Exhibit 10.2
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of October __, 2003 (this "AGREEMENT"),
among QT 5, Inc., a Delaware corporation (the "Debtor") and the signatories
hereto, their endorsees, transferees and assigns (collectively referred to as,
the "SECURED PARTIES").
W I T N E S S E T H:
WHEREAS, pursuant to the Company's Convertible Debentures (the
"DEBENTURES"), issued pursuant that certain Securities Purchase Agreement, dated
August 19, 2003, by and among the Debtor and the Secured Parties (the "PURCHASE
AGREEMENT"), the Secured Parties have agreed to extend the loan to the Debtor
evidenced by the Debentures; and
WHEREAS, in order to induce the Secured Parties to extend the loan
evidenced by the Debentures, the Debtor has agreed to execute and deliver to the
Secured Parties this Agreement and to grant the Secured Parties a security
interest in all of the assets of the Debtor to secure the prompt payment,
performance and discharge in full of all of the Debtor's obligations under the
Debentures.
NOW, THEREFORE, in consideration of the agreements herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "general intangibles" and "proceeds") shall have the respective
meanings given such terms in Article 9 of the UCC.
(a) "COLLATERAL" means the collateral in which the Secured
Parties are granted a security interest by this Agreement and which
shall include the following, whether presently owned or existing or
hereafter acquired or coming into existence, and all additions and
accessions thereto and all substitutions and replacements thereof, and
all proceeds, products and accounts thereof, including, without
limitation, all proceeds from the sale or transfer of the Collateral
and of insurance covering the same and of any tort claims in connection
therewith:
(i) All Goods of the Debtor, including, without
limitations, all machinery, equipment, computers, motor
vehicles, trucks, tanks, boats, ships, appliances, furniture,
special and general tools, fixtures, test and quality control
devices and other equipment of every kind and nature and
wherever situated, together with all documents of title and
documents representing the same, all additions and accessions
thereto, replacements therefor, all parts therefor, and all
substitutes for any of the foregoing and all other items used
and useful in connection with the Debtor's businesses and all
improvements thereto (collectively, the "EQUIPMENT"); and
(ii) All Inventory of the Debtor; and
(iii) All of the Debtor's contract rights and general
intangibles, including, without limitation, all partnership
interests, stock or other securities, licenses, distribution
and other agreements, computer software development rights,
leases, franchises, customer lists, quality control
procedures, grants and rights, goodwill, trademarks, service
marks, trade styles, trade names, patents, patent
applications, copyrights, deposit accounts, and income tax
refunds (collectively, the "GENERAL INTANGIBLES"); and
(iv) All Receivables of the Debtor including all
insurance proceeds, and rights to refunds or indemnification
whatsoever owing, together with all instruments, all documents
of title representing any of the foregoing, all rights in any
merchandising, goods, equipment, motor vehicles and trucks
which any of the same may represent, and all right, title,
security and guaranties with respect to each Receivable,
including any right of stoppage in transit; and
(v) All of the Debtor's documents, instruments and
chattel paper, files, records, books of account, business
papers, computer programs and the products and proceeds of all
of the foregoing Collateral set forth in clauses (i)-(iv)
above.
(c) "OBLIGATIONS" means all of the Debtor's obligations under
this Agreement, the Debentures and any other agreements or obligations
undertaken by the Company to the Secured Parties, in each case, whether
now or hereafter existing, voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether
or not jointly owed with others, and whether or not from time to time
decreased or extinguished and later increased, created or incurred, and
all or any portion of such obligations or liabilities that are paid, to
the extent all or any part of such payment is avoided or recovered
directly or indirectly from the Secured Parties as a preference,
fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to time.
(d) "UCC" means the Uniform Commercial Code and or any other
applicable law of any jurisdiction (including, without limitation, the
state of California) as to any Collateral located therein.
2. GRANT OF SECURITY INTEREST. As an inducement for the Secured
Parties to extend the loan as evidenced by the Debentures and to secure the
complete and timely payment, performance and discharge in full, as the case may
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be, of all of the Obligations, the Debtor hereby, unconditionally and
irrevocably, pledges, grants and hypothecates to the Secured Parties, a
continuing security interest in, a lien upon and a right of set-off against all
of their respective right, title and interest of whatsoever kind and nature in
and to the Collateral (the "SECURITY INTEREST").
