SECURITY AGREEMENT
Exhibit 10.6
This
Security Agreement (this “Security Agreement”) is made as of
_______, 2017 by and among Sincerity Applied Materials Holdings
Corp., a Nevada corporation, (the “Company”) and its subsidiary,
Sincerity Australia Pty Ltd., an Australia corporation (the
“Subsidiary”),
(collectively, the “Grantors”); each
“Purchaser”
named in the Omnibus Signature Page(s) to the Subscription
Agreement of even date herewith (the “Subscription Agreement”) between
the Company and the Purchasers, relating to units consisting of the
Company’s 8% Senior Convertible Secured Promissory Notes (the
“Notes”) and
warrants to purchase shares of the Company’s common stock;
and _____________, in its capacity as the Collateral Agent for the
Noteholders (in such capacity, the “Collateral Agent”).
WITNESSETH:
WHEREAS, pursuant to the Subscription
Agreement, the Company has agreed to sell, and the Purchasers have
agreed to purchase the Units, including the Notes;
WHEREAS, each Grantor will receive
direct and substantial benefits from the purchase by the Purchasers
of the Notes; and
WHEREAS, it is a condition precedent to
the Purchaser purchasing the Notes that each Grantor shall have
granted a first priority security interest in and lien on the
Collateral to the Collateral Agent; and
NOW, THEREFORE, for and in consideration
of the Subscription Agreement and the Note, the other premises and
other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, and intending to be legally bound,
the parties covenant and agree as follows:
1. Definitions.
Capitalized terms
used herein without definition shall have the meanings ascribed to
them in the Subscription Agreement. In addition to the words and
terms defined elsewhere in this Agreement, the following words and
terms shall have the following meanings, unless the context
otherwise clearly requires:
“Accounts” shall have the meaning
given to that term in the Code and shall include without limitation
all rights of each Grantor, whenever acquired, to payment for goods
sold or leased or for services rendered, whether or not earned by
performance.
“Chattel Paper” shall have the
meaning given to that term in the Code and shall include without
limitation all writings owned by each Grantor, whenever acquired,
which evidence both a monetary obligation and a security interest
in or a lease of specific goods.
“Code” shall mean the Uniform
Commercial Code as in effect on the date of this Agreement and as
amended from time to time, of the state or states having
jurisdiction with respect to all or any portion of the Collateral
from time to time.
“Collateral” shall mean (i) all
tangible and intangible assets of each Grantor and any hereafter
acquired subsidiaries of each Grantor, including, without
limitation, collectively the Accounts, Chattel Paper, Deposit
Accounts, Documents, Equipment, Fixtures, General Intangibles,
Instruments, Intellectual Property, Inventory and Investment
Property of each Grantor, whether now owned or existing or
hereinafter acquired or arising and regardless of where located and
(ii) Proceeds of each of them.
“Collateral Agent” shall mean the
person designated by the Purchasers that purchased a majority of
the Units sold in the Offering.
“Deposit Accounts” shall have the
meaning given to that term in the Code and shall include a demand,
time, savings, passbook or similar account maintained with a bank,
savings bank, savings and loan association, credit union, trust
company or other organization that is engaged in the business of
banking.
“Documents” shall have the meaning
given to that term in the Code and shall include without limitation
all warehouse receipts (as defined by the Code) and other documents
of title (as defined by the Code) owned by each Grantor, whenever
acquired.
“Equipment” shall have the meaning
given to that term in the Code and shall include without limitation
all goods owned by each Grantor, whenever acquired and wherever
located, used or brought for use primarily in the business or for
the benefit of each Grantor, and not included in Inventory of each
Grantor, together with all attachments, accessories and parts used
or intended to be used with any of those goods or Fixtures, whether
now or in the future installed therein or thereon or affixed
thereto, as well as all substitutes and replacements thereof in
whole or in part.
“Event of Default” shall mean (i)
any of the Events of Default described in the Notes or (ii) any
default by a Grantor in the performance of its obligations under
this Agreement.
“Fixtures” shall have the meaning
given to that term in the Code, and shall include without
limitation leasehold improvements.
“General Intangibles” shall have
the meaning given to that term in the Code and shall include,
without limitation, all leases under which each Grantor, now or in
the future leases and or obtains a right to occupy or use real or
personal property, or both, all of the other contract rights of
each Grantor, whenever acquired, and customer lists, choses in
action, claims (including claims for indemnification), books,
records, Intellectual Property, contracts, licenses, license
agreements, tax and any other types of refunds, returned and
unearned insurance premiums, rights and claims under insurance
policies, and computer information, software and records and data
now owned or acquired after the date of this Agreement by each
Grantor.
“Instruments”
shall have the meaning given to that term in the Code and shall
include, without limitation, all negotiable instruments (as defined
in the Code), all certificated securities (as defined in the Code)
and all other writings which evidence a right to the payment of
money now or after the date of this Agreement owned by each
Grantor.
