EXHIBIT 10.8
PLEDGE AGREEMENT
This PLEDGE AGREEMENT, dated as of October 28, 2004, is made by Q MATRIX,
Inc. (the "Debtor"), and Bram Enterprises, a General Partnership (the "Secured
Party").
W I T N E S S E T H:
WHEREAS, the Secured Party is the payee of that certain secured
promissory note dated on or about the date hereof (the "Note"); and
WHEREAS, the parties agree that all of the obligations under the Note
shall be secured by a lien and pledge on the securities and interests
described in Schedule A attached hereto pursuant to the terms of this Pledge
Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and in order to induce the Secured Party to make the loan
evidenced by the Note, the Debtor hereby agrees with the Secured Party as
follows:
SECTION 1: DEFINITIONS
1.1 Definitions. The following words shall have the following meanings
when used in this Pledge Agreement. All terms used herein not otherwise
defined in this Pledge Agreement shall have the meanings attributed to such
terms in the Note, and if not defined in the Note, then the California
Commercial Code, as may be amended from time to time.
"Collateral" means all of the Pledged Receivables (as defined below),
fixed assets, notes receivable, software systems, preferred service provider
lists and any and all intellectual property of Q MATRIX.
"Event of Default" means and includes any of the Events of Default set
forth in Section 3 below.
"Indebtedness" means all amounts due and owing to the Secured Party
pursuant to, and all payment obligations arising under, the Note, together
with all expenses relating to enforcement thereof, including without
limitation reasonable legal fees.
"Pledged Receivables" means the accounts receivable from Q MATRIX
customers for full service maintenance agreements and time and material
business.
"Pledge Agreement" means this Pledge Agreement, as this Pledge Agreement
may be amended or modified from time to time, together with all exhibits and
schedules attached to this Pledge Agreement from time to time.
SECTION 2: GRANT OF SECURITY INTEREST; OBLIGATIONS OF THE DEBTOR
2.1 Grant of Security Interest. As collateral security for all of the
Indebtedness, the Debtor hereby grant, transfer, assign and convey to the
Secured Party a continuing security interest in all currently existing and
hereafter acquired or arising Collateral to secure prompt repayment of any and
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all Indebtedness and to secure prompt performance by the Debtor of each of its
covenants and duties under the Note and this Pledge Agreement. The parties
agree that the Secured Party shall have the rights stated in this Pledge
Agreement with respect to the Collateral in addition to all other rights which
the Secured Party may have by law.
2.2 Representations and Obligations of the Debtor. The Debtor
represent, warrant, and covenant to the Secured Party as follows:
(a) Perfection of Security Interest. The Debtor agrees to execute
at any time and from time to time such financing statements and to take
whatever other actions are requested by the Secured Party which may be
necessary or desirable to create a security interest in favor of the Secured
Party in, and/or to perfect and continue the Secured Party's security interest
in, the Collateral, including without limitation execution of any collateral
assignments and any documents required to be filed with governmental agencies
or authorities. The Debtor will deliver to the Secured Party any and all
documents evidencing or constituting the Collateral, possession of which is
required in order for the Secured Party to perfect its security interest
therein. The Secured Party may at any time and from time to time, and without
further authorization from the Debtor, file a carbon, photographic or other
reproduction of any financing statement or of this Pledge Agreement for use as
a financing statement. The Debtor will reimburse the Secured Party for all
reasonable expenses for the perfection and the continuation of the perfection
of Secured Party's security interest in the Collateral. This is a continuing
Pledge Agreement and will continue in effect until all of the Indebtedness is
paid in full. The Secured Party shall immediately release its interest in the
Collateral upon the full and final payment and satisfaction of the
Indebtedness. If payment is made by the Debtor, whether voluntarily or
otherwise, or by any third party, on the Indebtedness and thereafter the
Secured Party is forced to remit the amount of that payment to the Debtor's
trustee in bankruptcy or to any similar person under any federal, state or
foreign bankruptcy law or other law for the relief of debtors, the
Indebtedness shall be considered unpaid for the purpose of enforcement of this
Pledge Agreement. If permitted or required under applicable law, the Secured
Party may file any financing statements with respect to the Collateral without
the signature of the Debtor, and the Debtor hereby authorize the Secured Party
to do so. Any financing statements may state that the Secured Party has a
lien in the Pledged Receivables.
