Stock Pledge Agreement - NetZero Inc. and Charles S. Hilliard
NETZERO, INC.
STOCK PLEDGE AGREEMENT
AGREEMENT made as of this 17th day of April, 1999 by and
between NetZero, Inc., a California corporation (the "Corporation") and
Charles S. Hilliard ("Pledgor").
RECITALS
A. In connection with the purchase of 800,000 shares of the
Corporation's Common Stock (the "Purchased Shares") on the date of this
Agreement from the Corporation, Pledgor has issued that certain promissory
note (the "Note") dated April 17, 1999 payable to the order of the
Corporation in the principal amount of Four Hundred Thousand Dollars
($400,000.00).
B. Such Note is secured by the Purchased Shares and other
collateral upon the terms set forth in this Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF SECURITY INTEREST. Pledgor hereby grants the
Corporation a security interest in, and assigns, transfers to and pledges
with the Corporation, the following securities and other property
(collectively, the "Collateral"):
(i) the Purchased Shares delivered to and deposited with the
Corporation as collateral for the Note;
(ii) any and all new, additional or different securities or
other property subsequently distributed with respect to the Purchased
Shares which are to be delivered to and deposited with the Corporation
pursuant to the requirements of Paragraph 3 of this Agreement;
(iii) any and all other property and money which is
delivered to or comes into the possession of the Corporation pursuant to
the terms of this Agreement; and
(iv) the proceeds of any sale, exchange or disposition of
the property and securities described in subparagraphs (i), (ii) or (iii)
above.
2. WARRANTIES. Pledgor hereby warrants that Pledgor is the
owner of the Collateral and has the right to pledge the Collateral and that
the Collateral is free from all liens, adverse claims and other security
interests (other than those created hereby).
1
<Page>
3. DUTY TO DELIVER. Any new, additional or different securities
or other property (other than regular cash dividends) which may now or
hereafter become distributable with respect to the Collateral by reason of
(i) any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the Common Stock as a class
without the Corporation's receipt of consideration or (ii) any merger,
consolidation or other reorganization affecting the capital structure of the
Corporation shall, upon receipt by Pledgor, be promptly delivered to and
deposited with the Corporation as part of the Collateral hereunder. Any such
securities shall be accompanied by one or more properly endorsed stock power
assignments.
4. PAYMENT OF TAXES AND OTHER CHARGES. Pledgor shall pay, prior
to the delinquency date, all taxes, liens, assessments and other charges
against the Collateral, and in the event of Pledgor's failure to do so, the
Corporation may at its election pay any or all of such taxes and other
charges without contesting the validity or legality thereof. The payments so
made shall become part of the indebtedness secured hereunder and until paid
shall bear interest at the minimum per annum rate required to avoid the
imputation of interest income to the Corporation and compensation income to
Pledgor under the federal tax laws.
5. SHAREHOLDER RIGHTS. So long as there exists no event of
default under Paragraph 10 of this Agreement, Pledgor may exercise all
shareholder voting rights and be entitled to receive any and all regular cash
dividends paid on the Collateral and all proxy statements and other
shareholder materials pertaining to the Collateral.
6. RIGHTS AND POWERS OF CORPORATION. The Corporation may,
without obligation to do so, exercise at any time and from time to time one
or more of the following rights and powers with respect to any or all of the
Collateral:
(i) subject to the applicable limitations of Paragraph 9,
accept in its discretion other property of Pledgor in exchange for all or
part of the Collateral and release Collateral to Pledgor to the extent
necessary to effect such exchange, and in such event the other property
received in the exchange shall become part of the Collateral hereunder;
(ii) perform such acts as are necessary to preserve and
protect the Collateral and the rights, powers and remedies granted with
respect to such Collateral by this Agreement; and
(iii) transfer record ownership of the Collateral to the
Corporation or its nominee and receive, endorse and give receipt for, or
collect by legal proceedings or otherwise, dividends or other distributions
made or paid with respect to the Collateral, PROVIDED AND ONLY IF there
exists at the time an outstanding event of default under Paragraph 10 of
this Agreement. Any cash sums which the Corporation may so receive shall be
applied to the payment of the Note and any other indebtedness secured
hereunder, in such order of application as the Corporation deems
appropriate. Any remaining cash shall be paid over to Pledgor.
Any action by the Corporation pursuant to the provisions of
this Paragraph 6 may be taken without notice to Pledgor. Expenses reasonably
incurred in connection with such action
2
<Page>
shall be payable by Pledgor and form part of the indebtedness secured
hereunder as provided in Paragraph 12.
