PLEDGE AND ESCROW AGREEMENT
PLEDGE
AND ESCROW AGREEMENT
(the
“Agreement”)
dated
as of February 15, 2007 made by each of the undersigned (each a “Pledgor”,
and
collectively, the “Pledgors”),
in
favor of CORNELL
CAPITAL PARTNERS, L.P.,
in its
capacity as collateral agent (in such capacity, the “Collateral
Agent”)
for
the “Buyers” (as defined below) party to the Securities Purchase Agreement, of
even date herewith (the "Securities
Purchase Agreement").
RECITALS:
WHEREAS, IQ
Micro
Inc., a Colorado corporation (the “Company”),
and
each party listed as a "Buyer" on the Schedule of Buyers attached thereto (each
a "Buyer",
and
collectively, the "Buyers")
are
parties to the Securities Purchase Agreement, pursuant to which the Company
shall issue and sell to the Buyers, as provided in the Securities Purchase
Agreement and the Buyers shall purchase secured convertible debentures (the
“Convertible
Debentures”),
which
shall be convertible into shares of the Company’s common stock, par value $0.001
per share (the “Common
Stock”)
(as
converted, the “Conversion
Shares”);
WHEREAS,
it is a
condition precedent to the Buyers purchasing the Convertible Debentures that
the
Pledgors execute and deliver to the Collateral Agent a pledge agreement securing
repayment of principal and interest obligations of the Company under the
Convertible Debentures;
WHEREAS,
each
Pledgor has determined that the execution, delivery and performance of this
Agreement directly benefits, and is in the best interest of, such Pledgor;
and
WHEREAS, the
parties to this Agreement desire to appoint XXXXX
XXXXXXXX,
ESQ.,
as escrow agent (“Escrow
Agent”)
to
hold in escrow the Pledged Shares (as defined below) pursuant to the terms
and
conditions of this Agreement.
NOW,
THEREFORE,
in
consideration of the mutual covenants, agreements, warranties, and
representations herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
TERMS
AND CONDITIONS
1. Obligations
Secured. The
security interest created hereby in the Pledged Shares constitutes continuing
collateral security for all obligations of the Company now existing or
hereinafter incurred to the Buyers, whether oral or written and whether arising
before, on or after the date hereof including, without limitation of the
following obligations (collectively, the “Obligations”):
(a)
for
so long as the Convertible Debentures are outstanding, the payment by the
Company, as and when due and payable (by scheduled maturity, acceleration,
demand or otherwise), of all principal and interest amounts from time to time
owing by it in respect of the Convertible Debentures.
2. Pledge
and Transfer of Pledged Shares.
Each
Pledgor hereby grants to the Collateral Agent an irrevocable, first priority
security interest in all the securities set forth next to such Pledgor’s name on
Schedule I attached hereto (the “Pledged
Shares”)
as
security for the Obligations. Within two days of the execution of this
Agreement, each Pledgor shall deliver to the Escrow Agent, and the Escrow Agent
shall hold in escrow pursuant to the terms of this Agreement, stock certificates
made out in favor of the Pledgor representing the Pledged Shares, together
with
duly executed stock powers or other appropriate transfer documents with
medallion bank guarantees and executed in blank by each Pledgor (the
“Transfer
Documents”
and
together with the Pledged Shares, the “Pledged
Materials”),
and
such stock certificates and Transfer Documents shall be held by the Escrow
Agent
until the satisfaction in full of all the Obligations.
3. Rights
Relating to Pledged Shares.
Upon
the occurrence of an Event of Default (as defined herein), the Collateral Agent
shall be entitled to vote the Pledged Shares, receive dividends and other
distributions thereon, and enjoy all other rights and privileges incident to
the
ownership of the number of Pledged Shares actually released from escrow in
accordance with Section 6.1 hereof on behalf of the Buyers.
