EXHIBIT E
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT (the "Agreement") is made as of the 14th
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day of April, 1998.
AMONG: LEHA, a Netherlands Foundation ("LEHA"), Oldco N.V., a Belgian
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corporation ("Oldco"), L&H Holding III S.A. a Luxembourg
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corporation ("Holding"), Jo Lernout and ▇▇▇ ▇▇▇▇▇▇▇, jointly and
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severally;
AND: Kredietbank N.V.(the "Security Agent"), acting in its capacity as
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security agent for the Purchasers (as defined below).
AND: RGC International Investors LDC, Shepherd Investments
International, Ltd. and ▇▇▇▇▇ International (each, a "Purchaser"
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and collectively, together with their permitted successors and
assigns, on a several, not joint, basis, the "Purchasers").
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WHEREAS:
(A) Each of Oldco and Holding (the "Initial Pledgors") owns, directly or
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indirectly, certain shares of common stock of Lernout & Hauspie Speech
Products N.V. ("LHSP"). Such shares of common stock may, in accordance
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with the terms of Article 8 hereof, be transferred to LEHA ("Subsequent
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Pledgor" and, together with the Initial Pledgors, Jo Lernout and Pol
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Hauspie, the "Pledgors").
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(B) Pursuant to the Securities Purchase Agreement of even date herewith
("Purchase Agreement"), by and among the Purchasers and the Pledgors, the
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Purchasers have agreed to purchase and Pledgors have agreed to sell a
number of shares common stock of LHSP as determined pursuant to the terms
of the Purchase Agreement.
(C) The Pledgors, in order to fulfill certain of the conditions of the Purchase
Agreement and to secure their obligations thereunder, have agreed to pledge
the Pledged Collateral (as defined below) to the Security Agent for the
benefit of, and as agent for, the Purchasers as provided in this Agreement.
THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS
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For the purposes of this Agreement, the following terms shall have the
meanings set out below:
"Additional Property" shall have the meaning set out in Section 3.1(b).
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"Purchase Documents" means this Agreement, the Purchase Agreement, the
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Registration Rights Agreement, the Escrow Agreement and certificates,
instruments and other related documents delivered in connection therewith.
"Pledged Collateral" shall have the meaning set out in Section 3.1(c).
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"Pledged Shares" means all the shares of the common stock of LHSP held by
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each Pledgor which are pledged hereunder, as specified on Exhibit A hereto.
"Secured Obligations" means all present and future obligations of the
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Pledgors (whether actual or contingent and whether owed jointly or severally or
in any other capacity whatsoever) under the Purchase Documents to which any of
the Pledgors are a party, including any obligation to pay damages as a result of
any breach of the Secured Obligations or any other liability of the Pledgors
arising out of an "Event of Default" under Section 6.1.
All capitalized terms used but not defined herein shall have the meanings
given to those terms in the Purchase Agreement.
2. APPOINTMENT OF AGENT; SUBSTITUTION
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2.1 Appointment, Powers and Immunities
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(a) Each Purchaser hereby appoints and authorizes Security Agent to act as
its Security Agent hereunder and under any other document referred to herein or
entered into in connection herewith with such powers as are expressly delegated
to Security Agent by the terms of this Agreement, together with such other
powers as are reasonably incidental thereto. Security Agent shall not have any
duties or responsibilities except those expressly set forth in this Agreement,
or be a trustee for any Purchaser. Notwithstanding anything to the contrary
contained herein, Security Agent shall not be required to take any action which
is contrary to this Agreement or any requirement of applicable law. Each of
Security Agent, the Purchasers and any of their respective affiliates shall not
be responsible to any other Purchaser for any recitals, statements,
representations or warranties made by any Pledgor or its affiliates contained in
this Agreement or in any certificate or other document referred to or provided
for in, or received by Security Agent, or any Purchaser under this Agreement,
for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of this
Agreement or any other document referred to or provided for herein or for any
failure by Pledgor or its affiliates to perform their respective obligations
hereunder or thereunder. Security Agent may employ agents and attorneys-in-fact
and shall not be responsible for the actions of any such agents or attorneys-in-
fact selected by it with reasonable care; other than for their gross negligence
or willful misconduct.
