Exhibit 10.3

SECURITY AGREEMENT

This Security Agreement (this “Security Agreement”) is made effective as of
February 11, 2010 (“Effective Date”), by and between DayStar Technologies, Inc.,
a Delaware corporation (“Debtor”), and Tejas Securities Group, Inc. 401k Plan
and Trust, FBO John J. Gorman, John J. Gorman TTEE as beneficiary (“Secured
Party”), with reference to the essential facts stated in the Recitals below.

RECITALS

A. Pursuant to the terms of that certain Purchase Agreement dated February 11,
2010 (the “Purchase Agreement”), the Secured Convertible Promissory Note of even
date herewith (the “Note”), the warrant of even date herewith (the “Warrant”),
and the Registration Rights Agreement of even date herewith (the “Registration
Rights Agreement”), all between Debtor and Secured Party, Secured Party is
loaning to Debtor a total amount of $500,000 (the “Loan”). This Security
Agreement, the Purchase Agreement, the Note, the Warrants and the Registration
Rights Agreement shall collectively be referred to as the “Loan Documents”.

B. As a condition to receiving the Loan, the terms of the Loan Documents require
that Debtor enter into this Security Agreement.

C. As security for the payment and performance of Debtor’s obligations to
Secured Party under the Loan Documents, and as a condition precedent to Secured
Party’s obligation to make the Loan, it is the intent of Debtor to create and
grant to Secured Party and a security interest in certain property as
hereinafter provided.

AGREEMENT

NOW, THEREFORE, in consideration of the Loan, the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtor hereby agrees as follows:

1. Grant of Security Interest. As security for the full and timely payment and
performance of the obligations of Debtor to Secured Party described in Section 2
below (such obligations, collectively and severally, the “Obligations”), Debtor
hereby pledges and grants to Secured Party a security interest (“Security
Interest”) in and to (a) all of Debtor’s right, title and interest in and to
contracts to which Debtor is a party, and all other contracts relating to
Debtor’s assets, business and operations, (b) all of Debtor’s intellectual
property and rights therein and thereto, (c) all of Debtor’s other assets, and
all assets used and useful in Debtor’s business and operations, and (d) all
other items identified in Exhibit A hereto and incorporated herein by this
reference (collectively and severally, the “Collateral”).

2. Obligations. The Obligations secured by this Security Agreement shall consist
of (a) the Loan Documents (including, but not limited to, any liquidated damages
that may be payable by the Company pursuant to Section 1.2(b) of the
Registration Rights Agreement), (b) any additional monies advanced to or
borrowed by Debtor from Secured Party, (c) this Security Agreement, (d) all
amendments or extensions or renewals of such documents, whether now

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existing or hereafter arising, voluntary or involuntary, whether or not jointly
owed with others, direct or indirect, absolute or contingent, liquidated or
unliquidated, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, (e) all costs incurred by Secured Party to
obtain, preserve, perfect, and enforce this Security Agreement and the Security
Interest, to collect the Indebtedness, and to maintain, preserve, collect, and
enforce the Collateral, including but not limited to taxes, assessments,
insurance premiums, repairs, reasonable attorney’s fees and legal expenses,
rent, storage costs, and expenses of sale, and (f) interest on the above amounts
as agreed between Secured Party and Debtor, or if there is no agreement, at the
highest lawful rate.

3. Representations and Warranties. Debtor hereby represents and warrants that:

(a) Debtor is the owner of the Collateral and no other person has any right,
title, claim or interest (by way of security interest or other lien or charge or
otherwise) in, against or to the Collateral, except liens for taxes, assessments
and other government charges not yet due and payable; except a security interest
held by Banc of America Leasing & Capital, LLC in certain of the Collateral as
described in that certain UCC 1 financing statement filed on October 22, 2008 in
the Office of the Secretary of State of the State of Delaware under filing
number 83561188 (ii) a security interest held by TD Waterhouse RRSP Account
230832S, in trust for Peter Alan Lacey as beneficiary, (the “Lacey RRSP
Account”) as evidenced by that certain security agreement, effective as of
September 21, 2009, by and between Debtor and the Lacey RRSP Account, as secured
party, and (iii) a security interest held by Peter Lacey, an individual, as
evidenced by the Amended and Restated Security Agreement, effective as of
January 28, 2010 ((i), (ii), and (iii) collectively, the “Prior Liens”). The
Secured Party acknowledges that the Company may have entered into one or more
additional secured financing transactions (each, a “Bridge Financing” as defined
in the Purchase Agreement) and may enter into additional bridge financing
transactions within 120 days following the execution of this Agreement (all
bridge financings as described above are collectively referred to as “Bridge
Financing”). In light of the foregoing, the Secured Party recognizes that each
participant in the bridge financing is also a secured party on a pari passu
basis, up to $4.675 million in total indebtedness with the Secured Party and
Prior Lien holders, as is found in Schedule 1 attached hereto. The Prior Liens
shall become pari passu with the bridge financing secured parties and Secured
Party pursuant to the Intercreditor Agreement of even date herewith.