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
DEBTOR. The Debtor represents and warrants to, and covenants and agrees with,
the Secured Parties as follows:
(a) The Debtor has the requisite corporate power and authority
to enter into this Agreement and otherwise to carry out its obligations
thereunder. The execution, delivery and performance by the Debtor of
this Agreement and the filings contemplated therein have been duly
authorized by all necessary action on the part of the Debtor and no
further action is required by the Debtor.
(b) The Debtor represents and warrants that they have no place
of business or offices where their respective books of account and
records are kept (other than temporarily at the offices of its
attorneys or accountants) or places where Collateral is stored or
located, except as set forth on SCHEDULE A attached hereto.
(c) Except as set forth on SCHEDULE B attached hereto, the
Debtor is the sole owner of the Collateral (except for non-exclusive
licenses granted by the Debtor in the ordinary course of business),
free and clear of any liens, security interests, encumbrances, rights
or claims, and are fully authorized to grant the Security Interest in
and to pledge the Collateral. There is not on file in any governmental
or regulatory authority, agency or recording office an effective
financing statement, security agreement, license or transfer or any
notice of any of the foregoing (other than those that have been filed
in favor of the Secured Parties pursuant to this Agreement) covering or
affecting any of the Collateral. So long as this Agreement shall be in
effect, Debtor shall not execute and shall not knowingly permit to be
on file in any such office or agency any such financing statement or
other document or instrument (except to the extent filed or recorded in
favor of the Secured Parties pursuant to the terms of this Agreement).
(d) No part of the Collateral has been judged invalid or
unenforceable. No written claim has been received that any Collateral
or Debtor's use of any Collateral violates the rights of any third
party. There has been no adverse decision to Debtor's claim of
ownership rights in or exclusive rights to use the Collateral in any
jurisdiction or to Debtor's right to keep and maintain such Collateral
in full force and effect, and there is no proceeding involving said
rights pending or, to the best knowledge of the Debtor, threatened
before any court, judicial body, administrative or regulatory agency,
arbitrator or other governmental authority.
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(e) The Debtor shall at all times maintain their respective
books of account and records relating to the Collateral at their
respective principal place of business and their respective Collateral
at the locations set forth on SCHEDULE A attached hereto and may not
relocate such books of account and records or tangible Collateral
unless they deliver to the Secured Parties at least 30 days prior to
such relocation (i) written notice of such relocation and the new
location thereof (which must be within the United States) and (ii)
evidence that appropriate financing statements under the UCC and other
necessary documents have been filed and recorded and other steps have
been taken to perfect the Security Interest to create in favor of the
Secured Parties a valid, perfected and continuing liens in the
Collateral.
(f) This Agreement creates in favor of the Secured Parties a
valid security interest in the Collateral securing the payment and
performance of the Obligations and, upon making the filings described
in the immediately following sentence, a perfected security interest in
such Collateral. Except for the filing of financing statements pursuant
to the UCC with the proper filing and recording agencies in the
jurisdictions indicated on SCHEDULE C, attached hereto, no
authorization or approval of or filing with or notice to any
governmental authority or regulatory body is required either (i) for
the grant by the Debtor of, or the effectiveness of, the Security
Interest granted hereby or for the execution, delivery and performance
of this Agreement by the Debtor or (ii) for the perfection of or
exercise by the Secured Parties of its rights and remedies hereunder.
(g) On the date of execution of this Agreement, the Debtor
will file one or more financing statements under the UCC with respect
to the Security Interest with the proper filing and recording agencies
in the jurisdictions indicated on SCHEDULE C, attached hereto and in
such other jurisdictions as may be requested by the Secured Parties and
will deliver true and complete copies of such filings to the Secured
Parties.
