Pledge And Security Agreement: Definition & Sample

A pledge and security agreement is a legal document that outlines an arrangement in which one party (the pledgor) unconditionally transfers the title to a specific property or asset to another person or entity (the pledgee), who accepts it for safekeeping, usually in return for some form of compensation. In other words, the agreement is typically used to create security interest in equity interests.

A security agreement can also be used when there are two different types of pledges; collateral and chattel. This type of arrangement may arise when the pledged item has value but tends not to be easily liquidated. When someone needs money fast they might opt for this kind of loan as opposed to a standard installment loan because they don't have anything worth borrowing against at that point.

Common Sections in Pledge And Security Agreements

Below is a list of common sections included in Pledge And Security Agreements. These sections are linked to the below sample agreement for you to explore.

Pledge And Security Agreement Sample

PLEDGE AND SECURITY AGREEMENT

This PLEDGE AND SECURITY AGREEMENT (“ Agreement ”) dated as of June 13, 2012 is from TNP SRT PORTFOLIO II HOLDINGS, LLC , a Delaware limited liability company, having its principal place of business at 1900 Main Street, Suite 700, Irvine, California 92614 (“ Borrower ”) to KEYBANK NATIONAL ASSOCIATION , a national banking association, having an address at 11501 Outlook, Suite 300, Overland Park, Kansas 66211 (together with its successors and assigns, “ Lender ”).

A. Pursuant to that Mezzanine Loan Agreement of even date herewith between Lender and Borrower (“ Loan Agreement ”), Lender agreed to make a Loan to Borrower in the amount of $2,000,000.00 (the “ Loan ”). The Loan is evidenced by a Promissory Note (the “ Note ”) of even date herewith in the principal amount of the Loan from Borrower to Lender. The Loan Agreement, Note, this Agreement and all other documents and instruments existing now or after the date hereof that evidence, secure or otherwise relate to the Loan, any security agreements, financing statements, other guaranties, indemnity agreements (including environmental indemnity agreements), letters of credit, or escrow/holdback or similar agreements or arrangements, together with all amendments, modifications, substitutions or replacements thereof, are sometimes herein collectively referred to as the “ Loan Documents ” or individually as a “ Loan Document .” Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

B. TNP SRT Portfolio II, LLC, a Delaware limited liability company (“ Mortgage Borrower ”) owns the Property, and is the borrower under the Mortgage Loan made by Mortgage Lender and secured by, among other things, the Security Instrument encumbering the Property.

C. Mortgage Borrower is a Delaware single member limited liability company. Borrower is the sole member of Mortgage Borrower and owns 100% of the Equity Interests therein [and is the sole manager of the Mortgage Borrower]. [There are no officers or directors of the Mortgage Borrower.]

D. Mortgage Borrower is referred to herein as the “ Pledged Entity ”.

E. To secure Borrower’s obligations under the Loan Documents and to ensure the timely payment of the Loan and the performance of Borrower’s other obligations under and in accordance with the Loan Documents, Borrower is required, among other things, to pledge, and by this Agreement does pledge, among other things, all of its right, title and interest in, to and under: 100% of the member interests in Mortgage Borrower (the “ Pledged Equity ”). For purposes herein, “ Equity Interests ” means (a) partnership interests (whether general or limited) in an entity that is a partnership; (b) membership interests in an entity that is a limited liability company; or (c) the shares or stock interests in an entity that is a corporation.

NOW, THEREFORE, in consideration of the foregoing and in order to induce Lender to make the Loan , and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

