SECURITY AGREEMENT
Execution
Version
This Security Agreement (the “Security
Agreement”), dated as of February 12, 2009, is by and between (i) Neah Power Systems, Inc., a
Nevada corporation (the “Debtor”),
and (ii) Agile Opportunity
Fund, LLC, a Delaware limited liability company (“Agile”),
and Capitoline Advisors
Inc., a New York corporation (“Capitoline”;
together with Agile, the “Secured
Parties”, each a “Secured
Party”).
Background
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1.
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The
Secured Parties have purchased from the Debtor Original Issue Discount
Term Secured Convertible Promissory Notes (the “Notes”)
in the aggregate face amount of $262,500.00, pursuant to a Securities
Purchase Agreement between the Debtor and the Secured Parties dated as of
the date hereof (the “Securities
Purchase Agreement”), and, subject to the terms of the Securities
Purchase Agreement, may purchase additional Notes in the aggregate face
amount of $787,500.00 at Subsequent Closings. Capitalized terms
used herein and not otherwise defined herein shall have the meanings
specified in the Securities Purchase
Agreement.
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2.
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To
induce the Secured Parties to purchase the Notes, the Debtor has agreed to
provide the Secured Parties with a first priority security interest in the
Collateral (as hereinafter
defined).
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N O W, T
H E R E F O R E,
In consideration of the promises and
the mutual covenants and agreements herein set forth, and in order to induce the
Secured Parties to purchase the Notes, the Debtor hereby agrees with the Secured
Parties as follows:
Section
1. Grant of
Security Interest. The Debtor hereby grants to the Secured
Parties, on the terms and conditions hereinafter set forth, a first priority
lien and security interest in the collateral hereinafter identified (the “Collateral”).
Section
2. Collateral. The
Collateral is all tangible and intangible assets of the Debtor of whatever kind
and nature (including without limitation all intellectual property of whatever
kind or nature of the Debtor including patents, trademarks, tradenames,
copyrights and all other intellectual property and any applications or
registrations therefore, accounts, chattel paper, commercial tort claims,
documents, equipment, farm products, general intangibles, instruments,
inventory, investment property, and the stock of all of Debtor’s subsidiaries),
in each case whether now owned or hereafter acquired and wherever located, and
all proceeds thereof, together with all proceeds, products, replacements and
renewals thereof.
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Section
3. Representations
and Warranties; Covenants. The Debtor hereby warrants and
covenants as follows:
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(a)
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The
Debtor has title to the Collateral free from any lien, security interest,
encumbrance or claim.
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(b)
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The
Debtor will maintain the Collateral so as to preserve its value subject to
wear and tear in the ordinary
course.
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(c)
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The
Debtor is a corporation duly organized, validly existing and in good
standing under the laws of the State of
Nevada.
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(d)
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The
Debtor will pay when due all existing or future charges, liens, or
encumbrances on the Collateral, and will pay when due all taxes and
assessments now or hereafter imposed or affecting it unless such taxes or
assessments are diligently contested by the Debtor in good faith and
reasonable reserves are established
therefor.
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(e)
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All
information with respect to the Notes and the Collateral and account
debtors set forth in any schedule, certificate or other writing at any
time heretofore or hereafter furnished by the Debtor to the Secured
Parties, and all other written information heretofore or hereafter
furnished by the Debtor to the Secured Parties, is or will be true and
correct in all material respects, as of the date
furnished.
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(f)
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As
soon as practicable following the date of execution of this Security
Agreement and in any event within 5 business days of such date, the
Secured Parties will prepare, execute and file with the Secretary of State
in the State of Nevada, a UCC-1 Financing Statement covering the
Collateral, naming the Secured Parties as Secured Parties
thereunder.
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(g)
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The
Debtor will keep its records concerning the Collateral at its address
shown in Section 18 below. Such records will be of such
character as to enable the Secured Parties or their representatives to
determine at any time the status thereof, and the Debtor will not, unless
the Secured Parties shall otherwise consent in writing, maintain any such
record at any other address.
