PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Pledge Agreement"), dated as of September __,
1998 by and between U.S. Commercial Funding Corporation, an Illinois corporation
(the "Pledgor") and Xxxxx Xxxx (the "Secured Party").
RECITALS:
The Secured Party was previously the owner of 50,000 shares of common
stock of Xxxxxxx Factors, Inc., a Texas corporation (the "Xxxxxxx Shares").
Pursuant to the terms and conditions of a Stock Purchase Agreement (the "Stock
Purchase Agreement") entered into by and among the Pledgor, the Secured Party
and Xxxxxx Xxxxxxx, the Pledgor purchased the Xxxxxxx Shares from Secured Party
for cash and for a Promissory Note (the "Note").
Approximately 69% of the purchase price for the Xxxxxxx Shares was paid
for in cash and the balance of the purchase price was paid for by delivery of
the Note. The parties desire to provide for 25% of the Xxxxxxx Shares (a total
of 12,500 shares") to be used as collateral for the Note. The remaining 37,500
Xxxxxxx Shares were released to Pledgor free and clear of any lien of the
Secured Party at the closing of the Stock Purchase Agreement.
In order to induce the Secured Party to enter into the Stock Purchase
Agreement, the Pledgor has agreed to grant a continuing security interest in and
to 12,500 Xxxxxxx Shares (the "Pledged Shares") to secure obligations of the
Pledgor under the Note.
The parties desire to provide for the release of the Pledged Shares
from this Pledge Agreement, and any security interest hereunder, upon the
payment of principal under the Note pursuant to Article V of this Pledge
Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
1.1. Certain Terms. The following terms when used in this Pledge
Agreement shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"Collateral" is defined in Section 2.1.
"Distributions" means all stock dividends, liquidating
dividends, shares of stock resulting from (or in connection with the exercise
of) stock splits, reclassifications, warrants, options, non-cash dividends,
mergers or consolidations, and all other distributions (whether similar or
dissimilar to the foregoing) on or with respect to any Pledged Shares or other
shares of capital stock constituting Collateral, but shall not include
Dividends.
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"Dividends" means cash dividends and cash distributions with
respect to any Pledged Shares.
"Event of Default" is defined in the Note.
"Pledged Shares" means 12,500 shares of Xxxxxxx Factors, Inc. common
-------------- stock.
"Secured Obligations" means the obligation to pay the principal and
interest amount of the Note.
"U.C.C." means the Uniform Commercial Code as in effect in the
State of Texas or, as the context may require, in any other jurisdiction the
laws of which may apply to all or a portion of the Collateral in which a
security interest is granted hereunder.
1.2. U.C.C. Definitions. Unless otherwise defined herein or the context
otherwise requires, terms for which meanings are provided in the U.C.C. are used
in this Pledge Agreement, including its preamble and recitals, with such
meanings.
ARTICLE II - PLEDGE
2.1. Grant of Security Interest. The Pledgor hereby pledges,
hypothecates, assigns, mortgages, delivers, and transfers to the Secured Party
and hereby grants to the Secured Party, a continuing security interest in all of
its respective right, title and interest in and to (i) the Pledged Shares (the
"Collateral"); (ii) all Dividends and Distributions and other payments and
rights with respect to any Pledged Shares; and (iii) all proceeds of any of the
foregoing.
2.2. Security for Obligations. This Pledge Agreement and the Collateral
granted herewith, secure the payment and performance in full of the Secured
Obligations and all obligations of the Pledgor now or hereafter existing under
this Pledge Agreement, whether for principal, interest, costs, fees, expenses,
or otherwise.
2.3. Delivery of Pledged Property. All certificates or instruments
representing or evidencing the Pledged Shares shall be delivered to and held by
the Secured Party pursuant hereto, shall be in suitable form for transfer by
delivery, and shall be accompanied by all necessary instruments of transfer or
assignment, duly executed in blank, all inform and substance satisfactory to the
Secured Party.