(b) Security Agent and its respective directors, officers, employees or
agents shall not be responsible for any action taken or omitted to be taken by
it or them hereunder or in connection herewith, except for its or their own
gross negligence or willful misconduct. Without limiting the generality of the
foregoing, Security Agent (i) may treat any Purchaser party hereto as the
beneficiary of this Agreement until written notice of the assignment or transfer
of the interest thereof signed by such Purchaser and in form reasonably
satisfactory to Security Agent; (ii) may consult with legal counsel, independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by Security Agent in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Purchaser for any statements, warranties or
representations made by any other party hereto other than Security Agent in or
in connection with this Agreement or any document referred to herein; (iv) shall
not have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions of this or any other Agreement on
the part of any party thereto other than Security Agent or to inspect the
property (including books and records) of any Pledgor or any other person; and
(v) shall not be responsible to any Purchaser for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any other instrument or document referred to herein or furnished pursuant hereto
(other than by or against the Security Agent). Except as otherwise provided
under this Agreement, Security Agent shall take action (or shall refrain from
taking action) with respect to the Pledged Collateral as instructed by
Purchasers entitled to receive a Pro Rata Portion (as defined in the Purchase
Agreement) of Common Shares (as defined in the Purchase Agreement) constituting
at least 50.1% of the aggregate Common Shares (the "Majority Purchasers"), as
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such Pro Rata Portion is specified adjacent to each Purchaser's name on the
signature pages hereto; provided that the Security Agent shall not take any
action which is contrary to this Agreement or any requirement of law. The
actions taken or not taken by Security Agent on the written instructions of the
Majority Purchasers shall be binding upon all of the Purchasers.
2.2 Reliance by Agent. Security Agent shall be entitled to rely upon any
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certificate, notice or other document (including cable, telegram, telecopy or
telex) believed by it to be genuine and correct and to have been signed or sent
by or on behalf of the proper person or persons, and upon advice and statements
of legal counsel, independent accountants and other experts selected by Security
Agent.
2.3 Non-Reliance. Each Purchaser represents that it has not relied on
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Security Agent or any other Purchaser in deciding to enter into this Agreement,
and agrees that it will, independently and without reliance upon Security Agent,
or any other Purchaser, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own appraisals and decisions in taking or not taking
action under this Agreement. Each of Security Agent and any Purchaser shall not
be required to keep informed as to the performance or observance by any Pledgor
and its affiliates under this Agreement or any other document referred to or
provided for herein or to make inquiry of, or to inspect the properties or books
of any Pledgor or its affiliate.
2.4 Defaults. Security Agent shall not be deemed to have knowledge or
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notice of the occurrence of any Event of Default (as defined below) unless
Security Agent has received a notice from a Purchaser or Pledgor, referring to
this Agreement, describing the events and circumstances relating to such Event
of Default and indicating that such notice is a notice that the Event of Default
has occurred. If Security Agent receives such a notice of the occurrence of the
Event of Default, Security Agent shall give notice thereof to each Purchaser and
to each Pledgor. Security Agent shall take such action with respect to the
Event of Default as Security Agent shall be reasonably directed by the Majority
Purchasers; provided, however, unless and until Security Agent shall have
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received such directions, Security Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such Event
of Default as it shall deem advisable in the best interest of the Purchasers;
and provided further that the Security Agent shall not take any action which is
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contrary to this Agreement or any requirement of law (including without
limitation exercise of any right or remedy other than as permitted under the
laws of Belgium (including in particular the Law of 5th May 1872)).
2.5 Indemnification. Without limiting the obligations of Pledgors under
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Article 9 hereof, and solely to the extent not satisfied by Pledgors pursuant to
Article 9, each Purchaser agrees to indemnify Security Agent, ratably in
accordance with their proportionate share of the Secured Obligations for any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may at any time be imposed on, incurred by or asserted against Security Agent in
any way relating to or arising out of this Agreement or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or the enforcement of any of the terms hereof or
thereof or of any such other documents; provided, however, that no Purchaser
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shall be liable for any of the foregoing to the extent they arise from Security
Agent's or its directors', officers', employees' or agents' gross negligence or
willful misconduct. Security Agent shall be fully justified in refusing to take
or to continue to take any action hereunder unless it shall first be indemnified
to its satisfaction by the Purchasers against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. Without limitation of the foregoing, each Purchaser agrees to reimburse
Security Agent as promptly as practicable upon demand for its ratable share of
any reasonable out-of-pocket expenses (including reasonable counsel fees)
incurred by Security Agent in connection with the administration or enforcement
of, or legal advice in respect of rights or responsibilities under this
Agreement and the documents and instruments contemplated hereby, to the extent
that Security Agent is not reimbursed for such expenses by Pledgors.
2.6 Successor Security Agent. Security Agent acknowledges that its
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current intention is to remain Security Agent hereunder. Nevertheless, Security
Agent may resign at any time by giving written notice thereof to the Purchasers
and Pledgor. Security Agent may be removed involuntarily for any reason upon
the affirmative vote of the Majority Purchasers. Upon any such resignation or
removal, the Majority Purchasers shall have the right, without the consent of
Pledgor to appoint a successor Security Agent which shall be a commercial bank
or an affiliate thereof having a combined capital and surplus of at least
$250,000,000 or is otherwise reasonably acceptable to Pledgors. If no successor
Security Agent shall have been so appointed by the Majority Purchasers, and
shall have accepted such appointment, within 30 days after the retiring Security
Agent's giving of notice of resignation or the Purchasers' removal of the
retiring Security Agent, the retiring Security Agent may, on behalf of the
Purchasers, appoint a successor Security Agent, which shall be a commercial bank
or an affiliate thereof having a combined capital and surplus of at least
$250,000,000. Upon the acceptance of any appointment as Security Agent by a
successor Security Agent, such successor Security Agent shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Security Agent, and the retiring Security Agent shall be discharged
from its continuing duties and obligations as Security Agent hereunder. After
any retiring Security Agent's resignation or removal hereunder as Security
Agent, the provisions of this Article 2 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Security Agent.
