SECURITY/PLEDGE AGREEMENT
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Security/Pledge Agreement ("Agreement") dated as of March 1, 2000, between
Xxxxxxx Xxxxxxxx ("Xxxxxxxx"), an individual, and Communication Options, LLC, a
California corporation ("COL") (collectively and severally, "Shareholder"), on
the one hand, and 0Xxxxxxxxx.xxx, a California corporation ("Secured Party"), on
the other hand in connection with that certain Promissory Note ("Note") dated as
of even date herewith.
RECITALS
A. Shareholder is borrowing $50,000 from Secured Party pursuant to a Note
dated as of even date herewith.
B. Shareholder owns and controls a 90% interest in CLO, and Xxxxxxxx'x
son, Xxxxxxx Xxxxxxxx, owns and controls the remaining 10% interest in
COL.
C. Shareholder wishes to grant security and assurance to Secured Party in
order to secure Shareholders performance of Shareholders obligations
under the Note, including the payment of the Note (all such
obligations being referred to herein as the "Obligations"), and to
that effect to pledge and deliver to Secured Party all Xxxxxxxx'x
outstanding interest ("Interest") in CLO, as listed on Schedule 1
hereto.
AGREEMENT
In consideration of the foregoing and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:
1. PLEDGE AND GRANT OF SECURITY INTEREST. Shareholder hereby pledges to
Secured Party, and grants to Secured Party a security interest in, all of its
right, title and interest in the property described in Section 2 below (the
"Collateral"), to secure payment and performance of the Obligations.
2. COLLATERAL. The Collateral shall consist of the following:
(a) The Interest, the certificates or paperwork for which for
which (together with any stock powers properly executed in blank) have been
delivered by Shareholder to Secured Party, together with all new, substituted
and additional securities issued at any time with respect to the Interest
(collectively and severally, the "Pledged Interest");
(b) All now existing and hereafter arising rights with respect to
the Pledged Interest, including, without limitation, any and all voting rights
and all rights to cash and non-cash dividends on account of the Pledged
Interest; and
(c) All proceeds of the foregoing Collateral. For purposes of
this Agreement, the term "Proceeds" includes whatever is receivable or received
when any of the Collateral is sold, collected, exchanged or otherwise disposed
of, whether such disposition is voluntary or involuntary, and also includes all
interest, dividends and other property receivable or received on account of the
Collateral or proceeds thereof.
3. ADMINISTRATION OF THE PLEDGED INTEREST. The following provisions
shall govern the administration of the Pledged Interest:
(a) So long as no Default (as defined below) has occurred and is
continuing, Shareholder shall be entitled to act with respect to the Pledged
Interest in any manner not inconsistent with this Agreement or the Note.
(b) So long as no Default has occurred and is continuing,
Shareholder shall be entitled to vote or consent with respect to the Pledged
Interest, and similarly, Secured Party shall have no voting rights to the
Pledged Interest absent a Default. If a Default shall have occurred and be
continuing and Secured Party shall have notified the Shareholder that Secured
Party desires to exercise its proxy rights with respect to all or a portion of
the Pledged Interest, Shareholder hereby grants to Secured Party an irrevocable
proxy for the Pledged Interest pursuant to which proxy Secured Party shall be
entitled to vote or consent, in its discretion. This irrevocable proxy is
coupled with an interest. In such event, Shareholder agrees to deliver to
Secured Party such further evidence of the grant of such proxy as Secured Party
may request, but no further evidence shall be required in order to allow Secured
Party to exercise its voting rights.
(c) So long as no Default shall have occurred, Shareholder may
receive and retain any and all dividends or other distributions paid in respect
of the Collateral.
(d) Upon the occurrence and during the continuance of a Default,
if Shareholder shall have received, or shall have become entitled to receive,
any cash payments or other distributions in respect of the Collateral, then and
in each case Shareholder shall deliver to Secured Party such amount in partial
payment of the principal of and interest on the Note, with such amounts to be
applied to accrued interest or principal payable under the Note, in Secured
Party's sole and arbitrary discretion.
(e) Shareholder shall immediately upon request by Secured Party
and in confirmation of the security interests hereby created, execute and
deliver to Secured Party such further instruments, deeds, transfers, assurances
and agreements, in form and substance as Secured Party shall request, including
any financing statement and amendments thereto, or any other documents, as
required under California law and any other applicable law to protect the
security interests created hereunder.
