STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT dated this 31st day of August , 2004, made by and
between Pipeline Data Processing, Inc., a Delaware corporation ("Pledgor"),
Laurus Master Fund, Ltd., the holder (the "Noteholder") of (i) a Term Note (the
"Note") of even date herewith issued by the Pledgor in favor of the Noteholder
in the amount of up to $3,000,000 and (ii) a Term Note Warrant of even date
herewith issued by the Pledgor in favor of the Noteholder (the Warrant, and
together with the Note all other documents entered into by the Noteholder, the
Pledgor and/or any Subsidiary of the Pledgor in connection with the Note and the
Warrant, the "Securities").
PRELIMINARY STATEMENTS:
(1) Concurrently herewith the Pledgor is executing and delivering to the
Noteholder the Securities, which evidence the Pledgor's obligation to repay
advances to be made by Noteholder to Pledgor pursuant to that certain Securities
Purchase Agreement of even date herewith by and between the Noteholder and
Pledgor (the "Securities Purchase Agreement").
(2) It is a condition to the closing of the Securities Purchase Agreement
that the Pledgor secure the payment of all of its obligations under the
Securities by a pledge of the securities held by the Pledgor in its wholly-owned
subsidiaries, XxxxxxXxx.xxx, Inc., a Delaware corporation, and Northern Merchant
Services, Inc., a New York corporation, (together, the "Pledged Securities").
NOW, THEREFORE, in consideration of the premises and in further
consideration of the covenants contained herein, the parties hereto agree as
follows:
SECTION 1. Pledge. For the benefit of the Noteholder, the Pledgor hereby pledges
and grants a security interest in, the ------ following (the "Pledged
Collateral"):
(a) the Pledged Securities and the certificates representing the
Pledged Securities, and all dividends, cash, instruments and
other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all
of the Pledged Securities; and
(b) all proceeds of any and all of the foregoing (including, without
limitation, proceeds that constitute property of the types
described above).
SECTION 2. Security for Obligations. This Agreement secures the payment of all
obligations of the Pledgor now or hereafter existing under the Securities,
whether for principal, interest, expenses or otherwise, and all obligations of
the Pledgor now or hereafter existing under this Agreement. The Noteholder shall
file appropriate financing statements at the Pledgor's expense.
SECTION 3. Delivery of Pledged Collateral. All certificates or instruments
representing or evidencing the Pledged Collateral shall be delivered to the
Noteholder no later than 30 days after the date hereof and shall be held by the
Noteholder pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Noteholder.
Upon the occurrence and during the continuation of an Event of Default (as
defined below), the Noteholder shall have the duty, at any time on five business
days' notice to the Pledgor, to transfer to or to register in the name of the
Noteholder or any of its nominees, any or all of the Pledged Collateral. In
addition, the Noteholder shall have the right at any such time to exchange
certificates or instruments representing or evidencing Pledged Collateral for
certificates or instruments of smaller or larger denominations.
SECTION 4. Representations and Warranties. The Pledgor represents and warrants
as follows:
(a) The Pledgor is and will be the sole legal, record and beneficial owner of
the Pledged Collateral free and clear of any lien, security interest,
option or other charge or encumbrance, except for the security interest
created by this Agreement.
(b) The pledge of the Pledged Collateral pursuant to this Agreement creates and
will create a valid and perfected first priority security interest in the
Pledged Collateral, securing the payment of the Pledgor's obligations under
the Securities.
SECTION 5. Further Assurances. At any time and from time to time, at the expense
of the Pledgor, the Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that the Noteholder may reasonably request, in order to perfect
and protect the security interest granted or purported to be granted hereby or
to enable the Noteholder to exercise and enforce the rights and remedies
hereunder with respect to any Pledged Collateral.
SECTION 6. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default or event which, with the giving of
notice or the lapse of time, or both, would become an Event of Default
shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise or refrain from
exercising any and all voting and other consensual rights
pertaining to the Pledged Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement.
