STOCK PLEDGE AND ESCROW AGREEMENT
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EXHIBIT
10.3
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THIS
AGREEMENT is made the 8th day of October, 2009, between Xxxxxx Xxxxx Inc., a New
York corporation (“LLI”),
Document Security Systems, Inc., a New York corporation (“DSS”)
(hereinafter collectively referred to as “Obligees”)
and Xxxxxxx Xxxxxxxx (hereinafter referred to as “Pledgor”), Internet
Media Services, Inc., a Delaware corporation (the “Company”),
and Manufacturers and Traders Trust Company (hereinafter referred to as “Escrow
Agent”).
Recitals
WHEREAS,
Pledgor is a controlling stockholder, President and director of the
Company;
WHEREAS,
LLI and the Company have entered into that certain Asset Purchase Agreement of
even date herewith (the “Asset Purchase
Agreement”) pursuant to which LLI is selling and transferring certain
assets of its XxxxxXxxxx.xxx business to the Company in exchange for the
issuance to LLI’s parent corporation, DSS, 7,500,000 shares of common stock of
the Company;
WHEREAS,
pursuant to the covenants in the Asset Purchase Agreement, following the
transaction, the Company is obligated to take certain measures to advance the
business of the Company;
WHEREAS,
Pledgor has agreed to secure the performance of the Company’s obligations to
Obligees pursuant to such covenants in the Asset Purchase Agreement by executing
this agreement and transferring to and registering in the name of the Escrow
Agent the 4,000,000 shares of stock of the Company held by the
undersigned.
NOW,
THEREFORE, in consideration of the premises and understandings contained herein
and for good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
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1.
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Pledge
Agreement
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(a) As
collateral security for the performance of those certain covenants of the
Company under the Asset Purchase Agreement set forth in Section 1(b) below,
Pledgor hereby (i) grants to Obligees a security interest in and (ii) pledges to
Obligees and (iii) transfers as security all of the following instruments and
property (receipt of which is hereby acknowledged by Escrow Agent):
(i) Four
million (4,000,000) shares of common stock of Company held by the Pledgor and
all successor stock to said shares, replacement stock for said shares,
substituted stock for said shares or additional shares of stock of Company
issued or transferred as a dividend on or stock split of or otherwise received
because of or in lieu of the ownership of said shares of common stock of Company
during the term of this agreement, whether the same resulted from merger,
consolidation, reorganization or otherwise (hereinafter sometimes referred to as
“Shares”),
all to be registered in the name of the Escrow Agent; and
(ii) Any
and all other instruments or cash or, in kind, dividends or other property which
anyone is or may hereafter become entitled to receive with respect to
replacement of, substitution for, or succession to the aforesaid
Shares.
All of
the foregoing property and instruments shall be individually and collectively
hereinafter referred to as “Collateral.” The Collateral shall be held by the
Escrow Agent hereinafter named in accordance with the terms and pro-visions
contained in this agreement.
Certificates
registering the Shares should be registered in the name of the Escrow
Agent.
Pledgor
agrees to forthwith deliver to Escrow Agent any and all Collateral hereafter
acquired by Pledgor along with stock powers duly endorsed in blank with respect
to any stock certificate therefor.
(b) The
following events shall constitute an “Event of
Default” under this agreement: (i) The Company’s failure to
comply with the following covenants in Article VI of the Asset Purchase
Agreement: Section 6.2 Board of Directors;
Section 6.3 Working
Capital; Section 6.4 Registration of
Shares; Section 6.8 Corporate Existence;
Reporting Status; Section 6.9 Certain Negative
Covenants (the “Company’s
Covenants”), which covenants are incorporated herein by reference; and
(ii) a breach of the Company’s representations and warranties set forth in
Section 5 of the Asset Purchase Agreement, which representations and warranties
are incorporated herein by reference.
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2.
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Escrow
Agent
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The
parties agree that the Escrow Agent shall be Manufacturers and Traders Trust
Company. Pledgor shall deliver the Collateral described in Paragraph
(1) herein, simultaneously with the execution hereof, to Escrow Agent who shall
hold and maintain the Collateral pursuant to the terms hereof. The Escrow
Agent's compensation, if any, shall be paid one-half by the Company and one-half
by DSS.
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3.
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Voting and Dividend
Rights
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During
the term of this agreement, and until such time, if any, that an Event of
Default has occurred, Pledgor or his assigns shall have the right to vote the
Shares now or hereafter pledged. In the event an Event of Default has occurred,
(which Event of Default shall be proven by the execution of an affidavit by an
DSS officer (the “Obligee
Representative“) stating that Company is in default of one or more such
obligations), then upon the Escrow Agent receiving both such affidavit and a
proof of service that such affidavit was served upon Pledgor, DSS shall have the
right (but not the obligation) to vote the Shares held pursuant to this escrow
and exercise and receive all other rights and privileges, including dividends,
which are associated with the ownership of such Shares.