“Intellectual Property” shall mean,
all intellectual property of the Grantors including, without
limitation all copyrights, trademarks, service marks, trade names,
trade secrets, patents, all documented and undocumented research,
ideas, data, theories, conclusions, reports, drawings, designs,
blueprints, schematics, exhibits, models, prototypes, source code,
object code, flow charts, manuals, processes, specifications,
formulae, product configurations, notes, inventions (whether or not
patentable and whether or not reduced to practice) and any other
information of any kind developed, in development or maintained by
the Grantors.
“Inventory” shall have the meaning
given to that term in the Code and shall include without limitation
all goods owned by each Grantor, whenever acquired and wherever
located, held for sale or lease or furnished or to be furnished
under contracts of service, and all raw materials, work in process
and materials owned by each Grantor, and used or consumed in each
Grantor’s business, whenever acquired and wherever
located.
“Investment Property,”
“Securities
Intermediary” and “Commodities Intermediary” each
shall have the meaning set forth in the Code.
“Loan Documents” shall mean
collectively, this Agreement, the Notes, the Subscription
Agreement, and all other agreements, documents and instruments
executed and delivered in connection therewith, as each may be
amended, restated, supplemented, replaced or otherwise modified
from time to time in accordance with the terms
thereof.
“Majority Holders” means a
Noteholder or Noteholders then holding in excess of 50% of the
aggregate unpaid or unconverted principal amount of the
Notes.
“Permitted Liens” shall mean all
(i) all existing liens on the assets of a Grantor which have been
disclosed to the Collateral Agent by the Company on a Schedule I attached hereto, and
(ii) all purchase money security interests hereinafter incurred by
a Grantor in the ordinary course of business.
“Proceeds” shall have the meaning
given to that term in the Code and shall include without limitation
whatever is received when Collateral or Proceeds are sold,
exchanged, collected or otherwise disposed of, whether cash or
non-cash, and includes without limitation proceeds of insurance
payable by reason of loss of or damage to Collateral.
Capitalized terms
not otherwise defined in this Agreement or the Subscription
Agreement shall have the meanings attributed to such terms in the
Code.
2. Security
Interest.
(a) As
security for the full and timely payment of the amounts due
pursuant to the Notes in accordance with the terms of the
Subscription Agreement and the performance of the obligations of
the Company under the Subscription Agreement, the Notes and the
other Transaction Documents, each Grantor agrees that the
Collateral Agent shall have, and each Grantor hereby grants and
conveys to and creates in favor of the Collateral Agent for the
ratable benefit of the Noteholders, a first priority security
interest under the Code in and to its Collateral regardless of
where located. The security interest granted to the Collateral
Agent in this Agreement shall be a senior security interest, prior
and superior to the rights of all third parties existing on or
arising after the date of this Agreement subject to the Permitted
Liens.
(b) All
of the Equipment, Inventory and Goods owned by each Grantor is
located in the jurisdiction as specified on Schedule I attached hereto
(except to the extent any such Equipment, Inventory or Goods is in
transit or located at such Grantor’s job site in the ordinary
course of business). Except as disclosed on Schedule I, no material
Collateral is in the possession of any bailee, warehousemen,
processor or consignee. Schedule I discloses such
Grantors name as of the date hereof as it appears in official
filings in the state, province or jurisdiction, as applicable, of
its incorporation, formation or organization, the type of entity of
Grantor (including corporation, partnership, limited partnership or
limited liability company), the organizational identification
number issued by Grantor’s state of incorporation, formation
or organization (or a statement that no such number has been
issued), and the chief place of business, chief executive officer
and the office where Grantor keeps its books and records. Each
Grantor has only one state, province, or jurisdiction, as
applicable, of incorporation, formation or organization except as
disclosed on Schedule
I attached hereto. Each Grantor does not do business and has
not done business during the past five (5) years under any trade
name or fictitious business name except as disclosed on
Schedule I attached
hereto.
3. Provisions
Applicable to the Collateral.
The
parties agree that the following provisions shall be applicable to
the Collateral:
(a) Each
Grantor covenants and agrees that at all times during the term of
this Agreement it shall keep accurate and complete books and
records concerning the Collateral that is now or hereafter owned by
the Grantor.
(b) The
Collateral Agent or his, her or its representatives shall have the
right, upon reasonable prior written notice to a Grantor and during
the regular business hours of the Grantor, to examine and inspect
the Collateral and to review the books and records of the Grantor
concerning the Collateral that is now owned or acquired after the
date of this Agreement by the Grantor and to copy the same and make
excerpts therefrom; provided,
however, that from and after the occurrence of an Event of
Default, the rights of inspection and entry shall be subject to the
requirements of the Code.
(c) Each
Grantor shall at all times during the term of this Agreement keep
the Equipment, Inventory and Fixtures that are now owned by each
Grantor in the states or other locations set forth on Schedule I or, upon written
notice to the Collateral Agent, at such other locations for which
the Collateral Agent has filed financing statements, and in no
other states or locations without ten (10) days’ prior
written notice to the Collateral Agent, except that each Grantor
shall have the right until one or more Events of Default shall
occur to sell, move or otherwise dispose of Inventory and other
Collateral in the ordinary course of business.
(d) Each
Grantor shall not move the location of its principal executive
offices without prior written notification to the Collateral
Agent.
