EXHIBIT 10.5
GUARANTY AND PLEDGE AGREEMENT
GUARANTY AND PLEDGE AGREEMENT (this "Agreement"), dated as of April 1,
2005, among Cyber Defense Systems, Inc., a Florida corporation (the "Company"),
Cherokee Raiders, L.P. (the "Pledgor"), and the pledgees signatory hereto and
their respective endorsees, transferees and assigns (collectively, the
"Pledgees").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase Agreement, dated the date
hereof, between Company and the Pledgees (the "Purchase Agreement"), Company has
agreed to issue to the Pledgees and the Pledgees have agreed to purchase from
Company certain of Company's 8% Callable Secured Convertible Notes, due three
years from the date of issuance (the "Notes"), which are convertible into shares
of Company's Class A Common Stock, par value $.001 per share (the "Common
Stock"). In connection therewith, Company shall issue the Pledgees certain
Common Stock purchase warrants (the "Warrants"); and
WHEREAS, as a material inducement to the Pledgees to enter into the
Purchase Agreement, the Pledgees have required and the Pledgor has agreed (i) to
unconditionally guarantee the timely and full satisfaction of all obligations of
the Company, whether matured or unmatured, now or hereafter existing or created
and becoming due and payable (the "Obligations") to the Pledgees, their
successors, endorsees, transferees or assigns under the Transaction Documents
(as defined in the Purchase Agreement) to the extent of the Collateral (as
defined in Section 5 hereof), and (ii) to grant to the Pledgees, their
successors, endorsees, transferees or assigns a security interest in the number
of shares of Common Stock currently owned by the Pledgor as set forth below the
Pledgor's signature on the signature page hereto (collectively, the "Shares"),
as collateral security for Obligations. Terms used and not defined herein shall
have the meaning ascribed to them in the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, and the mutual
covenants contained herein, the parties hereby agree as follows:
1. Guaranty. To the extent of the Collateral, the Pledgor hereby absolutely,
unconditionally and irrevocably guarantees to the Pledgees, their successors,
endorsees, transferees and assigns the due and punctual performance and payment
of the Obligations owing to the Pledgees, their successors, endorsees,
transferees or assigns when due, all at the time and place and in the amount and
manner prescribed in, and otherwise in accordance with, the Transaction
Documents, regardless of any defense or set-off counterclaim which the Company
or any other person may have or assert, and regardless of whether or not the
Pledgees or anyone on behalf of the Pledgees shall have instituted any suit,
action or proceeding or exhausted its remedies or taken any steps to enforce any
rights against the Company or any other person to compel any such performance or
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observance or to collect all or part of any such amount, either pursuant to the
provisions of the Transaction Documents or at law or in equity, and regardless
of any other condition or contingency. The Pledgor shall have no obligation
whatsoever to the Pledgees beyond the Collateral pledged for the Obligations set
forth herein.
2. Waiver of Demand. The Pledgor hereby unconditionally: (i) waives any
requirement that the Pledgees, in the event of a breach in any material respect
by the Company of any of its representations or warranties in the Transaction
Documents, first make demand upon, or seek to enforce remedies against, the
Company or any other person before demanding payment of enforcement hereunder;
(ii) covenants that this Agreement will not be discharged except by complete
performance of all the Obligations to the extent of the Collateral; (iii) agrees
that this Agreement shall remain in full force and effect without regard to, and
shall not be affected or impaired, without limitation, by, any invalidity,
irregularity or unenforceability in whole or in part of the Transaction
Documents or any limitation on the liability of the Company thereunder, or any
limitation on the method or terms of payment thereunder which may now or
hereafter be caused or imposed in any manner whatsoever; and (iv) waives
diligence, presentment and protest with respect to, and notice of default in the
performance or payment of any Obligation by the Company under or in connection
with the Transaction Documents.
