Attached files
Exhibit 10.4
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”). THESE SECURITIES MAY BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION
S UNDER THE SECURITIES ACT, (C) IN COMPLIANCE WITH RULE 144 OR 144A
THEREUNDER, IF AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS, (D) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT, OR (E) IN A TRANSACTION THAT DOES NOT REQUIRE
REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAWS, AND THE HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED
TO THE COMPANY AN OPINION OF COUNSEL OR OTHER EVIDENCE OF
EXEMPTION, IN EITHER CASE REASONABLY SATISFACTORY TO THE COMPANY.
HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE
CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES
ACT.
12% SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
DUE _______, 2018
Original
Issue Date: _______________,
2017 US$__________
This
12% Senior Secured Convertible Promissory Note (the
“Note”)
is one of a series of duly authorized and issued promissory notes
(the “Notes”) of SINCERITY APPLIED MATERIALS HOLDINGS
CORP., a Nevada corporation (the “Company”), designated as
its 12% Senior Secured Convertible Promissory Notes. This Note has
been issued in accordance with exemptions from registration under
the Securities Act pursuant to a Subscription Agreement dated
__________, 2017 (the “Subscription Agreement”)
between the Company and the Holder (as defined below). Capitalized
terms not otherwise defined herein shall have the meanings ascribed
to them in the Subscription Agreement.
Article I.
Section
1.01 Principal
and Interest.
(a) FOR VALUE RECEIVED,
the Company hereby promises to pay to the order of ____________________ (together with
its/his/her permitted assigns, the “Holder”), in lawful money
of the United States of America and in immediately available funds
the principal sum of Dollars
(US$_______) on _______________, 20181 (the “Maturity
Date”).
(b) The Company further
promises to pay interest on the unpaid principal amount of this
Note at a rate per annum equal to twelve percent (12%) which shall
be cumulative and shall be payable in shares of the Company’s
Common Stock as of the day on which the Note is converted (the
“Conversion Date”) or in cash on the Maturity Date.
Interest shall accrue from the Original Issue Date through the date
of conversion or maturity as applicable.
1 Thirteen (13) month anniversary of the date of
issuance.
{00180970.2 / 4133.003}
(c) In the event the
Holder has not converted this Note into Common Stock prior to the
Maturity Date and the Company is unable to pay the Note in cash,
the term of this Note shall automatically extend for one additional
month and shall automatically extend for additional one month
periods in the event that the Company remains unable to pay this
Note in cash on the Maturity Date, as such may be extended. At
least 30 days prior to the Maturity Date, including all extensions
thereof, the Company must give Holder written notice of its ability
to pay this Note in cash, during which period Holder shall retain
the right to convert this Note, including accrued interest due
thereon, on the terms set forth herein. Failure to provide such
notice on a timely basis, or otherwise, shall result in an
automatic extension of the Maturity Date.
(d) From and after the
occurrence of an Event of Default (as defined herein), the interest
rate shall be increased to eighteen percent (18%) per annum. In the
event that such Event of Default is subsequently cured, the
adjustment referred to in the preceding sentence shall cease to be
effective as of the date of such cure; provided, however, that the
interest, as calculated at such increased rate during the
continuance of such Event of Default, shall continue to apply to
the extent relating to the days after the occurrence of such Event
of Default through and including the date of cure of such Event of
Default.
Section
1.02 Definitions. For
purposes of this Note, the following terms shall have the following
meanings.
(a) “Bloomberg”
means Bloomberg LP.
(b) “Common Stock”
means the Company’s common stock, par value $0.001 per
share.
(c) “Common Stock
Equivalents” means securities of the Company or a
subsidiary of the Company which are convertible into or exercisable
for shares of Common Stock.
(d) “Exempt Issuance” means shares of
Common Stock issued or issuable upon conversion or exchange of any
convertible securities or exercise of any options or warrants
outstanding immediately following the Closing Date; (b) securities
issued or issuable pursuant to an acquisition, joint venture,
collaboration, sponsored research, OEM, marketing, technology
license, or similar agreement, but not including a transaction in
which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is
investing in securities; (c) securities issued to financial
institutions or lessors in connection with credit arrangements,
equipment financings, lease arrangements, etc., in the aggregate
not exceeding 10% of the Common Stock then outstanding; (d)
securities issued or issuable pursuant to the acquisition of
another entity or business by the Company through a merger,
purchase of substantially all of the assets or other
reorganization, but not including a transaction in which the
Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in
securities; (e) shares of Common Stock issued or issuable by reason
of a dividend, stock split, split-up or other distribution on
shares of Common Stock relating to any recapitalization,
reclassification or reorganization of the capital stock of the
Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets
or other transaction effected in such a way that there is no change
of control of the Company; and (f) issuances of awards under any
Company employee benefit plans.
(e) “Majority
Holders” means the holders of Notes representing more
than 50% of the aggregate principal amount of the Notes then
outstanding.
