EXHIBIT 10.6

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT (as amended, modified or otherwise supplemented from
time to time, this “Agreement”), dated and effective as of the 6th day of
September, 2017, is made by EVIO, Inc., a Colorado corporation (“Debtor”) in
favor of PalliaTech, Inc., a Delaware corporation (“Secured Party”). All
capitalized terms not otherwise defined herein have the meanings ascribed to
them in the Transfer Agreement (defined below).

 

RECITALS

 

A. Secured Party has agreed to sell, assign and transfer the Rights and cancel
the Existing PalliaTech Note pursuant to that certain Transfer Agreement, of
even date herewith by and among the Debtor, PhytaTech CO, LLC, a Colorado
limited liability company (“PhytaTech”) and Secured Party (the “Transfer
Agreement”).

 

B. Debtor has delivered the New PalliaTech Note as part of the consideration
payable in accordance with the terms of the Transfer Agreement.

 

C. In connection with the New PalliaTech Note, Secured Party requires that it be
granted, and Debtor has agreed to grant to Secured Party, a security interest in
(i) all of the non-marijuana inventory, equipment, and products and accounts
receivable of Debtor and all other personal property of Debtor, and (ii) the
proceeds (whether cash or non-cash) to be paid and payable to Debtor upon any
assignment or other transfer of any right, title or interest of Debtor in any of
the items of personal property whether now existing or hereafter acquired or
arising up to a value that shall not exceed the principal amount plus all
accrued interest due under the New PalliaTech Note (the “Collateral”).

 

NOW, THEREFORE, in order to induce Secured Party to accept the New PalliaTech
Note, and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, Debtor hereby represents, warrants, covenants,
grants and agrees as follows:

 

AGREEMENT

 

1. Incorporation of Recitals. The recitals set forth hereinabove are
incorporated herein by this reference. Unless otherwise defined herein, all
terms defined in the UCC have the respective meanings given to those terms in
the UCC.

 

2. Definitions.

 

(a) “Collateral” has the meaning given to that term in the Recital C hereof.

 

(b) “Lien” means any mortgage, deed of trust, lien, pledge, security interest or
other charge or encumbrance, of any kind whatsoever, including but not limited
to the interest of the lessor or titleholder under any capitalized lease, title
retention contract or similar agreement.

 

(c) “Obligation” means the then outstanding principal amount due under the Note
plus all accrued unpaid interest thereon.

 

(d) “UCC” means the Uniform Commercial Code as in effect in the State of
Colorado from time to time.

 

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3. Security Interest.

 

(a) Debtor hereby grants to Secured Party a security interest: (a) in the
Collateral; and (b) in all proceeds thereof.

 

(b) Debtor hereby authorizes Secured Party to file appropriate UCC or other
financing statements, all continuation, amendments and modification filings
related thereto and any other filings or recordings Secured Party deems
necessary or appropriate with respect to the Collateral and Secured Party’s
interest therein. Secured Party may, in its discretion, describe the Collateral
as “all assets” or “all personal property.”

 

(c) The security interest granted to Secured Party hereunder shall secure the
Obligation and shall be a first priority security interest in the Collateral;
pari passu in order and right of payment with that certain pledge of a portion
of the Collateral granted pursuant to that certain pledge agreement dated as of
August 1, 2017 (the “Existing Pledge”).

 

4. Debtor’s Representations, Warranties, Covenants and Agreements. Debtor hereby
represents and warrants to Secured Party, and covenants and agrees, that:

 

(a) Debtor is the owner of (or, in the case of after-acquired Collateral, at the
time Debtor acquires rights in the Collateral, will be the owner thereof) and
except as set forth on Schedule 4(a) that no other person or entity has (or, in
the case of after-acquired Collateral, at the time Debtor acquires rights
therein, will have) any right, title, claim or interest (by way of Lien or
otherwise) in, against or to the Collateral.

 

(b) Upon the filing of UCC-l financing statements in the appropriate filing
offices, Secured Party has (or in the case of after-acquired Collateral, at the
time Debtor acquires rights therein, will have) a first priority perfected
security interest in the Collateral, pari passu in order and right of payment
with the Existing Pledge, to the extent that a security interest in the
Collateral can be perfected by such filing.

