Document:

exhibit-10_3.htm

    

     

    PLEDGE
AGREEMENT

     

     

    THIS PLEDGE AGREEMENT (the
“Agreement”) is
made and entered into as of August ___, 2008 (the “Effective Date”) by
and among PLATINA ENERGY GROUP,
INC., a corporation organized and existing under the laws of Delaware
(the “Company”
or “Pledgor”), TRAFALGAR
CAPITAL SPECIALIZED INVESTMENT FUND, LUXEMBOURG, (the “Pledgee”), and JAMES G. DODRILL II, P.A., as
escrow agent (“Escrow
Agent”).

     

     

    RECITALS:

     

     

    WHEREAS, in order to secure
the full and prompt payment when due (whether at the stated maturity, by
acceleration or otherwise) of all of the Company’s obligations (the “Obligations”) to the
Pledgee or any successor to the Pledgee under this Agreement, the Securities
Purchase Agreement of even date herewith between the Company and the Pledgee (the “Securities Purchase
Agreement”), the Convertible Debentures (the “Convertible
Debentures”) issued or to be issued by the Company to the Pledgee, either
now or in the future, up to a total of One Million Two Hundred Thousand Dollars
($1,200,000) of principal, plus any interest, costs, fees, and other amounts
owed to the Pledgee thereunder, the Security Agreement of even date herewith
between the Company and the Pledgee (the
“Security
Agreement”), and all other contracts entered into between the Company and Pledgor in connection with Securities
Purchase Agreement (collectively, the “Transaction
Documents”), the Company has agreed to irrevocably pledge to the Pledgee
__________________________ restricted shares of the Company’s Series E Preferred
Stock (the “Pledged
Shares”) in the denominations set forth in Schedule 1
hereto.  The parties acknowledge and agree that all of such shares are
unrestricted, freely transferable shares and the remaining shares may be
restricted.

     

     

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

     

     

    TERMS AND
CONDITIONS

     

     

    1. Pledge
and Transfer of Pledged Shares.

     

     

    1.1. The
Pledgor hereby grants to Pledgee a security interest in all Pledged Shares as
security for the Company’s obligations under the Convertible Debentures.
Simultaneously with the execution of the Transaction Documents, the Pledgor
shall deliver to the Escrow Agent stock certificates representing the Pledged
Shares, in such denominations as requested by the Pledgee, together with duly
executed stock powers or other appropriate transfer documents executed in blank
by the Pledgor (the “Transfer Documents”),
and such stock certificates and Transfer Documents shall be held by the Escrow
Agent until the full payment of all amounts due to the Pledgee under
the

     

    
      
        
          Pledge Agreement
                                                              

        

         

      

      
        1

        
          

        

      

      
         

      

    

     

    Convertible
Debentures and through repayment in accordance with the terms of the Convertible
Debentures, or the termination or expiration of this Agreement.

     

     

    2. Rights
Relating to Pledged Shares. Upon the occurrence and during the continuance of an Event of Default
(as defined herein), the Pledgee shall be entitled to vote the Pledged Shares,
to receive dividends and other distributions thereon, and to enjoy all other
rights and privileges incident to the ownership of the Pledged
Shares.

     

     

    3. Release
of Pledged Shares from Pledge. Upon the payment of all amounts due to the
Pledgee under the Convertible Debentures by repayment in accordance with the
terms of the Convertible Debentures, the
parties hereto shall notify the Escrow Agent to such effect in writing. Upon
receipt of such written notice for payment of the amounts due to the Pledgee
under the Convertible Debentures, the Escrow Agent shall return to the Pledgor
the Transfer Documents and the certificates representing the Pledged Shares,
(collectively the “Pledged Materials”),
whereupon any and all rights of Pledgee in the Pledged Materials shall be
terminated. Notwithstanding anything to the contrary contained herein, upon full
payment of all amounts due to the Pledgee under the Convertible Debentures, by
repayment in accordance with the terms of the Convertible
Debentures, this Agreement and Pledgee’s security interest and rights in
and to the Pledged Shares shall terminate.

     

     

    4. Event of
Default. An “Event of Default”
shall be deemed to have occurred under this Agreement upon an Event of Default
under the Transaction Documents.

     

     

    5. Remedies.
Upon and anytime after the occurrence of an Event of Default, the Pledgee shall
have the right to provide written notice of such Event of Default (the “Default Notice”) to
the Escrow Agent, with a copy to the Pledgor. As soon as practicable after
receipt of the Default Notice, the Escrow Agent shall deliver to Pledgee the
Pledged Materials held by the Escrow Agent hereunder. Upon receipt of the
Pledged Materials, the Pledgee shall have the right to (i) sell the Pledged
Shares and to apply the proceeds of such sales, net of any selling commissions,
to the Obligations owed to the Pledgee by the Pledgor under the Transaction
Documents, including, without limitation, outstanding principal, interest, legal
fees, and any other amounts owed to the Pledgee, and exercise all other rights
and (ii) any and all remedies of a secured party with respect to such
property as may be available under the Uniform Commercial Code as in effect in
the State of Florida. The Pledgee shall
have the absolute right to sell or dispose of the Pledged Shares in any manner
it sees fit and shall have no liability to the Pledgor or any other party for
selling or disposing of such Pledged Shares even if other methods of sales or
dispositions would or allegedly would result in greater proceeds than the method
actually used. The Escrow Agent shall have the absolute right to disburse the
Pledged Shares to the Pledgee in batches not to exceed 9.9% of the outstanding
capital of the Pledgor (which limit may be waived by the Pledgee providing not
less than 65 days’ prior written notice to the Escrow Agent). The Pledgee
shall return any Pledged Shares released to it and remaining after the Pledgee
has applied the net proceeds to all amounts owed to the Pledgee.

