deposit all cash payments for Inventory or other cash payments
      constituting proceeds of Collateral in the identical form in which such payment
      was made, whether by cash or check.  In addition, the Secured Party
      may establish one or more depository accounts at each Collecting Bank or at
      a
      centrally located bank (collectively, the “Depository
      Account”).  All amounts held or deposited in the Blocked
      Accounts held by such Collecting Bank shall be transferred to the Depository
      Account without any further notice or action required by Secured
      Party.  Subject to the foregoing, each Debtor hereby agrees that all
      payments received by the Secured Party whether by cash, check, wire transfer
      or
      any other instrument, made to such Blocked Accounts or otherwise received by
      the
      Secured Party and whether in respect of the Accounts or as proceeds of other
      Collateral or otherwise will be the sole and exclusive property of the Secured
      Party.  Each Debtor, and any of its Affiliates, employees, agents and
      other Persons acting for or in concert with such Debtor shall, acting as trustee
      for the Secured Party, receive, as the sole and exclusive property of the
      Secured Party, any moneys, checks, notes, drafts or other payments relating
      to
      and/or proceeds of Accounts or other Collateral which come into the possession
      or under the control of such Debtor or any Affiliates, employees, agent or
      other
      Persons acting for or in concert with such Debtor, and immediately upon receipt
      thereof, such Debtor or Persons shall deposit the same or cause the same to
      be
      deposited in kind, in a Blocked Account.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (c)           No
      later than 90 days following the Closing Date, each Debtor will send to each
      of
      its customers a written notice in the form of Exhibit B hereto instructing
      such
      customer to send all payments due and payable under a gas distribution
      agreement, or other similar agreement between the Company or its Subsidiaries
      and their customers, to an account specified in a subsequent notice that such
      customer may receive from the Secured Party; provided, however that such
      subsequent notice shall only be sent to the customers by the Secured Party
      if an
      Event of Default has occurred and is continuing.

     

    4.6  Events
      of Default, Etc.  During the period during which an Event of
      Default shall have occurred and be continuing:

     

    (a)           each
      Debtor shall, at the request of the Secured Party or its Representative,
      assemble the Collateral and make it available to Secured Party or its
      Representative at a place or places designated by the Secured Party or its
      Representative which are reasonably convenient to Secured Party or its
      Representative, as applicable, and such Debtor;

     

    (b)           the
      Secured Party or its Representative may make any reasonable compromise or
      settlement deemed desirable with respect to any of the Collateral and may extend
      the time of payment, arrange for payment in installments, or otherwise modify
      the terms of, any of the Collateral;

     

    (c)           the
      Secured Party shall have all of the rights and remedies with respect to the
      Collateral of a secured party under the Uniform Commercial Code (whether or
      not
      said Uniform Commercial Code is in effect in the jurisdiction where the rights
      and remedies are asserted) and such additional rights and remedies to which
      a
      secured party is entitled under the laws in effect in any jurisdiction where
      any
      rights and remedies hereunder may be asserted, including, without limitation,
      the right, to the maximum extent permitted by law, to: (i) exercise all voting,
      consensual and other powers of ownership pertaining to the Collateral as if
      the
      Secured Party were the sole and absolute owner thereof (and each Debtor agrees
      to take all such action as may be appropriate to give effect to such right)
      and
      (ii) to the appointment of a receiver or receivers for all or any part of the
      Collateral or business of a Debtor, whether such receivership be incident to
      a
      proposed sale or sales of such Collateral or otherwise and without regard to
      the
      value of the Collateral or the solvency of any person or persons liable for
      the
      payment of the Liabilities secured by such Collateral.  Each Debtor
      hereby consents to the appointment of such receiver or receivers, waives any
      and
      all defenses to such appointment and agrees that such appointment shall in
      no
      manner impair, prejudice or otherwise affect the rights of Secured Party under
      this Agreement.  Each Debtor hereby expressly waives notice of a
      hearing for appointment of a receiver and the necessity for bond or an
      accounting by the receiver;

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (d)           the
      Secured Party or its Representative in their discretion may, in the name of
      the
      Secured Party or in the name of a Debtor or otherwise, demand, sue for, collect
      or receive any money or property at any time payable or receivable on account
      of
      or in exchange for any of the Collateral, but shall be under no obligation
      to do
      so;

     

    (e)    the
      Secured
      Party or its Representative may take immediate possession and occupancy of
      any
      premises owned, used or leased by a Debtor and exercise all other rights and
      remedies which may be available to the Secured Party;

     

    (f)    the
      Secured
      Party may, upon ten (10) Business Days’ prior written notice to Debtors of the
      time and place (which notice Debtors hereby agree is commercially reasonable
      notification for purposes hereof), with respect to the Collateral or any part
      thereof which shall then be or shall thereafter come into the possession,
      custody or control of the Secured Party or its Representative, sell, lease,
      license, assign or otherwise dispose of all or any part of such Collateral,
      at
      such place or places as the Secured Party deems best, and for cash or for credit
      or for future delivery (without thereby assuming any credit risk), at public
      or
      private sale, without demand of performance or notice of intention to effect
      any
      such disposition or of the time or place thereof (except such notice as is
      required above or by applicable statute and cannot be waived), and the Secured
      Party or anyone else may be the purchaser, lessee, licensee, assignee or
      recipient of any or all of the Collateral so disposed of at any public sale
      (or,
      to the extent permitted by law, at any private sale) and thereafter hold the
      same absolutely, free from any claim or right of whatsoever kind, including
      any
      right or equity of redemption (statutory or otherwise), of Debtors, any such
      demand, notice and right or equity being hereby expressly waived and
      released.  The Secured Party may, without notice or publication,
      adjourn any public or private sale or cause the same to be adjourned from time
      to time by announcement at the time and place fixed for the sale, and such
      sale
      may be made at any time or place to which the sale may be so adjourned;
      and

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (g)    the
      rights,
      remedies and powers conferred by this Section 4.6 are in addition to, and not
      in
      substitution for, any other rights, remedies or powers that the Secured Party
      may have under any Transaction Document, at law, in equity or by or under the
      Uniform Commercial Code or any other statute or agreement.  The
      Secured Party may proceed by way of any action, suit or other proceeding at
      law
      or in equity and no right, remedy or power of the Secured Party will be
      exclusive of or dependent on any other.  The Secured Party may
      exercise any of its rights, remedies or powers separately or in combination
      and
      at any time.

