Exhibit 3.5
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into this 29th day
of May 1997, by and between Xxxxx X. Xxxxx ("Purchaser") and Food Extrusion,
Inc., a Nevada corporation (the "Company").
R E C I T A L S:
A. Purchaser has purchased from the Company 666,666
shares of the Company's Common Stock (the "Shares") pursuant to a Restricted
Stock Purchase Agreement of even date herewith (the "Stock Purchase Agreement").
B. The Company has accepted Purchaser's promissory
note of even date herewith (the
"Note") in payment for the Shares.
C. In consideration of the sale of the Shares and as
security for the payment of the Note, Purchaser has agreed to execute this
Security Agreement.
NOW, THEREFORE, it is agreed as follows:
1. Pledge.
(a) Purchaser hereby assigns, transfers and
pledges the Shares to the Company as security for payment of the Note.
(b) Purchaser agrees that he will deposit
with Xxxxxx & Xxxxx LLP as agent for the Company pursuant to the provisions of
Section 8313(a) of the Commercial Code of the State of California (the "Escrow
Agent"), the certificate representing the Shares with two executed stock
assignments (with date and number of shares blank), accompanied by such
documents of transfer as may be necessary to authorize the Company or its
transfer agent to transfer the Shares to the Company if required to do so by the
provisions of this Agreement; such documents are to be held by the Escrow Agent
and delivered to the Escrow Agent pursuant to the Joint Escrow Instructions of
the Company and the Purchaser set forth in Appendix I and incorporated herein by
this reference, which instructions shall also be delivered to the Escrow Agent
upon execution of this Agreement.
(c) Purchaser shall have the right to
execute all stock rights and rights to subscribe, and to receive all liquidating
dividends, cash dividends, shares, new securities or other property which the
Purchaser is or may hereafter become entitled to receive on account of the
Shares pledged hereunder; provided, however, that in the event the Purchaser
receives any such property, other than cash dividends, he will immediately
deliver such property to the Company to be held as collateral in the same manner
as the Shares originally pledged hereunder. As used in this Agreement, the term
"Shares" refers to all the Shares assigned, transferred, and pledged hereunder,
and all other property received in respect thereof, other than cash dividends.
(d) Purchaser, at his option, may transfer
to the Company upon execution of this Agreement (or as soon thereafter as
practicable), collateral other than the Shares ("Substitute Collateral"), which
shall be acceptable in form to the Company and adequate to secure part or all of
Purchaser's obligations under the Note, in lieu of part or all of the Shares,
and shall thereupon be entitled to retain, free from the pledge hereunder but
subject to the provisions of the Stock Purchase Agreement, an amount of Shares
having a fair market value equivalent, in the judgment of the Company's Board of
Directors, to the value of the Substitute Collateral, taking into account
fluctuations in the value of the Substitute Collateral over the term of the Note
and the Company's need to have the Note fully secured. Purchaser must maintain
the Substitute Collateral at a value equal to the aggregate purchase price of
the Shares for which it serves as substitute Collateral. The Company shall have
sole discretion to determine the value of Substitute Collateral at all times.
Purchaser shall pledge such additional Substitute Collateral as the Company
deems necessary to adequately secure the Note promptly upon receipt of a written
demand to do so by the Company. All Substitute Collateral and additions thereto
shall be deemed transferred to the Company at the time the original collateral
(for which it serves as substitute) was transferred to the Company. Purchaser
agrees to take all actions, execute all instruments, agreements and notices and
do all other things necessary for the Company to perfect its security interest
in the Substitute Collateral and all additions thereto whenever requested by the
Company.
(e) In the event the Company is involved in
a merger reorganization, exchange reorganization, sale-of-assets reorganization
or other event requiring the transfer of a part or all of the Shares, Purchaser
shall, within ten days after demand by the Company, execute any documents
necessary to insure the continued secured status of the Note by the Shares, any
securities or property issued in respect thereto and the Substitute Collateral.
(f) As used in this Agreement, the term
"Collateral" refers to the Shares and/or the Substitute Collateral.
