PLEDGE AND ESCROW AGREEMENT
THIS PLEDGE AND ESCROW AGREEMENT (the "Agreement") is made and entered
into as of December 30, 2005 (the "Effective Date") by and among CORNELL CAPITAL
PARTNERS, LP ("Cornell" or the "Pledgee"), EARTHSHELL CORPORATION, a Delaware
corporation (the "Pledgor") and XXXXX XXXXXXXX, ESQ., as escrow agent ("Escrow
Agent").
RECITALS:
WHEREAS, on May 26, 2005, Cornell, the Pledgor, and the Escrow Agent
entered into a Pledge and Escrow Agreement (the "Pledge and Escrow Agreement")
pursuant to which the Pledgor pledged shares of Series B Convertible Preferred
Stock of the Pledgor ("Series B Preferred Stock"). The parties desire to
terminate the Pledge and Escrow Agreement and replace it with this Agreement;
WHEREAS, in connection with the Securities Purchase Agreement (the
"Securities Purchase Agreement") dated the date hereof among the Pledgee and the
Pledgor, the Pledgor shall issued and sell to the Pledgee up to Four Million
Five Hundred Thousand Dollars ($4,500,000) of secured convertible debentures
(the "Convertible Debentures");
WHEREAS, in connection with the transactions contemplated by the
Securities Purchase Agreement, on the date hereof the Pledgee and the Pledgor
entered into an Investor Registration Rights Agreement ("Registration Rights
Agreement"), an Escrow Agreement ("Escrow Agreement"), an Amended Security
Agreement ("Security Agreement"), along with Xxxxxx Xxxxxxxx an Officer Pledge
and Escrow Agreement ("Officer Pledge Agreement"), and Irrevocable Transfer
Agent Instructions ("Transfer Agent Instructions") (the Convertible Debentures,
Securities Purchase Agreement, Registration Rights Agreement, Escrow Agreement,
Security Agreement, Officer Pledge Agreement, and Transfer Agent Instructions
are collectively referred to as the "Transaction Documents"); and
WHEREAS, in order to secure the full and prompt payment when due (whether
at the stated maturity, by acceleration or otherwise) of all of the Company's
obligations (the "Obligations") to the Pledgee or any successor to the Pledgee
under the Transaction Documents, the Pledgor has agreed to irrevocably pledge to
the Pledgee One Hundred (100) shares of Series B Preferred Stock (the "Pledged
Shares");
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. Pledge and Transfer of Pledged Shares. The Pledgor hereby grants to
Pledgee an irrevocable, first priority security interest in all Pledged Shares
as security for the Obligations. On or before the closing of the Transaction
Documents, the Pledgor shall deliver to the Escrow Agent stock certificates
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 under the Transaction Documents, including
the repayment of all amounts owed by the Pledgor to the Pledgee under the
Convertible Debentures (whether outstanding principal, interest, legal fees, or
any other amounts owed to the Pledgee by the Pledgor).
2. Rights Relating to Pledged Shares. Upon the occurrence of an Event of
Default (as defined herein), the Pledgee shall be entitled to convert the
Pledged Shares into shares of common stock of the Pledgor, pursuant to the
Certificate of Designation of the Series B Convertible Preferred Stock (the
"Certificate of Designation") 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 5 hereof and converted into common stock of the
Pledgor.
3. Release of Pledged Shares from Pledge. Upon satisfaction of the
Obligations, the Pledgor and Pledgee shall jointly 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.
4. Event of Default. An "Event of Default" shall be deemed to have
occurred under this Agreement upon an Event of Default under the Convertible
Debentures.
5. Remedies. Upon and anytime after the occurrence of an Event of Default,
so long as the Event of Default has not been previously cured, the Pledgee shall
have the right to provide written notice of such Event of Default (the "Default
Notice") to the Escrow Agent, with a copy to the Pledgor. As soon as practicable
after receipt of the Default Notice by the Escrow Agent, the Escrow Agent shall
deliver to Pledgee the Pledged Materials held by the Escrow Agent hereunder.
