FORM OF PLEDGE AGREEMENT
Exhibit 4.3
FORM OF
THIS PLEDGE AGREEMENT (the “Agreement”), dated
__________, by and among ____________, (the
“Investor”),
______________, a _________ corporation, (the “Company”) and
___________, an affiliate of the Company (the “Affiliate,” together
with the Company and the Investor, the “Parties”), shall
become effective upon the execution thereof by all parties. All
capitalized terms not otherwise defined herein shall have the same meaning
ascribed to them in the Securities Purchase Agreement dated of even date
herewith.
WHEREAS, the Company has
authorized the sale and issuance of the Debenture, the Warrant, and common stock
issuable upon exercise of the Warrant and full or partial satisfaction of the
Debenture as provided in the Securities Purchase Agreement and the Transaction
Documents;
WHEREAS, the Investor has
agreed to deliver to the Company at Closing the total of: (i) $__________ in
cash; and (ii) ___________ $___________ Investor Notes; and
WHEREAS, as
an inducement to the Investor to enter into the Securities Purchase Agreement,
the Affiliate has also agreed to the pledge ____________ shares of Common Stock
issued to the Affiliate with an aggregate market value of $___________, which
shall have been issued _______ months or more prior to the Closing.
NOW, THEREFORE, in
consideration of the covenants, promises and representations set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Delivery of Collateral
Shares.
(a) Delivery of
Shares. Concurrent with the Closing and in accordance with the
Escrow Agreement, the Affiliate shall deliver to Xxxxxx & Xxxxxx LLP,
_________ shares of common stock (the “Collateral Shares”),
to be held in escrow, which shall have been issued six (6) months or more prior
to the Closing, with stock powers executed in blank in form and substance
reasonably satisfactory to the Investor. The Collateral Shares shall
include all dividends and other distributions and payments thereon, if
any.
(b) Required Level. The
Collateral Shares shall have a value equal to $________ valued at the Market
Price as defined in the Debenture (“the “Required Level”). If
the average value of the Collateral Shares for any consecutive three-day period
declines below the Required Level for any trading day, then subject to the
consent of the Investor, which consent may be granted or withheld at the
Investor’s sole discretion, the Company or such Affiliate shall deliver
additional shares of Common Stock to be included with the Collateral Shares to
the Investor in order to raise the value of the Collateral Shares to the
Required Level.
(c) Fees and
Expenses. The Affiliate shall be responsible for any and all
fees and costs related to the Collateral Shares.
1
2. Grant of Security
Interest. The Affiliate hereby grants to the Investor, to
secure the payment and performance in full of all of the obligations under the
Transaction Documents, a security interest in and so pledges and assigns to the
Investor the Collateral Shares. Specifically, the Investor shall have
a first lien security interest in the Collateral Shares.
3. Disbursement of Collateral
Shares.
(a) Failure to Deliver
Shares. In the event that the Company fails to deliver the
Shares of common stock after delivery of a Request for Repayment under the
Debenture to the Investor within five (5) days of notice, the Investor shall be
entitled to receive the Collateral Shares to the extent that would enable the
Investor to take possession of the number of shares of Common Stock deliverable
by the Company under the Request for Repayment. Upon such delivery,
such shares will be owned by the Investor and treated as having been delivered
by the Company under the Debenture.
(b) Prohibit the Sale of Common
Stock. In the event that the Company inappropriately
prohibits, hinders or in any way attempts to prevent the Investor from selling
any amount of common stock issuable under the Transaction Documents, the
Investor shall be entitled to an equal amount of Collateral Shares and will
return to the Company for cancellation the number of shares equal to the
Collateral Shares that has been released hereunder.
(c) Occurrence of an Event of
Default. In the event that an Event of Default (as defined in
the Debenture) occurs, the Investor shall be entitled to sell such portion of
the Collateral Shares that would satisfy the outstanding amount owed upon the
occurrence of an Event of Default and shall credit a corresponding amount in
satisfaction of a corresponding portion of the Debenture. In the event, the
Investor does not have sufficient medallion guarantees, the Investor shall be
entitled to determine which of the Collateral Shares are sold. For
purposes of determining the number of Collateral Shares, the Collateral Shares
shall be valued at the Market Value on the date that such Event of Default
occurred.