(h) The execution, delivery and performance of this Agreement
by the Debtor does not conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing Debtor's debt or otherwise) or other understanding to which
Debtor is a party or by which any property or asset of the Debtor is
bound or affected. No consent (including, without limitation, from
stock holders or creditors of the Debtor) is required for the Debtor to
enter into and perform its obligations hereunder.
(i) The Debtor shall at all times maintain the liens and
Security Interest provided for hereunder as valid and perfected liens
and security interests in the Collateral in favor of the Secured
Parties until this Agreement and the Security Interest hereunder shall
be terminated pursuant to Section 11 hereof. The Debtor hereby agrees
to defend the same against any and all persons. The Debtor shall
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safeguard and protect all Collateral for the account of the Secured
Parties. At the request of the Secured Parties, the Debtor will sign
and deliver to the Secured Parties at any time or from time to time one
or more financing statements pursuant to the UCC in form reasonably
satisfactory to the Secured Parties and will pay the cost of filing the
same in all public offices wherever filing is, or is deemed by the
Secured Parties to be, necessary or desirable to effect the rights and
obligations provided for herein. Without limiting the generality of the
foregoing, the Debtor shall pay all fees, taxes and other amounts
necessary to maintain the Collateral and the Security Interest
hereunder, and the Debtor shall obtain and furnish to the Secured
Parties from time to time, upon demand, such releases and/or
subordinations of claims and liens which may be required to maintain
the priority of the Security Interest hereunder.
(j) The Debtor will not transfer, pledge, hypothecate,
encumber, license (except for non-exclusive licenses granted by a
Debtor in its ordinary course of business and sales of inventory), sell
or otherwise dispose of any of the Collateral without the prior written
consent of a majority in interest of the Secured Parties.
(k) The Debtor shall keep and preserve its Equipment,
Inventory and other tangible Collateral in good condition, repair and
order and shall not operate or locate any such Collateral (or cause to
be operated or located) in any area excluded from insurance coverage.
(l) The Debtor shall, within ten (10) days of obtaining
knowledge thereof, advise the Secured Parties promptly, in sufficient
detail, of any substantial change in the Collateral, and of the
occurrence of any event which would have a material adverse effect on
the value of the Collateral or on the Secured Parties' security
interest therein.
(m) The Debtor shall promptly execute and deliver to the
Secured Parties such further deeds, mortgages, assignments, security
agreements, financing statements or other instruments, documents,
certificates and assurances and take such further action as the Secured
Parties may from time to time request and may in its sole discretion
deem necessary to perfect, protect or enforce its security interest in
the Collateral.
(n) The Debtor shall permit the Secured Parties and their
representatives and agents to inspect the Collateral at any time, and
to make copies of records pertaining to the Collateral as may be
requested by a Secured Party from time to time.
(o) The Debtor shall take all steps reasonably necessary to
diligently pursue and seek to preserve, enforce and collect any rights,
claims, causes of action and accounts receivable in respect of the
Collateral.
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(p) The Debtor shall promptly notify the Secured Parties in
sufficient detail upon becoming aware of any attachment, garnishment,
execution or other legal process levied against any Collateral and of
any other information received by the Debtor that may materially affect
the value of the Collateral, the Security Interest or the rights and
remedies of the Secured Parties hereunder.
(q) All information heretofore, herein or hereafter supplied
to the Secured Parties by or on behalf of the Debtor with respect to
the Collateral is accurate and complete in all material respects as of
the date furnished.
(r) The Debtor shall at all times preserve and keep in full
force and effect their respective valid existence and good standing and
any rights and franchises material to its business.
(s) The Debtor will not change its name, corporate structure,
or identity, or add any new fictitious name unless it provides at least
30 days prior written notice to the Secured Parties of such change and,
at the time of such written notification, such Debtor provides any
financing statements or fixture filings necessary to perfect and
continue perfected the Security Interest granted and evidenced by this
Agreement.
(t) The Debtor may not consign any of its Inventory or sell
any of its Inventory on ▇▇▇▇ and hold, sale or return, sale on
approval, or other conditional terms of sale without the consent of a
majority in interest of the Secured Parties which shall not be
unreasonably withheld.