     

    The
      proceeds of each collection, sale or other disposition under this Section
      4.6 shall be applied in accordance with Section 4.9
      hereof.

     

    4.7  Deficiency.  If
      the proceeds of sale, collection or other realization of or upon the Collateral
      are insufficient to cover the costs and expenses of such realization and the
      payment in full of the Liabilities, Debtors shall remain liable for any
      deficiency.

     

    4.8  Private
      Sale.  Each Debtor recognizes that the Secured Party may be unable
      to effect a public sale of any or all of the Collateral consisting of securities
      by reason of certain prohibitions contained in the Securities Act of 1933,
      as
      amended (the “Act”), and applicable state securities laws, but
      may be compelled to resort to one or more private sales thereof to a restricted
      group of purchasers who will be obliged to agree, among other things, to acquire
      such Collateral for their own account for investment and not with a view to
      the
      distribution or resale thereof.  Each Debtor acknowledges and agrees
      that any such private sale may result in prices and other terms less favorable
      to the seller than if such sale were a public sale and, notwithstanding such
      circumstances, agrees that any such private sale shall be deemed to have been
      made in a commercially reasonable manner.  The Secured Party shall be
      under no obligation to delay a sale of any of the Collateral to permit a Debtor
      to register such Collateral for public sale under the Act, or under applicable
      state securities laws, even if Debtors would agree to do so.  The
      Secured Party shall not incur any liability as a result of the sale of any
      such
      Collateral, or any part thereof, at any private sale provided for in this
      Agreement conducted in a commercially reasonable manner, and each Debtor hereby
      waives any claims against the Secured Party arising by reason of the fact that
      the price at which the Collateral may have been sold at such a private sale
      was
      less than the price which might have been obtained at a public sale or was
      less
      than the aggregate amount of the Liabilities, even if the Secured Party accepts
      the first offer received and does not offer the Collateral to more than one
      offeree.

     

    Each
      Debtor further agrees to do or cause to be done all such other acts and things
      as may be necessary to make such sale or sales of any portion or all of any
      such
      Collateral valid and binding and in compliance with any and all applicable
      laws,
      regulations, orders, writs, injunctions, decrees or awards of any and all
      courts, arbitrators or governmental instrumentalities, domestic or foreign,
      having jurisdiction over any such sale or sales, all at such Debtor’s expense,
provided that Debtors shall be under no obligation to take any action to
      enable any or all of such Collateral to be registered under the provisions
      of
      the Act.  Each Debtor further agrees that a breach of any of the
      covenants contained in this Section 4.8 will cause irreparable injury to
      the Secured Party, that the Secured Party has no adequate remedy at law in
      respect of such breach and, as a consequence, agrees that each and every
      covenant contained in this Section 4.8 shall be specifically enforceable
      against Debtors, and each Debtor hereby waives and agrees not to assert any
      defenses against an action for specific performance of such covenants except
      for
      a defense that no Event of Default has occurred and is continuing.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.9  Application
      of Proceeds.  The proceeds of any collection, sale or other
      realization of all or any part of the Collateral, and any other cash at the
      time
      held by the Secured Party under this Agreement, shall be applied in the manner
      set forth in the Notes (or, if not so set forth, in a manner acceptable to,
      and
      at the election of, the Secured Party).

     

    4.10  Attorney-in-Fact.  Each
      Debtor hereby irrevocably constitutes and appoints the Secured Party, with
      full
      power of substitution, as its true and lawful attorney-in-fact with full
      irrevocable power and authority in the place and stead of such Debtor and in
      the
      name of such Debtor or in its own name, from time to time in the discretion
      of
      the Secured Party, for the purpose of carrying out the terms of this Agreement,
      to take any and all appropriate action and to execute and deliver any and all
      documents and instruments which may be necessary or desirable to perfect or
      protect any security interest granted hereunder or to maintain the perfection
      or
      priority of any security interest granted hereunder, and, without limiting
      the
      generality of the foregoing, hereby gives the Secured Party the power and right,
      on behalf of such Debtor, without notice to or assent by such Debtor, to do
      the
      following upon the occurrence and during the continuation of any Event of
      Default:

     

    (a)           to
      take any and all appropriate action and to execute and deliver any and all
      documents and instruments which may be necessary or desirable to accomplish
      the
      purposes of this Agreement;

     

    (b)           to
      ask, demand, collect, receive and give acquittance and receipts for any and
      all
      moneys due and to become due under any Collateral and, in the name of such
      Debtor or its own name or otherwise, to take possession of and endorse and
      collect any checks, drafts, notes, acceptances or other Instruments for the
      payment of moneys due under any Collateral and to file any claim or to take
      any
      other action or proceeding in any court of law or equity or otherwise deemed
      appropriate by the Secured Party for the purpose of collecting any and all
      such
      moneys due under any Collateral whenever payable and to file any claim or to
      take any other action or proceeding in any court of law or equity or otherwise
      deemed appropriate by the Secured Party for the purpose of collecting any and
      all such moneys due under any Collateral whenever payable;