7. CARE OF COLLATERAL. The Corporation shall exercise
reasonable care in the custody and preservation of the Collateral. However,
the Corporation shall have no obligation to (i) initiate any action with
respect to, or otherwise inform Pledgor of, any conversion, call, exchange
right, preemptive right, subscription right, purchase offer or other right or
privilege relating to or affecting the Collateral, (ii) preserve the rights
of Pledgor against adverse claims or protect the Collateral against the
possibility of a decline in market value or (iii) take any action with
respect to the Collateral requested by Pledgor unless the request is made in
writing and the Corporation determines that the requested action will not
unreasonably jeopardize the value of the Collateral as security for the Note
and other indebtedness secured hereunder.
Subject to the limitations of Paragraph 9, the Corporation may
at any time release and deliver all or part of the Collateral to Pledgor, and
the receipt thereof by Pledgor shall constitute a complete and full
acquittance for the Collateral so released and delivered. The Corporation
shall accordingly be discharged from any further liability or responsibility
for the collateral, and the release Collateral shall no longer be subject to
the provision of this Agreement.
8. TRANSFER OF COLLATERAL. In connection with the transfer or
assignment of the Note (whether by negotiation, discount or otherwise), the
Corporation may transfer all or any part of the Collateral, and the
transferee shall thereupon succeed to all the rights, powers and remedies
granted the Corporation hereunder with respect to the Collateral so
transferred. Upon such transfer, the Corporation shall be fully discharged
from all liability and any further responsibility for the transferred
Collateral.
9. RELEASE OF COLLATERAL. Provided all indebtedness secured
hereunder (other than payments not yet due and payable under the Note) shall
at the time have been paid in full and there does not otherwise exist any
event of default under Paragraph 10, the Purchased Shares, together with any
additional Collateral which may hereafter be pledged and deposited hereunder,
shall be released from pledge and returned to Pledgor in accordance with the
following provisions:
(i) Promptly following (a) payment or prepayment of
principal of the Note, together with payment of all accrued interest to
date, one or more of the Purchased Shares held as Collateral hereunder
shall (subject to the applicable limitations of Paragraphs 9(iii) and
9(v) below) be released to Pledgor. The number of shares to be so released
shall be equal to the number obtained by multiplying (i) the total number
of Purchased Shares held under this Agreement at the time of the payment or
prepayment, by (ii) a fraction, the numerator of which shall be the amount
of the principal paid or prepaid and the denominator of which shall be the
unpaid principal balance of the Note immediately prior to such payment or
prepayment. In no event, however, shall any fractional shares be released.
(ii) Any additional Collateral which may hereafter be
pledged and deposited with the Corporation (pursuant to the requirements of
Paragraph 3) with respect to the Purchased Shares shall be released at the
same time the particular shares of
3
<Page>
Common Stock to which the additional Collateral relates are to be released
in accordance with the applicable provisions of Paragraph 9(i).
(iii) Under no circumstances, however, shall any Purchased
Shares or any other Collateral be released if previously applied to the
payment of any indebtedness secured hereunder. In addition, in no event
shall any Purchased Shares or other Collateral be released pursuant to the
provisions of Paragraph 9(i) or 9(ii) if, and to the extent, the fair
market value of the Common Stock and all other Collateral which would
otherwise remain in pledge hereunder after such release were effected would
be less than the unpaid principal and accrued interest under the Note.
(iv) For all valuation purposes under this Agreement, the
fair market value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:
(A) If the Common Stock is at the time traded
on The Nasdaq National Market, the fair market value shall be
the closing selling price per share of Common Stock on the
date in question, as such prices are reported by the National
Association of Securities Dealers on its Nasdaq system or any
successor system. If there is no reported closing selling
price for the Common Stock on the date in question, then the
closing selling price on the last preceding date for which
such quotation exists shall be determinative of fair market
value.
(B) If the Common Stock is at the time listed
on the New York Stock Exchange or any other securities
exchange, then the fair market value shall be the closing
selling price per share of Common Stock on the date in
question on the securities exchange serving as the primary
market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange.
If there is no reported sale of Common Stock on such exchange
on the date in question, then the fair market value shall be
the closing selling price on the exchange on the last
preceding date for which such quotation exists.
(C) If the Common Stock is at the time
neither listed on any securities exchange nor traded on The
Nasdaq National Market, the fair market value shall be
determined by the Corporation's Board of Directors after
taking into account such factors as the Board shall deem
appropriate.