2.4. Dividends on Pledged Shares. In the event that any Dividend is to
be paid on any Pledged Share at a time when no Event of Default has occurred and
is continuing, such Dividend shall be paid directly to the Pledgor. If any such
Event of Default has occurred and is continuing, then any such Dividend shall be
paid directly to the Secured Party.
2.5. Continuing Security Interest. This Pledge Agreement shall create a
continuing security interest in the Collateral and shall
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(a) remain in full force and effect until payment in full of all Secured
Obligations;
(b) be binding upon the Pledgor and its successors, transferees and
assigns; and
(c) inure, together with the rights and remedies of the Secured Party
hereunder, to the benefit of the Secured Party.
2.6. Filing: Further Assurances.
2.6.1. The Pledgor agrees that it will, at its expense and in
such manner and form as the Secured Party may require, execute, deliver, file
and record any financing statement, specific assignment or other paper and take
any other action that may be necessary or desirable, or that the Secured Party
may request, in order to create, preserve, perfect or validate any Security
Interest or to enable the Secured Party to exercise and enforce its rights
hereunder with respect to any of the Collateral. To the extent permitted by
applicable law, the Pledgor hereby authorizes the Secured Party to execute and
file, in the name of the Pledgor or otherwise, Uniform Commercial Code financing
statements (which may be carbon, photographic, photostatic or other reproduction
of this Agreement or of a financing statement relating to this Agreement) which
the Secured Party in its sole discretion may deem necessary or appropriate to
further perfect the Security Interest.
2.6.2. The Pledgor agrees that it will not change (i) its
name, identity or corporate structure in any manner or (ii) the location of its
chief executive office unless it shall have given the Secured Party not less
than 30 days' prior notice thereof.
2.6.3. The obligations of the Pledgor hereunder shall not be
released, discharged or otherwise affected by: (i) any extension, renewal,
settlement, compromise, waiver or release in respect of any obligation of the
Pledgor under the Note by operation of law or otherwise; (ii) any renewal,
extension, modification, amendment or restatement of or supplement to the Note;
(iii) any change in the corporate existence, structure or ownership of the
Pledgor, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Pledgor or its assets; or (iv) any other act or
omission to act or delay of any kind by the Pledgor, the Secured Party, or any
other corporation or person or any other circumstance whatsoever which might,
but for the provisions of this Section, constitute a legal or equitable
discharge of the Pledgor's obligations hereunder.
2.7. Record Ownership of Pledged Stock. The Secured Party may at any
time or from time to time, in his sole discretion, cause any or all of the
Pledged Stock to be transferred of record into the name of the Secured Party.
The Pledgor will promptly give to the Secured Party copies of any notices or
other communications received by it with respect to Pledged Stock registered in
the name of the Pledgor and the Secured Party will promptly give to the Pledgor
copies of any notices and communications received by the Secured Party with
respect to Pledged Stock registered in the name of the Secured Party.
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2.8. Right to Vote Pledged Stock. Unless an Event of Default shall
have occurred and is continuing, the Pledgor shall have the right, from time to
time, to vote and to give consents, ratification and waivers with respect to the
Pledged Stock, and the Secured Party shall, upon receiving a written request
from the Pledgor accompanied by a certificate signed by its principal financial
officer stating that no Default has occurred and is continuing, deliver to the
Pledgor or as specified in such request such proxies, powers of attorney,
consents, ratification and waivers in respect of any of the pledged Stock which
is registered in the name of the Secured Party or his nominee as shall be
specified in such request and be in form and substance satisfactory to the
Secured Party.
If a Default shall have occurred and be continuing, the Secured Party
shall have the right to the extent permitted by law and the Pledgor shall take
all such action as may be necessary or appropriate to give effect to such right,
to vote and to give consents, ratification and waivers, and take any other
action with respect to any or all of the Pledged Stock with the same force and
effect as if the Secured Party were the absolute and sole owner thereof.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
3.1. Warranties, etc. The Pledgor represents and warrants to the
Secured Party, as at the date of this Pledge Agreement:
3.1.1 . Ownership, No Liens, etc. The Pledgor is the legal and
beneficial owner of, and has good and valid title to (and has full right and
authority to pledge and assign) such Collateral, free and clear of all liens,
except the lien granted pursuant hereto in favor of the Secured Party.