(f) “National Securities
Exchange” means the following markets or exchanges on
which the Common Stock may be listed or quoted for trading on the
date in question: the NYSE MKT, LLC, the Nasdaq Capital Market, the
Nasdaq Global Market, the Nasdaq Global Select Market, the New York
Stock Exchange.
(g) “Post-Acquisition Valuation” means
the post-Acquisition, pre-financing valuation of the Company
obtained by multiplying the 50,000,000 shares of Common Stock
assumed to be issued and outstanding immediately following the
Acquisition and the Offering by the lowest price at which Common
Stock or Common Stock equivalents are to be sold in a
post-Acquisition financing. By way of example, a post-Acquisition
financing in which Common Stock or Common Stock Equivalents are
sold at $0.30 per share would result in a Post-Acquisition
Valuation of $15,000,000 which represents the number obtained when
multiplying 50,000,000 by $0.30.
(h) “Qualified
Financing” means a financing by the Company or a
subsidiary of the Company of at least $20,000,000 involving the
sale of Common Stock or Common Stock Equivalents
(i) “Trading Day”
means a means any day on which the primary national or regional
stock exchange on which the Common Stock is listed, or if not so
listed, the OTC Bulletin Board or the OTC Markets, if quoted
thereon, is open for the transaction of business.
(j) “VWAP” means,
for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or
quoted on a National Securities Exchange, the daily volume weighted
average price of the Common Stock for such date (or the nearest
preceding date) on the trading market on which the Common Stock is
then listed or quoted as reported by Bloomberg (based on a Trading
Day from 9:30 a.m. New York City time to 4:00 p.m. New York City
time); (b) if the Common Stock is quoted on any one or more of the
OTC Bulletin Board, or the other OTC markets, including the OTCQX,
OTCQB and OTC Pink Markets or in the “Pink Sheets”
published by Pink Sheets, LLC (or a similar organization or agency
succeeding to its functions of reporting prices), the volume
weighted average price of the Common Stock for such date on the OTC
Bulletin Board; (c) if the Common Stock is not then listed or
quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported on the OTC markets, including the
OTCQX, OTCQB and OTC Pink markets, or in the “Pink
Sheets” published by Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting
prices), the average of the highest closing bid and the lowest
closing ask price for the Common Stock as reported by OTC Markets
Group; (d) in the event that none of clauses (a), (b), and (c) are
applicable, the fair market value for a share of Common Stock as
mutually determined by the Company and the Majority Holders, or (e)
in all other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in good
faith by the Majority Holders and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the
Company; provided that in each case where Bloomberg data is being
relied upon, Holder shall provide to the Company a copy of such
information for the Company's records.
Section
1.03 Optional
Conversion.
(a) Optional
Conversion. All outstanding principal and accrued
interest then due on this Note shall be convertible at the option
of the Holder, in whole or in part, at any time after the earlier
of (i) the completion of a Qualified Financing, subject to the
limitations and qualifications set forth in Section 6.01 (d)(iii)
below; or (ii) the one-year anniversary of the Original Issue Date,
into such number of fully paid and non-assessable shares of Common
Stock as is determined by dividing the outstanding principal amount
of the Note plus accrued and unpaid interest due thereon by the QF
Based Note Conversion Price (as defined below) or the VWAP Based
Note Conversion Price (as defined below), as applicable, in effect
at the time of conversion.
(b) Note Conversion Prices. Subject
to Section 6.01(d)(ii) and 6.01(d)(iii) below, the Note conversion
price per share of Common Stock shall be (i) in the event of the
completion of a Qualified Financing prior to the one-year
anniversary of the Original Issue Date, 80% of the lowest price at
which Common Stock or Common Stock Equivalents are sold in the
Qualified Financing (the “QF Based Note Conversion
Price”); or (ii) in the event a Qualified Financing is not
completed prior to the one-year anniversary of the Original Issue
Date, 80% of the VWAP for the Common Stock during the ten
consecutive Trading Days ending on the Trading Day immediately
prior to the date on which a Notice of Conversion is received by
the Company from the Holder (the “VWAP Based Note Conversion
Price”), subject to a minimum VWAP Based Note
Conversion Price of $0.10 per share (the “Note Floor Price”);
provided,
however, that the
QF Based Note Conversion Price, the VWAP Based Note Conversion
Price, the Note Floor Price and the rate at which Notes may be
converted into shares of Common Stock, shall be subject to
adjustment as provided in Section 6.01 below.
(c) Notice of
Conversion. The Holder shall effect conversions
by providing the Company with the form of conversion notice
attached hereto as Annex
A (a “Notice
of Conversion”). Each Notice of Conversion
shall specify the principal amount of Notes to be converted and the
amount of accrued but unpaid interest to be converted which shall
be the full amount of accrued interest payable with respect to the
amount of principal being converted. To effect conversions the
Holder must surrender the Note(s) being converted. If less than the
full principal amount of a surrendered Note is being converted, a
replacement Note equal in principal amount to the non-converted
portion of the surrendered Note shall be issued to the
Holder.
