Master Security Agreement between Garwood Petrosearch, Inc. and Laurus Master Fund, Ltd.

Summary

Garwood Petrosearch, Inc. and any related entities grant Laurus Master Fund, Ltd. a security interest in a wide range of their assets, including receivables, inventory, equipment, deposit accounts, investment property, and related records. This agreement secures the payment of all obligations owed by Garwood and the other assignors to Laurus. The security interest covers both current and future assets and remains in effect until all obligations are satisfied. The agreement defines the types of collateral and the rights of Laurus in the event of default.

EX-10.5 6 ex10_5.txt EXHIBIT 10.5 MASTER SECURITY AGREEMENT To: Laurus Master Fund, Ltd. c/o M&C Corporate Services Limited P.O. Box 309 GT Ugland House South Church Street George Town Grand Cayman, Cayman Islands Date: November 1, 2006 To Whom It May Concern: 1. To secure the payment of all Obligations (as hereafter defined), Garwood Petrosearch, Inc., a Texas corporation ("Garwood"), and each other entity that is required to enter into this Master Security Agreement (each an "Assignor" and, collectively, the "Assignors") hereby assigns and grants to Laurus Master Fund, Ltd. ("Laurus") a continuing security interest in all of the following property now owned or at any time hereafter acquired by such Assignor, or in which such Assignor now has or at any time in the future may acquire any right, title or interest: (a) all Receivables; (b) all General Intangibles; (c) all Documents; (d) all Instruments; (e) all Inventory; (f) all Equipment; (g) all Deposit Accounts; (h) all Investment Property; (i) All books and records (including, without limitation, customer lists, marketing information, credit files, price lists, operating records, vendor and supplier price lists, sales literature, computer software, computer hardware, computer disks and tapes and other storage media, printouts and other materials and records) of such Assignor pertaining to any of the Collateral. (j) All moneys and property of any kind of such Assignor in the possession or under the control of Laurus. (k) all Well Data; and (l) all Proceeds of any and all of the foregoing. In each case, the foregoing shall be covered by this Master Security Agreement, whether such Assignor's ownership or other rights therein are presently held or hereafter acquired and howsoever such Assignor's interests therein may arise or appear (whether by ownership, security interest, claim or otherwise). All the aforesaid properties, rights and interests, together with any and all substitutions, replacements, corrections or amendments thereto, or renewals, extensions or ratifications thereof, or of any instrument relating thereto, and together with any additions thereto which may be subjected to Laurus' Lien, being hereinafter called the "Collateral". ---------- As used herein, the following terms shall have the following meanings: "Commercial Tort Claims" means a claim arising in tort with respect to ------------------------ which the claimant is an Assignor, including but not limited to those identified on Schedule A. ----------- "Deposit Accounts" means all "deposit accounts" (as defined in the UCC) or ----------------- other demand, time, savings, passbook, or similar accounts maintained with a bank, including nonnegotiable certificates of deposit. "Documents" means all "documents" (as defined in the UCC) or other receipts --------- covering, evidencing or representing inventory, equipment, or other goods. "Equipment" means all "equipment" (as defined in the UCC) in whatever form, --------- wherever located, and whether now or hereafter existing, and all parts thereof, all accessions thereto, and all replacements therefor. "General Intangibles" means all "general intangibles" (as defined in the -------------------- UCC) of any kind (including choses in action, Commercial Tort Claims, Software, Payment Intangibles, tax refunds, insurance proceeds, and contract rights), and all instruments, security agreements, leases, contracts, and other rights (except those constituting Receivables, Documents, or Instruments) to receive payments of money or the ownership or possession of property, including all general intangibles under which an account debtor's principal obligation is a monetary obligation. "Instruments" means all "instruments", "chattel paper" or "letters of ----------- credit" (as each is defined in the UCC) and all Letter-of-Credit Rights. "Inventory" means all "inventory" (as defined in the UCC) in all of its --------- forms, wherever located and whether now or hereafter existing, including (a) all movable property and other goods held for sale or lease, all movable property and other goods furnished or to be furnished under contracts of service, all raw materials and work in process, and all materials and supplies used or consumed in a business, (b) all movable property and other goods which are part of a product or mass, (c) all movable property and other goods which are returned to or repossessed by the seller, lessor, or supplier thereof, (d) all goods and substances in which any of the foregoing is commingled or to which any of the foregoing is added, and (e) all accessions to, products of, and documents for any of the foregoing. 