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Exhibit 10.9
 
 
PLEDGE AND ESCROW AGREEMENT
 
PLEDGE AND ESCROW AGREEMENT (the “Agreement”) dated December 20, 2006, made by
each of the undersigned (each a “Pledgor”, and collectively, the “Pledgors”), in
favor of CORNELL CAPITAL PARTNERS, LP, in its capacity as collateral agent (in
such capacity, the “Collateral Agent”) for the “Buyers” (as defined below) party
to the Securities Purchase Agreement, of even date herewith (the "Securities
Purchase Agreement").
 
RECITALS:
 
WHEREAS, Cobalis Corporation, a Nevada corporation (the “Company”), and each
party listed as a "Buyer" on the Schedule of Buyers attached thereto (each a
"Buyer", and collectively, the "Buyers") are parties to the Securities Purchase
Agreement, pursuant to which the Company shall issue and sell to the Buyers, as
provided in the Securities Purchase Agreement and the Buyers shall purchase
secured convertible debentures (the “Convertible Debentures”), which shall be
convertible into shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”) (as converted, the “Conversion Shares”);
 
WHEREAS, it is a condition precedent to the Buyers purchasing the Convertible
Debentures that the Pledgors execute and deliver to the Collateral Agent a
pledge agreement securing all of the obligations of the Company under the
Securities Purchase Agreement, the Convertible Debentures and the Transaction
Documents (as defined in the Securities Purchase Agreement, the “Transaction
Documents”);
 
WHEREAS, each Pledgor has determined that the execution, delivery and
performance of this Agreement directly benefits, and is in the best interest of,
such Pledgor; and
 
WHEREAS, the parties to this Agreement desire to appoint DAVID GONZALEZ, ESQ.,
as escrow agent (“Escrow Agent”) to hold in escrow the Pledged Shares (as
defined below) pursuant to the terms and conditions of this Agreement.
 
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
warranties, and representations herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
 
TERMS AND CONDITIONS
 
1.  Obligations Secured. The security interest created hereby in the Pledged
Shares constitutes continuing collateral security for all obligations of the
Company now existing or hereinafter incurred to the Buyers, whether oral or
written and whether arising before, on or after the date hereof including,
without limitation of the following obligations (collectively, the
“Obligations”):
 
(a)  for so long as the Convertible Debentures are outstanding, the payment by
the Company, as and when due and payable (by scheduled maturity, acceleration,
demand or otherwise), of all amounts from time to time owing by it in respect of
the Securities Purchase Agreement, the Convertible Debentures and the other
Transaction Documents; and
 
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(b)  for so long as the Convertible Debentures are outstanding, the due
performance and observance by the Company of all of its other obligations from
time to time existing in respect of any of the Transaction Documents, including
without limitation, the Company’s obligations with respect to any conversion or
redemption rights of the Buyer under the Convertible Debentures.
 
2.  Pledge and Transfer of Pledged Shares. Each Pledgor hereby grants to the
Collateral Agent an irrevocable, first priority security interest in all the
securities set forth next to such Pledgor’s name on Schedule I attached hereto
(the “Pledged Shares”) as security for the Obligations. Simultaneously with the
execution of this Agreement, each Pledgor shall deliver to the Escrow Agent, and
the Escrow Agent shall hold in escrow pursuant to the terms of this Agreement,
stock certificates made out in favor of the Pledgor representing the Pledged
Shares, together with duly executed stock powers or other appropriate transfer
documents with medallion bank guarantees and executed in blank by each Pledgor
(the “Transfer Documents”), and such stock certificates and Transfer Documents
shall be held by the Escrow Agent until the satisfaction in full of all the
Obligations.
 
3.  Rights Relating to Pledged Shares. Upon the occurrence of an Event of
Default (as defined herein), the Collateral Agent shall be entitled to vote the
Pledged Shares, receive dividends and other distributions thereon, and enjoy all
other rights and privileges incident to the ownership of the number of Pledged
Shares actually released from escrow in accordance with Section 6.1 hereof on
behalf of the Buyers.
 