     

    (c)           to
      pay or discharge charges or liens levied or placed on or threatened against
      the
      Collateral, to effect any insurance called for by the terms of this Agreement
      and to pay all or any part of the premiums therefor;

     

    (d)           to
      direct any party liable for any payment under any of the Collateral to make
      payment of any and all moneys due, and to become due thereunder, directly to
      the
      Secured Party or as the Secured Party shall direct, and to receive payment
      of
      and receipt for any and all moneys, claims and other amounts due, and to become
      due at any time, in respect of or arising out of any
      Collateral;

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (e)           to
      sign and indorse any invoices, freight or express bills, bills of lading,
      storage or warehouse receipts, drafts against debtors, assignments,
      verifications and notices in connection with accounts and other Documents
      constituting or relating to the Collateral;

     

    (f)           to
      commence and prosecute any suits, actions or proceedings at law or in equity
      in
      any court of competent jurisdiction to collect the Collateral or any part
      thereof and to enforce any other right in respect of any
      Collateral;

     

    (g)           to
      defend any suit, action or proceeding brought against a Debtor with respect
      to
      any Collateral;

     

    (h)           to
      settle, compromise or adjust any suit, action or proceeding described above
      and,
      in connection therewith, to give such discharges or releases as the Secured
      Party may deem appropriate;

     

    (i)           to
      the extent that a Debtor’s authorization given in Section 4.1(b) of this
      Agreement is not sufficient to file such financing statements with respect
      to
      this Agreement, with or without such Debtor’s signature, or to file a photocopy
      of this Agreement in substitution for a financing statement, as the Secured
      Party may deem appropriate and to execute in such Debtor’s name such financing
      statements and amendments thereto and continuation statements which may require
      such Debtor’s signature; and

     

    (j)           generally
      to sell, transfer, pledge, make any agreement with respect to or otherwise
      deal
      with any of the Collateral as fully and completely as though the Secured Party
      were the absolute owners thereof for all purposes, and to do, at the Secured
      Party’s option and at such Debtor’s expense, at any time, or from time to time,
      all acts and things which the Secured Party reasonably deems necessary to
      protect, preserve or realize upon the Collateral and the Secured Party’s lien
      therein, in order to effect the intent of this Agreement, all as fully and
      effectively as such Debtor might do.

     

    Each
      Debtor hereby ratifies, to the extent permitted by law, all that such attorneys
      lawfully do or cause to be done by virtue hereof.  The power of
      attorney granted hereunder is a power coupled with an interest and shall be
      irrevocable until the Liabilities are indefeasibly paid in full in cash and
      this
      Agreement is terminated in accordance with Section 4.12
      hereof.

     

    Each
      Debtor also authorizes the Secured Party, at any time from and after the
      occurrence and during the continuation of any Event of Default, (x) to
      communicate in its own name with any party to any Contract with regard to the
      assignment of the right, title and interest of such Debtor in and under the
      Contracts hereunder and other matters relating thereto and (y) to execute,
      in
      connection with any sale of Collateral provided for in Section 4.6
      hereof, any endorsements, assignments or other instruments of conveyance or
      transfer with respect to the Collateral.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.11  Perfection.  Concurrently
      with the execution and delivery of this Agreement, each Debtor
      shall:

     

    (a)           file
      such financing statements, assignments for security and other documents in
      such
      offices as may be necessary or as the Secured Party or the Representative may
      request to perfect the security interests granted by Section 3 of this
      Agreement; and

     

    (b)           at
      Secured Party’s request, deliver to the Secured Party or its Representative the
      originals of all Instruments together with, in the case of Instruments
      constituting promissory notes, allonges attached thereto showing such promissory
      notes to be payable to the order of a blank payee.

     

    4.12  Termination.  This
      Agreement and the Liens and security interests granted hereunder shall terminate
      upon the payment in full of all Liabilities, or conversion of the Notes pursuant
      to the terms thereof, whereupon the Secured Party shall forthwith cause to
      be
      assigned, transferred and delivered, against receipt but without any recourse,
      warranty or representation whatsoever, any remaining Collateral to or on the
      order of Debtors.  The Secured Party shall also execute and deliver to
      Debtors upon such termination and at Debtors’ expense such Uniform Commercial
      Code termination statements, certificates for terminating the liens on the
      Motor
      Vehicles (if any) and such other documentation as shall be reasonably requested
      by Debtors to effect the termination and release of the Liens and security
      interests in favor of the Secured Party affecting the Collateral.

     

    4.13  Further
      Assurances.  At any time and from time to time, upon the written
      request of the Secured Party or its Representative, and at the sole expense
      of
      Debtors, Debtors will promptly and duly execute and deliver any and all such
      further instruments, documents and agreements and take such further actions
      as
      the Secured Party or its Representative may reasonably require in order for
      the
      Secured Party to obtain the full benefits of this Agreement and of the rights
      and powers herein granted in favor of the Secured Party, including, without
      limitation, using Debtors’ reasonable efforts to secure all consents and
      approvals necessary or appropriate for the assignment to the Secured Party
      of
      any Collateral held by Debtors or in which a Debtor has any rights not
      heretofore assigned, the filing of any financing or continuation statements
      under the Uniform Commercial Code with respect to the liens and security
      interests granted hereby, transferring Collateral to the Secured Party’s
      possession (if a security interest in such Collateral can be perfected by
      possession), placing the interest of the Secured Party as lienholder on the
      certificate of title of any Motor Vehicle and obtaining waivers of liens from
      landlords and mortgagees.  Each Debtor also hereby authorizes the
      Secured Party and its Representative to file any such financing or continuation
      statement without the signature of such Debtor to the extent permitted by
      applicable law.