(b) Debtor will not sell or offer to sell or otherwise transfer the Collateral
or any interest therein without the prior written consent of Secured Party;

(c) Debtor will not create or permit to exist any future lien on or security
interest in the Collateral in favor of any third party with priority over
Secured Party, without the prior written consent of Secured Party;

(d) Debtor will, upon Secured Party’s request, remove any unauthorized lien or
security interest on the Collateral, and defend any claim affecting the
Collateral;

(e) Debtor will pay all charges against the Collateral, including, but not
limited to, taxes, assessments, encumbrances, and insurance, and upon Debtor’s
failure to do so, Secured Party may pay any such charge as it deems necessary
and add the amount paid to the indebtedness of Debtor secured hereunder;

 

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(f) Debtor will not use or permit any Collateral to be used unlawfully or in
violation of any provision of the Loan Documents, this Security Agreement, or
any applicable statute, regulation or ordinance or any policy of insurance
covering the Collateral;

(g) all information heretofore, herein or hereafter supplied to Secured Party by
or on behalf of Debtor or Debtor with respect to the Collateral is true and
correct in all material respects;

(h) all of Debtor’s Inventory and Equipment is located at Debtor’s address as
set forth above and at 7373 Gateway Blvd., Newark, CA, 94560 (Alameda County,
CA). Debtor has exclusive possession and control of its Inventory and Equipment.
All instruments, chattel paper, securities, and certificates of title comprising
any part of the Collateral have been delivered to Secured Party; and

(i) upon the filing of the UCC financing statements with the Office of the
Delaware Secretary of State, and upon Secured Party’s obtaining possession of
all Debtor’s documents, instruments, chattel paper, securities, and certificates
of title, and upon Secured Party’s obtaining control of Debtor’s Investment
Property, deposit accounts, letter-of-credit rights, and electronic chattel
paper, the Security Interest will constitute a valid and perfected lien upon and
security interest in the Collateral, subject to no prior lien.

4. Covenants of Debtor. Debtor hereby agrees:

(a) to do all acts that may be necessary to maintain, preserve and protect the
Collateral;

(b) to not change its name (or any assumed name or other name under which Debtor
does business) or its corporate structure unless at least thirty (30) days prior
to the effective date of any such name change, Debtor gives Secured Party
written notice of such intended name change and the new name or any change in
its corporate structure. Debtor will not change its principal place of business,
chief executive office, or the place where it keeps its books and records unless
Debtor (i) shall have given Secured Party thirty (30) days prior written notice
thereof, and (ii) shall have taken all action deemed necessary or desirable by
Secured Party to cause the Security Interest to be and remain perfected with the
priority required by this Security Agreement. Debtor shall execute all such
documents and agreements (including without limitation security agreements,
financing statements, and amendments to financing statements) as Secured Party
may reasonably request in connection with any such name change;

(c) to procure, execute and deliver from time to time any endorsements,
assignments, financing statements and other writings deemed necessary or
appropriate by Secured Party to perfect, maintain and protect its security
interest hereunder and the priority thereof and to deliver promptly to Secured
Party all originals of Collateral or proceeds consisting of chattel paper or
instruments including but not limited to one or more UCC-1 financing statements,
leasehold deeds of trust and patent and trademark collateral filings, all in a
form reasonably requested by Secured Party;

 

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(d) to appear in and defend any action or proceeding which may affect its title
to or Secured Party’s interest in the Collateral;

(e) to keep separate, accurate and complete records of the Collateral and to
provide Secured Party with such records and such other reports and information
relating to the Collateral as Secured Party may reasonably request from time to
time;

(f) not to cause or permit any waste or unusual or unreasonable depreciation of
the Collateral;

(g) at any reasonable time, upon reasonable request by Secured Party, to exhibit
to and allow inspection by Secured Party (or persons designated by Secured
Party) of the Collateral;