2 "Investment Property" means all "investment property" (as defined in the -------------------- UCC) and all other securities, whether certificated or uncertificated, securities entitlements, securities accounts, commodity contracts, or commodity accounts. "Letter-of-Credit Rights" means all rights to payment or performance under ------------------------ a "letter of credit" (as defined in the UCC) whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance. "Lien" shall mean any mortgage, deed of trust, collateral assignment, lien, ---- pledge, charge, security interest or other encumbrance. "Payment Intangibles" means all "payment intangibles" (as defined in the -------------------- UCC). "Proceeds" means, with respect to any property of any kind, all proceeds -------- of, and all other profits, products, rentals or receipts, in whatever form, arising from any sale, exchange, collection, lease, licensing or other disposition of, distribution in respect of, or other realization upon, such property, including all claims against third parties for loss of, damage to or destruction of, or for proceeds payable under (or unearned premiums with respect to) insurance in respect of, such property (regardless of whether Laurus is named a loss payee thereunder), and any payments paid or owing by any third party under any indemnity, warranty, or guaranty with respect to such property, and any condemnation or requisition payments with respect to such property, in each case whether now existing or hereafter arising. "Restricted Accounts" means any and all restricted accounts over which any -------------------- Assignor has granted Laurus control. "Receivables" means (a) all "accounts" (as defined in the UCC) and all ----------- other rights to payment for goods or other personal property which have been (or are to be) sold, leased, or exchanged or for services which have been (or are to be) rendered, regardless of whether such accounts or other rights to payment have been earned by performance and regardless of whether such accounts or other rights to payment are evidenced by or characterized as accounts receivable, contract rights, book debts, notes, drafts or other obligations of indebtedness, (b) all Documents and Instruments of any kind relating to such accounts or other rights to payment or otherwise arising out of or in connection with the sale, lease or exchange of goods or other personal property or the rendering of services, (c) all rights in, to, or under all security agreements, leases and other contracts securing or otherwise relating to any such accounts, rights to payment, Documents, or Instruments, (d) all rights in, to and under any purchase orders, service contracts, or other contracts out of which such accounts and other rights to payment arose (or will arise on performance), and (e) all rights in or pertaining to any goods arising out of or in connection with any such purchase orders, service contracts, or other contracts, including rights in returned or repossessed goods and rights of replevin, repossession, and reclamation. "Software" means all "software" (as defined in the UCC), including all -------- computer programs, any supporting information provided in connection with a transaction relating to a computer program, all licenses or other rights to use any of such computer programs, and all license fees and royalties arising from such use to the extent permitted by such license or rights. 3 "Well Data" shall mean all logs, drilling reports, division orders, ---------- transfer orders, operating agreements, contracts and other agreements, abstracts, title opinions, files, records, seismic data, memoranda and other information in the possession or control of any Assignor or to which any Assignor has access relating to any of Assignors' oil and gas properties and/or any wells located thereon. 2. Except as otherwise defined herein, all capitalized terms used herein shall have the meanings provided such terms in the Securities Purchase Agreement referred to below. All items of Collateral which are defined in the UCC shall have the meanings set forth in the UCC. For purposes hereof, the term "UCC" means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Laurus' security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions of this Master Security Agreement relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions; provided further, that to the extent that the UCC is used to define any term herein and such term is defined differently in different Articles or Divisions of the UCC, the definition of such term contained in Article or Division 9 shall govern. The parties intend that the terms used herein which are defined in the UCC have, at all times, the broadest and most inclusive meanings possible. Accordingly, if the UCC shall in the future be amended or held by a court to define any term used herein more broadly or inclusively than the UCC in effect on the date hereof, then such term, as used herein, shall be given such broadened meaning. If the UCC shall in the future be amended or held by a court to define any term used herein more narrowly, or less inclusively, than the UCC in effect on the date hereof, such amendment or holding shall be disregarded in defining terms used herein. 