(ii) The Pledgor shall be entitled to receive and retain any and all
dividends and distributions paid in respect of the Pledged
Collateral, provided, however, that any and all (A) dividends
paid or payable other than in cash in respect of, and instruments
and other property received, receivable or otherwise distributed
in respect of, or in exchange for, Pledged Collateral, and (B)
dividends and other distributions paid or payable in cash in
respect of any Pledged Collateral in connection with a partial or
total liquidation or dissolution, shall be, and shall be
forthwith delivered to the Noteholder to hold as, Pledged
Collateral and shall, if received by the Pledgor, be received in
trust for the benefit of the Noteholder, be segregated from the
other property or funds of the Pledgor, and be forthwith
delivered to the Noteholder as Pledged Collateral in the same
form as so received (with any necessary indorsement or
assignment).
(iii)The Noteholder, shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose
of enabling the Pledgor to exercise the voting and other
consensual rights that it is entitled to exercise pursuant to
subsection (i) above and to receive the dividends that it is
authorized to receive and retain pursuant to subsection (ii)
above.
(b) Upon the occurrence and during the continuance of an Event of Default
or an event which, with the giving of notice or the lapse of time, or
both, would become an Event of Default:
(i) All rights of the Pledgor to exercise or refrain from exercising
the voting and other consensual rights that it would otherwise be
entitled to exercise pursuant to Section 6(a)(i) and to receive
the dividends payments that it would otherwise be authorized to
receive and retain pursuant to Section 6(a)(ii) shall cease, and
all such rights shall thereupon become vested in the Noteholder
who shall thereupon have the sole right to exercise or refrain
from exercising such voting and other consensual rights at the
direction of the Noteholder and to receive and hold as Pledged
Collateral such dividends.
(ii) All dividends that are received by the Pledgor contrary to the
provisions of subsection (i) of this Section 6(b) shall be
received in trust for the benefit of the Noteholder, shall be
segregated from other funds of the Pledgor and shall be forthwith
paid over to the Noteholder as Pledged Collateral in the same
form as so received (with any necessary indorsement).
(c) As used herein, "Event of Default" (i) shall have the meaning given
such term in the Note and (ii) shall mean the failure of the Pledgor
to pay or perform any of its obligations under this Agreement and the
continuation of such failure for a period of 5 (five) days.
SECTION 7. Transfers and Other Liens. The Pledgor will not (i) sell, assign (by
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Pledged Collateral, or (ii) create or permit to exist any
lien, security interest, option or other charge or encumbrance upon or with
respect to any of the Pledged Collateral, except for the security interest under
this Agreement.
SECTION 8. Noteholder Appointed Attorney-in-Fact. The Pledgor hereby appoints
the Noteholder the Pledgor's attorney-in-fact, with full authority in the place
and stead of the Pledgor and in the name of the Pledgor or otherwise, from time
to time in the Noteholder's discretion to take any action and to execute any
instrument that the Noteholder may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of the Pledgor under Section
6), including, without limitation, to receive, indorse and collect all
instruments made payable to the Pledgor representing any dividend or any part
thereof and to give full discharge for the same.
SECTION 9. Noteholder May Perform. If the Pledgor fails to perform any agreement
contained herein, the Noteholder, may itself perform, or cause performance of,
such agreement, and the expenses of the Noteholder incurred in connection
therewith shall be payable by the Pledgor under Section 11.
SECTION 10. Remedies upon Event of Default. Subject to the provisions of Section
6, if any Event of Default shall have occurred and be continuing:
(a) The Noteholder may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on
default under the Uniform Commercial Code in effect in the State of
New York at the time (the "Code") (whether or not the Code applies to
the Pledged Collateral), and may also, without notice except as
specified below, sell the Pledged Collateral or any part thereof in
one or more parcels at public or private sale, at any exchange,
broker's board or at any office of the Noteholder or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as
the Noteholder may deem commercially reasonable. The Pledgor agrees
that, to the extent notice of sale shall be required by law, at least
5 (five) days' notice to the Pledgor of the time and place of any
public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Noteholder shall not be
obligated to make any sale of Pledged Collateral regardless of notice
of sale having been given. The Noteholder may adjourn any public or
private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
(b) Any cash held by the Noteholder as Pledged Collateral and all cash
proceeds received by the Noteholder in respect of any sale of,
collection from, or other realization upon all or any part of the
Pledged Collateral may, in the discretion of the Noteholder, be held
by the Noteholder as collateral for, and/or then or at any time
thereafter be applied (after payment of any amounts payable to the
Noteholder pursuant to Section 11) in whole or in part by the
Noteholder against, all or any part of the Note in such order as the
Noteholder shall be directed by the Noteholder. Any surplus of such
cash or cash proceeds held by the Noteholder and remaining after
payment in full of the Pledgor's obligations under the Note shall be
paid over to the Pledgor or to whomsoever may be lawfully entitled to
receive such surplus.