     

    
      
        
          Pledge Agreement
                                                              

        

         

      

      
        2

        
          

        

      

      
         

      

    

     

    5.1. Each
right, power and remedy of the Pledgee provided for in this Agreement or any
other Transaction Document shall be cumulative and concurrent and shall be in
addition to every other such right, power or remedy. The exercise or beginning
of the exercise by the Pledgee of any one or more of the rights, powers or
remedies provided for in this Agreement or any other Transaction Document or now
or hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by the Pledgee of all such other
rights, powers or remedies, and no failure or delay on the part of the Pledgee
to exercise any such right, power or remedy shall operate as a waiver thereof.
No notice to or demand on the Pledgor in any case shall entitle it to any other
or further notice or demand in similar or other circumstances or constitute a
waiver of any of the rights of the Pledgee to any other further action in any
circumstances without demand or notice. The Pledgee shall have the full power to
enforce or to assign or contract is rights under this Agreement to a third
party.

     

     

    5.2. Demand Registration Rights.
In addition to all other remedies available to the Pledgee, upon an Event
of Default, the Pledgor shall promptly, but in no event more than sixty (60) days after the date of the Default
Notice, file a registration statement to register with the Securities and
Exchange Commission the Pledged Shares for the resale by the Pledgee. The
Pledgor shall cause the registration statement to remain in effect until all of
the Pledged Shares have been sold by the Pledgee.

     

     

    6. Concerning
the Escrow Agent.

     

     

    6.1. The
Escrow Agent undertakes to perform only such duties as are expressly set forth
herein and no implied duties or obligations shall be read into this Agreement
against the Escrow Agent.

     

     

    6.2. The
Escrow Agent may act in reliance upon any writing or instrument or signature
which it, in good faith, believes to be genuine, may assume the validity and
accuracy of any statement or assertion contained in such a writing or
instrument, and may assume that any person purporting to give any writing,
notice, advice or instructions in connection with the provisions hereof has been
duly authorized to do so. The Escrow Agent shall not be liable in any manner for
the sufficiency or correctness as to form, manner, and execution, or validity of
any instrument deposited in this escrow, nor as to the identity, authority, or
right of any person executing the same; and its duties hereunder shall be
limited to the safekeeping of such certificates, monies, instruments, or other
document received by it as such escrow holder, and for the disposition of the
same in accordance with the written instruments accepted by it in the
escrow.

     

     

    6.3.
Pledgee and the Pledgor hereby agree, to defend and indemnify the Escrow Agent
and hold it harmless from any and all claims, liabilities, losses, actions,
suits, or proceedings at law or in equity, or any other expenses, fees, or
charges of any character or nature which it may incur or with which it may be
threatened by reason of its acting as Escrow Agent under this Agreement, except for Escrow Agent’s gross negligence
or

     

    
      
        
          Pledge Agreement
                                                              

        

         

      

      
        3

        
          

        

      

      
         

      

    

     

    willful misconduct; and in connection therewith,
to indemnify the Escrow Agent against any and all expenses, including attorneys’
fees and costs of defending any action, suit, or proceeding or resisting any
claim (and any costs incurred by the Escrow Agent pursuant to Sections 6.4
or 6.5 hereof). The Escrow Agent shall be vested with a lien on all property
deposited hereunder, for indemnification of attorneys’ fees and court costs
regarding any suit, proceeding or otherwise, or any other expenses, fees, or
charges of any character or nature, which may be incurred by the Escrow Agent by
reason of disputes arising between the makers of this escrow as to the correct
interpretation of this Agreement and instructions given to the Escrow Agent
hereunder, or otherwise, with the right of the Escrow Agent, regardless of the
instructions aforesaid, to hold said property until and unless said additional
expenses, fees, and charges shall be fully paid. Any fees and costs charged by
the Escrow Agent for serving hereunder shall be paid by the
Pledgor.

     

     

    6.4. If
any of the parties shall be in disagreement about the interpretation of this
Agreement, or about the rights and obligations, or the propriety of any action
contemplated by the Escrow Agent hereunder, the Escrow Agent may, at its sole
discretion deposit the Pledged Materials with the Clerk of the United States
District Court Southern District of Florida, sitting in Miami, Florida, and,
upon notifying all parties concerned of such action, all liability on the part
of the Escrow Agent shall fully cease and terminate. The Escrow Agent shall be
indemnified by the Pledgor, the Company and Pledgee for all costs, including
reasonable attorneys’ fees in connection with the aforesaid proceeding, and
shall be fully protected in suspending all or a part of its activities under
this Agreement until a final decision or other settlement in the proceeding is
received.

     

     

    6.5. The
Escrow Agent may consult with counsel of its own choice (and the costs of such
counsel shall be paid by the Pledgor and Pledgee) and shall have full and
complete authorization and protection for any action taken or suffered by it
hereunder in good faith and in accordance with the opinion of such counsel. The
Escrow Agent shall not be liable for any mistakes of fact or error of judgment,
or for any actions or omissions of any kind, unless caused by its willful
misconduct or gross negligence.

     

     

    6.6. The
Escrow Agent may resign upon ten (10) days’ written notice to the parties
in this Agreement. If a successor Escrow Agent is not appointed within this ten
(10) day period, the Escrow Agent may petition a court of competent
jurisdiction to name a successor.

     

     

    6.7 Conflict Waiver. The Pledgor hereby
acknowledges that the Escrow Agent is securities counsel to the Pledgee and
counsel to the Pledgee in connection with the transactions contemplated and
referred herein. The Pledgor agrees that in the event of any dispute arising in
connection with this Agreement or otherwise in connection with any transaction
or agreement contemplated and referred herein, the Escrow Agent shall be
permitted to continue to represent the Pledgee and the Pledgor will not seek to
disqualify such counsel and waives any objection Pledgor might have with respect
to the Escrow Agent acting as the Escrow Agent pursuant to this
Agreement.

