Stock Pledge Agreement
STOCK PLEDGE AGREEMENT, dated as of March 31, 1997, made by and between
Daniel P. Flohr (the "Pledgor"), and Josephthal Lyon & Ross Incorporated, as
agent (in such capacity, the "Agent") for the investors (the "Investors") in a
private placement of shares of common stock (the "Common Stock") of C-Phone
Corporation (the "Company") made of even date herewith (the "Private
Placement").
WHEREAS, (i) pursuant to the Private Placement, the Investors have
severally acquired shares of the Company's Common Stock in the aggregate
principal amount of not more $5,000,000, (ii) the Company has agreed, pursuant
to a Registration Rights Agreement of even date herewith to register the Common
Stock upon receipt of a notice of demand therefor, (iii) the Pledgor, as the
Company's President and Chief Executive Officer, has agreed to pledge 250,000
shares of Common Stock to guarantee the obligations of the Company under the
Registration Rights Agreement, (iv) the Pledgor (a) is the legal and beneficial
owner of all of the shares of Pledged Stock (as hereinafter defined) issued by
the Company, and (b) will derive material benefits from the consummation of the
Private Placement; and (v) it is a condition precedent to the consummation of
the Private Placement that the Pledgor shall have executed and delivered to the
Agent for the ratable benefit of the Investors this Pledge Agreement.
NOW, THEREFORE, in consideration of the mutual premises made herein and
to induce the Agent and the Investors to enter into the documents relating to
the Private Placement, including without limitation the Securities Purchase
Agreement and the Prospective Investor Questionnaire, and to induce the
Investors to consummate the Private Placement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Pledgor hereby agrees with the Agent, for the ratable benefit of the Investors,
as follows:
1. DEFINED TERMS. The terms defined in the preamble of this Agreement
have the meanings set forth therein and the following terms have the meanings
set forth below:
"Agreement" means this Pledge Agreement and the Schedules and Exhibits
attached hereto, as amended, supplemented or otherwise modified from time to
time.
"Code" means the Uniform Commercial Code from time to time in effect in
the State of New York,
"Collateral" means the Pledged Stock and all Proceeds thereof.
"Forfeited Collateral" means so much of the Collateral as has been
forfeited pursuant to the provisions of Section 7(a) hereof.
"Registration Obligations" means the obligations of the Company to file
a registration statement with the Securities and Exchange Commission as more
fully set forth in the Registration Rights Agreement.
"Pledged Stock" means the shares of capital stock of the Company,
together with all stock certificates, options or rights of any nature whatsoever
which may be issued or granted by the Company to the Pledgor in respect of the
Pledged Stock while this Pledge Agreement is in effect.
"Proceeds" means all "proceeds" as such term is defined in Section
9-306(1) of the Code and, in any event, shall (i) include, without limitation,
all dividends or other income from the Pledged Stock, collections thereon or
distributions made with respect thereto.
2. PLEDGE: GRANT OF SECURITY INTEREST. The Pledgor hereby pledges and
delivers to the Agent for the ratable benefit of the Investors, all of the
Pledged Stock specified on Schedule 1 hereto and hereby grants to the Agent, for
the ratable benefit of the Investors, a first-priority security interest in the
Collateral, as collateral security for the prompt and complete satisfaction and
performance of all of the Registration Obligations.
3. STOCK POWERS. Concurrently with the delivery by the Pledgor to the Agent
of any certificate representing the shares of the Pledged Stock, the Pledgor
shall deliver an undated stock power covering such certificate, duly executed in
blank with, if the Agent so requests, signature guaranteed.
4. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and warrants to
the Agent and the Investors that as of the date hereof:
(a) the Pledgor has the power and authority and the legal right to
execute and deliver, to perform its obligations under, and to grant the lien on
the Collateral pursuant to, this Pledge Agreement and has taken all necessary
action to authorize its execution, delivery and performance of, and grant the
lien on the Collateral pursuant to this Pledge Agreement;
(b) this Pledge Agreement constitutes a legal, valid and binding
obligation of the Pledgor, enforceable against the Pledgor in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights
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generally and except as enforceability may be limited by general principles of
equity;
(c) the execution, delivery and performance of this Pledge Agreement by
the Pledgor will not violate any provision of any law order, writ or decree
binding upon or obligation of the Pledgor;
(d) no consent or authorization of, filing with, or other act by or in
respect of, any arbitrator or governmental authority and no consent of any other
person (including, without limitation, any stockholder or creditor of the
Pledgor or any shareholder of the Company) is required in connection with the
execution, delivery, or performance by the Pledgor or the validity or
enforceability against the Pledgor of this Pledge Agreement;
(e) no litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the knowledge of the
Pledgor, threatened by or against the Pledgor or against any of its properties
or revenues with respect to this Pledge Agreement or any of the transactions
contemplated hereby;
(f) all of the shares of Pledged Stock have been duly and validly
issued and are fully paid and nonassessable; and there are no outstanding
subscriptions, options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreements providing for the purchase,
encumbrance, hypothecation, or any other purported transfer or encumbrance of
any of the Pledged Stock;
(g) the Pledgor is the record and beneficial owner of, and has good and
marketable title to, the Pledged Stock, free and clear of any and all liens or
options in favor of, or claims of, any other person, except the lien created by
this Pledge Agreement;
(h) upon delivery to the Agent of the stock certificates evidencing the
Pledged Stock, so long as such Pledged Stock is delivered to the Agent in the
State of New York, the lien granted pursuant to this Pledge Agreement will
constitute (under the laws of the State of New York) a valid, perfected,
first-priority lien on the Collateral, enforceable as such against the Pledgor,
all creditors of the Pledgor and any persons purporting to purchase any of the
Collateral from the Pledgor; and
(i) the Pledgor has beneficially owned all of the shares of Pledged
Stock for a period of at least three (3) years.
5. COVENANTS. The Pledgor covenants and agrees with the Agent and the
Investors that, from and after the date of this Pledge Agreement until the
Registration Obligations are performed and satisfied in full:
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(a) If the Pledgor shall, as a result of its ownership of any Pledged
Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution of equity in connection with any reclassification, increase or
reduction of capital or any certificate issued in connection with any
reorganization), option or rights, whether in addition to, in substitution of,
as a conversion of or in exchange for any shares of any Pledged Stock, or
otherwise in respect thereof, the Pledgor shall accept the same as the agent for
the Agent and the Investors, hold the same in trust for the Agent and the
Investors and deliver the same forthwith to the Agent in the exact form
received, duly endorsed by the Pledgor to the Agent, if required, together with
an undated stock power covering such certificate duly executed in blank and
with, if the Agent so requests, signature guaranteed, to be held by the Agent
hereunder as Collateral. Any sums paid upon or in respect of any Pledged Stock
upon the liquidation or dissolution of the Company shall be paid over to the
Agent to be held by it hereunder as Collateral, and in case any distribution of
capital shall be made on or in respect of any Pledged Stock or any property
shall be distributed upon or with respect to any Pledged Stock, in either case,
pursuant to the recapitalization or reclassification of the capital of the
Company, or pursuant to the reorganization thereof, the property so distributed
shall be delivered to the Agent to be held by it, subject to the terms hereof,
as Collateral. If any sums of money or property so paid or distributed in
respect of any Pledged Stock shall be received by the Pledgor, the Pledgor
shall, until such money or property is paid or delivered to the Agent, hold such
money or property in trust for the Agent and the Investors, segregated from
other funds of the Pledgor, as Collateral.
(b) Without the prior written consent of the Agent, the Pledgor will
not (i) vote to enable, or take any other action to permit, any company to issue
any stock or other equity securities of any nature or to issue any other
securities convertible into or granting the right to purchase or exchange for
any stock or other equity securities of the Company, (ii) sell, assign,
transfer, exchange or otherwise dispose of, or grant any option with respect to,
the Collateral, or (iii) create, incur or permit to exist any lien or option in
favor of, or any claim of any person with respect to, any of the Collateral, or
any interest therein, except for the lien provided for by this Pledge Agreement.