4. Release
of Pledged Shares from Pledge.
a. Upon
the
satisfaction in full of all the Obligations the parties hereto shall notify
the
Escrow Agent to such effect in writing. Promptly upon receipt of such written
notice, the Escrow Agent shall return to each Pledgor the Transfer Documents
and
the certificates representing the remaining Pledged Shares, whereupon any and
all rights of the Collateral Agent in such Pledged Materials shall be
terminated.
b. From
time
to time a Pledgor may direct the Collateral Agent to authorize the release
of
all or a portion of the Pledged Shares to the Pledgor in connection with a
private sale of such Pledged Shares provided that (i) all the proceeds of such
sale of Pledged Shares shall be applied towards the repayment of the
Obligations, and (ii) that no such sale by the Pledgor is for less than 15
cents
per share. In the event that sub clause (ii) of the preceding sentence is not
satisfied, then the Collateral Agent shall not be required to release the shares
but shall review and respond in good faith to such request. The Collateral
Agent
shall promptly effectuate the delivery of Pledged Shares in accordance with
this
paragraph. The Escrow Agent shall release Pledged Shares pursuant to this
section promptly upon receipt of, and in accordance with, a written direction
duly executed by authorized representatives of the Pledgors, and the Collateral
Agent. Upon release of Pledged Shares in accordance with this section any and
all rights of the Collateral Agent in such Pledged Shares released shall
automatically terminate.
5. Event
of Default.
An
“Event
of Default”
shall
be deemed to have occurred under this Agreement upon an Event of Default under
the Convertible Debentures.
2
6. Remedies.
a. Upon
and
anytime after the occurrence of an Event of Default, the Collateral Agent shall
have the right acquire the Pledged Shares in accordance with the following
procedure: (a) the Collateral Agent shall provide written notice of such Event
of Default (the “Default
Notice”)
to the
Escrow Agent, with a copy to the Pledgors; (b) in a Default Notice the
Collateral Agent shall specify the number of Pledged Shares to be issued to
the
Collateral Agent, provided
however,
that
neither the Collateral Agent, nor any Buyer shall not have the right to acquire
such number of Pledged Shares which would cause the Collateral Agent or such
Buyer, together with its affiliates, to beneficially own in excess of 4.99%
of
the outstanding capital of the Company (unless the Collateral Agent or such
Buyer waives such limitation by providing 65 days’ advance written notice); and
(c) as soon as practicable after receipt of a Default Notice, the Escrow Agent
shall deliver the specified number of Pledged Shares along with the applicable
Transfer Documents to the Company’s Transfer Agent with instructions to issue
such Pledged Shares to the Collateral Agent in accordance with the Irrevocable
Transfer Agent Instructions of even date herewith.
b. Upon
receipt of the Pledged Shares issued to a the Collateral Agent, the Collateral
Agent shall have the right to (i) sell the Pledged Shares and to apply the
proceeds of such sales, net of any selling commissions, to the Obligations
owed
to the Buyers by the Company under the Transaction Documents, including, without
limitation, outstanding principal, interest, legal fees, and any other amounts
owed to the Buyers, and exercise all other rights and (ii) any and all remedies
of a secured party with respect to such property as may be available under
the
Uniform Commercial Code as in effect in the State of New Jersey. To the extent
that the net proceeds received by the Buyers are insufficient to satisfy the
Obligations in full, the Buyers shall be entitled to a deficiency judgment
against each Pledgor for such amount. the Collateral Agent shall have the
absolute right to sell or dispose of the Pledged Shares in any manner it sees
fit and shall have no liability to any Pledgor or any other party for selling
or
disposing of such Pledged Shares even if other methods of sales or dispositions
would or allegedly would result in greater proceeds than the method actually
used. Each Pledgor shall remain liable for shortfalls, if any, that may exist
after the Collateral Agent has exhausted all remedies hereunder. The Collateral
Agent shall return any Pledged Shares issued to it and instruct the Escrow
Agent
to return any Pledged Shares it is holding in escrow after the full satisfaction
of the Obligations.
c. Each
right, power and remedy of the Collateral Agent provided for in this Agreement
or any other Transaction Document shall be cumulative and concurrent and shall
be in addition to every other such right, power or remedy. The
exercise or beginning of the exercise by the
Collateral Agent
of any
one or more of the rights, powers or remedies provided for in this Agreement
or
any
other
Transaction Document or
now or
hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by the
Collateral Agent
or any
Buyer of all such other rights, powers or remedies, and no failure or delay
on
the part of the
Collateral Agent
or any
Buyer to exercise any such right, power or remedy shall operate as a waiver
thereof. No notice to or demand on any Pledgor in any case shall entitle any
Pledgor to any other or further notice or demand in similar or other
circumstances or constitute a waiver of any of the rights of the
Collateral Agent
to any
other further action in any circumstances without demand or notice. The
Collateral Agent
shall
have the full power to enforce or to assign or contract is rights under this
Agreement to a third party.
