SECURITY AGREEMENT
EXHIBIT
10.3
THIS
SECURITY AGREEMENT (this “Agreement”)
is
dated as of June 19, 2007, and is by and between Wits Basin Precious Minerals
Inc.,
a
Minnesota corporation
(“Issuer”),
and
China Gold, LLC a Kansas limited liability company, its successors and assigns
(together with its successors and assigns, “Purchaser”).
RECITALS
The
following recitals are a material part of this Agreement.
A. Issuer
and Purchaser are parties to that certain Convertible Notes Purchase Agreement
dated as of April 10, 2007, as amended by the Amendment to the Convertible
Notes
Purchase Agreement dated as of June 19, 2007 (as the same may hereafter be
further modified, amended, restated or supplemented from time to time, the
“Convertible
Notes Purchase Agreement”),
pursuant to which, among other things, Issuer has agreed to issue and sell,
and
Purchaser has agreed to purchase from Issuer 8.25% Secured Convertible Notes
in
an aggregate principal amount of at least $12,000,000 (the “Notes”)
within
12 month of the Initial Closing Date. All capitalized terms used in this
Agreement without definition have the definitions given to them in the
Convertible Notes Purchase Agreement.
B. Pursuant
to the Purchase Agreement, on April 10, 2007, Issuer sold, and Purchaser
purchased, the Initial Note in the amount of $3,000,000. On May 7, 2007, Issuer
sold, and Purchaser purchased, an Additional Note in the amount of $2,000,000.
C. Issuer
desires that Purchaser acquire an Additional Note in the principal amount of
$4,000,000.
D. Under
the
terms of the Convertible Notes Purchase Agreement, Purchaser’s obligation to
purchase the Additional Note is subject to Purchaser’s receipt of a Security
Agreement, in form and substance satisfactory to Purchaser and Issuer, granting
Purchaser a security interest in all of the assets acquired from the use of
proceeds for the sale of all of the Additional Notes.
E. To
cause
Purchaser to purchase the Additional Notes as contemplated in the Convertible
Notes Purchase Agreement, Issuer has agreed to grant to Purchaser a security
interest in certain of its existing property to secure all of its existing
and
future obligations to Purchaser, including all of its Obligations.
AGREEMENT
NOW,
THEREFORE, to cause Purchaser to purchase the Additional Notes, and in
recognition that Purchaser would not be required to purchase the Additional
Notes but for Issuer’s promises and agreements hereunder, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, Issuer and Purchaser agree as follows:
1. Grant
of Security Interest.
Issuer
grants to Purchaser a present and continuing security interest in all of
Issuer’s right, title and interest in and to all the following property of
Issuer (collectively, the “Collateral”):
(a) Promissory
note of China Global Mining Resources Limited, a corporation organized and
existing under the laws of the British Virgin Islands (“China Global”) in the
amount of US$2,000,000 dated as of June 15, 2007 in favor of
Issuer;
(b) All
contract rights and privileges and instruments now or hereafter assigned or
pledged as security or guaranty the payment of the promissory note referenced
in
subsection (a) above, including but not limited to: (i) Joint Venture Agreement
dated April 14, 2007 and Supplemental Agreement dated June 6, 2007 with Shaanxi
Hua Xx Xxxxxx Smelting Co. in respect of acquisition of 80% equity interest
in
Sino-American Hua Ze Nickel & Cobalt Metal Co., Ltd; and (ii) commodity
purchase agreement dated June 15, 2007 with Shaanxi Hua Xx Xxxxxx Smelting
Co.
for purchase of 40 tons of electrolytic nickel with purity of not less than
99%;
(c) Promissory
note of China Global in the amount of US $5,000,000 dated as of June 15, 2007
in
favor of Issuer;
(d) All
contract rights and privileges and instruments now or hereafter assigned or
pledged to secure or guaranty payment of the promissory note referenced in
subsection (c) above, including, but not limited to: (i) Equity Transfer Heads
of Agreement dated May 4, 2007 with Lu Benzhao in respect of purchase of 95%
of
the equity in Yun County Changjiang Mining Company Limited; and (ii) Equity
and
Asset Transfer Heads of Agreement, dated May 4, 2007 with Lu Benzhao, Xx Xxx,
Maanshan Zhaoyuan Mining Co., Ltd.and Xiananshan Mining Co., Ltd. In respect
of
purchase of 100% equity in Nanjing Sudan Mining Co., Ltd. And assets from both
of Mannshan Zhaoyuan Mining Co., Ltd. And Xiaonanshan Mining Co.,
Ltd.;
(e) All
financing statements and other writings which now or hereafter evidence a
security interest for the benefit of Issuer in the items specified in subsection
(a) through (d) above;
(f) All
additions and accessions to, replacements and substitutions for, proceeds of,
and the use or operation of the property described in subsections (a) through
(e) above, whether tangible or intangible, and, to the extent not otherwise
included, all payments under any insurance policy (whether or not Purchaser
is
the loss payee thereof) and under any indemnity, warranty or guaranty, payable
by reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral.