4.  Release of Pledged Shares from Pledge.
 
a.  Upon the satisfaction in full of all the Obligations the parties hereto
shall notify the Escrow Agent to such effect in writing. Promptly upon receipt
of such written notice, the Escrow Agent shall return to each Pledgor the
Transfer Documents and the certificates representing the Pledged Shares
(collectively the “Pledged Materials”), whereupon any and all rights of the
Collateral Agent in the Pledged Materials shall be terminated.
 
b.  Upon the satisfaction of all the following conditions (i) the registration
statement with respect to the resale of the Common Stock underlying the
Convertible Debentures shall have been declared effective by the Securities and
Exchange Commission, (ii) the Common Stock shall be traded on a Principal Market
(as defined in the Convertible Debentures), (iii) no Event of Default shall have
occurred, and (iv) the closing price of the Common Stock on the Principal Market
has been greater than $2.00 for prior three trading days, the security interest
created hereunder solely with respect to fifty percent (50%) of the Pledged
Shares pledged hereunder by each Pledgor shall terminate. Promptly upon the
satisfaction of such conditions, the parties hereto shall notify the Escrow
Agent to such effect in writing. Promptly upon receipt of such written notice,
the Escrow Agent shall return to each Pledgor the Pledged Materials with respect
to one half of each Pledgors’ Pledged Shares, and all rights of Collateral Agent
in such Pledged Shares returned shall be terminated.
 
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5.  Event of Default. An “Event of Default” shall be deemed to have occurred
under this Agreement upon an Event of Default under the Convertible Debentures.
 
6.  Remedies.
 
a.  Upon and anytime after the occurrence of an Event of Default, the Collateral
Agent shall have the right acquire the Pledged Shares in accordance with the
following procedure: (a) the Collateral Agent shall provide written notice of
such Event of Default (the “Default Notice”) to the Escrow Agent, with a copy to
the Pledgors; (b) in a Default Notice the Collateral Agent shall specify the
number of Pledged Shares to be issued to the Collateral Agent, provided however,
that neither the Collateral Agent, nor any Buyer shall not have the right to
acquire such number of Pledged Shares which would cause the Collateral Agent or
such Buyer, together with its affiliates, to beneficially own in excess of 4.99%
of the outstanding capital of the Company (unless the Collateral Agent or such
Buyer waives such limitation by providing 65 days’ advance written notice); and
(c) as soon as practicable after receipt of a Default Notice, the Escrow Agent
shall deliver the specified number of Pledged Shares along with the applicable
Transfer Documents to the Company’s Transfer Agent with instructions to issue
such Pledged Shares to the Collateral Agent in accordance with the Irrevocable
Transfer Agent Instructions of even date herewith.
 
b.  Upon receipt of the Pledged Shares issued to a the Collateral Agent, the
Collateral Agent shall have the right to (i) sell the Pledged Shares and to
apply the proceeds of such sales, net of any selling commissions, to the
Obligations owed to the Buyers by the Company under the Transaction Documents,
including, without limitation, outstanding principal, interest, legal fees, and
any other amounts owed to the Buyers, and exercise all other rights and (ii) any
and all remedies of a secured party with respect to such property as may be
available under the Uniform Commercial Code as in effect in the State of New
Jersey. The Collateral Agent shall have the absolute right to sell or dispose of
the Pledged Shares in any manner it sees fit and shall have no liability to any
Pledgor or any other party for selling or disposing of such Pledged Shares even
if other methods of sales or dispositions would or allegedly would result in
greater proceeds than the method actually used. Each Pledgor shall remain liable
for shortfalls, if any, that may exist after the Collateral Agent has exhausted
all remedies hereunder. The Collateral Agent shall return any Pledged Shares
issued to it and instruct the Escrow Agent to return any Pledged Shares it is
holding in escrow after the full satisfaction of the Obligations.
 
c.  Each right, power and remedy of the Collateral Agent provided for in this
Agreement or any other Transaction Document shall be cumulative and concurrent
and shall be in addition to every other such right, power or remedy. The
exercise or beginning of the exercise by the Collateral Agent of any one or more
of the rights, powers or remedies provided for in this Agreement or any other
Transaction Document or now or hereafter existing at law or in equity or by
statute or otherwise shall not preclude the simultaneous or later exercise by
the Collateral Agent or any Buyer of all such other rights, powers or remedies,
and no failure or delay on the part of the Collateral Agent or any Buyer to
exercise any such right, power or remedy shall operate as a waiver thereof. No
notice to or demand on any Pledgor in any case shall entitle any Pledgor to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of any of the rights of the Collateral Agent to any other
further action in any circumstances without demand or notice. The Collateral
Agent shall have the full power to enforce or to assign or contract is rights
under this Agreement to a third party. 
 
