Exhibit 10.1

 

EXECUTION COPY

 

EXCHANGE AGREEMENT

 

THIS EXCHANGE AGREEMENT (the "Agreement") is dated this seventh day of April,
2015, by and among INTERCLOUD SYSTEMS, INC., a Delaware corporation (the
"Company") and the investor set forth on the signature pages hereto (the
"Holder"). Capitalized terms not defined herein shall have the meaning as set
forth in the Warrants (as defined below).

 

WHEREAS, the Holder and certain other investors (the "Buyers") beneficially own
and hold certain Warrants to Purchase Common Stock, issued by the Company on
October 8, 2014 (the "October Warrants");

 

WHEREAS, the Holder also beneficially owns and holds (x) certain Warrants to
Purchase Common Stock, issued by the Company to the Holder on April 15, 2014
(the "Existing April Warrants") exercisable into such aggregate number of shares
of common stock of the Company, par value $0.001 per share (the "Common Stock")
as set forth on the signature page of the Holder hereto and (y) certain Warrants
to Purchase Common Stock, issued by the Company to the Holder on July 1, 2014
(the "Existing July Warrants", and together with the Existing April Warrants,
the "Existing Other Warrants") exercisable into such aggregate number of shares
of Common Stock as set forth on the signature page of the Holder hereto;

 

WHEREAS, the Holder desires to exchange, and the Company desires to issue, on
the terms and conditions set forth in this Agreement: (a) the October Warrants
of the Holder (the "Existing October Warrants", and together with the Existing
Other Warrants, the "Existing Warrants"), exercisable into such aggregate number
of shares of Common Stock as set forth on the signature page of the Holder
hereto, for (i) such aggregate number of shares of Common Stock (the "Exchange
Shares"), as set forth and memorialized on Exhibit A hereto (such aggregate
number, the "Exchange Share Amount") and (ii) the right to receive the
Make-Whole Amount (as defined below), if any, (b) the Existing April Warrants
for an identical number of Warrants to Purchase Common Stock in the form
attached hereto as Exhibit B-1 (the "Exchange April Warrant", as exercised, the
"Exchange April Warrant Shares") and (c) the Existing July Warrants for an
identical number of Warrants to Purchase Common Stock in the form attached
hereto as Exhibit 13-2 (the "Exchange July Warrant", as exercised, the "Exchange
July Warrant Shares"). The Exchange April Warrant and the Exchange July Warrant
are collectively referred to herein as the "Exchange Warrants"), the Exchange
April Warrant Shares and the Exchange July Warrant Shares are collectively
referred to herein as the "Exchange Warrant Shares") and the Exchange Shares,
the Exchange Warrants and the Exchange Warrant Shares are collectively referred
to herein as the "Securities"; and

 

WHEREAS, the reliance upon the representations made by the Holder and the
Company in this Agreement, the transactions contemplated by this Agreement are
such that the offer and exchange of securities by the Company under this
Agreement will be exempt from registration under applicable United States
securities laws as a result of this exchange offer being undertaken pursuant to
Section 3(a)(9) of the Securities Act of 1933, as amended (the "Securities
Act").

 

 

 

 

NOW, THEREFORE, in consideration of the terms and conditions contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Company and the Holder hereby agree as follows:

 

Section 1. Exchange. Subject to and upon the terms and conditions set forth in
this Agreement, the Company and the Holder hereby agree to exchange (a) the
Existing October Warrant for (i) the Exchange Shares and (ii) the right to
receive the Make-Whole Amount, if any, and (b) the Existing Other Warrants for
the Exchange Warrants (collectively, the "Exchange"). For the avoidance of
doubt, the parties acknowledge and agree that, other than the exercise price of
the Existing Other Warrants (which exercise price shall be $5.00 (as adjusted
for stock splits, stock dividends, recapitalizations and similar events) in the
Exchange Warrants), each of the Existing Other Warrants and each of the related
Exchange Warrants shall be identical in all material respects, including,
without limitation, number of shares of Common Stock issuable upon exercise
thereof.