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(h)
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The
Debtor will furnish the Secured Parties information on a quarterly basis
concerning the Debtor, the Notes and the Collateral as the Secured Parties
may at any time reasonably request.
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(i)
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The
Debtor will permit the Secured Parties and its representatives at any
reasonable time on five (5) day prior written notice to inspect any and
all of the Collateral, and to inspect, audit and make copies of and
extracts from all records and all other papers in possession of the Debtor
pertaining to the Notes and the Collateral and will, on request of the
Secured Parties, deliver to the Secured Parties all such records and
papers for the purpose of enabling the Secured Parties to inspect, audit
and copy same. Any of the Debtor’s records delivered to the
Secured Parties shall be returned to the Debtor as soon as the Secured
Parties shall have completed its inspection, audit and/or copying
thereof.
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(j)
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The
Debtor will, at such times as the Secured Parties may request, deliver to
the Secured Parties a schedule identifying the Collateral subject to the
security interest of this Security Agreement, and such additional
schedules, certificates, and reports respecting all or any of the
Collateral at the time subject to the security interest of this Security
Agreement, and the items or amounts received by the Debtor in full or
partial payment or otherwise as proceeds received in connection with any
Collateral. Any such schedule, certificate or report shall be
executed by a duly authorized officer of the Debtor on behalf of the
Debtor and shall be in such form and detail as the Secured Parties may
specify. The Debtor shall immediately notify the Secured Parties of the
occurrence of any event causing loss or depreciation in the value of the
Collateral, and the amount of such loss or
depreciation.
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(k)
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If
and when so requested by the Secured Parties, the Debtor will stamp on the
records of
the Debtor concerning the Collateral a notation, in a form satisfactory to
the Secured Parties, of the security interest of the Secured Parties under
this Security Agreement.
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Section
4. Disposition
of Collateral in Ordinary Course. Debtor shall not sell,
transfer, assign, convey, license, grant any right to use or otherwise dispose
of any Collateral except in the ordinary course of business, without
the prior written consent of the Secured Parties.
Section
5. Secured
Parties May Perform. Upon the occurrence and continuation of
an “Event of
Default” under the Notes, at the option of the Secured Parties, the
Secured Parties may discharge taxes, liens or security interests, or other
encumbrances at any time hereafter levied or placed on the Collateral; may pay
for insurance required to be maintained on the Collateral pursuant to Section 3;
and may pay for the maintenance and preservation of the
Collateral. The Debtor agrees to reimburse the Secured Parties on
demand for any payment made, or any expense incurred, by the Secured Parties
pursuant to the foregoing authorization. Until the occurrence and
continuation of an Event of Default, the Debtor may have possession of the
Collateral and use it in any lawful manner not inconsistent with this the
Security Agreement.
Section
6. Obligations
Secured; Certain Remedies. This Security Agreement secures the
payment and performance of all obligations of the Debtor to the Secured Parties
under the Notes, whether now existing or hereafter arising and whether for
principal, interest, costs, fees or otherwise (collectively, the “Obligations”). Upon
the occurrence and continuation of an Event of Default under the Notes, the
Secured Parties may declare all obligations secured hereby immediately due and
payable and may exercise the remedies of a secured party under the Uniform
Commercial Code. Without limiting the foregoing, the Secured Parties
may require the Debtor to assemble the Collateral and make it available to the
Secured Parties at a place to be designated by the Secured Parties which is
reasonably convenient to both parties or to execute appropriate documents of
assignment, transfer and conveyance, in each case, in order to permit the
Secured Parties to take possession of and title to the
Collateral. Unless the Collateral is perishable or threatens to
decline rapidly in value or is of a type customarily sold on a recognized
market, the Secured Parties will give the Debtor reasonable notice of the time
and place of any public sale thereof or of the time after which any private sale
or any other intended disposition thereof is to be made. The
requirements of reasonable notice shall be met if such notice is mailed to the
Debtor via registered or certified mail, postage prepaid, at least fifteen (15)
days before the time of sale or disposition. Expenses of retaking,
holding, preparing for sale, selling or the like, shall include the Secured
Parties’ reasonable attorneys’ fees and legal expenses.