(e) Without
the prior written consent of the Collateral Agent, each Grantor
shall not sell, lease or otherwise dispose of any Equipment or
Fixtures, except in the ordinary course of their
business.
(f) Promptly
upon request of the Collateral Agent, from time to time, each
Grantor shall furnish the Collateral Agent with such information
and documents regarding the Collateral and each Grantor’s
financial condition, business, assets or liabilities, at such times
and in such form and detail as the Collateral Agent may reasonably
request.
(g) During
the term of this Agreement, each Grantor shall deliver to the
Collateral Agent, upon his, her or its reasonable, written request
from time to time, without limitation,
(i) all
invoices and customer statements rendered to account debtors,
documents, contracts, chattel paper, instruments and other writings
pertaining to each Grantor’s contracts or the performance of
each Grantor’s contracts,
(ii) evidence
of each Grantor’s accounts and statements showing the aging,
identification, reconciliation and collection thereof,
and
(iii) reports
as to each Grantor’s inventory and sales, shipment, damage or
loss thereof, all of the foregoing to be certified by authorized
officers or other employees of each Grantor, and the Company shall
take all necessary action during the term of this Agreement to
perfect any and all security interests in favor of each Noteholder
and to assign to the Collateral Agent all such security interests
in favor of each Noteholder.
(h) Notwithstanding
the security interest in the Collateral granted to and created in
favor of the Collateral Agent under this Agreement, each Grantor
shall have the right until one or more Events of Default shall
occur, at its own cost and expense, to collect the Accounts and the
Chattel Paper and to enforce their contract rights.
(i) Subject
to restrictions applicable to the Notes and the Permitted Liens,
after the occurrence of an Event of Default, the Collateral Agent
shall have the right, in his, her or its sole discretion, to give
notice of the Collateral Agent’s security interest to account
debtors obligated to each Grantor and to take over and direct
collection of the Accounts and the Chattel Paper, to notify such
account debtors to make payment directly to the Collateral Agent
and to enforce payment of the Accounts and the Chattel Paper and to
enforce each Grantor’s contract rights. It is understood and
agreed by each Grantor that the Collateral Agent shall have no
liability whatsoever under this subsection, except for his, her or
its own gross negligence or willful misconduct.
(j) At
all times during the term of this Agreement, each Grantor shall
promptly deliver to the Collateral Agent, upon the written request
of the Collateral Agent, all existing leases, and all other leases
entered into by each Grantor from time to time, covering any
material Equipment or Inventory (the “Leased Inventory”) which is leased
to third parties.
(k) Each
Grantor shall not change its name, entity status, federal taxpayer
identification number, or provincial organizational or registration
number, or the state or jurisdiction under which it is organized
without the prior written consent of the Collateral Agent, which
consent shall not be unreasonably withheld, conditioned or
delayed.
(l) Each
Grantor shall not close any of its Deposit Accounts or open any new
or additional Deposit Accounts without first giving the Collateral
Agent at least ten (10) days’ prior written notice thereof;
however, the Collateral Agent has the power to waive a portion of
the notice period if such waiver does not harm Collateral
Agent’s security position.
(m) Subject
to restrictions applicable to the Notes and the Permitted Liens,
each Grantor shall cooperate with the Collateral Agent, at each
Grantor’s reasonable expense, in perfecting Collateral
Agent’s security interest in any of the Collateral in all
jurisdictions in which Collateral is located. Each Grantor agrees
that from time to time, at its own expense, such Grantor will
promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or that the
Collateral Agent may reasonably request, in order to perfect and
protect the security interest granted or purported to be granted
hereby or to enable the Collateral Agent to exercise and enforce
his, her or its rights and remedies hereunder with respect to any
of the Collateral.
(n) Subject
to restrictions applicable to the Notes and the Permitted Liens,
the Collateral Agent may file any necessary financing statements
and other documents he, she or it deems reasonably necessary in
order to perfect the Collateral Agent’s security interest
without either Grantor’s signature. Each Grantor grants to
the Collateral Agent a power of attorney for the sole purpose of
executing any documents on behalf of each Grantor which the
Collateral Agent deems reasonably necessary to perfect the
Collateral Agent’s security interest. Such power, coupled
with an interest, is irrevocable.
(o) Each
Grantor shall promptly advise the Collateral Agent of any
subsequent ownership rights of such Grantor in or to any
Collateral.
(p) Each
Grantor shall cooperate with the Collateral Agent and use all
commercially reasonable efforts to take or cause to be taken all
actions and do or cause to be done all things necessary, proper or
advisable on their part under this Security Agreement and
applicable laws, to effect the transactions and matters
contemplated by this Security Agreement, including, but not limited
to, the perfection of security interests in all jurisdictions in
which the Collateral is now or hereafter located, including
preparing and filing, as soon as practicable, all documents to
effect all necessary notices, reports and other
filings.
4. Actions
with Respect to Accounts.