     

    
      
        
          Pledge Agreement
                                                              

        

         

      

      
        4

        
          

        

      

      
         

      

    

     

    6.8 Notices.
Unless otherwise provided herein, all demands, notices, consents, service of
process, requests and other communications hereunder shall be in writing and
shall be delivered in person or by overnight courier service, or mailed by
certified mail, return receipt requested, addressed:

     

    
      	 
      	 
      	 
      	 
      	 
      
	
                If
      to a Pledgor, to such

            	 
      	 
      
	
               
      Pledgor’s attention c/o:

            	 
      	
              14850
      Montfort Drive, Suite 131

            
	 
      	 
      	
              Dallas,
      Texas 75254

            
	 
      	 
      	
              Attention:  Blair
      Merriam, CEO

            
	 
      	 
      	
              Telephone:
      (303) 881-2604

            
	 
      	 
      	
              Facsimile:  (480)
      287-9560

            
	 
      	 
      	 
      
	
                With
      a copy to:

            	 
      	 
      
	 
      	 
      	
              Michael
      J. Tauger, Esq.

            
	 
      	 
      	
              5445
      DTC Parkway, Suite 520

            
	 
      	 
      	
              Greenwood
      Village, CO 80111

            
	 
      	 
      	
              Telephone:   (303) 713-0363

            
	 
      	 
      	
              Facsimile:  (720) 489-1587 

            
	 
      	 
      	 
      
	
                If
      to the Pledgee:

               

            	 
      	
              Trafalgar
      Capital Specialized

               Investment
      Fund, Luxembourg

            
	 
      	 
      	
              8-10
      Rue Mathias Hardt

            
	 
      	 
      	
              BP
      3023

            
	 
      	 
      	
              L-1030
      Luxembourg

            
	 
      	 
      	
              Attention:
      Andrew Garai, Chairman of the Board of

              Trafalgar
      Capital Sarl, the General Partner

            
	 
      	 
      	
              Facsimile:
      011-44-207-405-0161

            
	 
      	 
      	
              and
      001-786-323-1651

            
	 
      	 
      	 
      
	
                With
      copy to:

            	 
      	
              James
      G. Dodrill II, P.A.

            
	 
      	 
      	
              5800
      Hamilton Way

            
	 
      	 
      	
              Boca
      Raton, FL  33496

            
	 
      	 
      	
              Telephone:
      (561) 862-0529

            
	 
      	 
      	
              Facsimile:
      (561) 892-7787

            

    

     

    Any such
notice shall be effective (a) when delivered, if delivered by hand delivery
or overnight courier service, or (b) five (5) days after deposit in
the United States mail, as applicable.

     

     

    7. Binding
Effect. All of the covenants and obligations contained herein shall be
binding upon and shall inure to the benefit of the respective parties, their
successors and assigns.

     

    
      
        
          Pledge Agreement
                                                              

        

         

      

      
        5

        
          

        

      

      
         

      

    

     

    8. Governing
Law; Venue; Service of Process. The validity, interpretation and
performance of this Agreement shall be determined in accordance with the laws of
the State of Florida applicable to contracts made and to be performed wholly
within that state except to the extent that Federal law applies. The parties
hereto agree that any disputes, claims, disagreements, lawsuits, actions or
controversies of any type or nature whatsoever that, directly or indirectly,
arise from or relate to this Agreement, including, without limitation, claims
relating to the inducement, construction, performance or termination of this
Agreement, shall be brought in the state courts located in Broward County,
Florida or United States District Courts for the Southern District of Florida,
and the parties hereto agree not to challenge the selection of that venue in any
such proceeding for any reason, including, without limitation, on the grounds
that such venue is an inconvenient forum. The parties hereto specifically agree
that service of process may be made, and such service of process shall be
effective if made, pursuant to Section 8 hereto.

     

     

    9. Enforcement
Costs. If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any provisions of this Agreement, the
successful or prevailing party or parties shall be entitled to recover
reasonable attorneys’ fees, court costs and all expenses even if not taxable as
court costs (including, without limitation, all such fees, costs and expenses
incident to appeals), incurred in that action or proceeding, in addition to any
other relief to which such party or parties may be entitled.

     

     

    10. Remedies
Cumulative. No
remedy herein conferred upon any party is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law, in equity, by statute, or otherwise. No single or partial exercise by any
party of any right, power or remedy hereunder shall preclude any other or
further exercise thereof.

     

     

    11. Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute the same instrument.

     

     

    12. No
Penalties. No
provision of this Agreement is to be interpreted as a penalty upon any party to
this Agreement.

     

     

    13. JURY
TRIAL. EACH OF THE PLEDGEE AND THE PLEDGOR HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES THE RIGHT WHICH IT MAY HAVE TO A TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED HEREON, OR ARISING OUT OF, UNDER
OR IN ANY WAY CONNECTED WITH THE DEALINGS BETWEEN PLEDGEE AND PLEDGOR, THIS
PLEDGE AND ESCROW AGREEMENT OR ANY DOCUMENT EXECUTED IN CONNECTION HEREWITH, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL
OR

     

    
      
        
          Pledge Agreement
                                                              

        

         

      

      
        6

        
          

        

      

      
         

      

    

     

    WRITTEN)
OR ACTIONS OF ANY PARTY HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE.

     

     

    

     

     

    

     

     

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

     

    
      	 
      	
              PLATINA
      ENERGY GROUP, INC.

            
	 
      	 
      
	 
      	
              By:                                                                

            
	 
      	
              Name:                      Blair
      Merriam

            
	 
      	
              Title:                      Chief
      Executive Officer

            
	 
      	 
      
	 
      	
              TRAFALGAR
      CAPITAL SPECIALIZED

            
	 
      	
              INVESTMENT
      FUND, LUXEMBOURG

            
	 
      	 
      
	 
      	
              By:           Trafalgar
      Capital Sarl

            
	 
      	
              Its:           General
      Partner

            
	 
      	 
      
	 
      	
              By:                                                                

            
	 
      	
              Name:                      Andrew
      Garai

            
	 
      	
              Title:                      Chairman
      of the Board

            
	 
      	 
      
	 
      	 
      
	 
      	
              JAMES
      G. DODRILL II, P.A.

            
	 
      	 
      
	 
      	
              By:                                                                

            
	 
      	
              Name:                      James
      Dodrill, Esq.

