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PLEDGE AND SECURITY AGREEMENT
This Pledge and
Security Agreement (" Agreement" ) is made and entered into
this ___ day of ______________, 2005, by John Gibbs, an individual
(" Pledgor ") in favor of _________________________, an
individual (" Secured Party ").
RECITALS
A. Secured
Party and Gibbs Holdings, LLC, an Oklahoma limited liability
company (" Debtor "), entered into that certain Stock
Purchase Agreement dated ________, 2005 pursuant to which Secured
Party agreed to sell a total of 1,025,331 shares of common stock of
Redwood Microcap Fund, Inc. (" Company ") to Debtor for a
purchase price of $1.60 per share payable $244,536.00 in cash and
$1,395,994.00 by promissory note(s) (" Note ");
B. Pledgor
is the sole member of Debtor and will derive substantial benefit
from the Stock Purchase Agreement; and
C. Debtor
and Secured Party have agreed that as security and collateral for
the Note, Pledgor shall assign and pledge all of his right, title,
and interest to those certain convertible notes dated March 24,
2005 in the amounts of $396,420.00 and $398,484.00, respectively,
issued by Company in favor of Pledgor (" Convertible Note
").
NOW
THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, and other good and valuable
consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1.
PLEDGE AND SECURITY INTEREST . As security and collateral
for the obligation of Debtor under the Note (the "
Obligation "), together with any and all costs and expenses
paid or incurred by Secured Party in the collection of the
Obligation and in enforcing and administering this Agreement and
Secured Party's rights hereunder (the " Expenses "), Pledgor
hereby pledges unto Secured Party the Convertible Note on the terms
and conditions set forth therein (the Convertible Note and any
securities of the Company received in exchange or upon conversion
of the Convertible Note may sometimes be referred to as the "
Collateral ").
TO HAVE AND TO HOLD
the Collateral together with all rights, titles, interests, powers,
privileges and preferences appertaining or incidental thereto, unto
Secured Party, its successors and assigns, forever as security for
the Obligation and the Expenses, subject, however, to the terms,
covenants and conditions hereinafter set forth.
2.
REPRESENTATIONS AND WARRANTIES . Pledgor represents and
warrants as follows:
2.1
Ownership . The Pledgor owns the Collateral of record and
beneficially free and clear of any liens, charges or encumbrances
thereon or affecting the title thereto, respectively.
2.2
Defense of Interest . Pledgor has good right and lawful
authority to pledge the Collateral as provided herein and warrant
and will preserve and defend all right, title and interest in and
to the Collateral delivered to Secured Party hereunder against the
claims of all persons and will maintain and preserve the lien
hereof as long as this Agreement shall remain in full force and
effect.
3.
APPOINTMENT OF AGENTS; REGISTRATION IN NOMINEE NAME .
Secured Party shall have the right to appoint one or more agents
for the purpose of retaining physical possession of the instruments
representing or evidencing the Collateral, which may be held in the
name of Pledgor, endorsed or assigned in blank or in favor of
Secured Party or an agent appointed by Secured Party. In addition
to all other rights possessed by Secured Party, Secured Party may
from time to time after the occurrence of an Event of Default (as
hereinafter defined), or an event which with the giving of notice
or the lapse of time, or both, would be such an Event of Default,
take any or all of the following actions: (a) transfer all or any
part of the Collateral into the name of Secured Party or its
nominee, with or without disclosing that such Collateral is subject
to the lien and security interest hereunder; (b) take control of
any proceeds of any of the Collateral; and (c) exchange
certificates or instruments representing or evidencing Collateral
for certificates or instruments of smaller or larger denominations
for any purpose consistent with its performance of this Agreement.
Provided, however, that prior to taking any of the foregoing
actions the Secured Party shall provide written notice to Pledgor
identifying the Event of Default and allow Pledgor fifteen (15)
days to correct such default.
4.
RIGHTS, INTEREST, DIVIDENDS, CONVERSION, ETC .
4.1
Pledgor's Rights Prior to Event of Default . So long as
there has not occurred an Event of Default or an event which with
the giving of notice of the lapse of time, or both, would be such
an Event of Default, Pledgor shall be entitled to exercise any and
all rights and powers relating or pertaining to the Collateral or
any part thereof for any purpose not inconsistent with the terms of
this Agreement, including any rights to enforce payment of the
Note, to convert the Note and to vote any shares of stock issued
upon conversion of the Note.
4.2
Pledgor's Right to Interest Prior to Event of Default . So
long as there has not occurred an Event of Default or an event
which with the giving of notice or the lapse of time, or both,
would be such an Event of Default, Pledgor shall receive and be
entitled to retain any and all interest, cash dividends and
distributions, if any, paid on the Collateral. Any and all stock
received upon conversion of the Note, stock and/or liquidating
dividends, distributions in property, redemptions or other
distributions made on or in respect of the Collateral, whether
resulting from a subdivision, combination or reclassification of
the outstanding capital stock of the issuer thereof or received in
exchange for Collateral or any part thereof or as a result of any
merger, consolidation, acquisition or other exchange of assets to
which such issuer or Pledgor may be a party or otherwise, and any
and all cash and other property received in payment of the
principal of or in redemption of or in exchange for any Collateral
(either at maturity, upon call for redemption or otherwise), shall
become part of the Collateral and, if received by Pledgor, shall be
held in trust for the benefit of Secured Party and shall forthwith
be delivered to Secured Party or its designated agent (accompanied
by proper instruments of assignment and/or stock powers executed by
Pledgor in accordance with Secured Party's instructions) to be held
subject to the terms of this Agreement.
4.3
Secured Party's Rights in an Event of Default . Upon the
occurrence of an Event of Default or an event which with the giving
of notice or the lapse of time, or both, would be such an Event of
Default, at the option of Secured Party, (i) all rights of Pledgor
to exercise the rights and powers which he is entitled to exercise
pursuant to Section 4.1 shall cease, and all such rights shall
thereupon become vested in Secured Party, which shall have the sole
and exclusive right and authority to exercise such rights and
powers, and (ii) Secured Party shall receive and be entitled to
retain any and all interest, cash dividends and distributions, if
any, paid in respect of the Collateral. Any and all money and other
property paid over to or received by Secured Party pursuant to the
provisions of Section 4.2 above shall be retained by Secured Party
as part of the Collateral and be applied in accordance with the
provisions hereof. Provided, however, that Secured Party must
provide written notice to Pledgor identifying the Event of Default
and allow Pledgor fifteen (15) days to correct such default.
5.
REMEDIES UPON DEFAULT . Upon the occurrence of an Event of
Default, then, in addition to having the right to exercise any
rights and remedies of a secured party upon default under the
Uniform Commercial Code in effect in the State of Oklahoma, Se
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