(b) Power of Attorney. The Debtor hereby irrevocably make,
constitute and appoint the Secured Party (and all of such Secured Party's
general partners, officers, employees, or agents designated by such Secured
Party) as its true and lawful attorney, with power to: (i) if the Debtor
refuse to do so or unreasonably delay in doing so, sign the Debtor' names on
any of the documents described hereunder or on any other similar documents to
be executed, recorded, or filed in order to perfect or continue the perfection
of the Secured Party's security interest in the Collateral; (ii) at any time
that an Event of Default has occurred and is continuing, demand, collect,
receive, receipt for, xxx and recover all sums of money or other property
which may now or hereafter become due, owing or payable from the Collateral;
and (iii) at any time that an Event of Default has occurred and is continuing,
file any claim or claims or, following the occurrence and during the
continuance of an Event of Default, take any action or institute or take part
in any proceedings, either in its own name or in the name of such Debtor, with
respect to the Collateral, which in the discretion of the Secured Party may
seem to be necessary or advisable. The appointment of the Secured Party as
the Debtor' attorney, and each and every one of the Secured Party's rights and
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powers, being coupled with an interest, is irrevocable and shall remain in
full force and effect until all of the Indebtedness has been fully repaid and
performed.
(c) Authority; No Violation. The Debtor has full capacity to enter
into this Pledge Agreement and the legal right to pledge the Collateral to the
Secured Party pursuant hereto, and this Pledge Agreement constitutes a legal,
valid, and binding obligation of the Debtor enforceable in accordance with its
terms. The execution of this Pledge Agreement does not violate any law or
material agreement, nor will it result in any lien or encumbrance on the
Collateral except for the security interest created hereunder.
(d) Removal of Collateral; Transactions Involving Collateral. To
the extent the Pledged Receivables are not in the possession of the Secured
Party, such Pledged Receivables shall be kept at the principal office of Q
MATRIX, Inc., or at such other location(s) as are reasonably acceptable to the
Secured Party. The Debtor shall not sell, assign, transfer, convey, grant a
participation interest in, pledge, mortgage, encumber, hypothecate or
otherwise permit the Collateral to be subject to any lien, security interest,
encumbrance or charge, other than the security interest provided for in this
Pledge Agreement.
(e) Title. As of the date hereof, the Debtor holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Pledge Agreement. No financing
statement or other evidence of a lien or transfer covering any of the
Collateral is on file in any public office in any jurisdiction other than
those which reflect the security interest created by this Pledge Agreement.
The Debtor shall defend the Secured Party's rights in the Collateral against
any and all claims and demands. The Pledged Receivables have been duly
authorized, validly issued, fully paid, and non-assessable.
SECTION 3: EVENTS OF DEFAULT; REMEDIES
3.1 Events of Default. An "Event of Default" shall include: (i) a
default in payment of the principal amount or accrued but unpaid interest
thereon of the Note on the date such payment is due and which such default
continues for five (5) days thereafter; (ii) failure by the Debtor and/or
Debtor for twenty (20) days after written notice to comply with any material
provision or covenant of the Note or this Pledge Agreement (other than payment
defaults described in clause (i) above); (iii) any warranty, representation or
statement made or furnished by the Debtor and/or Debtor to the Secured Party
under the Note or this Pledge Agreement is false or misleading in any material
respect; (iv) if the Debtor is subject to any bankruptcy, insolvency or
similar proceeding; and (v) this Pledge Agreement ceases to be in full force
and effect (including without limitation the failure to create a valid and
perfected first priority security interest or lien in the Collateral) at any
time and for any reason.
3.2 Rights and Remedies on Default. If an Event of Default occurs and
is continuing under this Pledge Agreement, the Secured Party shall have all
the rights of a secured party under the California Commercial Code. In
addition and without limitation and so long as an Event of Default has
occurred and is continuing, the Secured Party may exercise any one or more of
the following rights and remedies:
(a) Accelerate Indebtedness. The Secured Party may declare the
entire Indebtedness immediately due and payable, without notice.
