Exhibit 10.4
CUSTODY, PLEDGE AND SECURITY AGREEMENT
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CUSTODY, PLEDGE
AND SECURITY AGREEMENT, dated as of December 19, 2007
("Agreement"), by
and among ORBIT INTERNATIONAL CORP., a
Delaware corporation
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("Pledgor"), KENNETH
J. ICE, MICHAEL R. RHUDY and JULIE A.
MCDEARMAN (each, a
"Pledgee" and
collectively,
the "Pledgees") and
Phillips Nizer LLP a New York
limited liability
partnership,
as custodian (the "Custodian").
This
Agreement is made pursuant to the Stock Purchase Agreement (the
"SPA")
dated as of December 19, 2007, by and among Pledgor, Integrated
Consulting
Services, Inc.
("ICS"), a Kentucky corporation, and the Pledgees.
CAPITALIZED TERMS USED
AND NOT OTHERWISE DEFINED HEREIN THAT ARE DEFINED IN THE
SPA SHALL HAVE THE MEANINGS GIVEN SUCH TERMS IN THE SPA.
W I T N E
S S E T H:
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WHEREAS, Pledgees have sold all of the issued and outstanding
capital stock
of ICS (hereinafter
collectively referred to as the "Pledged Shares") under the
SPA;
WHEREAS, Pledgor
shall pay to the
Pledgees up to an additional $1,000,000 over
the next three years following the Closing
of the Share Purchase in increments
of $333,333
per year (the "Annual Earn-Out
Payment") provided ICS attains Net
Revenues of
no less than
$7,000,000 in each of the 2008, 2009, and 2010 fiscal
years;
WHEREAS, each
Annual Earn-Out Payment is evidenced by a
non-interest bearing
promissory note
of Pledgor, dated the date hereof (as amended, modified,
restated or
otherwise supplemented from time to time, a "Note," and
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collectively, the
"Notes"), which Notes are secured by this Agreement;
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WHEREAS, in
the event an Event of Default (as defined in the Notes) has
occurred, the Annual Earn-Out Payment attributable to the
applicable fiscal year
shall be paid by Pledgor to the Pledgees as
required by the Notes and Section
2.08 of the SPA;
WHEREAS, the
Pledged Shares are being pledged as collateral to ensure
that
Pledgor honors
its commitment to pay the Annual Earn-Out Payments to the
Pledgees under
the Notes, including in the event Pledgor enters into a
transaction or
otherwise intentionally engages in a course of conduct that
causes a Material Adverse Change to ICS's business operations,
other than in the
Ordinary Course of
Business, and which results in the failure of ICS to achieve
the minimum
of $7,000,000 of Net Revenues in any Earn-Out Year;
WHEREAS, Pledgor
has agreed to execute and deliver to
Pledgees this Agreement
pledging the
Pledged Shares as collateral for its
obligations under the Notes
and the SPA with respect to the Annual
Earn-Out Payments discussed above (the
"Obligations");
and
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WHEREAS, the Pledgees
have entered into an intercreditor agreement with Merrill
Lynch Business
Financial Services, Inc. ("Pledgor's Lender"), pursuant to
which
they agreed not to take any action to foreclose or otherwise
enforce their liens
under this
Agreement without the prior written consent of Pledgor's
Lender,
which consent
shall not be unreasonably withheld.
NOW, THEREFORE, in
consideration of the premises and to induce Pledgees to sell
the Pledged
Shares to Pledgor,
Pledgor does now hereby covenant and agree with
the Pledgees
as follows:
1.