Each
Grantor irrevocably makes, constitutes and appoints the Collateral
Agent its true and lawful attorney-in-fact with power to sign its
name and to take any of the following actions after the occurrence
and prior to the cure of an Event of Default, at any time without
notice to either Grantor and at each Grantor’s reasonable
expense, subject to restrictions applicable to the Notes and the
Permitted Liens:
(a) Verify
the validity and amount of, or any other matter relating to, the
Collateral by mail, telephone, telegraph or otherwise;
(b) Notify
all account debtors that the Accounts have been assigned to the
Collateral Agent and that the Collateral Agent has a security
interest in the Accounts;
(c) Direct
all account debtors to make payment of all Accounts directly to the
Collateral Agent;
(d) Take
control in any reasonable manner of any cash or non-cash items of
payment or proceeds of Accounts;
(e) Receive,
open and respond to all mail addressed to each
Grantor;
(f) Take
control in any manner of any rejected, returned, stopped in transit
or repossessed goods relating to Accounts;
(g) Enforce
payment of and collect any Accounts, by legal proceedings or
otherwise, and for such purpose the Collateral Agent
may:
(i) Demand payment of
any Accounts or direct any account debtors to make payment of
Accounts directly to the Collateral Agent;
(ii) Receive
and collect all monies due or to become due to each Grantor
pursuant to the Accounts;
(iii) Exercise
all of each Grantor’s rights and remedies with respect to the
collection of Accounts;
(iv) Settle,
adjust, compromise, extend, renew, discharge or release Accounts in
a commercially reasonable manner;
(v) Sell or assign
Accounts on such reasonable terms, for such reasonable amounts and
at such reasonable times as the Collateral Agent reasonably deems
advisable;
(vi) Prepare,
file and sign each Grantor’s name or names on any Proof of
Claim or similar documents in any proceeding filed under federal or
state bankruptcy, insolvency, reorganization or other similar law
as to any account debtor;
(vii) Prepare,
file and sign each Grantor’s name or names on any notice of
lien, claim of mechanic’s lien, assignment or satisfaction of
lien or mechanic’s lien or similar document in connection
with the Collateral;
(viii) Endorse
the name of each Grantor upon any chattel papers, documents,
instruments, invoices, freight bills, bills of lading or similar
documents or agreements relating to Accounts or goods pertaining to
Accounts or upon any checks or other media of payment or evidence
of a security interest that may come into the Collateral
Agent’s possession;
(ix) Sign
the name or names of each Grantor to verifications of Accounts and
notices of Accounts sent by account debtors to each Grantor;
or
(x) Take all other
actions that the Collateral Agent reasonably deems to be necessary
or desirable to protect each Grantor’s interest in the
Accounts.
(h) Negotiate
and endorse any Document in favor of the Collateral Agent or his,
her or its designees, covering Inventory which constitutes
Collateral, and related documents for the purpose of carrying out
the provisions of this Agreement and taking any action and
executing in the name(s) of Borrower any instrument which the
Collateral Agent may reasonably deem necessary or advisable to
accomplish the purpose hereof. Without limiting the generality of
the foregoing, the Collateral Agent shall have the right and power
to receive, endorse and collect checks and other orders for the
payment of money made payable to each Grantor representing any
payment or reimbursement made under, pursuant to or with respect
to, the Collateral or any part thereof and to give full discharge
to the same. Each Grantor does hereby ratify and approve all acts
of said attorney and agrees that said attorney shall not be liable
for any acts of commission or omission, nor for any error of
judgment or mistake of fact or law, except for said
attorney’s own gross negligence or willful misconduct. This
power, being coupled with an interest, is irrevocable until the
Note is paid in full (at which time this power shall terminate in
full) and each Grantor shall have performed all of its obligations
under this Agreement. Each Grantor further agrees to use its
reasonable efforts to assist the Collateral Agent in the collection
and enforcement of the Accounts and will not hinder, delay or
impede the Collateral Agent in any manner in his, her or its
collection and enforcement of the Accounts.
Each
Grantor represents and warrants that it has, and covenants and
agrees that at all times during the term of this Agreement, it will
have, good and marketable title to the Collateral now owned by it
free and clear of all mortgages, pledges, liens, security
interests, charges or other encumbrances, except for the Notes and
the Permitted Liens and those junior in right of payment and
enforcement to that of the Collateral Agent or in favor of the
Collateral Agent, and shall defend the Collateral against the
claims and demands of all persons, firms and entities whomsoever.