            
	 
      	
              Title:                      President

            

    

     

    

     

    

    
      
        
          Pledge Agreement
                                                              

        

         

      

      
        7

        
          

        

      

      
         

      

    

    Schedule
1

    

    

    Pledgor:                                           Number of Shares
Pledged:                                                                Free
Trading?:

    

    Platina
Energy
Group                                                      57,500
Shares of Series
E                                                                           No

    Preferred Stock

    
      
         

      

      
        8exhibit-10_4.htm

    

     

    SECURITY
AGREEMENT

     

    THIS SECURITY AGREEMENT (the
“Agreement”), is entered into and made
effective as of August ____, 2008, by and between PLATINA ENERGY GROUP, INC.,
(the “Company”), and Trafalgar Capital Specialized
Investment Fund, Luxembourg   (the “Secured
Party”).

     

    WHEREAS, the Company shall
issue and sell to the Secured Party, as provided in the Securities Purchase
Agreement dated the date hereof between the Company and the Secured Party (the
“Securities Purchase Agreement”), and the Secured Party shall purchase
One Million Two Hundred Thousand Dollars ($1,200,000) of secured promissory
notes (the “Notes”), which shall
be convertible into shares of the Company’s common stock, par value $.001 (the
“Common Stock”)
(as converted, the “Conversion Shares”),
for a total purchase price of One Million Two Hundred Thousand
Dollars ($1,200,000);

     

    WHEREAS, to induce the Secured
Party to enter into the transaction contemplated by the Securities Purchase
Agreement, the Notes, the Investor Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions, the Pledge Agreement, and the Escrow
Agreement, each as defined in the Securities
Purchase Agreement (collectively referred to as the “Transaction
Documents”), the Company hereby grants to the Secured Party a security
interest in and to the pledged collateral identified on Attachment 1 hereto
until the satisfaction of the Obligations, as defined herein below.

     

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

     

    ARTICLE
1.

     

    DEFINITIONS AND
INTERPRETATIONS

     

    
      	
              Section
      1.1.

            	
              Recitals.

            

    

     

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

     

    
      	
              Section
      1.2.

            	
              Interpretations.

            

    

     

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

     

    
      	
              Section
      1.3.

            	
              Obligations
      Secured.

            

    

     

    The
obligations secured hereby are any and all obligations of the Company now
existing or hereinafter incurred to the Secured Party, whether oral or written
and whether arising before, on or after the date hereof including, without
limitation, those obligations of the Company to the Secured Party under the
Securities Purchase Agreement, the Notes, the Investor Registration

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    Rights
Agreement and Irrevocable Transfer Agent Instructions, and any other amounts now
or hereafter owed to the Secured Party by the Company thereunder or hereunder
(collectively, the “Obligations”).

     

    ARTICLE
2.

     

    PLEDGED COLLATERAL,
ADMINISTRATION OF COLLATERAL

     

     

    AND TERMINATION OF SECURITY
INTEREST

     

    
      	
              Section
      2.1.

            	
              Grant of Security
      Interest.

            

    

     

    1.           As
security for the Obligations, Company hereby pledges to Secured Party and grants
to Secured Party a security interest in all right, title and interests of
Company and its subsidiaries in and to the property described in Attachment 1
hereto, whether now existing or hereafter from time to time acquired
(collectively, the  “Pledged
Collateral.”).

     

    (a)           Simultaneously
with the execution and delivery of this Agreement, the Company shall make,
execute, acknowledge, file, record and deliver to the Secured Party any
documents reasonably requested by the Secured Party to perfect its security
interest in the Pledged Collateral.  Simultaneously with the execution
and delivery of this Agreement, the Company shall make, execute, acknowledge and
deliver to the Secured Party such documents and instruments, including, without
limitation, financing statements, certificates, affidavits and forms as may, in
the Secured Party’s reasonable judgment, be necessary to effectuate, complete or
perfect, or to continue and preserve, the security interest of the Secured Party
in the Pledged Collateral, and the Secured Party shall hold such documents and
instruments as secured party, subject to the terms and conditions contained
herein.

     

    
      	
              Section
      2.2.

            	
              Rights; Interests;
      Etc.

            

    

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    to
Article 5 hereof, then all cash sums received by the Secured Party, or held
by Company and/or its subsidiaries for the benefit of the Secured Party and paid
over pursuant to Section 2.2(b)(ii) hereof, shall be applied against
any outstanding Obligations; and

     

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

     

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

     

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

     

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

     

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

     

    (iii)           the
Company and/or its subsidiaries shall:  (1) make a general
assignment for the benefit of its creditors; (2) apply for or consent to
the appointment of a receiver, trustee, assignee, custodian, sequestrator,
liquidator or similar official for itself or any of its assets and properties;
(3) commence a voluntary case for relief as a debtor under the United
States Bankruptcy Code; (4) file with or otherwise submit to any
governmental authority any petition, answer or other document
seeking:  (A) reorganization, (B) an arrangement with
creditors or (C) to take advantage of any other present or future
applicable law respecting bankruptcy, reorganization, insolvency, readjustment
of debts, relief of debtors, dissolution or liquidation; (5) file or
otherwise submit any answer or other document admitting or failing to contest
the material allegations of a petition or other document filed or otherwise
submitted against it in any of the proceedings set forth in this Section
2.2(c)(ii) under any such applicable law, or (6) be adjudicated a bankrupt
or insolvent by a court of competent jurisdiction; or (iii) any case, proceeding
or other action shall be commenced against the Company for the purpose of
effecting, or an order, judgment or decree shall be entered by any court of
competent jurisdiction approving (in whole or in part) anything specified
in Section 2.2(c)(ii) hereof, or any receiver, trustee, assignee,
custodian, sequestrator, liquidator or other official shall be appointed with
respect to the Company and/or its subsidiaries, or shall be appointed to take or
shall otherwise acquire possession or control of all or a substantial part of
the assets and properties of the Company and/or its subsidiaries, and any of the
foregoing shall continue unstayed and in effect for any period of thirty
(30) days.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    ARTICLE
2.2.0.0.0.3.4.

