INSIDER PLEDGE AND ESCROW AGREEMENT
THIS
INSIDER PLEDGE AND ESCROW AGREEMENT
(this
“Agreement”)
is
made and entered into as of September 11, 2006 (the “Effective
Date”)
by and
among XXXXX
XXXXX ROOT (the
“Pledgor”),
CSI
BUSINESS FINANCE, INC. (the
“Pledgee”),
XXXX,
INC.,
a
Delaware corporation (the “Company”),
and
XXXXXXXXXXX
& XXXXXXXX XXXXXXXXX XXXXXX LLP,
as
escrow agent (“Escrow
Agent”).
RECITALS:
WHEREAS,
the
Company and Pledgee shall, contemporaneously with the execution and delivery
of
this Agreement, enter into that certain Loan Agreement (the “Loan
Agreement”)
pursuant to which the Pledgee shall lend to the Company, and the Company shall
borrow from the Pledgee, the sum of Six Hundred Fifty-Five Thousand Dollars
($655,000) (the “Loan
Amount”);
WHEREAS,
as a
material inducement for Pledgee to enter into the Loan Agreement and to fund
the
Loan Amount, the Company has agreed to issue to the Pledgee two (2) promissory
notes on the terms and subject to the conditions set forth in the Loan Agreement
(together, the “Notes”)
and
each, a “Note”)
in the
form attached to the Loan Agreement as Exhibit
A
and
evidencing the terms and conditions of each Note;
WHEREAS,
to
induce
the Pledgee to enter into the Loan Agreement, the Notes, that certain Pledge
and
Escrow Agreement (the “Pledge
Agreement”),
of
even date herewith, by and among the Company, the Pledgee and the Escrow Agent,
that certain Security Agreement, of even date herewith, by and between the
Company and the Pledgee (the “Security
Agreement”)
and
that certain Subsidiary Security Agreement, of even date herewith, by and
between Global SportsEDGE, Inc., a wholly-owned subsidiary of the Company and
the Pledgee (the “Subsidiary
Security Agreement”
and,
together with this Agreement, the Notes, the Pledge Agreement, the Security
Agreement and the Subsidiary Security Agreement, the “Transaction
Documents”),
the
Pledgor has agreed to irrevocably pledge to the Pledgee a total of Four Hundred
Sixty Two Thousand Two Hundred Twenty-Two (462,222) shares of convertible Series
A Preferred Stock, convertible at the rate of ten (10) shares of Common Stock
for every one share of Series A Preferred Stock in the amounts set forth beside
their names in Schedule I of this Agreement (the “Pledged
Shares”)
of the
Company’s common stock, par value $0.0001 per share, beneficially owned by the
Pledgor in accordance with this Agreement.
NOW,
THEREFORE,
in
consideration of the mutual covenants, agreements, warranties, and
representations herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
TERMS
AND CONDITIONS
1. Obligations
Secured. The
obligations secured hereby are any and all obligations of the Company now
existing or hereinafter incurred to the Pledgee, whether oral or written and
whether arising before, on or after the date hereof including, without
limitation, those obligations of the Company to the Pledgee under the
Transaction Documents and any other amounts now or hereafter owed to the Pledgee
by the Company thereunder (collectively, the “Obligations”).
2. Pledge
and Transfer of the Pledged Shares.
The
Pledgor hereby grants to Pledgee an irrevocable, first priority security
interest in all Pledged Shares as security for the Company’s Obligations.
Simultaneously with the execution of the Transaction Documents, the Pledgor
shall deliver to the Escrow Agent stock certificates made out in favor of the
Pledgee representing the Pledged Shares, together with duly executed stock
powers or other appropriate transfer documents with medallion bank guarantees
and executed in blank by the Pledgor (the “Transfer
Documents”),
and
such stock certificates and Transfer Documents shall be held by the Escrow
Agent
until the full payment of all Obligations due to the Pledgee, including the
repayment of all amounts owed by the Company to the Pledgee under the Notes
(whether outstanding principal, interest, legal fees, or any other amounts
owed
to the Pledgee by the Company).