Assuming the Collateral Agent has taken all required action to
perfect a security interest in the Collateral as provided by the
Code, each Grantor represents and warrants that as of the date of
this Agreement the Collateral Agent has, and that all times in the
future the Collateral Agent will have, a first priority perfected
security interest in the Collateral, prior and superior to the
rights of all third parties in the Collateral existing on the date
of this Agreement or arising after the date of this Agreement
subject to the Permitted Liens. Except as permitted by this
Agreement, each Grantor covenants and agrees that it shall not,
without the prior written consent of the Collateral Agent (i)
borrow against the Collateral or any portion of the Collateral from
any other person, firm or entity, except for borrowings which are
subordinate to the rights of the Collateral Agent, (ii) grant or
create or permit to attach or exist any mortgage, pledge, lien,
charge or other encumbrance, or security interest on, of or in any
of the Collateral or any portion of the Collateral except those in
favor of the Collateral Agent, the holders of Notes, or the
Permitted Liens, (iii) permit any levy or attachment to be made
against the Collateral or any portion of the Collateral, except
those subject to the Notes, or the Permitted Liens, or (iv) permit
any financing statements to be on file with respect to any of the
Collateral, except financing statements in favor of the Collateral
Agent, the holders of the Notes, or those with respect to the
Permitted Liens. Each Grantor shall faithfully preserve and protect
the Collateral Agent’s security interest in the Collateral
and shall, at its own reasonable cost and expense, cause, or assist
the Collateral Agent to cause that security interest to be
perfected and continue perfected so long as the Notes or any
portion of the Notes is outstanding, unpaid or executory. For
purposes of the perfection of the Collateral Agent’s security
interest in the Collateral in accordance with the requirements of
this Agreement, each Grantor shall from time to time at the request
of the Collateral Agent file or record, or cause to be filed or
recorded, such instruments, documents and notices, including
assignments, financing statements and continuation statements, as
the Collateral Agent may reasonably deem necessary or advisable
from time to time in order to perfect and continue perfected such
security interest. Each Grantor shall do all such other acts and
things and shall execute and deliver all such other instruments and
documents, including further security agreements, pledges,
endorsements, assignments and notices, as the Collateral Agent in
his, her or its discretion may reasonably deem necessary or
advisable from time to time in order to perfect and preserve the
priority of such security interest as a first lien security
interest in the Collateral prior to the rights of all third
persons, firms and entities subject to the Permitted Liens, and
except as may be otherwise provided in this Agreement. Each Grantor
agrees that a carbon, photographic or other reproduction of this
Agreement or a financing statement is sufficient as a financing
statement and may be filed instead of the original.
6. Insurance.
Risk of
loss of, damage to or destruction of the Equipment, Inventory and
Fixtures is on each Grantor. Each Grantor shall insure the
Equipment, Inventory and Fixtures against such risks and casualties
and in such amounts and with such insurance companies as is
ordinarily carried by corporations or other entities engaged in the
same or similar businesses and similarly situated or as otherwise
reasonably required by the Collateral Agent in his, her or its sole
discretion. In the event of loss of, damage to or destruction of
the Equipment, Inventory or Fixtures during the term of this
Agreement, each Grantor shall promptly notify the Collateral Agent
of such loss, damage or destruction. At the reasonable request of
the Collateral Agent, each Grantor’s policies of insurance
shall contain loss payable clauses in favor of each Grantor and the
Collateral Agent as his, her or its respective interests may appear
and shall contain provision for notification of the Collateral
Agent thirty (30) days prior to the termination of such policy. At
the request of the Collateral Agent, copies of all such policies,
or certificates evidencing the same, shall be deposited with the
Collateral Agent. If any Grantor fails to effect and keep in full
force and effect such insurance or fail to pay the premiums when
due, the Collateral Agent may (but shall not be obligated to) do so
for the account of such Grantor and add the cost thereof to the
Note. The Collateral Agent are irrevocably appointed
attorney-in-fact of each Grantor to endorse any draft or check
which may be payable to each Grantor in order to collect the
proceeds of such insurance. Unless an Event of Default has occurred
and is continuing, the Collateral Agent will turn over to each
Grantor the proceeds of any such insurance collected by the
Collateral Agent on the condition that each Grantor apply such
proceeds either (i) to the repair of damaged Equipment, Inventory
or Fixtures, or (ii) to the replacement of destroyed Equipment,
Inventory or Fixtures with Equipment, Inventory or Fixtures of the
same or similar type and function and of at least equivalent value
(in the sole judgment of the Collateral Agent), provided such
replacement Equipment, Fixtures or Inventory is made subject to the
security interest created by this Agreement and constitutes a first
lien security interest in the Equipment, Inventory and Fixtures
subject only to Permitted Liens and other security interests
permitted under this Agreement, including under the Notes, and is
perfected by the filing of financing statements in the appropriate
public offices and the taking of such other action as may be
necessary or desirable in order to perfect and continue perfected
such security interest. Any balance of insurance proceeds remaining
in the possession of the Collateral Agent after payment in full of
the Notes shall be paid over to the applicable Grantor or its
order.
7. Maintenance
and Repair.
Each
Grantor shall maintain the Equipment, Inventory and Fixtures, and
every portion thereof, in good condition, repair and working order,
reasonable wear and tear alone excepted, and shall pay and
discharge all taxes, levies and other impositions assessed or
levied thereon as well as the cost of repairs to or maintenance of
the same. If any Grantor fails to do so, the Collateral Agent may
(but shall not be obligated to) pay the cost of such repairs or
maintenance and such taxes, levies or impositions for the account
of such Grantor and add the amount of such payments to the
principal of the Note.
8. Preservation
of Rights against Third Parties; Preservation of Collateral in
Collateral Agent’s Possession.
Until
such time as the Collateral Agent exercises his, her or its right
to effect direct collection of the Accounts and the Chattel Paper
and to effect the enforcement of each Grantor’s contract
rights, each Grantor assumes full responsibility for taking any and
all commercially reasonable steps to preserve rights in respect of
the Accounts and the Chattel Paper and their contracts against
prior parties. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of such
of the Collateral as may come into its possession from time to time
if the Collateral Agent take such action for that purpose as the
relevant Grantor shall request in writing, provided that such
requested action shall not, in the judgment of the Collateral
Agent, impair the Collateral Agent’s security interest in the
Collateral or its right in, or the value of, the Collateral, and
provided further that the Collateral Agent receives such written
request in sufficient time to permit the Collateral Agent to take
the requested action.
