SECURITY INTEREST AND PLEDGE AGREEMENT
SECURITY
INTEREST AND PLEDGE AGREEMENT (“Pledge Agreement”) dated as of November 28,
2007, by and between CAMHZN Master LDC (“Secured Party”), Neah Power Systems,
Inc., a Nevada corporation having its principal executive offices at 00000
00xx
Xxxxxx
XX, Xxxxx 000, Xxxxxxx, Xxxxxxxxxx 00000 (the “Company” or the “Debtor” or
“Pledgors”).
RECITALS
A. Reference
is made to (i) that certain Purchase Agreement of even date herewith (the
“Purchase Agreement”) to which the Company and the Secured Party are parties,
and (ii) the Transaction Agreements (as that term is defined in the Purchase
Agreement), including, without limitation, the Note. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
relevant Transaction Agreements.
B. Pursuant
to the Transaction Agreements, the Debtor has certain obligations to the Secured
Party (all such obligations, the “Obligations”), including, but not limited to,
(i) obligations to pay principal and interest of the Note, which was issued
in
the original aggregate principal amount of $500,000.00, on the Maturity Date,
and (ii) pay certain fees to the Secured Party (the “Fee Obligations”). The note
and Fee Obligations are secured by the pledge of certain stock of the Company.
The Fee Obligations and the obligations of the Company and of the Pledgors,
if
any, under the note are referred to collectively as the “Note
Obligations.”
C. To
secure
the Note Obligations, the Pledgors have agreed to pledge certain shares of
Common Stock of the Company held by the Pledgors to the Secured Party as
security for the performance of the Note Obligations.
D. The
Pledgors are shareholders of the Debtor and have determined that it is in the
Pledgors’ best interests, including to the benefit of the other interests of the
Pledgors in the Company, to provide the pledge referred to herein.
E. The
Secured Party is willing to enter into the Purchase Agreement and the other
Transaction Agreements only upon receiving the Pledgors’ pledge of certain stock
of the Company, as set forth in this Pledge Agreement.
NOW,
THEREFORE, in consideration of the premises, the mutual covenants and conditions
contained herein, and for other good and valuable consideration, the receipt
and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as
follows:
1. Grant
of Security Interest.
(a) To
secure
the Note Obligations of Debtor, the Pledgors hereby pledge to the Secured Party
all of the shares of Common Stock (the “Pledged Shares”) set forth on the
attached Schedule 2 of this Agreement. Unless otherwise set forth on Schedule
2
of this Agreement, the Pledgors are the beneficial and record owner of the
Pledged Shares set forth opposite the Pledgor’s name on such Schedule. Such
Pledged Shares, together with any substitutes therefor, or proceeds thereof,
are
hereinafter referred to collectively as the “Collateral”. In the event that the
Pledged Shares are restricted securities, they will be replaced by free-trading
securities no later than January 31, 2007.
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(b) The
Company represents and warrants to the Secured Party that the Pledged Shares
are
duly authorized, validly issued, fully paid and non-assessable and that it
will
not permit the transfer of the Pledged Shares except in accordance with this
Pledge Agreement while the same is in effect.
(c) (i) The
Company has given written notice to the Transfer Agent regarding the creation
of
the security interest of the Secured Party in the Collateral. The Company has
instructed the Transfer Agent (A) to record on its books the existence of such
security interest with respect to the Pledged Shares, (B) to transfer Pledged
Shares in accordance with the instructions of the Secured Party without further
action of the Company, and (C) except upon such instructions of the Secured
Party or until written notice is given by the Secured Party that such security
interest has been released to the Pledgor in whole or in part, to not allow
a
transfer of the shares representing any part of the Collateral or to replace
the
certificates representing the Collateral; and
(ii) The
Pledgors hereby consent to the provisions of the preceding subparagraph (i)
and
authorizes the Company to provide such notice and instructions to the Transfer
Agent.
2. Obligations
Secured.
During
the term hereof, the Collateral shall secure the following:
(a) The
performance by the Company of the Note Obligations; and
(b) The
payment of all fees and the delivery of all stock other than principal and
interest under the Note.