(d) Fractional
Shares. No fractional shares of Common Stock
shall be issued upon conversion of this Note. In lieu of any
fractional shares to which the Holder would otherwise be entitled,
the Company shall pay cash equal to such fraction multiplied by the
fair market value of a share of Common Stock as determined in good
faith by the Board of Directors, or round-up to the next whole
number of shares, at the Company’s option. Whether or not
fractional shares would be issuable upon such conversion shall be
determined on the basis of the total amount of principal and
accrued interest the Holder is at the time converting into Common
Stock and the aggregate number of shares of Common Stock issuable
upon such conversion.
(e) Mechanics of
Conversion.
i. Issuance of Common Stock upon
Conversion. Not later than five (5) Trading Days
after each Conversion Date (the “Share Delivery Date”),
the Company shall issue, or cause to be issued, to the converting
Holder, the number of shares of Common Stock being acquired upon
the conversion of Notes, in uncertificated book-entry form on the
stock ledger of the Company’s Common Stock, and shall send to
the registered holder of such shares of Common Stock any notice or
statement required by the Nevada Revised Statutes. All Notes which
shall have been converted as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such Notes
shall immediately cease and terminate at the Conversion Date,
except only the right of the holders thereof to receive shares of
Common Stock in exchange therefor as provided herein, and to
receive payment in lieu of any fraction of a share otherwise
issuable upon such conversion as provided herein.
ii. Obligation Absolute; Damages.
To the extent determinable, the Company’s obligation to issue
and deliver the Conversion Shares upon conversion of Notes in
accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by a Holder to enforce the
same, any waiver or consent with respect to any provision hereof,
the recovery of any judgment against any person or any action to
enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by such
Holder or any other person of any obligation to the Company;
provided, however, that such delivery shall not operate as a waiver
by the Company of any such action that the Company may have against
such Holder.
(f) Reservation of Shares Issuable upon
Conversion. The Company covenants that it will at
all times reserve and keep available out of its authorized and
unissued shares of Common Stock for the sole purpose of issuance
upon conversion of the Notes, free from preemptive rights or any
other actual contingent purchase rights of persons other than
Holders of Notes, not less than such aggregate number of shares of
the Common Stock as shall be issuable upon the conversion of all
outstanding Notes. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue in accordance
with the terms herein, shall be duly authorized, validly issued,
fully paid and nonassessable.
Section
1.04 Absolute
Obligation/Ranking.
(a) This Note is a
direct debt obligation of the Company. Except as expressly provided
herein, no provision of this Note shall alter or impair the
obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Note at the time,
place, and rate, and in the coin or currency, herein
prescribed.
(b) This Note ranks
pari passu with all other Notes now or hereafter issued pursuant to
the Subscription Agreement. Except as expressly provided herein, or
unless waived by the Majority Holders, this Note, and all other
Notes now or hereafter issued pursuant to the Subscription
Agreement, rank senior to all existing indebtedness of the Company,
and will rank senior to all future indebtedness of the Company
except for trade payables and accrued liabilities incurred in the
ordinary course of business consistent with past practices. The
Company presently has no outstanding debt instruments or notes
other than the Notes and no third party consents to subordinate
their outstanding debt are required.
Section
1.05 Redemption. This
Note may not be pre-paid by the Company and may not be redeemed
prior to the Maturity Date.
Section
1.06
Section
1.07 Different
Denominations; Transfer.
(a) This Note is
exchangeable for an equal aggregate principal amount of Notes of
different authorized denominations, as requested by the Holder
surrendering the same. No service charge will be made for such
registration of transfer or exchange.
(b) This Note may be
offered, sold, assigned or transferred by the Holder without the
consent of the Company, provided that the provisions of the
Subscription Agreement are complied with in all respects; provided,
further that this Note may not be transferred in increments of less
than $10,000 without the prior written consent of the Company,
which consent shall not be unreasonably withheld, unless the entire
principal amount is being transferred.
Section
1.08 Reliance
on Note Register. Prior to due presentment to the
Company for permitted transfer or payment of this Note, the Company
and any agent of the Company may treat the person in whose name
this Note is duly registered on the Note Register as the owner
hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Note is overdue, and
neither the Company nor any such agent shall be affected by notice
to the contrary.
Section
1.09 Paying
Agent and Registrar. Initially, the Company will
act as paying agent and registrar. The Company may change any
paying agent, registrar, or Company-registrar by giving the Holder
not less than ten (10) business days’ written notice of its
election to do so, specifying the name, address, telephone number
and facsimile number of the paying agent or registrar. Upon an
assignment of the Note to the Company, the Company may act as
paying agent and registrar without regard to the notice provision
provided above.
Section
1.10 Investment
Representations. This Note has been issued
subject to certain investment representations of the original
Holder set forth in the Subscription Agreement and may be
transferred or exchanged only in compliance with the Subscription
Agreement and applicable federal and state securities laws and
regulations.