Upon receipt of the Pledged Materials, 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 Pledgor 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 New Jersey. 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 the 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 Escrow Agent shall have the absolute
right to disburse the Pledged Shares to the Pledgee in batches, which when
aggregated with all other common stock beneficially owned by the Pledgee and its
affiliates, will not to exceed 9.9% of the outstanding capital of the Pledgor
(which limit may be waived by the Pledgee providing not less than 65 days' prior
written notice to the Escrow Agent). The Pledgee shall return to the Pledgor any
Pledged Shares released to it and remaining after the Pledgee has applied the
net proceeds to all amounts owed to the Pledgee.
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In addition to all other remedies available to the Pledgee, upon an Event
of Default, the Pledgor shall promptly, but in no event more than thirty (30)
days after the date of the Default Notice, file a registration statement to
register with the Securities and Exchange Commission for the resale by the
Pledgee the shares of Common Stock underlying the Series B Preferred Stock. The
Pledgor shall cause the registration statement to remain in effect until all
such shares have been sold by the Pledgee.
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 the Pledgor in any case shall
entitle it 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.
The Pledgor has no right to require the Pledgee to marshal its collateral,
and agree that the Pledgee may, in addition to its other rights hereunder,
proceed against its collateral in any order that it deems appropriate in the
exercise of its absolute discretion.
6. Representations, Warranties and Covenants.
6.1 The Pledgor represents, warrants and covenants that all the
Pledged Shares have been duly and validly issued, are fully paid and
non-assessable and are subject to no options to purchase or similar rights.
6.2 The Pledgor covenants and agrees that it will 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 it 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.
6.3 The Pledgor covenants and agrees that it will 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.
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7. Concerning the Escrow Agent.
7.1. 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.
7.2. 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.
7.3. 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 Section 6.4 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.
7.4. If 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 New Jersey, sitting in Newark, New
Jersey, 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 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.
7.5. 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.
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7.6. 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.
7.7. Conflict Waiver. The Pledgor hereby acknowledges that the
Escrow Agent is general counsel to the Pledgee, a partner in the general partner
of the Pledgee, and counsel to the Pledgee 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 Pledgee and the Pledgor
will not seek to disqualify such counsel and waives any objection Pledgor might
have with respect to the Escrow Agent acting as the Escrow Agent pursuant to
this Agreement.
7.8. 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:
If to Pledgor, to: EarthShell Corporation
0000 Xxxx Xxxx, Xxxxx 000
Xxxxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxxxxxxxx & Xxxxxxxx Xxxxxxxxx Xxxxxx, LLP
000 Xxxxx Xxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Escrow Agent: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Pledgee: Cornell Capital Partners LP
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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With copy to: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esquire
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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.
8. 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.
9. Governing Law; Venue; Service of Process. The validity, interpretation
and performance of this Agreement shall be determined in accordance with the
laws of the State of Delaware applicable to contracts made and to be performed
wholly within that state except to the extent that Federal law applies. The
parties hereto agree that any disputes, claims, disagreements, lawsuits, actions
or controversies of any type or nature whatsoever that, directly or indirectly,
arise from or relate to this Agreement, including, without limitation, claims
relating to the inducement, construction, performance or termination of this
Agreement, shall be brought in the state superior courts located in Xxxxxx
County, New Jersey or Federal district courts located in Newark, New Jersey, and
the parties hereto agree not to challenge the selection of that venue in any
such proceeding for any reason, including, without limitation, on the grounds
that such venue is an inconvenient forum. The parties hereto specifically agree
that service of process may be made, and such service of process shall be
effective if made, pursuant to Section 8 hereto.
10. Enforcement Costs. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation 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 limitation, 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.
11. 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 hereafter 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.
12. 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.
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13. No Penalties. No provision of this Agreement is to be interpreted as a
penalty upon any party to this Agreement.
14. 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.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Pledge and
Escrow Agreement as of the date first above written.
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Xxxx Xxxxxx
---------------------------
Name: Xxxx Xxxxxx
Title: Portfolio Manager
EARTHSHELL CORPORATION
By: /s/ Xxxxx Xxxxxxx
---------------------------
Name: Xxxxx Xxxxxxx
Title: Chief Financial Officer
ESCROW AGENT
By: /s/ Xxxxx Xxxxxxxx
---------------------------
Name: Xxxxx Xxxxxxxx, Esq.
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