Exhibit 10.40

 

FORBEARANCE AGREEMENT

 

This Forbearance Agreement (this “Agreement”) is entered into as of May 15, 2020
by and between Iliad Research and Trading, L.P., a Utah limited partnership
(“Lender”), and China Recycling Energy Corporation, a Nevada corporation
(“Borrower”). Capitalized terms used in this Agreement without definition shall
have the meanings given to them in the Note (defined below).

 

A. Borrower previously sold and issued to Lender that certain Promissory Note
with an original issuance date of February 27, 2019 in the original principal
amount of $1,165,379.18 (the “Note”) pursuant to that certain Exchange Agreement
dated April 14, 2019 by and between Lender and Borrower (the “Exchange
Agreement,” and together with the Note and all other documents entered into in
conjunction therewith and in conjunction with the promissory note exchanged
thereunder, the “Transaction Documents”).

 

B. Pursuant to Section 4 of the Note, upon receipt of a Redemption Notice,
Borrower was obligated to repay the Redemption Amount set forth in the
Redemption Notice within three (3) Trading Days of its receipt of such
Redemption Notice (each such instance, a “Redemption”).

 

C. On November 4, 2019, Lender delivered a Redemption Notice to Borrower (the
“November 4 Redemption Notice”, and such Redemption, the “November 4
Redemption”).

 

D. As of the date hereof, Borrower has not yet paid the Redemption Amount set
forth in the November 4 Redemption Notice, which failure to pay constitutes an
Event of Default under the Note (the “Default”).

 

E. As a result of the Default, Lender has the right to, among other things,
accelerate the Maturity Date of the Note and cause the Outstanding Balance of
the Note to be increased by 25% (the “Balance Increase”).

 

F. No new or additional consideration is being provided in connection with this
Agreement other than the modification of terms as provided herein.

 

G. Lender has agreed, subject to the terms, conditions and understandings
expressed in this Agreement, to refrain and forbear from exercising and
enforcing remedies against Borrower for the Default as provided in this
Agreement.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:

 

1. Recitals and Definitions. Each of the parties hereto acknowledges and agrees
that the recitals set forth above in this Agreement are true and accurate, are
contractual in nature, and are hereby incorporated into and made a part of this
Agreement.

 

 

 

  

2. Forbearance. Subject to the terms, conditions and understandings contained in
this Agreement, Lender hereby agrees to withdraw the November 4 Redemption
Notice as if it had never been made or issued by Lender and agrees that there
has been no Event of Default, acceleration of the Outstanding Balance and
Balance Increase due to the November 4 Redemption as of the day of this
Agreement (the “Forbearance”). For the avoidance of doubt, the Forbearance shall
only apply to the withdrawal of the November 4 Redemption Notice and not to any
Events of Default that may occur subsequent to the date hereof or any other
Event of Default that occurred prior to the date hereof.

 

3. Redemption Adjustment. Notwithstanding anything to the contrary in the Note,
in the event Lender delivers a Redemption Notice to Borrower and the Redemption
Amount set forth therein is not paid in cash to Lender within three (3) Trading
Days, then the applicable Redemption Amount shall be increased by 25% (the
“Adjusted Redemption Amount”). Upon payment in cash of the Adjusted Redemption
Amount, the Outstanding Balance will be reduced by the original amount set forth
in the Redemption Notice.

 

4. Ratification of the Note. The Note shall be and remains in full force and
effect in accordance with its terms, and is hereby ratified and confirmed in all
respects. Borrower acknowledges and agrees that the Outstanding Balance as of
the date hereof is $1,271,719.78. Borrower acknowledges that it is
unconditionally obligated to pay the Outstanding Balance and represents that
such obligation is not subject to any defenses, rights of offset or
counterclaims. No forbearance or waiver other than as expressly set forth herein
may be implied by this Agreement. Except as expressly set forth herein, the
execution, delivery, and performance of this Agreement shall not operate as a
waiver of, or as an amendment to, any right, power or remedy of Lender under the
Note or the Transaction Documents, as in effect prior to the date hereof.

