PLEDGE AND SECURITY AGREEMENT
PLEDGE
AND SECURITY AGREEMENT dated May __, 2008, made by SJ
Electronics, Inc. (f/k/a Acheron, Inc.), a Nevada corporation
(the “
Pledgor ”)
and Agatha Shen, in favor of Tri-State Title & Escrow, LLC, in
its capacity as collateral agent (the “
Collateral Agent ”)
for and on behalf of the Noteholders (as defined below) (in such
capacity, the “
Pledgee ”).
W
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WHEREAS,
Pledgor and each party listed as a "Investor" on the Schedule
of Investors attached thereto (collectively, the
“
Investors ”,
and together with their respective successors and permitted
assigns, collectively, the "
Noteholders ")
are parties to the Note Purchase Agreement, dated as of the date
hereof (as amended, restated, supplemented or otherwise modified
from time to time in accordance with the terms thereof, the
“
Note Purchase Agreement ”),
pursuant to which the Pledgor will authorize and issue a new series
of its senior secured convertible notes (as such Notes may be
amended, restated, replaced or otherwise modified from time to time
in accordance with the terms thereof, collectively, the "
Notes "),
which Notes shall be convertible into the Pledgor’s Shares,
par value $.001, in accordance with the terms thereof;
WHEREAS,
Agatha Shen has executed and delivered a Guaranty dated the
date hereof (as amended, restated, supplemented or otherwise
modified from time to time in accordance with the terms
thereof, the “
Guaranty ”)
for the benefit of herself and the Noteholders, with respect to the
Pledgor’s obligations under the Note Purchase Agreement, the
Notes and the other Transaction Documents (as defined below);
and
WHEREAS,
it is a condition precedent to the Noteholders purchasing the
Notes pursuant to the Note Purchase Agreement that the Pledgor
and Agatha Shen shall have agreed to pledge as collateral
security to Pledgee, for themselves and the benefit of
Noteholders and to the grant to Pledgee, for themselves and
the benefit of Noteholders, of a security interest in and Lien
on the
Accounts Receivable of the Pledgor as defined in Section 2
(the “
Accounts Receivable ”)
and ten
million (10,000,000) shares of Common Stock, owned by Agatha Shen,
the Chairman of the Pledgor (the
“
Pledged Shares ”)
subject to the terms and conditions hereof ;
WHEREAS,
Pledgor has determined that the execution, delivery and
performance of this Agreement directly benefits, and is in the
best interest of, Pledgor;
NOW,
THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Investors purchase the Notes
pursuant to the Note Purchase Agreement, Pledgor hereby agrees
with the Pledgee, for itself and the benefit of the
Noteholders, as follows:
SECTION
1.
Definitions .
Reference
is hereby made to the Notes for a statement of the terms
thereof. All terms used in this Agreement which are defined in
the Notes, Note Purchase Agreement or in Article 8 or Article
9 of the Uniform Commercial Code currently in effect in the
State of Nevada (the
“
Code ”)
and which are not otherwise defined herein shall have the same
meanings herein as set forth therein. If a term used, but not
defined, in this Agreement shall have been defined in both the
Notes and the Note Purchase Agreement, such term as used in this
Agreement shall have the meaning ascribed to such term in the
Notes.
SECTION
2.
Pledge and Grant of Security Interest .
As
collateral security for the prompt performance, observance and
indefeasible payment in full of all of the Obligations (as
defined in Section 3 hereof), Pledgor hereby pledges and
collaterally assigns to the Pledgee, for itself and the
benefit of the Noteholders, and grants to the Pledgee for the
benefit of itself and the Noteholders a continuing security
interest in and Lien on, (A) Agatha Shen’s right, title
and interest in and to the Pledged Shares, and, (B)
Pledgor’s right, title and interest in and to the
Accounts Receivable (together with Pledged Shares, the
“
Pledged Collateral ”).
“Accounts Receivable” means
all
rights to payment for goods sold or leased or for services
rendered, whether or not such rights have been earned by
performance, except that all such rights to payment from Lite-On,
Inc. are expressly excluded from Accounts Receivable.
SECTION
3.
Security for Obligations .
The security interest created hereby in the Pledged Collateral
constitutes continuing collateral security for all of the following
obligations, whether now existing or hereafter incurred (the
“
Obligations ”
):
(a)
all
present and future indebtedness, obligations, and liabilities
of Pledgor to Pledgee and the Noteholders under the Notes and
the Guaranty, as applicable. Without limiting the generality
of the foregoing, the Obligations include the obligation of
Pledgor and Subsidary to pay principal, interest, charges,
expenses, and disbursements, indemnities and other amounts
each payable by Pledgor under the Notes and the Guaranty, as
applicable, whether now existing or hereafter arising, whether
arising before, during or after the initial or any renewal
term of the Notes or after the commencement of any case with
respect to Pledgor under the Bankruptcy Code (as defined in
the Notes) or any similar statute (including the payment of
interest and other amounts which would accrue and become due
but for the commencement of such case, whether or not such
amounts are allowed or allowable in whole or in part in such
case); and
(b)
the
obligation of Pledgor to reimburse any amount in respect of
any of the foregoing that Pledgee or any Noteholder (in its
sole discretion) may elect to pay or advance on behalf of
Pledgor; provided, that such obligation or the amount related
thereto is not being contested by Pledgor in good faith.
