SECURITY
AGREEMENT
THIS SECURITY AGREEMENT (the “ Agreement
”), is entered into and made effective as of June 24, 2008,
by and between Fox Petroleum, Inc. a Nevada corporation,
with headquarters located at 64 Knightsbridge, London, SW1X7JF (the
“ Company ”), and Trafalgar Capital
Specialized Investment Fund, Luxembourg (the “ Secured
Party ”). Capitalized words which are otherwise undefined
in this Agreement shall have the same definition as in the
Securities Purchase Agreement entered into by the parties hereto on
the date hereof.
WHEREAS, the Company shall issue and sell to the Secured
Party, as provided in the Securities Purchase Agreement dated the
date hereof, and the Secured Party shall purchase up to Two Million
Five Hundred Thousand U.S. Dollars (US$2,500,000) of secured
convertible redeemable debentures (the “ Debentures
”) in the respective amounts set forth opposite each Buyer(s)
name on Schedule I attached to the Securities Purchase
Agreement;
WHEREAS, to induce the Secured Party to enter into the
transaction contemplated by the Securities Purchase Agreement, the
Debentures, the Registration Rights Agreement and the Escrow
Agreement (collectively referred to as the “ Transaction
Documents ”), the Company hereby grants to the Secured
Party a first priority security interest in and to the pledged
property identified on Exhibit “A” hereto
(collectively referred to as the “ Pledged Property
”) 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 to the Secured Party 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 and the
Debenture
and any other amounts now or hereafter owed to the Secured Party by
the Company thereunder or hereunder (collectively, the “
Obligations ”).
ARTICLE 2.
PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL
AND TERMINATION OF SECURITY INTEREST
Section 2.1. Grant of Security
Interest .
1.
Company hereby pledges to the Secured Party and creates in the
Secured Party for its benefit a security interest for such time
until the Obligations are paid in full, in and to all of in the
property described in “ Exhibit A ” hereto,
whether now existing or hereafter from time to time acquired
(collectively, the “ Pledged Property
.”).
(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
Property. 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
Property, and the Secured Party shall hold such documents and
instruments as secured party, subject to the terms and conditions
contained herein.
Section 2.2. Rights;
Interests; Etc.
(a)
So long as no Event of Default (as hereinafter defined) shall have
occurred and be continuing:
(i)
the Company shall be entitled to exercise any and all rights
pertaining to the Pledged Property or any part thereof for any
purpose not inconsistent with the terms hereof; and
(ii)
the Company shall be entitled to receive and retain any and all
payments paid or made in respect of the Pledged
Property.
(b)
Upon the occurrence and during the continuance of an Event of
Default:
(i)
All of the Company’s interest in the Genesco-Edwards Fields
leases (Kansas) shall be immediately assigned to the Secured Party;
and
(ii)
All rights of the Company 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
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Property
such payments; provided, however , that if the Secured Party
shall become entitled and shall elect to exercise its right to
realize on the Pledged Property pursuant to Article 5 hereof, then
all cash sums received by the Secured Party, or held by Company 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
(iii)
All interest, dividends, income and other payments and
distributions which are received by the Company 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 shall be forthwith paid over to
the Secured Party; or
(iv)
The Secured Party in its sole discretion shall be authorized to
sell any or all of the Pledged Property at public or private sale
in order to recoup all of the outstanding principal plus accrued
interest owed pursuant to the Debenture as described
herein
(c)
Each of the following events, subject to the lapse of applicable
cure periods, shall constitute a default under this Agreement (each
an “ Event of Default ”):
(i)
any default, whether in whole or in part, shall occur in the
payment to the Secured Party of principal, interest or other item
comprising the Obligations as and when due or with respect to any
other debt or obligation of the 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 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)(iii) under any such applicable
law, or (6) be adjudicated a bankrupt or insolvent by a court of
competent jurisdiction; or
(iv)
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)(iii) hereof, or any receiver, trustee, assignee, custodian,
sequestrator, liquidator or other official shall be appointed with
respect to the Company, or shall be appointed to take or shall
otherwise acquire possession or control of all or a substantial
part of the assets and
3
properties
of the Company, and any of the foregoing shall continue unstayed
and in effect for any period of thirty (30) days.