(c) The
performance by the Pledgors of their obligations, covenants, and agreements
under this Agreement.
The
obligations, covenants and agreements described in clauses (a), (b) and (c)
are
the “Obligations.”
3. Perfection
of Security Interests.
Upon
execution of this Pledge Agreement by the Debtor and the Pledgors,
(a) the
Pledgors shall deliver and transfer possession of the stock certificates
identified opposite the Pledgor’s name on Schedule 2 of this Agreement (the
“Pledged Certificates”), together with stock transfer powers duly executed in
blank by the registered owner of the shares represented by such Certificates,
with appropriate Medallion signature guaranty (“Stock Powers”), to the Secured
Party.
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(b) The
Collateral will be held by the Secured Party or the Brokerage Firm, to perfect
the security interest of the Secured Party, until the earlier of
(i)
the
payment in full of all amounts due under the Note, or
(ii)
foreclosure of Secured Party's security interests as provided
herein.
(c) the
Debtor and the Pledgors hereby appoint the Secured Party, as attorney-in-fact
with powers of substitution, to execute all documents and perform all acts
in
order to perfect and maintain a valid security interest for Secured Party in
the
Collateral.
4. Reserved.
5. Pledgors’
Warranty.
The
Pledgors represent and warrant hereby to the Secured Party as follows with
respect to the Pledged Shares set forth opposite the Pledgor’s name on Schedule
2 to this Agreement:
A. With
respect to title to the Transferred Shares
(i) that
upon
transfer by the Pledgor of the Pledgor’s Certificates and Stock Powers to
Secured Party pursuant to this Agreement at such time, if any, as contemplated
hereby upon the occurrence of an Event of Default, the purchaser of the Pledged
Shares or the Secured Party, as contemplated herein, as the case may be, will
have good title (both record and beneficial) to the relevant Pledged
Shares;
(ii) that
there are no restrictions upon transfer and pledge of the Pledged Shares
pursuant to the provisions of this Agreement except the restrictions, to the
extent applicable, imposed by Rule 144 under the Securities Act of
1933;
(iii) that
the
Pledged Shares are free and clear of any encumbrances of every nature
whatsoever, the Pledgor is the sole owner of the Pledged Shares, and such shares
are duly authorized, validly issued, fully paid and non-assessable;
(iv) that
the
Pledgor has owned the Pledged Shares since the date specified on Schedule 2
to
this Agreement and that such shares were fully paid for as of such specified
date; and
(v) that
the
Pledgor agrees not to grant or create, any security interest, claim, lien,
pledge or other encumbrance with respect to the Pledgor’s Pledged Shares or
attempt to sell, transfer or otherwise dispose of any of such shares until
the
Obligations have been paid in full or this Agreement has
terminated.
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B. With
respect to certain other matters:
(i) that
the
Pledgor has made necessary inquiries of the Company and believes that the
Company fully intends to fulfill and has the capability of fulfilling the
Obligations to be performed by the Company in accordance with the terms of
the
Transaction Agreements;
(ii) that
the
Pledgor is not acting, and has not agreed to act, in any plan to sell or dispose
of the Pledged Shares in a manner intended to circumvent the registration
requirements of the Securities Act of 1933, as amended, or any applicable state
law;
(iii) that
Pledgor has been advised by counsel of the elements of a bona-fide pledge for
purposes of Rule 144(d)(3)(iv) under the Securities Act of 1933, as amended,
including the relevant SEC interpretations and affirms the pledge of shares
by
the Pledgor pursuant to this Pledge Agreement will constitute a bona-fide pledge
of such shares for purposes of such Rule; and
(iv) that
this
Pledge Agreement constitutes a legal, valid and binding obligation of the
Pledgor enforceable in accordance with its terms (except as the enforcement
thereof may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, and similar laws, now or hereafter in
effect).
(v) that
the
Pledgor’s address is as provided under the Pledgor’s signature on the signature
page hereof.
6. Reports
under Securities Act and Exchange Act.
