SECURITY INTEREST AND PLEDGE AGREEMENT
SECURITY INTEREST AND PLEDGE AGREEMENT ("Pledge Agreement"), dated as of
February 18, 2005, by and among the persons set forth on Schedule 1 (each a
"Secured Party" and collectively, the "Secured Parties"), IBIZ TECHNOLOGY CORP.,
a Florida corporation (the "Company" or the "debtor"), KENNETH W. SCHILLING (the
"Pledgor") and GRUSHKO & MITTMAN P.C. as agent for the Secured Parties (the
"Agent").
RECITALS
A. Reference is made to (i) that certain Subscription Agreement of even
date herewith (the "Subscription Agreement") to which the Company and the
Secured Parties are parties, and (ii) the Transaction Documents (as that term is
defined in the Subscription Agreement), including, without limitation, the
Notes. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the relevant Transaction Documents.
B. The Debtor has certain obligations to the Secured Parties (all such
obligations, the "Obligations"). The below-referenced Obligations are personally
guaranteed by the Pledgor (each such guaranty, a "Guaranty").
C. To secure the Obligations, the Pledgor has agreed to pledge certain
shares of Common Stock of the Company held by the Pledgor to the Secured Parties
as security for the performance of the Obligations.
D. The Pledgor is a principal shareholder of the Debtor and have
determined that it is in the Pledgor's best interests to provide the Guaranty
pledge referred to herein.
E. The Secured Parties are willing to enter into the Subscription
Agreement and the other Transaction Agreements only upon receiving Pledgor's
guarantee under the Guaranty and pledge of certain stock of the Company, as set
forth in this Pledge Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
conditions contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Grant of Security Interest.
(a) To secure the Obligations of Debtor, the Pledgor hereby pledge
to the Secured Parties, all of the shares of Common Stock set forth on the
attached Schedule 2 of this Agreement (the "Pledged Shares"). Unless otherwise
set forth on Schedule 2 of this Agreement, the Pledgor is the beneficial and
record owner of the Pledged Shares set forth opposite such Pledgor's name on
such Schedule. Such Pledged Shares, together with any substitutes therefor, or
proceeds thereof, are hereinafter referred to collectively as the "Collateral."
(b) The Company represents and warrants to the Secured Parties that
the Pledged Shares are duly authorized, validly issued, fully paid and
non-assessable and that it will not permit the transfer of the Pledged Shares
except in accordance with this Pledge Agreement while the same is in effect.
2. Obligations Secured. The Collateral shall secure the following:
(a) The Debtor's Registration statement on Form SB-2 being declared
effective by the Securities and Exchange Commission no later than 90
days from closing.
3. Perfection of Security Interests. Upon execution of this Pledge
Agreement by the Debtor and the Pledgor,
(a) Pledgor undertakes to deliver and transfer possession of the
stock certificates identified opposite such Pledgor's name on Schedule 2 of this
Agreement (the "Pledged Certificates"), together with stock transfer powers duly
executed in blank by the registered owner of the shares represented by such
Certificates, with appropriate Medallion signature guaranty ("Stock Powers"), to
the Secured Parties to be held by the Agent, as agent for the Secured Parties.
(b) The Collateral will be held by the Agent, to perfect the
security interest of the Secured Parties, until the earlier of
(i) the termination of this Agreement, or
(ii) foreclosure of Secured Party's security interests as provided herein.
(c) The Debtor and the Pledgor, and each of them, hereby appoint
Grushko & Mittman, P.C., as attorney-in-fact with powers of substitution, to
execute all documents and perform all acts as Secured Party, may reasonably
request in order to perfect and maintain a valid security interest for Secured
Party in the Collateral.