ARTICLE 3.
ATTORNEY-IN-FACT; PERFORMANCE
Section 3.1. 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 Property or any
part thereof and to give full discharge for the same. The Secured
Party may demand, collect, receipt for, settle, compromise, adjust,
sue for, foreclose, or realize on the Pledged Property as and when
the Secured Party may determine. To facilitate collection, the
Secured Party may notify account debtors and obligors on any
Pledged Property or Pledged Property to make payments directly to
the Secured Party.
Section 3.2. 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 4.
REPRESENTATIONS AND WARRANTIES
Section 4.1. Authorization;
Enforceability .
Each of the
parties hereto represents and warrants that it has taken all action
necessary to authorize the execution, delivery and performance of
this Agreement and the transactions contemplated hereby; and upon
execution and delivery, this Agreement shall constitute a valid and
binding obligation of the respective party, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors’ rights or by the principles governing
the availability of equitable remedies.
Section 4.2. Ownership of
Pledged Property .
The
Company warrants and represents that it is the legal and beneficial
owner of the Pledged Property free and clear of any lien, security
interest, option or other charge or encumbrance except for the
security interest created by this Agreement and for the Permitted
Liens. For purposes hereof, “Permitted Liens” shall
mean (i) liens for taxes or other governmental charges which are
not yet delinquent or are being contested in good faith by
appropriate proceedings, (ii) liens for carriers, contractors,
warehousemen, mechanics,
4
materialmen, laborers, employees, suppliers or
other similar persons arising by operation of law and incurred in
the ordinary course of business for sums not yet delinquent or
being contested in good faith, (iii) liens relating to deposits
made in the ordinary course of business in connection with
workers’ compensation, unemployment insurance and other types
of social security or to secure the performance of leases, trade
contracts or other similar agreements; and (iv) in the case of real
property, any matters, restrictions, covenants, conditions,
limitations, rights, rights of way, encumbrances, encroachments,
reservations, easements, agreements and other matters of record,
such state of facts of which an accurate survey or inspection of
the property would reveal and do not materially interfere with the
use or value of the property.
ARTICLE 5.
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
Section 5.1. Default and
Remedies .
(a)
If an Event of Default described in Section 2.2(c)(i) 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 Property to be
transferred into the name of the Secured Party or its nominee,
(iii) to dispose of the Pledged Property, and (iv) to realize upon
any and all rights in the Pledged Property then held by the Secured
Party as provided herein.
Section 5.2. Method of
Realizing Upon the Pledged Property: Other Remedies
.
Upon the
occurrence of an Event of Default, in addition to any rights and
remedies available at law or in equity, the following provisions
shall govern the Secured Party’s right to realize upon the
Pledged Property:
(a)
Any item of the Pledged Property may be sold for cash or other
value in any number of lots at brokers board, public auction or
private sale and may be sold without demand, advertisement or
notice (except that the Secured Party shall give the 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 is hereby agreed
to be commercially reasonable. At any sale or sales of the Pledged
Property, the Company may bid for and purchase the whole or any
part of the Pledged Property and, upon compliance with the terms of
such sale, may hold, exploit and dispose of the same without
further accountability to the Secured Party. The 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.
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(b) Any cash being
held by the Secured Party as Pledged Property and all cash proceeds
received by the Secured Party in respect of, sale of, collection
from, or other realization upon all or any part of the Pledged
Property shall be applied as follows:
(i)
to the payment of all amounts due the Secured Party for the
expenses reimbursable to it hereunder or owed to it pursuant to
Section 8.3 hereof;
(ii)
to the payment of the Obligations then due and unpaid.
(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.
(d)
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.
(e)
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 5.3. Proofs of
Claim .
In
case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relating to the 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),
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
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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