GRANT OF SECURITY INTEREST

Section 1.01 Collateral . As security for the full and punctual payment and performance of the obligations under the Loan Documents, Borrower hereby grants, pledges, hypothecates, transfers and assigns to Lender a first priority and continuing lien on and first priority security interest in all of Borrower’s right, title, ownership, equity or other interests in and to the following, whether now owned or hereafter acquired, now existing or hereafter arising and wherever located (collectively, the “ Collateral ”): (a) Borrower’s right, title and interest in and to the Pledged Equity, together with all Equity Interests related to the Pledged Equity which may be issued or granted by any Pledged Entity to Borrower while this Agreement is in effect; (b) all of Borrower’s rights, privileges, general intangibles, accounts, documents, books and records pertaining to the Pledged Equity, payments intangibles; (c) all of Borrower’s voting rights, authority, management, control and power under the Governing Documents of the Pledged Entity and all of Borrower’s rights in connection with or related to the Pledged Equity; (d) the capital of Borrower and any and all profits, losses, Distributions (defined in Section 4.03 herein), and allocations attributable to the Pledged Equity as well as the proceeds of any distribution thereof, whether arising under the terms of any Governing Documents (defined below) of the Pledged Entity or otherwise; (e) all other payments, if any, due or to become due, to Borrower and all other present or future claims by Borrower against any Pledged Entity, or in respect of the Pledged Equity, under or arising out of: (i) any Governing Document of any Pledged Entity, (ii) monies loaned or advanced, for services rendered or otherwise, and (iii) any other contractual obligations, commercial tort claims, supporting obligations, damages, insurance proceeds, condemnation awards or other amounts due to Borrower from the Pledged Entity or with respect to the Pledged Equity; (f) Borrower’s claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of the ownership of the Pledged Equity; (g) to the extent permitted by applicable law, Borrower’s rights, if any, in any Pledged Entity pursuant to any Governing Document of any Pledged Entity, or at law, to exercise and enforce every right, power, remedy, authority, option and privilege of Borrower relating to any Pledged Equity, including without limitation, the right to: (i) execute any instruments and to take any and all other action on behalf of and in the name of Borrower in respect of any Pledged Equity, (ii) exercise any and all voting, consent and management rights of Borrower in or with respect to any Pledged Entity, (iii) exercise any election (including, but not limited to, election of remedies) or option or to give or receive any notice, consent, amendment, waiver or approval with respect to any Pledged Entity, (iv) enforce or execute any checks, or other instruments or orders of any Pledged Entity, and (v) file any claims and take any action in connection with any of the foregoing, together with full power and authority to demand, receive, enforce or collect any of the foregoing or any property of any Pledged Entity; (h) all instruments of transfer in respect of such interests, executed in blank, all cash, securities, certificates and instruments representing or evidencing securities, dividends, proceeds and other property, including Investment Property (as such term is defined in Section 9-102 of the UCC, as hereinafter defined) issued by or relating to any Pledged Entity, or otherwise relating to the Pledged Equity, (i) all Equity Interests or other property now or hereafter acquired by Borrower as a result of any mergers, acquisitions, exchange offers, recapitalizations of any type, contributions to capital, or

the exercise of options or other rights relating to the Pledged Equity, and (j) to the extent not otherwise included: (i) all assets and personal property of Borrower in any way arising from, relating to, or pertaining to Borrower’s right, title and interest in and to the Pledged Entity or any Pledged Equity; and (ii) all proceeds of any or all of the foregoing (including, without limitation, insurance proceeds and distributions on the Pledged Equity), as applicable. For purposes herein, “ UCC ” means the Uniform Commercial Code as in effect in the States of Delaware and New York, as amended, modified, revised or restated from time to time; provided, that if, by reason of mandatory provisions of law, the validity or perfection of Lender’s security interest in the Collateral or any part thereof is governed by the Uniform Commercial Code or other similar law as in effect in a jurisdiction other than Delaware or New York, the “ UCC ” means the Uniform Commercial Code or such similar law as in effect in such other jurisdiction for purposes of the provisions hereof relating to such validity or perfection. For purposes herein, “ Governing Documents ” means for an entity, the organizational documents of such entity, including: (A) the operating agreement and articles of organization for a limited liability company; (B) the partnership agreement and articles of limited partnership for a limited partnership; (C) the bylaws and articles of incorporation for a corporation; and (D) the trust agreement for a trust.