Section
1.11 Security;
Other Rights.
(a) The obligations of
the Company to the Holder under this Note shall be secured by a
perfected first priority security interest in all now owned or
hereafter acquired and owned assets of the Company and its
subsidiaries, pari passu
with the other holders of Notes now or hereafter issued pursuant to
and set forth in the Security Agreement dated _______, 2017 (the
“Security
Agreement”) among the Company, the Holder and the
person appointed by the purchasers of a majority of the Units sold
in the Offering to serve as the collateral agent
thereunder.
(b) In addition to the
rights and remedies given it by this Note, the Security Agreement,
the Registration Rights Agreement and the Subscription Agreement,
the Holder shall have all those rights and remedies allowed by
applicable laws. The rights and remedies of the Holder are
cumulative and recourse to one or more right or remedy shall not
constitute a waiver of the others.
Section
1.12 Registration. The
Company has granted to the Holder registration rights with respect
to any Common Stock issuable to Holder upon conversion of principal
and interest on this Note as provided in the Subscription Agreement
and Registration Rights Agreement.
Article II.
Section
2.01 Events
of Default. Each of the following events shall
constitute a default under this Note (each an “Event of
Default”):
(a) failure by the
Company to pay any principal amount or interest when due hereunder
within five (5) business days of the date such payment is
due;
(b) the Company or any
subsidiary of the Company shall: (i) make a general assignment
for the benefit of its creditors; (ii) apply for or consent to
the appointment of a receiver, trustee, assignee, custodian,
sequestrator, liquidator or similar official for itself or any of
its assets and properties; (iii) commence a voluntary case for
relief as a debtor under the United States Bankruptcy Code;
(iv) file with or otherwise submit to any governmental
authority any petition, answer or other document seeking:
(A) reorganization, (B) an arrangement with creditors or
(C) to take advantage of any other present or future
applicable law respecting bankruptcy, reorganization, insolvency,
readjustment of debts, relief of debtors, dissolution or
liquidation; (v) file or otherwise submit any answer or other
document admitting or failing to contest the material allegations
of a petition or other document filed or otherwise submitted
against it in any proceeding under any such applicable law, or
(vi) be adjudicated a bankrupt or insolvent by a court of
competent jurisdiction;
(c) any case,
proceeding or other action shall be commenced against the Company
or any subsidiary of the Company for the purpose of effecting, or
an order, judgment or decree shall be entered by any court of
competent jurisdiction approving (in whole or in
part) anything specified in Section 2.01(b) hereof, or any
receiver, trustee, assignee, custodian, sequestrator, liquidator or
other official shall be appointed with respect to the Company, or
shall be appointed to take or shall otherwise acquire possession or
control of all or a substantial part of the assets and properties
of the Company, and any of the foregoing shall continue unstayed
and in effect for any period of sixty (60) days;
(d) any material breach
by the Company of any of its material representations or warranties
contained in this Note, the Subscription Agreement or the Security
Agreement which is not cured within ten (10) days after receipt of
written notice thereof;
(e) any material
default other than a payment default, whether in whole or in part,
shall occur in the due observance or performance of any obligations
or other covenants, terms or provisions to be performed by the
Company under this Note which is not cured within ten (10) days
after receipt of written notice thereof;
The
cure periods referenced in (d) and (e) above shall not apply to
Events of Default which are not capable of being cured and to
negative covenants.
(f) any event of
default by the Company or any subsidiary under the Security
Agreement shall have occurred and be continuing beyond all grace
and/or cure periods, or the Security Agreement shall fail to remain
in full force and effect prior to payment in full of all amounts
payable under this Note or any action shall be taken by the Company
to discontinue, amend, modify or limit the Security Agreement or
assert the invalidity thereof prior to payment in full of all
amounts payable under this Note; or
(g) a default under any
of the other Notes.
Section
.02 If
any Event of Default specified in Section 2.01(b) or Section
2.01(c) occurs, then the full principal amount of this Note,
together with any other amounts owing in respect thereof, to the
date of the Event of Default, shall become immediately due and
payable without any action on the part of the Holder, and if any
other Event of Default occurs, the full principal amount of this
Note, together with any other amounts owing in respect thereof, to
the date of acceleration shall become, at the Holder’s
election, immediately due and payable in cash. All Notes for which
the full amount hereunder shall have been paid in accordance
herewith shall promptly be surrendered to or as directed by the
Company. The Holder need not provide, and the Company hereby
waives, any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable
law. Such declaration may be rescinded and annulled by the Holder
at any time prior to payment hereunder and the Holder shall have
all rights as a Note holder until such time, if any, as the full
payment under this Section shall have been received by it. No such
rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.
Article III.