(f) Secured Party and its assigns shall have no obligation in
respect of the Pledged Interest and other Collateral, except to hold and dispose
of the same in accordance with the terms of this Agreement.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. Shareholder hereby
represents, warrants and covenants, as to itself and the Collateral pledged by
it hereunder, to and with the Secured Party that:
(a) the Pledged Interest represents that percentage as set forth
on Schedule 1 of the issued and outstanding shares of each class of the capital
stock of the issuer with respect thereto, as and if applicable;
(b) except for the security interest granted hereunder, the
Shareholder: (i) is and will at all times continue to be the direct owner,
beneficially and of record, of the Pledged Interest indicated on Schedule 1,
(ii) holds the same free and clear of all Liens (as defined below), (iii) will
make no security assignment, pledge or hypothecation of, or create or permit to
exist any security interest in or other Lien on, the Collateral, other than
pursuant hereto, and (iv) subject to Section 3, will cause any and all
Collateral, capable of physical delivery, to be forthwith deposited with the
Secured Party and pledged or assigned hereunder (for purposes of this Agreement,
the term "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement relating to such asset and
(c) any other preferential arrangement that has substantially the same practical
effect as a security interest);
(c) Shareholder (i) has the power and authority to pledge the
Collateral in the manner hereby done or contemplated and (ii) will defend its
title or interest hereto or therein against any and all Liens (other than the
Lien created by this Agreement), however arising, of all persons whomsoever;
(d) Shareholder will not permit COL to issue any additional
shares of capital stock or other securities, as and if applicable, whether to
Shareholder or to any other person or entity, without the prior written consent
of the Secured Party, which Secured Party may withhold in Secured Party's sole
and arbitrary discretion;
(e) no consent of any other person (including stockholders or
creditors of Shareholder) and no consent or approval of any governmental
authority or any securities exchange was or is necessary to the validity of the
pledge effected hereto;
(f) by virtue of the execution and delivery by the Shareholder of
this Agreement, when the Pledged Interest, certificates or other documents
representing or evidencing the Collateral are delivered to the Secured Party in
accordance with this Agreement, the Secured Party will obtain a valid and
perfected first lien upon the security interest in such Pledged Interest as
security for the payment and performance of the Obligations;
(g) the pledge effected hereby is effective to vest in the
Secured Party the rights of the Secured Party in the Collateral as set forth
herein;
(h) all of the Pledged Interest has been duly authorized and
validly issued and any associated costs are fully paid and nonassessable;
(i) all information set forth herein relating to the Pledged
Interest is accurate and complete in all material respects as of the date
hereof; and
(j) the pledge of the Pledged Interest pursuant to this Agreement
does not violate Regulation U or X of the Federal Reserve Board or any successor
thereto as to the date hereof.
5. EVENTS OF DEFAULT.
(a) LIST OF DEFAULTS. Any one or more of the following events
constitutes a default hereunder ("Default"):
(i) A failure by Shareholder to make any payment due under the
Note when due;
(ii) Any levy upon, seizure or attachment of any material portion
of the Collateral; and
(iii) A material breach by Shareholder of any of the terms of
this Agreement, the Note or the Consultant Employment Agreement.
(b) WAIVER OF DEFAULTS. Each Default under this Agreement will be
deemed continuing until it is waived in writing by, or cured to the written
satisfaction of, the Secured Party.
6. REMEDIES IN CASE OF A DEFAULT. In case a Default shall have occurred
and be continuing, Secured Party may, in addition to all rights and remedies at
law or in equity or otherwise, seek the following remedies:
(a) The Secured Party shall have all of the remedies of a secured
party under the California Uniform Commercial Code, and, without limiting the
foregoing, shall have the right to sell, assign and deliver the whole or, from
time to time, any part of the Pledged Interest, or any interest in any part
thereof, at any private sale or at public auction, with or without demand of
performance or other demand, advertisement or notice of the time or place of
sale or adjournment thereof or otherwise (except that the Secured Party shall
give 30 days notice to Shareholder of the time and place of any sale pursuant to
this Section 6), for cash, on credit or for other property, for immediate or
future delivery, and for such price or prices and on such terms as the Secured
Party shall, in its reasonable discretion, determine, the Shareholder hereby
waiving and releasing any and all right or equity of redemption whether before
or after sale hereunder. At any such sale, the Secured Party may bid for and
purchase the whole or any part of the Pledged Interest so sold free from any
such right or equity of redemption. The Secured Party shall apply the proceeds
of any such sale first to the payment of all costs and expenses, including
reasonable attorneys' fees, incurred by the Secured Party in enforcing its
rights under this Agreement and then to the payment of interest on and principal
of the Note, with such payments to be applied to accrued interest or principal
payable under the Note, in the Secured Party's sole and arbitrary discretion.