With a
view to making available to Secured Party the benefits of Rule 144 promulgated
under the Securities Act or any other similar rule or regulation of the SEC
that
may at any time permit Secured Party to sell securities of the Company to the
public without Registration (“Rule 144”), the Company agrees to:
(i) make
and
keep public information available, as those terms are understood and defined
in
Rule 144;
(ii) file
with
the SEC in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act; and
(iii) until
the
date when the Secured Party may sell all Registrable Securities under Rule
144
without volume or other restrictions or limits (the “Unrestricted Sale Date”),
furnish to the Secured Party so long as the Secured Party owns or has a security
interest in the Pledged Shares (a “Holder”), promptly upon request, (i) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (ii) if
not
available on the SEC’s XXXXX system, a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed
by
the Company and (iii) such other information as may be reasonably requested
to
permit the Secured Party to sell such securities pursuant to Rule 144 without
registration; and
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(d) at
the
request of any Holder, give its Transfer Agent instructions (supported by an
opinion of the Company’s counsel, if required or requested by the Transfer
Agent) to the effect that, upon the Transfer Agent’s receipt from such Holder
of
(i)
a
certificate (a “Rule 144 Certificate”) certifying (A) that the Holder’s holding
period (as determined in accordance with the provisions of Rule 144) for the
Pledged Shares which the Holder proposes to sell (the “Securities Being Sold”)
is not less than (1) year and (B) as to such other matters as may be appropriate
in accordance with Rule 144 under the Securities Act, and
(ii)
an
opinion of counsel acceptable to the Company (for which purposes it is agreed
that Law Offices of Xxxxx X. Xxxxxx, PLLC shall be deemed acceptable if not
given by the Company’s counsel) that, based on the Rule 144 Certificate,
Securities Being Sold may be sold pursuant to the provisions of Rule 144, even
in the absence of an effective Registration Statement,
the
Transfer Agent is to effect the transfer of the Securities Being Sold and issue
to the buyer(s) or transferee(s) thereof one or more stock certificates
representing the transferred Securities Being Sold without any restrictive
legend and without recording any restrictions on the transferability of such
shares on the Transfer Agent’s books and records (except to the extent any such
legend or restriction results from facts other than the identity of the Holder,
as the seller or transferor thereof, or the status, including any relevant
legends or restrictions, of the shares of the Securities Being Sold while held
by the Holder). If the Transfer Agent reasonably requires any additional
documentation at the time of the transfer, the Company shall deliver or cause
to
be delivered all such reasonable additional documentation as may be necessary
to
effectuate the issuance of an unlegended certificate.
7. Voting
Rights.
Unless
and until the Secured Party has exercised its rights under this Pledge Agreement
to foreclose its security interest in the Collateral, the Pledgor shall have
the
right to exercise any voting rights evidenced by, or relating to, the
Collateral.
8. Warrants
and Options.
In the
event that, during the term of this Pledge Agreement, subscription, warrants,
dividends, or any other rights or option shall be issued in connection with
the
Collateral, such warrants, dividends, rights and options shall be immediately
delivered to Secured Party to be held under the terms hereof in the same manner
as the Collateral.
9. Preservation
of the Value of the Collateral and Reimbursement of Secured
Party.
Pledgor
shall pay all taxes, charges, and assessments against the Collateral and do
all
acts necessary to preserve and maintain the value thereof. On failure of Pledgor
so to do, Secured Party may make such payments on account thereof as (in Secured
Party's discretion) is deemed desirable, and Pledgor shall reimburse Secured
Party immediately on demand for any and all such payments expended by Secured
Party in enforcing, collecting, and exercising its remedies
hereunder.
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10. Default
and Remedies.
(a) For
purposes of this Agreement, “Event of Default” shall mean any one or more of the
following events:
(i) any
default in the performance by the Company or any Pledgor of any of the Note
Obligations, after the expiration, without cure, of the cure period (but only
if
any such cure period is specifically provided in the Transaction Agreements
and
without any regard to any cure period if no such cure period is provided; it
being specifically acknowledged by the Company and the Pledgor that all payment
obligations are time of the essence obligations, with no cure periods provided),
or
(ii) a
breach
by the Company or Pledgor of any of the its respective representations,
warranties, covenants or agreements in this Pledge Agreement, subject to
applicable cure periods.