(v) In the event the Collateral becomes in whole
or in part comprised of "margin securities" within the meaning
of Section 207.2(i) of Regulation G of the Federal Reserve
Board, then no Collateral shall thereafter be substituted for
any Collateral under the provisions of Paragraph 6(i) or be
released under Paragraph 9(i) or (ii), unless there is
compliance with each of the following additional requirements:
(A) The substitution or release must not
increase the amount by which the indebtedness secured
hereunder at the time of such substitution or release exceeds
the maximum loan value (as defined below) of the Collateral
immediately prior to such substitution or release.
4
<Page>
(B) The substitution or release must not
cause the amount of indebtedness secured hereunder at the time
of such substitution or release to exceed the maximum loan
value of the Collateral remaining after such substitution or
release is effected.
(C) For purposes of this Paragraph 9(v),
the maximum loan value of each item of Collateral shall be
determined on the day the substitution or release is to be
effected and shall, in the case of the shares of Common Stock
and any additional Collateral (other than margin securities),
equal the good faith loan value thereof (as defined in Section
207.2(e)(1) of Regulation G) and shall, in the case of all
margin securities (other than the Common Stock), equal fifty
percent (50%) of the current market value of such securities.
10. EVENTS OF DEFAULT. The occurrence of one or more of the
following events shall constitute an event of default under this Agreement:
(i) the failure of Pledgor to pay, when due under the Note,
any installment of principal or accrued interest after any grace period set
forth in the Note has expired, if any; or
(ii) the wilful failure of Pledgor to perform any material
obligation imposed upon Pledgor by reason of this Agreement within 30 days
following written notice to Pledgor detailing such failure; or
(iii) the material breach of any warranty of Pledgor
contained in Paragraph 2 of this Agreement.
Upon the occurrence of any such event of default, the
Corporation may, at its election, declare the Note and all other indebtedness
secured hereunder to become immediately due and payable and may exercise any
or all of the rights and remedies granted to a secured party under the
provisions of the California Uniform Commercial Code (as now or hereafter in
effect), including (without limitation) the power to dispose of the
Collateral by public or private sale or to accept the Collateral in full
payment of the Note and all other indebtedness secured hereunder.
Any proceeds realized from the disposition of the Collateral
pursuant to the foregoing power of sale shall be applied first to the payment
of reasonable expenses incurred by the Corporation in connection with the
disposition and then to the payment of the Note and finally to any other
indebtedness secured hereunder. Any surplus proceeds shall be paid over to
Pledgor. However, in the event such proceeds prove insufficient to satisfy
all obligations of Pledgor under the Note which are recourse to Pledgor, then
Pledgor shall remain personally liable for the remaining obligations under
the Note which are recourse to Pledgor.
11. OTHER REMEDIES. The rights, powers and remedies granted to
the Corporation pursuant to the provisions of this Agreement shall be in
addition to all rights, powers and remedies granted to the Corporation under
any statute or rule of law. Any forbearance, failure or delay by the
Corporation in exercising any right, power or remedy under this Agreement
shall not be deemed to be a waiver of such right, power or remedy. Any single
or partial exercise of any right, power or remedy under this Agreement shall
not preclude the
5
<Page>
further exercise thereof, and every right, power and remedy of the Corporation
under this Agreement shall continue in full force and effect unless such right,
power or remedy is specifically waived by an instrument executed by the
Corporation.
12. COSTS AND EXPENSES. All costs and expenses (including
reasonable attorneys fees) incurred by the Corporation in the exercise or
enforcement of any right, power or remedy granted it under this Agreement
shall become part of the indebtedness secured hereunder and shall constitute
a personal liability of Pledgor payable immediately upon demand and bearing
interest until paid at the minimum per annum rate required to avoid the
imputation of interest income to the Corporation and compensation income to
Pledgor under the federal tax laws.
13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without
resort to that State's conflict-of-laws rules.
14. SUCCESSORS. This Agreement shall be binding upon the
Corporation and its successors and assigns and upon Pledgor and the
executors, heirs and legatees of Pledgor's estate.
15. SEVERABILITY. If any provision of this Agreement is held to
be invalid under applicable law, then such provision shall be ineffective
only to the extent of such invalidity, and neither the remainder of such
provision nor any other provisions of this Agreement shall be affected
thereby.
IN WITNESS WHEREOF, this Agreement has been executed by Pledgor
and the Corporation on this 17th day of April, 1999.
NETZERO PLEDGOR
/s/ MARK R. GOLDSTON /s/ CHARLES S. HILLIARD
------------------------------- -------------------------------
By: Mark R. Goldston Charles S. Hilliard
Title: Chairman and Chief Executive Officer
Address:
-----------------------
-------------------------------
-------------------------------
6