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Section
7. Debtor
Remains Liable. Anything herein to the contrary
notwithstanding:
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(a)
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Notwithstanding
the exercise of any remedy available to the Secured Parties hereunder or
at law in connection with an Event of Default, the Debtor shall remain
liable to repay the balance remaining unpaid and outstanding under the
Notes after the value or proceeds received by the Secured Parties in
connection with such remedy is subtracted. The Secured Parties
shall promptly deliver and pay over to the Debtor any portion of the value
or proceeds received in connection with such remedy that remains after the
unpaid and outstanding portion of the Notes is paid in
full.
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(b)
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The
Debtor shall remain liable under the contracts and agreements included in
the Collateral to the extent set forth therein, and shall perform all of
its duties and obligations under such contracts and agreements to the same
extent as if this Security Agreement had not been
executed.
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(c)
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The
exercise by the Secured Parties of any of its rights hereunder shall not
release the Debtor from any of its duties or obligations under any such
contracts or agreements included in the
Collateral.
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(d)
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The
Secured Parties shall not have any obligation or liability under any such
contracts or agreements included in the Collateral by reason of this
Security Agreement, nor shall the Secured Parties be obligated to perform
any of the obligations or duties of the Debtor thereunder or to take any
action to collect or enforce any claim for payment assigned
hereunder.
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Section
8. Security
Interest Absolute. All rights of the Secured Parties and the
security interests granted to the Secured Parties hereunder shall be absolute
and unconditional, to the maximum extent permitted by law, irrespective
of:
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(a)
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Any
lack of validity or enforceability of the Notes or any other document or
instrument relating thereto;
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(b)
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Any
change in the time, manner or place of payment of, or in any other term
of, all or any part of the Obligations or any other amendment to or waiver
of or any consent to any departure from the Notes or any other document or
instrument relating thereto;
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(c)
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Any
exchange, release or non-perfection of any collateral (including the
Collateral), or any release of or amendment to or waiver of or consent to
or departure from any guaranty, for all or any of the Obligations;
or
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(d)
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Any
other circumstance which might otherwise constitute a defense available
to, or a discharge of, the Debtor, a guarantor or a third party grantor of
a security interest.
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Section
9. Additional
Assurances. At the request of the Secured Parties, the Debtor
will join in executing or will execute, as appropriate, all necessary financing
statements in a form satisfactory to the Secured Parties, and the Debtor will
pay the cost of filing such statements, including all statutory
fees. The Debtor will further execute all other instruments deemed
necessary by the Secured Parties and pay the cost of filing such
instruments. The Debtor warrants that no financing statement covering
Collateral or any part or proceeds thereof is presently on file in any public
office. The Debtor covenants that it will not grant any other
security interest in the Collateral without first obtaining the written consent
of the Secured Parties.
Section
10. Representations,
Warranties and Covenants Concerning Debtor’s Legal Status.
(a) The
Debtor has previously executed and delivered to the Secured Parties a Perfection
Certificate in the form of Schedule I
hereto. The Debtor represents and warrants to the Secured Parties as
follows:
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(i)
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Debtor’s
exact legal name is as indicated on the Perfection Certificate and on the
signature page hereof;
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(ii)
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Debtor
is an organization of the type, and is organized in the jurisdiction, set
forth in the Perfection
Certificate;
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(iii)
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the
Perfection Certificate accurately sets forth Debtor’s organizational
identification number or accurately states that Debtor has
none;
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(iv)
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the
Perfection Certificate accurately sets forth Debtor’s place of business
or, if more than one, its chief executive office as well as Debtor’s
mailing address, if different; and
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(v)
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all
other information set forth on the Perfection Certificate is accurate and
complete.