(b) During
the term of this Pledge Agreement, the Secured Party shall have the following
rights after any Event of Default and for so long as the Obligations are not
satisfied in full:
(i)
the
rights and remedies provided by the Uniform Commercial Code as adopted by the
State of New York (as said law may at any time be amended), except that the
Secured Party waives any right to a deficiency pursuant to Section 9-608 thereof
or otherwise;
(ii)
the
right to receive and retain all dividends, payments and other distributions
of
any kind upon any or all of the Pledged Shares as additional Collateral;
and
(iii)
the
right to sell, at a public or private sale, the Collateral or any part thereof
for cash, upon credit or for future delivery, and at such price or prices in
accordance with the Uniform Commercial Code (as such law may be amended from
time to time); it being understood that one or more of the Secured Party may,
but shall not be required to, take such actions jointly. Upon any such sale,
Secured Party shall have the right to deliver, assign and transfer to the
purchaser thereof the Collateral so sold. Secured Party shall give the Pledgor
not less than ten (10) days written notice of its intention to make any such
sale. Any such sale shall be held at such time or times during ordinary business
hours and at such place or places as Secured Party may fix in the notice of
such
sale. Secured Party may adjourn or cancel any sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
the
sale, and such sale may be made at any time or place to which the same may
be so
adjourned. In case of any sale of all or any part of the Collateral upon terms
calling for payments in the future, any Collateral so sold may be retained
by
Secured Party until the selling price is paid by the purchaser thereof, but
Secured Party shall incur no liability in the case of the failure of such
purchaser to take up and pay for the Collateral so sold and, in the case of
such
failure, such Collateral may again be sold upon like notice. Secured Party,
however, instead of exercising the power of sale herein conferred upon it,
may
proceed by a suit or suits at law or in equity to foreclose the security
interest and sell the Collateral, or any portion thereof, under a judgment
or
decree of a court or courts of competent jurisdiction, the Pledgors having
been
given due notice of all such action. Secured Party shall incur no liability
as a
result of a sale of the Collateral or any part thereof.
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(iv)
in
addition to its rights and remedies under this agreement, the Note and all
Transaction Agreements, the Company shall have full recourse against any real,
personal, tangible or intangible assets of Pledgors, and may pursue any legal
or
equitable remedies that are available to it.
11. Waiver.
Each of
the Debtor and the Pledgors waives any right that it may have to require Secured
Party to proceed against any other person, or proceed against or exhaust any
other security, or pursue any other remedy Secured Party may have.
12. Term
of Agreement.
This
Pledge Agreement shall continue in full force and effect until the earlier
of
the payment in full of the Note. If the Note is paid in full, the security
interests in the relevant Collateral shall be deemed released, and any portion
of the Collateral not transferred to or sold by any one or more Secured Party
shall be returned to the Pedgors. Upon termination of this Pledge Agreement,
the
relevant Collateral shall be returned within five (5) Trading Days to Debtor
or
to the Pledgor, as contemplated above.
13. Reserved.
14. General
Provisions:
14.1 Binding
Agreement; No Modification of Transaction Agreements.
This
Pledge Agreement shall be binding upon and shall inure to the benefit of the
successors and assigns of the respective parties hereto. Except to the extent
specifically provided herein, nothing in this Pledge Agreement shall limit
or
modify any provision of any of the Transaction Agreements
14.2 Captions.
The
headings used in this Pledge Agreement are inserted for reference purposes
only
and shall not be deemed to define, limit, extend, describe, or affect in any
way
the meaning, scope or interpretation of any of the terms or provisions of this
Pledge Agreement or the intent hereof.
14.3 Counterparts.
This
Pledge Agreement may be signed in any number of counterparts with the same
effect as if the signatures upon any counterpart were upon the same instrument.
All signed counterparts shall be deemed to be one original. A facsimile
transmission of this signed Pledge Agreement shall be legal and binding on
all
parties hereto.
14.4 Further
Assurances.