Section 1.02 Perfection of Security Interest . On or before the Closing Date, Borrower shall (a) deliver to Lender for filing one or more financing statements in connection with the Collateral in the form required to properly perfect Lender’s security interest in the Collateral in all jurisdictions deemed appropriate by Lender, to the full extent that such security interest in the Collateral may be perfected by such a filing, (b) with respect to any Equity Interest in a Pledged Entity that is represented by a partnership certificate, member certificate or stock certificate, or any other instrument, note, chattel paper or certificate qualifying as Investment Property (“ Certificated Securities ”), deliver to Lender such Certificated Securities in each Pledged Entity, duly endorsed or subscribed in blank, or accompanied by appropriate stock powers or other instruments of transfer, pledge or assignment, or enter into such other arrangement, as necessary to give control of any Investment Property to Lender within the meaning of Section 8-106 of the UCC; (c) promptly take all other actions required to perfect the security interest of Lender in the Collateral under applicable law; and (d) cause to be delivered to Lender a Control Acknowledgment (as defined in Section 3.10 below), substantially similar to Exhibit A , attached hereto and incorporated herein by reference.

Section 1.03 Post-Closing Collateral . After the Closing Date, Borrower shall concurrently take the actions contemplated by clauses (a) through (e) of Section 1.02 above with respect to any and all additional collateral acquired by Borrower (including, without limitation, any newly issued Equity Interests of a Pledged Entity, any conversion of a pre-existing Equity Interest, and any Non-Cash Distributions (defined herein), as applicable).

Section 1.04 Borrower Remains Liable . Anything herein to the contrary notwithstanding: (a) Borrower shall remain liable under the Governing Documents to the extent set forth therein and shall perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed; (b) the exercise by Lender of any of the rights hereunder shall not release Borrower from any of its duties or obligations under any of the Governing Documents; and (c) Lender shall not have any obligation or liability under any of the Governing Documents by reason of this Agreement, nor shall Lender be obligated to perform any of the obligations or duties of Borrower thereunder or to take any action to collect or enforce any claim for payment assigned hereunder; provided that, upon foreclosure thereof, Lender and any other transferee of the Collateral shall take the same subject to the Governing Documents.

POWERS OF BORROWER PRIOR TO AN EVENT OF DEFAULT

Section 2.01 Pre-Default Powers . Unless an Event of Default has occurred, and subject to the terms of the Loan Documents, Borrower shall be entitled to (a) receive the profits, losses, income, surplus, return on capital and any other Distributions allocable to the Collateral, and (b) exercise (but only in a manner that will not (i) violate or be inconsistent with the terms hereof or of any other Loan Document, or (ii) have the effect of impairing the position or interests of Lender) the voting, consent, administration, management and all other powers, rights and remedies of Borrower with respect to the Collateral under the Governing Documents of any Pledged Entity (including all other rights and powers thereunder which are pledged hereunder). If Borrower shall become entitled to receive or shall receive from any Pledged Entity (A) any non-cash Distribution as an addition to, on account of, in substitution of, or in exchange for the Collateral or any part thereof, or (B) during the continuance of any Event of Default, any cash Distributions, in either case, the same shall immediately be remitted to Lender (in the exact form received, with Borrower’s endorsement or assignment or other instrument as Lender may deem appropriate) to be held as additional Collateral for the Debt or for application thereto, as applicable, and until so remitted, shall be received and held by Borrower in trust and as agent for Lender.

Section 2.02 Termination of Powers .

(a) Upon the occurrence of an Event of Default, all such powers, rights and remedies of Borrower, which are conditionally permitted pursuant to Section 2.01 , shall cease and the provisions of Article 7 shall apply, and without limiting the generality of the foregoing:

Lender shall, after providing written notice to Borrower and Pledged Entity, (A) have the exclusive right to vote or give consents with respect to the Pledged Equity, and (B) have all rights that Borrower had under the Governing Documents of Pledged Entity to operate and manage Pledged Entity, including all rights relating to voting, consent, administration, management and all other powers, rights and remedies of Borrower under

(b) All amounts advanced by, or on behalf of, Lender in exercising its rights under this Section 2.02 (including, but not limited to, reasonable legal expenses and disbursements incurred in connection therewith), together with interest thereon from the date of each such advance at the default rate per annum for the Loan as set forth in the Note, shall be deemed made pursuant to contract, shall be payable by Borrower to Lender on demand and shall be deemed part of the Debt and secured by the Collateral.

REPRESENTATIONS , WARRANTIES AND COVENANTS OF BORROWER