2.7 Authorization. Security Agent is hereby authorized by the Purchasers
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to execute, deliver and perform this Agreement and any other instrument or
document to be executed by Security Agent in connection herewith. Security
Agent is further authorized by the Purchasers to enter into agreements
supplemental hereto for the purpose of curing any formal defect, inconsistency,
omission or ambiguity in this Agreement.
2.8 Other Transactions. Security Agent and its affiliates may accept
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deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with any Pledgor or any other person, without any
duty to account therefor to the Purchasers, so long as such activities do not
prevent Security Agent from complying with its obligations hereunder.
2.9 No Reliance by Pledgors. The provisions of this Article 2 are solely
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for the purposes of defining the rights of the Security Agent with respect to
the Purchasers, and vice versa, and no Pledgor shall have any rights or benefits
vis-a-vis the Security Agent or the Purchasers as a result of the provisions of
this Article 2.
3. GRANT OF SECURITY INTEREST
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3.1 Pledge. Each of the Pledgors hereby grants, pledges and collaterally
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assigns, and the Subsequent Pledgor agrees to grant, pledge and collaterally
assign upon the transfer of the Pledged Collateral in accordance with Article 8
hereof, to the Security Agent (as agent
for the benefit of the Purchasers) as security for the due and punctual
satisfaction and discharge of all the Secured Obligations a continuing security
interest and first priority pledge upon, whether now owned or hereafter
acquired, and howsoever its interest therein may appear:
(a) the Pledged Shares;
(b) all rights, interests and property relating to or arising out of
the Pledged Shares, or to which the Pledgors may become entitled, which the
Pledgors may be offered or which may accrue to the Pledgors in connection with
their interest in any of the Pledged Shares (the "Additional Property")
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including without limitation:
(i) any shares of stock issued as a result of a stock split, the
exercise of any right or option, or otherwise;
(ii) all dividends, whether in cash, stock or otherwise, and other
distributions or rights of Purchase (subject to the Security
Agent's right and obligation to immediately distribute to
Purchasers any cash dividends, distributions or proceeds of the
Pledged Collateral pursuant to Article 5 hereof); and
(iii) any right, interest or property received from time to time in
exchange for, in consideration for or as a result of the
transfer of Pledged Shares or any of the foregoing.
(c) all proceeds and products of any of the above including, without
limitation, any shares to be issued in respect of the Pledged
Shares pursuant to LHSP's stock split to be effective April 15,
1998 (the Pledged Shares, the Additional Property, the rights
and property described in Section 3.2 below, and all proceeds
thereof being collectively referred to as the "Pledged
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Collateral").
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3.2 Additional Shares. If the Pledgors acquire additional shares or
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other securities in LHSP or any other entity in exchange for any of the Pledged
Shares, the Pledgors shall, to the extent not already pledged hereunder,
immediately grant to the Security Agent (as agent for the benefit of the
Purchasers) a first priority pledge, on terms no more onerous than those herein,
over such shares or other securities (which shall immediately become Pledged
Collateral hereunder).
3.3 Inscription.
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(a) Each Pledgor and the Security Agent shall, at or prior to
closing, sign each shareholders' register of LHSP under the following notation
in English in the
shareholders' register maintained in the United States, and in both English and
in Dutch in the shareholders' register maintained in Belgium:
"Stock Certificates numbered __ through __, representing 2,000,000
shares in the aggregate, are sold (subject to certain limitations) to RGC
International Investors LDC, Shepherd Investments International, Ltd. and ▇▇▇▇▇
International ("Purchasers") under a Securities Purchase Agreement among
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Purchasers and LEHA, a Netherlands Foundation, Oldco N.V., a Belgian
corporation, L&H Holding III S.A., a Luxembourg corporation, Jo Lernout and ▇▇▇
▇▇▇▇▇▇▇ ("Sellers") dated April 14, 1998 ("Securities Purchase Agreement") and
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are pledged in favor of Kredietbank N.V. as Security Agent for Purchasers under
a Pledge and Security Agreement dated April 14, 1998 to secure, among other
things, the obligations of Sellers under the Purchase Agreement. The address of
record for all notices and payments made in respect of the shares identified in
the foregoing sentence shall hereafter be Kredietbank, ▇▇▇ ▇. ▇▇▇▇ ▇▇., ▇▇▇▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇. Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, General Manager and Senior
Vice President."
