Exhibit 10.3
Xxxx X. Xxxxxxx, Esq.
SANTEBRE & VANDE XXXX, LTD.
0000 X. Xxxxxxxxxx Xxxxx Xx.
Xxxxx 000
Xxxxxxxxxx, Xxxxxxx 00000
SECURITY AGREEMENT - PLEDGE
THIS SECURITY AGREEMENT - PLEDGE, made this 1st day of October 2001, by and
between CIRCUIT SOURCE INTERNATIONAL, INC., a Nevada corporation, ("Pledgor")
and XXXXXXX X. XXXXXX ("Pledgee").
RECITALS
A. Pursuant to that certain Stock Purchase Agreement dated October 1st
2001, between the Pledgor and the Pledgee ("Purchase Agreement"), Pledgor has
purchased from Pledgee Six Thousand Twenty (6,020) shares of common voting stock
of AVANTI CIRCUITS, INC., an Arizona corporation ("Corporation") owned by
Pledgee. As consideration for such stock purchased by Pledgor under the Purchase
Agreement, Pledgor executed that certain promissory note in the principal amount
of Two Million and No/l00 Dollars ($2,000,000.00) (the "Note"); and
B. Pursuant to the terms of the Purchase Agreement, Pledgor is required to
pledge all of the shares of stock so purchased pursuant thereto as security for
the payment and performance of the Obligations (as defined herein).
NOW THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, receipt and sufficiency of which is
hereby expressly acknowledged and confessed by Pledgor, the parties hereto agree
as follows:
1. Pledge.
a. In order to secure the due and punctual payment and performance of
all debts, liabilities and obligations evidenced by or arising under the Note
and this Security Agreement - Pledge, including any modifications, extensions,
renewals, replacements or restatements thereof (herein referred to as
"Obligations"), Pledgor hereby pledges and grants to Pledgee and to Pledgee's
successors and assigns, the following collateral (the "Collateral"):
The shares of stock described in Exhibit "A" attached hereto, together with
all certificates, options, rights, or other distributions issued as an addition
to. In substitution or in exchange for, or pit account of, any such shares, and
all proceeds of all of the foregoing, now or hereafter owned or acquired by the
Pledgor ("Pledged Stock").
b. Pledgor and Pledgee hereby appoint Xxxxxxxx & Xxxxx Xxxx, Ltd. as
their Escrow Agent (herein so-called) to hold the Collateral in trust during the
term of this Agreement, and Pledgor hereby appoints the foregoing firm as their
attorney-in-fact to arrange for the transfer of the Collateral on the books of
Corporation to the name of Pledge in the event of a default by the Pledgor as
hereinafter defined. Pledgor may exercise all of the rights and privileges in
connection with the ownership of the Collateral, except as specifically set
forth herein, at any time prior to a default by Pledgor.
c. In the event Pledgor shall become entitled to receive or shall
receive, in connection with any of the Pledged Stock, any:
(i) Stock certificate. including, but without limitation, any
certificate representing a stock dividend or in connection with any
increase or reduction of capital, reclassification, merger, consolidation,
sale of assets, combination of shares, stock split, spin-off or split-off;
(ii) Option, warrant, or right, whether as an addition to or in
substitution or in exchange for any of the Pledged Stock, or otherwise; or
(iii) Dividend or distribution payable in property, including
securities issued by other than the issuer of any of the Pledged Stock,
then:
Pledgor shall accept the same as the Pledge's agent, in trust for the
Pledgee, and shall deliver them forthwith to the Escrow Agent in the exact
form received with, as applicable, the Pledgor's endorsement when
necessary, or appropriate stock power duly executed in blank, to be held by
the Escrow Agent, subject to the terms hereof, as part of the Pledged
Stock.
d. Pledgor represents that Pledgor owns all of the Collateral free and
clear of all liens, encumbrances, restrictions and burdens of any nature (other
than the security interest granted hereby) and agrees- that, except as provided
herein, it will not sell, assign, transfer, encumber or grant any security
interest in or file a financing statement with respect to the Collateral, any
part thereof or interest therein, or permit any of the foregoing, without the
prior written consent of Pledgee; and hereby represent that (except as
aforesaid) Pledgor has not heretofore done so.
e. Pledgor agrees that, at any time and from time to time, upon
request of Pledgee, Pledgor will give, execute, file and record any notice,
financing statement, continuation statement, instrument, document or agreement
that Pledge may consider necessary or desirable to create, preserve, continue,
perfect or validate the security interest granted hereunder or which Pledge may
consider necessary or desirable to exercise or enforce its rights hereunder with
respect to such security interest Without Limiting the generality of the
foregoing, Pledgee is authorized: to file with respect to the Collateral, one or
more financing statements, continuation statement or other documents without the
signature of Pledgor and to name therein Pledgor as debtor and the Pledge as
secured party; or to correct or complete, or cause to be corrected or completed,
any financing statements, continuation statements or other such documents as
have been signed by Pledgor.
