STOCK PLEDGE AND SECURITY AGREEMENT
Stock Pledge and Security Agreement dated as of the 24th day
of August, 1999 by XXXXXX (XXX) XXXXXXXX ("Pledgor") to and for the
benefit of Y.L. Xxxxxx, Xxxxxx Xxxxxxxxxx, Xxxxx Xxxxxxx, Xxxxxx
Xxxxxxxx, and Xxx X. Xxxxxxxxxx ("Pledgees").
WHEREAS:
A. The Pledgees have purchased from Lakota Technologies, Inc.
("Company"), $750,000 aggregate principal amount of the Company's
8% Convertible Notes due August 24, 2001 ("Convertible Notes");
B. The Convertible Notes will be convertible into shares
of the Company's common stock, no par value per share ("Common Stock");
C. In order to induce the Pledgees to purchase the Convertible Notes,
Pledgor, in a Guaranty ("Guaranty") executed simultaneously with
this Stock Pledge and Security Agreement, has agreed to guarantee
the (i) obligations of the Company under the Convertible Notes and
the related transaction documents, including but not limited to the
Securities Purchase Agreement ("Agreement"), the (ii) Company's
obligations to issue to the Pledgees warrants to purchase shares of
Common Stock of the Company and certain registration rights with
respect to shares of Common Stock issuable (A) as interest under,
and upon conversion of, the Convertible Notes (collectively, the
"Conversion Shares"), and (B) upon exercise of the Warrants
("Warrant Shares"), all as set forth in the Registration Rights
Agreement ("Registration Rights Agreement") executed simultaneously
with the Agreement; and
D. Pledgor has agreed to deliver this Stock Pledge and Security Agreement as
security for the performance of the Guaranty, and 1,958,000 shares
of Common Stock owned by Pledgor in the Company, which shares are
100% owned by Pledgor ("Shares").
NOW THEREFORE, in consideration of the premises and in order
to induce the Pledgees to purchase the Convertible Notes and enter
in to the Agreement and Registration Rights Agreement , Pledgor
hereby agrees as follows:
I. Stock Pledge and Security Interest
1.1 Pledge. Pledgor hereby pledges as security for the repayment of the
Obligations, as defined below, and grants a security interest in,
all of their right, title and interest in and to the Shares.
1.2 Security for Obligations. This Stock Pledge and Security Agreement
secures the payment of all Obligations under the Convertible Notes, the
Agreement, the Registration Rights Agreement, the Warrant Shares and
this Stock Pledge and Security Agreement. Until payment,
performance and discharge in full of all Obligations, the pledge and
security interest granted under
this Stock Pledge and Security Agreement in the Shares shall continue in
full force and effect. "Obligations" shall mean :
(i) the due and punctual payment of (a) the principal and interest
under the Convertible Notes when due, whether at maturity, by acceleration,
or otherwise, and/or the Company's obligation to convert the
Convertible Notes into Common Stock as set forth therein and upon
the terms and conditions set forth therein, and (ii) any and all
fees and monetary obligations of the Company under the Agreement;
(ii) payment when due of any other monetary obligations which are
due and owing under the Convertible Notes, the Agreement, the Registration
Rights Agreement or this Stock Pledge and Security Agreement;
(iii) any and all costs and expenses of the Pledgees incurred in
enforcing the Convertible Notes, the Agreement, the Registration
Rights Agreement, the Warrant Shares or this Stock Pledge and Security
Agreement with respect to any action which may be taken by the Pledgees in
enforcing payment of the Obligations or in selling or taking
possession of the Shares;
(iv) the Obligations of the Company with regard to causing a registration
statement, as provided in the Registration Rights Agreement, to be
declared effective no later than December 1, 1999; and
(v) the Obligations of the Company to issue its registered shares of Common
Stock in accordance with the terms and conditions of the Warrants
issued in connection with the Agreement and the Convertible Notes.
1.3 Pledgor Remains Liable. Anything herein to the
contrary notwithstanding, (i) Pledgor shall remain liable under the
Guaranty for the Obligations to the same extent as if this Stock
Pledge and Security Agreement had not been executed, and (ii) the
exercise by the Pledgees of any of the rights hereunder shall not
release Pledgor from any of his duties or Obligations under the
Guaranty. Except as expressly set forth herein, the Pledgees shall
have no obligation nor liability with respect to the Shares by
reason of this Stock Pledge and Security Agreement, nor shall the
Pledgees be obligated to perform any of the obligations or duties of
a shareholder, or to take any action on behalf of any of the
Company in the event any of the rights and remedies under this Stock
Pledge and Security Agreement are exercised.
1.4 Negative Covenants. Pledgor shall not, without the prior
written consent of the Pledgees sell, assign (by operation of law
or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Shares, or create or permit to exist any senior
or pari passu lien, security interest, option or other charge or
encumbrance upon or with respect to any of the Shares, except for the
security interests contemplated in this Stock Pledge and Security
Agreement.