3. The term "Obligations" as used herein shall mean and include all debts, liabilities and obligations owing by each Assignor to Laurus arising under, out of, or in connection with: (i) that certain Securities Purchase Agreement dated as of the date hereof by and between Garwood and Laurus (the "Securities Purchase Agreement"), (ii) the Related Agreements referred to in the Securities Purchase Agreement, (iii) that Secured Term Note in the amount of $8,300,000 executed as of the date hereof by Garwood in favor of Laurus (iv) each guaranty agreement made from time to time by each Assignor in favor of Laurus (each of the foregoing documents, instruments and agreements, as each may be amended, modified, restated or supplemented from time to time, collectively, the "Documents"), and (v) in connection with any documents, instruments or agreements relating to or executed in connection with the Documents or any documents, instruments or agreements referred to therein or otherwise, and in connection with any other indebtedness, obligations or liabilities of each such Assignor to Laurus, whether now existing or hereafter arising, direct or indirect, liquidated or unliquidated, absolute or contingent, due or not due and whether under, pursuant to or evidenced by a note, agreement, guaranty, instrument or otherwise, including, without limitation, obligations and indebtedness of each Assignor for post-petition interest, fees, costs and charges that accrue after the commencement of any case by or against such Assignor under any bankruptcy, insolvency, reorganization or like proceeding (collectively, the "Debtor Relief Laws") in each case, irrespective of the genuineness, validity, regularity or enforceability of such Obligations, or of 4 any instrument evidencing any of the Obligations or of any collateral therefor or of the existence or extent of such collateral, and irrespective of the allowability, allowance or disallowance of any or all of the Obligations in any case commenced by or against any Assignor under any Debtor Relief Law. 4. Each Assignor hereby warrants and covenants to Laurus that: (a) it is a corporation, partnership or limited liability company, as the case may be, validly existing, in good standing and formed under the respective laws of its jurisdiction of formation set forth on Schedule B, and each Assignor will provide Laurus thirty (30) days' prior ----------- written notice of any change in any of its respective jurisdiction of formation; (b) its legal name is as set forth in its Certificate of Incorporation or other organizational document (as applicable) as amended through the date hereof and as set forth on Schedule B, and it will ---------- provide Laurus thirty (30) days' prior written notice of any change in its legal name; (c) its organizational identification number (if applicable) is as set forth on Schedule B hereto, and it will provide Laurus thirty (30) ----------- days' prior written notice of any change in its organizational identification number; (d) it is the lawful owner of the Collateral and it has the sole right to grant a security interest therein and will defend the Collateral against all claims and demands of all persons and entities; (e) it will keep the Collateral free and clear of all attachments, levies, taxes, liens, security interests and encumbrances of every kind and nature ("Encumbrances"), except (i) Encumbrances securing the Obligations, (ii) Encumbrances that arise by operation of law in the ordinary course of business and not created in connection with the borrowing of money or the obtaining of credit, which do not detract from the value or reduce the ability to use the property on which there is an Encumbrance, so long as the obligations supported by the Encumbrance (x) are not overdue by more than ten (10) days or (y) if overdue, are being contested continuously and in good faith by appropriate proceedings and with respect to which adequate reserves are maintained by such Assignor in accordance with GAAP, (iii) Encumbrances relating to final judgments or awards or attachments remaining undischarged or unstayed for not longer than ten (10) days from incurrence so long as they and/or the judgment they are securing do not constitute or result in an Event of Default, and (v) Permitted Encumbrances (as defined in each Deed of Trust, Mortgage, Assignment, Security Agreement, Fixture Filing and Financing Statement dated the date hereof made by Garwood in favor of Laurus); (f) it will, at its and the other Assignors' joint and several cost and expense keep the Collateral in good state of repair (ordinary wear and tear excepted) and will not waste or destroy the same or any part thereof other than ordinary course discarding of items no longer used or useful in its or such other Assignors' business; 5 (g) it will not, without Laurus' prior written consent, sell, exchange, lease or otherwise dispose of any Collateral, whether by sale, lease or otherwise, except for the sale of inventory in the ordinary course of business and for the disposition or transfer in the ordinary course of business during any fiscal year of obsolete and worn-out equipment or equipment no longer necessary for its ongoing needs, having an aggregate fair market value of not more than $10,000 and only to the extent that: (i) the proceeds of each such disposition are used to acquire replacement Collateral which is subject to Laurus' first priority perfected security interest, or are used to repay the Obligations; or (ii) following the occurrence of an Event of Default which continues to exist, the proceeds of each such disposition are remitted to Laurus to be held as cash collateral for the Obligations; (h) it will insure or cause the Collateral to be insured in Laurus' name (as additional insured and loss payee) against loss or damage by fire, theft, burglary, pilferage, loss in transit and such other hazards as Laurus shall specify in amounts and under policies by insurers acceptable to Laurus and all premiums thereon shall be paid by such Assignor and the policies delivered to Laurus. If any such Assignor fails to do so, Laurus may