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(b) Sell the Collateral. The Secured Party shall have full power
to sell, lease, transfer or otherwise deal with the Collateral or proceeds
thereof in its own name or that of the Debtor. The Secured Party may sell the
Collateral at public auction or private sale. Unless the Collateral threatens
to decline speedily in value or is of a type customarily sold on a recognized
market, the Secured Party will give the Debtor reasonable notice of the time
after which any private sale or any other intended disposition of the
Collateral is to be made. The requirements of reasonable notice shall be met
if such notice is given at least ten (10) days before the time of the sale or
disposition. All reasonable expenses relating to the disposition of the
Collateral, including without limitation the expenses of retaking, holding and
selling the Collateral, shall become a part of the Indebtedness secured by
this Pledge Agreement and shall be payable on demand, with interest at the
rate specified in the Note from date of expenditure until repaid.
(c) Foreclosure. Maintain a judicial suit for foreclosure and sale
of the Collateral.
(d) Transfer Title. Transfer title to the Collateral into the name
of the Secured Party or its designee and have such transfer recorded in any
place(s) deemed appropriate by the Secured Party, and/or effect transfer of
title upon sale of all or part of the Collateral. For this purpose, the
Debtor irrevocably appoint the Secured Party as their attorney-in-fact to
execute endorsements, assignments, and instruments in the name of the Debtor
as shall be necessary or reasonable following any such sale to effect the
transfer of title.
(e) Collect Income. The Secured Party, either itself or through a
receiver, may collect the payments, income and revenues from the Collateral.
The Secured Party may at any time in its discretion transfer any Collateral
into its own name or that of its nominee(s) and receive the payments, rents,
income, and revenues therefrom and hold the same as security for the
Indebtedness or apply it to payment of the Indebtedness in such order of
preference as the Secured Party may determine. The Secured Party may demand,
collect, receipt for, settle, compromise, adjust, xxx for, foreclose, or
realize on the Collateral as the Secured Party may determine.
(f) Application of Proceeds. The proceeds of any foreclosure or
realization upon the Collateral shall be applied:
(A) First, to the costs and expenses of collection;
(B) Second, to overdue interest;
(C) Third, to the outstanding principal amount of the
Indebtedness; and
(D) Fourth, any excess to the Debtor or other party or parties
in accordance with applicable law or court order.
(g) Other Rights and Remedies. The Secured Party shall have all
the rights and remedies of a secured creditor under the provisions of the
California Commercial Code, as may be amended from time to time. In addition,
the Secured Party shall have and may exercise any or all rights and remedies
they may have available at law, in equity, or otherwise.
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3.3 Cumulative Remedies. All of the Secured Party' rights and remedies,
whether evidenced by this Pledge Agreement or the Note or by any other
writing, shall be cumulative and may be exercised singularly or concurrently.
Election by the Secured Party to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of the parties under this Pledge Agreement, after such
party's failure to perform, shall not affect the Secured Party's right to
declare a default and to exercise their remedies.
SECTION 4: PLEDGED RECEIVABLES
4.1 Prior to Event of Default. So long as no Event of Default shall
have occurred and be continuing:
(a) The Debtor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Receivables or any part
thereof for any purpose not inconsistent with the terms of this Pledge
Agreement; provided, however, that the Debtor shall not exercise or refrain
from exercising any such right if such action would have a material adverse
effect on the value of the Pledged Receivables or any part thereof; and
provided further that the Debtor shall give the Secured Party at least five
days' prior written notice of the manner in which they intend to exercise, or
the reasons for refraining from exercising, any such right.
(b) The Debtor shall be entitled to receive and retain any and all
distributions, dividends, and interest paid in respect of the Pledged
Receivables; provided, however, that any and all
(i) dividends and interest paid or payable other than in cash
in respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged
Receivables,
(ii) dividends and other distributions paid or payable in cash
in respect of any Pledged Receivables in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital,
capital surplus or paid-in-surplus, and
(iii) cash paid, payable or otherwise distributed in respect
of principal of, or in redemption of, or in exchange for, any Pledged
Receivables,
shall be, and shall be forthwith delivered to the Secured Party, to hold as,
Collateral and shall, if received by the Debtor, be received in trust for the
benefit of the Secured Party, be segregated from the other property or funds
of the Debtor and be forthwith delivered to the Secured Party, as Collateral
in the same form as so received (with any necessary endorsement) and such cash
received by the Secured Party will be deposited in an account held by the
Secured Party. The Debtor, promptly upon the request of the Secured Party,
shall execute such documents and do such acts as may be necessary or desirable
in the reasonable judgment of the Secured Party to give effect to this clause
(b).