 

5. Failure to Comply. Borrower understands that the Forbearance shall terminate
immediately upon the earliest occurrence of any Event of Default after the date
hereof (or Lender becoming aware of any Event of Default other than the Default
that occurred prior to the date hereof), and that in such case, Lender may seek
all recourse available to it under the terms of the Note, this Agreement, any
other Transaction Document, or applicable law (including without limitation
applying the Balance Increase with respect to the Default). For the avoidance of
any doubt, the termination of the Forbearance pursuant to this Section shall not
terminate, limit or modify any other provision of this Agreement (including
without limitation Section 3 hereof).

 

6. Representations, Warranties and Agreements. In order to induce Lender to
enter into this Agreement, Borrower, for itself, and for its affiliates,
successors and assigns, hereby acknowledges, represents, warrants and agrees as
follows:

 

(a) Borrower has full power and authority to enter into this Agreement and to
incur and perform all obligations and covenants contained herein, all of which
have been duly authorized by all proper and necessary action. No consent,
approval, filing or registration with or notice to any governmental authority is
required as a condition to the validity of this Agreement or the performance of
any of the obligations of Borrower hereunder.

 

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(b) Any Event of Default which may have occurred under the Note has not been, is
not hereby, and shall not be deemed to be waived by Lender, expressly,
impliedly, through course of conduct or otherwise except upon full satisfaction
of Borrower’s obligations under this Agreement. The agreement of Lender to
refrain and forbear from exercising any rights and remedies by reason of any
existing default or any future default shall not constitute a waiver of, consent
to, or condoning of, any other future default. For the avoidance of any doubt,
the Forbearance described herein only applies to the to the withdrawal of the
November 4 Redemption Notice so that there is no Event of Default due to the
November 4 Redemption as of the date of this Agreement, and shall not constitute
a waiver or forbearance of any other rights or remedies available to Lender with
respect to any other Events of Default under the Note or other breach of the
Transaction Documents by Borrower.

 

(c) All understandings, representations, warranties and recitals contained or
expressed in this Agreement are true, accurate, complete, and correct in all
respects; and no such understanding, representation, warranty, or recital fails
or omits to state or otherwise disclose any material fact or information
necessary to prevent such understanding, representation, warranty, or recital
from being misleading. Borrower acknowledges and agrees that Lender has been
induced in part to enter into this Agreement based upon Lender’s justifiable
reliance on the truth, accuracy, and completeness of all understandings,
representations, warranties, and recitals contained in this Agreement. There is
no fact known to Borrower or which should be known to Borrower which Borrower
has not disclosed to Lender on or prior to the date hereof which would or could
materially and adversely affect the understandings of Lender expressed in this
Agreement or any representation, warranty, or recital contained in this
Agreement.

 

(d) Except as expressly set forth in this Agreement, Borrower acknowledges and
agrees that neither the execution and delivery of this Agreement nor any of the
terms, provisions, covenants, or agreements contained in this Agreement shall in
any manner release, impair, lessen, modify, waive, or otherwise affect the
liability and obligations of Borrower under the terms of the Note or any of the
other Transaction Documents.

 

(e) Borrower has no defenses, affirmative or otherwise, rights of setoff, rights
of recoupment, claims, counterclaims, actions or causes of action of any kind or
nature whatsoever against Lender, directly or indirectly, arising out of, based
upon, or in any manner connected with, the transactions contemplated hereby,
whether known or unknown, which occurred, existed, was taken, permitted, or
begun prior to the execution of this Agreement and occurred, existed, was taken,
permitted or begun in accordance with, pursuant to, or by virtue of any of the
terms or conditions of the Transaction Documents. To the extent any such
defenses, affirmative or otherwise, rights of setoff, rights of recoupment,
claims, counterclaims, actions or causes of action exist or existed, such
defenses, rights, claims, counterclaims, actions and causes of action are hereby
waived, discharged and released. Borrower hereby acknowledges and agrees that
the execution of this Agreement by Lender shall not constitute an acknowledgment
of or admission by Lender of the existence of any claims or of liability for any
matter or precedent upon which any claim or liability may be asserted.