1.5 Delivery of Shares.
(a) Simultaneously with the execution of this Stock Pledge and Security
Agreement, Pledgor shall deliver or cause the delivery of
certificates representing all of the Shares to the Pledgees or their
designative representative or representatives.
(b) Delivery of the Shares pursuant to this Section 1.5, shall be
considered for all purposes as delivery to the Pledgees, and the
Pledgees' security interest in and to such Shares shall be deemed
perfected by such delivery.
(c) Upon performance in full of the Obligations, the Pledgees shall
deliver the Shares to Pledgor in accordance with Pledgor's written
instructions.
1.6 Delivery of Financing Statement. Simultaneously with the
execution of this Stock Pledge and Security Agreement, Pledgor
shall execute and deliver to the Pledgees UCC-1 Financing Statements
covering the Shares for filing and recording in the county and
state of Pledgor's residence ("Financing Statements"), and upon
such delivery the Pledgees are authorized by Pledgor to file and
record the Financing Statements. As long as this Stock Pledge and
Security Agreement is in effect, Pledgor shall execute and deliver
to the Pledgees, as reasonably requested by the Pledgees, any and all
additional Financing Statements, continuations or extensions thereof, which
would permit the Pledgees to maintain, preserve and perfect the
security interest granted under this Stock Pledge and Security
Agreement, and in the event Pledgor fails, for any reason, to honor
such reasonable request, the Pledgees are hereby granted a power of
attorney to execute and deliver such additional Financing
Statements, continuations or extensions thereof on behalf of Pledgor.
1.7 Delivery of Stock Powers. Simultaneously with the execution of
this Stock Pledge and Security Agreement, Pledgor shall deliver to the
Pledgees, in share and certificate denominations specified by the
Pledgees, stock powers signed and executed by the Pledgor, on a form
of stock power presently used by the Company's stock transfer agent,
having medallion guarantees and with any other indicia of action
required by the transfer agent, sufficient to vest in Pledgees upon
presentation to the transfer agent, transfer and title to the Shares
without any further action required by the Pledgor.
1.8 Legal Opinion. Simultaneously with the execution of this
Stock Pledge and Security Agreement, Pledgor shall deliver to the
Pledgees, in a form acceptable to counsel for the Pledgees, the opinion
of his counsel and counsel to the Company, if different, that the Shares,
upon exercise by the Pledgees of their pledge and security interest
pursuant to this Stock Pledge and Security Agreement, will be issued
by the transfer agent without any restriction or restrictive legend
of any nature and shall be freely tradeable and saleable by the
Pledgees if they so choose at the time of issuance.
II. Representations and Warranties
2.1 Representations and Warranties. Pledgor hereby represents and
warrants to the Pledgees as follows:
(a) Pledgor owns the Shares free and clear of any
and all liens and encumbrances of any nature whatsoever, and has the
right, full power and authority to execute and deliver this Stock
Pledge and Security Agreement and the Guaranty and all other
documents, agreements, certificates and instruments to be delivered
by them pursuant thereto and to perform the transactions
contemplated herein.
(b) Pledgor has never previously (i) sold, transferred, assigned, or given
options or warrants to the Shares, nor (ii) encumbered all or any
portion of the Shares except as set forth in this Stock Pledge and
Security Agreement.
(c) The execution and delivery of this Stock Pledge and Security
Agreement does not, and the consummation of the transactions
contemplated hereby, will not, conflict with, or result in any
violation or default (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or
acceleration of any obligation or to a loss of a material benefit,
under any provision of the Company's Articles of Incorporation, and
any amendments thereto, by-laws or stockholders agreement, if any,
or any material mortgage, indenture, pledge, instrument or any
agreement of any nature of the Company, or any judgment, decree,
statute, law, ordinance, rule or regulation applicable to the
Company whether by contract and agreement or by virtue of operation
of law.
(d) The execution and delivery of this Stock Pledge and
Security Agreement is a valid and binding agreement on the part of
Pledgor in accordance with its terms.
(e) No consent of any other person or entity and no authorization,
approval or action by, and no notice or filing with any governmental
authority or regulatory body is required for (i) the grant by
Pledgor of the pledge and security interest granted herein or for
the execution, performance or delivery of this Stock Pledge and
Security Agreement by Pledgor, or (ii) the perfection and
maintenance of the pledge and security interest created hereby.
(f) There are no conditions precedent to the effectiveness of this
Stock Pledge and Security Agreement that have not been satisfied or
waived.
(g) This Stock Pledge and Security Agreement creates a valid
security interest in the Shares, securing the payment and
performance of all of the Obligations.