3.1.2. Valid Security Interest. The delivery by the Pledgor of
the Collateral to the Secured Party is effective to create a valid, perfected,
first priority security interest in such Collateral and all proceeds thereof,
securing the Secured Obligations, and no filing or other action will be
necessary to perfect or protect such security interest.
3.1.3. Authorization, Approval, etc. No authorization,
approval, or other action by, and no notice or filing with, any governmental
authority, regulatory body or any other person is required either:
(a) for the pledge by the Pledgor of any Collateral pursuant
to this Pledge Agreement or for the due execution, delivery and
performance of this Pledge Agreement by the Pledgor; or
(b) for the exercise by the Secured Party of the voting or
other rights provided for in this Pledge Agreement, or, except with
respect to any Pledged Shares, as may be required in connection with a
disposition of such Pledged Shares by laws affecting the offering and
sale of securities generally, of the remedies in respect of the
Collateral pursuant to this Pledge Agreement.
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ARTICLE IV - COVENANTS
4.1. Protect Collateral; Further Assurances, etc. The Pledgor will not
sell, assign, transfer, pledge, or encumber in any other manner the Collateral
(except in favor of the Secured Party hereunder). The Pledgor will warrant and
defend the right and title herein granted unto the Secured Party in and to the
Collateral (and all right, title, and interest represented by the Collateral)
against the claims and demands of all Persons whomsoever. The Pledgor agrees
that at any time, and from time to time, at the expense of the Pledgor, the
Pledgor will promptly execute and deliver all further instruments, and take all
further action, that may be necessary or desirable, or that the Secured Party
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral.
4.2. Additional Undertakings. The Pledgor agrees that it will not,
without the prior written consent of the Secured Party, not to be unreasonably
withheld, take or omit to take any action the taking or the omission of which
would result in any impairment or alteration of any obligation of the maker of
any instrument constituting Collateral.
ARTICLE V- RELEASE OF COLLATERAL
The initial amount of the Note is $1,875,000. The Note requires payment
of the principal amount of the Note on a monthly basis over a five year period.
One and 67/100 Percent (1.67%) of the principal amount of the Note, together
with interest, shall be paid at the time of each monthly payment. From and after
the time the principal balance of the Note has been reduced to $1,375,000,
twenty percent of the Pledged Shares shall be released by the Secured Party to
the Pledgor for each $275,000 of principal amount of the Note thereafter paid to
the Secured Party. There shall be no release of Pledged Shares attributed to the
first $500,000 of the principal amount of the Note.
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ARTICLE VI - REMEDIES
6.1. Certain Remedies. If any Event of Default shall have occurred and is
continuing:
6.1.1. The Secured Party may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the U.C.C. and also may, with notice as specified below, sell the
Collateral or any part thereof at public or private sale, for cash upon such
other terms as the Secured Party may deem commercially reasonable.
6.1.2. The Secured Party may, to the extent permitted by
Section 9-504 of the U.C.C., be the purchaser of any of the Collateral so sold
and the obligations of the Pledgor to the Secured Party may be applied as a
credit against the purchase price. The Pledgor agrees that, to the extent notice
of sale shall be required by law, at least ten days prior notice to the Pledgor
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification.
6.1.3. The Secured Party shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
6.1.4. Upon any such sale, the Secured Party shall have the
right to deliver, assign and transfer to the purchaser thereof the Collateral so
sold. Each purchaser (including the Secured Party) at any such sale shall hold
the Collateral so sold absolutely free from any claim or right of whatsoever
kind, including any equity or right of redemption of the Pledgor, and the
Pledgor hereby specifically waives, to the extent it may lawfully do so, all
rights of redemption, stay or appraisal which it has or may have under any rule
of law or statute now existing or hereafter adopted.
