PLEDGE AGREEMENT
PLEDGE AGREEMENT (this
“Agreement” ),
dated as of July 7, 2008, made by each entity listed as a pledgor
on the signature pages hereto (the
“Pledgor” ),
in favor of DRIFTWOOD
VENTURES, INC. ,
a Delaware corporation (the "
Buyer ").
W
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S
S
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H :
WHEREAS,
the Pledgor and Buyer are parties to the Securities Purchase
Agreement, dated as of even date herewith (as amended,
restated or otherwise modified from time to time, the "
Securities Purchase Agreement "),
pursuant to which the Pledgor shall be required to sell, and the
Buyer shall purchase or have the right to purchase, the
“Secured Notes” (as defined therein);
WHEREAS,
it is a condition precedent to the Buyer entering into the
Securities Purchase Agreement that the Pledgor shall have
executed and delivered to the Buyer this Agreement to secure
all of its obligations under the Securities Purchase
Agreement, the Secured Notes issued pursuant thereto (as such
Secured Notes may be amended, restated, replaced or otherwise
modified from time to time in accordance with the terms
thereof, collectively, the
“Notes” )
and the “Transaction Documents” (as defined in the
Securities Purchase Agreement, the
“Transaction Documents” );
and
WHEREAS,
the Pledgor has determined that the execution, delivery and
performance of this Agreement directly benefits, and is in the
best interest of, the Pledgor.
NOW,
THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Buyer to perform under the
Securities Purchase Agreement, the Pledgor agrees with the
Buyer as follows:
SECTION
1.
Definitions and Rules of Interpretation .
(a)
Definitions .
Reference is made to the Securities Purchase Agreement and the
Notes for a statement of terms thereof. All terms used in this
Agreement which are defined in the Securities Purchase Agreement or
in Article 8 or Article 9 of the Uniform Commercial Code as in
effect from time to time in the State of New York (the
“Code” ),
and which are not otherwise defined herein shall have the same
meanings herein as set forth therein;
provided ,
that terms used herein which are defined in the Code as in effect
in the State of New York on the date hereof shall continue to have
the same meaning notwithstanding any replacement or amendment of
such statute except as the Buyer may otherwise determine. In the
event that any such term is defined in both the Securities Purchase
Agreement and the Code, the definition of such term in the
Securities Purchase Agreement shall control.
(b)
Rules of Interpretation
.
Except as otherwise expressly provided in this Agreement, the
following rules of interpretation apply to this Agreement: (i) the
singular includes the plural and the plural includes the singular;
(ii) “or” and “any” are not exclusive and
“include” and “including” are not limiting;
(iii) a reference to any agreement or other contract includes
permitted supplements and amendments; (iv) a reference to a law
includes any amendment or modification to such law and any rules or
regulations issued thereunder; (v) a reference to a person includes
its permitted successors and assigns; and (vi) a reference in this
Agreement to an Article, Section, Annex, Exhibit or Schedule is to
the Article, Section, Annex, Exhibit or Schedule of this
Agreement.
SECTION
2.
Pledge and Grant of Security Interest. As collateral security
for all of the Obligations (as defined in Section 3 hereof), the
Pledgor hereby pledges and assigns and grants to the Buyer a
continuing security interest in, and Lien on, all of the
Pledgor’s right, title and interest in and to the following
(collectively, the
“Collateral” ):
(a)
all
present, as set forth in
Schedule I ,
and all future, issued and outstanding shares of capital stock, or
other equity or investment securities of, or partnership,
membership, or joint venture interests in, each Subsidiary (as
defined in the Securities Purchase Agreement), whether now owned or
hereafter acquired by the Pledgor and whether or not evidenced or
represented by any stock certificate, certificated security or
other instrument, together with the certificates representing such
equity interests, all options and other rights, contractual or
otherwise, in respect thereof and all dividends, distributions,
cash, instruments, investment property and any other property
(including, but not limited to, any stock dividend and any
distribution in connection with a stock split) from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of the foregoing and all cash and noncash
proceeds thereof (collectively, the
“Pledged Shares” );
(b)
all
present and future increases, profits, combinations,
reclassifications, and substitutes and replacements for all or
part of the foregoing Collateral heretofore
described;
(c)
all
investment property, financial assets, securities, capital
stock, other equity interests, stock options and commodity
contracts of the Pledgor, all, debentures, bonds, promissory
notes or other evidences of indebtedness payable or owing to
the Pledgor, and all other assets now or hereafter received or
receivable with respect to the foregoing;
(d)
all
securities entitlements of the Pledgor in any and all of the
foregoing; and
(e)
all
proceeds (including proceeds of proceeds) of any and all of
the foregoing;
in
each case, whether now owned or hereafter acquired by the
Pledgor and howsoever its interest therein may arise or appear
(whether by ownership, security interest, Lien, claim or
otherwise).
SECTION
3.