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7.  Representations, Warranties and Covenants.
 
a.  Each Pledgor represents, warrants and covenants that:
 
(i)  Pledgor is, and at the time when pledged hereunder will be, the legal,
beneficial and record owner of, and has (and will have) good and valid title to,
all Pledged Shares pledged by it hereunder, subject to no pledge, lien,
mortgage, hypothecation, security interest, charge, option or other encumbrance
whatsoever;
 
(ii)  Pledgor has full power, authority and legal right to pledge all the
Pledged Shares pledged pursuant to this Agreement; and
 
(iii)  all the Pledged Shares have been duly and validly issued, are fully paid
and non-assessable and are subject to no options to purchase or similar rights.
 
b.  Each Pledgor covenants and agrees to take all reasonable steps to defend the
Collateral Agent’s right, title and security interest in and to the Pledged
Shares and the proceeds thereof against the claims and demands of all persons
whomsoever (other than the Collateral Agent and the Escrow Agent); and each
Pledgor covenants and agrees that it will have like title to and right to pledge
any other property at any time hereafter pledged to the Collateral Agent as
collateral hereunder and will likewise take all reasonable steps to defend the
right thereto and security interest therein of the Collateral Agent.
 
c.  Each Pledgor covenants and agrees to take no action which would violate or
be inconsistent with any of the terms of any Transaction Document, or which
would have the effect of impairing the position or interests of the Collateral
Agent under any Transaction Document.
 
d.  Each Pledgor represents, warrants and covenants that unless otherwise
indicated on Schedule II attached hereto, Pledgor has been the beneficial owner
of the Pledged Shares for a period of not less than two (2) years as computed in
accordance with Rule 144(d) promulgated under the Securities Act of 1933, as
amended. Upon an Event of Default, the Collateral Agent shall be deemed to have
acquired the Pledged Shares on the date they were acquired by the Pledgor.
Unless otherwise indicated on the Schedule II attached hereto, each Pledgor is
an “affiliate” of the Company, as such term is defined in Rule 144(a)
promulgated under the Securities Act of 1933, as amended.
 
8.  Concerning the Escrow Agent.
 
a.  The Escrow Agent undertakes to perform only such duties as are expressly set
forth herein and no implied duties or obligations shall be read into this
Agreement against the Escrow Agent.
 
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b.  The Escrow Agent may act in reliance upon any writing or instrument or
signature which it, in good faith, believes to be genuine, may assume the
validity and accuracy of any statement or assertion contained in such a writing
or instrument, and may assume that any person purporting to give any writing,
notice, advice or instructions in connection with the provisions hereof has been
duly authorized to do so. The Escrow Agent shall not be liable in any manner for
the sufficiency or correctness as to form, manner, and execution, or validity of
any instrument deposited in this escrow, nor as to the identity, authority, or
right of any person executing the same; and its duties hereunder shall be
limited to the safekeeping of such certificates, monies, instruments, or other
document received by it as such escrow holder, and for the disposition of the
same in accordance with the written instruments accepted by it in the escrow.
 
c.  The Collateral Agent and the Pledgors hereby agree, to defend and indemnify
the Escrow Agent and hold it harmless from any and all claims, liabilities,
losses, actions, suits, or proceedings at law or in equity, or any other
expenses, fees, or charges of any character or nature which it may incur or with
which it may be threatened by reason of its acting as Escrow Agent under this
Agreement; and in connection therewith, to indemnify the Escrow Agent against
any and all expenses, including attorneys’ fees and costs of defending any
action, suit, or proceeding or resisting any claim (and any costs incurred by
the Escrow Agent pursuant to Sections 6.4 or 6.5 hereof). The Escrow Agent shall
be vested with a lien on all property deposited hereunder, for indemnification
of attorneys’ fees and court costs regarding any suit, proceeding or otherwise,
or any other expenses, fees, or charges of any character or nature, which may be
incurred by the Escrow Agent by reason of disputes arising between the makers of
this escrow as to the correct interpretation of this Agreement and instructions
given to the Escrow Agent hereunder, or otherwise, with the right of the Escrow
Agent, regardless of the instructions aforesaid, to hold said property until and
unless said additional expenses, fees, and charges shall be fully paid. Any fees
and costs charged by the Escrow Agent for serving hereunder shall be paid by the
Pledgors.
 
d.  If any of the parties shall be in disagreement about the interpretation of
this Agreement, or about the rights and obligations, or the propriety of any
action contemplated by the Escrow Agent hereunder, the Escrow Agent may, at its
sole discretion deposit the Pledged Materials with the Clerk of the United
States District Court of New Jersey, sitting in Newark, New Jersey, and, upon
notifying all parties concerned of such action, all liability on the part of the
Escrow Agent shall fully cease and terminate. The Escrow Agent shall be
indemnified by the Pledgors, the Company and the Collateral Agent for all costs,
including reasonable attorneys’ fees in connection with the aforesaid
proceeding, and shall be fully protected in suspending all or a part of its
activities under this Agreement until a final decision or other settlement in
the proceeding is received.
 
e.  The Escrow Agent may consult with counsel of its own choice (and the costs
of such counsel shall be paid by the Company and Collateral Agent) and shall
have full and complete authorization and protection for any action taken or
suffered by it hereunder in good faith and in accordance with the opinion of
such counsel. The Escrow Agent shall not be liable for any mistakes of fact or
error of judgment, or for any actions or omissions of any kind, unless caused by
its willful misconduct or gross negligence.
 