 

1.1 Closing. On the Closing Date (as defined below), the Company will issue and
deliver (or cause to be issued and delivered) certificates evidencing the
issuance of the Exchange Shares and the Exchange Warrants to the Holder (the
"Exchange Certificates"), or in the name of a custodian or nominee of the
Holder, or as otherwise requested by the Holder in writing. The Holder shall
deliver or cause to be delivered to the Company (or its designee) the Existing
Warrants as soon as commercially practicable following the Closing Date.
Immediately following the issuance of the Exchange Shares and the Exchange
Warrants and delivery of the Exchange Certificates to the Holder (or its
designee) (such time, the "Delivery Time"), the Existing Warrants shall be
cancelled. The closing of the Exchange shall occur on such date as the parties
may mutually agree in writing (the "Closing Date"), subject to the provisions of
Section 4 and Section 5 herein.

 

1.2 Section 3(a)(9). Assuming the accuracy of the representations and warranties
of each of the Company and the Holder set forth in Sections 2 and 3 of this
Agreement, the parties acknowledge and agree that the purpose of such
representations and warranties is, among other things, to ensure that the
Exchange qualifies as an exchange of securities under Section 3(a)(9) of the
Securities Act.

 

1.3 Make-Whole Amount. On July 1, 2015 (or such other date as the Company and
the Holder shall mutually agree) the Company shall pay to the Holder (or its
designee) a cash amount (the "Make-Whole Amount"), by wire transfer in U.S.
dollars and immediately available funds, if any, equal to the greater of (a)
zero (0) and (b) the difference of (1) $5,175,000 less (ii) the product of (x)
the Exchange Share Amount and (y) the quotient of (A) the sum of each of the
thirty lowest VWAP of the Common Stock during the period commencing on, and
including, April 8, 2015 and ending, and including, June 30, 2015 (the
"Measuring Period"), divided by (B) thirty (30) (all such determinations to be
appropriately adjusted for any stock split, stock dividend, stock combination or
other similar transaction during any such Measuring Period); provided that the
parties may, by mutual agreement, reduce such Measuring Period to any such
shorter period as the parties shall mutually agree, mutatis mutandis.

 

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1.4 Legends. The Holder understands that, after the Closing Date, the Exchange
Shares and the Exchange Warrants will have been issued (or will be issued in the
case of the Exchange Warrant Shares) pursuant to an exemption from registration
or qualification under the Securities Act and applicable state securities laws,
and except as set forth below, the Securities shall bear any legend as required
by the "blue sky" laws of any state and a restrictive legend in substantially
the following form (and a stop-transfer order may be placed against transfer of
such stock certificates):

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN][THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER
(IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE
TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

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1.5 Removal of Legends. Certificates evidencing Securities shall not be required
to contain the legend set forth in Section 1.4 above or any other legend (i)
while a registration statement covering the resale of such Securities is
effective under the Securities Act, (ii) following any sale of such Securities
pursuant to Rule 144 of the Securities Act ("Rule 144") (assuming the transferor
is not an affiliate of the Company), (iii) if such Securities are eligible to be
sold, assigned or transferred without limitation under Rule 144 (provided that
the Holder provides the Company with reasonable assurances that such Securities
are eligible for sale, assignment or transfer under Rule 144 which shall not
include an opinion of the Holder's counsel), (iv) in connection with a sale,
assignment or other transfer (other than under Rule 144), provided that the
Holder provides the Company with an opinion of counsel to the Holder, in a
generally acceptable form, to the effect that such sale, assignment or transfer
of the Securities may be made without registration under the applicable
requirements of the Securities Act or (v) if such legend is not required under
applicable requirements of the Securities Act (including, without limitation,
controlling judicial interpretations and pronouncements issued by the Securities
and Exchange Commission). If a legend is not required pursuant to the foregoing,
the Company shall no later than three (3) Trading Days (or such earlier date as
required pursuant to the Exchange Act or other applicable law, rule or
regulation for the settlement of a trade initiated on the date the Holder
delivers such legended certificate representing such Securities to the Company)
following the delivery by the Holder to the Company or the transfer agent (with
notice to the Company) of a legended certificate representing such Securities
(endorsed or with stock powers attached, signatures guaranteed, and otherwise in
form necessary to affect the reissuance and/or transfer, if applicable),
together with any other deliveries from the Holder as may be required above in
this Section 1.4, as directed by the Holder, either: (A) provided that the
Company's transfer agent is participating in the DTC Fast Automated Securities
Transfer Program and such Securities are Exchange Shares or Exchange Warrant
Shares, credit the aggregate number of shares of Common Stock to which the
Holder shall be entitled to the Holder's or its designee's balance account with
DTC through its Deposit/Withdrawal at Custodian system or (B) if the Company's
transfer agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver (via reputable overnight courier) to the
Holder, a certificate representing such Securities that is free from all
restrictive and other legends, registered in the name of the Holder or its
designee (the date by which such credit is so required to be made to the balance
account of the Holder's or the Holder's designee with DTC or such certificate is
required to be delivered to the Holder pursuant to the foregoing is referred to
herein as the "Required Delivery Date", and the date such shares of Common Stock
are actually delivered without restrictive legend to the Holder or the Holder's
designee with DTC, as applicable, the "Share Delivery Date"). The Company shall
be responsible for any transfer agent fees or DTC fees with respect to any
issuance of Securities or the removal of any legends with respect to any
Securities in accordance herewith.