2. Representations, Warranties, and Promises. Pledgor further represents,
warrants and agrees:
a. Pledgor will not hereafter xxxxx x xxxx, encumbrance, security
interest, in any of the assets of Corporation ("Avanti Assets"), or sell or
otherwise transfer any of same (except in the ordinary course of business for
flu consideration paid to Corporation), to any other person, firm or
corporation, without Pledge's consent;
b. Pledgor will at all times defend the Avanti Assets against any and
all claims of any person adverse to the claims of Secured Party, and will comply
with all terms and conditions of the Security Agreement (Assets) of even date
herewith between Pledgor, Pledgee and Corporation covering the Avanti Assets;
c. Pledgor will use the Avanti Assets in conformity with all
applicable laws and will pay all taxes and assessments on it or its use when
due;
d. Pledgor shall keep the Avanti Assets insured against loss or damage
by fire (with extended coverage), theft, physical damage and against such other
risks as is required by Pledgee. Pledgor will obtain loss payable endorsements
on applicable insurance policies in favor of Pledgor and Pledge as their
interests may appear and will deposit the insurance policies with Pledgee. The
proceeds of any insurance from loss, theft, or damage to the Avanti Assets shall
be held, disbursed and applied toward the repair, restoration or replacement of
same or, at the option of Pledgee, such proceeds shall be disbursed to reduce
the balance of the Obligations;
2
e. All of the Avanti Assets are and will be, kept, all records
concerning Corporation are, and will be, kept and Corporation's principal
business office located at 00000 Xxxxx 00xx Xxxxxx, Xxxxxxx, Xxxxxxx 00000;
f. Pledgor shall pay promptly when due, all taxes and assessments upon
the
g. Pledgor shall pay all obligations of Corporation as and when due,
including the loan to the Corporation from Heritage bank in an amount not to
exceed $600,000.00 referred to in the Purchase Agreement;
h. Pledgor shall not take any action or fail to take any action which
would cause a termination or dissolution of Corporation; and
i. Pledgor shall not cause any additional shares of Corporation to be
issued or admit any new shareholders to Corporation.
3. Pledgee's Rights Following an event of Default. If an Event of Default
(as defined herein) shall occur and be continuing, then, at the option of
Pledgee, all Obligations shall become immediately due and payable and Pledgee
may avail itself of all rights and remedies provided under this Agreement, at
law, in equity, or otherwise, including, without limitation:
a. The right to cause the Collateral to be registered in the name of
Pledgee or its nominees on the books of Corporation in full satisfaction of the
Obligations;
b. Whether or not the Pledged Stock shall have been registered in the
name of the Pledgee or its nominee, the Pledgee or its nominee shall have, with
respect to the Pledged Stock, the right to exercise all voting rights as to all
of the Pledged Stock, all other corporate rights and all conversion, exchange,
subscription or other rights, privileges or options pertaining thereto as if it
were the absolute owner thereof, including, without limitation, the right to
exchange any or all of the Pledged Stock upon the merger, consolidation,
reorganization, recapitalization or any other readjustment of the issuer
thereof, or upon the exercise by such issuer of any right, privilege, or option
pertaining to any of the Pledged Stock, and, in connection therewith, to deliver
any of the Pledged Stock to any committee, depository, transfer agent,
conditions as it may determine, all without liability except to account for
property actually received by it; but the Pledgee shall have no duty to exercise
any of the aforesaid rights, privileges or options and shall not be responsible
for any failure to do so or delay in so doing, and
c. The right to avail itself of all rights and remedies granted a
secured party under the Uniform Commercial Code as in force in the State of
Arizona, including, without limiting the generality of the foregoing:
(i) The right to sell the Collateral, or any part thereof, in one or
more sales, according to the provisions of Section 4 hereof; and
(ii) The right to take all necessary actions, by means of the powers
granted to Pledgee herein, to take title to the Collateral as sole owner
thereof, and to exercise any and all right pertaining to ownership of the
Collateral; but Pledgee shall have no duty to exercise any of the aforesaid
rights, privileges or options. Any cash received and retained by Pledgee
hereunder shall be applied to payment of the Obligations in the manner
specified in Section 5 hereof.