(h) if disposition of any Collateral gives rise to an account, chattel paper, or
instrument, to immediately notify Secured Party, and upon request of Secured
Parties to assign or endorse the same to Secured Party. No Collateral may be
sold, leased, manufactured, processed, or otherwise disposed of by Debtor in any
manner without the prior written consent of Secured Party, except inventory
sold, leased manufactured, processed, or consumed in the ordinary course of
business;

(i) to give Secured Party written notice of each office of Debtor in which
records of Debtor pertaining to accounts in Collateral are kept, and each
location at which inventory in Collateral is or will be kept, and of any change
of any such location. If no such notice is given, all records of Debtor
pertaining to accounts and all inventory are and shall be kept at Debtor’s
address shown above;

(j) to notify Secured Party immediately of any material change in the
Collateral, of a change in Debtor’s place of business or location, of a change
in any matter warranted or represented by Debtor in this Security Agreement or
furnished to Secured Party, and of any Event of Default;

(k) not to permit any of the Collateral to be removed from the locations
specified herein without the written consent of Secured Party;

(l) if certificates of title are issued with respect to any of the Collateral,
to cause the Security Interest to be properly noted therein; and

(m) no renewal or extension of or any other indulgence with respect to the
Obligations or any part thereof, no release of any security, no release of any
person (including any maker, endorser, guarantor, or surety) liable on the
Obligations, no delay in enforcement of payment, and no delay or admission or
lack of diligence or care in exercising any right or power with respect to the
Obligations or any security therefor or guaranty thereof or under this Security
Agreement shall in other manner impair or affect the rights of Secured Party
under the law, under this Security Agreement, or under any other agreement
pertaining to the other security for the Obligations, before foreclosing upon
the Collateral for the purpose of paying the Obligations.

 

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5. Events of Default. The occurrence of the following event (“Event of Default”)
shall constitute an Event of Default under this Security Agreement:

(a) Debtor shall default in its performance of any covenant under this Security
Agreement or any other Loan Document;

(b) Debtor fails to pay when due any sum payable under the terms of the Loan
Documents or this Security Agreement and Debtor has failed to cure such
nonpayment within ninety (90) days after such sum has become due and payable;

(c) Debtor files any petition or action for relief under any bankruptcy,
reorganization, insolvency or moratorium law or any other law for the relief of,
or relating to, debtors, now or hereafter in effect, or makes any assignment for
the benefit of creditors or takes any corporate action in furtherance of any of
the foregoing;

(d) An involuntary petition is filed against Debtor under any bankruptcy statute
now or hereafter in effect, unless such petition is dismissed or discharged
within sixty (60) days thereafter, or a custodian, receiver, trustee, assignee
for the benefit of creditors (or other similar official) is appointed to take
possession, custody or control of any property of Debtor;

(e) any warranty, representation, or statement made or furnished to Secured
Party by Debtor proves to have been false in any material respect when made or
furnished;

(f) acceleration of the maturity of debt of Debtor to any other person;

(g) sale, loss, theft, destruction, encumbrance, or transfer of any Collateral
in violation hereof, or substantial damage to any Collateral;

(h) levy on, seizure, or attachment of any property of Debtor;

(i) a judgment against Debtor in excess of $500,000 becomes final; or

(j) Debtor defaults under any other Bridge Financing.

6. Remedies. Upon the occurrence of any Event of Default, Secured Party may, at
its option, and without further notice to or demand on Debtor and in addition to
all rights and remedies available to Secured Party under the Loan Documents or
under law, do any one or more of the following, subject, however, to the rights
of the secured party under the Intercreditor Agreement:

(a) foreclose or otherwise enforce Secured Party’s security interest in the
Collateral in any manner permitted by law, or provided for in this Security
Agreement; and

 

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(b) recover from Debtor all costs and expenses, including, without limitation,
reasonable attorney’s fees, incurred or paid by Secured Party in exercising any
right, power or remedy provided by this Security Agreement or by law;

7. Entire Agreement, Severability. This Security Agreement and the Loan
Documents contain the entire agreement between Secured Party and Debtor with
respect to the Collateral which is the subject of this Security Agreement. 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.

8. Choice of Law. This Security Agreement shall be governed by and construed in
accordance with the laws of New York State without giving effect to conflicts of
laws principles that would require the application of the law of another
jurisdiction.

9. Notice. Any written notice, consent or other communication provided for in
this Security Agreement shall be delivered to the addresses and sent in the
manner as set forth in the Loan Documents. Such addresses may be changed by
written notice given as provided in the Loan Documents.

10. Interpretation. All terms with their initial letters capitalized and not
otherwise defined herein shall have the meaning as set forth in the Loan
Documents.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, Debtor and Secured Party have executed this Security
Agreement effective as of the date first above written.