2. Rights in the Collateral.
Unless and until the ownership of the Collateral is
transferred to the Company pursuant to the provisions hereof, the Company shall
collect and receive all property, other than cash dividends distributed in
respect of the Shares and other than rents or interest payable with respect to
the Substitute Collateral. The Company shall hold the same as Collateral under
this Agreement. Purchaser shall retain all incidents of ownership in the
Collateral not specifically limited herein and not in derogation of the
Company's security interest in the Collateral, including the right to vote the
Shares or other stock held as Collateral, the right to lease any real property
used as Substitute Collateral, subject to the terms of this Agreement, the right
to receive all notices sent with respect to the Collateral, and the right to
grant subordinate secured interests in the Collateral with the Company's prior
written consent, which may be withheld for any reason.
3. Taxes, Charges and Expenses.
(a) Purchaser agrees to pay, prior to
delinquency, all taxes, charges, liens and assessments against the Collateral.
In the event Purchaser fails to make any such payment, the Company may at its
option pay any such charges and shall be the sole judge of the legality or
validity thereof and the amount necessary to discharge the same.
(b) Purchaser will defend the Collateral
against any and all claims and demands of all persons at any time claiming an
interest therein.
(c) All advances, charges, taxes,
assessments, costs and expenses, including reasonable attorneys' fees, incurred
or paid by the Company in exercising any right, power or remedy conferred by
this Agreement, or any enforcement thereof, or to preserve the value of the
Collateral, shall become a part of the indebtedness secured hereunder and shall
be paid to the Company by Purchaser immediately upon demand.
4. Margin Requirements.
In the event the Company is classified as a "lender"
within the meaning of the regulations under Part 207 of Title 12 of the Code of
Federal Regulations ("Regulation G") and becomes subject to compliance with the
lending requirements of Regulation G, Purchaser agrees to cooperate with the
Company in making any amendments to the Note or providing any additional
collateral as may be necessary to comply with such regulations.
5. Default.
The occurrence of any of the following shall be a
default under this Agreement:
(a) Purchaser fails to make payment when due
of any part or installment of principal or interest, and such default is not
cured within ten (10) days of the Company's giving notice of such default to
Purchaser;
(b) Purchaser becomes insolvent in that
either a petition is filed by or against Purchaser under any bankruptcy law, or
he is unable to pay his debts as they fall due, or he makes a general assignment
for the benefit of his creditors or takes any other action to take advantage of
any insolvency laws;
(c) Purchaser fails to perform any of his
obligations or to comply with any of the terms under the Stock Purchase
Agreement;
(d) Purchaser fails to perform any of his
obligations under the Note; or
(e) Purchaser is in default under or fails
to comply with the provisions of any agreement, instrument, decree, judgment,
order, obligation, covenant, xxxx, xxxx, xxxxxxxxxxx, security interest, article
of incorporation or bylaw pertaining to the Collateral or affecting Purchaser's
or the Company's rights in the Collateral.
6. Remedies of Company.
(a) Should any default, as provided in
paragraph 5 above, continue for a period of five (5) days or more and is not
cured within ten (10) days of the Company's giving notice of such default to the
Purchaser, the Note shall become immediately due and payable at the option of
the Company, the Company shall have the right to take possession and proceed
against the Collateral in accordance with this Agreement or the Stock Purchase
Agreement, and the Company shall have all the rights and remedies provided by
law, particularly the provisions of the Commercial Code of the State of
California -- Investment Securities and -- Secured Transactions.
(b) Purchaser waives the benefit of any
statute of limitations affecting his liability under this Agreement, the Stock
Purchase Agreement or the Note, or the enforcement thereof, and agrees that any
payment of any indebtedness or other act which shall toll any statute of
limitations applicable thereto shall similarly operate to toll such statute of
limitations applicable to this Agreement, the Stock Purchase Agreement or the
Note. Purchaser waives all presentments, demands for performance, notices of
non-performance, protests, notices of protest, notices of dishonor and notices
of acceptance of this Agreement or the Note, with respect to any default and
liability under this Agreement and the Note.