 

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1.6 Failure to Timely Deliver; Buy-In. If the Company fails, for any reason or
for no reason, to issue and deliver (or cause to be delivered) to the Holder (or
its designee) by the Required Delivery Date, if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, a
certificate for the number of Exchange Shares or Exchange Warrant Shares (as the
case may be) to which the Holder is entitled and register such Exchange Shares
or Exchange Warrant Shares (as the case may be) on the Company's share register
or, if the Transfer Agent is participating in the DTC Fast Automated Securities
Transfer Program, to credit the balance account of the Holder or the Holder's
designee with DTC for such number of Exchange Shares or Exchange Warrant Shares
(as the case may be) submitted for legend removal by the Holder pursuant to
Section 1.4 above (a "Delivery Failure"), and if on or after such Trading Day
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of shares of
Common Stock submitted for legend removal by the Holder pursuant to Section 1.4
above that the Holder anticipated receiving from the Company (a "Buy-In"), then
the Company shall, within three (3) Trading Days after the Holder's request and
in the Holder's discretion, either (i) pay cash to the Holder in an amount equal
to the Holder's total purchase price (including brokerage commissions and other
out-of-pocket expenses, if any) for the shares of Common Stock so purchased)
(the "Buy-In Price"), at which point the Company's obligation to so deliver such
certificate or credit the Holder's balance account shall terminate and such
shares shall be cancelled, or (ii) promptly honor its obligation to so deliver
to the Holder a certificate or certificates or credit the balance account of the
Holder or the Holder's designee with DTC representing such number of shares of
Common Stock that would have been so delivered if the Company timely complied
with its obligations hereunder and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Exchange Shares or Exchange Warrant Shares (as the case may be) that
the Company was required to deliver to the Holder by the Required Delivery Date
multiplied by (B) the lowest Closing Sale Price (as defined in the Warrants) of
the Common Stock on any Trading Day during the period commencing on the date of
the delivery by the Holder to the Company of the applicable Exchange Shares or
Exchange Warrant Shares (as the case may be) and ending on the date of such
delivery and payment under this clause (ii). Nothing shall limit the Holder's
right to pursue any other remedies available to it hereunder, at law or in
equity, including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock (or to electronically deliver
such shares of Common Stock) as required pursuant to the terms hereof.

 

Section 2. Representations and Warranties of the Company. The Company represents
and warrants to the Holder that:

 

2.1 Organization and Qualification. The Company and each of the subsidiaries of
the Company (the "Subsidiaries") is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company, nor any Subsidiary is in violation
or default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in: (i) a material adverse effect on the legality, validity or enforceability of
this Agreement or any documents executed in connection herewith (the
"Transaction Documents"), (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company's ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a "Material Adverse Effect") and no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

 

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2.2 Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
this Agreement and each of the other Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and each of the other Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, the Board of Directors or the
Company's stockholders in connection herewith or therewith other than in
connection with the Required Approvals (as defined below). This Agreement and
each other Transaction Document to which it is a party has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except: (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

 