procure such insurance and the cost thereof shall be promptly reimbursed by the Assignors, jointly and severally, and shall constitute Obligations; (i) it will at all reasonable times during normal business hours and with advance notice to Assignor in accordance with Section 14 allow Laurus or Laurus' representatives free access to and the right of inspection of the Collateral, provided that no such notice shall be required to be given in the event Laurus believes such access is necessary to preserve or protect the Collateral or following the occurrence and during the continuance of an Event of Default; (j) such Assignor (jointly and severally with each other Assignor) hereby indemnifies and saves Laurus harmless from all loss, costs, damage, liability and/or expense, including attorneys' fees, that Laurus may sustain or incur to enforce payment, performance or fulfillment of any of the Obligations and/or in the enforcement of this Master Security Agreement or in the prosecution or defense of any action or proceeding either against Laurus or any Assignor concerning any matter growing out of or in connection with this Master Security Agreement, and/or any of the Obligations and/or any of the Collateral except to the extent caused by Laurus' own gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and nonappealable decision). In addition, each Assignor hereby indemnifies and saves Laurus harmless from any claim, cost, expense, liability, obligation, loss or damage (including legal fees) of any nature, incurred by or imposed upon Laurus which results, arises out of or is based upon: (i) any misrepresentation by any Assignor or breach of any warranty by any Assignor in this Agreement or any Document or any agreement between any Assignor and Laurus relating hereto or thereto; or (ii) any breach or default in performance by the Assignors of any covenant or undertaking to be performed by the Assignors hereunder or under any Document, or any other agreement entered into by any 6 Assignor and Laurus relating hereto or thereto or (iii) (a) the violation of any local, state or federal law, rule or regulation pertaining to environmental regulation, contamination or clean-up (collectively, "Environmental Laws"), including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Sec.9601 et seq. and 40 CFR Sec.302.1 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Sec.6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Sec.1251 et seq., and 40 CFR Sec.116.1 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Sec.1801 et seq.) and the regulations promulgated pursuant to said laws, all as amended and relating to or affecting any Assignor and/or any Assignor's properties, whether or not caused by or within the control of Laurus and/or (b) the presence, release or threat of release of any hazardous, toxic or harmful substances, wastes, materials, pollutants or contaminants (including, without limitation, asbestos, polychlorinated biphenyls, petroleum products, flammable explosives, radioactive materials, infectious substances or raw materials which include hazardous constituents) or any other substances or raw materials which are included under or regulated by Environmental Laws on, in, under or affecting all or any portion of any property of any Assignor or any surrounding areas, regardless of whether or not caused by or within the control of Laurus; (k) it will promptly, and in any event within five (5) business days after the same is acquired by it, notify Laurus of any commercial tort claim acquired by it and unless otherwise consented to in writing by Laurus, it shall enter into a supplement to this Master Security Agreement granting to Laurus a security interest in such commercial tort claim; and (l) Not later than 30 days after the date hereof, each Assignor will (x) irrevocably direct all of its present and future Account Debtors (as defined below) and other persons or entities obligated to make payments constituting Collateral to make such payments directly to the lockboxes maintained by such Assignor (the "Lockboxes") with North Fork Bank or such other financial institution accepted by Laurus in writing as may be selected by the applicable Assignor (the "Lockbox Bank") (each such direction pursuant to this clause (x), a "Direction Notice") and (y) provide Laurus with copies of each Direction Notice, each of which shall be agreed to and acknowledged by the respective Account Debtor. Upon receipt of such payments, the Lockbox Bank shall agree to deposit the proceeds of such payments in a deposit account (under which Laurus has been granted control) maintained at the Lockbox Bank and evidenced by the account name of Garwood Petrosearch, Inc., or such other deposit account accepted by Laurus in writing (the "Lockbox Deposit Account"). Not later than 30 days after the date hereof, the applicable Assignor shall and shall cause the Lockbox Bank to enter into all such documentation acceptable to Laurus pursuant to which, among other things, the Lockbox Bank agrees to, following notification by Laurus (which notification Laurus shall only give following the occurrence and during the continuance of an Event of Default), comply only with the instructions or other directions of Laurus concerning the Lockbox and the Lockbox Deposit Account. All of each Assignor's invoices, account statements and other written or oral communications directing, instructing, demanding or requesting payment of any Account (as hereinafter defined) of any such Assignor or any other amount constituting Collateral shall conspicuously