(d) Repayment of the Loan
Amount. In the event that the Loan Amount, including any fees, costs,
damages and penalties, has been paid in full, then any Collateral Shares not
otherwise previously disbursed shall be returned to the Affiliate.
(e) Fair Market Value of the
Collateral Shares. In the event that the Investor shall be
entitled to sell all or any portion of the Collateral Shares to satisfy any
outstanding amount owed under this Section 3, the Investor shall be deemed to
have sold that portion of the Collateral Shares at a fair market price if such
sale was made publicly on a trading exchange, including the Over-the-Counter
Bulletin Board or the pink sheets. In the event that either (i) the
Common Stock is no longer traded on a public exchange or (ii) an Event of
Default occurs based on the average daily dollar volume of Common Stock traded
per day for any consecutive ten (10) trading-day period is less than forty
thousand dollars ($________), then if any such portion of the Collateral Shares
are sold in a private transaction, such private sale shall be deemed to be at
fair market value if such sale is made at or above _______ (___%) of the Market
Price as of the last day the Company was quoted on the Over-the-Counter Bulletin
Board or other trading exchange.
2
(f) Percentage
Cap. Notwithstanding the provisions of this Pledge Agreement,
in no event (except (i) as specifically provided as an exception to this
provision, (ii) during the forty-five (45) day period prior to the Maturity Date
(as defined in the Debenture), or (iii) while there is outstanding a tender
offer for any or all of the shares of the Borrower’s Common Stock) shall the
Investor be entitled to transfer ownership of the Collateral Shares to itself,
to the extent that, after such transfer of common stock the sum of (1) the
number of shares of Common Stock beneficially owned by the Investor and its
affiliates, and (2) the number of shares of Common Stock issuable upon the
transfer of the Collateral Shares with respect to which the determination of the
proviso is being made, would result in beneficial ownership by the Investor and
its affiliates of more than 9.99% (the “Percentage Cap”) of
the outstanding shares of Common Stock (after taking into account the shares to
be issued to the Investor upon such repayment). For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 12(d) of the Securities Exchange Act of
1934, as amended.
4. Representations and
Warranties of the Affiliate. The Affiliate hereby represents
and warrants with respect to only itself that:
(a) Legal Capacity;
Organization. The Affiliate has the legal capacity and right
to execute, deliver, enter into, consummate and perform the transactions
contemplated by hereby and otherwise to carry out its obligations hereunder and
thereunder.
(b) Securities
Ownership. As of the Closing, the Affiliate owns the common
stock to be deposited hereunder in the amounts set forth on Schedule 1, attached
hereto (i) as the sole record and beneficial owner, free from all taxes,
liens, claims, encumbrances and charges and there are no outstanding rights,
options, subscriptions or other agreements or commitments obligating the
Affiliate to sell or transfer such common stock and such common stock are not
subject to any lock-up or other restriction on their transfer or on the ability
of the Investor to sell or transfer such common stock. As of the
Closing, the Affiliate shall have paid any and all amounts and charges due and
owing to the Company with respect to the common stock and there shall be no
unpaid amounts or charges claimed to be due to the Company from the Affiliate
with respect to the common stock.
(c) Authorization; Enforcement;
Validity. This Agreement has been duly authorized, executed
and delivered by the Affiliate and constitutes a valid and legally binding
agreement of the Affiliate enforceable against the Affiliate in accordance with
its terms, except as such enforceability may be limited by general principles of
equity or to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.
(d) Consents. All
government and other consents that are required to have been obtained by the
Affiliate with respect to this Agreement have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with. The Affiliate has complied and will comply with all applicable
disclosure or reporting requirements in respect of the transaction contemplated
hereby.
3
(e) No
Conflicts. The execution and delivery by the Affiliate of this
Agreement, the performance by the Affiliate of its obligations under this
Agreement do not and will not violate or conflict with (i) any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the stock market, or
(ii) any order or judgment of any court or other agency of government or
any of the Affiliate’s assets or any contractual restriction binding on or
affecting the Affiliate or any of the Affiliate’s assets.