The
parties hereto agree that, from time to time upon the written request of any
party hereto, they will execute and deliver such further documents and do such
other acts and things as such party may reasonably request in order fully to
effect the purposes of this Pledge Agreement. The Transfer Agent Instructions
annexed hereto are deemed an integral part of this Pledge
Agreement.
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14.5 Waiver
of Breach.
Any
waiver by either party of any breach of any kind or character whatsoever by
the
other, whether such be direct or implied, shall not be construed as a continuing
waiver of or consent to any subsequent breach of this Pledge
Agreement.
14.6 Cumulative
Remedies.
The
rights and remedies of the parties hereto shall be construed cumulatively,
and
none of such rights and remedies shall be exclusive of, or in lieu or limitation
of any other right, remedy, or priority allowed by applicable law.
14.7 Amendment.
This
Pledge Agreement may be modified only in a written document that refers to
this
Pledge Agreement and is executed by Secured Party, the Pledgor and the
Debtor.
14.8 Interpretation.
This
Pledge Agreement shall be interpreted, construed, and enforced according to
the
substantive laws of the State of New York.
14.9 Governing
Law.
This
Pledge Agreement shall be governed by and construed in accordance with the
laws
of the State of New York. Each of the parties consents to the jurisdiction
of
the federal courts whose districts encompass any part of the County of New
York
or the state courts of the State of New York sitting in the County of New York
in connection with any dispute arising under this Pledge Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum
non coveniens,
to the
bringing of any such proceeding in such jurisdictions.
14.10 WAIVER
OF JURY TRIAL.
The
parties to this Pledge Agreement hereby waive a trial by jury in any action,
proceeding or counterclaim brought by any of them against any other in respect
of any matter arising out or in connection with this Pledge
Agreement.
14.11 Notice.
Any
notice or other communication required or permitted to be given hereunder shall
be effective upon receipt. Such notices may be sent (i) in the United States
mail, postage prepaid and certified, (ii) by express courier with receipt,
(iii)
by facsimile transmission, with a copy subsequently delivered as in (i) or
(ii)
above. Any such notice shall be addressed or transmitted as
follows:
If
to
Company/Pledgor, to:
00000
00xx Xxxxxx XX, Xxxxx 000
Xxxxxxx,
Xxxxxxxxxx 00000
Tel.:
000-000-0000
Fax:
000-000-0000
Page 8
With
a
copy to:
Xxxxx
Xxxxx & Xxxxx LLP
1620
26th
Street,
0xx
Xxxxx,
Xxxxx Xxxxx
Xxxxx
Xxxxxx, XX 00000
Attention:
Xxxx X. Xxxxxxxx, Esq.
Tel:
000-000-0000
Fax:
000-000-0000
If
to the
Secured Party, to:
CAMHZN
Master LDC
c/o
Centrecourt Asset Management LLC
000
Xxxxxxx Xxxxxx, 0xx
Xxxxx
Xxx
Xxxx,
XX 00000
Tel:
000-000-0000
Fax:
000-000-0000
With
a
copy to:
Law
Offices of Xxxxx X. Xxxxxx, PLLC
000
Xxx
Xxxxxxx Xxxx, Xxxxx 000
Xxxxxx
Xxxx, Xxx Xxxx 00000
Attn:
Xxxxx X. Xxxxxx, Esq.
Tel:
000-000-0000
Fax:
000-000-0000
Any
party
may change its address by notice similarly given to the other parties (except
that a Secured Party need not give notice to other Secured Party).
14.12 Acknowledgement
by Debtor and Pledgors.
In the
event that any provision of the Transaction Agreements, the Guarantee or this
Pledge Agreement as applied to any party or circumstances shall be adjudged
by a
court to be invalid or unenforceable, each of the Debtor or the Pledgor, as
the
case may be, acknowledges and agrees that this Pledge Agreement shall remain
valid and enforceable in all respects against the Debtor and the
Pledgor.
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REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
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IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the day, month
and year first above written.
By:
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Name:
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Title:
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By:
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Title:
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SCHEDULE
2
The
following shares are pledged hereunder as the Pledged Shares, each certificate
in the name of:
Holder's Name
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Certificate
No.
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No. of Shares
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Original Date of
Acquisition
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Total
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