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(b)
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The
Debtor covenants with the Secured Parties as
follows:
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(i)
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without
providing 15 days prior written notice to the Secured Parties, Debtor will
not change its name, its place of business, or, if more than one, its
chief executive offices or its mailing address or organizational
identification number, if it has
one
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(ii)
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if
Debtor does not have an organizational identification number and later
obtains one, Debtor shall forthwith notify the Secured Parties of such
organizational identification number;
and
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(iii)
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Debtor
will not change its type of organization, jurisdiction of organization or
other legal structure, without thirty (30) days prior written notice to
the Secured Parties and following any such notice will cooperate with the
Secured Parties to execute and deliver any documents or instruments
requested by the Secured Parties in order to maintain the Secured Parties'
perfected security interests
hereunder.
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Section
11. Expenses. The
Debtor will upon demand pay to the Secured Parties the amount of any and all
reasonable expenses, including the reasonable fees and disbursements of its
counsel and of any experts and agents, which the Secured Parties may incur in
connection with (i) the custody, preservation, use or operation of, or the sale
of, collection from, or other realization upon, any of the Collateral upon the
occurrence and continuation of an Event of Default, (ii) the exercise or
enforcement of any of the rights of the Secured Parties hereunder, or (iii) the
failure by the Debtor to perform or observe any of the provisions
hereof.
Section
12. Notices
of Loss or Depreciation. The Debtor will immediately notify
the Secured Parties of any claim, suit or proceeding against any Collateral or
any event causing loss or depreciation in the value of Collateral, including the
amount of such loss or depreciation
Section
13. No
Waivers. No waiver by the Secured Parties of any default shall
operate as a waiver of any other default or of the same default on any
subsequent occasion.
Section
14. Successor
and Assigns. The Secured Parties shall have the right to
assign this Security Agreement and its rights hereunder without the consent of
the Debtor. All rights of the Secured Parties shall inure to the
benefit of the successors and assigns of the Secured Parties. All
obligations of the Debtor shall be binding upon the Debtor’s successors and
assigns.
Section
15. No Grant
of Security Interest on Assets. The Debtor covenants that it
shall not grant a security interest in any of its assets, tangible or
intangible, except for the security interest granted in the Collateral to the
Secured Parties hereunder.
Section
16. Governing
Law; Jurisdiction. This Security Agreement shall be governed
by the laws of the State of New York, without giving effect to such
jurisdiction’s principles of conflict of laws, except to the extent that the
validity or the perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws of a
jurisdiction other than the State of New York. Each of the parties
hereto submits to the personal jurisdiction of and each agrees that all
proceedings relating hereto shall be brought in federal or state courts located
within New York County in the State of New York.
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Section
17. Counterparts. This
Security Agreement may be executed in any number of counterparts, each of which
will be deemed an original, but all of which together shall constitute one and
the same instrument.
Section
18. Remedies
Cumulative. The rights and remedies herein are cumulative, and
not exclusive of other rights and remedies which may be granted or provided by
law.
Section
19. Notices. Any
demand upon or notice to the Debtor hereunder shall be effective when delivered
by hand or when properly deposited in the mails postage prepaid, or sent by
electronic facsimile transmission, receipt acknowledged, or delivered to an
overnight courier, in each case addressed to the Debtor at the address shown
below or as it appears on the books and records of the Secured
Parties. Demands or notices addressed to any other address at which
the Secured Parties customarily communicates with the Debtor also shall be
effective. Any notice by the Debtor to the Secured Parties shall be
given as aforesaid, addressed to the Secured Parties at the address shown below
or such other address as the Secured Parties may advise the Debtor in
writing:
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If
to the Secured Parties:
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Agile
Opportunity Fund, LLC
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0000
Xxxx Xxxxxxx Xxxx, Xxxxx 000X
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Xxxxxxxx,
XX 00000
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Attn:
Xxxxx Xxxxxx
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With
a copy to:
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Xxxxxxxxx
Ball Xxxxxx Xxxxxx & Xxxxxxxxxx, LLP
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000
Xxx Xxxxxxx Xxxx
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Xxxxxxx,
XX 00000
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Attn:
Xxxx X. Xxxxxx, Esq.
