================================================================================
GENERAL SECURITY AGREEMENT
THIS GENERAL SECURITY AGREEMENT, dated effective as of the 7th day of
November, 2006, (this "Agreement"), is entered into by and between QUANTUM
ENERGY, INC., a Nevada corporation ("Debtor"), and NITRO PETROLEUM INCORPORATED,
a Nevada corporation ("Creditor").
WITNESSETH
WHEREAS, Debtor executed and delivered to Creditor a promissory note in
the amount of $400,000 bearing interest at 10% per annum with the entire
principal and interest due and payable on February 28, 2007, (the "Note"), the
payment of which Note and the obligations evidenced thereby is to be secured by,
among other things, this Agreement;
WHEREAS, the Debtor wishes to secure (i) the payment of the obligations
evidenced by the Note and any promissory note taken in renewal, exchange or
substitution thereof or therefor, including interest on all of the foregoing and
all costs of collecting the same, (ii) the performance and payment of the
Debtor's obligations and liabilities under this Agreement and all other
documents prepared, executed and delivered in connection therewith (together
with the Note, the "Loan Documents") however created, arising, or evidenced,
whether direct or indirect, primary or secondary, absolute or contingent, joint
or several, or now or hereafter existing, or due or to become due, and (iii) the
performance and payment of any and all other obligations and liabilities of the
Debtor to Creditor however created, arising, or evidenced, whether direct or
indirect, primary or secondary, absolute or contingent, joint or several, or now
or hereafter existing, or due or to become due (all of the obligations and
liabilities described in the preceding clauses (i)-(iii) being herein
collectively called the "Liabilities"),
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and of the direct and indirect benefits to the Debtor
as a result of the foregoing, the parties hereto agree as follows:
SECTION 1. Definitions. Unless otherwise defined herein,
capitalized words used herein shall have the meaning assigned to such term in
the Nevada Uniform Commercial Code.
SECTION 2. Grant of Security Interest.
--------------------------
(a) As collateral security for the due and punctual
performance and payment of all the Liabilities, the Debtor hereby
assigns to the Creditor, and grants to the Creditor a continuing
security interest in all of the following (collectively referred to
herein as the "Collateral"), whether now or hereafter existing, owned,
licensed, leased, consigned, arising or acquired:
(i) Inventory. All of the following, whether now or
hereafter existing, which are owned by Debtor or in which
Debtor otherwise has any rights: (i) Inventory in all its
forms and of any kind, (ii) Goods in which Debtor has an
interest in mass or a joint or other interest or right of any
kind, (iii) Goods which are returned to or repossessed by
Debtor, and (iv) all accessions thereto and products thereof
and documents therefor.
(ii) Equipment. All equipment in any form and of any
kind, whether now or hereafter existing, owned by Debtor or in
which Debtor otherwise has any rights, including, without
limitation, any and all equipment that constitutes fixtures.
(iii) Receivables. All of the following, whether now
or hereafter existing, which are owned by Debtor or in which
Debtor otherwise has any rights: (i) all accounts of any kind,
(ii) all chattel paper, documents and instruments of any kind
relating to such accounts or arising out of or in connection
with the sale or lease of Goods or the rendering of services,
and (iii) all rights in, to or under all security agreements,
leases and other contracts securing or otherwise relating to
any such accounts, chattel paper, documents, or instruments.
1
(iv) Contract Rights, General Intangibles, etc. All
of the following, whether now or hereafter existing, which are
owned by Debtor or in which Debtor otherwise has any rights:
all contract rights and general intangibles of any kind
(including but not limited to choses in action, tax refunds,
and insurance proceeds) and all chattel paper, documents,
instruments, security agreements, leases, other contracts and
money, and all other rights of Debtor (except those
constituting Receivables) to receive payments of money or the
ownership of property.
(v) Other Property. To the extent not included in the
foregoing, all of the personal property, rights and interests,
present and future, tangible and intangible, which are owned
by Debtor or in which Debtor otherwise has any rights,
including without limitation all accounts, Goods, Inventory,
fixtures, chattel paper, documents and general intangibles.
(vi) Proceeds. All proceeds and products of, and
accessions to, any and all of the foregoing and, to the extent
not otherwise included, any payments under insurance (whether
or not Secured Party is the loss payee thereof) or under any
indemnity, warranty or guaranty by reason of loss to or
otherwise with respect to any of the foregoing.