direct that all payments be made to the 7 Lockbox or such other address as Laurus may direct in writing. If, notwithstanding the instructions to Account Debtors, any Assignor receives any payments, such Assignor shall immediately remit such payments to the Lockbox Deposit Account in their original form with all necessary endorsements. Until so remitted, the Assignors shall hold all such payments in trust for and as the property of Laurus and shall not commingle such payments with any of its other funds or property. For the purpose of this Master Security Agreement, (x) "Accounts" shall mean all "accounts", as such term is defined in the UCC as in effect in the State of New York on the date hereof, now owned or hereafter acquired by any Assignor and (y) "Account Debtor" shall mean any person or entity who is or may be obligated with respect to, or on account of, an Account. 5. The occurrence of any of the following events or conditions shall constitute an "Event of Default" under this Master Security Agreement: (a) any covenant or any other term or condition of this Master Security Agreement is breached and such breach, if subject to cure, shall continue for a period of ten (10) days after the occurrence thereof; (b) any representation or warranty, or statement made or furnished to Laurus under this Master Security Agreement by any Assignor or on any Assignor's behalf should prove at any time to be false or misleading; (c) the loss, theft, substantial damage, destruction, sale (other than the sale by any Assignor of oil, gas and other hydrocarbons and minerals in the ordinary course of its business consistent with past practice) or encumbrance (other than in favor of Laurus) to or of any of the Collateral or the making of any levy, seizure or attachment thereof or thereon except to the extent such loss is covered by insurance proceeds which are used to replace the item or repay Laurus; (d) any Assignor shall become insolvent, cease operations, dissolve, terminate its business existence (except as to any of the foregoing, in connection with a business combination between or among Assignors so long as at least one Assignor remains the surviving entity of such business combination), make an assignment for the benefit of creditors, suffer the appointment of a receiver, trustee, liquidator or custodian of all or any part of any Assignor's property; (e) any proceedings under any bankruptcy or insolvency law shall be commenced by or against any Assignor and if commenced against any Assignor shall not be dismissed within thirty (30) days; (f) any Assignor shall repudiate, purport to revoke or fail to perform any of its obligations under any Note (after passage of applicable cure period, if any) or any document, instrument or agreement executed in connection therewith; or (g) an Event of Default (or similar term) shall have occurred under and as defined in any Document or any document, instrument or agreement entered into in connection therewith. 8 6. Upon the occurrence of any Event of Default and at any time thereafter, Laurus may declare all Obligations immediately due and payable and Laurus shall have the remedies of a secured party provided in the UCC as in effect in the State of New York, this Agreement and other applicable law. Upon the occurrence of any Event of Default and at any time thereafter, Laurus will have the right to receive one-hundred percent of all accounts receivable of each Assignor, whether attributable to oil, gas, other hydrocarbon production or otherwise, take possession of the Collateral and to maintain such possession on any Assignor's premises or to remove the Collateral or any part thereof to such other premises as Laurus may desire. Upon Laurus' request, each Assignor shall assemble or cause the Collateral to be assembled and make it available to Laurus at a place designated by Laurus. If any notification of intended disposition of any Collateral is required by law, such notification, if mailed, shall be deemed properly and reasonably given if mailed at least ten (10) days before such disposition, postage prepaid, addressed to the applicable Assignor either at such Assignor's address shown herein or at any address appearing on Laurus' records for such Assignor. Any proceeds of any disposition of any of the Collateral shall be applied by Laurus to the payment of all expenses in connection with the sale of the Collateral, including attorneys' fees and other legal expenses and disbursements and the expenses of retaking, holding, preparing for sale, selling, and the like, and any balance of such proceeds may be applied by Laurus toward the payment of the Obligations in such order of application as Laurus may elect, and each Assignor shall be liable for any deficiency. For the avoidance of doubt, following the occurrence and during the continuance of an Event of Default, Laurus shall have the immediate right to withdraw any and all monies contained in the Restricted Accounts or any other deposit accounts in the name of any Assignor and controlled by Laurus and apply same to the repayment of the Obligations (in such order of application as Laurus may elect). The parties hereto each hereby agree that the exercise by any party hereto of any right granted to it or the exercise by any party hereto of any remedy available to it (including, without limitation, the issuance of a notice of redemption, a borrowing request and/or a notice of default) shall not constitute confidential information and no party shall have any duty to the other party to maintain such information as confidential. 