SECURITY AGREEMENT
This SECURITY AGREEMENT is dated as of ___________, 1996 by and between
QUIET POWER SYSTEMS, INC., a Delaware corporation (the "Debtor"), and DAYSTAR
PARTNERS, L.P., a California limited partnership and
______________________________, a _______________________________ (collectively,
the "Creditor").
FACTUAL BACKGROUND
Pursuant to a Note Purchase Agreement dated the date hereof, Debtor has
delivered to Creditor Promissory Notes dated the date hereof in the aggregate
principal amount of [$500,000] (the "Notes"). Debtor has agreed to grant to
Creditor a security interest in the Collateral (as that term is hereinafter
defined) to secure the performance of Debtor's obligations under the Notes.
NOW, THEREFORE, the parties hereto agree as follows:
1. GRANT OF SECURITY INTEREST. Debtor hereby grants to Creditor a
security interest in the property described in Paragraph 2 (the "Collateral") to
secure payment of the Notes and performance by Debtor of all of Debtor's present
and future debts, covenants, liabilities, undertakings and obligations to
Creditor, whether absolute or contingent (the "Indebtedness").
2. COLLATERAL. The Collateral shall consist of all tangible and
intangible property of Debtor (and all of Debtor's right, title and interest
therein and thereto), whether now owned by Debtor or acquired by Debtor after
the date hereof at any time, including, but not limited to, goods, inventories,
machinery, equipment, fixtures, documents, patents, patent applications,
customer lists, contract rights, instruments, books, records, files, licenses of
patents and technology, general intangibles, goodwill, chattel paper, accounts
receivable and accounts, including all cash and non-cash proceeds of all such
property, the products and increase of all such property, and all additions to
and replacements of all such property. For purposes of this Security Agreement,
the term "proceeds" includes whatever is receivable or received by Debtor when
Collateral is sold, leased, collected, exchanged or otherwise disposed of,
whether such disposition is voluntary or involuntary, and includes, without
limitation, all rights to payment, including return premiums, with respect to
any insurance relating thereto.
3. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and warrants
to Creditor that:
(a) Debtor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware; the execution, delivery
and performance of this Security Agreement have been duly authorized and are not
in conflict with the terms of any indenture, agreement or undertaking to which
Debtor is a party or by which it is bound; and this Security
Agreement is a valid and binding obligation of Debtor enforceable against Debtor
in accordance with its terms;
(b) Debtor is the owner of the Collateral (or, in the case of
after-acquired Collateral, at the time Debtor acquires rights in such
Collateral, will be the owner thereof); Creditor has a valid and attached lien
on all of the Collateral; and to the best of Debtor's knowledge and except as
known to Creditor, no other persons, other than (i) persons making substantially
similar bridge loans to Debtor ("Other Bridge Loan Lenders"), or (ii) persons
having purchase money security interests, have (or, in the case of
after-acquired Collateral, at the time Debtor acquires rights therein, will
have) any right, title, claim or interest (by way of security interest or other
lien or charge or otherwise) in, against or to the Collateral;
(c) Each account receivable, promissory note or any other right to
the payment of money which is included in the Collateral is, or at the time it
comes into existence will be, genuine and enforceable in accordance with its
terms against the party obligated to pay the same (an "Account Debtor");
(d) The amount represented from time to time by Debtor to Creditor as
owing by all Account Debtors will be true, complete and correct in all material
respects; and
(e) All information, certificates and statements, including
information relating to the Collateral, submitted by Debtor to Creditor from
time to time, whether pursuant to this Security Agreement, the Agreement, or
otherwise, will be true, complete and correct in all material respects.