(c) The Debtor shall deliver to the Secured Party any distribution
consisting of additional securities of an issuer of Pledged Receivables
immediately upon receipt, together with executed stock powers and corporate
resolutions authorizing the transfer of title of such shares after the
occurrence and during the continuance of an Event of Default pursuant to the
terms of this Pledge Agreement.
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4.2 During Event of Default. Upon the occurrence and during the
continuance of an Event of Default:
(a) All rights of Debtor (i) to exercise or refrain from exercising
the voting and other consensual rights that it would otherwise be entitled to
exercise pursuant to Section 4.1(a) shall, upon notice to Debtor by the
Secured Party, cease and (ii) to receive the dividends and interest payments
that it would otherwise be authorized to receive and retain pursuant to
Section 4.1(b) shall automatically cease, and all such rights shall thereupon
become vested in the Secured Party, which shall thereupon have the sole right
to exercise or refrain from exercising such voting and other consensual rights
and to receive and hold as additional Pledged Receivables such dividends,
interest payments and other distributions. For the avoidance of doubt, the
Secured Party is hereby granted an irrevocable proxy coupled with an interest
to exercise all voting power with respect to any additional securities of an
issuer of Pledged Receivables, effective upon the occurrence and during the
continuance of an Event of Default. To the extent that the Secured Party is
prohibited from exercising such voting power, the Debtor shall vote or refrain
from voting as directed by the Secured Party.
(b) All dividends, interest payments and other distributions that
are received by the Debtor contrary to the provisions of clause (a) of this
Section 4.2 shall be received in trust for the benefit of the Secured Party,
shall be segregated from other funds of Debtor and shall be forthwith paid
over to the Secured Party as Collateral in the same form as so received (with
any necessary endorsement).
SECTION 5: MISCELLANEOUS PROVISIONS
5.1 Entire Agreement; Amendments. This Pledge Agreement, together with
the Note, the Secured Note and Warrant Purchase Agreement, and the Warrant
constitute the entire understanding and agreement of the parties as to the
matters set forth in this Pledge Agreement. No alteration of or amendment to
this Pledge Agreement shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
5.2 CHOICE OF LAW AND VENUE. THE VALIDITY OF THIS PLEDGE AGREEMENT, ITS
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE CALIFORNIA. THE PARTIES IRREVOCABLY AND
UNCONDITIONALLY AGREE (1) THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE STATE OF CALIFORNIA, SANTA XXXXX COUNTY AND
THAT THE PARTIES SHALL BE SUBJECT TO THE JURISDICTION OF SUCH COURTS, AND (2)
THAT SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, SHALL
CONSTITUTE PERSONAL SERVICE.
5.3 Attorneys' Fees; Expenses. The Debtor agrees to pay promptly upon
demand, all of the Secured Party's costs and expenses, including without
limitation reasonable attorneys' fees and legal expenses, incurred in
connection with the enforcement of this Pledge Agreement. The Secured Party
may pay someone else to help enforce this Pledge Agreement, and the Debtor
shall pay the reasonable costs and expenses of such enforcement. Costs and
expenses include without limitation the Secured Party's reasonable attorneys'
fees and legal expenses whether or not there is a lawsuit, reasonable
attorneys' fees and legal expenses for bankruptcy proceedings (and including
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efforts to modify or vacate any automatic stay or injunction), appeals, and
any anticipated post-judgment collection services. The Debtor also shall pay
all court costs and such additional fees as may be directed by the court.
5.4 Caption Headings. Caption headings in this Pledge Agreement are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Pledge Agreement.
5.5 Notices. All notices required to be given under this Pledge
Agreement shall be given in writing and shall be effective when actually
delivered or five (5) days after being deposited in the United States mail,
first class, postage prepaid, addressed to the party to whom the notice is to
be given or, if via facsimile, when sent via facsimile transmission to the
party to whom the notice is to be given and confirmation of such transmission
has been received, at the address and/or facsimile number shown on the
signature page below:
Any party may change its address for notices under this Pledge Agreement
by giving formal written notice to the other parties, specifying that the
purpose of the notice is to change the party's address. For notice purposes,
the Debtor agree to keep the Secured Party informed at all times of their
current addresses.
5.6 Severability. If a court of competent jurisdiction finds any
provision of this Pledge Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision invalid
or unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken, and all other provisions of this
Pledge Agreement in all other respects shall remain valid and enforceable and
such offending provision shall not be affected in any other jurisdiction.