3. Release. The obligations, covenants, agreements and duties of the Pledgor
hereunder shall not be released, affected or impaired by any assignment or
transfer, in whole or in part, of the Transaction Documents or any Obligation,
although made without notice to or the consent of the Pledgor, or any waiver by
the Pledgees, or by any other person, of the performance or observance by the
Company or the Pledgor of any of the agreements, covenants, terms or conditions
contained in the Transaction Documents, or any indulgence in or the extension of
the time or renewal thereof, or the modification or amendment (whether material
or otherwise), or the voluntary or involuntary liquidation, sale or other
disposition of all or any portion of the stock or assets of the Company or the
Pledgor, or any receivership, insolvency, bankruptcy, reorganization, or other
similar proceedings, affecting the Company or the Pledgor or any assets of the
Company or the Pledgor, or the release of any proper from any security for any
Obligation, or the impairment of any such property or security, or the release
or discharge of the Company or the Pledgor from the performance or observance of
any agreement, covenant, term or condition contained in or arising out of the
Transaction Documents by operation of law, or the merger or consolidation of the
Company, or any other cause, whether similar or dissimilar to the foregoing.
4. Subrogation.
(a) Unless and until complete performance of all the Obligations to the
extent of the Collateral, the Pledgor shall not be entitled to exercise any
right of subrogation to any of the rights of the Pledgees against the Company or
any collateral security or guaranty held by the Pledgees for the payment or
performance of the Obligations, nor shall the Pledgor seek any reimbursement
from the Company in respect of payments made by the Pledgor hereunder.
(b) In the extent that the Pledgor shall become obligated to perform or pay
any sums hereunder, or in the event that for any reason the Company is now or
shall hereafter become indebted to the Pledgor, the amount of such sum shall at
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all times be subordinate as to lien, time of payment and in all other respects,
to the amounts owing to the Pledgees under the Transaction Documents and the
Pledgor shall not enforce or receive payment thereof until all Obligations due
to the Pledgees under the Transaction have been performed or paid. Nothing
herein contained is intended or shall be construed to give to the Pledgor any
right of subrogation in or under the Transaction Documents, or any right to
participate in any way therein, or in any right, title or interest in the assets
of the Pledgees.
5. Security. As collateral security for the punctual payment and performance,
when due, by the Company of all the Obligations, the Pledgor hereby pledges
with, hypothecates, transfers and assigns to the Pledgees all of the Shares and
all proceeds, shares and other securities received, receivable or otherwise
distributed in respect of or in exchange for the Shares, including, without
limitation, any shares and other securities into which such Shares may be
convertible or exchangeable (collectively, the "Additional Collateral" and
together with the Shares, the "Collateral"). Simultaneously herewith, the
Pledgor shall deliver to the Pledgees the certificate(s) representing the
Shares, stamped with a bank medallion guarantee, along with a stock transfer
power duly executed in blank by the Pledgor, to be held by the Pledgees as
security. Any Collateral received by the Pledgor on or after the date hereof
shall be immediately delivered to the Pledgees together with any executed stock
powers or other transfer documents requested by the Pledgees, which request may
be made at any time prior to the date when the Obligations shall have been paid
and otherwise satisfied in full.
6. Voting Power, Dividends, Etc. and other Agreements.
(a) Unless and until an Event of Default (as set forth in Section 7 hereof)
has occurred, the Pledgor shall be entitled to:
(i) Exercise all voting and/or consensual powers pertaining to the
Collateral, or any part thereof, for all purposes;
(ii) Receive and retain dividends paid with respect to the Collateral; and
(iii)Receive the benefits of any income tax deductions available to the
Pledgor as a shareholder of the Company.
(b) The Pledgor agrees that it will not sell, assign, transfer, pledge,
hypothecate, encumber or otherwise dispose of the Collateral.
(c) The Pledgor and the Company jointly and severally agree to pay all
costs including all reasonable attorneys' fees and disbursements incurred by the
Pledgees in enforcing this Agreement in accordance with its terms.
7. Default and Remedies.
(a) For the purposes of this Agreement, "Event of Default" shall mean:
(i) default in or under any of the Obligations after the expiration,
without cure, of any applicable cure period;
(ii) a breach in any material respect by the Company of any of its
representations or warranties in the Transaction Documents; or
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(iii)a breach in any material respect by the Pledgor of any of its
representations or warranties in this Agreement.