(b) The Shareholder recognizes that the Secured Party may be
unable to effect a public sale of all or a part of the Pledged Interest by
reason of certain prohibitions contained in the Securities Act of 1933, as
amended (the "Act"), or in the rules and regulations promulgated thereunder, but
may be compelled to resort to one or more private sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire the
Pledged Interest for their own account, for investment and not with a view to
the distribution or resale thereof. The Shareholder agrees that private sales so
made may be at prices and on other terms less favorable to the seller than if
the Pledged Interest were sold at public sale, and that the Secured Party has no
obligation to delay the sale of the Pledged Interest for the period of time
necessary to permit the registration of the Pledged Interest for public sale
under the Act. Shareholder agrees that a private sale or sales made under the
foregoing circumstances shall be deemed to have been made in a commercially
reasonable manner.
(c) If any consent, approval or authorization of any state,
municipal or other governmental department, agency or authority should be
necessary to effectuate any sale or disposition by the Secured Party pursuant to
this Section 6 of the Pledged Interest, or any partial disposition thereof,
Shareholder will execute all such applications and other instruments as may be
required in connection with securing any such consent, approval or
authorization, and will otherwise use its best efforts to secure the same.
(d) Alternatively to Section 6(a), the Secured Party may register
in Secured Party's name any and all of the Pledged Interest.
(e) Neither failure nor delay on the part of the Secured Party to
exercise any right, remedy, power or privilege provided for herein or by statute
or at law or in equity shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
7. SHAREHOLDER'S OBLIGATIONS NOT AFFECTED. The obligations of
Shareholder under this Agreement shall remain in full force and effect without
regard to, and shall not be impaired or affected by: (a) any subordination,
amendment or modification of or addition or supplement to the Note, or any
assignment or transfer of the Note; (b) any exercise or non-exercise by Secured
Party of any right, remedy, power or privilege under or in respect of this
Agreement or the Note, or any waiver of any such right, remedy, power or
privilege; (c) any waiver, consent, extension, indulgence or other action or
inaction in respect of this Agreement or the Note, or any assignment or transfer
of any thereof; or (d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like, of Secured Party or its
successors, whether or not the Shareholder shall have notice or knowledge of any
of the foregoing.
8. TERMINATION. Upon payment in full of the principal of and interest
on the Note and upon the due performance of and compliance with all the
provisions of the Note, this Agreement shall terminate, and the Shareholder
shall be entitled to the return of such of the Pledged Interest and other
Collateral as has not theretofore been sold or otherwise applied pursuant to the
provisions of this Agreement.
9. GENERAL PROVISIONS.
(a) SEVERABILITY. If any of the provisions of this Agreement
shall be held invalid or unenforceable, this Agreement and the rights and
obligations of the parties hereto shall be construed without reference to such
provision and enforced accordingly.
(b) BENEFIT AND ASSIGNMENT. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
(c) ENTIRE AGREEMENT; Amendments. This Agreement, the Consultant
Employment Agreement and the Note embody the entire agreement and understanding
of the parties and supersede any and all prior agreements, arrangements and
understandings with respect to the subject matter hereof. No amendment or waiver
of compliance with any provision or condition of this Agreement or consent
pursuant to this Agreement will be effective unless evidenced by an instrument
in writing signed by the parties.
(d) GOVERNING LAW. The construction and performance of this
Agreement will be governed by the laws of the State of California, exclusive of
choice of law rules or principles.
(e) NOTICES. All notices required to be given under the terms of
this Agreement or which any of the parties may desire to give hereunder shall be
in writing and delivered personally or sent by registered or certified mail or
facsimile, with proof of receipt, postage and expenses prepaid, return receipt
requested, addressed as follows:
To Shareholder: Xxxxxxx Xxxxxxxx
000 Xxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
To Secured Party: 0Xxxxxxxxx.xxx
000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxx xxx Xxx, XX 00000
Attn: General Counsel
Facsimile: (000) 000-0000
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts and all counterparts of the Agreement shall together constitute one
original document.
(g) ATTORNEYS' FEES. The prevailing party in any proceeding
required to enforce this Agreement shall be entitled to recover from the other
all costs and expenses of enforcement, including reasonable attorneys' fees
prior to and at trial, on appeal, on any petition for review, in any
arbitration, in any administrative or bankruptcy proceeding, and in any other
judicial, quasi-judicial or non-judicial proceeding.
EXECUTED as of the day and year first written above.
SHAREHOLDER: COMMUNICATION OPTIONS, LLC,
a California corporation
By:
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Its:
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XXXXXXX XXXXXXXX
By:
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Its:
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SECURED PARTY: 0XXXXXXXXX.XXX,
a California corporation
By:
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Its:
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SCHEDULE 1
TO SECURITY/PLEDGE AGREEMENT
CAPITAL STOCK
Number of Registered Number and Percentage
Issuer Certificate Owner Class of Shares of Shares
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