3. Rights
Relating to the Pledged Shares.
Upon
the occurrence of an Event of Default (as defined herein), the Pledgee shall
be
entitled to vote the Pledged Shares, receive dividends and other distributions
thereon, and enjoy all other rights and privileges incident to the ownership
of
the number of Pledged Shares actually released from escrow in accordance with
Section 6.1 hereof.
4. Release
of the Pledged Shares from Pledge.
Upon
the full payment of all Obligations due to the Pledgee under the Transaction
Documents, including the repayment of all amounts owed by the Company to the
Pledgee under the Notes (whether outstanding principal, interest, legal fees,
and any other amounts owed to the Pledgee by the Company), the parties hereto
shall notify the Escrow Agent to such effect in writing. Promptly upon receipt
of such written notice, the Escrow Agent shall return to the Pledgor the
Transfer Documents and the certificates representing the Pledged Shares
(collectively the “Pledged
Materials”),
whereupon any and all rights of Pledgee in the Pledged Materials shall be
terminated.
5. Event
of Default.
An
“Event
of Default”
shall
be deemed to have occurred under this Agreement upon an Event of Default under
the Notes or the Loan Agreement.
6. Remedies.
a. Upon
and
anytime after the occurrence of an Event of Default, the Pledgee shall have
the
right to acquire the Pledged Shares in accordance with the following procedure:
(a) the Pledgee shall provide written notice of such Event of Default (the
“Default
Notice”)
to the
Escrow Agent, with a copy to the Pledgor; (b) in a Default Notice the Pledgee
shall specify the number of Pledged Shares to be issued to the Plegdee,
provided
however,
that
the Pledgee shall not have the right to acquire such number of Pledged Shares
which would cause the Pledgee, together with its affiliates, to beneficially
own
in excess of 4.99% of the outstanding capital of the Company (unless the Pledgee
waives such limitation by providing sixty-five (65) days’ advance written
notice); and (c) as soon as practicable after receipt of a Default Notice,
the
Escrow Agent shall deliver the specified number of Pledged Shares along with
the
applicable Transfer Documents to the Company’s Transfer Agent with instructions
to issue such Pledged Shares to the Pledgee.
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b. Upon
receipt of the Pledged Shares issued to the Pledgee, the Pledgee shall have
the
right to (i) sell the Pledged Shares and to apply the proceeds of such sales,
net of any selling commissions, to the Obligations owed to the Pledgee by the
Company under the Transaction Documents, including, without limitation,
outstanding principal, interest, legal fees, and any other amounts owed to
the
Pledgee, and exercise all other rights and (ii) any and all remedies of a
secured party with respect to such property as may be available under the
Uniform Commercial Code as in effect in the State of Delaware. To the extent
that the net proceeds received by the Pledgee are insufficient to satisfy the
Obligations in full, the Pledgee shall be entitled to a deficiency judgment
against the Pledgor, for such amount. The Pledgee shall have the absolute right
to sell or dispose of the Pledged Shares in any manner it sees fit and shall
have no liability to any Pledgor or any other party for selling or disposing
of
such Pledged Shares even if other methods of sales or dispositions would or
allegedly would result in greater proceeds than the method actually used. The
Pledgee shall return any Pledged Shares issued to it and instruct the Escrow
Agent to return any Pledged Shares it is holding in escrow after the all amounts
owed to the Pledgee under the Convertible Debentures have been satisfied.
c. Each
right, power and remedy of the Pledgee provided for in this Agreement or any
other Transaction Document shall be cumulative and concurrent and shall be
in
addition to every other such right, power or remedy. The
exercise or beginning of the exercise by the Pledgee of any one or more of
the
rights, powers or remedies provided for in this Agreement or any
other
Transaction Document or
now or
hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by the
Pledgee of all such other rights, powers or remedies, and no failure or delay
on
the part of the Pledgee to exercise any such right, power or remedy shall
operate as a waiver thereof. No notice to or demand on any Pledgor in any case
shall entitle such Pledgor to any other or further notice or demand in similar
or other circumstances or constitute a waiver of any of the rights of the
Pledgee to any other further action in any circumstances without demand or
notice. The Pledgee shall have the full power to enforce or to assign or
contract is rights under this Agreement to a third party.
