EXHIBIT 10.4
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement") is made and entered into this 30th
day of January, 1996, by and between Xxxxxx Xxxx, of 00000 Xxxxxx Xxxxx,
Xxxxxxxx, Xxxxxxxxxx 00000 ("Pledgor"), DLJ Capital Corporation, Sprout II,
L.P., Sprout CEO Fund, L.P. (collectively, the "Investors") and Xxxx, Xxxxxx &
Associates, Inc. having a principal place of business of 0000 Xxxxxxx Xxxxx
Xxxxxxxxx, Xxx Xxxx, Xxxxxxxxxx 00000 ("Pledgee"). Pledgor and Pledgee recite
and agree as follows:
RECITALS
WHEREAS, Pledgor has delivered to the Pledgee a Secured Promissory
Note dated January 30, 1996, in the principal amount of $3,000,000.00 (the
"Secured Promissory Note"); and
WHEREAS, the parties hereto desire to cause all of Pledgor's
obligations under the Secured Promissory Note to be secured by 1,200,000 shares
of the Common Stock of Pledgee owned by Pledgor (the "Shares").
NOW, THEREFOR, for good and valuable consideration, Pledgor and
Pledgee agree as follows:
1. Delivery. Pledgor hereby delivers to the Secretary of Hall,
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Xxxxxx & Associates, Inc. ("Escrow Agent"), Certificate No. 45, representing all
of the Shares, and accompanied by a stock power endorsed in blank. The said
Shares shall be referred to herein as the "Security." Pledgor hereby pledges the
Security to secure all of Pledgor's obligations under the Secured Promissory
Note; provided, however, in any event (i) on July 30, 1996, 240,000 Shares shall
be released from the pledge created by this Pledge Agreement and the escrow, and
(ii) on January 30, 1997, an additional 240,000 Shares shall be released from
the pledge created by this Pledge Agreement and the escrow.
2. Terms and Conditions. Escrow Agent shall hold the Security on
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the following terms and conditions:
(a) During the term of the pledge, all cash dividends paid in
respect of the Security shall be delivered to Pledgee; any remaining cash
dividends shall be delivered to Pledgor. In the event of a default under the
Secured Promissory Note by Pledgor that is not timely cured by Pledgor, then all
rights and title pertaining to the Security shall immediately inure to and
transfer to Pledgee on a signed declaration under penalty of perjury delivered
to the Escrow Agent that there has been a default and that said default has not
been timely cured.
(b) Pledgor agrees to pay prior to delinquency, all taxes,
charges, liens and assessments, if any, against the Security, and upon the
failure of Pledgor to do so, Pledgee at its option may pay any of them;
provided, however, that Pledgee shall not have any right to make
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any such payment if Pledgor shall, in good faith and in accordance with
prescribed statutory or other procedures, contest the validity or legality of
any such tax, charge, lien or assessment.
3. Event of Default. The occurrence of any one or more of the
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following shall constitute an "event of default" hereunder:
(a) the non-payment of any installment of principal or interest
under the Secured Promissory Note;
(b) the levy of any attachment, execution or other process
against any of the Security, which is not vacated within thirty (30) days; or
(c) any breach of or default under the terms of this Agreement
or the Secured Promissory Note by Pledgor.
4. Remedies. Upon the occurrence of any event of default, after
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providing Pledgor with sixty (60) days' written notice of time to cure such
defaults under 3(b) or 3(c) (ten (10) days in the case of a breach for non-
payment), Pledgee or Escrow Agent may take in payment therefor that number of
shares (not to exceed the number of Shares then subject to this Pledge and held
under this Pledge Agreement, and not to be less than 480,000 shares) equal in
fair market value (as defined below) to the aggregate principal amount and
interest then due under the Secured Promissory Note;
For purposes of this Pledge Agreement, fair market value shall be
equal to (i) at the time of a Qualified Public Offering, the price per share
that represents the price of the Pledgee's Common Stock on the effective date
and time of such offering, (ii) at the time of a Merger (as defined in
subsection 2(c)(i) of the Pledgee's Amended and Restated Articles of
Incorporation), the fair market value of the Common Stock will be determined in
that subsection, (iii) at any other time, the fair market value will be
determined by a financial appraiser that shall be mutually acceptable to the
Board of Directors of the Pledgee and Pledgor, the expenses of such appraisal to
be borne equally by the Pledgee and Pledgor. If the Pledgee and Pledgor cannot
agree upon a single appraiser, the Pledgee shall choose an appraiser, Pledgor
shall choose an appraiser and these two appraisers shall select a third
appraiser. Those three appraisers shall each determine a fair market value for
the Shares and fair market value shall be equal to the average of these three
appraisals, the expenses of such appraisal to be borne equally by the Pledgee
and Pledgor;
As set forth above, Pledgee, by written notice to Pledgor, may propose
to retain the Security (equal in fair market value to the aggregate principal
amount and interest then due under the secured Promissory Note, but in no event
less than 480,000 shares) in satisfaction of Pledgor's obligations under this
Agreement. Pledgor waives all of Pledgor's rights under the California
Commercial Code with respect to causing a sale of such Security. Pledgor shall
not be liable for any deficiency if the value of the Security is less than the
amount of aggregate principal and interest due under the Secured Promissory
Note.
