Execution
Version
SECURITY
AGREEMENT
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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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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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.
Section
3.
Representations and Warranties; Covenants
. The Debtor hereby warrants and covenants as
follows:
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The
Debtor has title to the Collateral free from any lien, security
interest, encumbrance or claim.
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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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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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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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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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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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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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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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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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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 intende
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