(f) Independent Decision.
The Affiliate is acting solely for his own account, and has made his own
independent decision to enter into this Agreement and as to whether this
Agreement is appropriate or proper for the Affiliate based upon his own judgment
and upon advice of such advisors as the Affiliate deems necessary. The Affiliate
acknowledges and agrees that he is not relying, and has not relied, upon any
communication (written or oral) of any Investor or any affiliate, employee or
agent of any Investor with respect to the legal, accounting, tax or other
implications of this Agreement and that he has conducted his own analyses of the
legal, accounting, tax and other implications hereof and thereof; it being
understood that information and explanations related to the terms and conditions
of this Agreement shall not be considered investment advice or a recommendation
to enter into this Agreement. The Affiliate acknowledges that no Investor nor
any affiliate, employee or agent of any Investor is acting as a fiduciary for or
an advisor to the Affiliate in respect of this Agreement.
(g) Brokerage
Fees. Other than amounts payable to the Investor or its
affiliates, the Affiliate has taken no action that would give rise to any claim
by any person for brokerage commissions, finder’s fees or similar payments
relating to this Agreement or the transactions contemplated hereby.
(h) Litigation. There
is no action, suit, claim, proceeding, inquiry or investigation before or by any
court, public board, government agency or self regulatory organization or body
pending or, to the knowledge of the Affiliate, threatened against or affecting
the Affiliate that could reasonably be expected to have a material adverse
affect on his ability to perform its obligations
hereunder.
(i) Other Transaction
Documents. Entry into this Pledge Agreement shall in no way alter, amend
or terminate the other Transaction Documents. The Transaction
Documents shall continue to operate in full force and effect and all rights,
obligations and remedies of all parties thereto shall survive the signing of
this Pledge Agreement.
5. Termination. This
Agreement shall terminate at such time as all of the Collateral Shares shall
have been either transferred by the Investor or returned to the Affiliate in
accordance with Section 3
hereof; provided however, that Sections 5, 6 and 10
shall survive any such termination.
4
6. Indemnification.
(a) The
Company will indemnify and hold the Investor and their directors, officers,
shareholders, partners, employees and agents (each, an “Investor Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation (collectively, “Losses”) that the
Investor may suffer or incur as a result of or relating to any
misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made by the Company in any of the Transaction
Documents. In addition to the indemnity contained herein, the Company
will reimburse each Investor for its reasonable legal and other expenses
(including the cost of any investigation, preparation and travel in connection
therewith) incurred in connection therewith, as such expenses are
incurred. In the event of any litigation or dispute arising from this
agreement, the parties agree that the party who is awarded the most money shall
be deemed the prevailing party for all purposes and shall therefore be entitled
to an additional award of the full amount of the attorneys’ fees and
expenses paid by said prevailing party in connection with the litigation
and/or dispute without reduction or apportionment based upon the individual
claims or defenses giving rise to the fees and expenses. Nothing
herein shall restrict or impair a court’s power to award fees and expenses for
frivolous or bad faith pleading.”
(b) Conduct of Indemnification
Proceedings. Promptly
after receipt by any Person (the “Indemnified Person”)
of notice of any demand, claim or circumstances which would or might give rise
to a claim or the commencement of any action, proceeding or investigation in
respect of which indemnity may be sought, such Indemnified Person shall promptly
notify the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided, however, that the failure of any
Indemnified Person so to notify the Company shall not relieve the Company of its
obligations hereunder except to the extent that the Company is materially
prejudiced by such failure to notify. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the Company and the Indemnified Person shall have mutually agreed to
the retention of such counsel; or (ii) in the reasonable judgment of counsel to
such Indemnified Person representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between
them. The Company shall not be liable for any settlement of any
proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Without the prior
written consent of the Indemnified Person, which consent shall not be
unreasonably withheld, the Company shall not effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party, unless such settlement includes an unconditional release
of such Indemnified Person from all liability arising out of such
proceeding.