7. Representations,
Warranties and Covenants.
a. The
Company represents, warrants and covenants that:
(i) The
Pledgor is, and at the time when pledged hereunder will be, the legal,
beneficial and record owner of, and has (and will have)
good and
valid title to, all Pledged Shares pledged hereunder, subject to no pledge,
lien, mortgage, hypothecation, security interest, charge, option or other
encumbrance whatsoever;
(ii) The
Pledgor has full power, authority and legal right to pledge all the Pledged
Shares pledged pursuant to this Agreement; and
(iii) all
the
Pledged Shares attributable to such Pledgor have been duly and validly issued,
are fully paid and non-assessable and are subject to no options to purchase
or
similar rights.
3
b. The
Company covenants and agrees to take all reasonable steps to defend the
Pledgee’s right, title and security interest in and to the Pledged Shares and
the proceeds thereof against the claims and demands of all persons whomsoever
(other than the Pledgee and the Escrow Agent); and the Pledgor covenants and
agrees that he will have like title to
and
right to pledge any other property at any time hereafter pledged to the Pledgee
as Collateral hereunder and will likewise take all reasonable steps to defend
the right thereto and security interest therein of the Pledgee.
c. The
Company covenants and agrees to take no action which would violate or be
inconsistent with any of the terms of any Transaction Document, or which would
have the effect of impairing the position or interests of the Pledgee under
any
Transaction Document.
d. The
Company represents, warrants and covenants that (i) the Pledgor is the
beneficial owner of the Pledged Shares and (ii) this Agreement is made with
recourse. Upon an Event of Default, the Pledgee shall be deemed to have acquired
the Pledged Shares on the date they were acquired by the Pledgor. The Pledgor
is
an “affiliate” of the Company, as such term is defined in Rule 144(a)
promulgated under the Securities Act of 1933, as amended.
8. Concerning
the Escrow Agent.
a. The
Escrow Agent undertakes to perform only such duties as are expressly set forth
herein and no implied duties or obligations shall be read into this Agreement
against the Escrow Agent.
b. The
Escrow Agent may act in reliance upon any writing or instrument or signature
which it, in good faith, believes to be genuine, may assume the validity and
accuracy of any statement or assertion contained in such a writing or
instrument, and may assume that any person purporting to give any writing,
notice, advice or instructions in connection with the provisions hereof has
been
duly authorized to do so. The Escrow Agent shall not be liable in any manner
for
the sufficiency or correctness as to form, manner, and execution, or validity
of
any instrument deposited in this escrow, nor as to the identity, authority,
or
right of any person executing the same; and its duties hereunder shall be
limited to the safekeeping of such certificates, monies, instruments, or other
document received by it as such escrow holder, and for the disposition of the
same in accordance with the written instruments accepted by it in the
escrow.
c. Pledgee
and the Pledgor hereby agree, to defend and indemnify the Escrow Agent and
hold
it harmless from any and all claims, liabilities, losses, actions, suits, or
proceedings at law or in equity, or any other expenses, fees, or charges of
any
character or nature which it may incur or with which it may be threatened by
reason of its acting as Escrow Agent under this Agreement; and in connection
therewith, to indemnify the Escrow Agent against any and all expenses, including
attorneys’ fees and costs of defending any action, suit, or proceeding or
resisting any claim (and any costs incurred by the Escrow Agent pursuant to
Sections 6.4 or 6.5 hereof). The Escrow Agent shall be vested with a lien on
all
property deposited hereunder, for indemnification of attorneys’ fees and court
costs regarding any suit, proceeding or otherwise, or any other expenses, fees,
or charges of any character or nature, which may be incurred by the Escrow
Agent
by reason of disputes arising between the makers of this escrow as to the
correct interpretation of this Agreement and instructions given to the Escrow
Agent hereunder, or otherwise, with the right of the Escrow Agent, regardless
of
the instructions aforesaid, to hold said property until and unless said
additional expenses, fees, and charges shall be fully paid. Any fees and costs
charged by the Escrow Agent for serving hereunder shall be paid by the
Pledgor.