     

    4.14  Limitation
      on Duty of Secured Party.  The powers conferred on the Secured
      Party under this Agreement are solely to protect the Secured Party’s interest on
      behalf of itself and the Buyers in the Collateral and shall not impose any
      duty
      upon it to exercise any such powers.  The Secured Party shall be
      accountable only for amounts that it actually receives as a result of the
      exercise of such powers and neither the Secured Party nor its Representative
      nor
      any of their respective officers, directors, employees or agents shall be
      responsible to Debtors for any act or failure to act, except for gross
      negligence or willful misconduct.  Without limiting the foregoing, the
      Secured Party and any Representative shall be deemed to have exercised
      reasonable care in the custody and preservation of the Collateral in their
      possession if such Collateral is accorded treatment substantially equivalent
      to
      that which the relevant Secured Party or any Representative, in its individual
      capacity, accords its own property consisting of the type of Collateral
      involved, it being understood and agreed that neither the Secured Party nor
      any
      Representative shall have any responsibility for taking any necessary steps
      (other than steps taken in accordance with the standard of care set forth above)
      to preserve rights against any Person with respect to any
      Collateral.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Also
      without limiting the generality of the foregoing, neither the Secured Party
      nor
      any Representative shall have any obligation or liability under any Contract
      or
      license by reason of or arising out of this Agreement or the granting to the
      Secured Party of a security interest therein or assignment thereof or the
      receipt by the Secured Party or any Representative of any payment relating
      to
      any Contract or license pursuant hereto, nor shall the Secured Party or any
      Representative be required or obligated in any manner to perform or fulfill
      any
      of the obligations of Debtors under or pursuant to any Contract or license,
      or
      to make any payment, or to make any inquiry as to the nature or the sufficiency
      of any payment received by it or the sufficiency of any performance by any
      party
      under any Contract or license, or to present or file any claim, or to take
      any
      action to collect or enforce any performance or the payment of any amounts
      which
      may have been assigned to it or to which it may be entitled at any time or
      times.

     

    Section
      5.  Miscellaneous.

     

    5.1  No
      Waiver.  No failure on the part of the Secured Party or any of its
      Representatives to exercise, and no course of dealing with respect to, and
      no
      delay in exercising, any right, power or remedy hereunder shall operate as
      a
      waiver thereof, nor shall any single or partial exercise by the Secured Party
      or
      any of its Representatives of any right, power or remedy hereunder preclude
      any
      other or further exercise thereof or the exercise of any other right, power
      or
      remedy.  The rights and remedies hereunder provided are cumulative and
      may be exercised singly or concurrently, and are not exclusive of any rights
      and
      remedies provided by law.

     

    5.2  Governing
      Law.  All questions concerning the construction, validity,
      enforcement and interpretation of this Agreement shall be governed by the
      internal laws of the State of New York, without giving effect to any choice
      of
      law or conflict of law provision or rule (whether of the State of New York
      or
      any other jurisdiction) that would cause the application of the laws of any
      jurisdiction other than the State of New York.

     

    5.3  Notices.  All
      notices, approvals, requests, demands and other communications hereunder shall
      be delivered or made in the manner set forth in, and shall be effective in
      accordance with the terms of, the Purchase Agreement; provided, that, to the
      extent any such communication (i) is being made or sent to a Debtor that is
      not
      the Company, such communication shall be effective as to such Debtor if made
      or
      sent to the Company in accordance with the foregoing or (ii) is being made
      or
      sent to Collateral Agent, such communication shall be made to Collateral Agent
      at the address set forth below  Collateral Agent’s signature
      hereto.  Debtors and Collateral Agent may change their respective
      notice addresses by written notice given to each other party five (5) days
      prior
      to the effectiveness of such change.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.4  Amendments,
      Etc.  The terms of this Agreement may be waived, altered or
      amended only by an instrument in writing duly executed by the Debtor sought
      to
      be charged or benefited thereby and the Secured Party.  Any such
      amendment or waiver shall be binding upon the Secured Party and the Debtor
      sought to be charged or benefited thereby and their respective successors and
      assigns.

     

    5.5  Successors
      and Assigns.  This Agreement shall be binding upon and inure to
      the benefit of the respective successors and assigns of each of the parties
      hereto, provided, that no Debtor shall assign or transfer its rights
      hereunder without the prior written consent of the Secured
      Party.  Secured Party, in its capacity as collateral agent, may assign
      its rights with Debtors’ consent if no Event of Default exists hereunder without
      the consent of Debtors if an Event of Default exists, in which event such
      assignee shall be deemed to be Secured Party hereunder with respect to such
      assigned rights.

     

    5.6  Counterparts;
      Headings.  This Agreement may be authenticated in any number of
      counterparts, all of which taken together shall constitute one and the same
      instrument and any of the parties hereto may authenticate this Agreement by
      signing any such counterpart.  This Agreement may be authenticated by
      manual signature or facsimile, .pdf or similar electronic signature, all of
      which shall be equally valid. The headings in this Agreement are for convenience
      of reference only and shall not alter or otherwise affect the meaning
      hereof.

     

    5.7  Severability.  If
      any provision hereof is invalid and unenforceable in any jurisdiction, then,
      to
      the fullest extent permitted by law, (a) the other provisions hereof shall
      remain in full force and effect in such jurisdiction and shall be liberally
      construed in favor of the Secured Party and its Representative in order to
      carry
      out the intentions of the parties hereto as nearly as may be possible and (b)
      the invalidity or unenforceability of any provision hereof in any jurisdiction
      shall not affect the validity or enforceability of such provision in any other
      jurisdiction.