4. Pledgor's Warranty. Pledgor represents and warrants hereby to the
Secured Parties as follows with respect to the Pledged Shares set forth opposite
such Pledgor's name on Schedule 2 to this Agreement:
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A. With respect to title to the Transferred Shares
(i) that upon transfer by Pledgor of such Pledgor's Certificates and
Stock Powers to Secured Parties pursuant to this Agreement at such time, if any,
as contemplated hereby, the purchaser of the Pledged Shares or the Secured
Party, as contemplated herein, as the case may be, will have good title (both
record and beneficial) to the relevant Pledged Shares;
(ii) that there are no restrictions upon transfer and pledge of the
Pledged Shares pursuant to the provisions of this Agreement except the
restrictions imposed by Rule 144 under the Securities Act of 1933;
(iii) that the Pledged Shares are free and clear of any encumbrances
of every nature whatsoever, such Pledgor is the sole owner of the Pledged
Shares, and such shares are duly authorized, validly issued, fully paid and
non-assessable,
(iv) that such Pledgor has owned the Pledged Shares since the date
specified on Schedule 2 to this Agreement and that such shares were fully paid
for as of such specified date,
(v) that such Pledgor agrees not to grant or create, any security
interest, claim, lien, pledge or other encumbrance with respect to such
Pledgor's Pledged Shares or attempt to sell, transfer or otherwise dispose of
any of such shares until the Obligations have been satisfied or this Agreement
has terminated;
(vi) that such Pledgor shall refrain from selling, transferring,
registering, or otherwise disposing of any restricted securities of the Company
as may be then held by the Pledgor if any such actions by the Pledgor would
impair, impede or otherwise restrict the ability of the Secured Party to
register, transfer or dispose of the Pledged Shares held by the Secured Party as
Collateral; and
B. With respect to certain other matters:
(i) that such each Pledgor has made necessary inquiries of the
Company and believes that the Company fully intends to fulfill and has the
capability of fulfilling the Obligations to be performed by the Company in
accordance with the terms of the Transaction Agreements,
(ii) that each Pledgor is not acting, and has not agreed to act, in
any plan to sell or dispose of the Pledged Shares in a manner intended to
circumvent the registration requirements of the Securities Act of 1933, as
amended, or any applicable state law,
(iii) that the Company and each Pledgor have been advised by counsel
of the elements of a bona-fide pledge for purposes of Rule 144(d)(3)(iv) under
the Securities Act of 1933, as amended, including the relevant SEC
interpretations and affirms the pledge of shares by such Pledgor pursuant to
this Pledge Agreement will constitute a bona-fide pledge of such shares for
purposes of such Rule, and
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(iv) that this Pledge Agreement constitutes a legal, valid and
binding obligation of each Pledgor enforceable in accordance with its terms
(except as the enforcement thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium, and similar laws, now or
hereafter in effect).
5. Preservation of the Value of the Collateral and Reimbursement of
Secured Party. Pledgor shall pay all taxes, charges, and assessments against the
Collateral and do all acts necessary to preserve and maintain the value thereof.
On failure of Pledgor so to do, Secured Party may make such payments on account
thereof as (in Secured Party's discretion) is deemed desirable, and Pledgor
shall reimburse Secured Party immediately on demand for any and all such
payments expended by Secured Party in enforcing, collecting, and exercising its
remedies hereunder.
6. Default and Remedies.
(a) For purposes of this Agreement, "Event of Default" shall mean
(i) The Debtor's Registration statement on Form SB-2 not being
declared effective by the Securities and Exchange Commission within 90 days from
closing.
(b) During the term of this Pledge Agreement, the Secured Party shall have
the following rights after an Event of Default:
(i) the rights and remedies provided by the Uniform Commercial Code as
adopted by the State of New York (as said law may at any time be amended);
(iii) the right to cause any or all of the Pledged Shares to be
transferred to its own name and have such transfer recorded in any place
or places deemed appropriate by Secured Party; and
(iv) the right to sell the Collateral or any part thereof for cash, upon
credit or for future delivery, and at such price or prices in accordance
with the Uniform Commercial Code (as such law may be amended from time to
time); it being understood that one or more of the Secured Parties may,
but shall not be required to, take such actions jointly. Upon any such
sale, Secured Party shall have the right to deliver, assign and transfer
to the purchaser thereof the Collateral so sold. Secured Party shall give
the Pledgors not less than five (5) days written notice of its intention
to make any such sale. Any such sale shall be made in an open market
transaction. Secured Party may adjourn or cancel any sale or cause the
same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or place
to which the same may be so adjourned. In case of any sale of all or any
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part of the Collateral upon terms calling for payments in the future, any
Collateral so sold may be retained by Secured Party until the selling
price is paid by the purchaser thereof, but Secured Party shall incur no
liability in the case of the failure of such purchaser to take up and pay
for the Collateral so sold and, in the case of such failure, such
Collateral may again be sold upon like notice. Secured Party, however,
instead of exercising the power of sale herein conferred upon it, may
proceed by a suit or suits at law or in equity to foreclose the security
interest and sell the Collateral, or any portion thereof, under a judgment
or decree of a court or courts of competent jurisdiction, the Pledgor
having been given due notice of all such action.
7. Waiver. Each of the Debtor and the Pledgor waives any right that it may
have to require Secured Party to proceed against any other person, or proceed
against or exhaust any other security, or pursue any other remedy Secured Party
may have.
8. Term of Agreement. This Pledge Agreement shall continue in full force
and effect until the earlier of the payment in full of the Notes or until the
date, within 90 days from the Closing, on which Registration Statement is
declared effective by the Securities and Exchange Commission. Upon either event,
the security interests in the relevant Collateral shall be deemed released, and
any portion of the Collateral not transferred to or sold by any one or more
Secured Parties shall be returned to the Pledgor (and for such purpose, delivery
to Darrin Ocasio, Esq., of Sichenzia Ross Friedman Ference LLP of New York, NY
shall deemed to comply with such return requirement). Upon termination of this
Pledge Agreement, the relevant Collateral shall be returned within five (5)
Trading Days to Debtor or to the Pledgor, as contemplated above.
9. Provisions Affecting the Agent.
(a) The Agent is acting as agent for the Secured Parties solely for the
administrative convenience of the Debtor, the Pledgor and the Secured Parties.