Any modification or removal of the foregoing legend will require the
consent of the Security Agent.
(b) Each Pledgor hereby appoints ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, a lawyer with an
address at Sint-Krispijnstraat, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, as its attorney-in-fact
with power of substitution, to inscribe LHSP's shareholders' register in Belgium
as set out above, and each Pledgor hereby appoints ▇▇▇ Tinto, with an address at
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, as its
attorney-in-fact with power of substitution, to inscribe LHSP's shareholders'
register in the United States, as set out above, in each case to execute
documents or instruments and generally to do anything necessary or desirable to
create and perfect the pledge of the Pledged Shares as set forth in this
Agreement.
3.4. Documents. The Pledgors shall, at or prior to closing, deliver to the
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Security Agent the stock certificates representing the Pledged Shares, together
with stock powers executed in blank, any other certificates or documents
evidencing or in respect of the Pledged Collateral, and shall execute and
deliver all instruments and take other action as the Security Agent may
reasonably request to perfect and protect the security interest in the Pledged
Collateral under applicable laws. The Pledgors hereby irrevocably appoint the
Security Agent as their attorney-in-fact, with authority to take any of the
foregoing actions on behalf of the Pledgors, in the event that the Pledgors
shall be in breach of their obligations under this Section.
3.5. Notice. Pledgors will prevent any third party (other than the
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Security Agent or the Purchasers or in connection with a foreclosure sale of the
Pledged Collateral) from taking title, possession or control over the Pledged
Shares and shall give immediate notice to the Security Agent of any third party
attempting to acquire such title, possession or control.
3.6. No Transfer. The Pledgors shall not, without the prior written
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consent of the Security Agent and the Purchasers, sell, assign, transfer, or
grant any option or other right with respect to, the Pledged Collateral or
create or permit to exist any interest, lien or other encumbrance with respect
to any of the Pledged Collateral other than the security interests granted
herein. The Pledgors will cooperate with the Security Agent in any defense of
its rights in the Pledged Collateral against claims of third parties. In
addition to the other duties and responsibilities of Security Agent set forth
herein, the Security Agent hereby agrees that it (i) will not, without the
instruction of Purchasers or as required by a court of competent jurisdiction,
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, or hypothecate, encumber or grant any lien or
security interest with respect to, any of the Pledged Collateral, (ii) will
treat the Pledged Collateral with the same care as other securities held by it
for its account or the account of others, (iii) will notify the Purchasers if it
has knowledge of any event or circumstance that constitutes a challenge to, or
could reasonably be expected to impair the Pledged Collateral or any part
thereof or impair the enforceability of the security interest granted hereunder
and (iv) will keep accurate books and records pertaining to the custody by the
Security Agent of the Pledged Collateral.
3.7. Shares; Articles. The Pledgors shall ensure that LHSP maintains the
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Pledged Shares as registered shares, and that any additional shares or
securities which become Pledged Collateral pursuant to Section 3.2 shall be and
remain registered shares and, other than as permitted under the Purchase
Agreement, the Pledgors shall ensure that the Articles of LHSP shall not be
modified in any way which could adversely affect the security interests granted
herein, without the prior written consent of the Purchasers.
3.8. Continuing Security. The security interests granted herein over the
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Pledged Collateral shall be continuing and will extend to the ultimate balance
of the Secured Obligations, regardless of any intermediate payment, discharge or
satisfaction in whole or in part.
4. VOTING RIGHTS
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4.1. Before Event of Default. The voting rights in respect of the Pledged
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Shares and any other Pledged Collateral shall be exercised by the Pledgors until
the occurrence of an Event of Default (as defined below); provided that the
Pledgors shall not vote in any manner which could reasonably be expected to
materially impair the security interests granted herein.
4.2. After Event of Default. The Pledgors hereby appoint each Purchaser
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as their attorney-in-fact to vote a Pro Rata Portion of Pledgors' shares at any
time after the first to occur of (i) the Determination Date or (ii) an Event of
Default with respect to the following decisions involving LHSP:
i) increase or reduction of capital;
ii) amendment of Articles (statuten);
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iii) modification of rights attached to shares;
iv) declaration of dividends; and
v) merger, rescission, liquidation, bankruptcy and other similar matters.
5. DIVIDENDS
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Dividends, distributions, proceeds and any other rights in respect of the
Pledged Collateral shall be paid to or exercised by the Security Agent (as agent
for the Purchasers); provided that cash dividends, distributions or proceeds
shall be immediately paid to Purchasers in accordance with each such Purchaser's
Pro Rata Portion in accordance with Sections 4.6 and 5.4 of the Purchase
Agreement, and upon such payment shall cease to be Pledged Collateral hereunder.
