Exhibit 10.4

 

PLEDGE AGREEMENT

 

THIS PLEDGE AGREEMENT is made as of __________ by and XG Sciences, Inc., a
Michigan corporation, of 3101 Grand Oak Drive, Lansing, Michigan 48911
(“Debtor”), XG Sciences IP, LLC, a Michigan limited liability company, of 3101
Grand Oak Drive, Lansing, Michigan 48911 (“XG, LLC”) and The Dow Chemical
Company, of 2030 Dow Center, Midland, Michigan 48674 (“Secured Party”), for
itself and as agent for the benefit of all other affiliates of Secured Party
(each, an “Affiliate”), pursuant to a certain Draw Loan Note and Agreement (as
amended, supplemented or restated or otherwise modified from time to time,
“Note”) dated as of December 7, 2016, between Secured Party and Debtor.

 

1.          Grant of Security Interest. Debtor grants to Secured Party a
security interest in all of Debtor’s membership interests in XG, LLC and in
(1) all securities, equity interests, membership interests, security
entitlements and other financial assets, instruments and other property
(“Additional Property”) that Debtor at any time receives or is entitled to
receive by reason of a dividend, equity split, recapitalization,
reclassification, merger, consolidation, liquidation, exchange, renewal,
redemption, substitution or other transaction regarding the above-described
property or regarding any Additional Property, (2) all interest and other
distributions that Debtor at any time receives or is entitled to receive in
respect of any of the above-described property or any Additional Property and
(3) all proceeds of the foregoing. The foregoing properties and proceeds are
referred to in this Agreement as “Collateral.”

 

2.          Indebtedness Secured. Debtor gives this security interest to secure
payment and performance of ALL OBLIGATIONS AND INDEBTEDNESS THAT DEBTOR NOW AND
IN THE FUTURE OWES TO SECURED PARTY AND ANY AFFILIATE under this Agreement, and
the Note, as well as under all other agreements, instruments and documents that
Debtor has signed or in the future signs relating thereto, and all extensions or
renewals of that indebtedness and obligations.

 

The indebtedness and obligations that this security interest secures are
collectively called the “Indebtedness.”

 

3.          Warranties and Representations. Debtor represents and warrants to,
and agrees with, Secured Party as follows:

 

(a)          Debtor owns the Collateral and has the unqualified right to
transfer the Collateral to Secured Party, and it is not subject to a lien,
encumbrance or other claim in favor of a third party, or to a right or option of
a third party to acquire Collateral.

 

(b)          Each instrument, security and other financial asset included in the
Collateral is genuine and what it purports to be and has not been materially
altered. Each security included in the Collateral is validly issued, fully paid
and not subject to calls or assessments.

 

 

 

 

(c)          Debtor’s address on the first page of this Agreement is the
location of Debtor’s chief executive office.

 

(d)          Debtor is a corporation and is incorporated and validly existing in
good standing under the laws of the State of Michigan; Debtor has full power and
authority to enter into and perform its obligations under this Agreement; the
signing, delivery and performance of this Agreement have been duly authorized by
all necessary action of Debtor’s shareholders and directors and will not violate
XG, LLC’s operating agreement.

 

(e)          Debtor at all times during the terms of this Agreement will own
100% of the outstanding membership interests of XG, LLC.

 

4.          Agreements of Debtor. Debtor agrees that:

 

(a)          Debtor must not sell, lease, transfer or assign Collateral or an
interest in Collateral or permit Collateral to be transferred by operation of
law.

 

(b)          Debtor must pay promptly when due all taxes and assessments upon
the Collateral or for its use or ownership.

 

(c)          Debtor must furnish to Secured Party all information regarding the
Collateral that Secured Party requests and must allow Secured Party at any
reasonable time to inspect Debtor’s records regarding the Collateral.

 

(d)          Debtor must immediately notify Secured Party in writing of a change
in Debtor’s name, identity or corporate structure and of a change in the
location of Debtor’s chief executive office.

 

5.          Delivery of Certificates and Instruments for Collateral. Debtor
agrees that:

 

(a)          Concurrently with the execution of this Agreement, Debtor shall
pledge and deposit with the Secured Party all certificates or instruments, if
any, representing any of the Collateral at the time owned by Debtor and subject
to the security interest hereof, accompanied by undated powers duly executed in
blank by Debtor or such other instruments of transfer as are acceptable to the
Secured Party.