     

     

    ATTORNEY-IN-FACT;
PERFORMANCE

     

    
      	
              Section
      2.3.

            	
              Secured Party
      Appointed Attorney-In-Fact.

            

    

     

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

     

    
      	
              Section
      2.4.

            	
              Secured Party May
      Perform.

            

    

     

    If the
Company fails to perform any agreement contained herein, the Secured Party, at
its option, may itself perform, or cause performance of, such agreement, and the
expenses of the Secured Party incurred in connection therewith shall be included
in the Obligations secured hereby and payable by the Company under
Section 8.3.

     

    ARTICLE
3.

     

    REPRESENTATIONS AND
WARRANTIES

     

    
      	
              Section
      3.1.

            	
              Authorization;
      Enforceability.

            

    

     

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

     

    
      	
              Section
      3.2.

            	
              Ownership of Pledged
      Collateral.

            

    

     

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

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    ARTICLE
3.2.1.

     

     

    DEFAULT; REMEDIES;
SUBSTITUTE COLLATERAL

     

    
      	
              Section
      3.3.

            	
              Default and
      Remedies.

            

    

     

    (a)           If
an Event of Default described in Section 2.2(c)(i) or
(ii) occurs, then in each such case the Secured Party may declare the
Obligations to be due and payable immediately, by a notice in writing to the
Company, and upon any such declaration, the Obligations shall become immediately
due and payable.  If an Event of Default described in
Sections 2.2(c)(iii) or (iv) occurs and is continuing for the
period set forth therein, then the Obligations shall automatically become
immediately due and payable without declaration or other act on the part of the
Secured Party.

     

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

     

    
      	
              Section
      3.4.

            	
              Method of Realizing
      Upon the Pledged Collateral: Other
  Remedies.

            

    

     

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

     

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

     

    (b)           Any
cash being held by the Secured Party as Pledged Collateral and all cash proceeds
received by the Secured Party in respect of, sale of, collection from, or other
realization upon all or any part of the Pledged Collateral shall be applied as
follows:

     

    (i)           to
the payment of all amounts due the Secured Party for the expenses reimbursable
to it hereunder or owed to it pursuant to Section 8.3 hereof;

     

    (ii)           to
the payment of the Obligations then due and unpaid.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

    
      	
              Section
      3.5.

            	
              Proofs of
      Claim.

            

    

     

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

     

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

     

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

     

    
      	
              Section
      3.6.

            	
              Duties Regarding
      Pledged Collateral.

            

    

     

    The
Secured Party shall have no duty as to the collection or protection of the
Pledged Collateral or any income thereon or as to the preservation of any rights
pertaining thereto,

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    beyond
the safe custody and reasonable care of any of the Pledged Collateral actually
in the Secured Party’s possession.

     

    ARTICLE
4.

     

    AFFIRMATIVE
COVENANTS

     

    The
Company covenants and agrees that, from the date hereof and until the
Obligations have been fully paid and satisfied, unless the Secured Party shall
consent otherwise in writing (as provided in Section 8.4
hereof):

     

    
      	
              Section
      4.1.

            	
              Existence, Properties,
      Etc.

            

    

     

    (a)           The
Company shall do, or cause to be done, all things, or proceed with due diligence
with any actions or courses of action, that may be reasonably necessary
(i) to maintain Company’s due organization, valid existence and good
standing under the laws of its state of incorporation, and (ii) to preserve
and keep in full force and effect all qualifications, licenses and registrations
in those jurisdictions in which the failure to do so could have a Material
Adverse Effect (as defined below); and (b) the Company shall not do, or
cause to be done, any act impairing the Company’s corporate power or authority
(i) to carry on the Company’s business as now conducted, and (ii) to
execute or deliver this Agreement or any other document delivered in connection
herewith, including, without limitation, any UCC-1 Financing Statements required
by the Secured Party to which it is or will be a party, or perform any of
its obligations hereunder or thereunder.  For purpose of this
Agreement, the term “Material Adverse
Effect” shall mean any material and adverse affect as determined by
Secured Party in its sole discretion, whether individually or in the aggregate,
upon (a) the Company’s assets, business, operations, properties or
condition, financial or otherwise or results of operations of the Company, taken
as a whole, excluding any change, event, circumstance or effect that is caused
by changes in general economic conditions or changes generally affecting the
industry in which the Company operates (provided that such changes do not affect
the Company in a materially disproportionate manner); or (b) the Company’s
ability to make payment as and when due of all or any part of the Obligations;
or (c) the Pledged Collateral.

     

    
      	
              Section
      4.2.

            	
              Financial Statements
      and Reports.

            

    

     

    The
Company shall furnish to the Secured Party such financial data as the Secured
Party may reasonably request.  Without limiting the foregoing, the
Company shall furnish to the Secured Party (or cause to be furnished to the
Secured Party) the following:

     

    (a)           as
soon as practicable and in any event within ninety (90) days after the end of
each fiscal year of the Company, the balance sheet of the Company as of the
close of such fiscal year, the statement of earnings and retained earnings of
the Company as of the close of such fiscal year, and statement of cash flows for
the Company for such fiscal year, all in reasonable detail, prepared in
accordance with generally accepted accounting principles consistently applied,
certified by the chief executive and chief financial officers of the Company as
being true and correct and accompanied by a certificate of the chief executive
and chief financial officers of the Company, stating that the Company has kept,
observed, performed and fulfilled each covenant, term and condition of this
Agreement during such fiscal year and that no

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    Event of
Default hereunder has occurred and is continuing, or if an Event of Default has
occurred and is continuing, specifying the nature of same, the period of
existence of same and the action the Company proposes to take in connection
therewith;

     

    (b)           within
thirty (30) days of the end of each calendar month, a balance sheet of the
Company as of the close of such month, and statement of earnings and retained
earnings of the Company as of the close of such month, all in reasonable detail,
and prepared substantially in accordance with generally accepted accounting
principles consistently applied, certified by the chief executive and chief
financial officers of the Company as being true and correct; and

     

    (c)           promptly
upon receipt thereof, copies of all accountants' reports and accompanying
financial reports submitted to the Company by independent accountants in
connection with each annual examination of the Company.