The Pledgor will defend the right, title and interest of the Agent, and the
Investors in and to the Collateral against the claims and demands of all persons
whomsoever.
(c) At any time and from time to time, upon the written request of the
Agent, and at the sole expense of the Pledgor, the Pledgor will promptly and
duly execute and deliver such further instruments and documents and take such
further actions as the Agent may reasonably request for the purposes of
obtaining or
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preserving the full benefits of this Agreement and of the rights and powers
herein granted. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note, other instrument
or chattel paper, such note, instrument or chattel paper shall be immediately
delivered to the Agent, duly endorsed in a manner satisfactory to the Agent, to
be held as Collateral pursuant to this Agreement.
(d) The Pledgor agrees to pay, and to indemnify and save the Agent and
the Investors harmless from and against, any and all liabilities with respect
to, or resulting from any delay in paying, any and all stamp, excise, sales or
other taxes which may be payable or determined to be payable with respect to any
of the Collateral or in connection with any of the transactions contemplated by
this Agreement.
(e) The Pledgor will not create, incur or permit to exist any lien upon
the Pledged Stock other than the Lien in favor of the Agent for the benefit of
the Investors created hereunder.
6. CASH DIVIDENDS: VOTING RIGHTS. Unless an Event of Default (as
hereinafter defined) shall have occurred and be continuing and the Agent shall
have given notice to the Pledgor of the Agent's intent to exercise its
corresponding rights pursuant to paragraph 7 below, the Pledgor shall be
permitted to receive all cash dividends paid by the Company in respect of the
Pledged Stock and to exercise all voting and corporate rights with respect to
the Pledged Stock; provided, however, that the Pledgor hereby covenants that it
shall not cast any vote or take any other action that, in the Agent's reasonable
judgment, would impair any of the Collateral or which would be inconsistent with
or result in any violation of any provision of this Pledge Agreement.
7. EVENT OF DEFAULT; RIGHTS OF THE AGENT. (a) For the purposes of this
Pledge Agreement, the term "Event of Default" shall mean the failure of the
Registration Statement referred to in the Registration Rights Agreement to be
declared effective by the Securities and Exchange Commission within 95 days of
the receipt by the Company of the Demand Registration Request (as defined in
such agreement). For each day on which an Event of Default shall continue
unabated, Pledgor shall forfeit, and Agent shall be entitled to exercise any of
the remedies set forth in paragraph 8 hereof with respect to 1,000 shares of
Pledged Stock, up to a maximum of 90 days, or 90,000 shares of Pledged Stock. If
an Event of Default shall continue unabated for a period of 91 days, then
Pledgor shall forfeit, and Agent shall be entitled to exercise any of the
remedies set forth in paragraph 8 hereof with respect to, the remaining 160,000
shares of Pledged Stock.
(b) If an Event of Default shall have occurred and be continuing and
the Agent shall give notice of its intent to exercise any of the following
rights to the Pledgor: (i) the Agent
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shall have the right to receive on behalf of the Investors any and all cash
dividends paid in respect of the forfeited shares of Pledged Stock and make
application thereof in such order as it may determine, (ii) all forfeited shares
of the Pledged Stock shall be registered in the name of the Agent or its
nominee, and the Agent or its nominee may thereafter exercise (A) all voting,
corporate and other rights pertaining to such shares of the Pledged Stock at any
meeting of stockholders of the Company or otherwise, and (B) any and all rights
of conversion, exchange, subscription and any other rights, privileges or
options pertaining to such shares of the Pledged Stock as if it were the
absolute record and beneficial owner thereof (including, without limitation, the
right to exchange at its discretion any and all of such shares of the Pledged
Stock upon the merger, consolidation, reorganization, recapitalization or other
fundamental change in the corporate structure of the Company, or upon the
exercise by the Pledgor or the Agent of any right, privilege or option
pertaining to such shares of the Pledged Stock, and in connection therewith, the
right to deposit and deliver any and all of such shares of the Pledged Stock
with any committee, depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as it may determine), all without
liability except to account for property actually received by it, but the Agent
shall have no duty to exercise any such right, privilege or option and shall not
be responsible for any failure to do so or delay in so doing.