9. Events
of Default and Remedies.
(a) If
any one or more of the Events of Default shall occur or shall
exist, the Collateral Agent may then or at any time thereafter, so
long as such default shall continue, foreclose the lien or security
interest in the Collateral in any way permitted by law, or upon
twenty (20) days’ prior written notice to the relevant
Grantor, sell any or all Collateral at private sale at any time or
place in one or more sales, at such price or prices and upon such
terms, either for cash or on credit, as the Collateral Agent, in
his, her or its sole discretion, may elect, or sell any or all
Collateral at public auction, either for cash or on credit, as the
Collateral Agent, in his, her or its sole discretion, may elect,
and at any such sale, the Collateral Agent may bid for and become
the purchaser of any or all such Collateral. Pending any such
action the Collateral Agent may liquidate the
Collateral.
(b) If
any one or more of the Events of Default shall occur or shall
exist, the Collateral Agent may then, or at any time thereafter, so
long as such default shall continue, grant extensions to, or adjust
claims of, or make compromises or settlements with, debtors,
guarantors or any other parties with respect to Collateral or any
securities, guarantees or insurance applying thereon, without
notice to or the consent of any Grantor, without affecting each
Grantor’s liability under this Agreement or the Note. Each
Grantor waives notice of acceptance, of nonpayment, protest or
notice of protest of any Accounts or Chattel Paper, any of its
contract rights or Collateral and any other notices to which each
Grantor may be entitled.
(c) If
any one or more of the Events of Default shall occur or shall exist
and be continuing, then in any such event, the Collateral Agent
shall have such additional rights and remedies in respect of the
Collateral or any portion thereof as are provided by the Code and
such other rights and remedies in respect thereof which him, her or
it may have at law or in equity or under this Agreement, including
without limitation the right to enter any premises where Equipment,
Inventory and/or Fixtures are located and take possession and
control thereof without demand or notice and without prior judicial
hearing or legal proceedings, which each Grantor expressly
waives.
(d) The
Collateral Agent shall apply the Proceeds of any sale or
liquidation of the Collateral, and, subject to Section 5 hereof, any Proceeds
received by the Collateral Agent from insurance, first to the
payment of the reasonable costs and expenses incurred by the
Collateral Agent in connection with such sale or collection,
including without limitation reasonable attorneys’ fees and
legal expenses; second to the repayment of the Note and to the
payment of amount due to the holders of Notes, pro rata, whether on
account of principal or interest or otherwise as the Collateral
Agent, in his, her or its sole discretion, may elect, and then to
pay the balance, if any, to the relevant Grantor or as otherwise
required by law. If such Proceeds are insufficient to pay the
amounts required by law, the Grantors shall be liable for any
deficiency.
(e) Upon
the occurrence of any Event of Default, each Grantor shall promptly
upon written demand by the Collateral Agent assemble the Equipment,
Inventory and Fixtures and make them available to the Collateral
Agent at a place or places to be designated by the Collateral
Agent. The rights of the Collateral Agent under this paragraph to
have the Equipment, Inventory and Fixtures assembled and made
available to them is of the essence of this Agreement and the
Collateral Agent may, at his, her or its election, enforce such
right by an action in equity for injunctive relief or specific
performance, without the requirement of a bond.
10. Defeasance.
Notwithstanding
anything to the contrary contained in this Agreement, upon the
earlier of payment, conversion and performance in full of the Note,
this Agreement shall terminate and be of no further force and
effect, and the Collateral Agent shall thereupon terminate his, her
or its security interest in the Collateral. Until such time,
however, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns, provided
that, without the prior written consent of the Collateral Agent, no
Grantor may assign this Agreement or any of its rights under this
Agreement or delegate any of its duties or obligations under this
Agreement and any such attempted assignment or delegation shall be
null and void. This Agreement is not intended and shall not be
construed to obligate the Collateral Agent to take any action
whatsoever with respect to the Collateral or to incur expenses or
perform or discharge any obligation, duty or disability of any
Grantor.
11. Miscellaneous.
(a) The
provisions of this Agreement are intended to be severable. If any
provision of this Agreement shall for any reason be held invalid or
unenforceable in whole or in part in any jurisdiction, such
provision shall, as to such jurisdiction, be ineffective to the
extent of such invalidity or unenforceability without in any manner
affecting the validity or enforceability of such provision in any
other jurisdiction or any other provision of this Agreement in any
jurisdiction.
(b) No
failure or delay on the part of the Collateral Agent in exercising
any right, remedy, power or privilege under this Agreement and the
Notes shall operate as a waiver thereof or of any other right,
remedy, power or privilege of the Collateral Agent under this
Agreement, the Notes or any of the other Loan Documents; nor shall
any single or partial exercise of any such right, remedy, power or
privilege preclude any other right, remedy, power or privilege or
further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and
privileges of the Collateral Agent under this Agreement, the Notes
and the other Loan Documents are cumulative and not exclusive of
any rights or remedies which he, she or it may otherwise
have.