(b) The Agent is authorized to execute and file any and all financing
statements desired to be filed by the Secured Parties to reflect the security
interest in the Collateral in any and all jurisdictions. For such purposes, each
of the Debtor and the Pledgor irrevocably appoints the Agent, with full power of
substitution to execute and file such financing statements naming the Debtor and
the Pledgor as debtors thereon.
10. General Provisions:
10.1 Binding Agreement; No Modification of Transaction Agreements. This
Pledge Agreement shall be binding upon and shall inure to the benefit of the
successors and assigns of the respective parties hereto. Except to the extent
specifically provided herein, nothing in this Pledge Agreement shall limit or
modify any provision of any of the Transaction Agreements
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10.2 Captions. The headings used in this Pledge Agreement are inserted
for reference purposes only and shall not be deemed to define, limit, extend,
describe, or affect in any way the meaning, scope or interpretation of any of
the terms or provisions of this Pledge Agreement or the intent hereof.
10.3 Counterparts. This Pledge Agreement may be signed in any number of
counterparts with the same effect as if the signatures upon any counterpart were
upon the same instrument. All signed counterparts shall be deemed to be one
original. A facsimile transmission of this signed Pledge Agreement shall be
legal and binding on all parties hereto.
10.4 Further Assurances. The parties hereto agree that, from time to time
upon the written request of any party hereto, they will execute and deliver such
further documents and do such other acts and things as such party may reasonably
request in order fully to effect the purposes of this Pledge Agreement.
10.5 Waiver of Breach. Any waiver by either party of any breach of any
kind or character whatsoever by the other, whether such be direct or implied,
shall not be construed as a continuing waiver of or consent to any subsequent
breach of this Pledge Agreement.
10.6 Cumulative Remedies. The rights and remedies of the parties hereto
shall be construed cumulatively, and none of such rights and remedies shall be
exclusive of, or in lieu or limitation of any other right, remedy, or priority
allowed by applicable law.
10.7 Amendment. This Pledge Agreement may be modified only in a written
document that refers to this Pledge Agreement and is executed by Secured Party,
the Pledgor and the Debtor.
10.8 Interpretation. This Pledge Agreement shall be interpreted,
construed, and enforced according to the substantive laws of the State of New
York.
10.9 Governing Law. This Pledge Agreement shall be governed by and
construed in accordance with the laws of the State of New York. Each of the
parties consents to the jurisdiction of the federal courts whose districts
encompass any part of the County of New York or the state courts of the State of
New York sitting in the County of New York in connection with any dispute
arising under this Pledge Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
coveniens, to the bringing of any such proceeding in such jurisdictions.
10.10 WAIVER OF JURY TRIAL. The parties to this Pledge Agreement hereby
waive a trial by jury in any action, proceeding or counterclaim brought by any
of them against any other in respect of any matter arising out or in connection
with this Pledge Agreement.
10.11 Notice. Any notice or other communication required or permitted to
be given hereunder shall be effective upon receipt. Such notices may be sent (i)
in the United States mail, postage prepaid and certified, (ii) by express
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courier with receipt, (iii) by facsimile transmission, with a copy subsequently
delivered as in (i) or (ii) above. Any such notice shall be addressed or
transmitted as follows:
If to Pledgors, to:
Kenneth Schilling
C/o IBIZ Technology Corp.
2238 W. Lone Cactus Drive
Phoenix, Arizona 85027
Tel: (623) 492 - 9200
Fax: (623) 492 - 9921
Any party may change its address by notice similarly given to the other parties
(except that a Secured Party need not give notice to other Secured Parties).
10.12 Acknowledgement by Debtor and Pledgor. In the event that any
provision of the Transaction Agreements, the Guarantee or this Pledge Agreement
as applied to any party or circumstances shall be adjudged by a court to be
invalid or unenforceable, each of the Debtor or the Pledgor, as the case may be,
acknowledges and agrees that this Pledge Agreement shall remain valid and
enforceable in all respects against the Debtor and the Pledgor.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.
THE SIGNATURES OF THE PARTIES ARE ON THE NEXT PAGE.]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day, month and year first above written.
SECURED PARTY:
PLATINUM PARTNERS VALUE ARBITRAGE FUND LP
By:_________________________________________
DEBTOR:
IBIZ TECHNOLOGY CORP.
By:__________________________________________
Its: President
PLEDGOR:
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Kenneth Schilling
AGENT:
GRUSHKO & MITTMAN, P.C.
By:_________________________________________
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SCHEDULE 1
The Secured Parties are:
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Name Address
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PLATINUM PARTNERS VALUE ARBITRAGE FUND LP 152 West 57th Street, New York, New York
10019, Fax: (212) 581-0002
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SCHEDULE 2
The following shares are pledged hereunder as the Pledged Shares, each
certificate in the name of:
Holder's Name Certificate No. No. of Shares Date of Acquisition
Kenneth Schilling 4100 41,208,447 February 7, 2003
Kenneth Schilling 4493 20,000,000 January 7, 2004
Kenneth Schilling 4186 40,000,000 June 12, 2003
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Total: 101,208,447 shares
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