Security Agent agrees to pay over to Purchasers, based on the Pro Rata Portion
of each, all such cash dividends, distributions and proceeds.
6. ENFORCEMENT
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6.1 Events of Default. The occurrence of any of the following events
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(each, an Event of Default), whatever the reason for such Event of Default, and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body, shall entitle Security
Agent to exercise any and all of its rights and remedies hereunder or at law:
(a) the occurrence (whether by a result of acts or omissions by Pledgors
or any other person) of the Determination Date pursuant to the Purchase
Agreement, and the failure of any "Seller" thereunder either (i) to deliver all
of the Common Shares (as defined in the Purchase Agreement) to be delivered by
such Seller thereunder on the Share Transfer Date, or (ii) to provide the
instructions to the Security Agent to transfer the Common Shares to the
Purchasers as required by Section 5.2 of the Purchase Agreement;
(b) the failure on the part of any Pledgor to observe or perform any
covenant contained in this Agreement or the other Purchase Documents on its part
to be observed or performed which could reasonably be expected to materially
affect (i) the Seller's obligations under the Purchase Agreement to deliver
Common Shares in accordance with the terms thereof, (ii) the rights of
Purchasers or the lien of the Purchasers on the common shares hereunder, and, in
each case, such failure shall continue unremedied for a period of 10 Business
Days after such Pledgor becomes aware thereof or receives written notice thereof
from Security Agent; or
(c) any representation or warranty of any Pledgor contained in this
Agreement shall contain an untrue or misleading statement of a material fact or
shall fail to state a material fact necessary to make the statements therein not
misleading as of the date made, where the event or circumstance to which such
misleading statement relates could reasonably be expected to materially
adversely affect (i) the Seller's obligations under the Purchase Agreement to
deliver common shares in accordance with the terms thereof, (ii) the rights of
Purchasers or the lien of the Purchasers on the Common Shares hereunder, and, in
each case, such failure shall continue unremedied for a period of 10 Business
Days after such Pledgor becomes aware thereof or receives written notice thereof
from Security Agent.
6.2. Remedies. Upon the occurrence and during the continuation of an
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Event of Default, Security Agent may, as agent for the benefit of the
Purchasers, exercise all rights and remedies of a pledgee under the laws of
Belgium (including in particular the Law of 5th May 1872).
6.3. Waivers; No exclusivity. (a) For the purposes only of enforcement
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of the security, the Pledgors hereby waive all forms of notice with respect to
the Event of Default, and all other notices to which the Pledgors may otherwise
be entitled, except as otherwise expressly provided herein or in the Purchase
Agreement, and except for such notices as many be required under Belgian law.
(b) Failure by the Security Agent to exercise, or delay in exercising,
any right or remedy in connection with this Agreement shall not constitute a
waiver thereof, nor shall partial exercise of any right or remedy prevent any
further or other exercise thereof or the exercise of any other right or remedy.
The rights and remedies provided for in this Agreement are cumulative and not
exclusive of any rights or remedies provided by law.
6.4 Limitation on Duty of Security Agent with Respect to the Collateral.
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The powers conferred on Security Agent hereunder are solely to protect its (and
the Purchasers') interest in the Pledged Collateral and shall not impose any
duty on it to exercise any such powers other than as set forth herein. Except
for the safe custody of any Pledged Collateral in its possession and the
accounting for monies actually received by it hereunder, and except as otherwise
set forth herein, Security Agent shall have no duty with respect to any Pledged
Collateral. Security Agent shall be deemed to have exercised reasonable care in
the custody and preservation of the Pledged Collateral in its possession if the
Pledged Collateral is accorded treatment that is substantially equivalent to
that which Security Agent accords its own property, it being expressly agreed
that Security Agent shall have no responsibility for (i) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relative to any Pledged Collateral, whether or not Security Agent
has or is deemed to have knowledge of such matters, or (ii) taking any necessary
steps to preserve rights against any parties with respect to any Pledged
Collateral, but Security Agent may do so and all expenses incurred in connection
therewith shall be part of the Secured Obligations.
6.5 Allocation of Proceeds. Notwithstanding anything in this Agreement to
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the contrary, each Purchaser shall receive its Pro Rata Portion (as defined in
the Purchase Agreement), as noted adjacent to such Purchaser's name on the
signature pages to this Agreement, of any cash, shares or other distributions of
any kind held or obtained by the Security Agent and distributed to the
Purchasers in satisfaction of the Pledgors' obligations hereunder.
7. REPRESENTATIONS AND WARRANTIES
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7.1 Representations and Warranties of the Pledgors. The Pledgors hereby
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jointly and severally represent and warrant to the Security Agent as follows:
(a) each Initial Pledgor is and, until transfer of the Pledged Shares
to the Subsequent Pledgor is effected in accordance with the terms of Article 8,
will at all times be the exclusive legal and beneficial owner of, and have valid
title to, the Pledged Shares reflected on Exhibit A as being owned by it. The
Subsequent Pledgor will, upon receipt of shares in accordance with the terms of
Article 8, at all times be the exclusive legal and beneficial owner of, and have
valid title to, the Pledged Shares reflected on Exhibit A as being owned by it.