(b) The security interest granted to Creditor hereunder is
given to secure (i) payment of the Note executed and delivered by
Debtor to Creditor, as hereafter amended, supplemented, renewed,
extended and/or modified, payable as to principal and interest as
therein provided; (ii) future advances, if any, to be evidenced by like
notes to be made by Creditor to Debtor at Creditor's sole option; (iii)
all expenditures by Creditor for taxes, insurance, repairs to and
maintenance of the Collateral and all costs and expenses incurred by
Creditor in the collection and enforcement of the note and other
indebtedness of Debtor; and (iv) all Liabilities of Debtor to Creditor
now existing or hereafter incurred, matured or unmatured, direct or
contingent, and any renewals and extensions thereof and substitutions
therefor.
SECTION 3. Representations and Warranties of Debtor. As an inducement
to Creditor to enter into this Agreement and to consummate the transactions
contemplated hereby, Debtor represents, covenants and warrants to Creditor and
agrees as follows:
(a) Organization. Debtor is a corporation duly organized,
validly existing, and in good standing under the laws of the state of
Nevada and has the power and is duly authorized, qualified, franchised,
and licensed under all applicable laws, regulations, ordinances, and
orders of public authorities to own all its properties and assets and
to carry on its business in all material respects as it is now being
conducted, including qualification to do business as a foreign
corporation in the states in which the character and location of the
assets owned by it or the nature of the business transacted by it
requires qualification, except to the extent the failure to so qualify
would not materially and adversely affect the business, operations,
properties, assets or condition of Debtor. Debtor has full power and
authority to own or lease and to operate and use the portion of the
Collateral owned by it and to carry on its business as now conducted.
(b) Authority of Debtor. Debtor has taken all action required
by law, its articles of incorporation or articles of organization, its
bylaws or operating agreement, or otherwise to authorize the execution
and delivery of this Agreement and the consummation of the transactions
herein contemplated. Debtor has full power and authority to execute,
deliver and perform this Agreement and all of the Loan Documents. This
Agreement is the legal, valid, and binding agreement of Debtor
enforceable between the parties in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency, or other
laws affecting enforcement of creditors rights generally and by general
principles of equity. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated by this
Agreement in accordance with the terms hereof will not, violate any
provision of Debtor's articles of incorporation or bylaws or violate,
conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss
of rights under, or result in the creation or imposition of any
encumbrance upon any of the Collateral, under any other material note,
instrument, agreement, mortgage, lease, license, franchise, permit or
other authorization, right, restriction or obligation to which Debtor
or any of the Collateral is subject or by which Debtor is bound.
2
(c) Title to Property. Debtor has, or will have at the time
such Collateral is created or acquired, good and marketable title to
all of the Collateral, free and clear of all encumbrances except for
the security interest granted hereunder. No UCC financing statement
covering any of the Collateral is on file in any public office other
than those that reflect the security interest created by this
Agreement. All information with respect to the Collateral set forth in
any schedule, certificate or other writing at any time heretofore or
hereafter furnished by Debtor to the Creditor, and all other written
information heretofore or hereafter furnished by Debtor to the
Creditor, is and will be true and correct as of the date furnished.
SECTION 4. Certificates, Schedules and Reports. The Debtor will from
time to time deliver to the Creditor such additional schedules and such
certificates and reports with respect to all or any of the Collateral subject to
the security interest hereunder as the Creditor may reasonably request. Any such
schedule, certificate or report shall be executed by a duly authorized officer
of the Debtor and shall be in such form and detail as the Creditor may specify.