4. COVENANTS OF DEBTOR. Debtor hereby agrees that it will, until the
Indebtedness is paid in full:
(a) Do all acts that may be necessary to maintain, preserve and
protect the Collateral;
(b) Not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Security Agreement, or any applicable law,
statute, regulation or ordinance or any policy of insurance covering the
Collateral;
(c) Pay timely when due all taxes, assessments, charges, encumbrances
and liens now or hereafter imposed upon or affecting any Collateral unless
contested in good faith;
(d) Notify Creditor within fifteen (15) days of any change in
Debtor's name or place of business;
(e) Procure, execute and deliver to Creditor from time to time any
endorsements, assignments, financing statements, vehicle registration documents
and other documents, agreements, and writings (including, without limitation,
subordination agreements and
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intercreditor agreements) reasonably deemed necessary or appropriate by Creditor
to perfect, establish, maintain and protect Creditor's security interest
hereunder;
(f) Appear in and defend any action or proceeding which affects its
title to or Creditor's interest in the Collateral;
(g) Keep separate, accurate and complete records of the Collateral
and provide Creditor, and Creditor's attorney or agent, with copies of and upon
ten days' notice access to such records as Creditor may reasonably request at
any time and from time to time during Debtor's normal business hours (upon
receipt of an appropriate, standard confidentiality agreement from Creditor);
(h) Not surrender, sell, encumber, lease, rent or otherwise dispose
of any Collateral or any right or interest therein except in the ordinary course
of business, and keep the Collateral free of all levies and security interests
or other liens or charges, except those arising in the ordinary course of
business, those granted Other Bridge Loan Lenders, or approved in writing by
Creditor, which approval shall not be unreasonably withheld;
(i) Keep the Collateral in good condition and repair and not cause or
permit any waste or unusual or unreasonable depreciation of the Collateral;
(j) At any time and from time to time during Debtor's normal business
hours, upon demand and ten days' notice by Creditor, exhibit to and allow
reasonable inspection by Creditor (or persons designated by Creditor) of the
Collateral;
(k) Comply with all laws, statutes, regulations and ordinances
relating to the possession, operation, maintenance and control of the
Collateral;
(l) Insure the Collateral in form and amounts, with companies, and
against risks and liabilities customary to Debtor's business;
(m) Pay and perform to and for Creditor any and all debts, covenants,
liabilities, understandings and obligations comprising the Indebtedness when
due;
(n) At the reasonable request of Creditor at any time and from time
to time, mark Debtor's records and all evidence of the collateral to indicate
clearly the Creditor's security interest therein;
(o) At any time and from time to time upon reasonable request by
Creditor, promptly give to Creditor any information relating to the Collateral
which Creditor may reasonably request.
5. WAIVER BY DEBTOR. To the maximum extent permitted by law, Debtor
hereby waives (i) any right to require Creditor to pursue any particular remedy
against Debtor or any other
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person; (ii) any right to the benefit of, or to direct the application of, any
Collateral until the Indebtedness shall have been paid and performed in full;
and (iii) any right of subrogation to Creditor until the Indebtedness shall have
been paid and performed in full.
6. AUTHORIZED ACTION BY CREDITOR. Debtor hereby irrevocably appoints
Creditor as its attorney-in-fact, upon the occurrence of a Default (as defined
in Section 8) hereunder, (i) to do any act which Debtor is obligated by this
Security Agreement to do, and (ii) to exercise such rights and powers as Debtor
might exercise with respect to the Collateral, including, without limitation,
the right to: (a) collect by legal proceedings or otherwise and endorse and
receive all payments, proceeds and other sums and property now or hereafter
payable on or on account of the Collateral; and (b) insure, process, protect and
preserve the Collateral. Debtor agrees to reimburse Creditor upon demand for
any costs and expenses, including, without limitation, reasonable attorneys'
fees, which Creditor may incur while acting as Debtor's attorney-in-fact
hereunder.
7. NOTIFICATION OF ACCOUNT DEBTORS; COLLECTION. Upon Default, Debtor
shall, at Creditor's request, notify any Account Debtors of Creditor's security
interest in any accounts receivable and direct payment thereof to Creditor.
Creditor may (but shall not be obligated to), upon Default, so notify any
Account Debtor and may receive any proceeds to which Creditor may be entitled
under this Security Agreement. For such purposes, Debtor hereby (i) constitutes
and appoints Creditor as Debtor's attorney-in-fact to demand, receive, sue for,
and to give discharges and releases for any monies due or to become due on any
account receivable; and (ii) with respect to any Collateral, assents to all
extensions, postponement of the time of payment thereof, and any other
indulgence in connection therewith, to each substitution, exchange or release of
Collateral, to the addition or release of any party primarily or secondarily
liable on any obligations, all in such manner and at such time or times as
Creditor shall deem advisable. Until otherwise notified by Creditor, Debtor
shall collect, enforce and receive delivery and payment of the Collateral.
8. DEFAULT AND REMEDIES.
(a) Debtor shall be deemed in default ("Default") under this Security
Agreement if:
(i) Debtor shall fail to make payment due under any Note when
due, or within any cure period therein specified, or
(ii) Debtor shall fail to observe or perform any term or
condition of this Security Agreement in any material respect or be in
breach of any representation or warranty set forth herein in any
material respect, and such failure or breach shall continue for a
period of thirty (30) days following written notice thereof from
Creditor to Debtor.
(b) Upon the occurrence of any such Default, Creditor may, at its
option, and in addition to all rights and remedies available to Creditor
hereunder, under the Agreement or under the Delaware Commercial Code, do any one
or more of the following:
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(i) foreclose or otherwise enforce Creditor's security interest
in any manner permitted by law or provided for in this Security
Agreement;
(ii) recover from Debtor all costs and expenses, including,
without limitation, reasonable attorneys' fees and costs, incurred or
paid by Creditor in exercising any right, power or remedy provided by
this Security Agreement or by law;
(iii) require Debtor to assemble the Collateral and make it
available to Creditor at a place to be designated by Creditor;
(iv) enter onto property where any Collateral is located and take
and maintain possession thereof and remove the Collateral therefrom
with or without judicial process;
(v) prior to the disposition of the Collateral, store, process,
repair or recondition it or otherwise prepare it for disposition in
any manner and to the extent Creditor deems appropriate; and
(vi) declare all or any of the Indebtedness to be immediately due
and payable (and upon which declaration the Indebtedness shall be so
due and payable).