 

(b)          If Debtor shall acquire (by purchase, conversion, exchange,
distribution or otherwise) any additional Collateral, at any time or from time
to time after the date hereof which is or are intended to be subject to the
security interest hereof and which is or are represented by certificates or
instruments, Debtor shall (i) promptly pledge and deposit with the Secured Party
all such certificates or instruments, accompanied by undated powers duly
executed in blank by Debtor or such other instruments of transfer as are
acceptable to the Secured Party and (ii) promptly thereafter deliver to the
Secured Party a certificate executed by an authorized officer of Debtor
describing such additional Collateral and certifying that the same have been
duly pledged with the Secured Party hereunder.

 

 -2- 

 

 

(c)          Without limitation of any other provision of this Agreement, if any
of the Collateral of Debtor (whether now owned or hereafter acquired) which is
intended to be subjected to the security interests hereof is an uncertificated
security, Debtor shall, as soon as reasonably practicable after closing, cause
XG, LLC to create a registration book for the registration of each such
“uncertificated security” and duly register Debtor as the owner and note the
pledge in favor of Secured Party in a manner that provides control with respect
to such uncertificated security. Debtor further agrees to take such actions as
the Secured Party deems reasonably necessary or desirable to effect the
foregoing and to permit the Secured Party to exercise any of its rights and
remedies hereunder in respect thereof, and agrees to provide an opinion of
counsel reasonably satisfactory to the Secured Party with respect to any such
pledge of any of the securities described above, promptly upon the request of
the Secured Party. Debtor further agrees not to amend the operating agreement of
XG, LLC in a manner that results in an “opt out” of Article 8 of the Michigan
Uniform Commercial Code.

 

6.          Secured Party’s Rights.

 

(a)          If Debtor fails to perform an obligation of Debtor under this
Agreement, then Secured Party may, without giving Debtor notice, to or obtaining
Debtor’s consent, perform that obligation on Debtor’s behalf. Debtor must
reimburse Secured Party on demand for each expense that Secured Party incurs in
performing an obligation and must pay to Secured Party interest on the expense,
from the date on which Secured Party incurred the expense, at an annual rate
equal to 5 percent.

 

Secured Party is not required to perform an obligation that Debtor has failed to
perform. If Secured Party does so, then that will not be a waiver of Secured
Party’s right to declare the Indebtedness immediately due and payable because of
Debtor’s failure to perform.

 

(b)          With respect to the custody and preservation of Collateral in its
possession, Secured Party’s only duty will be to use reasonable care. Secured
Party will not have an obligation to take steps necessary to preserve rights
against prior parties. Secured Party will not have a duty to sell Collateral
even if its value declines. Secured Party must not have an obligation to
exercise, or to notify Debtor of, a conversion or redemption right or to take
similar action with regard to any Collateral.

 

 -3- 

 

 

(c)          Each of Debtor and XG, LLC agrees to comply with all instructions
originated by Secured Party directing it to transfer, redeem or otherwise act
with respect to the Collateral (“Instructions”), subject to this Section 6(c)
and the other provisions of this Agreement. Prior to the occurrence of an Event
of Default, Instructions shall require the consent of Debtor. After the
occurrence of an Event of Default, Instructions shall not require the consent of
Debtor except to the extent required by MCL 440.9620 (Acceptance of collateral
in full or partial satisfaction of obligation; compulsory disposition of
collateral).

 

7.          Default and Acceleration. If any of the following (each an “Event of
Default”) occurs, then the Indebtedness will, at Secured Party's option, become
immediately due and payable, without notice or demand to Debtor:

 

(a)          If an Event of Default shall occur under and as defined in the
Note, including any default in the payment or performance of all or part of the
Indebtedness, when and as it is due and payable subject to applicable grace
periods.

 

(b)          If Debtor fails to perform any other material obligation, covenant
or agreement of Debtor under this Agreement or under another security agreement,
loan agreement, mortgage, assignment, guaranty or other agreement that now or in
the future secures or relates to the Indebtedness (“Security Documents”).