4. Sale of Collateral. Pursuant to Its option under Section 3(c), and
subject to the terms and conditions hereof, Pledgee may sell, assign and deliver
the Collateral or any part thereof, at public or private sale, conducted by any
officer, or agent of, or auctioneer or attorney for, Pledgee, at Pledgee's place
of business or elsewhere, for cash, upon credit or future delivery, and at such
price or prices as Pledgee shall, in its reasonable discretion, determine, and
Pledgee may be the purchaser of any or all of the Collateral so sold.
3
Upon any such sale, Pledgee shall have the right to direct Escrow Agent to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
Each purchaser at any such sale shall hold the Collateral so sold absolutely
free from any claim or right of whatsoever kind, including, without limitation,
any equity or right of redemption of Pledgor, which Pledgor hereby specifically
waives to the extent Pledgor may lawfully do so.
Pledgee shall give Pledgor at least ten (10) days written notice of any
such public or private sale. Such notice, in the case of a public sale, shall
state the time and place fixed for such sale. Any such public sale shall be held
at such time or times within ordinary business hours as Pledgee shall fix in the
notice of such sale. At any sale, the Collateral may be sold as an entirety or
in partial interests. Pledgee shall not be obligated to make any sale pursuant
to such notice, but if no such sale is made or only a partial sale is made,
Pledgee shall give notice as provided above prior to any subsequent sale. In the
case of any sale of all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by Escrow Agent or Pledgee
until the selling price is paid by the purchaser thereof, but Pledgee shall not
incur any liability in case of the failure of such purchaser to take up and pay
for the Collateral so sold, and in case of any such failure, such Collateral may
again be sold under and pursuant to and in compliance with the provisions
hereof.
The receipt of Pledgee of the purchase money paid at any such sale made by
it shall be a sufficient discharge therefor to any purchaser of the Collateral
or any portion thereof, and no such purchaser, after paying such purchase money
and receiving such receipt, shall be bound to see to the application of such
purchase money or any part thereof or in any manner whatsoever be answerable for
any loss, misapplication or non-application of any such purchase money, or any
part thereof, or be bound to inquire as to the authorization, necessity,
expediency or regularity of any such sale.
Pledgor recognizes that registration of the Collateral under federal and
state securities laws may be impractical because of the expenses or delays
involved in the registration processes and that in the absence of such
registration, Pledgee may be unable to effect a public sale of all or a part of
the Collateral, but may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other things
to acquire such Collateral for their own account, for investment, and not with a
view to the distribution or resale thereof. Pledgor agrees that private sales so
made may be at prices and other terms less favorable to the seller than if such
Collateral were sold at public sales, and that Pledgee has no obligation to
delay sale of any such Collateral for the period of time necessary to permit
such Collateral to be registered for public sale under the Securities act of
1933, as amended, and any applicable blue sky or other stare securities laws.
Pledgor agrees that sales made under the foregoing circumstances shall not be
deemed to have been made in a commercially unreasonable manner by virtue of any
terms less favorable to the seller resulting from the private nature of such
sales.
Pledgor shall be liable for reasonable attorneys' fees and legal expenses
incurred by Pledgee in enforcing any of its rights or remedies hereunder.
5. Application of Proceeds. The proceeds of any sale of all or any part of
the Collateral shall be applied in the following order or priorities:
First, to the payment of all costs and expenses of such sale, including,
without limitation, reasonable compensation to Escrow Agent, Pledgee, their
agents and attorneys, and all other expenses, liabilities and advances incurred
or made by Escrow Agent or Pledgee, their agents and attorneys, in connection
with said sale, and any other unreimbursed expenses for which Pledgee may be
reimbursed pursuant to the provisions hereof;
Second, to the payment of the Note with no amounts applied to payment of
principal until all interest has been paid;
4
Third, to the payment or satisfaction of any other Obligations; and
Fourth, to the payment to Pledgor, Pledgor's successors or assigns, or to
whomsoever may be lawfully entitled to receive the same, or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
6. Escrow Agent Appointment Attorney-in-Fact. Indemnity. Escrow Agent is
hereby appointed the Attorney-in-fact, with full power of substitution, of
Pledgor during the continuances of any Event of Default, for the purpose of
carrying out the provisions of this Agreement and taking any action and
executing any instrument to accomplish the purposes hereof. Pledgor agrees to
indemnify and hold harmless Escrow Agent and Pledgee from and against any
liability or damage which they may incur in the exercise and performance of any
of the powers and duties as specifically set forth herein.
