Pledge Agreement - Netpliance Inc. and James E. Cahill
PLEDGE AGREEMENT
PLEDGE AGREEMENT (this "Agreement"), dated as of November 8, 1999, between
James E. Cahill (together with his heirs, executor, legal representatives and
assigns, the "Pledgor") and Netpliance Inc., a Texas corporation (together with
its successors and assigns, the "Pledgee").
Recitals. The Pledgor owns 100,000 shares (the "Shares") of the common
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stock, $0.01 par value per share, of Pledgee. The Pledgor has given the Pledgee
a promissory note, dated as of November 8, 1999, in the original principal
amount of $510,000.00 in payment of the purchase price of the Shares (the
"Note"). The Pledgor has pledged the Shares and granted a security interest in
the Shares to the Pledgee to secure the repayment of the Note. This Agreement is
made to set forth the terms and conditions of such pledge and security interest.
1. Pledge of the Pledged Stock.
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(a) In order to secure and to provide for the performance of the
obligations of the Pledgor owing to the Pledgee under the Note (the
"Secured Obligations"), the Pledgor hereby pledges, conveys, transfers,
delivers and sets over unto the Pledgee, and hereby grants to the Pledgee a
continuing security interest in the following, whether now owned or
existing or hereafter acquired or arising, and regardless of where located
(all of the following indicated in clauses (i) and (ii) being referred to
as the "Collateral"):
(i) the Shares, and all of the rights and privileges of the
Pledgor with respect thereto, and all liquidating distributions and
other payments and distributions (other than ordinary dividends paid
thereon) with respect thereto and any other shares of the Pledgee's
common stock and any other securities issued with respect thereto or
in substitution or exchange therefor (collectively, the "Pledged
Stock"); and
(ii) all proceeds of any of the foregoing.
(b) Concurrently with the execution and delivery of this Agreement,
the Pledgor shall deliver to the Pledgee the certificates representing the
Pledged Stock in pledge hereunder, together with duly executed instruments
of transfer or assignments in blank.
(c) In the event that the Company issues any additional or substitute
shares of capital stock of any class to the Pledgor in respect of the
Pledged Stock, whether as a result of a stock split, reorganization or
otherwise, and delivers to the Pledgor certificates representing such
shares, the Pledgor shall immediately pledge and deposit with the Pledgee
all such certificates as additional collateral security for the Secured
Obligations (together with duly executed instruments of transfer or
assignments in blank). All such shares constitute Pledged Stock and are
subject to all provisions of this Agreement.
(d) Notwithstanding the security interest granted by the Pledgor to
the Pledgee hereunder or any other provision hereof, the Pledgor shall, so
long as no Event of Default (as defined in the Note) shall have occurred
and be continuing, be entitled, subject to the
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provisions of Section 6 hereof, to exercise all rights of the owner of the
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Pledged Stock (including, without limitation, the right to vote such stock
and give consents, ratifications and waivers with respect to such stock),
and the Pledgee agrees that, unless an Event of Default shall have occurred
and be continuing, the Pledgee shall not exercise any of such rights.
2. Representations of the Pledgor. The Pledgor represents and warrants
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that as of the date hereof that he owns all of the Pledged Stock, free and clear
of any mortgage, lien, pledge, charge, security interest or other encumbrance
upon or with respect to any property or asset of the Pledgor (including in the
case of stock, shareholder agreements, voting trust agreements and all similar
arrangements) (each a "Lien") other than the Lien created by this Agreement and
the Shareholders Agreement among the shareholders of the Pledgee dated as of
February 1, 1999, as amended (the "Shareholders Agreement") and has not assigned
any of its rights in the Pledged Stock to any individual, partnership,
corporation, limited liability company, association, trust, unincorporated
organization, or a government or agency or political subdivision thereof (each a
"Person"), except pursuant to this Agreement and the Shareholders Agreement.
None of the Pledged Stock is subject to any options to purchase or similar
rights of any Person, except as may be provided in the Shareholders Agreement.
The Pledgor is not, and will not become, a party to or otherwise bound by any
agreement, other than this Agreement and the Shareholders Agreement which
restricts in any manner the rights of any present or future holder of any of the
Pledged Stock with respect thereto.
3. Information. The Pledgor shall, promptly upon request, provide to the
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Pledgee all information and evidence the Pledgee may reasonably request
concerning the Collateral to enable the Pledgee to enforce the provisions of
this Agreement.
4. Transfers Subject to Security Interests. Any transfer by the Pledgor
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of all or any portion of the Pledged Stock shall be subject to the pledge and
security interests granted in the Collateral by this Agreement and the rights of
the Pledgee hereunder and the Shareholders Agreement (the "Security Interests").
5. Record Ownership of Pledged Stock. After the occurrence of an Event of
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Default, the Pledgee may, in its sole discretion, cause all or any of the
Pledged Stock to be transferred of record into the name of the Pledgee or its
nominee, as pledgee hereunder. After such time, the Pledgee will promptly give
to the Pledgor copies of any notices and communications received by the Pledgee
with respect to the Pledged Stock registered in its name or in the name of a
nominee.