 

(c) This Agreement (i) has been duly authorized by all necessary corporate
action of Debtor, (ii) has been duly executed by Debtor, and (iii) constitutes
the legal, valid and binding obligation of Debtor, enforceable against Debtor in
accordance with its terms.

 

(d) Debtor’s place of business (or, if Debtor has more than one place of
business, its principal executive office) is located at 62930 O. B. Riley Road,
Suite 300, Bend, Oregon 97703. Debtor’s true legal name is, and has been since
its formation, as set forth in the preamble to this Agreement. Debtor’s
jurisdiction of formation is and has been, as set forth in the preamble to this
Agreement. Debtor does not do business under any trade name or fictitious
business name and has never used any other trade name or fictitious business
name. Debtor will notify Secured Party, in writing, within at least thirty (30)
days of any change in its place of business or jurisdiction of formation or the
adoption or change of its legal name, any trade name or fictitious business
name, and will upon request of Secured Party, execute or authenticate any
additional financing statements or other certificates or records necessary to
reflect any change in its place of business or jurisdiction of formation or the
adoption or change in its legal name, trade names or fictitious business name.

 

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5. Protection of Collateral by Debtor.

 

(a) Debtor will not, without the prior written consent of Secured Party, sell,
transfer or dispose of any Collateral except for sales of inventory, licenses or
sublicenses of intellectual property to customers in the ordinary course of
Debtor’s business. Debtor shall keep the Collateral free from any and all Liens.
Debtor shall, at its own expense, appear in and defend any and all actions and
proceedings which purport to affect title to the Collateral, or any part
thereof, or which purport to affect the security interest of Secured Party
therein under this Agreement.

 

(b) Debtor will keep the Collateral current, collected and/or in good condition
and repair, and will not misuse, abuse, allow to deteriorate, waste or destroy
the Collateral or any part thereof, except for ordinary wear and tear resulting
from its normal and expected use in Debtor’s business and will not use or permit
any Collateral to be used in violation in any material respect of any applicable
law, rule or regulation, or in violation of any policy of insurance covering the
Collateral. Secured Party may examine and inspect the Collateral at any
reasonable time, wherever located. Debtor shall perform, observe, and comply in
all material respects with all of the material terms and provisions to be
performed, observed or complied with by it under each contract, agreement or
obligation relating to the Collateral.

 

(c) Debtor, in a timely manner, will execute or otherwise authenticate, or
obtain, any document or other record, give any notices, do all other acts, and
pay all costs associated with the foregoing, that Secured Party determines is
reasonably necessary to protect the Collateral against rights, claims or
interests of third parties, or otherwise to preserve the Collateral as security
hereunder.

 

(d) Debtor shall promptly notify Secured Party of any claim against the
Collateral adverse to the interest of Secured Party therein.

 

(e) Debtor shall promptly pay when due all taxes and other governmental charges,
all Liens and all other charges now or hereafter imposed upon or affecting any
Collateral.

 

6. Further Acts of Debtor. Debtor shall, at the request of Secured Party,
execute or otherwise authenticate and deliver to Secured Party any financing
statements, financing statement changes and any and all additional instruments,
documents and other records, and Debtor shall perform all actions, that from
time to time Secured Party may reasonably deem necessary or desirable to carry
into effect the provisions of this Agreement or to establish or maintain a
perfected security interest in the Collateral having the priority provided for
herein or otherwise to protect Secured Party’s interest in the Collateral.

 

7. Effect of Additional Security. If the performance of all or any portion of
the Obligation shall at any time be secured by any other collateral, the
exercise by Secured Party, in the event of a default in the performance of any
such obligation, of any right or remedy under any agreement or other record
granting a Lien on or security interest in such collateral shall not be
construed as or deemed to be a waiver of, or limitation upon, the right of
Secured Party to exercise, at any time and from time to time thereafter, any
right or remedy under this Agreement or under any other such agreement or
record.

 

8. Default. Upon the failure to comply with the terms and conditions of any Loan
Document and the continuance thereof beyond any applicable cure periods under
the Loan Documents (a “Default”), Secured Party shall have all the rights and
remedies of a secured party on default under the UCC (whether or not the UCC
applies to the affected Collateral) or, to the extent required by applicable
law, the Uniform Commercial Code as in effect in the jurisdiction where Secured
Party enforces such rights and remedies.