7. Termination of Pledge. When all of the Obligations shall have been paid
and performed and the terms and covenants hereof and agreements of Pledgor
hereunder have been performed in full, this Agreement shall terminate, and
Escrow Agent shall forthwith assign. transfer and deliver to Pledgor or
Pledgor's designees, without representation, warranty or recourse, against
appropriate receipts, all the Collateral, if any, then held by it in pledge
hereunder.
8. Events of Default. Each of the following shall constitute an event of
default ("Event of Default") hereunder: if Pledgor shall fail to make any
payment of the Note as and when due taking into account applicable notice and
cure periods; if Pledgor has made any misrepresentation in or with respect to,
or have breached any provision of this Security Agreement Pledge or the Purchase
Agreement; or, if any of the Collateral shall be attached or distrained at any
time pursuant to any court order or other legal process.
9. Pledgor's Liability Joint and Several. Each Pledgor's liability
hereunder is primary, direct, immediate and joint and several with each and
every Pledgor.
10. Successors and Assigns: This Agreement shall be binding upon and inure
to the benefit of Pledgee, its successors and assigns, and Pledgor, and subject
to the terms of paragraph Section 1.b. hereof, Pledgor's successors and assigns.
11. Additional Instruments and Assurances: Pledgor hereby agrees to execute
and deliver, from time to time, any and all further instruments and to perform
any and all such acts, as Pledgee may reasonably request to effect the purposes
of this Agreement and to secure to Pledgee the benefits of all rights,
authorities and remedies conferred upon Pledgee by the terms of this Agreement.
12. Notices: Any notice required or permitted to be given hereunder shall
be in writing and shall be personally delivered to the party being notified if
an individual or to an officer or general partner if the party is a corporation
or partnership, or transmitted by postage prepaid, certified or registered mail
5
to the party at the following address or such other address as the party being
notified may have otherwise designated in a notice given as provided in this
paragraph:
To Pledgee: Xxxxxxx X. Xxxxxx
00000 X. 00xx Xx
Xxxxxxx, XX 00000
To Corporation: Avanti Circuits, Inc.
00000 X. 00xx Xxx.
Xxxxxxx, XX 00000
To Pledgor: Circuit Source International, Inc.
0000 X. Xxxxx Xxxxxx, Xxxxx 00
Xxxxx, XX 00000
To Escrow Agent: Xxxx X. Xxxxxxx, Esq.
Xxxxxxxx & Xxxxx Xxxx, Ltd.
0000 X. Xxxxxxxxxx Xxxxx Xx.
Xxxxx 000
Xxxxxxxxxx, Xxxxxxx 00000
Such notice shall be deemed to be effective, unless actual receipt is
expressly elsewhere specified herein, upon (i) the date of receipt or (ii) the
date three (3) days after posting if transmitted by mail, whichever shall first
occur.
13. Waivers: Nonexclusive Remedies. No failure on the part of Pledgee to
exercise, and no delay in exercising, any right, power or remedy under this
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise by Pledgee of any right, power or remedy under this Agreement preclude
the exercise of any other right, power or remedy under this Agreement The
remedies in this Agreement are cumulative and are not exclusive of any other
remedies provided under the Note or the Purchase Agreement
14. Modification: Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated, except by a writing signed by the
party against which enforcement of the change, waiver, discharge or termination
is sought.
15. Applicable Law: This Security Agreement - Pledge has been executed and
delivered in Phoenix, Arizona, and shall be construed in accordance with and
governed by the internal substantive laws of the State of Arizona (without
reference to choice of law principles) and, to the extent they preempt the laws
of such state, the laws of the United States.
6
16. Separability of Provisions: Construction of Agreement. If any provision
hereof is invalid or unenforceable, the other provisions hereof shall remain in
fail force and effect and shall be construed to carry out the intentions of the
parties hereto as nearly as may be possible.
17. Headings: The Section headings in this Agreement are for the purpose of
reference only, and shall not limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as of
the day and year first above written.
PLEDGEE: PLEDGOR:
CIRCUIT SOURCE INTERNATIONAL, INC.,
a Nevada corporation
/s/ Xxxxxxx X. Xxxxxx By: /s/ Xxxxx Xxxxxx
-------------------------- --------------------------
XXXXXXX X. XXXXXX Its: President
7
STOCK PLEDGED PURSUANT TO THIS AGREEMENT
6,020 shares of common stock in AVANTI CIRCUITS, INC., an Arizona
corporation, represented by Stock Certificate No. 11.