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f.  The Escrow Agent may resign upon ten (10) days’ written notice to the
parties in this Agreement. If a successor Escrow Agent is not appointed within
this ten (10) day period, the Escrow Agent may petition a court of competent
jurisdiction to name a successor.
 
9.  Conflict Waiver. The Pledgors hereby acknowledges that the Escrow Agent is
general counsel to the Collateral Agent, a partner in the general partner of the
Collateral Agent, and counsel to the Collateral Agent in connection with the
transactions contemplated and referred herein. The Pledgors agrees that in the
event of any dispute arising in connection with this Agreement or otherwise in
connection with any transaction or agreement contemplated and referred herein,
the Escrow Agent shall be permitted to continue to represent the Collateral
Agent and the Pledgors will not seek to disqualify such counsel and waives any
objection Pledgors might have with respect to the Escrow Agent acting as the
Escrow Agent pursuant to this Agreement.
 
10.  Notices. Unless otherwise provided herein, all demands, notices, consents,
service of process, requests and other communications hereunder shall be in
writing and shall be delivered in person or by overnight courier service, or
mailed by certified mail, return receipt requested, addressed:
 
If to the Company, to:
Cobalis Corporation
 
2445 McCabe Way, Suite 150
 
Irvine, CA 92614
 
Attention: Dr. Gerald J. Yaktan
 
Telephone: 
 
Facsimile: 
 
 
With a copy to:
Wilson Sonsini Goodrich & Rosati
 
12235 El Camino Real, Suite 200
 
San Diego, CA 92130
 
Martin J. Waters, Esq.
 
Telephone:  858-350-2300
 
Facsimile:     858-350-2399
 
 
If to the Collateral Agent:
Cornell Capital Partners LP
 
101 Hudson Street, Suite 3700
 
Jersey City, NJ 07302
 
Attention:  Mark A. Angelo
 
Telephone: (201) 985-8300
 
Facsimile:    (201) 985-8744
 
 
With copy to:
Cornell Capital Partners, LP
 
101 Hudson Street, Suite 3700
 
Jersey City, NJ 07302
 
Attention:  David Gonzalez, Esq.
 
Telephone: (201) 985-8300
 
Facsimile:    (201) 985-1964
 
 
If to the Pledgors, to:
To the addresses provided on the signature pages attached hereto

 
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Any such notice shall be effective (a) when delivered, if delivered by hand
delivery or overnight courier service, or (b) five (5) days after deposit in the
United States mail, as applicable.
 
11.  Binding Effect. All of the covenants and obligations contained herein shall
be binding upon and shall inure to the benefit of the respective parties, their
successors and assigns.
 
12.  Governing Law; Venue; Service of Process. The validity, interpretation and
performance of this Agreement shall be determined in accordance with the laws of
the State of New Jersey applicable to contracts made and to be performed wholly
within that state except to the extent that Federal law applies. The parties
hereto agree that any disputes, claims, disagreements, lawsuits, actions or
controversies of any type or nature whatsoever that, directly or indirectly,
arise from or relate to this Agreement, including, without limitation, claims
relating to the inducement, construction, performance or termination of this
Agreement, shall be brought in the state superior courts located in Hudson
County, New Jersey or Federal district courts located in Newark, New Jersey, and
the parties hereto agree not to challenge the selection of that venue in any
such proceeding for any reason, including, without limitation, on the grounds
that such venue is an inconvenient forum. The parties hereto specifically agree
that service of process may be made, and such service of process shall be
effective if made, pursuant to Section 8 hereto.
 
13.  Enforcement Costs. If any legal action or other pro-ceeding is brought for
the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresenta-tion in connection with any provisions of this
Agreement, the successful or prevailing party or parties shall be entitled to
recover reasonable attorneys’ fees, court costs and all expenses even if not
taxable as court costs (including, without limita-tion, all such fees, costs and
expenses incident to appeals), incurred in that action or proceeding, in
addition to any other relief to which such party or parties may be entitled.
 
14.  Remedies Cumulative. No remedy herein conferred upon any party is intended
to be exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or here-after existing at law, in equity, by statute, or otherwise. No single or
partial exercise by any party of any right, power or remedy hereunder shall
preclude any other or further exercise thereof.
 
15.  Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute the same instrument.
 