 

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(f) Borrower hereby acknowledges that it has freely and voluntarily entered into
this Agreement after an adequate opportunity and sufficient period of time to
review, analyze, and discuss (i) all terms and conditions of this Agreement,
(ii) any and all other documents executed and delivered in connection with the
transactions contemplated by this Agreement, and (iii) all factual and legal
matters relevant to this Agreement and/or any and all such other documents, with
counsel freely and independently selected by Borrower (or had the opportunity to
be represented by counsel). Borrower further acknowledges and agrees that it has
actively and with full understanding participated in the negotiation of this
Agreement and all other documents executed and delivered in connection with this
Agreement after consultation and review with its counsel (or had the opportunity
to be represented by counsel), that all of the terms and conditions of this
Agreement and the other documents executed and delivered in connection with this
Agreement have been negotiated at arm’s length, and that this Agreement and all
such other documents have been negotiated, prepared, and executed without fraud,
duress, undue influence, or coercion of any kind or nature whatsoever having
been exerted by or imposed upon any party by any other party. No provision of
this Agreement or such other documents shall be construed against or interpreted
to the disadvantage of any party by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured,
dictated, or drafted such provision.

 

(g) There are no proceedings or investigations pending or threatened before any
court or arbitrator or before or by, any governmental, administrative, or
judicial authority or agency, or arbitrator, against Borrower.

 

(h) There is no statute, regulation, rule, order or judgment and no provision of
any mortgage, indenture, contract or other agreement binding on Borrower, which
would prohibit or cause a default under or in any way prevent the execution,
delivery, performance, compliance or observance of any of the terms and
conditions of this Agreement and/or any of the other documents executed and
delivered in connection with this Agreement.

 

(i) Borrower is solvent as of the date of this Agreement, and none of the terms
or provisions of this Agreement shall have the effect of rendering Borrower
insolvent. The terms and provisions of this Agreement and all other instruments
and agreements entered into in connection herewith are being given for full and
fair consideration and exchange of value.

 

7. Headings. The headings contained in this Agreement are for reference purposes
only and do not affect in any way the meaning or interpretation of this
Agreement.

 

8. Arbitration. By its execution of this Agreement, each party agrees to be
bound by the Arbitration Provisions (as defined in the Exchange Agreement) and
the parties agree to submit all Claims (as defined in the Exchange Agreement)
arising under this Agreement or any Transaction Document or other agreement
between the parties and their affiliates to binding arbitration pursuant to the
Arbitration Provisions.

 

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9. Governing Law; Venue. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Utah without regard to the principles
of conflict of laws. Each party consents to and expressly agrees that the
exclusive venue for arbitration of any dispute arising out of or relating to
this Agreement or any Transaction Document or the relationship of the parties or
their affiliates shall be in Salt Lake County, Utah. Without modifying the
parties obligations to resolve disputes hereunder or under any Transaction
Document pursuant to the Arbitration Provisions, each party hereto submits to
the exclusive jurisdiction of any state or federal court sitting in Salt Lake
County, Utah in any proceeding arising out of or relating to this Agreement and
agrees that all Claims in respect of the proceeding may only be heard and
determined in any such court and hereby expressly submits to the exclusive
personal jurisdiction and venue of such court for the purposes hereof and
expressly waives any claim of improper venue and any claim that such courts are
an inconvenient forum. BORROWER 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.