     

    
      	
              Section
      6.3

            	
              Accounts and
      Reports.

            

    

     

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

     

    (a)           as
soon as available, a copy of any notice or other communication alleging any
nonpayment or other material breach or default, or any foreclosure or other
action respecting any material portion of its assets and properties, received
respecting any of the indebtedness of the Company in excess of $25,000 (other
than the Obligations), or any demand or other request for payment under any
guaranty, assumption, purchase agreement or similar agreement or arrangement
respecting the indebtedness or obligations of others in excess of $25,000,
including any received from any person acting on behalf of the Secured Party or
beneficiary thereof, except for supplier requests in the normal course of
business for payment of past due accounts payable invoices so long as such past
due amounts do not exceed in the aggregate $50,000 at any time; and

     

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

     

    
      	
              Section6.4.

            	
              Maintenance of Books
      and Records; Inspection.

            

    

     

    The
Company shall maintain its books, accounts and records in accordance with
generally accepted accounting principles consistently applied, and permit the
Secured Party, its officers and employees and any professionals designated by
the Secured Party in writing, during business hours and upon reasonable notice
to visit and inspect any of its properties (including but not limited to the
Pledged Collateral), corporate books and financial records, and to discuss its
accounts, affairs and finances with any employee, officer or director
thereof.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    Section
6.5.                                Maintenance and
Insurance.

     

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

     

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

     

    
      	
              Section
      6.6.

            	
              Contracts and Other
      Collateral.

            

    

     

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

     

    
      	
              Section
      6.7.

            	
              Defense of Collateral,
      Etc.

            

    

     

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

     

    
      	
              Section
      6.8.

            	
              Payment of Debts,
      Taxes, Etc.

            

    

     

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

     

    
      	
              Section
      6.9.

            	
              Taxes and Assessments;
      Tax Indemnity.

            

    

     

    The
Company shall (a) file all tax returns and appropriate schedules thereto
that are required to be filed under applicable law, prior to the date of
delinquency, (b) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the Company, upon its income and profits or upon
any properties belonging to it, prior to the date on which penalties attach
thereto, and (c) pay all taxes, assessments and governmental charges or
levies that, if

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    unpaid,
might become a lien or charge upon any of its properties; provided, however, that the
Company in good faith may contest any such tax, assessment, governmental charge
or levy described in the foregoing clauses (b) and (c) so long as appropriate
reserves are maintained with respect thereto.

     

    
      	
              Section
      6.10.

            	
              Compliance with Law
      and Other Agreements.

            

    

     

    The
Company shall maintain its business operations and property owned or used in
connection therewith in compliance with (a) all applicable federal, state
and local laws, regulations and ordinances governing such business operations
and the use and ownership of such property, and (b) all agreements,
licenses, franchises, indentures and mortgages to which the Company is a party
or by which the Company or any of its properties is bound.  Except as
set forth in its cash flow projections provided to the Secured Party as set
forth in the Securities Purchase Agreement, without limiting the foregoing, the
Company shall pay all of its indebtedness promptly in accordance with the terms
thereof.

     

    
      	
              Section
      6.11.

            	
              Notice of
      Default.

            

    

     

    The
Company shall give written notice to the Secured Party of the occurrence of any
default or Event of Default under this Agreement, the Transaction Documents or
the Debenture any other agreement of Company for the payment of money, promptly
upon the occurrence thereof.

     

    
      	
              Section
      6.12.

            	
              Notice of
      Litigation.

            

    

     

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

     

    ARTICLE
5.

     

    NEGATIVE
COVENANTS

     

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

     

    
      	
              Section
      5.1.

            	
              Indebtedness.

            

    

     

    Other
than in the ordinary course of business consistent with past practice, the
Company shall not directly or indirectly permit, create, incur assume, permit to
exist, increase, renew or extend on or after the date hereof any additional debt
or permit any subsidiary of the Company to do or allow any of the foregoing
without the Secured Party’s prior written consent beyond that which is set forth
in Schedule 4(j) of the Securities Purchase
Agreement.   .

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    Section
5.1.1.                                Liens and
Encumbrances.

     

    Other
than in the ordinary course of business consistent with past
practice,  and except for such assignment, transfer, pledge, mortgage,
security interest or other lien or encumbrance as is outstanding on the date of
this Agreement, the Company shall not directly or indirectly make, create,
incur, assume or permit to exist any assignment, transfer, pledge, mortgage,
security interest or other lien or encumbrance of any nature in, to or against
any part of the Pledged Collateral or of the Company’s capital stock, or offer
or agree to do so, or own or assign, pledge or in any way transfer or encumber
its right to receive any income or other distribution or proceeds from any part
of the Pledged Collateral or the Company’s capital stock; or enter into any
sale-leaseback financing respecting any part of the Pledged Collateral as
lessee, or cause or assist the inception or continuation of any of the
foregoing.

     

    
      	
              Section
      5.2.

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

            

    

     

    Other
than in the ordinary course of business consistent with past practice, without
the prior express written consent of the Secured Party, the Company shall
not:  (a) Amend its Certificate of Incorporation or By-Laws; (b)
issue or sell any Common Stock or Preferred Stock without consideration or for a
consideration per share less than the bid price of the Common Stock determined
immediately prior to its issuance, (c) issue or sell any Preferred Stock,
warrant, option, right, contract, call, or other security or instrument granting
the holder thereof the right to acquire Common Stock without consideration or
for a consideration per share less than such Common Stock’s bid price value
determined immediately prior to its issuance, (c) be a party to any merger,
consolidation or corporate reorganization, (d) purchase or otherwise
acquire all or substantially all of the assets or stock of, or any partnership
or joint venture interest in, any other person, firm or entity, (e) enter
into any security instrument granting the holder a security interest in any of
the assets of the Company or sell, transfer or lease all or any substantial part
of the assets of the Company, nor (f) create any subsidiaries nor convey
any of its assets to any subsidiary.