Section
3.01 Negative
Covenants. So long as this Note and any other
Notes shall remain in effect and until any outstanding principal
and interest and all fees and all other expenses or amounts payable
under this Note and the Subscription Agreement have been paid in
full, unless the Majority Holders shall otherwise consent in
writing (such consent not to be unreasonably withheld), the Company
shall not:
(a) Senior or Pari Passu
Indebtedness. Incur, create, assume, guaranty or
permit to exist any indebtedness that ranks senior in priority to,
or pari passu with, the obligations under this Note and the
Subscription Agreement (other than trade payables and accrued
liabilities incurred in the ordinary course of business consistent
with past practices).
(b) Liens. Create,
incur, assume or permit to exist any lien on any Collateral (as
such term is defined in the Security Agreement) now owned or
hereafter acquired and owned by it or on any income or revenues or
rights in respect thereof, except:
(i) liens on Collateral
of the Company existing on the date hereof and set forth on
Schedule A attached
hereto, provided that such liens shall secure only those
obligations which they secure on the date hereof;
(ii) any
lien created under this Note or the Security
Agreement;
(iii) any
lien existing on any Collateral prior to the acquisition thereof by
the Company, provided that
1)
such lien is not
created in contemplation of or in connection with such acquisition
and
2)
such lien does not
apply to any other property or assets of the Company;
(iv) liens
for taxes, assessments and governmental charges; and
(v) liens arising out
of judgments or awards (other than any judgment that constitutes an
Event of Default hereunder) in respect of which the Company shall
in good faith be prosecuting an appeal or proceedings for review
and in respect of which it shall have secured a subsisting stay of
execution pending such appeal or proceedings for review, provided
the Company shall have set aside on its books adequate reserves
with respect to such judgment or award.
(c) Dividends and
Distributions. Declare or pay, directly or
indirectly, any dividend or make any other distribution (by
reduction of capital or otherwise), whether in cash, property,
securities or a combination thereof, with respect to any shares of
its capital stock or directly or indirectly redeem, purchase,
retire or otherwise acquire for value any shares of any class of
its capital stock or set aside any amount for any such
purpose.
(d) Limitation on Certain Payments and
Prepayments.
(i) Pay in cash any
amount in respect of any indebtedness or preferred stock that may
at the obligor’s option be paid in kind or in other
securities; or
(ii) Optionally
prepay, repurchase or redeem or otherwise defease or segregate
funds with respect to any indebtedness of the Company, other than
indebtedness under this Note or the Subscription
Agreement. For avoidance
of doubt, nothing in the Section shall be deemed to prevent or
limit the Company from paying accounts payable and accrued
liabilities.
(e) Amendments. Amend, modify or
limit any terms of this Note or the Security Agreement or assert
the invalidity of this Note or the Security Agreement.
Article IV.
Section
3.01 Representations
of the Company. All of the representations and
warranties of the Company contained in the Subscription Agreement
to which the Company is a party are incorporated by reference
herein.
Section
3.02 Representations
of the Holder. All of the representations and
warranties of the Holder contained in the Subscription Agreement to
which the Holder is a party are incorporated by reference
herein.
Article V.
Section
4.01 Registration
Rights. The Holder shall have registration rights
with respect to the Conversion Shares as set forth in the
Registration Rights Agreement.
Article VI.
Section
5.01 Certain
Adjustments.
(a) Subdivision
or Combination of Stock. If, at any time while this Note is
outstanding the Company shall subdivide (whether by way of stock dividend, stock split or
otherwise) its outstanding
shares of Common Stock into a greater number of shares, the QF
Based Note Conversion Price, if then established, and Note Floor
Price in effect immediately prior to such subdivision shall be
proportionately reduced, and
conversely, in case the outstanding shares of Common Stock of the
Company shall be combined (whether by way of stock combination, reverse
stock split or otherwise) into
a smaller number of shares, the QF Based Note Conversion Price, if
then established, and Note Floor Price in effect immediately prior
to such combination shall be proportionately
increased. The QF Based Note
Conversion Price and Note Floor Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive
event or events described in this Section 6.01(a). Simultaneously
with any adjustment to the QF Based Note Conversion Price, the
number of Conversion Shares which may be acquired upon conversion
of this Note shall be increased or decreased
proportionally.
(b) Dividends in Stock,
Property, Reclassification. If,
at any time while the Notes are outstanding, the holders of Common
Stock (or any shares of stock or other securities at the time
receivable upon the conversion of the Notes) shall have received or
become entitled to receive, without payment
therefore:
(i) any
Common Stock Equivalents, or any rights or options to subscribe
for, purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution, or
(ii) additional
stock or other securities or property (other than cash) by way of
spin-off, split-up, reclassification, combination of shares or
similar corporate rearrangement (other than shares of Common Stock
issued as a stock split or adjustment in respect of which shall be
covered by the terms of Section 6.01(a) above),
then and in each such case, the QF Based Note Conversion Price shall be adjusted
proportionately, and the Holder
hereof shall, upon the conversion of the Notes, be entitled to
receive, in addition to the number of shares of Common Stock
receivable thereupon, and without payment of any additional
consideration therefor, the amount of stock and other securities
and property that such Holder would hold on the date of such
exercise had such Holder been the holder of record of such Common
Stock as of the date on which holders of Common Stock received or
became entitled to receive such shares or all other additional
stock and other securities and property. The QF Based Note Conversion Price, as so
adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described in this Section
601(b).