 

DEBTOR: DayStar Technologies, Inc., a Delaware corporation By:   \s\ William S.
Steckel Name:   William S. Steckel Title:   Chief Executive Officer SECURED
PARTY: Tejas Securities Group, Inc. 401k Plan and Trust, FBO John J. Gorman,
John J. Gorman TTEE By:   \s\ John Gorman Name:   John Gorman Title:   Trustee

[SIGNATURE PAGE TO SECURITY AGREEMENT]

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EXHIBIT A

COLLTERAL LIST

All of Debtor’s right, title and interest, whether now owned or existing or
hereafter acquired or arising, and wherever located in the following described
property:

 

  x Equipment. All Equipment, as that term is defined in the Uniform Commercial
Code as in effect in California (the “UCC”).

 

  x Investment Property. All Investment Property, as that term is defined in the
UCC.

 

  x Deposit Accounts. All Deposit Accounts, as that term is defined in the UCC.

 

  x Documents and Instruments. All Documents and Instruments, as those terms are
defined in the UCC.

 

  x Letter-of-Credit Rights. All Letter-of-Credit Rights, as that term is
defined in the UCC.

 

  x Inventory Etc. All Inventory, as that term is defined in the UCC.

 

  x Accounts. All Accounts, as that term is defined in the UCC.

 

  x General Intangibles. All General Intangibles, as that term is defined in the
UCC, including but not limited to all federal, state, local and foreign,
registered or unregistered rights in:

(i) all copyrights, rights and interests in copyrights, works protectable by
copyrights, copyright registrations and copyright applications, and all renewals
of any of the foregoing, all income, royalties, damages and payments now and
hereafter due and/or payable under or with respect to any of the foregoing,
including, without limitation, all damages and payments for past, present and
future infringement of any of the foregoing and the right to sue for past,
present and future infringement of any of the foregoing;

(ii) all patents, processes, patent rights and patent applications, including,
without limitation, the inventions and improvements described and claimed
therein, all patentable inventions and the reissues, divisions, continuations,
renewals, extensions and continuations-in-part of any of the foregoing and all
income, royalties, damages, and payments now or hereafter due and/or payable
under or with respect to any of the foregoing, including, without limitation,
damages and payments for past, present and future infringement of any of the
foregoing and the right to sue for past, present and future infringement of any
of the foregoing;

[EXHIBIT A TO SECURITY AGREEMENT]

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(iii) all trademarks, trade names, corporate names, company names, business
names, fictitious business names, trade styles, service marks, mask works, logos
and other business identifiers, prints and labels on which any of the foregoing
have appeared or appear; all registrations and recordings thereof, and all
applications in connection therewith, and all renewals thereof, and all income,
royalties, damages and payments now or hereafter due and/or payable under or
with respect to any of the foregoing, including, without limitation, damages and
payments for past, present and future infringement of any of the foregoing and
the right to sue for past, present and future infringement of any of the
foregoing;

(iv) all moral or similar rights; compilations; sui generis rights; rights under
treaties, conventions, directives and the like (including but not limited to
rights under the Berne Convention for the Protection Of Literary and Artistic
Works, GATT, and all European Union directives, including but not limited to
directives regarding the legal protection of databases); trade secrets;
derivative works; tangible or intangible intellectual property being or to be
developed; schematics; know-how; technology; rights in computer software
programs or applications (in both source and object code form and in escrow or
otherwise); software and firmware listings; fully commented and updated software
source code, and complete system build software and instructions related to all
software described herein; designs; sounds; lyrics; soundtracks; music and
musical compositions; motion picture synchronization rights; scripts;
continuities; testing procedures and results; fabrication and manufacturing
methods; supplier lists; registrations and applications relating to any of the
foregoing; employee and independent contractor lists; customer lists; sales
prospects; sales, advertising, marketing and promotional information, materials,
brochures, presentations, white papers, case studies, seminar materials,
workbooks, brochures, training manuals and materials; website content;
documents, records and files relating to design, end user documentation;
manufacturing, quality control, sales, marketing and customer support for all
Intellectual Property described herein; business and financial information and
strategies; proprietary and other information in or with respect to which Debtor
has any interest or rights of any nature; and data and databases; all exclusive
and nonexclusive licenses for any of the foregoing intellectual property as
described in this Annex A including any subsection hereof, to the extent such
licenses may be assigned as security without the consent of the licensor (under
their terms or, notwithstanding their terms, under existing or future Laws), or
to the extent the consent of the licensor is now or hereafter obtained by
Secured Party or Debtor; and all other tangible or intangible information and
intellectual property, media (whether now or hereafter existing or invented),
copies and languages (including foreign and computer languages) in which any of
the foregoing is now or hereafter recorded, copied, translated, encoded or
otherwise stored or utilized in any manner (all of the property described in
subsections (i), (ii), (iii) and (iv) is hereafter referred to collectively as
“Intellectual Property”);