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5. Redemption. At any time before Pledgee has sold or otherwise
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disposed of the Security in accordance with paragraph (a) of Section 4 of this
Agreement, Pledgor may, unless otherwise agreed in writing after the occurrence
of any event of default, redeem the Security by tendering to Pledgee:
(a) the total amount of Pledgor's payment obligations under the
Secured Promissory Note then outstanding;
(b) all amounts, if any, due to Pledgee under this Agreement;
and
(c) the reasonable expenses of holding, preparing for sale,
selling and the like, and to the extent not prohibited by law, the reasonable
attorneys' fees and legal expense incurred by Pledgee. Upon such redemption, the
Security shall be released to Pledgor.
6. Miscellaneous.
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(a) Any forbearance or failure or delay by Pledgee in exercising
any right, power or remedy hereunder shall not be deemed to be a waiver of such
right, power or remedy, and any single or partial exercise of any right, power
or remedy hereunder shall not preclude the further exercise thereof.
(b) Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally or sent by
courier or sent by certified or registered mail, postage prepaid, and shall be
deemed given when so delivered personally or sent by courier or, if mailed, upon
receipt thereof, at the addresses as indicated in the first paragraph of this
Agreement, or at such other address as may be designated by notice given to the
other parties hereto in the foregoing manner.
(c) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives. This Agreement shall be governed by California law
excluding that body of law pertaining to conflicts of law.
(d) If either the Pledgor or Pledgee institutes an action or
other legal proceeding against the other based upon a cause of action arising
out of this Pledge Agreement, the prevailing party in such action or proceeding
shall recover from the other party the reasonable fees and expenses of such
prevailing party's attorneys incurred in connection therewith.
(e) This Pledge Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same instrument.
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(f) Pledgor understands and agrees that the Pledgee shall cause
the legend set forth below, or a legend substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS SET FORTH IN THE PLEDGE AGREEMENT DATED JANUARY ____,
1996 (THE "PLEDGE AGREEMENT") BETWEEN THE COMPANY AND THE REGISTERED HOLDER
OF THESE SHARES (THE "HOLDER") TO SECURE THE PAYMENT OBLIGATIONS OF THE
HOLDER UNDER A SECURED PROMISSORY NOTE DATED JANUARY ___, 1996 (THE "NOTE").
THESE SHARES MAY NOT BE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNTIL
ALL OF THE HOLDER'S OBLIGATIONS UNDER THE PLEDGE AGREEMENT AND THE NOTE HAVE
BEEN DISCHARGED IN FULL.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
"PLEDGOR"
By: /s/ Xxxxxx Xxxx
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(Signature)
XXXXXX XXXX
"PLEDGEE"
XXXX, XXXXXX & ASSOCIATES, INC.
By: /s/Xxxxx Xxxxxx
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Name: Xxxxx Xxxxxx
Its: CFO
The undersigned Escrow Agent agrees to serve as escrow agent
hereunder subject to the terms and conditions set forth in the Escrow Agreement
attached hereto as Exhibit A. To the extent any of the terms of this Pledge
Agreement conflict with any of the terms of the Escrow Agreement with respect to
the rights and obligations of the Escrow Agent, the terms of the Escrow
Agreement shall prevail; otherwise the terms of this Agreement will prevail in
the case of a conflict.
"ESCROW AGENT"
SECRETARY OF XXXX, XXXXXX &
ASSOCIATES, INC.
By: /s/Xxxx Xxxxxx
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Name:
DLJ CAPITAL CORPORATION
By: /s/Xxxx X. Xxxxxxxx
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Xxxx X. Xxxxxxx
Attorney in Fact
SPROUT GROWTH II, L.P.
By: /s/Xxxx X. Xxxxxxx
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Xxxx X. Xxxxxxx
Attorney in Fact
SPROUT CEO FUND, L.P.
By DLJ Capital Corporation,
General Partner
By: /s/ Xxxx X. Xxxxxxx
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Xxxx X. Xxxxxxx
Attorney in Fact
CONSENT OF SPOUSE
I acknowledge that I have read the foregoing Pledge Agreement and that
I know its contents (and the contents of the related Secured Promissory Note and
Escrow Agreement). I am aware that by its provisions my spouse agrees to grant a
security interest in shares of the Company held of record by my spouse,
including my community interest in such shares. I hereby agree that those
shares and my interest in them, if any, are subject to the provisions of the
Pledge Agreement and that I will take no action at any time to hinder operation
of, or violate, the Pledge Agreement.
/s/ Xxxxxx X. Xxxx
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(Signature)