6.1.5. The Secured Party may enforce collection of any of the
Collateral by suit or otherwise, and surrender, release or exchange all or any
part thereof, or compromise or extend or renew for any period (whether or not
longer than the original period) any obligations of any nature of any party with
respect thereto.
6.2. Application of Collateral Proceeds. If any Event of Default shall
have occurred and be continuing, all cash proceeds received by the Secured Party
in respect of any sale of, collection from, or other realization upon, all or
any part of the Collateral may, in the discretion of the Secured Party, be held
by the Secured Party as additional collateral security for (after payment of any
amounts payable to the Secured Party pursuant to Section 6.3) all or any part of
the Secured Obligations. Any surplus of such cash or cash proceeds held by the
Secured Party and remaining after payment in full of all the Secured
Obligations, shall be paid over to the Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.
6.3. Indemnity and Expenses. The Pledgor hereby indemnifies and holds
harmless the Secured Party from and against any and all claims, losses, and
liabilities arising out of or resulting
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from this Pledge Agreement (including enforcement of this Pledge Agreement),
except claims, losses, or liabilities resulting from the Secured Party's gross
negligence or willful misconduct. Upon demand, the Pledgor will pay to the
Secured Party the amount of any and all reasonable expenses, including the
reasonable fees and disbursements of its counsel and of any experts which the
Secured Party may incur in connection with:
(a) this Pledge Agreement, the Note or any instrument or document relating
thereto;
(b) the custody, preservation, use, or operation of, or the sale of,
collection from, or other realization upon, any of the Collateral;
(c) the exercise or enforcement of any of the rights of the Secured Party
hereunder;
(d) the failure by the Pledgor to perform or observe any of the provisions
hereof; or
(e) the advancing of any funds pursuant to Section 7.2 hereof.
ARTICLE VII - MISCELLANEOUS PROVISIONS
7.1. Amendments, etc. No amendment to or waiver of any provision of
this Pledge Agreement nor consent to any departure by the Pledgor here from
shall in any event be effective unless the same shall be in writing and signed
by the Secured Party, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it is given.
7.2. Protection of Collateral. The Secured Party may from time to time,
at its option, perform any act which the Pledgor agrees hereunder to perform and
which the Pledgor shall fail to perform after being requested in writing so to
perform (it being understood that no such request need be given after the
occurrence and during the continuance of any Event of Default) and the Secured
Party may from time to time take any other action which the Secured Party
reasonable deems necessary for the maintenance, preservation or protection of
any of the collateral or of its security interest therein, it being understood
and agreed that in each such case all costs and expenses incurred by the Secured
Party in connection therewith shall be payable by the Pledgor pursuant to
Section 6.3.
7.3. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing or by facsimile and mailed or
delivered to the Pledgor or the Secured Party at their respective addresses or
facsimile numbers specified in the Note and Purchase Agreement or, with respect
to the Pledgor or the Secured Party, at such other address or facsimile number
as shall be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. Any notice, if mailed
and properly addressed with postage prepaid, or if properly addressed and sent
by prepaid courier service, shall be deemed given when received; any notice, if
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transmitted by facsimile, shall be deemed given when the confirmation of
transmission is received by the transmitter.
7.4. Section Captions. Section captions used in this pledge agreement
are for convenience of reference only, and shall not affect the construction of
this pledge agreement.
7.5. Severability. Wherever possible each provision of this Pledge
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Pledge Agreement shall be
prohibited by or invalid under such law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Pledge Agreement.
7.6. Texas Law. This Agreement shall be construed in accordance with
and governed by the laws of the state of Texas (without regard to principles of
conflicts of law). Any action or proceeding seeking to enforce any provision of,
or based on any right arising out of, this Agreement shall be brought in the
federal or state courts of Dallas County, Texas.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Pledge Agreement as of the day and year first above written.
Pledgor:
U.S. COMMERCIAL FUNDING CORPORATION,
an Illinois corporation
By:__________________________________
Xxxxx Xxxx, President
Secured Party:
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Xxxxx Xxxx
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