The Initial Pledgors own, collectively, and upon receipt of shares in accordance
with the terms of Article 8, Subsequent Pledgor shall own, and have (or shall
have) the right to pledge, not less than 2,000,000 Common Shares of LHSP,
subject to adjustment for splits, dividends, and similar actions as provided in
the Purchase Agreement;
(b) all the Pledged Shares are in registered form, duly issued and
fully paid, and free and clear of all liens, pledges, security interest,
charges, encumbrances, options and any other rights of third parties;
(c) the Purchasers (through the Security Agent) have a first priority,
validly perfected security interest in the Pledged Shares and the other Pledged
Collateral; and
(d) each Pledgor makes, for the benefit of the Purchasers, each of the
representations and warranties set forth in Article III of the Purchase
Agreement, which Article III is incorporated herein by this reference, mutatis
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mutandis.
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7.2 Representations and Warranties of the Security Agent.
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(a) Security Agent is duly organized and existing in good standing
under the laws of the jurisdiction in which it is formed, and has the requisite
power and authority to own its properties and to carry on its business as now
being conducted.
(b) (i) Security Agent has the requisite power and authority to enter
into and perform this Agreement and perform its obligations in accordance with
the terms hereof, (ii) the execution, delivery and performance of this Agreement
by the Security Agent and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary action and, no further consent or authorization of
any person, body or agency, and no filing with any person, body or agency, is
required with respect to any of the transactions contemplated hereby, (iii) this
Agreement has been duly executed and delivered by Security Agent, and (iv) this
Agreement constitutes the legally valid and binding obligation of Security
Agent, enforceable against the Security Agent in accordance with its terms,
except to the extent that such validity or enforceability may be subject to or
affected by any bankruptcy, insolvency, reorganization, moratorium, liquidation
or similar laws relating to, or affecting generally the enforcement of,
creditors' rights or remedies of creditors generally, or by other equitable
principles of general application.
8. ASSIGNMENT
----------
If any Purchaser assigns and transfers any of its respective rights and
obligations hereunder to a transferee, in accordance with the terms of the
Purchase Agreement, then such transferee shall have the rights of such Purchaser
under this Agreement. Upon any such assignment, the assigning Purchaser shall
notify Security Agent in writing thereof, and upon receipt of such notice
Security Agent shall, and is hereby authorized to, amend the Pro Rata Portion
designated on the signature pages hereto with respect to the assigning Purchaser
in order to reflect such transfer (and shall note on an Appendix hereto the Pro
Rata Portion of the assignee). Upon such assignment and transfer taking effect,
the parties shall inscribe the shareholders' register of LHSP to indicate the
replacement Purchaser. The Initial Pledgors are hereby authorized to sell,
transfer and assign their rights and interest in the Pledged Collateral to the
Subsequent Pledgor, provided that the Pledged Collateral shall remain continuing
security for the Secured Obligations and that, prior to such sale, transfer and
assignment the Subsequent Pledgor shall have reaffirmed the effectiveness of
this agreement and security interest granted hereunder with respect to such
assigned Pledged Collateral.
9. COSTS AND EXPENSES
------------------
Each Pledgor agrees to indemnify Security Agent, on a joint and several
basis, for any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, cost expenses or disbursements of any kind or nature
whatsoever which may at any time be imposed on, incurred by or asserted against
Security Agent in any way relating to or arising out of this Agreement or any
documents contemplated by or referred to herein or therein of the transactions
contemplated hereby or thereby or enforcement of any of the terms hereof or
thereof or of any other such documents; provided, however, that no Pledgor shall
be liable for any of the foregoing to the extent they arise from Security
Agent's or its directors', officers' employees' or agents' gross negligence or
willful misconduct. Without limiting the generality of the foregoing and
subject to the terms of the Purchase Agreement, all costs, charges and expenses
incurred and all payments made by the Security Agent in the lawful
exercise of the powers hereby conferred whether or not occasioned by any act,
neglect or default of any Pledgor shall carry interest (as well after as before
judgment) at a floating rate equal to the Prime Rate (as published by the Wall
Street Journal or, if such publication is no longer published, a successor
publication designated by the Purchasers in their reasonable discretion) plus 3%
from the date of the same being incurred or becoming payable until the date the
same are unconditionally and irrevocably paid and discharged in full. The amount
of all such costs, charges, expenses and payments and all such interest thereon
and all remuneration payable hereunder shall be payable by the Pledgors on
demand by Security Agent. All such costs, charges, expenses and payments shall
be paid and charged as between the Security Agent and the Pledgors on the basis
of a full indemnity and not on the basis of party and party or any other kind of
taxation.