     

    5.9  SUBMISSION
      TO JURISDICTION; WAIVER OF VENUE; SERVICE OF
      PROCESS.  (A)  EACH DEBTOR HEREBY IRREVOCABLY SUBMITS TO
      THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE
      COURT SITTING IN NEW YORK CITY (BOROUGH OF MANHATTAN), NEW YORK IN ANY ACTION
      OR
      PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND EACH DEBTOR HEREBY
      IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING
      MAY
      BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION
      IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR
      PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT
      FORUM.  NOTHING HEREIN SHALL LIMIT THE RIGHT OF SECURED PARTY TO BRING
      PROCEEDINGS AGAINST ANY DEBTOR IN THE COURTS OF ANY OTHER
      JURISDICTION.  ANY JUDICIAL PROCEEDING BY A DEBTOR AGAINST SECURED
      PARTY, ANY BUYER OR ANY AFFILIATE THEREOF INVOLVING, DIRECTLY OR INDIRECTLY,
      ANY
      MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTION WITH THIS AGREEMENT
      SHALL BE BROUGHT ONLY IN A COURT IN NEW YOR CITY (BOROUGH OF MANHATTAN), NEW
      YORK (AND SECURED PARTY AND BUYERS HEREBY SUBMIT TO THE JURISDICTION OF SUCH
      COURT).  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE
      OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH ACTION OR PROCEEDING
      BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS FOR NOTICES TO IT IN
      ACCORDANCE WITH SECTION 5.3 OF THIS AGREEMENT AND AGREES THAT SUCH NOTICE
      SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
      THEREOF.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY
      ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY
      LAW.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.10  WAIVER
      OF RIGHT TO TRIAL BY JURY.  EACH DEBTOR AND SECURED PARTY EACH
      WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
      BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
      CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
      BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH
      RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.   EACH
      DEBTOR AND SECURED PARTY EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION
      SHALL
      BE TRIED BY A COURT TRIAL WITHOUT A JURY.  WITHOUT LIMITING THE
      FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL
      BY
      JURY IS WAIVED BY OPERATION  OF THIS SECTION AS TO ANY ACTION,
      COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
      THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION
      HEREOF.  THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
      RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.

     

    5.11           Joint
      and Several.  The obligations, covenants and agreements of Debtors
      hereunder shall be the joint and several obligations, covenants and agreements
      of each Debtor, whether or not specifically stated herein.

     

    5.12           Collateral
      Agent and Buyer Indemnification.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (a)           Each
      Buyer hereby irrevocably appoints and authorizes the Secured Party to act as
      collateral agent (the “Collateral Agent”) on its behalf under
      this Agreement and to enter into each of the instruments, documents and
      agreements, including any pledge agreement, guaranty, financing statements,
      mortgage, Account Control Agreement or any other Security Documents (the
“Financing Documents”), to which Secured Party is a party
      (including in its capacity as Collateral Agent) on such Buyer’s behalf and to
      take such actions as Collateral Agent on such Buyer’s behalf and to exercise
      such powers under the Financing Documents as are delegated to Collateral Agent
      or Secured Party (as applicable) by the terms thereof, together with all such
      powers as are reasonably incidental thereto.  The Collateral Agent
      shall take such action under this Agreement and/or any other Transaction
      Documents as the Collateral Agent shall reasonably be directed by the Requisite
      Buyers in accordance with the terms of the Transaction
      Documents.  Secured Party is authorized and empowered to amend,
      modify, or waive any provisions of this Agreement or the other Financing
      Documents only with the consent of the Requisite Buyers.

     