(c) Unless
otherwise provided herein, all demands, notices, consents, service
of process, requests and other communications hereunder shall be in
writing and shall be delivered in person, by e-mail (with
confirmation of transmission) or by overnight courier service, or
mailed by certified mail, return receipt requested,
addressed:
If to Borrower or
any other
Grantor:
At the address for
the Borrower set forth in the Subscription Agreement.
If to
the Collateral Agent: To the address communicated by the Collateral
Agent to the Company in writing for such notice
purposes.
Any
such notice shall be effective when delivered, if delivered by hand
delivery, overnight courier service, or U.S. Mail return receipt
requested.
(d) The
section headings contained in this Agreement are for reference
purposes only and shall not control or affect its construction or
interpretation in any respect.
(e) Unless
the context otherwise requires, all terms used in this Agreement
which are defined by the Code shall have the meanings stated in the
Code.
(f) The
Code shall govern the settlement, perfection and the effect of
attachment and perfection of the Collateral Agent’s security
interest in the Collateral, and the rights, duties and obligations
of the Collateral Agent and each Grantor with respect to the
Collateral. EACH GRANTOR HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER
OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
(g) This
Agreement may be executed in several counterparts, each of which
shall be deemed an original but all of which shall constitute one
and the same instrument. All of such counterparts shall be read as
though one, and they shall have the same force and effect as though
all the signers had signed a single page. In the event that any
signature is delivered by facsimile transmission or by an e-mail
which contains a portable document format (.pdf) file of an
executed signature page, such signature page shall create a valid
and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if
such signature page were an original thereof.
12.
The Collateral
Agent.
(a) Delegation of Duties. The
Collateral Agent may execute any of its duties under this Security
Agreement or any other Transaction Document by or through agents,
employees or attorneys in fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The
Collateral Agent shall not be responsible for the negligence or
misconduct of any agent or attorney in fact that it selects with
reasonable care.
(b) Liability of Collateral Agent.
None of the Collateral Agent Related Persons shall (i) be liable
for any action taken or omitted to be taken by any of them under or
in connection with this Security Agreement or any other Transaction
Document or the transactions contemplated hereby (except for its
own gross negligence or willful misconduct), or (ii) be responsible
in any manner to any of the Noteholders for any recital, statement,
representation or warranty made by any other party, or any officer
thereof, contained in this Security Agreement or in any other
Transaction Document, or in any certificate, report, statement or
other document referred to or provided for in, or received by the
Collateral Agent under or in connection with, this Security
Agreement or any other Transaction Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this
Security Agreement or any other Transaction Document, or for any
failure of any other party to this Security Agreement or any other
Transaction Document to perform its obligations hereunder or
thereunder. No Collateral Agent Related Person shall be under any
obligation to any Noteholder to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or
conditions of, this Security Agreement or any other Transaction
Document, or to inspect the properties, books or records of the
Company or any of the Company’s Subsidiaries or Affiliates.
“Collateral Agent Related Persons” means the Collateral
Agent and any successor agent arising hereunder, together with
their respective affiliates, and the officers, directors,
employees, agents and attorneys-in-fact of such persons and
affiliates.
(c) Reliance by Collateral Agent.
The Collateral Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex
or telephone message, statement or other document or conversation
believed by it to be genuine and correct and to have been signed,
sent or made by the proper person or persons, and upon advice and
statements of legal counsel (including counsel to the Company or
any Grantor), independent accountants and other experts selected by
the Collateral Agent. The Collateral Agent shall be fully justified
in failing or refusing to take any action under this Security
Agreement or any other Transaction Document unless it shall first
receive such advice or concurrence of the Majority Holders as it
deems appropriate and, if it so requests, it shall first be
indemnified to its satisfaction by the Noteholders against any and
all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action. The Collateral Agent
shall in all cases be fully protected in acting, or in refraining
from acting, under this Security Agreement or any other Transaction
Document in accordance with a request or consent of the Majority
Holders and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the
Noteholders.
(d) Notice of Default. The
Collateral Agent shall not be deemed to have knowledge or notice of
the occurrence of any default or Event of Default, except with
respect to defaults in the delivery of any documents or
certificates required to be delivered to the Collateral Agent
hereunder for the benefit of the Noteholders, unless the Collateral
Agent shall have received written notice from a Noteholder or the
Company or any Grantor referring to this Security Agreement,
describing such default or Event of Default and stating that such
notice is a “notice of default”. The Collateral Agent
will notify the Noteholders of its receipt of any such notice. The
Collateral Agent shall take such action with respect to such
Default or Event of Default as may be requested by the Majority
Holders in accordance with this Security Agreement; provided,
however, that unless and until the Collateral Agent has received
any such request, the Collateral Agent may (but shall not be
obligated to) take such action, or refrain from taking such action,
with respect to such default or Event of Default as it shall deem
advisable or in the best interest of the Noteholders.