7. Remedies. Whenever
the Investor is entitled to take possession of the Collateral Shares pursuant
the Section 3 hereof, the Investor may, without notice to or demand upon the
Affiliate, declare this Agreement to be in default, and the Investor shall
thereafter have in any jurisdiction in which enforcement hereof is sought, in
addition to all other rights and remedies, the rights and remedies of a secured
party of any jurisdiction in which the Collateral Shares are located, including,
without limitation, the right to take possession of the Collateral
Shares. The Investor may in its discretion require the Affiliate to
assemble all or any part of the Collateral Shares at such location or locations
within the jurisdiction(s) of the Investor’s principal office(s) or at such
other locations as the Investor may reasonably designate. The
Affiliate hereby acknowledges that he effectively waives any notice requirements
allowed by law. In addition, the Affiliate waives any and all rights
that he may have to a judicial hearing in advance of the enforcement of any of
the Investor’s rights hereunder, including, without limitation, the Investor’s
right following an Event of Default to take immediate possession of the
Collateral and to exercise its rights with respect thereto.
5
8. No Waiver by
Investor. The Investor shall not be deemed to have waived any
of its rights upon or under the Transaction Documents or the Collateral Shares
unless such waiver shall be in writing and signed by the Investor and any other
person or entity required by the Transaction Documents to sign such
waiver. No delay or omission on the part of the Investor in
exercising any right shall operate as a waiver of such right or any other
right. A waiver on any one occasion shall not be construed as a bar
to or waiver of any right on any future occasion. All rights and
remedies of the Investor with respect to the Collateral Shares, whether
evidenced hereby or by any other instrument or papers, shall be cumulative and
may be exercised singularly, alternatively, successively or concurrently at such
time or at such times as the Investor deems expedient.
9. Suretyship Waivers by
Affiliate. The Affiliate waives demand, notice, protest,
notice of acceptance of this Agreement, the Collateral Shares received or
delivered or other action taken in reliance hereon and all other demands and
notices of any description. With respect to the Collateral Shares,
the Affiliate assents to any extension or postponement of the time of payment or
any other indulgence, to any substitution, exchange or release of or failure to
perfect any security interest in the Collateral Shares, to the addition or
release of any party or person primarily or secondarily liable, to the
acceptance of partial payment thereon and the settlement, compromising or
adjusting of any thereof, all in such manner and at such time or times as the
Investor may deem advisable. The Investor shall have no duty as to
the collection or protection of the Collateral Shares or any income thereon. The
Affiliate further waives any and all other suretyship defenses.
10. Miscellaneous.
(a) Notices. Any
communication, notice or document required or permitted to be given under this
Agreement shall be given in writing and shall be deemed received (i) when
personally delivered to the relevant party at such party’s address as set forth
below, (ii) if sent by mail (which must be certified or registered mail,
postage prepaid) or overnight courier, when received or rejected by the relevant
party at such party’s address indicated below, or (iii) if sent by
facsimile, when confirmation of delivery is received by the sending
party:
If to the Investor, to:
with a copy (which shall not
constitute a notice) to:
If to the Company:
with a copy (which shall not
constitute a notice) to:
If to the Affiliate:
6
Any document shall be deemed to have
been duly served if marked for the attention of the agent at its address as set
forth in this Section 10(a) or
such other address in the United States as may be notified to the party wishing
to serve the document and (a) left at the specified address if its receipt
is acknowledged in writing; or (b) sent to the specified address by post,
registered mail return receipt requested. In the case of (a), the document
will be deemed to have been duly served when it is left and signed
for. In the case of (b), the document
shall be deemed to have been duly served when received and
acknowledged.
If any foreign party’s agent at any
time ceases for any reason to act as such, such foreign party shall appoint a
replacement agent having an address for service in the United States and shall
notify the Investor of the name and address of the replacement
agent. Failing such appointment and notification, the holders of a
majority of the Shares (as defined in the Securities Purchase Agreement) shall
be entitled by notice to such foreign party to appoint a replacement agent to
act on such foreign party’s behalf. The provisions of this Section 10(a)
applying to service on an agent apply equally to service on a replacement
agent.
(c) Currency. As
used herein, “Dollar,” “US Dollar” and “$” each mean the
lawful money of the United States.