16.  No Penalties. No provision of this Agreement is to be interpreted as a
penalty upon any party to this Agreement.
 
17.  JURY TRIAL. EACH OF THE COLLATERAL AGENT AND THE PLEDGOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT WHICH IT MAY HAVE TO A TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED HEREON, OR ARISING
OUT OF, UNDER OR IN ANY WAY CONNECTED WITH THE DEALINGS BETWEEN THE COLLATERAL
AGENT AND PLEDGOR, THIS PLEDGE AND ESCROW AGREEMENT OR ANY DOCUMENT EXECUTED IN
CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR THERETO IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY
OR OTHERWISE.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
 
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IN WITNESS WHEREOF, each Pledgor has caused this Pledge and Escrow Agreement to
be executed by its respective duly authorized officer, as of the date first
above written.
 

              Pledgor #1                    
 
By: /s/ Radul Radovich    

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Name: Radul Radovich       Title:              
Address: 46 Calle Fresno
     
                  San Clemente, CA 92672

FOR VALUE RECEIVED, the Pledgor hereby unconditionally and absolutely guarantees
the Company’s Obligations (as defined above). This Agreement is made with
recourse.

By: _______________________________
Name:

 

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IN WITNESS WHEREOF, each Pledgor has caused this Pledge and Escrow Agreement to
be executed by its respective duly authorized officer, as of the date first
above written.
 

              Pledgor #2                    
 
By: /s/ Radul Radovich    

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Name: Silver Mountain Promotions, Inc.       Title: President              
Address: 46 Calle Fresno
     
                  San Clemente, CA 92672

 
 
FOR VALUE RECEIVED, the Pledgor hereby unconditionally and absolutely guarantees
the Company’s Obligations (as defined above). This Agreement is made with
recourse.

By: _______________________________
Name:
 

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IN WITNESS WHEREOF, each Pledgor has caused this Pledge and Escrow Agreement to
be executed by its respective duly authorized officer, as of the date first
above written.
 
 

              Pledgor #3                    
 
By: /s/ Radul Radovich    

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Name: St. Petka Trust       Title: Trustee              
Address: 46 Calle Fresno
     
                  San Clemente, CA 92672

 
FOR VALUE RECEIVED, the Pledgor hereby unconditionally and absolutely guarantees
the Company’s Obligations (as defined above). This Agreement is made with
recourse.

By: _______________________________
Name:
 

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IN WITNESS WHEREOF, each Pledgor has caused this Pledge and Escrow Agreement to
be executed by its respective duly authorized officer, as of the date first
above written.
 
 

              Pledgor #4                    
 
By: /s/ Radul Radovich    

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Name: R and R Holdings       Title: President              
Address: 46 Calle Fresno
     
                  San Clemente, CA 92672

 
FOR VALUE RECEIVED, the Pledgor hereby unconditionally and absolutely guarantees
the Company’s Obligations (as defined above). This Agreement is made with
recourse.

By: _______________________________
Name:
 

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IN WITNESS WHEREOF, the undersigned acknowledge and agree to the terms and
conditions of this Pledge and Escrow Agreement as of the date first above
written.
 

       
CORNELL CAPITAL PARTNERS, LP
      By: Yorkville Advisors, LLC   Its: General Partner  
   
   
    By:   /s/ Mark Angelo  

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Name: Mark Angelo   Title: Portfolio Manager

 

       
COBALIS CORPORATION
     
   
   
    By:   /s/ Gerald Yakatan  

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Name: Gerald Yakatan   Title: Chief Executive Office

 

       
ESCROW AGENT
     
   
   
    By:   /s/ David Gonzalez  

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Name: David Gonzalez, Esq.

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SCHEDULE I

PLEDGED SHARES

PLEDGOR
Number of Shares
Certificate No.
Radul Radovich
833,938
9363
Radul Radovich
394,147
9368
Silver Mountain Promotions, Inc.
803,855
9366
St. Petka Trust
1,382,180
9364
St. Petka Trust
4,510,838
9216
R and R Holdings
411,042
9365
TOTAL
8,400,000
 

 

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SCHEDULE II

DISCLOSURE SCHEDULE

Of the 8,400,000 Pledged Shares, the following Pledged Shares have been held by
the Pledgor for less than two (2) years as computed in accordance with Rule
144(d) promulgated under the Securities Act of 1933, as amended.

PLEDGOR
Number of Shares
Certificate No.
Radul Radovich
1,228,085
9363, 9368
Silver Mountain Promotions, Inc.
803,855
9366
St. Petka Trust
1,382,180
9364
R and R Holdings
411,042
9365
TOTAL
3,825,162
 

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