    (b)           Whether
      or not the transactions contemplated hereby shall be consummated, upon demand
      therefor the Buyers shall indemnify the Collateral Agent (to the extent not
      reimbursed by or on behalf of the Company and without limiting the obligation
      of
      the Company to do so), ratably from and against any and all liabilities,
      obligations, losses, damages, penalties, actions, judgments, suits, costs,
      expenses and disbursements of any kind whatsoever, including, for purposes
      of
      clarification, all Taxes, which may at any time (including at any time following
      the payment in full of the Notes and the termination or resignation of the
      Collateral Agent) be imposed on, incurred by or asserted against the Collateral
      Agent in any way relating to or arising out of this Agreement, any other
      Financing Document or any document contemplated hereby or referred to herein
      or
      the transactions contemplated hereby or thereby or any action taken or omitted
      by the Collateral Agent under or in connection with any of the foregoing;
provided, however, that no Buyer shall be liable for the payment
      to the Collateral Agent of any portion of such liabilities, obligations, losses,
      damages, penalties, actions, judgments, suits, costs, expenses or disbursements
      resulting solely from the Collateral Agent’s gross negligence or willful
      misconduct.  In addition, each Buyer shall reimburse the Collateral
      Agent upon demand for its ratable share of any costs or out-of-pocket expenses
      (including attorney costs) incurred by the Collateral Agent in connection with
      the preparation, execution, delivery, administration, modification, amendment
      or
      enforcement (whether through negotiations, legal proceedings or otherwise)
      of,
      or legal advice in respect of rights or responsibilities under, this Agreement,
      any other Transaction Document, or any document contemplated hereby or referred
      to herein to the extent that the Collateral Agent is not reimbursed for such
      expenses by or on behalf of the Company.  Without limiting the
      generality of the foregoing, if any Governmental Authority of any jurisdiction
      asserts a claim that the Collateral Agent did not properly withhold tax from
      amounts paid to or for the account of any Buyer (because the appropriate form
      was not delivered, was not properly executed, or because such Buyer failed
      to
      notify the Collateral Agent of a change in circumstances which rendered the
      exemption from, or reduction of, withholding tax ineffective, or for any other
      reason) such Buyer shall indemnify the Collateral Agent fully for all amounts
      paid, directly or indirectly, by the Collateral Agent as tax or otherwise,
      including penalties and interest, and including any taxes imposed by any
      jurisdiction on the amounts payable to the Collateral Agent under this
Section 5.12(b), together with all related costs and  expenses
      (including attorney costs).  The obligation of the Buyers in this
Section 5.12(b) shall survive the payment of all Liabilities
      hereunder.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (c)           The
      Collateral Agent shall not be deemed to have knowledge or notice of the
      occurrence of any Event of Default or any event that with the giving of notice
      or passage of time would constitute an Event of Default unless the Collateral
      Agent shall have received written notice from a Buyer describing such Event
      of
      Default or event that with the giving of notice or passage of time would
      constitute an Event of Default and stating that such notice is a “notice of
      default”.  Upon the occurrence and continuance of an Event of Default,
      or an event that with the giving of notice or passage of time would constitute
      an Event of Default, the Collateral Agent shall take such action under this
      Agreement and/or any other Transaction Documents with respect to such Event
      of
      Default or event that with the giving of notice or passage of time would
      constitute an Event of Default as Collateral Agent shall reasonably be directed
      by the Requisite Buyers in accordance with the terms of the Transaction
      Documents, provided that unless and until the Collateral Agent shall have
      received such directions, the Collateral Agent may (but shall not be obligated
      to) take such action, or refrain from taking such action, with respect of such
      Event of Default or event that with the giving of notice or passage of time
      would constitute an Event of Default or as the Collateral Agent shall deem
      advisable in the best interests of the Buyers.  In taking such action
      or refraining from taking such action without specific direction from the
      Requisite Buyers, the Collateral Agent shall use the same degree of care and
      skill as a prudent person would exercise or use under the circumstances in
      the
      conduct of such person’s own affairs.

     

    (d)           Nothing
      in this Section 5.12 shall be deemed to limit or otherwise affect the
      rights of Secured Party or Buyers to exercise any remedy provided in this
      Agreement or any other Transaction Document.

     

    (e)           The
      Collateral Agent may resign from the performance of all of its functions and
      duties hereunder and/or under the other Financing Documents at any time by
      giving thirty (30) Business Days prior written notice to the
      Buyers.  Such resignation shall take effect upon the appointment of a
      successor Collateral Agent pursuant to clause (f) below or as otherwise provided
      below.

     

    (f)           Upon
      (i) the Buyers’ receipt of a notice of resignation by the Collateral Agent in
      accordance with clause (e) above, or (ii) written notice by the Requisite Buyers
      to Collateral Agent of the Requisite Buyers’ election to remove the existing
      Collateral Agent and appoint a successor Collateral Agent, the Requisite Buyers
      shall have the right to appoint a successor Collateral Agent.  Upon
      the acceptance of a successor's appointment as Collateral Agent hereunder and
      notice of such acceptance to the retiring Collateral Agent, such successor
      shall
      succeed to and become vested with all of the rights, powers, privileges and
      duties of the retiring (or retired) Collateral Agent, the retiring Collateral
      Agent's resignation shall become immediately effective and the retiring
      Collateral Agent shall be discharged from all of its duties and obligations
      hereunder and under the other Financing Documents (if such resignation was
      not
      already effective and such duties and obligations not already discharged, as
      provided below in this paragraph).  If no such successor shall have
      been so appointed by Requisite Buyers and shall have accepted such appointment
      within thirty (30) days after the retiring Collateral Agent gives notice of
      its
      resignation or the Requisite Buyers give notice of their election to replace
      the
      retiring Collateral Agent, then the retiring Collateral Agent may, on behalf
      of
      the Buyers (but without any obligation) appoint a successor Collateral Agent
      without the consent of any Buyer.  From and following the expiration
      of such thirty (30) day period, Collateral Agent shall have the exclusive right
      without any Person's consent, upon one (1) Business Days' notice to the Buyers,
      to make its resignation or removal effective immediately.  From and
      following the effectiveness of such notice, (i) the retiring Collateral
      Agent shall be discharged from its duties and obligations hereunder and under
      the other Financing Documents and (ii) all actions, payments,
      communications and determinations provided to be made by, to or through
      Collateral Agent shall instead be made by or to each Buyer directly, until
      such
      time as Requisite Buyers appoint a Collateral Agent as provided for above in
      this paragraph.  The provisions of this Agreement shall continue in
      effect for the benefit of any retiring Collateral Agent and its sub-agents
      after
      the effectiveness of its resignation or removal hereunder and under the other
      Financing Documents in respect of any actions taken or omitted to be taken
      by
      any of them while the retiring Collateral Agent was acting or was continuing
      to
      act as Collateral Agent.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.13 
      No Strict Construction.  The language used in this Agreement
      will be deemed to be the language chosen by the parties to express their mutual
      intent, and no rules of strict construction will be applied against any
      party.

     

    5.14 
      Entire Agreement.  This Agreement supersedes all other prior
      oral or written agreements between each Debtor, Secured Party, the Buyers and
      their affiliates and persons acting on their behalf with respect to the matters
      discussed herein, and this Agreement and the Transaction Documents and
      instruments referenced herein and therein contain the entire understanding
      of
      the parties with respect to the matters covered herein and therein.