SECTION 5. Agreements of the Debtor. Debtor covenants and agrees
------------------------
that, until the satisfaction of all of its obligations under the terms of this
Agreement and the Loan Documents, it will :
(a) upon request of the Creditor, execute such UCC financing
statements and other documents (and pay the cost of filing or recording
the same or this Agreement in all public offices deemed necessary or
appropriate by the Creditor) and do such other acts and things, all as
the Creditor may from time to time request, to establish and maintain a
valid, perfected security interest in the Collateral (free of all other
liens, claims and rights of third parties whatsoever) to secure the
performance and payment of the Liabilities;
(b) keep all its Inventory and other Goods, unless the
Creditor shall otherwise consent in writing, at the location disclosed
to Creditor and not remove the Collateral from that location except in
the ordinary course of business;
(c) keep the Collateral separate and identifiable;
(d) keep its records concerning Accounts and General
Intangibles at the location disclosed to Creditor, which records will
be of such character as will enable the Creditor or its designees to
determine at any time the status thereof;
(e) furnish the Creditor such information concerning the
Debtor and the Collateral as the Creditor may from time to time
reasonably request;
(f) permit the Creditor and its designees, from time to time,
to inspect Debtor's Inventory and other Goods, and to inspect, audit
and make copies of and extracts from all records and all other papers
in the possession of the Debtor which pertain to the Collateral, and
will, upon request of the Creditor, deliver to the Creditor all of such
records and papers which pertain to the Collateral;
(g) upon request of the Creditor, stamp on its records
concerning the Collateral (and/or enter in its computer records
concerning the Collateral) a notation, in form satisfactory to the
Creditor, of the security interest of Creditor hereunder;
(h) except in the ordinary course of its business, without the
prior written consent of Creditor, not sell, lease, assign or create or
permit to exist any encumbrance on any Collateral to or in favor of
anyone other than the Creditor or as set forth herein;
(i) at all times keep all its Inventory and other Goods
insured against loss, damage, theft and other risks, in such amounts
and companies and under such policies and in such form as shall be
satisfactory to the Creditor, which policies shall provide that loss
thereunder shall be payable to Creditor as its interest may appear (and
the Creditor may apply any proceeds of such insurance which may be
received by it toward payment of the Liabilities, whether or not due,
in such order of application as the Creditor may determine) and that
ten (10) days prior written notice of cancellation shall be given to
Creditor and such policies or certificates thereof shall, if the
Creditor so requests, be deposited with or furnished to the Creditor;
3
(j) keep its Inventory, Equipment and other Goods (as
applicable) in as good repair and condition and in as good working or
running order as of the date hereof;
(k) comply with all laws, rules and regulations relating to,
and promptly pay when due all license fees, registration fees, taxes,
assessments and other charges which may be levied upon or assessed
against, the ownership, operation, possession, maintenance or use of
its Equipment and other Goods (as applicable) and will not relinquish
or terminate any rights, qualifications, licenses, or permits that
would materially and adversely affect its financial condition or
business; provided, however, that the Debtor shall not be required to
comply with any such law, rule or regulation, or to pay any such fee,
tax, assessment or other charge, the validity of which is being
contested by the Debtor in good faith by appropriate proceedings, so
long as forfeiture of any part of its Equipment or other Goods will not
result from the failure of the Debtor to comply with any such law, rule
or regulation, or to pay any such fee, tax, assessment or other charge,
during the period of such contest;
(l) cause to be noted on the applicable certificate,
in the event any of its Equipment is covered by a certificate of title,
the security interest of the Creditor in the Equipment covered
thereby;
(m) use its best efforts consistent with prudent business
practices to preserve and maintain its business and business
organization intact; to preserve its goodwill; to pay its obligations
as they mature; to retain its employees; and to retain its
relationships with customers;
(n) without the prior written consent of Creditor, not enter
into any agreement for the sale of all or substantially all of its
assets;
(o) furnish written notice to the Creditor, as soon as
possible after the occurrence from time to time thereof, of any change
in the location of any portion of the Collateral or in the name of the
Debtor;
(p) reimburse Creditor on demand for any payments made
pursuant to Section 6 hereof together with interest on the amount of
any such payment at ten percent (10%) per annum from date of payment
until reimbursement, which amounts shall be added to the Liabilities
owed by Debtor and shall be secured by the security interest granted
hereunder;
(q) reimburse the Creditor for all expenses, including
reasonable attorneys' fees and legal expenses, incurred by the Creditor
in seeking to collect or enforce any rights under the Collateral and,
in case of Default, incurred by the Creditor seeking to collect the
Note and all other Liabilities and to enforce its rights hereunder; and
(r) timely file all tax returns required by law to be filed
with respect to the operations of Debtor and pay all taxes imposed on
Debtor for all taxable periods ending during such periods.
SECTION 6. Payment of Expenses. At its option, Creditor may discharge
taxes, liens, security interests, or other encumbrances on the Collateral and
may pay for the repair of any damage to the Collateral, the maintenance and
preservation thereof and for insurance thereon.
4
SECTION 7. Default.
-------
(a) Event of Default. An Event of Default shall be
-----------------
deemed to have occurred upon the happening of any of the following
events or conditions:
(i) The occurrence of an event of default
under the Note;
(ii) The default in the payment or
performance of any term, obligation, covenant or
liability contained or referred to herein or in the
Note that is not cured or remedied within 10 days
after notice thereof from Creditor;
(iii) Any warranty, representation or
statement made or furnished to the Creditor by or in
behalf of Debtor proves to have been false in any
material respect when made or furnished;
(iv) The occurrence of any event that
results in the acceleration of the maturity of the
indebtedness of Debtor to others under any indenture,
agreement or undertaking;
(v) The loss, theft, substantial damage,
destruction, sale or encumbrance to or of any of the
Collateral, or the making of any levy, seizure or
attachment thereof or thereon;
(vi) Creditor reasonably believes that the
prospect of payment of any indebtedness secured
hereby or the performance of this Agreement is
impaired; or
(vii) The dissolution, termination or
existence, insolvency, business failure, appointment
of a receiver for any part of the Collateral,
assignment for the benefit of creditors or the
commencement of any proceeding under any bankruptcy
or insolvency law by or against either Debtor or any
guarantor or surety of Debtor.