(d) Assignment;
Amendment. This Agreement and the rights and obligations
hereunder of any of the parties hereto may be assigned to any third party
without the prior written consent of the other parties
hereto. Subject to the foregoing, this Agreement will be binding upon
and inure to the benefit of each of the parties hereto and their respective
successors and permitted assigns. No portion of the Collateral Shares
shall be subject to interference or control by any creditor to any party hereto,
or be subject to being taken or reached by any legal or equitable process in
satisfaction of any debt or other liability of any such party hereto prior to
the disbursement thereof to such party hereto in accordance with the provisions
of this Agreement. This Agreement may be changed or modified only in
writing signed by all of the parties hereto. No provision hereof may
be waived other than by an instrument in writing signed by the party against
whom enforcement is sought. A waiver or amendment of any term or
provision of this Agreement shall not be construed as a waiver or amendment of
any other term or provision of this Agreement or any other Transaction
Document.
(e) Entire
Agreement. This Agreement and the other Transaction Documents,
contains the entire understanding and agreement between the parties hereto with
respect to the subject matter of this Agreement, and all prior writings and
discussions are hereby merged into this Agreement.
(f) Counterparts. This
Agreement may be executed by facsimile signatures and in multiple counterparts,
each of which shall be deemed an original. It shall not be necessary that each
party executes each counterpart, or that any one counterpart be executed by more
than one party so long as each party executes at least one
counterpart.
7
(g) Headings. The
headings contained in this Agreement are for convenience or reference only and
shall not affect the construction of this Agreement.
(h) Governing Law; Consent to
Jurisdiction; Waiver of Jury Trial. This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
Illinois, without reference to the choice of law provisions
thereof. The Company and, by accepting this Agreement, each of the
Parties irrevocably submits to the exclusive jurisdiction of the courts of the
State of Illinois located in Xxxx County and any United States District Court
for the Northern District of Illinois for the purpose of any suit, action,
proceeding or judgment relating to or arising out of this Agreement and the
transactions contemplated hereby. Service of process in connection
with any such suit, action or proceeding may be served on each party hereto
anywhere in the world by the same methods as are specified for the giving of
notices under this Agreement. The Company and, by accepting this
Agreement, each of the Parties irrevocably consents to the jurisdiction of any
such court in any such suit, action or proceeding and to the laying of venue in
such court. The Company and, by accepting this Agreement, each of the
Parties irrevocably waives any objection to the laying of venue of any such
suit, action or proceeding brought in such courts and irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. EACH OF THE PARTIES HEREBY WAIVES ANY
RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS WARRANT
AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
WAIVER.
(i) Severability. If
any term or other provision of this Agreement is invalid, illegal or incapable
of being enforced by any rule of law, or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of this Agreement is not affected in
any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the terms of this
Agreement remain as originally contemplated to the fullest extent
possible.
(j) Dispute
Resolution. In the case of a dispute as to any issue in this
Agreement, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within one (1) Business Day (as defined in the
Securities Purchase Agreement) of receipt, or deemed receipt, of the event
giving rise to such dispute, as the case may be, to the Investor. If
the Investor and the Company are unable to agree upon such
determination or calculation within one (1) Business Day of such disputed
determination or arithmetic calculation being submitted to the Investor, then
the Company shall, within one Business Day submit via facsimile the disputed
determination or (the disputed arithmetic calculation to the Independent
Accountant. The Company at the Company’s expense, shall cause the Independent
Accountant to perform the determinations or calculations and notify the Company
and the Investor of the results no later than five (5) Business Days from the
time it receives the disputed determinations or calculations. The
Independent Accountant’s determination or calculation, as the case may be, shall
be binding upon all parties absent demonstrable error.
[REMAINDER
OF PAGE LEFT BLANK]
8
[SIGNATURE
PAGE TO THE PLEDGE AGREEMENT]
IN WITNESS WHEREOF, each of
the parties hereto has executed this Agreement by the authorized officer named
below.
|
INVESTOR:
By:
____________________________
Name:
Its:
Dated:
THE
COMPANY:
By: ____________________________
Name:
Its:
Dated:
|
THE
AFFILIATE:
By:
____________________________
Name:
Dated:
THE
ESCROW AGENT:
By:
____________________________
|
9