7. If any Assignor defaults in the performance or fulfillment of any of the terms, conditions, promises, covenants, provisions or warranties on such Assignor's part to be performed or fulfilled under or pursuant to this Master Security Agreement, Laurus may, at its option without waiving its right to enforce this Master Security Agreement according to its terms, immediately or at any time thereafter and without notice to any Assignor, perform or fulfill the same or cause the performance or fulfillment of the same for each Assignor's joint and several account and at each Assignor's joint and several cost and expense, and the cost and expense thereof (including attorneys' fees) shall be added to the Obligations and shall be payable on demand with interest thereon at the highest rate permitted by law, or, at Laurus' option, debited by Laurus from the Restricted Accounts or any other deposit accounts in the name of any Assignor and controlled by Laurus. 8. Each Assignor appoints Laurus, any of Laurus' officers, employees or any other person or entity whom Laurus may designate as such Assignor's attorney, with power to execute such documents in each such Assignor's behalf and to supply any omitted information and correct patent errors in any documents executed by any Assignor or on any Assignor's behalf; to file financing statements against such Assignor covering the Collateral (and, in connection with the filing of any such financing statements, describe the Collateral as "all assets and all personal 9 property, whether now owned and/or hereafter acquired" (or any substantially similar variation thereof)); to sign such Assignor's name on public records related to perfecting its security interest in, or foreclosing upon the Collateral; and to do all other things Laurus deem necessary to carry out this Master Security Agreement. Each Assignor hereby ratifies and approves all acts of the attorney and neither Laurus nor the attorney will be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law other than gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision). This power being coupled with an interest, is irrevocable so long as any of the Obligations remain unpaid. 9. No delay or failure on Laurus' part in exercising any right, privilege or option hereunder shall operate as a waiver of such or of any other right, privilege, remedy or option, and no waiver whatsoever shall be valid unless in writing, signed by Laurus and then only to the extent therein set forth, and no waiver by Laurus of any default shall operate as a waiver of any other default or of the same default on a future occasion. Laurus' books and records containing entries with respect to the Obligations shall be admissible in evidence in any action or proceeding, shall, absent manifest error, be binding upon each Assignor for the purpose of establishing the items therein set forth and shall constitute prima facie proof thereof. Laurus shall have the right to enforce any one or more of the remedies available to Laurus, successively, alternately or concurrently. Each Assignor agrees to join with Laurus in executing such documents or other instruments to the extent required by the UCC in form satisfactory to Laurus and in executing such other documents or instruments as may be required or deemed necessary by Laurus for purposes of affecting or continuing Laurus' security interest in the Collateral. 10. The Assignors shall jointly and severally pay all of Laurus' out-of-pocket costs and expenses, including fees and disbursements of in-house or outside counsel and appraisers, in connection with the preparation, execution and delivery of the Documents, and in connection with the prosecution or defense of any action, contest, dispute, suit or proceeding concerning any matter in any way arising out of, related to or connected with any Document. The Assignors shall also jointly and severally pay all of Laurus' fees, charges, out-of-pocket costs and expenses, including fees and disbursements of counsel and appraisers, in connection with (a) the preparation, execution and delivery of any waiver, any amendment thereto or consent proposed or executed in connection with the transactions contemplated by the Documents, (b) Laurus' obtaining performance of the Obligations under the Documents, including, but not limited to the enforcement or defense of Laurus' security interests, assignments of rights and liens hereunder as valid perfected security interests, (c) any attempt to inspect or verify Collateral, (d) any attempt to protect, collect, sell, liquidate or otherwise dispose of any Collateral, (e) any appraisals or re-appraisals of any property (real or personal) pledged to Laurus by any Assignor as Collateral for, or any other Person as security for, the Obligations hereunder and (f) any consultations in connection with any of the foregoing. The Assignors shall also jointly and severally pay Laurus' customary bank charges for all bank services (including wire transfers) performed or caused to be performed by Laurus for any Assignor at any Assignor's request or in connection with any Assignor's loan account (if any) with Laurus. All such costs and expenses together with all filing, recording and search fees, taxes and interest payable by the Assignors to Laurus shall be payable on demand and shall be secured by the Collateral. If any tax by any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or 10 pertaining to government (each, a "Governmental Authority"), other than any tax based on or measured by Laurus' net income, is or may be imposed on or as a result of any transaction between any Assignor, on the one hand, and Laurus on the other hand, which Laurus is or may be required to withhold or pay, the Assignors hereby jointly and severally indemnify and hold Laurus harmless in respect of such taxes, and the Assignors will repay to Laurus the amount of any such taxes which shall be charged to the Assignors' account; and until the Assignors shall furnish Laurus with indemnity therefor (or supply Laurus with evidence satisfactory to it that due provision for the payment thereof has been made), Laurus may hold without interest any balance standing to each Assignor's credit (if any) and Laurus shall retain its liens in any and all Collateral. 