Notwithstanding the remedies provided to the Noteholder in this Section 10,
Noteholder covenants that it shall use its best efforts to assign, transfer,
sell or dispose of the collateral involving the contracts and agreements of
Northern Merchant Services, Inc. to satisfy the Pledgor's obligations prior to
seeking its remedies under this Section 10.
SECTION 11. Expenses. The Pledgor will upon demand pay to the Noteholder the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, that the Noteholder may
incur in connection with (i) the custody or preservation of, or the sale of,
collection from, or other realization upon, any of the Pledged Collateral, (ii)
the exercise or enforcement of any of the rights of the Noteholder hereunder or
(iii) the failure by the Pledgor to perform or observe any of the provisions
hereof.
SECTION 12. Amendments, Etc. No amendment or waiver of any provision of this
Agreement, and no consent to any departure by the Pledgor herefrom, shall in any
event be effective unless the same shall be in writing and signed by each of the
parties hereto, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 13. Notices. All notices, request, demands and other communications
required or permitted hereunder shall be sent in accordance with Section 11.8 of
the Securities Purchase Agreement.
SECTION 14. Continuing Security Interest.
(a) This Agreement shall create a continuing security interest in the
Pledged Collateral and shall (i) remain in full force and effect until
the payment in full of the Pledgor's obligations under the Note and
under this Agreement, (ii) be binding upon the Pledgor, its successors
and assigns, and (iii) inure to the benefit of, and be enforceable by,
the Noteholder and its successors, transferees and assigns.
(b) Upon the payment in full of the Pledgor's obligations under the Note
and under this Agreement, the security interest granted hereby shall
terminate and all rights to the Pledged Collateral shall revert to the
Pledgor. Upon any such termination, the Noteholder will, at the
Pledgor's expense, return to the Pledgor such of the Pledged
Collateral as shall not have been sold or otherwise applied pursuant
to the terms hereof and execute and deliver to the Pledgor such
documents as the Pledgor shall reasonably request to evidence such
termination.
SECTION 15. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, EXCEPT TO THE EXTENT THAT THE
VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES
HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. ANY ACTION, SUIT OR
PROCEEDING INITIATED BY ANY PARTY HERETO AGAINST ANY OTHER PARTY HERETO UNDER OR
IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT IN ANY STATE OR FEDERAL COURT
IN NEW YORK COUNTY, STATE OF NEW YORK. TO THE EXTENT IT MAY LEGALLY DO SO, EACH
PARTY HERETO SUBMITS ITSELF TO THE EXCLUSIVE JURISDICTION OF ANY SUCH COURT,
WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, ANY
CLAIMS OF FORUM NON CONVENIENS OR THAT THE VENUE OF ANY SUCH ACTION, SUIT OR
PROCEEDING IS IMPROPER OR THAT THIS AGREEMENT OR ANY DOCUMENT OR INSTRUMENT
REFERRED TO HEREIN MAY NOT BE LITIGATED IN SUCH COURT.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered as of the date first above written.
PLEDGOR:
Pipeline Data Processing, Inc.
Address for Notices:
00 Xxxx Xxxx Xxxxxx,
Xxxxxxx Xxxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxxx,
Chief Financial Officer
Fax: (000) 000-0000
By: __________________________
Name:
Title:
NOTEHOLDER:
Laurus Master Fund, Ltd.
Address for Notices:
c/o M&C Corporate Services Limited
P.O. Box 1234 GT, Xxxxxxxxxx Xxxxx,
Xxxxx Xxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx
Fax: 000-000-0000
By: ____________________________
Name:
Title:
SCHEDULE I
Attached to and forming a part of that certain
Stock Pledge Agreement dated August 31, 2004, by and between
Pipeline Data Inc. and Laurus Master Fund, Ltd.
Pledged Securities
Certificate Number
Class of Security No(s) (if any) of Shares (Units)
----------------- --------------- -----------------
Pipeline Data Processing, Inc.