     

    -
      Remainder of Page Intentionally Left Blank; Signature Page Follows
      -

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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

     

    
      
        
          	 	
                  DEBTORS:

                
	 	 
	 	
                  GULF
                    WESTERN PETROLEUM CORPORATION, a Nevada
                    corporation

                
	 	 	 
	 	
                  By:

                	
                  /s/  Donald
                    L. Sytsma

                
	 	
                  Name:

                	
                  Donald
                    L. Sytsma

                
	 	
                  Title:

                	
                  CFO

                
	 	
                  FEIN:

                	
                   

                
	 	 
	 	
                  GULF
                    WESTERN PETROLEUM LP,

                
	 	
                  a
                    Texas limited partnership

                
	 	 
	 	
                  By:

                	
                  Wharton
                    Resources, LLC, a Delaware limited liability company, its general
                    partner

                
	 	 	 	 
	 	 	
                  By:

                	
                  /s/
                    Donald L. Sytsma

                
	 	 	
                  Name:

                	
                  Donald
                    L. Sytsma

                
	 	 	
                  Title:

                	
                  CFO

                
	 	 	
                  FEIN:

                	
                   

                
	 	 	 	 
	 	
                  WHARTON
                    RESOURCES LLC,

                
	 	
                  a
                    Delaware limited liability company

                
	 	 
	 	
                  By:

                	
                  /s/  Donald
                    L. Sytsma

                
	 	
                  Name:

                	
                  Donald
                    L. Sytsma

                
	 	
                  Title:

                	
                  CFO

                
	 	
                  FEIN:

                	
                   

                
	 	 
	 	
                  WHARTON
                    RESOURCES CORP.,

                
	 	
                  a
                    Delaware corporation

                
	 	 
	 	
                  By:

                	
                  /s/  Donald
                    L. Sytsma

                
	 	
                  Name:

                	
                  Donald
                    L. Sytsma

                
	 	
                  Title:

                	
                  CFO

                
	 	
                  FEIN:

                	
                   

                

        

      

    

     

    
      Signature
        Page to Security Agreement

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	
              SECURED
                PARTY:

            
	 	 
	 	
              METAGE
                FUNDS LIMITED,

            
	 	
              in
                its capacity as Collateral Agent for the Buyers

            
	 	 	 
	 	
              By:

            	
              /s/  Tom
                Sharp

            
	 	
              Name:

            	
              Tom
                Sharp

            
	 	
              Title:

            	
              Investment
                Manager

            
	 	 
	 	
              Notice
                Address:

            
	 	 	 
	 	
              Metage
                Funds Limited

            
	 	
              8
                Pollen Street

            
	 	
              London,
                England W1S 1NG

            
	 	
              Attention:
                Tom Sharp

            

    

     

    
      Signature
        Page to Security Agreement

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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

    

    
      	 	
              BUYERS:

            
	 	 
	 	
              Solely
                for the purposes of Section 5.12

            
	 	 
	 	
              NCIM
                LIMITED, as a Buyer

            
	 	 	 
	 	 	 
	 	
              By:

            	
              /s/  J.M.
                Roberts

            
	 	
              Name:    

            	
              J.M.
                Roberts

            
	 	
              Title:

            	
              Manager

            
	 	 	 
	
               

            	 	 
	 	
              METAGE
                FUNDS, LIMITED, as a Buyer

            
	 	 
	 	 
	 	
              By:

            	
              /s/  Tom
                Sharp

            
	 	
              Name:

            	
              Tom
                Sharp

            
	 	
              Title:

            	
              Investment
                Manager

            

    

    

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    EXHIBIT
      A

    

    Form
      of
      Joinder

    Joinder
      to Security Agreement

    

    The
      undersigned, ______________________________, hereby joins in the execution
      of
      that certain Security Agreement dated as of September 10, 2007 (as amended,
      restated, supplemented or otherwise modified from time to time, the
“Security Agreement”) by GULF WESTERN PETROLEUM CORPORATION, a
      Nevada corporation, GULF WESTERN PETROLEUM LP, a Texas limited partnership,
      WHARTON RESOURCES LLC, a Delaware limited liability company, WHARTON RESOURCES
      CORP., a Delaware corporation, the Buyers (as defined therein), and each other
      Person that becomes a Debtor or a Buyer thereunder after the date hereof and
      pursuant to the terms thereof, to and in favor of METAGE FUND LIMITED, in its
      capacity as Collateral Agent for the Buyers.  By executing this
      Joinder, the undersigned hereby agrees that it is a Debtor thereunder and agrees
      to be bound by all of the terms and provisions of the Security
      Agreement.

    

    The
      undersigned represents and warrants to Secured Party that:

    

    (a)           all
      of the Equipment, Inventory and Goods owned by such Debtor is located at the
      places as specified on Schedule I and such Debtor conducts business in
      the jurisdiction set forth on Schedule I;

    

    (b)           except
      as disclosed on Schedule I, none of such Collateral is in the possession
      of any bailee, warehousemen, processor or consignee;

    

    (c)           the
      chief place of business, chief executive office and the office where such Debtor
      keeps its books and records are located at the place specified on Schedule
      I;

    

    (d)           such
      Debtor (including any Person acquired by such Debtor) does not do business
      or
      has not done business during the past five years under any tradename or
      fictitious business name, except as disclosed on Schedule
      II;

    

    (e)           all
      Copyrights, Patents and Trademarks owned or licensed by the undersigned are
      listed in Schedules III, IV and V,
      respectively;

    

    (f)           all
      Deposit Accounts, securities accounts, brokerage accounts and other similar
      accounts maintained by such Debtor, and the financial institutions at which
      such
      accounts are maintained, are listed on Schedule VI;

    

    (g)           all
      Commercial Tort Claims of such Debtor are listed on Schedule
      VII;

    

    (h)           all
      interests in real property and mining rights held by such Debtor are listed
      on
Schedule VIII;

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (i)           all
      Equipment (including Motor Vehicles) owned by such debtor are listed on
Schedule IX; and

    

    (j)           all
      other representations and warranties made by the Debtors in the Security
      Agreement are true, complete and correct in all respects as of the date
      hereof.