6. Action After Event of Default. If an Event of Default shall have
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occurred and be continuing, the Pledgee shall have the right to the extent
permitted by law, and the Pledgor shall take all such action as may be requested
by the Pledgee, to vote and to give consents, ratifications and waivers, and
take any other action with respect to any or all of the Pledged Stock with the
same force and effect as if the Pledgee were the absolute and sole owner
thereof.
7. General Authority. The Pledgor hereby irrevocably appoints the Pledgee
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its true and lawful attorney, with full power of substitution, in the name of
the Pledgor, for the sole use and benefit of the Pledgee, but at the Pledgor's
expense as provided in Section 9 hereof, to the extent permitted by law to
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exercise and, subject to the terms of this Agreement and the
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Shareholders Agreement, at any time and from time to time while an Event of
Default has occurred and is continuing, all or any of the following powers with
respect to all or any of the Collateral: (i) to demand, sue for, collect,
receive and give acquittance for any and all monies due or to become due thereon
or by virtue thereof; (ii) to settle, compromise, compound, prosecute or defend
any action or proceeding with respect thereto; (iii) to sell, transfer, assign
or otherwise deal in or with the same or the proceeds or avails thereof, as
fully and effectually as if the Pledgee were the absolute owner thereof, (iv) to
extend the time of payment of any or all thereof and to make any allowance and
other adjustments with reference thereto; and (v) to exercise all voting rights
(as directed by the appropriate parties hereunder) with respect to the Pledged
Stock and to take all actions permitted or required to be taken by the owner of
the Pledged Stock; provided, that the Pledgee shall give the Pledgor not less
than 10 days' prior notice of the time and place of any sale or other intended
disposition of any of the Collateral. The Pledgor and the Pledgee agree that
such notice constitutes "reasonable notification" within the meaning of Section
9-504(3) of the Uniform Commercial Code as in effect in the State of Texas from
time to time (the "UCC").
8. Remedies Upon Default. If an Event of Default shall have occurred and
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be continuing, the Pledgee may exercise all the rights of a secured party under
the UCC (whether or not in effect in the jurisdiction where such rights are
exercised) and, in addition, the Pledgee may, without being required to give any
notice, except as herein provided or as may be required by mandatory provisions
of law, (i) apply the cash, if any, then held by it as Collateral as specified
in Section 10 and (ii) if there shall be no such cash or if such cash shall be
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insufficient to pay all the Secured Obligations in full, sell the Collateral or
any part thereof at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery, and at such
price or prices as the Pledgee may deem satisfactory. The Pledgee may be the
purchaser of any or all of the Collateral so sold at any such sale. The Pledgee
is authorized, in connection with any such sale, if it deems it advisable so to
do, (i) to restrict the prospective bidders on or purchasers of any of the
Pledged Stock to sophisticated investors who will represent and agree that they
are purchasing for their own account for investment and not with a view to the
distribution or sale of any of such Pledged Stock, the number of which shall be
limited as necessary to comply with all applicable securities laws, (ii) to
cause to be placed on certificates for any or all of the Pledged Stock or on any
other securities pledged hereunder a legend to the effect that such security has
not been registered under the Securities Act of 1933 and may not be disposed of
in violation of the provisions of said Act, and (iii) to impose such other
limitations or conditions in connection with any such sale as the Pledgee deems
necessary or advisable in order to comply with said Act or any other law. The
Pledgor will execute and deliver such documents and take such other action as
the Pledgee deems necessary or advisable in order that any such sale may be made
in compliance with law. Upon any such sale the Pledgee shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
Each purchaser at any such sale shall hold the Collateral so sold absolutely and
free from any claim or right of whatsoever kind, including any equity or right
of redemption of the Pledgor which may be waived, and the Pledgor, to the extent
permitted by law, hereby specifically waives all rights of redemption, stay or
appraisal which it has or may have under any law now existing or hereafter
adopted. The notice (if any) of such sale required by Section 7 shall (i) in the
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case of a public sale, state the time and place fixed for such sale, (ii) in the
case of a sale at a broker's board or on a securities exchange, state the board
or exchange at which such sale is to be made and the day on which the
Collateral, or the portion thereof so being sold, will
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first be offered for sale at such board or exchange, and (iii) in the case of a
private sale, state the day after which such sale may be consummated. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as the Pledgee may fix in the notice of such sale.
At any such sale the Collateral may be sold in one lot as an entirety or in
separate parcels, as the Pledgee may in its sole discretion determine. The
Pledgee shall not be obligated to make any such sale pursuant to any such
notice. The Pledgee may, without notice or publication, adjourn any public or
private 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 the case of any sale of all
or any part of the Collateral on credit or for future delivery, the Collateral
so sold may be retained by the Pledgee until the selling price is paid by the
purchaser thereof, but the Pledgee shall not incur any 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 any such failure, such Collateral may again be sold upon like
notice. The Pledgee, 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 Interests and sell the Collateral, or any portion thereof, under a
judgment or decree of a court or courts of competent jurisdiction.