4
d. If
any of
the parties shall be in disagreement about the interpretation of this Agreement,
or about the rights and obligations, or the propriety of any action contemplated
by the Escrow Agent hereunder, the Escrow Agent may, at its sole discretion
deposit the Pledged Materials with the Clerk of the United States District
Court
of the Southern District of Texas, Houston Division, sitting in Houston, Texas,
and, upon notifying all parties concerned of such action, all liability on
the
part of the Escrow Agent shall fully cease and terminate. The Escrow Agent
shall
be indemnified by the Pledgor, the Company and Pledgee for all costs, including
reasonable attorneys’ fees in connection with the aforesaid proceeding, and
shall be fully protected in suspending all or a part of its activities under
this Agreement until a final decision or other settlement in the proceeding
is
received.
e. The
Escrow Agent may consult with counsel of its own choice (and the costs of such
counsel shall be paid by the Pledgor and Pledgee) and shall have full and
complete authorization and protection for any action taken or suffered by it
hereunder in good faith and in accordance with the opinion of such counsel.
The
Escrow Agent shall not be liable for any mistakes of fact or error of judgment,
or for any actions or omissions of any kind, unless caused by its willful
misconduct or gross negligence.
f. The
Escrow Agent may resign upon ten (10) days’ written notice to the parties in
this Agreement. If a successor Escrow Agent is not appointed within this ten
(10) day period, the Escrow Agent may petition a court of competent jurisdiction
to name a successor.
9. Conflict
Waiver.
The
Pledgor hereby acknowledges that the Escrow Agent is special counsel to the
Company in connection with the transactions contemplated and referred herein.
The Pledgor agrees that in the event of any dispute arising in connection with
this Agreement or otherwise in connection with any transaction or agreement
contemplated and referred herein, the Escrow Agent shall be permitted to
continue to represent the Company, the Pledgor will not seek to disqualify
such
counsel, and the Pledgor waives any objection the Pledgor might have with
respect to the Escrow Agent acting as the Escrow Agent pursuant to this
Agreement.
10. Notices.
Unless
otherwise provided herein, all demands, notices, consents, service of process,
requests and other communications hereunder shall be in writing and shall be
delivered in person or by overnight courier service, or mailed by certified
mail, return receipt requested, addressed:
5
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If
to the Company, to:
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XXXX,
Inc.
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0000
Xxxxx Xxxxx Xxxxxxxxx
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Xxxxx
000
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Xxx
Xxxxx, XX 00000
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Attention:
Xxxxxxx
X. Xxxxxx
Telephone: (000)
000-0000
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Facsimile: (000)
000-0000
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With
a copy to:
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Xxxxxxxxxxx
& Xxxxxxxx Xxxxxxxxx Xxxxxx LLP
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000
Xxxxx Xxxxxxxx Xxxxxxxxx - Xxxxx 0000
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Xxxxx,
XX 00000-0000
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Attention: Xxxxxxx
X. Xxxxxx, Esq.
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Telephone: (000)
000-0000
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Facsimile: (000)
000-0000
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If
to the Pledgee:
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CSI
Business Finance, Inc.
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000
Xxxxx Xxxx Xxx Xxxx, Xxxxx 000
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Xxxxxxx,
Xxxxx 00000
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Attention: Xxxxxxx
X. Xxxxxxxx
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Telephone: (000)
000-0000
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Facsimile: (000)
000-0000
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If
to the Pledgor, to:
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XXXX,
Inc.
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0000
Xxxxx Xxxxx Xxxxxxxxx
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Xxxxx
000
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Xxx
Xxxxx, XX 00000
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Attention:
Xxxxx
Xxxxx Root
Telephone: (000)
000-0000
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Facsimile: (000)
000-0000
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Any
such
notice shall be effective (a) when delivered, if delivered by hand delivery
or overnight courier service, or (b) five (5) days after deposit in the
United States mail, as applicable.