5.7 Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Pledge Agreement shall be binding upon and
inure to the benefit of the parties, their successors, and assigns. The
Debtor shall not, however, have the right to assign this Pledge Agreement
without the prior written consent of the Secured Party which may be withheld
for any reason in the Secured Party's sole discretion.
5.8 Waiver. Neither party shall be deemed to have waived any rights
under this Pledge Agreement unless such waiver is given in writing and signed
by the parties. No delay or omission on the part of a party in exercising any
right shall operate as a waiver of such right or any other right. A waiver by
a party of a provision of this Pledge Agreement shall not prejudice or
constitute a waiver of such party's right otherwise to demand strict
compliance with that provision or any other provision of this Pledge
Agreement. No prior waiver by the Secured Party, nor any course of dealing
between the parties, shall constitute a waiver of any of the Secured Party's
rights. Whenever the consent of the Secured Party is required under this
Pledge Agreement, the granting of such consent by the Secured Party in any
instance shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of the Secured Party.
5.9 Indemnity. Except to the extent caused directly by the Secured
Party's negligence or willful misconduct, the Debtor agrees to indemnify, pay,
and hold the Secured Party and the officers, partners, directors, employees,
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agents, and affiliates thereof (collectively, the "indemnitees") harmless from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses, and disbursements of any
kind or nature whatsoever (including, without limitation, the reasonable fees
and disbursements of counsel) that may be imposed on, incurred by, or asserted
against any indemnitee, in any manner relating to or arising out of this
Pledge Agreement and any action undertaken or contemplated hereby or
refraining from any action. This indemnification shall survive the
satisfaction and payment of the Indebtedness and termination of this Pledge
Agreement.
5.10 Further Assurances. The parties shall execute and deliver any and
all further documents and take all further actions which may be required under
applicable law, or which the Secured Party may reasonably request, to grant,
preserve, protect and perfect the security interests created by this Pledge
Agreement in the Collateral.
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be
executed as of the date first written above.
DEBTOR: Secured Party:
_________________________ __________________________________
Q MATRIX Bram Associates
000 Xxxxxxxx Xxxx Xxx.000 0000 Xxxxx Xxxx Xxxx, Xxx 000
Xxxxx Xxxx, XX 00000 Xxxxx Xxxx, XX 00000
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SCHEDULE A
Description of Collateral
Accounts receivable from Q MATRIX customers for full service maintenance
agreements and time and material business, fixed assets, notes receivable,
software systems, preferred service provider lists and any and all
intellectual property of Q MATRIX.
October 28, 2004
Dear __________:
This letter outlines the collateral security terms relating to your investment
in the Q MATRIX Private Placement Offering (the "Offering"). As you are
aware, Q MATRIX (the "Company") has closed an additional $300,000 of the
Offering and Bram Enterprises, a General Partnership ("BRAM"), has agreed to
take a "lead" position of $150,000 in that investment. In order to provide
adequate incentives for BRAM to make this lead investment, the Board of
Directors of the Company has approved a collateral enhancement. More
specifically, Q MATRIX has pledged its assets as security to BRAM and will be
recording a UCC filing (see Exhibit A for a copy of the Pledge Agreement).
You have made an investment of seventy-five thousand dollars ($75,000) in the
Offering. Your investment, along with $75,000 provided by __________
(collectively the "Non BRAM" investors) and the $150,000 provided by BRAM
brings the total investment into Q MATRIX to $300,000 (the "Loans"). It is
understood by both BRAM and the Company that the Pledge Agreement described in
Exhibit A, along with the forthcoming UCC filings, is for the benefit of all
holders of the Loans, including the Non BRAM investors.
To that end, this letter represents an agreement between BRAM and __________
ensuring that in the event of default and loss on the Loans, any proceeds
received by BRAM from the enforcement and collection of the collateral will be
shared pro-rata by all holders of the Loans.
NOTE: BRAM and the Company have not audited or evaluated the worth of the
collateral outlined in Exhibit A and makes no representations of any potential
value that may be ultimately realized through a foreclosure process.
Signed:
___________________ __________________ _____________________
Xxxxxxx X. Xxxxxxxx Xxxxxx X. Xxxxxxx Name of Investor
General Partner Chairman
BRAM Enterprises Q MATRIX