 

(c)          If a warranty, representation or other statement that has been or
in the future is made to Secured Party by Debtor, XG, LLC, or by a guarantor of
all or part of the Indebtedness (“Guarantor”) in this Agreement or in a Security
Document, shall have been false in a material respect when made or furnished.

 

(d)          If a lien, security interest or other encumbrance or a writ of
attachment, garnishment, levy, execution or other legal process is at any time
issued against or placed upon the Collateral and is not terminated or released
within 30 days.

 

(e)          If Debtor or a Guarantor dissolves, becomes insolvent, or makes an
assignment for the benefit of creditors.

 

(f)          If a guaranty that now or in the future secures payment or
performance of the Indebtedness is terminated or limited, without the written
consent or agreement of Secured Party.

 

 -4- 

 

 

(g)          If the issuer of or obligor on the Collateral materially defaults
in an obligation of the issuer or obligor under the terms of that Collateral or
under an agreement that gives Secured Party control over the Collateral or if a
warranty or representation made by the issuer or obligor in such an agreement
shall have been false in a material respect or if a petition for relief is filed
by or against the issuer or obligor under the federal Bankruptcy Code.

 

(h)          If a securities intermediary materially defaults in the performance
of an obligation under an existing or future agreement that gives Secured Party
control over Collateral or if a warranty or representation that the securities
intermediary in any such agreement shall have been false in a material respect
when made or if a petition for relief is filed by or against the securities
intermediary under the federal Bankruptcy Code.

 

(i)          If an Event of Default is capable of being cured, then Debtor may
cure the same during the thirty-day period that begins on the date on which
Debtor receives notice from Secured Party or otherwise has actual knowledge, of
the event (the “Cure Period”). An Event of Default will not be deemed to have
occurred as a result of an event during the Cure Period for that event or, if
the event is cured during the Cure Period, thereafter.

 

If a voluntary or involuntary case in bankruptcy, receivership or insolvency is
begun by or against Debtor or any Guarantor, and not terminated or released
within 30 days, then the entire Indebtedness will automatically become
immediately due and payable, without notice or demand. The Indebtedness also may
become immediately due and payable under the terms of a note that at any time
evidences the Indebtedness or of a Security Document that has been or in the
future is entered into between Debtor and Secured Party.

 

8.          Remedies. Secured Party shall have all of the rights and remedies of
a secured party under applicable law. All rights and remedies of Secured Party
are cumulative and may be exercised from time to time. Without limiting those
rights and remedies, upon the occurrence of an Event of Default (subject to
applicable cure periods), then:

 

(a)          Subject to Section 6(a) above, Secured Party shall have the right,
but no obligation, without notice to Debtor and without Debtor’s consent, to
vote or give consent with regard to any of the collateral that consists of
securities. Secured Party will have the right, but no obligation, (1) to revoke
and terminate rights that Secured Party shall have given to Debtor, or permitted
Debtor to retain, to control any uncertificated security, security entitlement
or securities account that is included in the Collateral and (2) to exercise
exclusive control over the Collateral.

 

(c)          Secured Party will have the right, but no obligation, to exercise
and enforce Debtor's rights and remedies with respect to the Collateral,
including, but not limited to, the right to demand, enforce payment of, collect
and receive all dividends, interest, principal payments and other sums that are
at any time owing with respect to any of the Collateral and to apply the sums to
the Indebtedness in the manner that Secured Party reasonably determines.

 

 -5- 

 

 

(d)          Secured Party may sell or otherwise dispose of the Collateral in a
commercially reasonable manner. A notification that Secured Party is required to
give to Debtor regarding any sale or other disposition of Collateral will be
considered reasonable if Secured Party mails or otherwise sends or delivers it
to Debtor at least ten (10) days before the sale or other disposition.

 

(e)          Secured Party will apply the proceeds of a collection or
disposition of Collateral first to Secured Party's attorney fees and expenses,
as provided in Paragraph 8 of this Agreement, and then to the Indebtedness, in
the manner that Secured Party determines, and Debtor will be liable for any
deficiency remaining.

 

All rights and remedies of Secured Party are cumulative and may be exercised
from time to time.