 

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(v) all (a) contracts and rights therein, including without limitation rights
under software, information and other development contracts; (b) royalties;
(c) documents, documents of title, drafts, checks, acceptances, bonds, letters
of credit, notes and other negotiable and non-negotiable instruments, bills of
exchange, security deposits, certificates of deposit, insurance policies and any
other writings evidencing a monetary obligation or security interest in or lease
of personal property; (d) licenses, leases, rents, contracts or agreements,
government entitlements and subsidies and tax refunds; (e) investment property,
including, but not limited to, all certificated or uncertificated securities,
security entitlements, securities accounts, commodity contracts and commodity
accounts; (f) deposit accounts; (g) guarantees, bonds and other personal
property securing the payment or performance of any of the foregoing;
(h) chattel paper; (i) general intangibles as such term is defined in the
Uniform Commercial Code, which shall, in any event, include, without limitation,
all right, title and interest in or under any contracts, models, drawings,
materials and records, claims, literary rights, goodwill, rights of performance,
warranties, rights under insurance policies and rights of indemnification; and
(j) Internet domain names and other identifiers of Debtor and all rights
connected therewith;

(vi) all advertising and promotional materials, training manuals, workbooks,
case studies and other materials prepared in connection with and/or relating to
Debtor’s consulting business, including, but not limited to design, development,
implementation and sale of software, applications, enhancements, frameworks,
methodologies, training, marketing, sales and other services that incorporate or
utilize any element of the Intellectual Property pursuant to any existing or
future license or other agreement in which Debtor now or hereafter has any
interest or right of any nature whatsoever (including, without limitation,
rights which do not amount to a property right), whether or not used or to be
used by Debtor (including without limitation any interest of Debtor as seller or
buyer, manufacturer, developer, licensee or licensor, or lessee or lessor); and
all whether registered, filed or recorded or not; all whether any or all of the
foregoing is eligible for intellectual property protection (including but not
limited to whether any of the foregoing is copyrighted or copyrightable).

 

  x Books and Records. All books, correspondence, credit files, records,
invoices, and other documents, including without limitation all tapes, cards,
computer runs and other papers or documents in the possession or control of
Debtor; and all balances, credits, deposits, accounts or monies of or in the
name of Debtor in the possession or control of, or in transit to the Secured
Party, and all records and data relating to anything described in this Exhibit
A, whether in the form of a writing, photograph, microfilm, microfiche, or
electronic or other media, together with all of Debtor’s assignable right,
title, and interest in and to all computer software and hardware required to
utilize, create, maintain, and process any such records or data on electronic
media.

 

  x Fixtures. All Fixtures, as that term is defined in the UCC.

 

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  x Insurance. All policies of insurance covering or relating in any manner to
any of the property described in this Exhibit A, all of which policies are
hereby assigned to Secured Party as security for the payment and performance of
the Obligations.

 

  x Products. All products and produce of any of the above.

 

  x All substitutes and replacements for, accessions, attachments and other
additions to, tools, parts and equipment used in connection with, and proceeds
and products of, the above Collateral (including all income and benefits
resulting from any of the above), all certificates of title, manufacturer’s
statements of origin, other documents, accounts, and chattel paper arising from
or related to the above Collateral, and returned or repossessed Collateral, any
of which, if received by Debtor, shall be delivered immediately to Secured
Party. All security for the payment of any of the Collateral, and all goods
which gave or will give rise to any of the Collateral or are evidenced,
identified, or represented therein or thereby. All property similar to the
property described above and any other collateral fitting within any of the
foregoing classifications hereafter acquired by Debtor. All proceeds of the
items described above.

 

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SCHEDULE 1. Secured Parties

Name, Address and Facsimile Number

TD Waterhouse RRSP Account 230832S, in trust for Peter Alan Lacey as beneficiary

Peter A. Lacey

Michael Moretti

Tejas Securities Group, Inc. 401k Plan and Trust, FBO John J. Gorman, John J.
Gorman TTEE

SCHEDULE 1 TO SECURITY AGREEMENT