If a sufficient sum is not realized from the disposition of Collateral to
pay the Indebtedness then outstanding, Debtor shall be liable for and agrees to
pay any deficiency.
9. CUMULATIVE RIGHTS. The rights, powers and remedies of Creditor under
this Security Agreement shall be in addition to all rights, powers and remedies
given to the Creditors by virtue of any statute or rule of law or the Agreement,
all of which rights, powers and remedies shall be cumulative and may be
exercised successively or concurrently without impairing Creditor's security
interest in the Collateral. Nothing in this Security Agreement shall be deemed
to preclude exercise by Debtor of the Sale Option in accordance with the Notes.
10. BINDING UPON SUCCESSORS. All rights of Creditor under this Security
Agreement shall inure to the benefit of the heirs, executors, administrators,
successors and assigns of Creditor, and all obligations of Debtor shall bind its
heirs, executors, administrators, successors and assigns.
11. ENTIRE AGREEMENT; SEVERABILITY. This Security Agreement contains the
entire agreement between Creditor and Debtor relating to the subject hereof, and
supersedes any and all prior understandings or agreements relating to the
subject matter hereof, except for the Purchase Agreement (as defined on the
first page hereof). If any of the provisions of this Security Agreement shall
be held invalid or unenforceable, this Security Agreement shall be construed as
if not containing those provisions and the rights and obligations of the parties
hereto shall be construed and enforced accordingly.
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12. NOTICE. Any notice, consent or other communication provided for in
this Security Agreement or by law shall be given in writing as provided in the
Purchase Agreement, addressed as follows:
If to Creditor: DayStar Partners L.P.
10600 N. DeAnza Blvd., Suite 215
Cupertino, CA 95014
Attention: Larry Wells
With a copy to: Barry Reder, Esq.
Coblentz, Cahen, McCabe & Breyer, LLP
222 Kearny Street, 7th Floor
San Francisco, CA 94108
and: ______________________________
______________________________
______________________________
______________________________
With a copy to:______________________________
______________________________
______________________________
______________________________
If to Debtor: Quiet Power Systems, Inc.
1675 Broadway, Suite 2600
New York, NY 10019
Attention: President
With a copy to:Gary Moomjian, Esq.
Breslow & Walker
875 Third Avenue
New York, NY 10022
Any party may change its address for notice by notice similarly given.
13. NO WAIVER. No delay on the part of Creditor in exercising any power
of sale, option or other right or remedy hereunder, and no notice or demand
which may be given to or made upon Debtor by Creditor, shall constitute a waiver
thereof, limit or impair Creditor's right to take any action or to exercise any
other power of sale, option or any other right or remedy hereunder, or prejudice
Creditor's rights or remedies against Debtor in any respect. Creditor's
acceptance of partial or delinquent payment or performance or the failure of
Creditor to exercise any right shall
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not waive any obligation of Debtor or right of Creditor and shall not modify
this Security Agreement or waive any other similar default.
14. GOVERNING LAW; JURISDICTION; AMENDMENTS. Because Debtor is a Delaware
corporation, this Security Agreement shall be governed by the laws of the State
of Delaware in all respects, including matters of construction, validity and
performance. Any litigation or arbitration between the parties which arises out
of this Security Agreement shall be instituted and prosecuted only in the
appropriate California or Federal court or other tribunal, situated in San
Francisco, California. Each party hereto each specifically submits itself and
its properties to the exclusive jurisdiction of such courts for purposes of any
such action and the enforcement of any judgment or order arising therefrom. The
parties hereto each waive any right to a change of venue and any and all
objections to the jurisdiction of the California courts. Notwithstanding the
foregoing, the Creditor may take such actions in a foreign jurisdiction which
Creditor deems necessary and appropriate to enforce or collect any court
judgment in any dispute arising out of this Security Agreement or to seek and
obtain other relief as is necessary to enforce the terms hereof. Each party
agrees that service upon such party in any such action or proceeding may be made
as provided for the giving of notices hereunder. No term or provision of this
Agreement may be altered, modified, limited or amended except by an agreement
expressly referring hereto and to which the parties hereto consent in writing.
15. COUNTERPARTS. This Security Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
taken together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be executed on the date first set forth above.
DEBTOR: QUIET POWER SYSTEMS, INC.,
a Delaware corporation
By:__________________________________
Title: _______________________________
CREDITOR: DAYSTAR PARTNERS, L.P.,
a California limited partnership
By: LARRY WELLS CO., INC., its
General Partner
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By: ______________________________
Larry Wells, President
_____________________________________
By:__________________________________
Its:__________________________________
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