III. Pledgees
3.1 Pledgees Appointed Attorney in Fact. Pledgor hereby irrevocably
appoints the Pledgees as his attorney in fact, with full authority in the
place and xxxxx of Pledgor, and in his name or otherwise, from time
to time in the Pledgees' reasonable discretion to take any action
and to execute any instrument which the Pledgees may deem necessary
or advisable to accomplish the purposes of this Stock Pledge and
Security Agreement as permitted in Article IV, including, without
limitation:
(a) to take any and all action permitted under Article IV of this Stock
Pledge and Security Agreement; and
(b) to exercise any and all rights of a shareholder of the Company,
and otherwise to exercise ownership interest in the Shares, with or
without stock powers.
3.2 Pledgees' Duties. The powers conferred on the Pledgees are solely to
protect the Pledgees' interest in the Shares and shall not impose
any duty upon it to exercise any such powers. Except for the safe
custody of the Shares in its possession and the accounting for
moneys actually received by it hereunder, the Pledgees shall have no
duty to act as to the Shares or as to the taking of any steps to
preserve rights against any parties or any other rights pertaining
to the Shares.
3.3 Indemnity and Expenses.
(a) Pledgor agrees to indemnify the Pledgees from and against any and
all claims, losses and liabilities (including reasonable attorneys' fees)
arising from this Stock Pledge and Security Agreement (including
without limitation enforcement of this Stock Pledge and Security
Agreement.
(b) Pledgor will upon demand pay to the Lender the amount of any and all
expenses, including the fees and expenses of its counsel and of any
experts and agents, which the Pledgees may incur in connection with
the enforcement of the Pledgees' rights under this Stock Pledge and
Security Agreement.
(c) The Pledgees shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereafter without being required to determine the authenticity or
the correctness of any fact stated therein or the propriety or
validity of the service thereof. The Pledgees may act in reliance
upon any instrument or signature believed by it to be genuine and
may assume, unless it has actual knowledge to the contrary, that the
person purporting to give notice of receipt or advice or make any
statement or execute any document in connection with the provisions
hereof has been duly authorized to do so.
(d) The agreements in this Article III shall survive the payment,
performance or satisfaction in full of the Obligations or the termination
of this Stock Pledge and Security Agreement.
IV. Default and Remedies
4.1 Events of Default. Any Event of Default shall mean the happening
of any of the following:
(a) Any representation or warranty contained in this Stock Pledge and
Security Agreement shall be false or prove to be false or misleading in any
material respect when made or given or deemed to be made or given.
(b) Any covenant set forth in this Stock Pledge and Security Agreement
shall not be observed by Pledgor in any material respect.
(c) Any of the Obligations have not been paid when due or beyond any
applicable grace period.
(d) Any of the payments or Obligations due to be paid or performed by the
Company under the Agreement, the Convertible Notes or the Registration
Rights Agreement have not been paid or performed when due or beyond any
applicable grace period.
(e) Pledgor shall (i) voluntarily commence any proceeding or file a
petition for relief under the United States Bankruptcy Code, or any other
federal or state bankruptcy, insolvency or similar law, or under the
bankruptcy laws of any other country, (ii) consent to the
institution of, or fail to controvert in a timely and appropriate
manner, any such proceeding or the filing of any such petition,
(iii) apply for or consent to the employment of a receiver, trustee,
custodian, sequestrator or similar official for any of themselves or
for a substantial portion of their property, (iv) make a general
assignment for the benefit of creditors, or (v) become unable or
admit in writing the inability or the failure generally to pay their
debts as they become due.
(f) The Company shall sell or agree to sell substantially all of its
stock, assets or tradenames and trademarks, or shall enter into a merger
agreement with another entity or company.
4.2 Default. A Default shall exist hereunder if an Event
of Default shall have occurred under this Stock Pledge and Security
Agreement.
4.3 Remedies. If a Default exists under this Stock Pledge and Security
Agreement, the Pledgees may take any or all of the following actions
upon written notice to Pledgor:
(a) declare any or all of the Obligations due and payable, without
presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived;
(b) apply any or all proceeds of sale of the Shares to the payment of the
Obligations;
(c) exercise any and all rights afforded to the shareholders of the
Company with respect to the Shares;
(d) take possession and ownership of the Shares or any of the Shares in
the name of the Pledgees or of any other person or entity designated by
the Pledgees and in such case apply the closing bid price of the Shares
as quoted on the National Association of Securities Dealers
Electronic Bulletin Board, or any other exchange on which the Shares
are then listed, less a discount of 25% at the time of actual sale
of the Shares ("Market Price"), whether or the not the Shares are
sold at one time or on more than one occasion, using the Market
Price each time the Shares are sold, to reduction of the Obligations;
(e) exercise all the rights and remedies provided for herein or otherwise
available under the laws of any jurisdiction, and all the rights and remedies
of a secured party on default under the Uniform Commercial Code in
effect in the State of New York, or any other state or jurisdiction
as applicable.