 

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9. No Implied Waivers. No delay or omission on the part of Secured Party in
exercising any right or remedy created by, connected with or provided for in
this Agreement or arising from any default by Debtor or by any other person or
entity the performance of whose obligations is secured hereby, shall be
construed as or be deemed to be an acquiescence in or a waiver of such default
or a waiver of or limitation upon the right of Secured Party to exercise, at any
time and from time to time thereafter, any right or remedy under this Agreement.
No waiver of any breach of any of the covenants or conditions in this Agreement
shall be deemed to be a waiver of or acquiescence in or consent to any previous
or subsequent breach of the same or any other covenant or condition.

 

10. Entire Agreement. This Agreement, together with the Transfer Agreement
(including all attachments, schedules and exhibits thereto) and the Note,
contain the entire understanding and agreement of Debtor and Secured Party with
respect to the subject matter hereof and may not be altered or amended in any
way except by a written agreement signed by the parties. No provision of this
Agreement or right of Secured Party hereunder can be waived, nor shall Debtor be
released from its obligations hereunder, except by a writing duly executed by
Secured Party.

 

11. Transfer of Indebtedness. Upon the transfer by Secured Party of all or any
portion of the indebtedness secured hereby in accordance with the terms of the
Note, Secured Party may transfer therewith all or any portion of the security
interest created hereunder, but Secured Party shall retain all of its rights
hereunder with respect to any part of such indebtedness and any part of its
security interest hereunder not so transferred.

 

12. Term; Binding Effect. This Agreement shall be and remain in full force and
effect until the Obligation has been fully performed and paid. Upon expiration
and payment or conversion in full of the Obligation, this Agreement shall
automatically terminate and Debtor shall be permitted to file or cause Secured
Party to file one or more UCC termination statements with respect to the
Collateral. Each of the provisions hereof shall be binding upon Debtor and its
legal representatives, successors and assigns and shall inure to the benefit of
Secured Party and its legal representatives, successors and assigns.

 

13. Rules of Construction. Terms used in the singular shall apply to the plural,
and vice versa, as the context requires; likewise masculine, feminine and neuter
genders shall be interchangeable as the context requires. The use of the
disjunctive term “or” does not imply an exclusion of the conjunctive, i.e., “or”
shall have the same meaning as the expression “and/or.” “Including” shall not be
limiting. Headings and section titles are for convenience of reference only and
are not substantive parts of this Agreement, and shall not be given effect in
construing the provisions of this Agreement. Each reference to a Loan Document
shall mean such Loan Document as from time to time extended, modified, renewed,
restated, reaffirmed, supplemented or amended.

 

14. Severability. If any provision of this Agreement, or the application thereof
to any person or circumstance, shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement, or the application of such term
to persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.

 

15. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute but one and the same instrument.

 

16. Governing Law and Jurisdiction. This Agreement shall be deemed to be
executed and delivered in the State of Colorado. Each of Debtor and Secured
Party: (i) agrees that this Agreement shall be construed according to and
governed by the laws of the State of Colorado, without regard to principles of
conflicts of law (except to the extent governed by the UCC); (ii) consents to
personal jurisdiction in the State of Colorado in the state and United States
courts in the City of Denver, Colorado; and (iii) consents to venue in the City
of Denver, Colorado, for all actions and proceedings with respect to this
Agreement, the Transfer Agreement and the Note, and waives any right it may have
to assert the doctrine of forum non conveniens or to object to venue to the
extent any proceeding is brought in accordance with this Section 16.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the undersigned has executed this Security Agreement as of
the day and year first hereinabove written.

 

 

  DEBTOR:

 

EVIO, INC.,

A Colorado corporation

        By: /s/ William Waldrop

 

 

William Waldrop, Authorized Signatory  

 

 

Accepted and Agreed:

 

SECURED PARTY:

 

PALLIATECH, INC.

      By: /s/ Joseph F. Lusardi

 

Joseph F. Lusardi, Authorized Signatory  

 

 

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