Pledge. Pledgor
hereby pledges, assigns and delivers to
Pledgees,
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and grants to each Pledgee a continuing security interest in, the
Pledged Shares
which are or will be owned either
beneficially or of record by Pledgor as more
particularly described
on Exhibit A attached hereto, together with all
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dividends, interest,
proceeds and any other
sums due or to become due thereon,
all instruments,
securities or other property at any time and from time to time
received, receivable
or otherwise
distributed in respect of or in exchange for
(as dividends,
reclassification,
readjustment or other
changes in the capital
structure of
the issuers of such Pledged Shares, or
otherwise) any or all of
such Pledged
Shares, all general intangibles associated therewith, and all
proceeds thereof
(collectively, including the Pledged Shares, the "Collateral")
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as security for the
payment and performance of all obligations owing by Pledgor
to Pledgees
with respect to the payment of the
Annual Earn-Out Payments under
the Notes, whether
direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and
any and all instruments, documents
and agreements
evidencing,
securing or otherwise relating in any way to
the
Notes with
respect to the Annual
Earn-Out Payments discussed above and further
including all
reasonable costs,
expenses and attorneys' and other professional
fees incurred by Pledgees in connection with the collection of said
indebtedness
or in the enforcement,
defense, protection or preservation of this Agreement or
any of the Collateral, including without limitation, all costs and
expenses
incurred in
connection
with any "workout" or default
resolution negotiations
involving legal
counsel or other professionals and any re-negotiation or
restructuring of
indebtedness
of Pledgor under the Notes (collectively,
the
"Secured
Obligations").
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2.
Custody of the Pledged Shares. The Pledgees hereby appoint the
Custodian
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as their agent to
receive and hold certificates representing the Pledged Shares
for the benefit of the Pledgees. Such Pledged Shares, shall be
beneficially
owned by the Pledgor
and registered in the name of Pledgor and delivered to the
Custodian to
be held for the
benefit of Pledgees.
The Custodian shall release
such Pledged
Shares only in accordance with Section 8 hereof.
3.
Representations,
Warranties and Covenants. Pledgor represents, warrants
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and covenants
to Pledgees that: (a)
Pledgor has good and unencumbered title to
the Collateral, free and clear of all claims, pledges, liens,
security interests
and other encumbrances
of every nature whatsoever, except the pledge granted to
Pledgees hereunder;
(b) Pledgor has the unrestricted right to make this pledge;
(c) the Collateral is
duly and validly pledged with Pledgees in accordance with
law; (d) Exhibit A hereto correctly sets forth 100% of the issued and
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outstanding Common
Stock of ICS owned by Pledgor; (e) Pledgor will
defend
-
Pledgees' right
and security interest in and to the Collateral against
the
claims and demands of
all persons whomsoever, subject only to any subordination
agreement to
be entered into with Pledgor's Lender as described
above; (f)
Pledgor will not sell, convey or otherwise dispose of any of the
Collateral, nor
will it create, incur or permit to exist any pledge,
mortgage, lien, charge,
encumbrance or
any security interest whatsoever with respect to any of the
Collateral or the
proceeds thereof, subject only to any subordination agreement
to be entered into with Pledgor's Lender as described
above; (g) Pledgor has
full power,
authority and legal right to execute, deliver and perform
its
obligations under
this Agreement, and to pledge, assign and grant a
security
interest in all of the
Collateral pursuant to this Agreement; (h) no consent or
approval or
the taking of any other action in respect of
any party or of any
public authority is required as a condition to the validity or
enforceability of
this Agreement;
(i) except as set
forth in the SPA and evidenced by the Notes,
the Pledged
Shares have been fully paid for; (j) there are no
contractual
restrictions upon
the voting rights or
the transfer of the Pledged Shares; and
(k) the execution, delivery and performance hereof, and the pledge and
assignment of
and granting of a
security interest in the Collateral hereunder,
have been duly authorized by all necessary action of Pledgor and do not
contravene any
law, rule or
regulation or any judgment, decree or order of any
tribunal or any
agreement or instrument to which Pledgor is a party or by which
Pledgor or
any of Pledgor's property is bound or affected or constitute
a
default
thereunder.
4.