(u) The Debtor may not relocate its chief executive office to
a new location without providing 30 days prior written notification
thereof to the Secured Parties and so long as, at the time of such
written notification, the Debtor provides any financing statements or
fixture filings necessary to perfect and continue perfected the
Security Interest granted and evidenced by this Agreement.
4. DEFAULTS. The following events shall be "Events of Default":
(a) The occurrence of an Event of Default (as defined in the
Debenture) under the Debenture;
(b) Any representation or warranty of a Debtor in this
Agreement shall prove to have been incorrect in any material respect
when made;
(c) The failure by a Debtor to observe or perform any of its
obligations hereunder for five (5) days after delivery to such Debtor
of notice of such failure by or on behalf of a Secured Party; or
(d) If any provision of this Agreement shall at any time for
any reason be declared to be null and void, or the validity or
enforceability thereof shall be contested by a Debtor, or a proceeding
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shall be commenced by a Debtor, or by any governmental authority having
jurisdiction over a Debtor, seeking to establish the invalidity or
unenforceability thereof, or a Debtor shall deny that a Debtor has any
liability or obligation purported to be created under this Agreement.
5. DUTY TO HOLD IN TRUST. Upon the occurrence of any Event of Default
and at any time thereafter, the Debtor shall, upon receipt of any revenue,
income or other sums subject to the Security Interest, whether payable pursuant
to the Debenture or otherwise, or of any check, draft, Debenture, trade
acceptance or other instrument evidencing an obligation to pay any such sum,
hold the same in trust for the Secured Parties and shall forthwith endorse and
transfer any such sums or instruments, or both, to the Secured Parties, pro-rata
in proportion to their initial purchases of Debentures for application to the
satisfaction of the Obligations.
6. RIGHTS AND REMEDIES UPON DEFAULT. Upon the occurrence of any Event
of Default and at any time thereafter, the Secured Parties shall have the right
to exercise all of the remedies conferred hereunder and under the Debentures,
and the Secured Parties shall have all the rights and remedies of a secured
party under the UCC. Without limitation, the Secured Parties shall have the
following rights and powers:
(a) The Secured Parties shall have the right to take
possession of the Collateral and, for that purpose, enter, with the aid
and assistance of any person, any premises where the Collateral, or any
part thereof, is or may be placed and remove the same, and the Debtor
shall assemble the Collateral and make it available to the Secured
Parties at places which the Secured Parties shall reasonably select,
whether at the Debtor's premises or elsewhere, and make available to
the Secured Parties, without rent, all of the Debtor's respective
premises and facilities for the purpose of the Secured Parties taking
possession of, removing or putting the Collateral in saleable or
disposable form.
(b) The Secured Parties shall have the right to operate the
business of the Debtor using the Collateral and shall have the right to
assign, sell, lease or otherwise dispose of and deliver all or any part
of the Collateral, at public or private sale or otherwise, either with
or without special conditions or stipulations, for cash or on credit or
for future delivery, in such parcel or parcels and at such time or
times and at such place or places, and upon such terms and conditions
as the Secured Parties may deem commercially reasonable, all without
(except as shall be required by applicable statute and cannot be
waived) advertisement or demand upon or notice to the Debtor or right
of redemption of a Debtor, which are hereby expressly waived. Upon each
such sale, lease, assignment or other transfer of Collateral, the
Secured Parties may, unless prohibited by applicable law which cannot
be waived, purchase all or any part of the Collateral being sold, free
from and discharged of all trusts, claims, right of redemption and
equities of the Debtor, which are hereby waived and released.
