PLEDGE AND ESCROW AGREEMENT
THIS
PLEDGE AND ESCROW AGREEMENT
(the
“Agreement”)
is
made and entered into as of March 10, 2006 (the “Effective
Date”)
by and
among WHERIFY
WIRELESS, INC.,
a
corporation organized and existing under the laws of the State of Delaware
(the
“Pledgor”),
CORNELL
CAPITAL PARTNERS, LP,
(the
“Pledgee”),
and
XXXXX
XXXXXXXX,
ESQ.,
as
escrow agent (“Escrow
Agent”).
RECITALS:
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 to the Pledgee
or any successor to the Pledgee under this
Agreement, the Securities Purchase Agreement of even date herewith between
the
Pledgor and the Pledgee (the “Securities
Purchase Agreement”),
the
Convertible Debentures (the “Convertible
Debentures”)
issued
or to be issued by the Company to the Pledgee, either now or in the future,
up
to a total of Five Million Dollars ($5,000,000) of principal, plus any interest,
costs, fees, and other amounts owed to the Pledgee thereunder, the Security
Agreement of even date herewith between the Pledgor and the Pledgee (the
“Security
Agreement”),
and
all other contracts entered into between the parties hereto (collectively,
the
“Transaction
Documents”),
the
Pledgor has agreed to irrevocably pledge to the Pledgee 10,273,973 shares (the
“Pledged
Shares”)
of the
Pledgor’s common stock.
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.
1.1. The
Pledgor hereby grants to Pledgee a security interest in all Pledged Shares
as
security for Pledgor’s obligations to the Pledgee (the “Obligations”)
under
the Convertible Debentures. Simultaneously with the execution of this Agreement,
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 executed in blank by the Pledgor (the
“Transfer
Documents”),
and
such stock certificates and Transfer Documents shall be held by the Escrow
Agent
pursuant to this Agreement until the full payment of all amounts due to the
Pledgee under the Convertible Debentures and through repayment in accordance
with the terms of the Convertible Debentures, or the termination or expiration
of this Agreement.
2. Rights
Relating to Pledged Shares.
Prior
to the occurrence of an Event of Default (as defined herein) and the issuance
of
Pledged Shares to the Pledgee (in accordance with Section 5.1), the Pledged
Shares shall not be, or be deemed to be, issued or outstanding shares of the
Pledgor and neither the Pledgee nor any other person shall be entitled to vote
the Pledged Shares, to receive dividends and other distributions thereon, or
to
enjoy any other rights and privileges incident to the ownership of the Pledged
Shares.
3. Release
of Pledged Shares from Pledge.
Upon
the payment of all amounts due to the Pledgee under the Convertible Debentures
by repayment in accordance with the terms of the Note, the parties hereto shall
notify the Escrow Agent to such effect in writing. 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. Notwithstanding anything to the contrary contained herein, upon
full
payment of all amounts due to the Pledgee under the Convertible Debentures,
by
repayment in accordance with the terms of the Convertible Debentures, this
Agreement and Pledgee’s security interest and rights in and to the Pledged
Shares shall terminate.
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.
5.1. 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 Pledgee,
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 9.99% of the outstanding capital of the Pledgor (unless the Pledgee
waives such limitation by providing 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 Pledgor’s Transfer Agent with instructions to issue
such Pledged Shares to the Pledgee in accordance with the Irrevocable Transfer
Agent Instructions of even date herewith, among the Pledgee, the Pledgor, the
Escrow Agent, and the Transfer Agent.
5.2. 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
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
Pledgor shall remain liable for shortfalls, if any, that may exist after the
Pledgee has exhausted all remedies hereunder. 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.
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5.3. 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.
5.4. Demand
Registration Rights. In
addition to all other remedies available to the Pledgee, upon the issuance
of
Pledged Shares to the Pledgee, 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 the Pledged
Shares for the resale by the Pledgee. The Pledgor shall cause the registration
statement to remain in effect until the sooner of (i) all of the Pledged Shares
have been sold by the Pledgee, or (ii) all of the Pledged Shares may be sold
by
the Pledgee in accordance with Rule 144(k).
6. Concerning
the Escrow Agent.
6.1. 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.
6.2. 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.
6.3. 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
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.
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6.4. 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 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,
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.
6.5. 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.
6.6. 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.
6.7 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.
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6.8 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:
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If
to the Pledgor, to:
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Wherify
Wireless, Inc.
|
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0000
Xxxxxx Xxxxxxx, Xxxxx 000
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Xxxxxxx
Xxxxxx, XX 00000
|
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Attention: Chief
Executive Officer
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Telephone: (000)
000-0000
|
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Facsimile: (000)
000-0000
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With
a copy to:
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Xxxxx
Xxxxxxx Xxxx Xxxxxx & Xxxxxxx LLP
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Three
Embarcadero Center, 12th
Floor
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Xxx
Xxxxxxxxx, XX 00000
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Attention: D.
Xxxxxxx Xxxxxxx
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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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Cornell
Capital Partners, LP
|
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000
Xxxxxx Xxxxxx, Xxxxx 0000
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Xxxxxx
Xxxx, XX 00000
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Attention:
Xxxx
X. Xxxxxx
|
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Telephone: (000)
000-0000
|
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Facsimile:
(000)
000-0000
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With
copy to:
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Xxxxx
Xxxxxxxx, Esq.
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000
Xxxxxx Xxxxxx, Xxxxx 0000
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Xxxxxx
Xxxx, XX 00000
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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.
7. 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.
8. 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 New Jersey 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.
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9. 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.
10. 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.
11. 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.
12. No
Penalties.
No
provision of this Agreement is to be interpreted as a penalty upon any party
to
this Agreement.
13. 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.
6
IN
WITNESS WHEREOF,
the
parties hereto have duly executed this Pledge and Escrow Agreement as of the
date first above written.
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CORNELL
CAPITAL PARTNERS, LP
By: Yorkville
Advisors, LLC
Its: General
Partner
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| By: | /s/ Xxxx Xxxxxx | |
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Name: Xxxx Xxxxxx |
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| Title: Portfolio Manager | ||
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WHERIFY
WIRELESS, INC.
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| |
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| By: | /s/ Xxxxxxx X. Xxxxx | |
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Name: Xxxxxxx
X. Xxxxx
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Title: Chief
Executive Officer
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ESCROW
AGENT
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| By: | /s/ Xxxxx Xxxxxxxx, Esq. | |
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Name: Xxxxx Xxxxxxxx, Esq. |
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