(b) the Pledgees shall have the following rights upon any Event of Default:
(i) the rights and remedies provided by the Uniform Commercial Code
as adopted by the State of New York (the "UCC") (as said law may
at any time be amended);
(ii) the right to receive and retain all dividends, payments and other
distributions of any kind upon any or all of the Collateral;
(iii)the right to cause any or all of the Collateral to be
transferred to its own name or to the name of its designee and
have such transfer recorded in any place or places deemed
appropriate by the Pledgees; and
(iv) the right to sell, at a public or private sale, the Collateral or
any part thereof for cash, upon credit or for future delivery,
and at such price or prices in accordance with the UCC (as such
law may be amended from time to time). Upon any such sale the
Pledgees shall have the right to deliver, assign and transfer to
the purchaser thereof the Collateral so sold. The Pledgees shall
give the Pledgor not less than ten (10) days' written notice of
its intention to make any such sale. Any such sale, shall be held
at such time or times during ordinary business hours and at such
place or places as the Pledgees may fix in the notice of such
sale. The Pledgees 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 part of the Collateral upon terms
calling for payments in the future, any Collateral so sold may be
retained by the Pledgees until the selling price is paid by the
purchaser thereof, but the Pledgees 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. The Pledgees,
however, instead of exercising the power of sale herein conferred
upon them, 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. The Pledgees shall incur no liability
as a result of a sale of the Collateral or any part thereof. All
proceeds of any such sale, after deducting the reasonable
expenses and reasonable attorneys' fees incurred in connection
with such sale, shall be applied in reduction of the Obligations,
and the remainder, if any, shall be paid to the Pledgor.
8. Application of Proceeds; Release. The proceeds of any sale or enforcement of
or against all or any part of the Collateral, and any other cash or collateral
at the time held by the Pledgees hereunder, shall be applied by the Pledgees
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first to the payment of the reasonable costs of any such sale or enforcement,
then to reimburse the Pledgees for any damages, costs or expenses incurred by
the Pledgees as a result of an Event of Default, then to the payment of the
principal amount or stated valued (as applicable) of, and interest or dividends
(as applicable) and any other payments due in respect of, the Obligations. The
remainder, if any, shall be paid to the Pledgor. As used in this Agreement,
"proceeds" shall mean cash, securities and other property realized in respect
of, and distributions in kind of, the Collateral, including any thereof received
under any reorganization, liquidation or adjustment of debt of any issuer of
securities included in the Collateral.
9. Representations and Warranties.
(a) The Pledgor hereby represents and warrants to the Pledgees that:
(i) the Pledgor has full power and authority and legal right to
pledge the Collateral to the Pledgees pursuant to this Agreement
and this Agreement constitutes a legal, valid and binding
obligation of the Pledgor, enforceable in accordance with its
terms.
(ii) the execution, delivery and performance of this Agreement and
other instruments contemplated herein will not violate any
provision of any order or decree of any court or governmental
instrumentality or of any mortgage, indenture, contract or other
agreement to which the Pledgor is a party or by which the Pledgor
and the Collateral may be bound, and will not result in the
creation or imposition of any lien, charge or encumbrance on, or
security interest in, any of the Pledgor's properties pursuant to
the provisions of such mortgage, indenture, contract or other
agreement.
(iii)the Pledgor is the sole record and beneficial owner of all of
the Shares; and
(iv) the Pledgor owns the Collateral free and clear of all Liens.
(b) The Company represents and warrants to the Pledgees that:
(i) it has no knowledge that any of the representations or warranties
of the Pledgor herein are incorrect or false in any material
respect;
(ii) all of the Shares were validly issued, fully paid and
non-assessable; and
(iii) the Pledgor is the record holder of the Shares.
10. No Waiver; No Election of Remedies. No failure on the part of the Pledgees
to exercise, and no delay in exercising, any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise by
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the Pledgees of any right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies herein provided are cumulative and are not exclusive of any remedies
provided by law. In addition, the exercise of any right or remedy of the
Pledgees at law or equity or under this Agreement or any of the documents shall
not be deemed to be an election of Pledgee's rights or remedies under such
documents or at law or equity.