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7. APPLICATIONS OF PROCEEDS. The proceeds of any such sale, lease or
other disposition of the Collateral hereunder shall be applied first, to the
expenses of retaking, holding, storing, processing and preparing for sale,
selling, and the like (including, without limitation, any taxes, fees and other
costs incurred in connection therewith) of the Collateral, to the reasonable
attorneys' fees and expenses incurred by the Secured Parties in enforcing its
rights hereunder and in connection with collecting, storing and disposing of the
Collateral, and then to satisfaction of the Obligations pro-rata in proportion
to each Secured Party's initial purchases of Debentures, and to the payment of
any other amounts required by applicable law, after which the Secured Parties
shall pay to the applicable Debtor any surplus proceeds. If, upon the sale,
license or other disposition of the Collateral, the proceeds thereof are
insufficient to pay all amounts to which the Secured Parties are legally
entitled, the Debtor will be liable for the deficiency, together with interest
thereon, at the rate of 10% per annum or the lesser amount permitted by
applicable law (the "DEFAULT RATE"), and the reasonable fees of any attorneys
employed by the Secured Parties to collect such deficiency. To the extent
permitted by applicable law, the Debtor waives all claims, damages and demands
against the Secured Parties arising out of the repossession, removal, retention
or sale of the Collateral, unless due to the gross negligence or willful
misconduct of the Secured Parties. Upon the receipt of any proceeds hereunder by
a Secured Party, such Secured Party shall, upon receipt of any revenue, income
or other sums subject to the Security Interest, whether payable pursuant to the
Debenture or otherwise, or of any check, draft, Debenture, trade acceptance or
other instrument evidencing an obligation to pay any such sum, hold the same in
trust for the other Secured Parties and shall forthwith endorse and transfer any
such sums or instruments, or both, to the Secured Parties in such amounts as is
required hereunder.
8. COSTS AND EXPENSES. The Debtor agrees to pay all reasonable
out-of-pocket fees, costs and expenses incurred in connection with any filing
required hereunder, including without limitation, any financing statements
pursuant to the UCC, continuation statements, partial releases and/or
termination statements related thereto or any expenses of any searches
reasonably required by the Secured Parties. The Debtor shall also pay all other
claims and charges which in the reasonable opinion of the Secured Parties might
prejudice, imperil or otherwise affect the Collateral or the Security Interest
therein. The Debtor will also, upon demand, pay to the Secured Parties the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, which the Secured Parties
may incur in connection with (i) the enforcement of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, or (iii) the exercise or enforcement of
any of the rights of the Secured Parties under the Debentures. Until so paid,
any fees payable hereunder shall be added to the principal amount of the
Debentures and shall bear interest at the Default Rate.
9. RESPONSIBILITY FOR COLLATERAL. The Debtor assumes all liabilities
and responsibility in connection with all Collateral, and the Obligations in no
way be affected or diminished by reason of the loss, destruction, damage or
theft of any of the Collateral or its unavailability for any reason.
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10. SECURITY INTEREST ABSOLUTE. All rights of the Secured Parties
and all Obligations of the Debtor hereunder, shall be absolute and
unconditional, irrespective of: (a) any lack of validity or enforceability of
this Agreement, the Debentures or any agreement entered into in connection with
the foregoing, or any portion hereof or thereof; (b) any change in the time,
manner or place of payment or performance of, or in any other term of, all or
any of the Obligations, or any other amendment or waiver of or any consent to
any departure from the Debentures or any other agreement entered into in
connection with the foregoing; (c) any exchange, release or nonperfection of any
of the Collateral, or any release or amendment or waiver of or consent to
departure from any other collateral for, or any guaranty, or any other security,
for all or any of the Obligations; (d) any action by the Secured Parties to
obtain, adjust, settle and cancel in its sole discretion any insurance claims or
matters made or arising in connection with the Collateral; or (e) any other
circumstance which might otherwise constitute any legal or equitable defense
available to a Debtor, or a discharge of all or any part of the Security
Interest granted hereby. Until the Obligations shall have been paid and
performed in full, the rights of the Secured Parties shall continue even if the
Obligations are barred for any reason, including, without limitation, the
running of the statute of limitations or bankruptcy. The Debtor expressly waives
presentment, protest, notice of protest, demand, notice of nonpayment and demand
for performance. In the event that at any time any transfer of any Collateral or
any payment received by the Secured Parties hereunder shall be deemed by final
order of a court of competent jurisdiction to have been a voidable preference or
fraudulent conveyance under the bankruptcy or insolvency laws of the United
States, or shall be deemed to be otherwise due to any party other than the
Secured Parties, then, in any such event, the Debtor's obligations hereunder
shall survive cancellation of this Agreement, and shall not be discharged or
satisfied by any prior payment thereof and/or cancellation of this Agreement,
but shall remain a valid and binding obligation enforceable in accordance with
the terms and provisions hereof. The Debtor waives all right to require the
Secured Parties to proceed against any other person or to apply any Collateral
which the Secured Parties may hold at any time, or to marshal assets, or to
pursue any other remedy. The Debtor waives any defense arising by reason of the
application of the statute of limitations to any obligation secured hereby.