(e) Collateral Agent in Individual
Capacity. Any Collateral Agent Related Person may engage in
transactions with, make loans to, acquire equity interests in and
generally engage in any kind of business with the Company or any
Grantor and their affiliates, including purchasing and holding
Notes, as though the Collateral Agent were not the Collateral Agent
hereunder and without notice to or consent of the Noteholders. the
Noteholders acknowledge that, pursuant to such activities, any
Collateral Agent Related Person may receive information regarding
the Company or any Grantor and their affiliates (including
information that may be subject to confidentiality obligations in
favor of the Company or any Grantor and their affiliates) and
acknowledge that the Collateral Agent shall be under no obligation
to provide such information to them. With respect to any Notes it
holds, a Collateral Agent Related Person shall have the same rights
and powers under this Security Agreement as any other Noteholder
and may exercise the same as though the Collateral Agent were not
the Collateral Agent, and the terms “Noteholder” and
“Noteholders” include any such Collateral Agent Related
Person in its individual capacity.
(f) Successor Collateral
Agent. The Collateral Agent may, and at the request of the
Majority Noteholders shall, resign as Collateral Agent upon thirty
(30) days’ notice to the Noteholders. If the Collateral Agent
resigns under this Security Agreement, the Majority Holders shall
appoint from among the Noteholders a successor agent for the
Noteholders, which successor agent shall be approved by the
Company, such approval not to be unreasonably withheld. If no
successor agent is appointed prior to the effective date of the
resignation of the Collateral Agent, the Collateral Agent may
appoint, after consulting with the Noteholders and the Company, a
successor agent from among the Noteholders. Upon the acceptance of
its appointment as successor agent hereunder, such successor agent
shall succeed to all the rights, powers and duties of the retiring
Collateral Agent and the term “Collateral Agent” shall
mean such successor agent and the retiring Collateral Agent’s
appointment, powers and duties as Collateral Agent shall be
terminated. After any retiring Collateral Agent’s resignation
hereunder as Collateral Agent, the provisions of this Section 10
shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Collateral Agent under this Security
Agreement. If no successor agent has accepted appointment as
Collateral Agent by the date which is thirty (30) days following a
retiring Collateral Agent’s notice of resignation, the
retiring Collateral Agent’s resignation shall nevertheless
thereupon become effective, and the Noteholders shall perform all
of the duties of the Collateral Agent hereunder until such time, if
any, as the Majority Holders appoint a successor agent as provided
for above.
13.
Amendments.
This
Security Agreement may be amended only by a written instrument
signed by the Grantors, Majority Holders and the Collateral
Agent.
14.
Governing Law;
Jurisdiction.
This
Security Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to conflicts
of law.
Each
party agrees that any legal proceedings concerning the
interpretations, enforcement and defense of the transactions
contemplated by this Security Agreement (whether brought against a
party hereto or its respective affiliates, directors, officers,
shareholders, employees or agents) may be commenced in the state
and federal courts sitting in the City of New York, Borough of
Manhattan (the “New
York Courts”). Each party hereto hereby irrevocably
submits to the jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or
with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of the Notes), and
hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party
hereby irrevocably waives personal service of process and consents
to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Security Agreement
and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in
any manner permitted by law. Nothing herein shall affect the right
of the Holder to commence legal proceedings or otherwise proceed
against the Company in any other jurisdiction.
15.
Confidentiality.
In
handling any confidential information, the Noteholders and the
Collateral Agent shall exercise the same degree of care that they
exercise for their own proprietary information, but disclosure of
information may be made: (i) to the Noteholders or affiliates
in connection with their present or prospective business relations
with Grantors; (ii) to prospective transferees or purchasers
of any interest in the Notes (provided, however, the Noteholders
shall use commercially reasonable efforts to obtain such
prospective transferee’s or purchaser’s agreement to
the terms of this provision); (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in
connection with the Noteholders’ or the Collateral
Agent’s examination or audit; and (v) as the Noteholders
or the Collateral Agent consider appropriate in exercising remedies
under this Security Agreement. Confidential information does not
include information that either: (a) is in the public domain
or in the Noteholders’ or the Collateral Agent’s
possession when disclosed to such person, or becomes part of the
public domain after disclosure to the Noteholders or the Collateral
Agent through no fault of such person; or (b) is disclosed to
the Noteholders or the Collateral Agent by a third party, if such
person reasonably does not know that the third party is prohibited
from disclosing the information.
*** Remainder of this page intentionally left blank
***
IN WITNESS WHEREOF, and intending to be
legally bound, the parties have executed and delivered this
Security Agreement as of the day and year set forth at the
beginning of this Security Agreement.
|
GRANTORS:
|
SINCERITY APPLIED MATERIALS HOLDINGS CORP., a Nevada
corporation
By:
Name:
Title:
|
|
|
SINCERITY AUSTRIALIA PTY LTD.,
an
Australia corporation
By:
Name:
Title:
|
|
|
COLLATERAL AGENT:
_______________________
By:
Name:
Title:
|
[THE NOTEHOLDERS SIGN BY EXECUTING OMNIBUS SIGNATURE
PAGE
TO THE SUBSCRIPTION AGREEMENT]
[SIGNATURE
PAGE TO SECURITY AGREEMENT]