Security for Obligations . The security interest created hereby
in the Collateral constitutes continuing collateral security for
all of the following obligations, whether now existing or hereafter
incurred (the
“Obligations” ):
(a)
the
payment by the Pledgor, as and when due and payable (by
scheduled maturity, required prepayment, acceleration, demand
or otherwise), of all amounts from time to time owing by it in
respect of the Securities Purchase Agreement, the Notes and
the other Transaction Documents, (including, without
limitation, all interest that accrues after the commencement
of any bankruptcy proceeding of the Pledgor, whether or not
the payment of such interest is unenforceable or is not
allowable due to the existence of such bankruptcy proceeding),
and (B) all fees, commissions, expense reimbursements,
indemnifications and all other amounts due or to become due
under any of the Transaction Documents; and
(b)
the
due performance and observance by the Pledgor of all of its
other obligations from time to time existing in respect of any
of the Transaction Documents for so long as the Notes are
outstanding.
SECTION
4.
Delivery of the Collateral .
(a)
All
certificates currently representing the Pledged Shares shall
be delivered to the Buyer on or prior to the execution and
delivery of this Agreement. All other promissory notes,
certificates and instruments constituting Collateral from time
to time or required to be pledged to the Buyer pursuant to the
terms of this Agreement or the Securities Purchase Agreement
(the
“Additional Collateral” )
shall be delivered to the Buyer promptly upon receipt thereof by or
on behalf of the Pledgor. All such promissory notes, certificates
and instruments shall be held by the Buyer pursuant hereto and
shall be delivered in suitable form for transfer by delivery or
shall be accompanied by duly executed instruments of transfer or
assignment or undated stock powers executed in blank, all in form
and substance reasonably satisfactory to the Buyer. If any
Collateral consists of uncertificated securities, unless the
immediately following sentence is applicable thereto, at the
request of Buyer, the Pledgor shall cause the Buyer (or its
designated custodian, nominee or other designee) to become the
registered holder thereof, or cause each issuer of such securities
to agree that it will comply with instructions originated by the
Buyer (or its designated custodian, nominee or other designee) with
respect to such securities without further consent by the Pledgor.
If any Collateral consists of securities entitlements, the Pledgor
shall transfer such securities entitlements to the Buyer (or its
designated custodian, nominee or other designee) or cause the
applicable securities intermediary to agree that it will comply
with entitlement orders by the Buyer (or its designated custodian,
nominee or other designee) without further consent by the
Pledgor.
(b)
Promptly
upon the receipt by the Pledgor of any Additional Collateral,
a Pledge Amendment, duly executed by the Pledgor, in
substantially the form of
Annex I hereto
(a “
Pledge Amendment ”),
shall be delivered to the Buyer, in respect of the Additional
Collateral which is or are to be pledged pursuant to this Agreement
and the Securities Purchase Agreement, which Pledge Amendment shall
from and after delivery thereof constitute part of
Schedule I hereto.
Each Pledgor hereby authorizes the Buyer to attach each Pledge
Amendment to this Agreement and agrees that all certificates or
instruments listed on any Pledge Amendment shall for all purposes
hereunder constitute Collateral and the Pledgor shall be deemed
upon delivery thereof to have made the representations and
warranties set forth in
Section 5 with
respect to such Additional Collateral.
(c)
If
the Pledgor shall receive, by virtue of the Pledgor’s
being or having been an owner of any Collateral, any (i) stock
certificate (including, without limitation, any certificate
representing a stock dividend or distribution in connection
with any increase or reduction of capital, reclassification,
merger, consolidation, sale of assets, combination of shares,
stock split, spin-off or split-off), promissory note or other
instrument, (ii) option or right, whether as an addition to,
substitution for, or in exchange for, any Collateral, or
otherwise, (iii) dividends payable in cash (except such
dividends permitted to be retained by the Pledgor pursuant
to
Section 7 hereof)
or in securities or other property or (iv) dividends,
distributions, cash, instruments, investment property and other
property in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital
surplus or paid-in surplus, the Pledgor shall receive such stock
certificate, promissory note, instrument, option, right, payment or
distribution in trust for the benefit of the Buyer, shall segregate
it from the Pledgor’s other property and shall deliver it
forthwith to the Buyer in the exact form received, with any
necessary endorsement and/or appropriate stock powers duly executed
in blank, to be held by the Buyer as Collateral and as further
collateral security for the Obligations.
SECTION
5.
Representations and Warranties . The Pledgor represents and
warrants as follows:
(a)
The
Pledgor, (i) is a corporation, limited liability company or
limited partnership duly organized, validly existing and in
good standing under the laws of the state or jurisdiction of
its organization, and (ii) has all requisite power and
authority to execute, deliver and perform this
Agreement.
(b)
The
execution, delivery and performance by the Pledgor of this
Agreement (i) have been duly authorized by all necessary
action, (ii) do not and will not contravene its charter or
bylaws, or any applicable law or any contractual restriction
binding on or affecting it or any of its properties, and (iii)
do not and will not result in or require the creation of any
Lien upon or with respect to any of its properties other than
pursuant to this Agreement.