11. TERM OF AGREEMENT. The Security Interest as to a Secured Party
shall terminate on the earlier of the date on which such Secured Party no longer
holds any principal amount of the original Debentures purchased by such Secured
Party. Upon such termination, the Secured Parties, at the request and at the
expense of the Debtor, will join in executing any termination statement with
respect to any financing statement executed and filed pursuant to this
Agreement.
12. POWER OF ATTORNEY; FURTHER ASSURANCES.
(a) The Debtor authorizes the Secured Parties, and does
hereby make, constitute and appoint the Secured Parties and their
respective officers, agents, successors or assigns with full power of
substitution, as the Debtor's true and lawful attorney-in-fact, with
power, in the name of the Secured Parties or the Debtor, to, after the
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occurrence and during the continuance of an Event of Default, (i)
endorse any Debentures, checks, drafts, money orders, or other
instruments of payment (including payments payable under or in respect
of any policy of insurance) in respect of the Collateral that may come
into possession of the Secured Parties; (ii) to sign and endorse any
financing statement pursuant to the UCC or any invoice, freight or
express ▇▇▇▇, ▇▇▇▇ of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications and notices in connection
with accounts, and other documents relating to the Collateral; (iii) to
pay or discharge taxes, liens, security interests or other encumbrances
at any time levied or placed on or threatened against the Collateral;
(iv) to demand, collect, receipt for, compromise, settle and ▇▇▇ for
monies due in respect of the Collateral; and (v) generally, to do, at
the option of the Secured Parties, and at the expense of the Debtor, at
any time, or from time to time, all acts and things which the Secured
Parties deem necessary to protect, preserve and realize upon the
Collateral and the Security Interest granted therein in order to effect
the intent of this Agreement and the Debentures all as fully and
effectually as the Debtor might or could do; and the Debtor hereby
ratifies all that said attorney shall lawfully do or cause to be done
by virtue hereof. This power of attorney is coupled with an interest
and shall be irrevocable for the term of this Agreement and thereafter
as long as any of the Obligations shall be outstanding.
(b) On a continuing basis, the Debtor will make, execute,
acknowledge, deliver, file and record, as the case may be, with the
proper filing and recording agencies in any jurisdiction, including,
without limitation, the jurisdictions indicated on SCHEDULE C, attached
hereto, all such instruments, and take all such action as may
reasonably be deemed necessary or advisable, or as reasonably requested
by the Secured Parties, to perfect the Security Interest granted
hereunder and otherwise to carry out the intent and purposes of this
Agreement, or for assuring and confirming to the Secured Parties the
grant or perfection of a security interest in all the Collateral under
the UCC.
(c) The Debtor hereby irrevocably appoints the Secured Parties
as the Debtor's attorney-in-fact, with full authority in the place and
stead of the Debtor and in the name of the Debtor, from time to time in
the Secured Parties' discretion, to take any action and to execute any
instrument which the Secured Parties may deem necessary or advisable to
accomplish the purposes of this Agreement, including the filing, in its
sole discretion, of one or more financing or continuation statements
and amendments thereto, relative to any of the Collateral without the
signature of the Debtor where permitted by law.
13. NOTICES. All notices, requests, demands and other communications
hereunder shall be subject to the notice provision of the Purchase Agreement.
14. OTHER SECURITY. To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity,
then the Secured Parties shall have the right, in its sole discretion, to
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pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Secured Parties'
rights and remedies hereunder.
15. MISCELLANEOUS.
(a) No course of dealing between the Debtor and the Secured
Parties, nor any failure to exercise, nor any delay in exercising, on
the part of the Secured Parties, any right, power or privilege
hereunder or under the Debentures shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege.