Pledgor waives any rights it may have under the Code to demand
any filing of termination statements (or similar filing) by
Pledgee with respect to the Collateral, and Pledgee shall not
be required to deliver such termination statements to Pledgor,
or to file them with any filing office, in each case, unless
and until all of the Obligations are paid in full and the
Notes and Guaranty are terminated.
SECTION
4.
Delivery and Registration of Pledged Collateral
.
(a)
Agatha
Shen shall promptly cause the Pledged Shares to be registered
or entered, as the case may be, in the name of the Pledgee,
for the benefit of the Noteholders, or, upon the reasonable
request of the Pledgee, otherwise cause the security interest
held by the Pledgee, for the benefit of the Noteholders, to be
perfected in accordance with the Code.
(b)
The
Pledgor shall give, execute, deliver, file and/or record any
financing statement, notice, instrument, document, agreement
or other papers that may be necessary or desirable (in the
judgment of Pledgee) to create, preserve, perfect or validate
the security interest granted pursuant hereto or to enable
Pledgee to exercise and enforce its rights hereunder with
respect to such pledge and security interest.
(c)
If
Pledgor shall receive, by virtue of the Pledgor’s being
or having been an owner of any Pledged 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), or
other instrument, (ii) option or right, whether as an addition
to, substitution for, or in exchange for, any Pledged
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 or other distributions 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, instrument, option, right, payment or
distribution in trust for the benefit of the Pledgee, shall
segregate it from Pledgor’s other property and shall
deliver it forthwith to the Pledgee, for the benefit of itself
and the Noteholders, in the exact form received, with any
necessary endorsement and/or appropriate stock powers duly
executed in blank, to be held by the Pledgee as Pledged
Collateral and as further collateral security for the
Obligations.
SECTION
5.
Representations and Warranties .
The Pledgor represents and warrants that as of the date hereof
that:
(a)
The
Pledgor (i) is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada,
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 and the Guaranty (i) have been duly authorized by
all necessary action, (ii) do not and will not contravene its
charter or by-laws, or any applicable law compliance with
which is material to the business of the Pledgor or any
Material Contract or any other contractual restriction binding
on or otherwise affecting it or any of its properties where
the contravention of such other contractual restriction has or
could reasonably be expected to have a Material Adverse
Effect, (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 any Transaction Document and
(iv) do not and will not result in any default,
noncompliance, suspension, revocation, impairment, forfeiture
or nonrenewal of any permit, license, authorization or
approval applicable to it or its operations or any of its
properties where
such default, noncompliance, suspension, revocation,
impairment, forfeiture or nonrenewal has or could reasonably
be expected to have a Material Adverse Effect (as defined in
the Note Purchase Agreement).
(c)
The
Pledged Shares to the extent applicable have been duly
authorized and validly issued and are fully paid and
nonassessable and the holders thereof are not entitled to any
preemptive, first refusal or other similar
rights.
(d)
The
Pledgor is and will be at all times the legal and beneficial
owner of its Pledged Collateral free and clear of any Lien
except for the Lien created by this Agreement and other
Transaction Documents and the Permitted Liens.
(e)
The
exercise by the Pledgee of any of its rights and remedies in
accordance with the terms of this Agreement will not
contravene any applicable law compliance with which is
material to the business of the Pledgor or any Material
Contract or any other contractual restriction binding on or
otherwise affecting the Pledgor or any of the properties of
the Pledgor where the contravention of such other contractual
restriction has or would reasonably be expected to have a
Material Adverse Effect, and will not result in or require the
creation of any Lien (other than Permitted Liens, or pursuant
to this Agreement or the other Transaction Documents) upon or
with respect to any of the properties of the
Pledgor.
(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 Lien
created hereby in the Pledged Collateral or (iii) the exercise
by the Pledgee, for the benefit of itself and the Noteholders,
of any of its rights and remedies hereunder, except as may be
required in connection with any sale of any Pledged Collateral
by laws affecting the offering and sale of securities
generally.
(g)
This
Agreement has been duly executed and delivered by and on
behalf of the Pledgor and constitutes the legal, valid and
binding obligation of the Pledgor, enforceable against the
Pledgor in accordance with its terms.
SECTION
6.
Covenants as to the Pledged Collateral .