11. Binding
Effect.
All of
the covenants and obligations contained herein shall be binding upon and shall
inure to the benefit of the respective parties, their successors and
assigns.
12. Governing
Law; Venue; Service of Process.
The
parties hereto agree that any disputes, claims, disagreements, lawsuits, actions
or controversies of any type or nature whatsoever that, directly or he
interpretation and construction of this Agreement, and all matters relating
hereto, shall be governed by the laws of the State of Delaware without giving
effect to the principles of conflicts of laws thereof. Each of the parties
hereto consents to the jurisdiction of the federal and state courts of the
State
of Texas in any such action or proceeding and waives any objection to venue
laid
therein.
6
13. Enforcement
Costs.
If any
legal action or other pro-ceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresenta-tion in connection with any provisions of this Agreement, the
successful or prevailing party or parties shall be entitled to recover
reasonable attorneys’ fees, court costs and all expenses even if not taxable as
court costs (including, without limita-tion, all such fees, costs and expenses
incident to appeals), incurred in that action or proceeding, in addition to
any
other relief to which such party or parties may be entitled.
14. Remedies
Cumulative.
No
remedy herein conferred upon any party is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or here-after existing
at
law, in equity, by statute, or otherwise. No single or partial exercise by
any
party of any right, power or remedy hereunder shall preclude any other or
further exercise thereof.
15. Counterparts.
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute the same
instrument.
16. No
Penalties.
No
provision of this Agreement is to be interpreted as a penalty upon any party
to
this Agreement.
17. JURY
TRIAL.
EACH
OF THE PLEDGEE AND THE PLEDGOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES THE RIGHT WHICH IT MAY HAVE TO A TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION BASED HEREON, OR ARISING OUT OF, UNDER OR IN ANY
WAY
CONNECTED WITH THE DEALINGS BETWEEN PLEDGEE AND PLEDGOR, THIS PLEDGE AND ESCROW
AGREEMENT OR ANY DOCUMENT EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS
OF
ANY PARTY HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.
18. Opportunity
to Hire Counsel; Role of Xxxxxxxxxxx & Xxxxxxxx Xxxxxxxxx Xxxxxx
LLP.
Each
party hereto acknowledges that they have been advised and have been given an
opportunity to hire counsel with respect to this Agreement and the transactions
contemplated hereby. Each party further acknowledges that the law firm of
Xxxxxxxxxxx & Xxxxxxxx Xxxxxxxxx Xxxxxx LLP has solely represented the
Company in connection with this Agreement and the transactions contemplated
hereby and no other person.
[REMAINDER
OF PAGE INTENTIALLY LEFT BLANK]
7
IN
WITNESS WHEREOF,
the
parties hereto have duly executed this Insider Pledge and Escrow Agreement
as of
the date first above written.
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CSI
Business Finance, Inc.
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By:
/s/ Xxxxxxx X. Xxxxxxxx
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Name: Xxxxxxx
X. Xxxxxxxx
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Title: Chief
Executive Officer
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Xxxxx
Xxxxx Root, an Individual
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By:
/s/Xxxxx Xxxxx Root
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Name:
Xxxxx Xxxxx Xxxx
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XXXX,
Inc.
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By:
/s/ Xxxxxxx X. Xxxxxx
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Name: Xxxxxxx
X. Xxxxxx
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Title: President
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Escrow
Agent
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By:
/s/ Xxxxxxxxxxx
& Xxxxxxxx Xxxxxxxxx Xxxxxx LLP
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Name: Xxxxxxxxxxx
& Xxxxxxxx Xxxxxxxxx Xxxxxx LLP
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8
SCHEDULE
I
PLEDGOR
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Name
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Number
of Shares Pledged
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Xxxxx
Xxxxx Root
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462,222
convertible Series A Preferred Stock, convertible into 4,622,220
shares of
Common Stock
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9