    

     

    
      
        	 	
                 

              	
                ,
                  a

              	
                 

              	
                corporation

              
	 	 	 	 	 

      

      

      
        	 	
                By:

              	 	 	 
	 	
                Title:

              	 	 	 
	 	
                FEIN:

              	 	 	 

      

    

     

    

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    

    EXHIBIT
      B

    

    Form
      of
      Notice of Assignment of Proceeds

     

     

    METAGE
      FUNDS LIMITED

     

    8
      Pollen Street

     

    London,
      England W1S 1NG

     

    

    ____________,
      20____

    

    

    [Disburser
      of Production Proceeds]

    ___________________________

    ___________________________

    ___________________________

    

    Re:           Notice
      of Assignment of Proceeds

    

    Ladies
      and Gentlemen:

    

     

    In
      connection with the transactions contemplated by the Securities Purchase
      Agreement (as may be supplemented, amended, modified or restated, the
“Purchase Agreement”) dated September 10, 2007 among the buyers therein
      and Gulf Western Petroleum Corporation (“GWPC”), Gulf Western Petroleum,
      LP, a wholly-owned subsidiary of GWPC (“GWLP”), has assigned as
      collateral to Metage Funds Limited, as Collateral Agent (the “Collateral
      Agent”) all proceeds (the “Assignment of Proceeds”) from the sale of
      production from or allocable to interests of GWLP in the properties (the
“Mortgaged Properties”) identified on Exhibit A attached to the
      enclosed Mortgage, Deed of Trust, Assignment of Production, Security Agreement,
      Fixture Filing and Financing Statement (as the same may be supplemented,
      amended, modified or restated, the “Mortgage”) dated September 10,
      2007.

    

    Until
      otherwise directed by the Collateral Agent, you are hereby authorized and
      directed, effective immediately, to make all payments of amounts attributable
      to
      GWLP’s interest in the Mortgaged Properties by wire transfer to:

    

    ABA:
      026009593

    Account
      Name: Gulf Western Petroleum
      Corporation

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Account
      Number: 4440 0170
      3946

    Bank
      of America

    8025
      Winchester Road

    Memphis,
      Tennessee 38125

    

    If
      by
      check, checks should be made payable to Gulf Western Petroleum, LP and mailed
      to:

    

    Gulf
      Western Petroleum, LP

    4801
      Woodway Drive, Suite 306W

    Houston,
      Texas 77056

    Attention:
      Donald L. Sytsma

    

    Upon
      notice from the Collateral Agent, you are hereby authorized and directed,
      effective immediately upon receipt of such notice, to make all payments of
      amounts attributable to GWLP’s interest in the Mortgaged Properties by wire
      transfer to an account specified in such notice from the Collateral
      Agent.

    

    Notwithstanding
      the remittance of any payments to the Collateral Agent GWLP hereby ratifies,
      confirms and agrees to continue to be bound by all previous sales contracts,
      division orders and transfer orders heretofore executed by GWLP, insofar as
      the
      same cover and relate to the interests described in the enclosed
      Mortgage.  GWLP and GWPC, jointly and severally, hereby agrees to
      indemnify, save and hold you harmless from and against any and all claims,
      demands, actions, judgments, damages, liabilities, losses, costs, charges,
      recoveries and other expense of every nature and character which you at any
      time
      shall or may sustain by reason of the payments to the Collateral Agent of
      proceeds of production as requested and authorized hereby; provided,
however, the aggregate liability of GWLP and GWPC with respect to
      any
      warranty, representations, covenant or indemnification contained in this letter
      or any previous sales contracts, division orders or transfer orders shall be
      limited to an amount equal to the amounts disbursed by you to the Collateral
      Agent hereunder.

    

    This
      notice of assignment of proceeds is irrevocable and you should continue to
      remit
      such payments as set forth above until you receive other written instructions
      signed by the Collateral Agent.

    

    Please
      signify your understanding and agreement to comply with the terms hereof by
      signing in the indicated space below and returning a copy of this letter to
      Metage Funds Limited, as Collateral Agent, 8 Pollen Street, London, England
      W1S
      1NG, Attn: Mr. Tom Sharp.

     

    

    [Signatures
      appear on the following page(s)]

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	 	
              Very
                truly yours,

            
	 	 
	 	
              METAGE
                FUNDS LIMITED,

            
	 	
              as
                Collateral Agent

            
	 	 
	 	 
	 	
              By:

            	
               

            
	 	
              Name:

            	
               

            
	 	
              Title:

            	
               

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	
              GULF
                WESTERN PETROLEUM, LP,  

            
	 	
              a
                Texas limited partnership  

            
	 	 	 	 
	 	 	
              By:      Wharton
                Resources, LLC, a Delaware limited liability company, its general
                partner 

            
	 	 	 	 
	 	 	
              By:

            	 
	 	 	
              Name:

            	 
	 	 	
              Title:

            	 

    

     

    

    Acknowledged
      and Agreed to this _____ day of _____________,
      20__.

    

    [Disburser
      of Production Proceeds]

    

    
      	
              By:

            	
               

            	 
	
              Name:

            	
               

            	 
	
              Title:

            	
               

            	 

    

    

    

    Enclosure
      (Mortgage)

     

     

    7

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