(b) Remedies. Upon the occurrence of an Event of Default,
--------
and at any time thereafter, Creditor may exercise any one or all of the
following remedies:
(i) Declare all obligations secured hereby
immediately due and payable and proceed to enforce payment of
the same and exercise from time to time any rights and
remedies available to it under the Loan Documents and
applicable law; or
(ii) Exercise such other right or remedy available
to Creditor, at law or in equity.
The Debtor agrees, in case of an Event of Default, to assemble, at its
expense, all its Inventory and other Goods at a convenient place or
places acceptable to the Creditor. Any notification of intended
disposition of any of the Collateral required by law, shall be deemed
reasonably and properly given if given at least thirty (30) days before
such disposition. Any proceeds of any disposition by the Creditor of
any of the Collateral secured hereby may be applied by the Creditor to
the payment of expenses in connection with the Collateral, including
reasonable attorneys' fees and legal expenses, and any balance of such
proceeds may be applied by the Creditor toward the payment of such of
the Liabilities, and in such order of application, as the Creditor may
from time to time elect.
5
SECTION 8. Miscellaneous Provisions.
-------------------------
(a) The parties shall execute and deliver all documents or
instruments, provide all information, and take or forebear from all
such action as may be necessary or appropriate to achieve the purposes
of this Agreement.
(b) Any notices, demands, requests, or other communications
required or permitted hereunder shall be deemed sufficiently given if
in writing and if personally delivered; if sent by facsimile
transmission or other electronic communication, confirmed by registered
or certified mail, postage prepaid, or if sent by prepaid telegram or
overnight courier addressed as follows:
If to Creditor, to: Nitro Petroleum
#00 - 0000 Xxxxxxxx Xxx
Xxxxxxxxxx Xxxxxxx
Xxxxxxx, XX
If to Debtor, to: Quantum Energy, Inc.
1880 - 0000 Xxxx
Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX
or such other addresses and facsimile numbers as shall be furnished in
writing by any party in the manner for giving notices, demands,
requests, or other communications hereunder, and any such notice or
communication shall be deemed to have been given as of the date so
delivered or sent by facsimile transmission or other electronic
communication, three days after the date so mailed, or one day after
the date so telegraphed or sent by overnight delivery.
(c) No delay on the part of the Creditor in the exercise of
any right or remedy shall operate as a waiver thereof, and no single or
partial exercise by the Creditor of any right or remedy shall preclude
other or further exercise thereof or the exercise of any other right or
remedy.
(d) This Agreement and the documents referred to herein
constitute the entire agreement among the parties pertaining to the
subject matter hereof, and supersede all prior agreements and
understandings pertaining thereto. No amendment to, modification or
waiver of, or consent with respect to, any provision of this Agreement
shall in any event be effective unless the same shall be in writing and
signed and delivered by the Creditor, and then any such amendment,
modification, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
(e) Section captions used in this Agreement are for
convenience of reference only, and shall not affect the construction of
this Agreement.
(f) This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts and
each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Agreement.
(g) This Agreement shall be construed in accordance with and
governed by the laws of the state of Nevada, subject, however, to the
applicability of the UCC of any state in which a financing statement
must be filed in order to perfect a security interest in any of the
Collateral at any given time. Whenever possible each provision of this
Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
(h) This Agreement shall be binding upon, and inure to the
benefit of, the parties and their respective heirs, executors,
6
administrators, successors, legal representatives, and assigns;
provided, that this provision shall not be construed as permitting
assignment, substitution, delegation, or other transfer of rights or
obligations, except strictly in accordance with the provisions of this
Agreement.
(i) Neither the rights nor the duties of a party under this
Agreement may be assigned or delegated by either party in whole or in
part without the prior written consent of the other party.
(j) At the option of the Creditor, this Agreement, or a
carbon, photographic or other reproduction of this Agreement or of any
UCC financing statement covering the Collateral or any portion thereof
shall be sufficient as a UCC financing statement and may be filed as
such.
IN WITNESS WHEREOF, this Agreement has been duly executed effective as
of the day written above.
Debtor:
QUANTUM ENERGY, INC.
By
-----------------------
Creditor:
NITRO PETROLEUM INCORPORATED
By
-----------------------