Other
than as set forth above, neither Obligees nor the Escrow Agent, nor their
assignees or anyone else taking under them, shall exercise the rights of a
holder of the Shares (or its successors) unless and until the Collateral is
accepted by the Obligee Representative pursuant to Subparagraph 4(a)
herein.
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4.
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Default and
Remedies
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(a) Whenever
an Event of Default exists as set forth in Paragraph 3 due to the failure to
comply with the Company's Covenants in Section 6.3 Working Capital, and
Section 6.4 Registration of
Shares of the Asset Purchase Agreement; and such Event of Default has not
been cured on or before October 8, 2010 (the "Registration
Deadline"), Obligee Representative, at its option, may (in addition to
the rights provided for in Paragraph 3):
(i) Accept
such portion of the Collateral as is set forth in Schedule I attached hereto
based on the Event of Default existing at Registration Deadline, by giving
notice of such fact to Pledgor and the Escrow Agent, in which case the Escrow
Agent shall forthwith deliver the Collateral to Obligee Representative, as agent
for all the Obligees, and this escrow shall be terminated.
(ii) Exercise
any remedies of a secured party under the New York Uniform Commercial Code (the
“UCC“).
When such process is complete, the Escrow Agent shall distribute any remaining
assets held by the Escrow Agent to the Pledgor and this escrow shall be
terminated. The Pledgor's and the Company shall assist in the
issuance of new certificates representing the Collateral.
(b) Notwithstanding
anything to the contrary herein, certificates representing all Shares held as
Collateral shall be delivered to the Obligees until the Obligees receive a
balance certificate duly issued by the Company representing the number of Shares
the Obligees are entitled to receive under this Section 4.
(c) Nothing
herein contained is intended, nor should it be construed, to preclude Obligees
from pursuing any other remedy provided by law or otherwise as a means of
enforcing their rights. The foregoing remedies are in addition to, and not in
derogation of, any statutory, equitable, or common law remedy that the Obligees
may have with respect to the Pledgor, the Company and the transactions
contemplated by this Agreement.
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5.
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Satisfaction of
Obligations
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At such
time as the Company has satisfied the Company Covenant set forth in the Asset
Purchase Agreement, Section 6.4 Registration of
Shares or at such time as the Obligee Representative has accepted the
Collateral as set forth in Paragraph 4(a) above:
(a) Obligees,
Obligee Representative, or Pledgor shall promptly notify the Escrow Agent in
writing of such claim or such alleged acceptance.
(b) Upon
such notification, the Escrow Agent shall notify Obligees of such claim or
acceptance within three (3) business days of the receipt of the
same.
(c) If
(i) Obligees have made such notification of satisfaction of the Company’s
Covenants or acceptance, or (ii) Obligees either acknowledge the claim or
alleged acceptance to be true or do not object in writing within thirty (30)
days of receipt of notice of the same from the Escrow Agent, then this agreement
shall terminate and the Escrow Agent shall release any and all Collateral
pledged or otherwise secured hereunder from the lien or liens as provided in
this agreement and Escrow Agent shall transfer to Pledgor all of such Collateral
then held by Escrow Agent, subject to compliance with Section 4(b), including
Obligees acknowledgments (if any) that the obligations have been
fulfilled.
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(d) If
Obligees do object to the claim or the alleged acceptance within said thirty
(30) day period, then the Escrow Agent shall submit the question of the validity
of the claim or the alleged acceptance to arbitration to be held according to
the rules of the American Arbitration Association, one arbitrator, in Rochester,
New York.
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6.
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Sale or Transfer of
Collateral
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During
the term of this agreement, neither Obligees nor Escrow Agent shall sell or
attempt to sell, assign, release, encumber or otherwise transfer or dispose of
any of the Collateral pledged hereunder, except as may be allowed by Paragraphs
4 or 5 herein.
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7.
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Duties and Powers Of
Escrow Agent
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(a) The
Escrow Agent shall have only such responsibility with respect to the Collateral
held in escrow as is expressly provided for in this agreement. In the absence of
gross negligence, bad faith or fraud with respect to the performance of its
obligation hereunder, the Escrow Agent shall not incur liability to any other
party hereto. The Escrow Agent shall not incur liability because of
any substantive insufficiency in the form or manner of the execution by Obligee
Representative or Pledgor of any notice or other instrument required, permitted
or contemplated by this agreement, nor as a result of relying on the validity of
any such notice or written instrument signed by a party unless the Escrow Agent
was consulted regarding the same.
(b) The
powers conferred on the Escrow Agent shall not impose any duty upon the Escrow
Agent to exercise any such powers. The Escrow Agent shall be
accountable only for property that it actually receives as a result of the
exercise of such powers, and it shall not be responsible to the Pledgor for any
act or failure to act hereunder, except for its own gross negligence or willful
misconduct.
(c) The
Escrow Agent's sole duty with respect to the custody, safekeeping and physical
preservation of the collateral in its possession, under Section 9-207 of the UCC
or otherwise, shall be to deal with it in the same manner as the Escrow Agent
deals with similar property for its own account. The Escrow Agent shall not be
liable for failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Pledgor or
otherwise.