(c) The rights of the Agent hereunder shall not be conditioned or
contingent upon the pursuit by the Agent of any right or remedy against the
Company or against any other person that may be or become liable in respect of
all or any part of the Registration Obligations or against any other collateral
security therefor, guarantee thereof or right of offset with respect thereto.
The Agent shall not be liable for any failure to demand, collect or realize upon
all or any part of the Collateral or for any delay in doing so, nor shall the
Agent be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Pledgor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof.
8. REMEDIES. If an Event of Default shall occur and be continuing, the
Agent, on behalf of the Investors, may exercise, in addition to all other rights
and remedies granted in this Pledge Agreement and in any other instrument or
agreement securing, evidencing or relating to the Registration Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon the Pledgor, the Company or
any other person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Forfeited Collateral, or
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any part thereof, and/or may forthwith sell, assign, give option or options to
purchase or otherwise dispose of and deliver the Forfeited Collateral or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, in the over-the-counter market, at any
exchange, broker's board or office of the Agent or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
The Agent or any Investor shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Forfeited Collateral so sold, free of
any right or equity of redemption in the Pledgor, which right or equity is
hereby waived or released. The Agent shall disburse any Proceeds from time to
time held by it and the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale after deducting all reasonable costs and
expenses of every kind incurred therein or in the care or safekeeping of any of
the Forfeited Collateral or the exercise by the Agent of its rights hereunder,
including, without limitation, reasonable attorneys' fees and disbursements,
ratably to the Investors, in such order as the Agent may elect. To the extent
permitted by applicable law, the Pledgor waives all claims, damages and demands
it may acquire against the Agent arising out of the exercise by the Agent or any
Investor of any of its rights hereunder; provided, however, that such waiver
shall not apply to any claims, damages or demands resulting from the Agent's or
any Investor's gross negligence or willful misconduct. If any notice of a
proposed sale or other disposition of Forfeited Collateral shall be required by
law, such notice shall be deemed reasonable and proper if given at least 10 days
before such sale or other disposition.
9. [INTENTIONALLY OMITTED].
10. [INTENTIONALLY OMITTED].
11. AMENDMENTS, ETC. WITH RESPECT TO THE REGISTRATION OBLIGATIONS. Until
the Registration Obligations are satisfied in full, the Pledgor shall remain
obligated hereunder, and the Collateral shall remain subject to the lien granted
hereby. The Agent shall have no obligation to protect, secure, perfect or insure
any other lien at any time held by it as security for the Registration
Obligations or any property subject thereto. The Pledgor waives any and all
notice of the creation, renewal, extension or accrual of any of the Registration
Obligations and notice of or proof of reliance by the Agent upon this Pledge
Agreement; the Registration Obligations shall conclusively be deemed to have
been created, contracted or incurred in reliance upon this Pledge Agreement; and
all dealings among the Company, the Pledgor, the Agent and the Investors shall
likewise be conclusively presumed to have been had or consummated in reliance
upon this Pledge Agreement. The Pledgor waives diligence, presentment,
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protest, demand and notice of default to or upon the Company or the Pledgor with
respect to the Registration Obligations.
12. LIMITATION ON DUTIES REGARDING COLLATERAL. The Agent's sole duty with
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under Section 9- 207 of the Code or otherwise, shall be to
deal with it in the same manner as the Agent deals with similar securities and
property for its own account. Neither the Agent nor any of its directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Pledgor or otherwise.
13. POWERS COUPLED WITH AN INTEREST. All authorizations and agencies herein
contained with respect to the Collateral are irrevocable powers coupled with an
interest.
14. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provision hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
15. PARAGRAPH HEADINGS. The paragraph headings used in this Agreement are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
16. NO WAIVER: CUMULATIVE REMEDIES. The Agent shall not by any act of
(except by a written instrument pursuant to paragraph 17 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Event of Default or in any breach of any
of the terms and conditions hereof. No failure to exercise, nor any delay in
exercising on the part of the Agent, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Agent of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Agent would otherwise have
on any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
17. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS; GOVERNING LAW. None of
the terms or provisions of this Agreement may be waived, amended, supplemented
or otherwise modified except by a
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written instrument executed by the Pledgor and the Agent; provided, however that
any provision of this Agreement with respect to the rights of the Agent or the
Investors may be waived only by the Agent in a letter or agreement executed by
the Agent. This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Pledgor, the Agent and the Investors. This
Agreement shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York without regard to the conflict-of-laws
principles thereof.
18. NOTICES. Any notice hereunder shall be delivered to the address and/or
telecopy number of the Pledgor and the Agent specified below and given by
certified mail-return requested or by telecopier, and shall be deemed given when
so sent.
19. IRREVOCABLE AUTHORIZATION AND INSTRUCTION TO THE COMPANIES. The Pledgor
hereby authorizes and instructs the Company and, if applicable, each other
stockholder of the Company to comply with any instruction received by it from
the Agent in writing that (a) states that an Event of Default has occurred and
(b) is otherwise in accordance with the terms of this Agreement without any
other or further instructions from the Pledgor, and the Pledgor agrees that the
Company and/or the other stockholders of the Company shall be fully protected in
so complying.
20. AUTHORITY OF AGENT. The Pledgor acknowledges that the rights and
responsibilities of the Agent under this Pledge Agreement with respect to any
action taken by the Agent or the exercise or non-exercise by the Agent of any
option, right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Pledge Agreement shall, as between the Agent
and the Investors, be governed by such agreements with respect thereto as may
exist from time to time among them, but, as between the Agent and the Pledgor,
the Agent shall be conclusively presumed to be acting as agent for the Investors
with full and valid authority so to act or refrain from acting, and the Pledgor
shall not be under any obligation, or entitlement, to make any inquiry
respecting such authority.
21. TERMINATION; RELEASE. When all Registration Obligations have been
satisfied in full, this Agreement shall terminate, and the Agent, at the expense
of the Pledgor, will execute and deliver to the Pledgor a proper instrument or
instruments acknowledging the satisfaction and termination of this Agreement,
and will duly assign, transfer and deliver to the Pledgor (without recourse and
without any representation or warranty) such of the Collateral as may be in the
possession of the Agent and which has not theretofore been sold or otherwise
applied or released pursuant to this Agreement, together with any moneys at the
time held by the Agent hereunder.
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IN WITNESS WHEREOF, the Pledgor and the Agent have caused this Pledge
Agreement to be duly executed and delivered as of the date first above written.
--------------------------
Daniel P. Flohr
Address for Notices:
c/o C-Phone Corporation
6714 Netherlands Drive
Wilmington, NC 28405
Telecopy: (910) 395-6108
with a copy to:
Warshaw Burstein Cohen
Schlesinger & Kuh, LLP
555 Fifth Avenue
New York, New York 10017
Attn: Arthur Katz, Esq.
Telecopy: (212) 984-7893
JOSEPHTHAL LYON & ROSS
INCORPORATED
By:
-------------------------
Name:
Title:
Address for Notices:
200 Park Avenue
24th Floor
New York, New York 10166
Attention: Dan Purjes
Telecopy: (212) 907-4086
with a copy to:
Michael Loew, Esq.
200 Park Avenue
24th floor
New York, New York 10166
Telecopy: (212) 949-9884
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SCHEDULE 1
CERTIFICATE NO. NO. OF SHARES OF
- -------------- COMMON STOCK
----------------
3120 73,455
3114 100,000
76,545
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