V. Miscellaneous
5.1 Further Assurances. Pledgor agrees that from time to time,
they will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary, or that the
Lender may reasonably request, in order to perfect and protect the
pledge and security interest hereunder, or to enable the Pledgees to
enforce their rights and remedies hereunder with respect to the
Shares including but not limited to executing and filing financing
or continuation statements, or amendments thereto, and such other
notices, as may be necessary in order to perfect and preserve the
pledge and security interest granted hereunder.
5.2 Security Interest Absolute. All rights of the Pledgees and the
pledge and security interest hereunder, and all obligations of Pledgor
shall be absolute and unconditional, irrespective of:
(a) any lack of validity of enforceability of the Agreement, Convertible
Notes, Registration Rights Agreement or Warrant Shares;
(b) any change in the time, manner or place of payment
of, or in any other term of, any or all of the Obligations, or any
other amendment or waiver of or any consent to any departure from
the Agreement, Convertible Notes, Registration Rights Agreement or
this Stock Pledge and Security Agreement;
(c) any taking, exchange, release or non-perfection of the Shares;
(d) any manner of application of the Shares or proceeds
thereof, to all or any of the Obligations, or any manner of sale or
other disposition of the Shares for all or any of the Obligations; or
(e) any change, restructuring or termination of the corporate structure
or existence of the Company.
5.3 Notices. All notices or other communications provided for hereunder
shall be in writing and mailed, by Fedex or express mail service with
proof of delivery, and by telefax as follows:
If to Pledgor:
Mr. Xxxxxx (Xxx) Xxxxxxxx
0000 Xxxxx Xxxxx Xxxx
Xxxxxxx Xxxxxxx 00000
Fax: 000-000-0000
If to Pledgees:
c/o Portfolio investment Strategies Corp.
0 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxx Xxxx 00000
Fax: 000-000-0000
5.4 Continuing Pledge and Security Interest. This Stock Pledge and
Security Agreement shall create a continuing pledge and security
interest in the Shares and shall (i) remain in full force and effect
until the Obligations have been fully performed and paid, (ii) be
binding upon Pledgor, his successors, representatives and assigns,
and (iii) inure, together with the rights and remedies of the
Pledgees hereunder, to the benefit of the Pledgees and their
successors, transferees and assigns. Upon the payment and
performance of the Obligations, the security interest granted
hereunder shall terminate, all rights to the Shares shall revert to
Pledgor, and the Shares, or if any of the Shares have been sold
hereunder or ownership has been transferred to the Pledgees, the
remaining Shares shall be delivered to Pledgor or his designee set
forth in writing by Pledgor.
5.5 Consent to Jurisdiction. Pledgor hereby irrevocably consents
to the jurisdiction of any New York State or federal court, sitting i
n New York City, in any action or proceeding arising out of or relating to
this Stock Pledge and Security Agreement. Pledgor hereby
irrevocably waives, to the fullest extent possible the defense of an
inconvenient forum to the maintenance of such action or proceeding.
Service of process may be effectuated by certified mail, return
receipt requested, or by Fedex with evidence of delivery to the
parties at the addresses set forth above. Nothing herein shall
affect the right of the Pledgees to serve process in any other
manner permitted by law or to affect the right of the Pledgees to
bring any action or proceeding against Pledgor in any other court or
jurisdiction.
5.6 Consequential Damages. In no event (other than in respect of fraud
or wilful misconduct or gross negligence) shall the Pledgees be liable for
special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits).
5.7 Amendments. No amendment or waiver of any provision
of this Stock Pledge and Security Agreement, and no consent to
any departure by Pledgees herefrom shall in any event be effective
unless the same shall be in writing and signed by the Pledgees, and
then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
5.8 Governing Law; Terms. This Stock Pledge and Security
Agreement shall be
governed by and construed in accordance with the laws of the State
of New York, without regard to any conflict of laws rule which would
result in the application of the laws of any other jurisdiction,
except to the extent that the validity or perfection of the
assignment and security interest hereunder, or remedies hereunder,
in respect of the Shares are governed by the laws of a jurisdiction
other than the State of New York.
5.9 Conflict. In the event that the provisions of this Stock Pledge
and Security Agreement conflict with the provisions of the Agreement,
then the provisions of this Stock Pledge and Security Agreement shall
govern.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed and delivered as of the date first above written.
Pledgor:
/s/XXXXXX (XXX) XXXXXXXX
Acknowledged and Agreed:
/s/Y.L. XXXXXX
/s/XXXXXX XXXXXXXXXX
/s/XXXXX XXXXXXX
/s/XXXXXX XXXXXXXX
/s/XXX X. XXXXXXXXXX