(c) Reorganization,
Reclassification, Consolidation, Merger or Sale. At any time while this Note is outstanding,
if any recapitalization, reclassification or reorganization of the
capital stock of the Company, or any consolidation or merger of the
Company with another Company, or the sale of all or substantially
all of its assets or other
transaction shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or other
assets or property (an “Organic
Change”), then lawful and
adequate provisions shall be made by the Company whereby the Holder
shall thereafter have the right to purchase and receive (in lieu of
the shares of the Common Stock of the Company immediately
theretofore purchasable and receivable upon the conversion of the
Note) such shares of stock, securities or other assets or property
as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable
and receivable assuming the full conversion of the Note. In the
event of any Organic Change, appropriate provision shall be made by
the Company with respect to the rights and interests of the Holder
to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Note Conversion
Price) shall thereafter be applicable, in relation to any shares of
stock, securities or assets thereafter deliverable upon the
conversion thereof. To the extent necessary to effect the foregoing
provisions, the successor Company (if other than the Company)
resulting from such consolidation or merger or the
Company purchasing such assets shall assume by written instrument
executed and mailed or delivered to the Holder at the last address
of the Holder appearing on the books of the Company, the obligation
to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the
foregoing provisions, the Holder may be entitled to
purchase. If there is an
Organic Change, then the Company shall cause to be mailed to the
Holder at its last address as it shall appear on the books and
records of the Company, at least ten (10) calendar days before the
effective date of the Organic Change, a notice stating the date on
which such Organic Change is expected to become effective or close,
and the date as of which it is expected that holders of the Common
Stock of record shall be entitled to exchange their shares for
securities, cash, or other property delivered upon such Organic
Change; provided,
that the failure to mail such notice or any defect therein or in
the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. The Holder is
entitled to convert the Holder’s Note during the 10-day
period commencing on the date of such notice to the effective date
of the event triggering such notice to the extent that an optional
conversion right is then available. In any event, the successor
Company (if other than the Company) resulting from such
consolidation or merger or the Company purchasing such assets shall
be deemed to assume such obligation to deliver to the Holder such
shares of stock, securities or assets even in the absence of a
written instrument assuming such obligation to the extent such
assumption occurs by operation of law.
(d) Sale
of Sale of Common Stock
or Common Stock Equivalents at Valuation of Less Than
$15,000,000.
(i)
Except as otherwise provided in Section 6.01(d)(iii) below, in the
event the Company or a subsidiary of the Company shall issue or
sell Common Stock or Common Stock Equivalents, within one year of
the Original Issue Date of this Note, in a Qualified Financing, at
a price per share reflecting a Post-Acquisition Valuation of less
than $15,000,000, the QF Based Note Conversion Price and the number
of Conversion Shares that can be acquired upon conversion of this
Note shall be adjusted proportionally. By way of example, if the
Company or a subsidiary of the Company completes a Qualified
Financing within one year of the Original Issue Date of this Note
reflecting a Post-Acquisition Valuation of $12,000,000, (i.e. at a
valuation equal to 80% of $15,000,000), the number of shares of
Common Stock issuable upon conversion of this Note shall be
increased by dividing the number of shares of Common Stock issuable
immediately prior to such Qualified Financing by .8 (which is the
number obtained by dividing 12,000,000 by 15,000,000) and the QF
Based Note Conversion Price at which each share of Common Stock may
be purchased upon conversion of this Note shall be reduced by
multiplying the price otherwise in effect as the result of such
Qualified Financing (80% of the lowest price at which Common Stock
or Common Stock Equivalents are sold in such Qualified Financing)
by 80%. This would result in a QF Based Note Conversion Price equal
to 64% of the lowest price at which Common Stock or Common Stock
Equivalents are sold in the Qualified Financing.