3
7. Representations,
Warranties and Covenants.
a. Each
Pledgor represents, warrants and covenants that:
(i) Pledgor
is the legal, beneficial and record owner of, and has good and valid title
to,
all Pledged Shares pledged by it hereunder, subject to no pledge, lien,
mortgage, hypothecation, security interest, charge, option or other encumbrance
whatsoever and notwithstanding that the stock certificates delivered on the
date
hereof to the Escrow Agent are registered in the name of Avalon Marketing Ltd
(“Avalon”),
Avalon has previously assigned the Pledged Shares to the Pledgor;
(ii) Pledgor
has full power, authority and legal right to pledge all the Pledged Shares
pledged pursuant to this Agreement; and
(iii) all
the
Pledged Shares have been duly and validly issued, are fully paid and
non-assessable and are subject to no options to purchase or similar
rights.
b. Each
Pledgor covenants and agrees to take all reasonable steps to defend the
Collateral Agent’s right, title and security interest in and to the Pledged
Shares and the proceeds thereof against the claims and demands of all persons
whomsoever (other than the Collateral Agent and the Escrow Agent); and each
Pledgor covenants and agrees that it will have like title to
and
right to pledge any other property at any time hereafter pledged to the
Collateral Agent
as
collateral hereunder and will likewise take all reasonable steps to defend
the
right thereto and security interest therein of the
Collateral Agent.
c. Each
Pledgor covenants and agrees to take no action which would violate or be
inconsistent with any of the terms of any Transaction Document, or which would
have the effect of impairing the position or interests of the Collateral Agent
under any Transaction Document.
d. Each
Pledgor represents, warrants and covenants that (i) Pledgor has been the
beneficial owner of the Pledged Shares for a period of not less than two (2)
years as computed in accordance with Rule 144(d) promulgated under the
Securities Act of 1933, as amended, (ii) Pledgor it is not an “affiliate” of the
Company, as such term is defined in Rule 144(a) promulgated under the Securities
Act of 1933, as amended, and (iii) this Agreement is made with recourse. Upon
an
Event of Default, the Collateral Agent shall be deemed to have acquired the
Pledged Shares on the date they were acquired by the Pledgor.
e. The
Collateral Agent and the Buyer agree that the guaranty of the Pledgor set forth
on the signature page hereof shall be released and any and all reference to
recourse herein shall be released upon receipt from the Pledgor of a legal
opinion in a form reasonably satisfactory to the Collateral Agent to the effect
that the either (a) the Pledgor is not an “affiliate” of the Company and the
Pledged Shares are not restricted securities for purposes of Rule 144 and may
be
freely sold by the Collateral Agent in the event of foreclosure, or (b) whether
or not the Pledgor is an affiliate, Pledgor’s holding period is in excess of one
year and the may be tacked by Collateral Agent so that in the event of
foreclosure the Collateral Agent may sell the Pledged Shares pursuant to Rule
144.
4
8. Concerning
the Escrow Agent.
a. The
Escrow Agent undertakes to perform only such duties as are expressly set forth
herein and no implied duties or obligations shall be read into this Agreement
against the Escrow Agent.
b. The
Escrow Agent may act in reliance upon any writing or instrument or signature
which it, in good faith, believes to be genuine, may assume the validity and
accuracy of any statement or assertion contained in such a writing or
instrument, and may assume that any person purporting to give any writing,
notice, advice or instructions in connection with the provisions hereof has
been
duly authorized to do so. The Escrow Agent shall not be liable in any manner
for
the sufficiency or correctness as to form, manner, and execution, or validity
of
any instrument deposited in this escrow, nor as to the identity, authority,
or
right of any person executing the same; and its duties hereunder shall be
limited to the safekeeping of such certificates, monies, instruments, or other
document received by it as such escrow holder, and for the disposition of the
same in accordance with the written instruments accepted by it in the
escrow.