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If
to the Debtor:
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00000
00xx Xxxxxx XX, Xxxxx 000
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Xxxxxxx,
XX 00000
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Attn:
Xxxxx X’Xxxxx
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With
a copy to:
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Seyfarth
Xxxx LLP
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000
X Xxxxxx, X.X.
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Xxxxxxxxxx,
X.X. 00000
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Attn:
Xxxxxx X. Xxxxx, Esq.
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Section
20. Entire
Agreement. This Security Agreement and the documents and
instruments referred to herein embody the entire agreement entered into between
the parties relating to the subject matter hereof, and may not be amended,
waived, or discharged except by an instrument in writing executed by the Secured
Parties.
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Section
21. Termination. This
Security Agreement shall terminate upon the repayment in full of the Notes or
conversion in full thereof upon which the Secured Parties shall cooperate in the
filing of the necessary or appropriate documents and instruments to release the
security interest created hereby and will execute and deliver any and all
documents and/or instruments reasonably requested by Debtor in connection
therewith.
[Remainder of Page
Intentionally Left Blank; Signature Page Follows]
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IN
WITNESS WHEREOF, the parties hereto, by their duly authorized agents, have
executed this Security Agreement as of the date set forth above.
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By:
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Name:
Xxxxx X’Xxxxx
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Title:
CEO
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AGILE
OPPORTUNITY FUND, LLC
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By:
AGILE INVESTMENTS, LLC, Managing Member
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By:
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Name:
Xxxxx X. Xxxxxx
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Title:
Managing Member
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CAPITOLINE
ADVISORS INC.
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By:
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Name:
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Title:
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SCHEDULE
I
PERFECTION
CERTIFICATE
The
undersigned, the Chief Executive Officer of Neah Power Systems, Inc., a
Nevada corporation (the "Company"),
hereby certifies, with reference to a certain Security Agreement, dated as of
February 12, 2009 (terms defined in such Security Agreement having the same
meanings herein as specified therein), between the Company and the Secured
Parties named therein (the "Secured
Parties"), to the Secured Parties as follows:
1. Name. The
exact legal name of the Company as that name appears on its Certificate of
Incorporation is as follows: Neah Power Systems, Inc.
2. Other
Identifying Factors.
(a) The following is the mailing
address of the Company:
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Address
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County
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State
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00000
00xx Xxxxxx XX, Xxxxx 000
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Xxxxxxx,
XX 00000
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Washington
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(b) If
different from its mailing address, the Company’s place of business or, if more
than one, its chief executive office is located at the following
address:
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Address
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County
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State
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(c) The
following is the type of organization of the
Company: Corporation
(d) The
following is the jurisdiction of the Company’s organization: Nevada
(e) The
following is the Company's state issued organizational identification
number: ___________________
3. Other
Names, Etc.
The following is a list of all other
names (including trade names or similar appellations) used by the Company, or
any other business or organization to which the Company became the successor by
merger, consolidation, acquisition, change in form, nature or jurisdiction of
organization or otherwise, now or at any time during the past five
years:
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4. Other
Current Locations.
(a) The
following are all other locations in the United States of America in which the
Company maintain any books or records relating to any of the Collateral
consisting of accounts, instruments, chattel paper, general intangibles or
mobile goods:
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Address
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County
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State
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(b) The
following are all other places of business of the Company in the United States
of America:
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Address
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County
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State
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(c) The
following are all other locations in the United States of America where any of
the Collateral consisting of inventory or equipment is located:
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Address
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County
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State
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(d) The
following are the names and addresses of all persons or entities other than the
Company, such as lessees, consignees, warehousemen or purchasers of chattel
paper, which have possession or are intended to have possession of any of the
Collateral consisting of instruments, chattel paper, inventory or
equipment:
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Name
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Mailing
Address
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County
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State
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IN
WITNESS WHEREOF, I have hereunto signed this Perfection Certificate on February
12, 2009.
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Name:
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Xxxxx
X’Xxxxx
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Title:
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CEO
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