(ii)
In the event the Company or a subsidiary of the Company does not
complete a Qualified Financing within one year of the Original
Issue Date of this Note such that this Note becomes exercisable at
a price per share equal to 80% of the VWAP of the Common Stock as
provided herein, and the Company or a subsidiary of the Company
thereafter, while this Note remains outstanding, completes a
Qualified Financing or other financing at a price per share
reflecting a Post-Acquisition Valuation of less than $15,000,000,
the VWAP Based Note Conversion Price then in effect and the number
of Conversion Shares to be obtained upon conversion of this Note
shall be adjusted proportionally. By way of example, if the Company
or a subsidiary of the Company completes a Qualified Financing or
other financing, one year or more after the Original Issue Date of
this Note, reflecting a Post-Acquisition Valuation of $12,000,000
(i.e. at a valuation equal to 80% of $15,000,000), the number of
Conversion Shares issuable upon conversion of this Note shall be
increased by dividing the number of shares issuable upon conversion
of this Note immediately prior to such Qualified Financing or other
financing by .8 (which is the number obtained by dividing
12,000,000 by 15,00,000) and the VWAP % used to determine the VWAP
Based Note Conversion Price under this Note shall be reduced by
multiplying the VWAP % in effect immediately prior to such
Qualified Financing or other financing by 80%. Accordingly, if
immediately prior to such Qualified Financing or other financing,
this Note is convertible at a price per share equal to 80% of the
VWAP, this Note would thereafter be exercisable at a price per
share equal to 64% of the VWAP. In the event the Company or a
subsidiary of the Company shall thereafter, while this Note remains
outstanding, complete one or more additional Qualified Financings
or other financings at a valuation lower than a valuation which
previously triggered a VWAP and related share amount adjustment,
the number of shares issuable upon conversion of this Note and the
VWAP % used to determine the VWAP Based Note Conversion Price under
this Note would be further adjusted proportionately, in the same
manner as provided above.
(iii)
Notwithstanding Sections 6.01(d)(i)and(ii) above, in the event the
Company or a subsidiary of the Company shall complete a financing
involving the sale of Common Stock or Common Stock Equivalents in
an amount of less than $20,000,000 (a “Non-Qualified
Financing”) at a Post-Acquisition Valuation of less than
$15,000,000 within one year of the Original Issue Date of this Note
and prior to a Qualified Financing, this Note shall become
immediately convertible at a VWAP based price per share under the
same terms and conditions set forth in Section 6.01(d)(ii) above,
including those relating to a proportional reduction to the VWAP %
and an increase in the number of shares issuable upon conversion of
this Note. Any subsequent Non-Qualified Financings or Qualified
Financings taking place while this Note remains outstanding shall
be treated in the same manner as set forth in the last sentence of
Section 6(d)(ii) above. By way of example, if the Company or a
subsidiary of the Company completes a Non-Qualified Financing
within one year of the Effective Date of this Note at a
Post-Acquisition Valuation of $12,000,000 (ie. at a valuation equal
to 80% of $15,000,000) prior to a Qualified Financing, this Note
shall become immediately convertible at a price per share equal to
64%(80% multiplied by 80%) of the VWAP and the number of shares
issuable upon conversion of this Note shall be increased by
dividing the number of shares issuable upon conversion of this Note
immediately prior to such Non-Qualified Financing by .8 (which is
the number obtained by dividing 12,000,000 by
15,000,000).
(iv)
Exempt Issuances will not trigger any adjustments under this
Section 6.01(d).
(e) Adjustment
to QF Based Note Conversion Price Resulting from Certain Equity
Sales. If the Company, at any
time while this Note is outstanding, and the QF Based Note
Conversion Price has been established, shall sell or grant any
option to purchase, or sell or grant any right to reprice, or
otherwise dispose of or issue (or announce any offer, sale, grant
or any option to purchase or other disposition) any Common Stock or
Common Stock Equivalents, at an effective price per share less than
the QF Based Note Conversion Price then in effect (such lower
price, the “New Issuance
Price” and such issuances
collectively, a “Dilutive
Issuance” (it being
understood and agreed that if the holder of the Common Stock or
Common Stock Equivalents so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in
connection with such issuance, be entitled to receive shares of
Common Stock at an effective price per share that is less than the
QF Based Note Conversion Price, such issuance shall be deemed to
have occurred for less than the QF Based Note Conversion Price on
such date of the Dilutive Issuance at such effective price) then
simultaneously with consummation of each Dilutive Issuance the QF
Based Note Conversion Price shall be reduced to an amount equal to
the New Issuance Price (the “Adjusted Price”); (subject
to adjustment for stock splits, reverse splits and similar capital
adjustments). Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued. Notwithstanding the
foregoing, no adjustment shall be made, paid or issued under this
Section 6.01(e) in the case of an Exempt
Issuance.
(f) Certain Events.
If any event occurs as to which the
other provisions of this Section 6.01 are not strictly applicable
but the lack of any adjustment would not fairly protect the
purchase rights of the Holder under this Note in accordance with
the basic intent and principles of such provisions, or if strictly
applicable would not fairly protect the purchase rights of the
Holder under this Note in accordance with the basic intent and
principles of such provisions, then the Company's Board of
Directors will, in good faith and subject to applicable law, make
an appropriate adjustment to protect the rights of the
Holder; provided,
that no such adjustment pursuant to this Section 6.01(f) will
increase the applicable conversion price or decrease the number of
Conversion Shares as otherwise determined pursuant to this Section
6.01 and elsewhere in the Note.
(g) Adjustment
to VWAP Based Note Conversion Price. The calculation of the VWAP Based Note Conversion
Price shall be adjusted consistent with the provision of this
Section 6.01 should any of the events described in this Section
6.01 take place during the pricing period for the determination of
the VWAP Based Conversion Price.