c. The
Collateral Agent and the Pledgors hereby agree, to defend and indemnify the
Escrow Agent and hold it harmless from any and all claims, liabilities, losses,
actions, suits, or proceedings at law or in equity, or any other expenses,
fees,
or charges of any character or nature which it may incur or with which it may
be
threatened by reason of its acting as Escrow Agent under this Agreement except
as arising from the Escrow Agent’s willful misconduct or gross negligence; and
in connection therewith, to indemnify the Escrow Agent against any and all
expenses, including attorneys’ fees and costs of defending any action, suit, or
proceeding or resisting any claim (and any costs incurred by the Escrow Agent
pursuant to Sections 6.4 or 6.5 hereof) except as arising from the Escrow
Agent’s willful misconduct or gross negligence. The Escrow Agent shall be vested
with a lien on all property deposited hereunder, for indemnification of
attorneys’ fees and court costs regarding any suit, proceeding or otherwise, or
any other expenses, fees, or charges of any character or nature, which may
be
incurred by the Escrow Agent by reason of disputes arising between the makers
of
this escrow as to the correct interpretation of this Agreement and instructions
given to the Escrow Agent hereunder, or otherwise, with the right of the Escrow
Agent, regardless of the instructions aforesaid, to hold said property until
and
unless said additional expenses, fees, and charges shall be fully paid. Any
fees
and costs charged by the Escrow Agent for serving hereunder shall be paid by
the
Pledgors.
d. If
any of
the parties shall be in disagreement about the interpretation of this Agreement,
or about the rights and obligations, or the propriety of any action contemplated
by the Escrow Agent hereunder, the Escrow Agent may, at its sole discretion
deposit the Pledged Materials with the Clerk of the United States District
Court
of New Jersey, sitting in Newark, New Jersey, and, upon notifying all parties
concerned of such action, all liability on the part of the Escrow Agent shall
fully cease and terminate. The Escrow Agent shall be indemnified by the
Pledgors, the Company and the Collateral Agent for all costs, including
reasonable attorneys’ fees in connection with the aforesaid proceeding, and
shall be fully protected in suspending all or a part of its activities under
this Agreement until a final decision or other settlement in the proceeding
is
received.
5
e. The
Escrow Agent may consult with counsel of its own choice (and the costs of such
counsel shall be paid by the Pledgors, the Company, and Collateral Agent) and
shall have full and complete authorization and protection for any action taken
or suffered by it hereunder in good faith and in accordance with the opinion
of
such counsel. The Escrow Agent shall not be liable for any mistakes of fact
or
error of judgment, or for any actions or omissions of any kind, unless caused
by
its willful misconduct or gross negligence.
f. The
Escrow Agent may resign upon ten (10) days’ written notice to the parties in
this Agreement. If a successor Escrow Agent is not appointed within this ten
(10) day period, the Escrow Agent may petition a court of competent jurisdiction
to name a successor.
9. Conflict
Waiver.
The
Pledgors hereby acknowledges that the Escrow Agent is general counsel to the
Collateral Agent, a partner in the general partner of the Collateral Agent,
and
counsel to the Collateral Agent in connection with the transactions contemplated
and referred herein. The Pledgors agrees that in the event of any dispute
arising in connection with this Agreement or otherwise in connection with any
transaction or agreement contemplated and referred herein, the Escrow Agent
shall be permitted to continue to represent the Collateral Agent and the
Pledgors will not seek to disqualify such counsel and waives any objection
Pledgors might have with respect to the Escrow Agent acting as the Escrow Agent
pursuant to this Agreement.
10. Notices.
Unless
otherwise provided herein, all demands, notices, consents, service of process,
requests and other communications hereunder shall be in writing and shall be
delivered in person or by overnight courier service, or mailed by certified
mail, return receipt requested, addressed:
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If
to the Company, to:
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000
Xxxxxxxxxx Xxxxxx, Xxxxx 000
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Xxxx
Xxxx Xxxxx, Xxxxxxx 00000
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Attention:
Chief Executive Officer
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Telephone: (000)
000-0000
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Facsimile:
(000) 000-0000
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With
a copy to:
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Xxxxxxxxx,
Xxxxxx & Xxxxxx
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Princeton
Xxxxxxxxx Village
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000
Xxxxxxx Xxxx., Xxxxx 000
Xxxxxxxxx,
XX 00000
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Telephone: (000)
000-0000
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Facsimile:
(000) 000-0000
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If
to the
Collateral Agent:
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Cornell
Capital Partners L.P.
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000
Xxxxxx Xxxxxx, Xxxxx 0000
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Xxxxxx
Xxxx, XX 00000
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Attention:
Xxxx X. Xxxxxx
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Telephone: (000)
000-0000
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Facsimile:
(000) 000-0000
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6
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With
copy to:
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Cornell
Capital Partners, LP
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000
Xxxxxx Xxxxxx, Xxxxx 0000
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Xxxxxx
Xxxx, XX 00000
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Attention:
Xxxx Xxxxx, Esq.