(c)
The
issuers of the Pledged Shares set forth in
Schedule I hereto
are
the Pledgor’ only Subsidiaries existing on the date hereof.
The Pledged Shares have been duly authorized and validly issued,
are fully paid and nonassessable and the holders thereof are not
entitled to any preemptive first refusal or other similar rights.
Except as noted in
Schedule I hereto,
the Pledged Shares constitute 100% of the issued shares of capital
stock, partnership interests or membership or other equity
interests, as applicable, of the Subsidiaries. All other shares of
stock constituting Collateral will be, when issued, duly authorized
and validly issued, fully paid and nonassessable.
(d)
The
Pledgor is and will be at all times the legal and beneficial
owner of the Collateral free and clear of any Lien, security
interest, option or other charge or encumbrance except for the
security interest and Lien created by this Agreement or any
Permitted Liens.
(e)
The
exercise by the Buyer of any of its rights and remedies
hereunder will not contravene any law or any contractual
restriction binding on or affecting the Pledgor or any of the
properties of the Pledgor and will not result in or require
the creation of any Lien, security interest or other charge or
encumbrance upon or with respect to any of the properties of
the Pledgor other than pursuant to this Agreement and the
other Transaction Documents.
(f)
No
authorization or approval or other action by, and no notice to
or filing with, any governmental authority is required to be
obtained or made by the Pledgor for (i) the due execution,
delivery and performance by the Pledgor of this Agreement,
(ii) the grant by the Pledgor, or the perfection, of the
security interest and Lien purported to be created hereby in
the Collateral or (iii) the exercise by the Buyer of any of
its rights and remedies hereunder, except as may be required
in connection with any sale of any Collateral by laws
affecting the offering and sale of securities
generally.
(g)
This
Agreement creates a valid security interest and Lien in favor
of the Buyer in the Collateral, as security for the
Obligations. The Buyer’s having possession of the
promissory notes evidencing the Collateral, the certificates
representing the Pledged Shares and all other certificates,
instruments and cash constituting Collateral from time to time
results in the perfection of such security interest and Lien.
Such security interest and Lien is, or in the case of
Collateral in which the Pledgor obtains rights after the date
hereof, will be, a perfected Lien. All action necessary or
desirable to perfect and protect such security interest and
Lien has been duly taken, except for the Buyer’s having
possession of certificates, instruments and cash constituting
Collateral after the date hereof.
SECTION
6.
Covenants as to the Collateral . So long as any Obligations
shall remain outstanding and the Securities Purchase Agreement and
the other Transaction Documents shall not have been terminated, the
Pledgor will, unless the Buyer shall otherwise consent in
writing:
(a)
keep
adequate records concerning the Collateral and permit the
Buyer, or any designees or representatives thereof at any time
or from time to time to examine and make copies of and
abstracts from such records;
(b)
at
the Pledgor’s expense, promptly deliver to the Buyer a
copy of each material notice or other material communication
received by the Pledgor in respect of the
Collateral;
(c)
at
the Pledgor’s expense, defend the Buyer’s right,
title and security interest in and to the Collateral against
the claims of any Person;
(d)
at
the Pledgor’s expense, at any time and from time to
time, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or
desirable or that the Buyer may reasonably request in order to
(i) perfect and protect, or maintain the perfection of,
the security interest and Lien purported to be created hereby,
(ii) enable the Buyer to exercise and enforce its rights and
remedies hereunder in respect of the Collateral or (iii)
otherwise effect the purposes of this Agreement, including,
without limitation, delivering to the Buyer irrevocable
proxies in respect of the Collateral;
(e)
not
sell, assign (by operation of law or otherwise), exchange or
otherwise dispose of any Collateral or any interest therein
except as expressly permitted by the Securities Purchase
Agreement;
(f)
not
create or suffer to exist any Lien, upon or with respect to
any Collateral except for the Lien created hereby or for any
Permitted Lien;
(g)
not
make or consent to any amendment or other modification or
waiver with respect to any Collateral or enter into any
agreement or permit to exist any restriction with respect to
any Collateral other than pursuant to the Transaction
Documents;
(h)
except
as expressly permitted by the Securities Purchase Agreement,
not permit the issuance of (i) any additional shares of any
class of capital stock, partnership interests, member
interests or other equity of any Subsidiary, (ii) any
securities convertible voluntarily by the holder thereof or
automatically upon the occurrence or non-occurrence of any
event or condition into, or exchangeable for, any such shares
of capital stock or (iii) any warrants, options, contracts or
other commitments entitling any Person to purchase or
otherwise acquire any such shares of capital
stock;
(i)
not
issue any stock certificate, certificated security or other
instrument to evidence or represent any shares of capital
stock, any partnership interest or membership interest
described in
Schedule I hereto;
and
(j)
not
take or fail to take any action which would in any manner
impair the validity or enforceability of the Buyer’s
security interest in and Lien on any Collateral.
SECTION
7.
Voting Rights, Dividends, Etc. in Respect of the Collateral
.
(a)
So
long as no Event of Default (as defined in the Notes) (an
“
Event of Default”