(b) All of the rights and remedies of the Secured Parties with
respect to the Collateral, whether established hereby or by the
Debentures or by any other agreements, instruments or documents or by
law shall be cumulative and may be exercised singly or concurrently.
(c) This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and is intended to
supersede all prior negotiations, understandings and agreements with
respect thereto. Except as specifically set forth in this Agreement, no
provision of this Agreement may be modified or amended except by a
written agreement specifically referring to this Agreement and signed
by the parties hereto.
(d) In the event that any provision of this Agreement is held
to be invalid, prohibited or unenforceable in any jurisdiction for any
reason, unless such provision is narrowed by judicial construction,
this Agreement shall, as to such jurisdiction, be construed as if such
invalid, prohibited or unenforceable provision had been more narrowly
drawn so as not to be invalid, prohibited or unenforceable. If,
notwithstanding the foregoing, any provision of this Agreement is held
to be invalid, prohibited or unenforceable in any jurisdiction, such
provision, as to such jurisdiction, shall be ineffective to the extent
of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other
provisions of this Agreement and without affecting the validity or
enforceability of such provision or the other provisions of this
Agreement in any other jurisdiction.
(e) No waiver of any breach or default or any right under this
Agreement shall be considered valid unless in writing and signed by the
party giving such waiver, and no such waiver shall be deemed a waiver
of any subsequent breach or default or right, whether of the same or
similar nature or otherwise.
(f) This Agreement shall be binding upon and inure to the
benefit of each party hereto and its successors and assigns.
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(g) Each party shall take such further action and execute and
deliver such further documents as may be necessary or appropriate in
order to carry out the provisions and purposes of this Agreement.
(h) All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all proceedings concerning the
interpretations, enforcement and defense of the transactions
contemplated by this Agreement and the Debenture (whether brought
against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New
York, Borough of Manhattan. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any proceeding, any
claim that it is not personally subject to the jurisdiction of any such
court, that such proceeding is improper. Each party hereto hereby
irrevocably waives personal service of process and consents to process
being served in any such proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all
right to trial by jury in any legal proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby. If
either party shall commence a proceeding to enforce any provisions of
this Agreement, then the prevailing party in such proceeding shall be
reimbursed by the other party for its reasonable attorneys fees and
other costs and expenses incurred with the investigation, preparation
and prosecution of such proceeding.
(i) This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the
same Agreement. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile
signature were the original thereof.
16. SUBORDINATION TO FACTORING ARRANGEMENT. Notwithstanding anything
herein to the contrary, subject to the Debtor's compliance with its obligation
under the Debentures with respect to the Debtor's obligation to offer any such
Factor Lien to the Secured Parties first and subject to no Event of Default (as
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defined in the Debentures) existing at such time, the Debtor shall be permitted
to grant any lien, security interest, encumbrance, right or claim during the
term of this Agreement to one or more factor arrangements in relation to the
sale of the Debtor's accounts receivable (a "FACTOR LIEN"). Each Secured Party
agrees that, upon the request of the Debtor in conjunction with a Factor Lien on
Debtor's accounts receivables (and no other Collateral) by a third party, each
Secured Party agrees to subordinate the Security Interest in the Debtor's
accounts receivables pursuant to a subordination agreement, which shall be
reasonable and customary in form, if required by the Factor Lien lender.
***************************
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IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.
QT 5, INC.
By:___________________________________
Name:
Title:
PALISADES MASTER FUND L.P.
By:_________________________
Name:
Title:
CRESCENT INTERNATIONAL LTD.
By: ____________________________
Name:
Title:
ALPHA CAPITAL, AG
By: ___________________________
Name:
Title:
BRISTOL INVESTMENT FUND, LTD.
By: ____________________________
Name:
Title:
▇▇▇▇▇ INTERNATIONAL LTD
By: __________________________
Name:
Title:
ZENNY TRADING LIMITED
BY: ___________________________
Name:
Title:
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SCHEDULE A
Principal Place of Business of Debtor:
Locations Where Collateral is Located or Stored:
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SCHEDULE B
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SCHEDULE C
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