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Telephone: (000)
000-0000
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Facsimile:
(000) 000-0000
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If
to the Pledgors, to:
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To
the addresses provided on the signature pages attached
hereto
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Any
such
notice shall be effective (a) when delivered, if delivered by hand delivery
or overnight courier service, or (b) five (5) days after deposit in the
United States mail, as applicable.
11. Binding
Effect.
All of
the covenants and obligations contained herein shall be binding upon and shall
inure to the benefit of the respective parties, their successors and
assigns.
12. Governing
Law; Venue; Service of Process.
The
validity, interpretation and performance of this Agreement shall be determined
in accordance with the laws of the State of New Jersey applicable to contracts
made and to be performed wholly within that state except to the extent that
Federal law applies. The parties hereto agree that any disputes, claims,
disagreements, lawsuits, actions or controversies of any type or nature
whatsoever that, directly or indirectly, arise from or relate to this Agreement,
including, without limitation, claims relating to the inducement, construction,
performance or termination of this Agreement, shall be brought in the state
superior courts located in Xxxxxx County, New Jersey or Federal district courts
located in Newark, New Jersey, and the parties hereto agree not to challenge
the
selection of that venue in any such proceeding for any reason, including,
without limitation, on the grounds that such venue is an inconvenient forum.
The
parties hereto specifically agree that service of process may be made, and
such
service of process shall be effective if made, pursuant to Section 8
hereto.
13. Enforcement
Costs.
If any
legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any provisions of this Agreement, the
successful or prevailing party or parties shall be entitled to recover
reasonable attorneys’ fees, court costs and all expenses even if not taxable as
court costs (including, without limitation, all such fees, costs and expenses
incident to appeals), incurred in that action or proceeding, in addition to
any
other relief to which such party or parties may be entitled.
14. Remedies
Cumulative.
No
remedy herein conferred upon any party is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing
at
law, in equity, by statute, or otherwise. No single or partial exercise by
any
party of any right, power or remedy hereunder shall preclude any other or
further exercise thereof.
7
15. Counterparts.
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute the same
instrument.
16. No
Penalties.
No
provision of this Agreement is to be interpreted as a penalty upon any party
to
this Agreement.
17. JURY
TRIAL.
EACH OF
THE COLATERAL AGENT AND THE PLEDGOR HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES THE RIGHT WHICH IT MAY HAVE TO A TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED HEREON, OR ARISING OUT OF, UNDER
OR IN ANY WAY CONNECTED WITH THE DEALINGS BETWEEN THE COLLATERAL AGENT AND
PLEDGOR, THIS PLEDGE AND ESCROW AGREEMENT OR ANY DOCUMENT EXECUTED IN CONNECTION
HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
ORAL
OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR THERETO IN EACH CASE WHETHER
NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE.
[REMAINDER
OF PAGE INTENTIALLY LEFT BLANK]
8
IN
WITNESS WHEREOF,
each
Pledgor has caused this Pledge and Escrow Agreement to be executed by its
respective duly authorized officer, as of the date first above
written.
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PLEDGOR
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X.X.
XXXXXX & ASSOCIATES, INC.
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By: /s/
Xxxxxxx X.
Xxxxxx
Name:
Xxxxxxx X. Xxxxxx
Title:
President
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Address:
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FOR
VALUE RECEIVED,
the
Pledgor hereby unconditionally and absolutely guarantees the Company’s
Obligations (as defined above). This Agreement is made with
recourse.
X.X.
XXXXXX & ASSOCIATES, INC.
By:
/s/ Xxxxxxx X.
Xxxxxx
Name:
Xxxxxxx X. Xxxxxx
Title:
President
9
IN
WITNESS WHEREOF,
the
undersigned acknowledge and agree to the terms and conditions of this Pledge
and
Escrow Agreement as of the date first above written.
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CORNELL
CAPITAL PARTNERS, L.P.
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By:
Yorkville Advisors, LLC
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Its:
General Partner
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By:
/s/ Xxxx
Xxxxxx
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Name:
Xxxx Xxxxxx
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Title:
Portfolio Manager
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By:
/s/ Xxxxxx X.
Xxxxxx
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Name:
Xxxxxx X. Xxxxxx
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Title: Chief
Financial Officer
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ESCROW
AGENT
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By:
/s/ Xxxxx Xxxxxxxx,
Esq.
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Name:
Xxxxx Xxxxxxxx, Esq.
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10
SCHEUDLE
I
PLEDGED
SHARES
X.X.
Xxxxxx & Associates, Inc. 1,000,000
Shares of IQ Micro Inc. common stock
11