     

    
      	
              Section
      5.3.

            	
              Management,
      Ownership.

            

    

     

    The
Company shall not materially change its ownership, executive staff or management
without the prior written consent of the Secured Party.  The
ownership, executive staff and management of the Company are material factors in
the Secured Party's willingness to institute and maintain a lending relationship
with the Company.

     

    
      	
              Section
      5.4.

            	
              Dividends,
      Etc.

            

    

     

    The
Company shall not declare or pay any dividend of any kind, in cash or in
property, on any class of its capital stock, nor purchase, redeem, retire or
otherwise acquire for value any shares of such stock, nor make any distribution
of any kind in respect thereof, nor make any return of capital to shareholders,
nor make any payments in respect of any pension, profit sharing, retirement,
stock option, stock bonus, incentive compensation or similar plan (except as
required or permitted hereunder), without the prior written consent of the
Secured Party.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    Section
5.4.1.                                Guaranties;
Loans.

     

    Other
than in the ordinary course of business, and except for such guarantees or
liabilities as are outstanding on the date of this Agreement, the Company shall
not guarantee nor be liable in any manner, whether directly or indirectly, or
become contingently liable after the date of this Agreement in connection with
the obligations or indebtedness of any person or persons, except for (i) the
indebtedness currently secured by the liens identified on the Pledged Collateral
identified on Exhibit A hereto and (ii) the endorsement of negotiable
instruments payable to the Company for deposit or collection in the ordinary
course of business.  The Company shall not make any loan, advance or
extension of credit to any person other than in the normal course of its
business.

     

    
      	
              Section
      5.5.

            	
              Debt.

            

    

     

    Other
than in the ordinary course of business, and except for such indebtedness as is
outstanding on the date of this Agreement, without the prior written approval of
Trafalgar, the Company shall not create, incur, assume or suffer to exist any
additional indebtedness of any description whatsoever in an aggregate amount in
excess of $50,000 (excluding any indebtedness of the Company to the Secured
Party, trade accounts payable and accrued expenses incurred in the ordinary
course of business and the endorsement of negotiable instruments payable to the
Company, respectively for deposit or collection in the ordinary course of
business).

     

    
      	
              Section
      5.6.

            	
              Conduct of
      Business.

            

    

     

    The
Company will continue to engage in the business of the Company in the same
manner as heretofore conducted and only in the ordinary course consistent with
past practice.

     

    
      	
              Section
      5.7.

            	
              Places of
      Business.

            

    

     

    The
location of the Company’s chief place of business is at the address set forth
in  Section 8.1 hereof.  The Company shall not change the
location of its chief place of business, chief executive office or any place of
business disclosed to the Secured Party or move any of the Pledged Collateral
from its current location (other than in the
ordinary course of business) without thirty (30)
days' prior written notice to the Secured Party in each instance.

     

    ARTICLE
6.

     

    MISCELLANEOUS

     

    
      	
              Section
      6.1.

            	
              Notices.

            

    

     

    All
notices or other communications required or permitted to be given pursuant to
this Agreement shall be in writing and shall be considered as duly given
on:  (a) the date of delivery, if delivered in person, by
nationally recognized overnight delivery service or
(b) five (5) days after mailing if mailed from within the
continental United States by certified mail, return receipt requested to the
party entitled to receive the same:

     

    
      	 
      	
              If
      to the Secured Party:

            	
              Trafalgar
      Capital Specialized Investment Fund

            
	 
      	 
      	
              8-10
      Rue Mathias Hardt

            
	 
      	 
      	
              BP
      3023

            
	 
      	 
      	
              L-1030
      Luxembourg

            
	 
      	 
      	
              Attention:
      Andrew Garai, Chairman of the Board of

            
	 
      	 
      	
              Trafalgar
      Capital Sarl, General Partner

            
	 
      	 
      	
              Facsimile:                                011-44-207-405-0161
      and

                                      001-786-323-1651

            
	 
      	 
      	 
      
	 
      	
              With
      a copy to:

            	
              James
      G. Dodrill II, P.A.

            
	 
      	 
      	
              5800
      Hamilton Way

            
	 
      	 
      	
              Boca
      Raton, FL  33496

            
	 
      	 
      	
              Attention:                                James
      Dodrill, Esq.

            
	 
      	 
      	
              Telephone:                                (561)
      862-0529

            
	 
      	 
      	
              Facsimile:                                (561)
      892-7787

            
	 
      	 
      	 
      
	 
      	
              And
      if to the Company:

            	
              Blair
      Merriam, CEO

            
	 
      	 
      	
              14850
      Montfort Drive, Suite 131

            
	 
      	 
      	
              Dallas,
      Texas 75254

            
	 
      	 
      	
              Telephone:
      (303) 881-2604

            
	 
      	 
      	
              Facsimile: (480)
      287-9560

            
	 
      	 
      	 
      
	 
      	
              With
      a copy to:

            	
              Michael
      J. Tauger, Esq.

            
	 
      	 
      	
              5445
      DTC Parkway, Suite 520

            
	 
      	 
      	
              Greenwood
      Village, CO 80111

            
	 
      	 
      	
              Telephone:
      (303) 713-0363

            
	 
      	 
      	
              Facsimile:
      (720)489-1587

            

    

    

    Any party
may change its address by giving notice to the other party stating its new
address.  Commencing on the tenth (10th) day
after the giving of such notice, such newly designated address shall be such
party’s address for the purpose of all notices or other communications required
or permitted to be given pursuant to this Agreement.

     

    
      	
              Section
      6.2.

            	
              Severability.

            

    

     

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

     

    
      	
              Section
      6.3.

            	
              Expenses.

            

    

     

    In the
event of an Event of Default, the Company will pay to the Secured Party the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel, which the Secured Party may incur in connection
with:  (i) the custody or preservation of, or the sale,
collection from, or other realization upon, any of the Pledged Collateral;
(ii) the

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

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

     

    
      	
              Section
      6.4.

            	
              Waivers, Amendments,
      Etc.