10. TERM
----
This Agreement shall, subject to any prior reduction or release of the
Pledgors' obligations hereunder granted expressly by the Security Agent (acting
at the instruction of all Purchasers), remain in effect until full discharge of
all of the Secured Obligations, including without limitation the transfer to the
Purchasers all of the common shares to be delivered pursuant to the Purchase
Agreement. The parties to this agreement agree to be bound by the provisions of
Section 5.2 of the Purchase Agreement attached hereto. Any instructions from
the Purchasers described therein shall be signed by all of the Purchasers and
must be received by the Security Agent prior to delivery of the Pledged
Collateral to the transfer agent.
11. ADDITIONAL PLEDGOR COVENANTS
----------------------------
Each Pledgor agrees that it will not (i) sell, assign (by operation of law
or otherwise) or otherwise dispose of, or grant any option with respect to, or
hypothecate, encumber or grant any lien or security interest with respect to,
any of the Pledged Collateral (except to Subsequent Pledgor as permitted
herein), or (ii) enter into any agreement which could reasonably be expected to
restrict or inhibit Security Agent's rights or ability to sell or otherwise
dispose of the Pledged Collateral or any part thereof after the occurrence and
during the continuation of an Event of Default. Each Pledgor agrees that it
will (x) not cause or permit LHSP to issue to Pledgor any stock or other
securities (including any warrants, options, subscriptions or other contractual
arrangements for the purchase of stock or securities convertible into stock) in
substitution for the Pledged Collateral except subject to the pledge and
security interest effected hereunder in accordance with the terms hereof, and
(y) deliver hereunder, immediately upon acquisition thereof, any and all
writings evidencing any additional Pledged Collateral in accordance with Section
3.2. Each Pledgor hereby authorizes Security Agent to modify this Agreement by
unilaterally amending Exhibit A to include such shares of stock or other
securities.
12. GENERAL
-------
12.1. Purchaser. The powers granted to the Security Agent herein may be
---------
exercised in the sole discretion of the Purchasers. Neither the Security Agent
nor the Purchasers shall be liable for any loss, cost, damage expense suffered
by any person, except that resulting from their own fraud, recklessness or gross
negligence, and then on a joint, and not several, basis.
12.2 Governing Law; Jurisdiction. This Agreement shall be governed by
----------------------------
and construed in accordance with the laws of Belgium applicable to contracts
made and to be performed in Belgium. The parties hereto agree that a final non-
appealable judgment in any such suit or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner. The parties hereto irrevocably waive any right to trial by jury
under applicable law.
12.3 Counterparts. This Agreement may be executed in two or more
-------------
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall promptly cause
additional original executed signature pages to be delivered to the other
parties.
12.4 Headings. The headings of this Agreement are for convenience of
---------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
12.5 Severability. If any provision of this Agreement shall be invalid
------------
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
12.6 Entire Agreement: Amendments. This Agreement and the instruments
-----------------------------
and other documents referenced herein contain the entire understanding of the
parties with respect to the matters covered herein. No provision of this
Agreement may be waived other than by an instrument in writing signed by the
party to be charged with enforcement and no provision of this Agreement may be
amended other than by an instrument in writing signed by the Pledgor and the
Security Agent.
12.7 Notices. Any notice required or permitted to be given shall be in
--------
writing and may be personally served or delivered by nationally-recognized
overnight courier or by facsimile machine confirmed telecopy, and shall be
deemed delivered at the time and date of receipt (which shall include telephone
line facsimile transmission) or, if the date of such receipt is not a day on
which banks in New York, New York, the United Kingdom and Brussels, Belgium are
permitted or required by law to be closed (a "Business Day"), then on the next
------------
succeeding Business Day. The addresses for such communications shall be:
If to the Pledgors:
------------------
Foundation LEHA
Oldco N.V.
L&H Holding III
Jo Lernout
▇▇▇ ▇▇▇▇▇▇▇
c/o Lernout & Hauspie Speech Products
▇ ▇▇▇▇ - ▇▇▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇-▇-▇▇▇-▇▇▇▇
Telecopy: 011-32-5-720-8489
Attention: Messrs. ▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
with a copy to:
Loeff ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇
▇▇▇▇▇▇▇▇ ▇-▇▇▇▇
▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇-▇-▇▇▇-▇▇▇▇
Telecopy: 011-32-2-778-2457
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
Brown, Rudnick, Freed & Gesmer
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
If to Security Agent:
Kredietbank
▇▇▇ ▇. ▇▇▇▇ ▇▇., ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, General Manager and Senior Vice President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
____________________
If to Purchasers:
▇▇▇▇▇ International
and Shepherd Investments International, Ltd.:
c/o Staro Asset Management, LLC
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and with a copy to:
RGC International Investors, LDC:
▇/▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇.▇.
▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇. ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
in each case with a copy to:
Shoreline Pacific Institutional Finance
▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
Each party shall provide notice to the other party of any change in address.
12.8 Third Party Beneficiaries. This Agreement is intended for the
-------------------------
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person. This Agreement shall be binding on and inure to the
benefit of the parties and their permitted successors and assigns.
12.9 Survival. The representations and warranties of the Pledgor and the
---------
agreements and covenants set forth herein shall survive the closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf of the
Purchaser. Each Pledgor agrees to indemnify and hold harmless the Security
Agent and any Purchaser as the case may be and each of such party's respective
officers, directors, employees, partners, agents and affiliates for loss or
damage or expenses (including reasonable attorneys fees) arising as a result of
or related to any breach or alleged breach by any Pledgor of any of its
representations or covenants set forth herein, including advancement of expenses
as they are incurred.
12.10 Further Assurances. Each party shall do and perform, or cause to
-------------------
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby. Without limiting the generality of the
foregoing, the Security Agent hereby agrees to, immediately following closing,
execute and deliver to Purchasers a certificate acknowledging receipt by
Security Agent of the Pledged Shares to be held in accordance with the
provisions of this Agreement.
12.11 Remedies. No provision of this Agreement providing for any remedy
---------
to a Security Agent or Purchaser shall limit any remedy which would otherwise be
available to such Purchaser at law or in equity. Nothing in this Agreement
shall impair the rights of the Purchasers to pursue the remedies provided to the
Purchasers under the Purchase Agreement. Nothing in this Agreement shall limit
any rights Security Agent or a Purchaser may have under any applicable federal
or state securities laws with respect to the investment contemplated hereby.
Each Pledgor acknowledges that a breach by it of its respective obligations
hereunder will cause irreparable harm to Security Agent and each Purchaser.
Accordingly, each Pledgor acknowledges that the remedy at law for a material
breach of its
respective obligations under this Agreement will be inadequate and agrees, in
the event of a breach or threatened breach by a Pledgor of the provisions of
this Agreement, that a Purchaser shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate compliance, without the necessity of showing economic loss and without
any bond or other security being required.
IN WITNESS WHEREOF the Pledgors, the Purchasers and the Security Agent have
executed this Agreement as of April 14 1998, each acknowledging receipt of a
signed original.
/s/ Jo Lernout
-----------------
JO LERNOUT
/s/ ▇▇▇ ▇▇▇▇▇▇▇
------------------
▇▇▇ ▇▇▇▇▇▇▇
[SIGNATURES CONTINUED ONTO NEXT PAGE]
LEHA FOUNDATION
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇
-------------------
Name: ▇▇▇ ▇▇▇▇▇▇▇
Title: Director
[SIGNATURES CONTINUED ONTO NEXT PAGE]
L&H HOLDING III S.A., a Luxenbourg corporation
By: /s/ Jo Lernout
------------------
Name: Jo Lernout
Title: Director
[SIGNATURES CONTINUED ONTO NEXT PAGE]
OLDCO N.V., a Belgian corporation
By: /s/ Jo Lernout
-------------------
Name: Jo Lernout
Title: Director
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇
-------------------
Name: ▇▇▇ ▇▇▇▇▇▇▇
Title: Director
[SIGNATURES CONTINUED ONTO NEXT PAGE]
SECURITY AGENT:
KREDIETBANK N.V.
By:/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Senior Vice President & General Manager
By:/s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------
Name: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Operating Officer
[SIGNATURES CONTINUED ONTO NEXT PAGE]
PURCHASERS:
RGC INTERNATIONAL INVESTORS, LDC
By: ▇▇▇▇ ▇▇▇▇ Capital Management, L.P.
Investment Manager
By: RGC General Partner Corp.
By: /s/
-----------------------
Name:
Its: Managing Director
PRO RATA PORTION: 50%
RESIDENCE: Cayman Islands
ADDRESS:
▇/▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇.▇.
▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇. ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
[SIGNATURES CONTINUED ONTO NEXT PAGE]
PURCHASER SIGNATURES CONTINUED:
SHEPHERD INVESTMENTS INTERNATIONAL, LTD.
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Managing Member, Staro Asset Management, LLC
Investment Manager, Shepherd Investments International, Ltd.
DATE: 5-15-98
---------
PRO RATA PORTION: 25%
RESIDENCE: British Virgin Islands
ADDRESS: c/o Staro Asset Management, LLC
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇
Attn: Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ INTERNATIONAL
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Managing Member, Staro Asset Management, LLC
Investment Manager, ▇▇▇▇▇ International
DATE: 4-15-98
---------
PRO RATA PORTION: 25%
RESIDENCE: Bermuda
ADDRESS: c/o Staro Asset Management, LLC
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇
Attn: Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