 

9.          Expenses. Debtor must reimburse Secured Party on demand for all
attorney fees and other expenses that Secured Party incurs in preparing and
perfecting (subject to the $25,000 limitation in the Note), and protecting and
enforcing Secured Party's rights under this Agreement. This includes fees and
expenses incurred in trying to obtain possession of Collateral from Debtor, a
trustee or receiver in bankruptcy or another person. Secured Party may apply
proceeds of collection or disposition of Collateral to Secured Party's
reasonable attorney fees and other expenses.

 

10.         Amendments and Waivers. A provision of this Agreement may not be
modified or waived except by a written agreement signed by Secured Party and
Debtor. Secured Party will continue to have all of Secured Party's rights under
this Agreement even if Secured Party does not fully and promptly exercise them
on all occasions. Debtor waives all defenses based on suretyship or impairment
of collateral. Without limiting the generality of the preceding sentence, (a)
Secured Party may, at Secured Party's option, waive a default, defer an action
on a default; extend or modify the time or manner of payment of the Indebtedness
or waive or modify a term or condition relating to the Indebtedness; release
Collateral or other security for the Indebtedness; release anyone that is liable
for the Indebtedness, including Debtor or a Guarantor; or make advances or other
extensions of credit secured by this Agreement; all without giving Debtor notice
or obtaining Debtor's consent; and any of those actions by Secured Party shall
not release or impair Secured Party's security interest in the Collateral or
Debtor's obligations under this Agreement, (b) Secured Party's security interest
in the Collateral and Debtor's obligations under this Agreement will not be
released or impaired if Secured Party fails to obtain, perfect or secure
priority of, other security for the Indebtedness that anyone else gives or
agrees to give and (c) Secured Party is not required to sue upon or otherwise
enforce payment of the Indebtedness or other security before exercising Secured
Party's rights under this Agreement.

 

 -6- 

 

 

11.         Notices. A notice to Debtor or Secured Party will be considered to
have been given if and when it is mailed, with postage prepaid, to the address
of Debtor or Secured Party on the first page of this Agreement or if and when it
is delivered personally.

 

12.         Terminology; Conflicts. Capitalized terms that are not otherwise
defined in this Agreement shall have the meanings set forth in the Note. Other
terms used in this Agreement shall have the meanings set forth in the Uniform
Commercial Code as in effect in the State of Michigan on the date of this
Agreement. In the event of a conflict between the terms of this Agreement and
the Note, the terms of the Note will control.

 

13.         Binding Effect. This Agreement will be binding upon and inure to the
benefit of Debtor and Secured Party and their successors and assigns.

 

14.         Termination. Upon the payment in full and termination of the Note
and the Security Documents, this Agreement shall terminate and Secured Party
shall execute, acknowledge and deliver to Debtor an instrument in writing,
prepared by Debtor, in recordable form releasing its liens and security
interests in the Collateral under this Agreement.

 

[Signature page follows.]

 

 -7- 

 

 

SECURED PARTY AND DEBTOR EACH IRREVOCABLY AND UNCONDITIONALLY WAIVES ITS, HIS OR
HER RIGHT TO A TRIAL BY JURY IN ANY ACTION, INCLUDING ANY CLAIM, COUNTERCLAIM,
CROSS-CLAIM OR THIRD-PARTY CLAIM (“CLAIM”), THAT IS BASED UPON, ARISES OUT OF OR
RELATES TO THIS PLEDGE AGREEMENT OR THE INDEBTEDNESS, INCLUDING, WITHOUT
LIMITATION, ANY CLAIM THAT IS BASED UPON, ARISES OUT OF OR RELATES TO AN ACTION
OR INACTION OF SECURED PARTY IN CONNECTION WITH AN ACCELERATION OF THE
INDEBTEDNESS OR AN ENFORCEMENT OF SECURED PARTY’S SECURITY INTEREST IN THE
COLLATERAL.

 

Debtor and Secured Party have signed this Pledge Agreement as of the date stated
on the first page.

 

  XG SCIENCES, INC.         By  

 

  Its  

  

DEBTOR

 

  XG SCIENCES IP, LLC         By  

 

  Its  

 

XG, LLC

 

  THE DOW CHEMICAL COMPANY         By  

 

  Its  

 

SECURED PARTY

 

 -8-