Delivery of
Collateral, Power of Attorney. Pursuant to Section 2 above,
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prior to the date
hereof, and/or simultaneously herewith, Pledgor has delivered
to Custodian
all certificates evidencing the Pledged Shares, accompanied
by
stock powers
duly executed in blank, for the use, benefit, security and
protection of
Pledgees as set forth herein, and upon and
subject to the terms
and conditions hereof.
Pledgor hereby
irrevocably grants to Pledgees powers of
attorney, coupled
with an interest, with respect to the Collateral for
all
purposes consistent
with this Agreement.
Said power of attorney shall include,
but shall not be limited to, the right and power to transfer the
Collateral into
Pledgees' names
or those of its nominees and to receive the income
and any
distributions thereon
and hold the same as
Collateral or apply the same to any
Obligation, solely in
the event an Event of Default has occurred; to execute in
Pledgor's name
instruments of conveyance or transfer with respect to all or
any
of the Collateral; and to take such other action to enforce any rights
of
Pledgees hereunder
or with respect to any of the Collateral.
5.
Dividends, Interest and Other Rights. Unless Pledgees otherwise agree
in
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writing, if
Pledgor receives: (a) any dividend in connection
with any of the
Pledged Shares,
whether in cash or other property (b) any dividend
or other
distribution in
cash or other property
in connection with any recapitalization
or reclassification of
any of the Pledged Shares, liquidation or dissolution of
ICS or otherwise, or
(c) any stock certificate, option or rights, whether as an
addition to,
in substitution of or
in exchange for, any of the Pledged Shares,
or otherwise, the same shall constitute Collateral, and Pledgor
agrees to accept
the same in trust for Pledgees and to forthwith deliver the same to the
Custodian, in
the exact form received, with Pledgor's endorsement and/or
assignment when
necessary, to be held
by the Custodian, as collateral security
for the Secured Obligations.
6.
Further Assurances.
Pledgor agrees that at any time and from time to
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time, at the expense of Pledgor, Pledgor will
promptly execute and deliver to
the Pledgees
all further proxies,
stock powers, instruments and documents, and
take all further
action, that may be necessary or appropriate, or that Pledgees
may request,
in order to perfect (by control or otherwise) and
protect any
security interest
granted or purported to be granted hereby or to enable
Pledgees to
exercise and enforce their rights and remedies hereunder with
respect to
any of the Collateral.
7.
Voting Rights.
Unless and until an Event of Default occurs and is
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continuing, Pledgor
shall have the right: (a) to vote and give
consents with
respect to any of the
Pledged Shares for all purposes not inconsistent with the
provisions of this Agreement and/or the SPA, (b) to consent to and
ratify action
taken at or waive notice of any meeting with respect to any of
the Pledged
Shares with the same force and effect as if such shares were not
subject to this
Agreement, and
(c) to generally be entitled to all rights and
benefits of a
holder of common stock of ICS subject to the limitations set
forth in this
Agreement.
8.
Release of
PledgedShares.
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If
with respect to each of the Notes, either (i) full payment has been
made
by or on behalf of the Pledgor in accordance with the terms of the
Note,
together with the payment of accrued interest as set forth therein
or (ii) no
payment was made by Pledgor in accordance with the terms of the
Note due to the
failure of ICS to achieve the minimum of $7,000,000 of Net Revenues
in the
applicable Earn-Out Year; provided, however, that such failure was
not due to an
Event of Default, then the Pledgees agree to release from the lien
of this
Pledge Agreement, and to instruct the Custodian in writing to
release and
transfer to the order of the Pledgor, the Pledged Shares.
In the Event of
Default, Custodian shall transfer the certificates representing the
Pledged
Shares to the Pledgees, upon receiving a written notice from the
Pledgees to do
so.
9.
Rights of thePledgees. The Pledgees shall not be liable for any
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failure to collect or
realize upon the Collateral or any guarantee therefor, or
any part thereof, or for any delay in so doing, nor shall it be under
any
obligation to
take any action whatsoever with regard
thereto. If an Event
of
Default under
the SPA has occurred and is continuing, the Pledgees may
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