            

    

     

    The
Secured Party’s delay or failure at any time or times hereafter to require
strict performance by Company of any undertakings, agreements or covenants shall
not waiver, affect, or diminish any right of the Secured Party under this
Agreement to demand strict compliance and performance herewith.  Any
waiver by the Secured Party of any Event of Default shall not waive or affect
any other Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type.  None of the
undertakings, agreements and covenants of the Company contained in this
Agreement, and no Event of Default, shall be deemed to have been waived by the
Secured Party, nor may this Agreement be amended, changed or modified, unless
such waiver, amendment, change or modification is evidenced by an instrument in
writing specifying such waiver, amendment, change or modification and signed by
the Secured Party.

     

    
      	
              Section
      6.5.

            	
              Continuing Security
      Interest.

            

    

     

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

     

    
      	
              Section
      6.6.

            	
              Independent
      Representation.

            

    

     

    Each
party hereto acknowledges and agrees that it has received or has had the
opportunity to receive independent legal counsel of its own choice and that it
has been sufficiently apprised of its rights and responsibilities with regard to
the substance of this Agreement.

     

    
      	
              Section
      6.7.

            	
              Applicable
      Law:  Jurisdiction.

            

    

     

    This
Agreement shall be governed by and interpreted in accordance with the laws of
the State of Florida without regard to the principles of conflict of
laws.  The parties further agree that any action between them shall be
heard in Florida and expressly consent to the jurisdiction and venue of the
Florida State Court sitting in Broward County, Florida and the United States
District Court for the Southern District of Florida for the adjudication of any
civil action asserted pursuant to this Paragraph.

     

    
      	
              Section
      6.8.

            	
              Waiver of Jury
      Trial.

            

    

     

    AS A
FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO
MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY
RIGHT TO TRIAL BY JURY IN

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    ANY LEGAL
PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER
DOCUMENTS RELATED TO THIS TRANSACTION.

     

    
      	
              Section
      6.9.

            	
              Entire
      Agreement.

            

    

     

    This
Agreement constitutes the entire agreement among the parties and supersedes any
prior agreement or understanding among them with respect to the subject matter
hereof.

     

    

    

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

    

    

    

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    

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

     

    

    
      	 
      	
              COMPANY:

            
	 
      	
              PLATINA
      ENERGY GROUP, INC.

            
	 
      	 
      
	 
      	
              By:                                                                

            
	 
      	
              Name:
      Blair Merriam

            
	 
      	
              Title:
      Chief Executive Officer

            
	 
      	 
      
	 
      	 
      
	 
      	
              SECURED
      PARTY:

            
	 
      	
              TRAFALGAR
      CAPITAL SPECIALIZED

            
	 
      	
              INVESTMENT
      FUND, LUXEMBOURG

            
	 
      	
              By:           Trafalgar
      Capital Sarl

            
	 
      	
              Its:           General
      Partner

            
	 
      	 
      
	 
      	
              By:                                                                

            
	 
      	
              Name:

            
	 
      	
              Title:
      Portfolio Manager

            

    

    

    

    

    

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    

     

    EXHIBIT
A

     

     

    DEFINITION OF PLEDGED
COLLATERAL

     

     

    For the
purpose of securing prompt and complete payment and performance by the Company
of all of the Obligations, the Company unconditionally and irrevocably hereby
grants to the Secured Party a continuing security interest in and to, and lien
upon, all of the Company’s assets and all of the assets of the Company’s
subsidiaries which are held by either as of the date of the Agreement to which
this Exhibit is attached, including specifically the following Pledged
Collateral of the Company and its subsidiaries:

     

     

    (a)           all
goods of the Company and/or its subsidiaries, including, without limitation,
machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools,
parts, supplies and motor vehicles of every kind and description, now or
hereafter owned by the Company and/or its subsidiaries or in which the Company
and/or its subsidiaries may have or may hereafter acquire any interest, and all
replacements, additions, accessions, substitutions and proceeds thereof, arising
from the sale or disposition thereof, and where applicable, the proceeds of
insurance and of any tort claims involving any of the foregoing;

     

     

    (b)           all
inventory of the Company and/or its subsidiaries, including, but not limited to,
all goods, wares, merchandise, parts, supplies, finished products, other
tangible personal property, including such inventory as is temporarily out of
Company’s or its subsidiaries’ custody or possession and including any returns
upon any accounts or other proceeds, including insurance proceeds, resulting
from the sale or disposition of any of the foregoing;

     

     

    (c)           all
contract rights and general intangibles of the Company and/or its subsidiaries,
including, without limitation, goodwill, trademarks, trade styles, trade names,
leasehold interests, partnership or joint venture interests, patents and patent
applications, copyrights, deposit accounts whether now owned or hereafter
created;

     

     

    (d)           all
documents, warehouse receipts, instruments and chattel paper of the Company
and/or its subsidiaries whether now owned or hereafter created;

     

     

    (e)           all
accounts and other receivables, instruments or other forms of obligations and
rights to payment of the Company and/or its subsidiaries (herein collectively
referred to as “Accounts”), together
with the proceeds thereof, all goods represented by such Accounts and all such
goods that may be returned by the Company’s and/or its subsidiaries’ customers,
and all proceeds of any insurance thereon, and all guarantees, securities and
liens which the Company and/or its subsidiaries may hold for the payment of any
such Accounts including, without limitation, all rights of stoppage in transit,
replevin and reclamation and as an unpaid vendor and/or lienor, all of which the
Company and its subsidiaries represent and warrant will be bona fide and
existing obligations of its respective customers, arising out of the sale of
goods by the Company in the ordinary course of business;

     

     

    (f)           to
the extent assignable, all of the Company’s and/or its subsidiaries’ rights
under all present and future authorizations, permits, licenses and franchises
issued or granted in connection with the operations of any of its
facilities;

     

     

    (g)           all
products and proceeds (including, without limitation, insurance proceeds) from
the above-described Pledged Collateral.

     

    
      
        
        

         

      

      
        16

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