To
the
extent that the Uniform Commercial Code does not apply to any item of the
Collateral, it is the intention of the parties and this Agreement that Purchaser
have a common law pledge or collateral assignment of such item of
Collateral.
2. Security
for Obligations.
This
Agreement secures the payment and performance of all of the
Obligations.
3. [Reserved.]
4. Further
Assurances.
(a) Issuer
agrees that it shall, from time to time and at its sole expense, promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that Purchaser may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable Purchaser to exercise and enforce
its rights and remedies under this Agreement with respect to any Collateral.
Without limiting the generality of the foregoing, Issuer shall: (i) if any
Collateral is or shall become evidenced by any promissory note or other
instrument or any certificate or document of title or the like, deliver and
pledge to Purchaser such note, instrument, certificate or document duly endorsed
with recourse by Issuer, and accompanied by duly executed instruments of
transfer or assignment, all in form and content satisfactory to Purchaser;
and
(ii) execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as Purchaser may request, in order to perfect and preserve the
security interests granted or purported to be granted hereby.
(b) Issuer
hereby authorizes Purchaser to file one or more financing or continuation
statements, and amendments thereto, relating to all or any part of the
Collateral, without the signature of Issuer to the extent permitted by law.
A
copy of this Agreement shall be sufficient as a financing statement to the
extent permitted by law.
(c) Issuer
will furnish to Purchaser from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Purchaser may reasonably request from time to time,
all
in reasonable detail.
5. Purchaser’s
Duties.
The
powers conferred on Purchaser under this Agreement are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise
any
such powers. Except for the safe custody of any Collateral in its possession
and
the accounting for monies actually received by it under this Agreement,
Purchaser shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against other parties or any other rights
pertaining to any Collateral. Upon full and complete payment and performance
of
all of the Obligations under the Investment Documents, Purchaser shall release
the Collateral of the Liens created and granted under this Agreement and, at
Issuer’s expense, execute and deliver to Issuer such documents as Issuer shall
reasonably request to evidence such release.
6. Issuer
Remains Liable.
Notwithstanding anything in this Agreement to the contrary, (a) Issuer shall
remain liable under the contracts and agreements included in the Collateral
to
the extent set forth therein to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b)
the exercise by Purchaser of any of its rights under this Agreement shall not
release Issuer from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) Purchaser shall not have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Purchaser be obligated to
perform any of the obligations or duties of Issuer thereunder or to take any
action to collect or enforce any claim for payment assigned under this
Agreement.
7. Remedies.
If any
Event of Default shall have occurred and be continuing:
(a) Purchaser
shall have the right pursuant to the applicable Uniform Commercial Code (or
pursuant to applicable law for any Collateral not subject to the Uniform
Commercial Code) to take immediate possession of the Collateral, and (i) to
require Issuer to assemble the Collateral, at Issuer’s expense, and make it
available to Purchaser at a place designated by Purchaser which is reasonably
convenient to both parties, and (ii) to enter any of the premises of Issuer
or
wherever any of the Collateral shall be located, and to keep and store the
same
on such premises until sold or otherwise realized upon (and if such premises
are
the property of Issuer, Issuer agrees not to charge Purchaser for storage
thereof).
(b) Purchaser
shall have the right to sell or otherwise dispose of all or any Collateral
at
public or private sale or sales, with such notice as may be required by law,
all
as Purchaser, in its sole discretion, may deem advisable. Issuer agrees that
ten
(10) days written notice to Issuer of any public or private sale or other
disposition of such Collateral shall be reasonable notice thereof, and such
sale
shall be at such locations as Purchaser may designate in such notice. Purchaser
shall have the right to conduct such sales on Issuer’s premises, without charge
therefor. All public or private sales may be adjourned from time to time in
accordance with applicable law. Purchaser shall have the right to sell, lease
or
otherwise dispose of such Collateral, or any part thereof, for cash, credit
or
any combination thereof, and Purchaser may purchase all or any part of such
Collateral at public or, if permitted by law, private sale and, in lieu of
actual payment of such purchase price, may set off the amount of such price
against the Obligations.
(c) Purchaser
may exercise with respect to the Collateral all of the rights and remedies
(i)
provided for in this Agreement, (ii) provided under the Convertible Notes
Purchase Agreement or under the other Investment Documents, (iii) afforded
to a
secured party upon a default under the Uniform Commercial Code, or (iv)
otherwise available at law or in equity.
8. Indemnity
and Expenses.
(a) Issuer
agrees to indemnify Purchaser from and against any and all claims, losses and
liabilities arising out of or relating to this Agreement or any of the
Obligations (including enforcement of this Agreement and Purchaser’s exercise of
its rights and remedies under this Agreement), unless such claims, losses and
liabilities are caused solely by Purchaser’s gross negligence or willful
misconduct.
(b) Issuer
shall upon demand pay to Purchaser the amount of any and all charges, costs,
fees and expenses, including the reasonable fees and disbursements of its
counsel and of any experts and agents, that Purchaser may incur following
Issuer’s default in connection with (i) the custody, preservation, use of, or
the sale of, collection from, or other realization upon, any of the Collateral,
(ii) the exercise or enforcement of any of the rights of Purchaser under this
Agreement, or (iii) the failure by Issuer to perform or observe any of the
provisions of this Agreement. All such fees, expenses and disbursements shall
be
deemed Obligations secured by this Agreement.
9. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Kansas without regard to any choice of law rule thereof giving effect
to the laws of any other jurisdiction; provided,
however,
that if
any of the Collateral is located in any jurisdiction other than Kansas, then
the
laws of such jurisdiction shall govern the method, manner and procedure for
foreclosure of Purchaser’s security interest in such Collateral and the
enforcement of Purchaser’s other remedies in respect of such Collateral to the
extent that the laws of such jurisdiction are different from or inconsistent
with the laws of Missouri.
10. Organizational
Representations; UCC Filing Offices.
Issuer
represents and warrants to Purchaser that (a) Issuer is a corporation
incorporated under the laws of Minnesota and (b) Issuer’s chief executive office
is located at 00 Xxxxx Xxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxxxx, Xxxxxxxxx
00000-0000. If Issuer changes the address of its chief executive office, or
if
Issuer changes its name, identity, corporate structure or state of incorporation
(without implying any right of Issuer to make any such change without the prior
consent of Purchaser), then, in each case, Issuer shall give Purchaser not
less
than ten (10) Business Days prior written notice thereof.
11. Miscellaneous.
(a) No
amendment or waiver of any provision of this Agreement nor consent to any
departure by Issuer from the terms or provisions of this Agreement, shall in
any
event be effective unless it shall be in writing and signed by the party against
whom enforcement of such amendment, waiver or consent is sought, and then such
waiver or consent shall be effective only in the specific instance and for
the
specific purpose for which given.
(b) The
paragraph and section headings in this Agreement are solely for convenience
and
shall not be deemed to limit or otherwise affect the meaning or construction
of
any part of this Agreement. This document shall be construed without regard
to
any presumption or rule requiring construction against the party causing such
document or any portion thereof to be drafted. The section and other headings
in
this Agreement are for convenience of reference only and shall not limit or
otherwise affect any of the terms of this Agreement. Any pronoun used in this
Agreement shall be deemed to cover all genders. The terms “include”, “including”
and similar terms shall be construed as if followed by the phrase “without being
limited to.” The term “or” has, except where otherwise indicated, the inclusive
meaning represented by the phrase “and/or.” The words “hereof,” “herein,”
“hereby,” “hereunder,” and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision or section of this
Agreement. An Event of Default shall “continue” or be “continuing” until such
Event of Default has been waived in writing by Purchaser.
(c) If
any
provision or provisions of this Agreement shall be unlawful, then such provision
or provisions shall be null and void, but the remainder of the Agreement shall
remain in full force and effect and be binding on the parties.
(d) This
Agreement may be validly executed and delivered by fax or other electronic
transmission and in one or more counterpart signature pages by different
signatories thereto.
(e) Any
notice or demand that Purchaser may wish to give to Issuer shall be served
upon
it in the fashion prescribed for notices in the Convertible Notes Purchase
Agreement at the address and facsimile number for Issuer set forth in the
Convertible Notes Purchase Agreement, and any notice or demand so sent shall
be
deemed to be served as set forth in the Convertible Notes Purchase
Agreement.
12. Waiver
of Jury Trial.
TO THE
FULLEST EXTENT PERMITTED BY LAW, AND AS SEPARATELY BARGAINED-FOR CONSIDERATION
TO PURCHASER, ISSUER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY (WHICH PURCHASER
ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING
OUT OF OR OTHERWISE RELATING TO THIS AGREEMENT OR ANY OF THE OTHER INVESTMENT
DOCUMENTS, THE OBLIGATIONS, THE COLLATERAL, PURCHASER’S CONDUCT IN RESPECT OF
ANY OF THE FOREGOING, ANY OTHER INVESTMENT DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, REGARDLIESS OF WHICH PARTY INITATES SUCH ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM. TO EFFECTUATE THE FOREGOING, PURCHASER IS
HEREBY GRANTED AN IRREVOCABLE POWER OF ATTORNEY TO FILE, AS ATTORNEY-IN-FACT
FOR
ISSUER, A COPY OF THIS AGREEMENT IN ANY COURT,
AND THE COPY OF THIS AGREEMENT SO FILED SHALL CONCLUSIVELY BE DEEMED TO
CONSTITUTE ISSUER’S WAIVER OF TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR
OTHERWISE RELATING TO THIS AGREEMENT OR ANY OF THE OTHER INVESTOR DOCUMENTS,
THE
OBLIGATIONS, THE COLLATERAL OR PURCHASER’S CONDUCT IN RESPECT OF ANY OF THE
FOREGOING.
[Remainder
of page intentionally left blank; signature page follows.]
IN
WITNESS WHEREOF,
the
parties hereto have executed this Agreement on the date first written
above.
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ISSUER:
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Wits Basin Precious Minerals Inc. | |
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a Minnesota corporation | |
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By:
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PURCHASER:
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China Gold, LLC | |
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By:
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China
Gold, LLC
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Its:
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General
Partner
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By:
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[SIGNATURE
PAGE TO SECURITY AGREEMENT]