 

10. Counterparts. This Agreement may be executed in any number of counterparts
with the same effect as if all signing parties had signed the same document. All
counterparts shall be construed together and constitute the same instrument. The
exchange of copies of this Agreement and of signature pages by facsimile
transmission or other electronic transmission (including email) shall constitute
effective execution and delivery of this Agreement as to the parties and may be
used in lieu of the original Agreement for all purposes. Signatures of the
parties transmitted by facsimile transmission or other electronic transmission
(including email) shall be deemed to be their original signatures for all
purposes.

 

11. Attorneys’ Fees. In the event of any arbitration or action at law or in
equity to enforce or interpret the terms of this Agreement, the parties agree
that the party who is awarded the most money shall be deemed the prevailing
party for all purposes and shall therefore be entitled to an additional award of
the full amount of the attorneys’ fees and expenses  paid by such prevailing
party in connection with the arbitration, litigation and/or dispute without
reduction or apportionment based upon the individual claims or defenses  giving
rise to the fees and expenses.  Nothing herein shall restrict or impair an
arbitrator’s or a court’s power to award fees and expenses for frivolous or bad
faith pleading.

 

12. No Reliance. Borrower acknowledges and agrees that neither Lender nor any of
its officers, directors, members, managers, equity holders, representatives or
agents has made any representations or warranties to Borrower or any of its
agents, representatives, officers, directors, or employees except as expressly
set forth in this Agreement and the Transaction Documents and, in making its
decision to enter into the transactions contemplated by this Agreement, Borrower
is not relying on any representation, warranty, covenant or promise of Lender or
its officers, directors, members, managers, equity holders, agents or
representatives other than as set forth in this Agreement.

 

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13. Severability. If any part of this Agreement is construed to be in violation
of any law, such part shall be modified to achieve the objective of the parties
to the fullest extent permitted and the balance of this Agreement shall remain
in full force and effect.

 

14. Entire Agreement. This Agreement, together with the Transaction Documents,
and all other documents referred to herein, supersedes all other prior oral or
written agreements between Borrower, Lender, its affiliates and persons acting
on its behalf with respect to the matters discussed herein, and this Agreement
and the instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither Lender nor Borrower makes any
representation, warranty, covenant or undertaking with respect to such matters.

 

15. Amendments. This Agreement may be amended, modified, or supplemented only by
written agreement of the parties. No provision of this Agreement may be waived
except in writing signed by the party against whom such waiver is sought to be
enforced.

 

16. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns. This
Agreement or any of the severable rights and obligations inuring to the benefit
of or to be performed by Lender hereunder may be assigned by Lender to a third
party, including its financing sources, in whole or in part. Borrower may not
assign this Agreement or any of its obligations herein without the prior written
consent of Lender.

 

17. Continuing Enforceability; Conflict Between Documents. Except as otherwise
modified by this Agreement, the Note and each of the other Transaction Documents
shall remain in full force and effect, enforceable in accordance with all of its
original terms and provisions. This Agreement shall not be effective or binding
unless and until it is fully executed and delivered by Lender and Borrower. If
there is any conflict between the terms of this Agreement, on the one hand, and
the Note or any other Transaction Document, on the other hand, the terms of this
Agreement shall prevail.

 

18. Time of Essence. Time is of the essence with respect to each and every
provision of this Agreement.

 

19. Notices. Unless otherwise specifically provided for herein, all notices,
demands or requests required or permitted under this Agreement to be given to
Borrower or Lender shall be given as set forth in the “Notices” section of the
Exchange Agreement.

 

20. Further Assurances. Each party shall do and perform or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first set forth above.

 

  BORROWER:       CHINA RECYCLING ENERGY CORPORATION       By: /s/ Guohua Ku  
Name:  Guohua Ku   Title:   Chairman and Chief Executive Officer

 

  LENDER:       ILIAD RESEARCH AND TRADING, L.P.       By: Iliad Management,
LLC, its General Partner         By: Fife Trading, Inc., its Manager

 

    By: /s/ John M. Fife       John M. Fife, President

  

[Signature Page to Forbearance Agreement]