(d) All
authorizations and agencies herein contained with respect to the Collateral are
irrevocable and powers coupled with an interest.
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8.
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Resignation of the
Escrow Agent
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The
Escrow Agent may resign upon thirty (30) days written notice to the other
parties. If a successor Escrow Agent shall not have been designated herein or
appointed by Pledgor and Obligee Representative before the effective date of
such resignation, the Escrow Agent may petition any state or federal court to
appoint a successor.
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9.
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Waivers
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Any
forbearance, failure or delay by any party 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; and any right, power
and remedy shall continue in force and effect until such right, power or remedy
is specifically waived by an instrument in writing. No waiver of any of the
provisions of this agreement shall be deemed or shall constitute a waiver of any
other provision of this agreement, nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
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10.
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Benefits
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This
agreement shall inure to the benefit of the parties, their heirs, personal
representatives and permitted assigns and shall be binding upon the parties and
their respective heirs and personal representatives.
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11.
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Choice of
Law
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This
agreement shall be governed by the laws of the State of New York, and unless
otherwise defined or provided herein, all words in this agreement have the
meanings given them in the UCC.
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12.
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Captions
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The
subject headings of the paragraphs of this agreement are included for purposes
of convenience only and shall not affect the construction or interpretation of
any of its provisions.
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13.
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Notices
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Any
notice under this agreement shall be in writing, and any written notice or other
document shall be deemed to have been duly given:
(a) On
the date of personal service on the parties,
(b) One
day after being sent by professional or overnight courier or messenger service
guaranteeing one day delivery, with receipt confirmed by the courier,
or
(c) On
the date of transmission if sent by telegram, telex, telecopy, or other means of
electronic transmission resulting in written copies, with receipt
confirmed.
Any such
notice shall be delivered or addressed to the parties at the addresses set forth
below or at the most recent address specified by the addressee through written
notice under this provision. Failure to conform to the requirement that mailings
be done by registered or certified mail shall not defeat the effectiveness of
notice actually received by the addressee.
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14.
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Entire Agreement;
Amendments
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(a) This
Agreement and the Schedule hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and no
party shall be liable or bound to any other in any manner by any oral or written
representations, warranties, covenants or agreements except as specifically set
forth herein.
(b) The
provisions of this agreement may be modified at any time by written agreement of
the parties. Any such agreement made after the date of this agreement shall be
ineffective to modify this agreement in any respect unless in writing and signed
by each of the parties hereto.
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15.
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Counterparts
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This
agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same instrument
and agreement.
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16.
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Severability
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Each
separately numbered paragraph of this agreement shall be treated as severable,
to the end that if any one or more such paragraphs shall be adjudged or declared
illegal, invalid or unenforceable, this agreement shall be interpreted and shall
remain in full force and effect, as though such paragraph or paragraphs had
never been contained in this agreement.
[SIGNATURE
PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have
executed this agreement on the date first above written.
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PLEDGOR
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COMPANY
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XXXXXXX
XXXXXXXX
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INTERNET
MEDIA SERVICES, INC.
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Signature:
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/s/ Xxxxxxx Xxxxxxxx
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Signature:
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/s/ Xxxxxxx Xxxxxx
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Address:
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0000 Xxxxxxx Xxxxxx
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By:
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Xxxxxxx Xxxxxx
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Suite 325
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Title:
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President
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Marina del Xxx, XX 00000
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Address:
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0000 Xxxxxxx Xxxxxx
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Xxxxx 000
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XXXXXXXX
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Xxxxxx xxx Xxx, XX 00000
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DOCUMENT
SECURITY SYSTEMS, INC.
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Signature:
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/s/ Xxxxxxx Xxxxx
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By:
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Xxxxxxx Xxxxx
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Title:
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Chief Executive Officer
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Address:
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00 Xxxx Xxxx Xxxxxx
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Xxxxx 0000
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Xxxxxxxxx, XX 00000
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XXXXXX
XXXXX INC.
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Signature:
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/s/ Xxxxxxx Xxxxx
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By:
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Xxxxxxx Xxxxx
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Title:
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Chief Executive Officer
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Address:
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00 Xxxx Xxxx Xxxxxx
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Xxxxx 0000
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Xxxxxxxxx, XX 00000
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AGREED
AND ACCEPTED:
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ESCROW
AGENT
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Name:
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/s/ Xxxx Xxxxxxx
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By:
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Xxxx Xxxxxxx
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Title:
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Assistant Vice President
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Address:
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M&T Bank
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0 X&X Xxxxx, Xxxxxxx, XX
00000
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(000) 000-0000
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Escrow
Agent, who acknowledges receipt of the property set forth in Paragraph 1(a)
above.
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Schedule
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Event
of Default Existing at Registration Deadline
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Number
of Shares which Obligees May Accept on Event of Default pursuant to
Section
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Section
6.3 - Working Capital; and
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3,900,000
shares of Company's Common Stock
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Section
6.4 - Registration of Shares
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Section
6.4 - Registration of Shares
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2,000,000
shares of Company's Common Stock
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