Exhibit 3.7
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, 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
/s/ Xxx Xxxxx
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