11. THIS MASTER SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. All of the rights, remedies, options, privileges and elections given to Laurus hereunder shall inure to the benefit of Laurus' successors and assigns. The term "Laurus" as herein used shall include Laurus, any parent of Laurus', any of Laurus' subsidiaries and any co-subsidiaries of Laurus' parent, whether now existing or hereafter created or acquired, and all of the terms, conditions, promises, covenants, provisions and warranties of this Agreement shall inure to the benefit of each of the foregoing, and shall bind the representatives, successors and assigns of each Assignor. 12. Each Assignor hereby consents and agrees that the state or federal courts located in the County of New York, State of New York shall have exclusive jurisdiction to hear and determine any claims or disputes between Assignor, on the one hand, and Laurus, on the other hand, pertaining to this Master Security Agreement or to any matter arising out of or related to this Master Security Agreement, provided, that Laurus and each Assignor acknowledges that any appeals from those courts may have to be heard by a court located outside of the County of New York, State of New York, and further provided, that nothing in this Master Security Agreement shall be deemed or operate to preclude Laurus from bringing suit or taking other legal action in any other jurisdiction to collect, the Obligations, to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Laurus. Each Assignor expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and each Assignor hereby waives any objection which it may have based upon lack of personal jurisdiction, improper venue or forum non conveniens. Each Assignor hereby waives personal ----- --- ---------- service of the summons, complaint and other process issues in any such action or suit and agrees that service of such summons, complaint and other process may be made by registered or certified mail addressed to such assignor at the address set forth on the signature lines hereto and that service so made shall be deemed completed upon the earlier of such Assignor's actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid. The parties desire that their disputes be resolved by a judge applying such applicable laws. Therefore, to achieve the best combination of the benefits of the judicial system and of arbitration, the parties hereto waive all rights to trial by jury in any action, suit, or proceeding brought to resolve any dispute, whether arising in contract, tort, or otherwise between Laurus, 11 and/or any Assignor arising out of, connected with, related or incidental to the relationship established between them in connection with this Master Security Agreement or the transactions related hereto. 13. It is understood and agreed that any person or entity that desires to become an Assignor hereunder, or is required to execute a counterpart of this Master Security Agreement after the date hereof pursuant to the requirements of any Document, shall become an Assignor hereunder by (x) executing a Joinder Agreement in form and substance satisfactory to Laurus, (y) delivering supplements to such exhibits and annexes to such Documents as Laurus shall reasonably request and (z) taking all actions as specified in this Master Security Agreement as would have been taken by such Assignor had it been an original party to this Master Security Agreement, in each case with all documents required above to be delivered to Laurus and with all documents and actions required above to be taken to the reasonable satisfaction of Laurus. 14. Whenever this Master Security Agreement requires or permits any consent, approval, notice, request or demand from one party to another, such consent, approval, notice or demand shall, unless otherwise required under applicable law, be given in accordance with the provisions of the Securities Purchase Agreement, addressed to the party to be notified at the address stated below (or such other address as may have been designated in accordance with the provisions of the Securities Purchase Agreement):

12 15. This Master Security Agreement may be executed by facsimile signatures and in any number of counterparts, each of which shall be an original, but all of which together shall constitute one agreement. Very truly yours, GARWOOD PETROSEARCH, INC. By: /s/ Richard D. Dole ------------------------------------------ Name: Richard D. Dole Title: Manager Address: 675 Bering Drive, Suite 200 Houston, TX 77057 ACKNOWLEDGED: LAURUS MASTER FUND, LTD. By: /s/ illegible ----------------------------------------- Name: illegible Title: illegible Address: c/o Laurus Capital Management LLC 825 Third Avenue New York, New York 10022 13 SCHEDULE A ---------- COMMERCIAL TORT CLAIMS ---------------------- None. SCHEDULE B ----------