9. Expenses. If an Event of Default shall have occurred and be
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continuing, the Pledgor shall forthwith upon demand pay to the Pledgee the
amount of out-of-pocket expenses, including the fees and disbursements of
counsel and of any other experts, to the extent that the Pledgee has made a good
faith determination that the incurrence of such expenses is necessary or
appropriate from and after such Event of Default in connection with (a) the
administration or enforcement of this Agreement, including such expenses as are
incurred to preserve the value of the Collateral and the validity, perfection,
rank and value of the Security Interest, (b) the collection, sale or other
disposition of any of the Collateral, (c) the exercise by the Pledgee of any of
the rights conferred upon it hereunder or (d) any Event of Default. Any such
amount not paid on demand shall bear interest at the rate as announced from time
to time by Chase Bank of Texas, N.A. as its "prime rate" and shall be an
additional Secured Obligation hereunder.
10. Application of Proceeds. Upon the occurrence and during the
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continuance of an Event of Default, the proceeds of any sale of, or other
realization upon, all or any part of the Collateral and any cash held shall be
applied by the Pledgee in the following order of priorities: first, to the
Pledgee for the payment of any obligations of the Pledgor under Section 9
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hereof; second, to the payment of all other Secured Obligations, until all
Secured Obligations shall have been paid in full; and third, to the Pledgor. The
Pledgee may make distributions hereunder in cash or in kind or, on a ratable
basis, in any combination thereof.
11. Amendments, Modifications, Waivers and Consents. No amendment,
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modification, supplement, termination or waiver of or to any provision of this
Agreement, nor any consent to any departure by the Pledgor from any provision of
this Agreement, shall be effective unless in a writing executed by each party
hereto.
12. Miscellaneous.
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(a) Further Assurances. The Pledgor agrees that it will join with the
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Pledgee in executing and, at its own expense, file and refile or permit the
Pledgee to file and refile, such financing statements, continuation statements
and other documents (including
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this Agreement) in such offices as the Pledgee may deem necessary or
appropriate and wherever required or permitted by law in order to perfect
and preserve the rights and interests granted to the Pledgee hereby, and
hereby authorizes the Pledgee to file financing statements and amendments
thereto and continuation statements relative to all or any part thereof
without the signature of the Pledgor where permitted by law, and agrees to
do such further acts and things, and to execute and deliver to the Pledgee
such additional assignments, agreements, powers and instruments, as the
Pledgee reasonably determines to be necessary to perfect and preserve the
rights and interests granted to the Pledgee hereunder.
(b) No Waiver. No course of dealing and no delay on the part of the
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Pledgee in exercising any right, power or remedy shall operate as a waiver
thereof. No right, power or remedy conferred by this Agreement upon the
Pledgee shall be exclusive of any other right, power or remedy referred to
herein or therein or now or hereafter available at law, in equity, by
statute or otherwise.
(c) Notices. All notices to be given hereunder shall be in writing
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and shall be deemed given at the earlier of when actually received or three
days after being deposited in the United States mails, return receipt
requested, (a) to Pledgor at 5427 Glenwick Lane, Dallas, Texas 75209 or (b)
to Pledgee at Netpliance, Inc., 7600A N. Capital of Texas Highway, Austin,
Texas 78731. Either party may change that party's above listed notice
information by giving written notice of the changed information to the
other party at least ten days prior to such change.
(d) Termination. This Agreement, and the assignments, pledges and
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security interests created or granted hereby, shall terminate when all
Secured Obligations shall have been fully performed, at which time the
Pledgee shall deliver all Collateral then held by the Pledgee to the
Pledgor and, if requested by the Pledgor, shall execute and deliver to the
Pledgor for filing in each office in which any financing statement relative
to the Collateral or agreements relating thereto or any part thereof shall
have been filed, a termination statement under the relevant UCC releasing
the Pledgee's interest therein, and such other documents and instruments as
the Pledgor may reasonably request, all without recourse upon or warranty
whatsoever by, the Pledgee.
(e) Successors and Assigns. All covenants and other agreements
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contained in this Agreement by or on behalf of any of the parties hereto
bind and inure to the benefit of their respective successors and permitted
assigns whether so expressed or not.
(f) Execution in Counterparts. This Agreement may be executed in any
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number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed
by all, of the parties hereto.
(g) Severability of Provisions. Any provision of this Agreement which
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is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall
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(to the full extent permitted by law) not invalidate or render
unenforceable such provision in any other jurisdiction.
(h) Integration. This Agreement and the Note represent the agreement
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of the Pledgee and the Pledgor with respect to the subject matter hereof,
and there are no promises, undertakings, representations or warranties by
the Pledgee relative to subject matter hereof not expressly set forth or
referred to herein.
(i) Governing Law. This Agreement shall be construed and enforced in
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accordance with, and the rights of the parties shall be governed by, the
law of the State of Texas excluding (except for matters governed by the
UCC) choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
(j) Non-Recourse. The Secured Obligations are non-recourse
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obligations of the Pledgor as and to the extent set forth in the Note.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PLEDGOR:
/s/ JAMES E. CAHILL
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James E. Cahill
PLEDGEE:
NETPLIANCE, INC.
By: /s/ KENT SAVAGE
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Kent Savage
President and Chief Executive Officer
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