11. Termination. This Agreement shall terminate on the date on which all
Obligations have been performed, satisfied, paid or discharged in full.
12. 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 Agreement. The Pledgees
acknowledge that they are aware that Pledgor shall have no obligations
whatsoever to the Pledgees beyond the Collateral pledged for the Obligations set
forth herein, and no request for further assurance may or shall increase such
Obligations.
13. Miscellaneous.
(a) Modification. This Agreement contains the entire understanding between
the parties with respect to the subject matter hereof and specifically
incorporates all prior oral and written agreements relating to the subject
matter hereof. No portion or provision of this Agreement may be changed,
modified, amended, waived, supplemented, discharged, canceled or terminated
orally or by any course of dealing, or in any manner other than by an agreement
in writing, signed by the party to be charged.
(b) Notice. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time) on a Business Day (as defined in the Purchase Agreement), (ii) the
Business Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Agreement later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the Business Day following
the date of mailing, if sent by nationally recognized overnight courier
services, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as follows:
If to the Company: Cyber Defense Systems, Inc.
00000 Xxxxxxxxx Xxxxxxxxx
Xx. Xxxxxxxxxx, XX 00000
Attention: President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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With copies to: Xxxxxxx, Savage, Kaplowitz, Wolf & Marcus, LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Pledgor: Cherokee Raiders, L.P.
c/o Cyber Defense Systems, Inc.
00000 Xxxxxxxxx Xxxxxxxxx
Xx. Xxxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Pledgees: AJW Partners, LLC
AJW Offshore, Ltd.
AJW Qualified Partners, LLC
New Millennium Capital Partners II, LLC
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxx
With copies to: Xxxxxxx Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
0000 Xxxxxx Xxxxxx, 00xx Xx.
Xxxxxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxx, Esquire
(c) Invalidity. If any part of this Agreement is contrary to, prohibited
by, or deemed invalid under applicable laws or regulations, such provision shall
be inapplicable and deemed omitted to the extent so contrary, prohibited or
invalid, but the remainder hereof shall not be invalidated thereby and shall be
given effect so far as possible.
(d) Benefit of Agreement. This Agreement shall be binding upon and inure to
the parties hereto and their respective successors and assigns.
(e) Mutual Agreement. This Agreement embodies the arm's length negotiation
and mutual agreement between the parties hereto and shall not be construed
against either party as having been drafted by it.
(f) New York Law to Govern. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principals of conflicts of law thereof. Each party
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hereby irrevocably submits to the exclusive jurisdiction of the state and
Federal courts sitting in the city of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court or that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
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IN WITNESS WHEREOF, the parties hereto have caused this Guaranty and Pledge
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
CYBER DEFENSE SYSTEMS, INC.
By: /s/Xxxxxxx X. Xxxxxxxx
-----------------------------------------------------------
Xxxxxxx X. Xxxxxxxx
President and Chief Executive Officer
Pledgees:
AJW PARTNERS, LLC
By: SMS Group, LLC
By: /s/Xxxxx X. Xxxxxxxx
-------------------------------------------------
Xxxxx X. Xxxxxxxx
Manager
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
By: /s/Xxxxx X. Xxxxxxxx
-------------------------------------------------
Xxxxx X. Xxxxxxxx
Manager
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
By: /s/Xxxxx X. Xxxxxxxx
-------------------------------------------------
Xxxxx X. Xxxxxxxx
Manager
NEW MILLENNIUM CAPITAL PARTNERS II, LLC
By: First Street Manager II, LLC
By: /s/Xxxxx X. Xxxxxxxx
-------------------------------------------------
Xxxxx X. Xxxxxxxx
Manager
[Signatures Continued on Following Page]
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Pledgor:
Cherokee Raiders, L.P.
By: /s/Xxxxx Xxxxxxxx
-----------------------------------------------------------
Xxxxx Xxxxxxxx, General Partner
Number of Shares subject to this pledge: 6,750,000
Date such Shares were acquired: November 12, 2004
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