(c) Should the Company proceed against all
or any part of the Collateral, it may proceed to do so by sale, public or
private, and in the market or in private or negotiated sale or sales, and
subject to such terms and conditions, all as the Company in its sole discretion
deems proper; provided, however, that should the Company purchase all or part of
the Collateral at a private sale, it is expressly agreed by Purchaser that fair
market value of the Collateral may be established by the Company using the most
recent sales price for shares of its similarly restricted stock or the initial
purchase price of the Collateral, whichever is greater. It is agreed and
understood that sale of the Shares under investment letter is a commercially
reasonable disposition. The aggregate proceeds of such sale or sales shall be
applied by the Company as follows:
(i) The Company shall first pay itself
all reasonable costs and expenses of preparing for and conducting such sale or
sales, including without limitation its legal expenses and fees incurred;
(ii) The unpaid balance of the Note
plus ten percent (10%) per annum simple interest on such balance for the period
between default on the Note and the date the Company consummates the sale, shall
be paid to the Company;
(iii) Any further balance shall be
applied to other indebtedness, if any, then owing from Purchaser to the Company;
and
(iv) The remaining balance, if any,
after application of items (i), (ii) and (iii) above shall be paid and set over
to Purchaser.
7. Release of Collateral.
The Company shall release the Collateral from this
pledge upon the payment by the Purchaser to Company of the full amount owing
under the Note as therein provided.
8. Non-Waiver.
The rights, powers and remedies given to the Company
by this Agreement will be in addition to all rights, powers and remedies given
the Company by virtue of any statute or rule or law. The Company shall have the
right to enforce one or more of such remedies, successively or concurrently, and
any action to enforce the same shall not bar the Company from pursuing any
further remedy which it may have hereunder, under the Stock Purchase Agreement,
under the Note, or otherwise as provided by law, provided, however, that such
right shall not include the right on the part of the Company to commence an
action against Purchaser or his spouse for a judgment in the amount of all sums
due and collectible under this Agreement and the Note. Any forbearance, failure
or delay by the Company in the exercise of any right, power or remedy hereunder,
or under the Note, or under the Stock Purchase Agreement shall not be deemed to
be a waiver of such right, power or remedy and any single or partial exercise of
any right, power or remedy shall not preclude the further exercise thereof.
Every right, power and remedy of the Company shall continue in full force and
effect until the same is specifically waived by an instrument in writing
executed by the Company.
9. Binding Effect.
The rights and remedies of this Agreement shall inure
to the benefit of, and be binding upon, the heirs, successors and assigns of the
parties. Purchaser agrees that the Company can assign its security interest
hereunder and all its rights, including its rights to receive payment, under the
Stock Purchase Agreement and the Note to any natural person or entity. In the
event of such assignment, Purchaser agrees that he will not assert against the
assignee any claim or defense which he may have against the Company if the
assignee takes such assignment for value, in good faith and without notice of
such claim or defense.
IN WITNESS WHEREOF, this Agreement has been executed at El
Dorado Hills, California on the date first above written.
FOOD EXTRUSION, INC. PURCHASER (Debtor):
(Secured Party):
By: /s/ Xxxxxx XxXxxx /s/ Xxxxx X. Xxxxx
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Title: Chairman of the Board Xxxxx X. Xxxxx
CONSENT OF SPOUSE
I, /s/ Xxx Xxxxx , spouse of the Purchaser who executed the foregoing
Agreement, hereby agree that my spouse's interest in the shares of stock subject
to said Agreement shall be irrevocably bound by the Agreement's terms. I further
agree that my community property interest in such shares, if any, shall
similarly be bound by said Agreement and that such consent is binding upon by
executors, administrators, heirs and assigns. I agree to execute and deliver
such documents as may be necessary to carry out the intent of said Agreement and
this consent.
Dated: June 28 , 1997
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/s/ Xxx Xxxxx
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