Unless and until the Obligations have been paid in full, the
Pledgor shall, unless the Pledgee shall otherwise consent in
writing:
(a)
keep
adequate records concerning the Pledged Collateral and permit
the Pledgee or any agents, designees or representatives
thereof at any time or from time to time, subject to the terms
of the Notes, to examine and make copies of and abstracts from
such records during
normal business hours of the Pledgor provided that the Pledgor
shall not bear the cost and expense of more than two such
examinations or other visits in any calendar year unless an
Event of Default has occurred and is continuing
;
(b)
at
the Pledgor’s expense, promptly, and in any event within
five (5) days after receipt, deliver to the Pledgee a copy of
each material notice or other material communication received
by it in respect of the Pledged Collateral;
(c)
at
the Pledgor’s expense, defend the Pledgee’s right,
title and security interest in and to the Pledged 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
appropriate or that the Pledgee 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 Pledgee to exercise and enforce its
rights and remedies hereunder in respect of the Pledged
Collateral in accordance with the provisions hereof or (iii)
otherwise effect the purposes of this Agreement, including,
without limitation, delivering to the Pledgee, after the
occurrence and during the continuation of an Event of Default,
irrevocable proxies in respect of the Pledged
Shares;
(e)
not
sell, assign (by operation of law or otherwise), exchange or
otherwise dispose of any Pledged Collateral or any of its
interest therein other than as permitted under the Notes and
other Transaction Documents;
(f)
not
create or suffer to exist any Lien upon or with respect to any
Pledged Collateral owned by it except for the Lien created
hereby or the other Transaction Documents or for any Permitted
Lien;
(g)
not
make or consent to any amendment or other modification or
waiver with respect to any Pledged Collateral except that any
Pledgor may make or consent to any amendment or other
modification or waiver solely to the extent necessary to
reflect any merger or consolidation permitted by the Notes or
enter into any agreement or permit to exist any restriction
with respect to any Pledged Collateral other than under the
Transaction Documents;
(h)
not
take or fail to take any action which would in any manner
impair the value or enforceability of the Pledgee’s
security interest in and Lien on any Pledged
Collateral;
(i)
in
the event the Pledgor achieves the 2008 Projected Income, as
defined in Section 6(i) of the Note Purchase Agreement, the
security interest and Lien on the Pledged Shares created
hereby shall terminate, all rights to the Pledged Shares shall
revert to Agatha Shen and the Pledged Shares shall be returned
to Agatha Shen.
(j)
upon
the direction of the Collateral Agent as described in Section
2(a) of that certain Lockbox Agreement (the “Lockbox
Agreement”) dated as of the date hereof by and among the
Pledgor, the Collateral Agent and the Lockbox Agent, as
defined therein,
the
Pledgor shall promptly, but in no event later than thirty Business
Days, after such direction is given, notify all the account debtors
on the Accounts Receivable that payments in respect thereof shall
be made directly to the Collateral Account. Funds may be withdrawn
from the Collateral Account only in accordance with Section 4 of
the Lockbox Agreement.
SECTION
7.
Distributions and Voting Rights, Etc. in Respect of the Pledged
Shares .
(a)
So
long as no Event of Default shall have occurred and be
continuing:
(i)
Agatha
Shen may exercise any and all voting and other consensual
rights pertaining to the Pledged Shares for any purpose not
inconsistent with the terms of this Agreement, the Notes or
the other Transaction Documents;
provided ,
however ,
that (A) Agatha Shen will not exercise or refrain from exercising
any such right, as the case may be, if the Pledgee has provided
prior written notice to Agatha Shen that, in the Pledgee’s
judgment, such action (or inaction) could reasonably be expected to
affect adversely in any material respect the value of the Pledged
Shares or otherwise could reasonably be expected to have a Material
Adverse Effect and (B) Agatha Shen will give the Pledgee at least
five (5) Business Days’ notice of the manner in which it
intends to exercise, or the reasons for refraining from exercising,
any such right that could reasonably be expected to affect
adversely in any material respect the value of any Pledged
Collateral or otherwise could reasonably be expected to have a
Material Adverse Effect;
(ii)
Agatha
Shen may receive and retain any and all dividends, interest or
other distributions paid in respect of the Pledged Shares to
the extent permitted by the Notes or the other Transaction
Documents;
provided ,
that ,
any and all (A) dividends and interest paid or payable other than
in cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of or in exchange
for, the Pledged Shares ,
(B)
dividends and other distributions paid or payable in cash in
respect of the Pledged Shares in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in surplus,
and
(C) cash paid, payable or otherwise distributed in redemption of,
or in exchange for, the Pledged Shares, together with any dividend,
interest or other distribution or payment which, in the case of
each of (A), (B) and (C) hereof, at the time of such payment or
other distribution was not permitted by the Notes, shall be, and
shall forthwith be delivered to the Pledgee to hold as, Pledged
Collateral and shall, if received by Agatha Shen, be received in
trust for the benefit of the Pledgee, shall be segregated from the
other property or funds of Agatha Shen, and shall be forthwith
delivered to the Pledgee in the exact form received with any
necessary endorsement and/or appropriate stock powers duly executed
in blank, to be held by the Pledgee as Pledged Collateral and as
further collateral security for the Obligations;
provided ,
that ,
the Pledgee shall return such amounts to Agatha Shen within ten
(10) Business Days
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