Article VII.
Section
6.01 Notice. All
notice and other communications hereunder which are required or
permitted under this Note will be in writing and shall be deemed
effectively given to a party by (a) the date of transmission if
sent by facsimile or e-mail with confirmation of transmission by
the transmitting equipment if such notice or communication is
delivered prior to 5:00 P.M., New York City time, on a business
day, or the next business day after the date of transmission, if
such notice or communication is delivered on a day that is not a
business day or later than 5:00 P.M., New York City time, on any
business day; (b) seven days after deposit with the United States
Post Office, by certified mail, return receipt requested,
first-class mail, postage prepaid; (c) on the date delivered, if
delivered by hand or by messenger or overnight courier, addressee
signature required (costs prepaid), to the addresses below or at
such other address and/or to such other persons as shall have been
furnished by the parties:
If to
the Company:
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Sincerity
Applied Materials Holdings Corp.
P.O.
Box 374
100
Toorak Road
South
Yarra VIC 3141
Attn:
Mr. Zhang Yiwen, CEO
Email:
james@sincerityplastics.com
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With a
copy to (which shall not constitute notice):
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CKR
Law, LLP
1330
Avenue of the Americas, 14th Floor
New
York, NY 10019
Attention: Scott
Rapfogel, Esq.
Telephone: 212.259.7300
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If to
the Holder:
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To the
Holder’s address set forth on the Omnibus Signature Page to
the Subscription Agreement
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Section
6.02 Governing
Law; Jurisdiction. All questions concerning the
construction, validity, enforcement and interpretation of this Note
shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that any
legal proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Note (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 this
Note), 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 Note
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.
Each
party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in
any legal proceeding arising out of or relating to this Note or the
transactions contemplated hereby. If either party shall commence an
action or proceeding to enforce any provisions of this Note, then
the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorney’s fees and
other costs and expenses incurred with the investigation,
preparation and prosecution of such action or
proceeding.
Section
6.03 Severability. The
invalidity of any of the provisions of this Note shall not
invalidate or otherwise affect any of the other provisions of this
Note, which shall remain in full force and effect.
Section
6.04 Entire
Agreement and Amendments. This Note together with
the Subscription Agreement and Security Agreement represents the
entire agreement between the parties hereto with respect to the
subject matter hereof and there are no representations, warranties
or commitments, except as set forth herein. This Note may be
amended only by an instrument in writing executed by the Company
and the Majority Holders.
Section
6.05 Cancellation. After
all principal, accrued interest and other amounts at any time owed
on this Note has been paid in full, this Note shall automatically
be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
Section
6.06 Construction;
Headings. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.
Section
6.07 Payment
of Collection, Enforcement and Other Costs. If
(a) this Note is placed in the hands of an attorney for collection
or enforcement or is collected or enforced through any legal
proceeding or the Holder otherwise takes action to collect amounts
due under this Note or to enforce the provisions of this Note or
(b) there occurs any bankruptcy, reorganization, receivership of
the Company or other proceedings affecting Company creditors’
rights and involving a claim under this Note, then the Company
shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, but
not limited to, attorneys’ fees and
disbursements.
Section
6.08 The
Company hereby covenants and agrees that the Company will not, by
amendment of its Certificate of Corporation, Bylaws or through any
reorganization, transfer of assets, consolidation, merger, scheme
of arrangement, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Note, and will at all times
in good faith carry out all of the provisions of this Note and take
all action as may be required to protect the rights of the Holder
of this Note. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of
Common Stock receivable upon satisfaction of this Note above the
price then in effect, (ii) shall take all such actions as may be
necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock
upon the satisfaction of this Note.
IN WITNESS WHEREOF, with the intent to
be legally bound hereby, the Company as executed this Note as of
the date first written above.
SINCERITY
APPLIED MATERIALS HOLDINGS CORP.
By:
Name:
Title:
ANNEX A
NOTICE
OF CONVERSION
(TO BE
EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT
12%
SENIOR SECURED CONVERTIBLE NOTES
The
undersigned hereby elects to convert the amount of principal and
accrued interest indicated below due on the 12% Senior Secured
Convertible Note(s) of SINCERITY
APPLIED MATERIALS HOLDINGS CORP., a Nevada corporation (the
“Company”) accompanying this Notice of Conversion,
according to the conditions hereof, as of the date written
below. If shares of Common Stock are to be issued in the
name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is
delivering herewith such documents and opinions as may be required
by the Company. No fee will be charged to the Holders
for any conversion, except for any such transfer
taxes.
Conversion
calculations:
Delivery Date of
Notice of Conversion:
Applicable
Conversion
Price:
Principal Amount of
Notes to be
Converted:
Amount
of Accrued but Unpaid
Interest on the
Notes to be
Converted:
Number of Shares of
Common Stock to be
Issued:
Name in Which
Shares of Common Stock are to be
Issued:
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[HOLDER]
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__________________________________
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Name:
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Title:
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Address:
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