2.3 Issuance of Securities. The issuance of the Exchange Shares is duly
authorized and, upon issuance in accordance with the terms hereof, each of the
Securities shall be validly issued, fully paid and nonassessable and free from
all preemptive or similar rights, taxes, liens, charges and other encumbrances
with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. The issuance of the Exchange Warrant is
duly authorized and, upon issuance in accordance with the terms hereof ,shall be
validly issued, fully paid and non-assessable and free from all taxes, liens,
charges and other encumbrances with respect to the issue thereof. Upon issuance
in accordance with the Exchange Warrants, the Exchange Warrant Shares will be
validly issued, fully paid and nonassessable and free from all preemptive or
similar rights, taxes, liens, charges and other encumbrances with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Assuming the truth and accuracy of each of the
representations and warranties of the Holder contained in Section 3 of this
Agreement, the issuance by the Company of each of the Securities is exempt from
registration under the Securities Act.

 

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2.4 No Conflicts. The execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents to which it is a party, the
issuance of the Securities and the consummation by it of the transactions
contemplated hereby and thereby do not and will not: (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other organizational or charter documents,
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, result in the creation of
any options, contracts, agreements, liens, security interests, or other
encumbrances ("Liens") upon any of the properties or assets of the Company or
any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company or
any Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected to
result in a Material Adverse Effect.

 

2.5 Acknowledgment Regarding the Exchange. The Company acknowledges and agrees
that the Holder is acting solely in the capacity of an arm's length third party
with respect to this Agreement and the transactions contemplated hereby. The
Company further acknowledges the Holder is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby, and any advice given by the
Holder or any of its representatives or agents in connection with this Agreement
is merely incidental to the Exchange.

 

2.6 No Commission; No Other Consideration. The Company has not paid or given,
and has not agreed to pay or give, directly or indirectly, any commission or
other remuneration for soliciting the Exchange. The Securities are being issued
exclusively for the exchange of the Existing Warrants and no other consideration
has or will be paid for the Securities.

 

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2.7 3(a)(9) Representation. The Company has not, nor has any person acting on
its behalf, directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would cause
the Exchange and the issuance of the Securities pursuant to this Agreement to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from delivering the Securities to the Holder
pursuant to Section 3(a)(9) of the Securities Act, nor will the Company take any
action or steps that would cause the Exchange, issuance and delivery of the
Securities to be integrated with other offerings to the effect that the delivery
of the Securities to the Holder would be seen not to be exempt pursuant to
Section 3(a)(9) of the Securities Act.

 

2.8 No Third-Party Advisors. Other than legal counsel, the Company has not
engaged any third parties to assist in the solicitation with respect to the
Exchange.

 

2.9 SEC Reports: Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) of the Exchange Act, for the two years preceding the date
hereof (or such shorter period as the Company was required by law or regulation
to file such material) (the foregoing materials, including the exhibits thereto
and documents incorporated by reference therein, being collectively referred to
herein as the "SEC Reports") on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.

 

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2.10 Subsidiaries. All of the direct and indirect subsidiaries of the Company
are set forth in the SEC Reports. Except as set forth in the SEC Reports, the
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all of the issued
and outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.

 

2.11 Filings, Consents and Approvals. Other than as set forth on Schedule 2.11,
the Company is not required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any court
or other federal, state, local or other governmental authority or other Person
in connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than: (i) the notice and/or application(s) to each
applicable Trading Market for the issuance and the listing of the Exchange
Shares and the Exchange Warrant Shares for trading thereon in the time and
manner required thereby, and (ii) the filing of Form D with the Commission and
such filings as are required to be made under applicable state securities laws
(collectively, the "Required Approvals").

 

2.12 Capitalization. The capitalization of the Company is as set forth in the
SEC Reports. No Person has any right of first refusal, preemptive right, right
of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. There are no outstanding options,
warrants, scrip rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to subscribe for
or acquire any shares of Common Stock, or contracts, commitments, understandings
or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or Common Stock Equivalents. The
issuance of the Securities will not obligate the Company to issue shares of
Common Stock or other securities to any Person (other than the Holder) and will
not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under any of such securities. All
of the outstanding shares of capital stock of the Company are duly authorized,
validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors or others is required for the issuance of
the Securities. There are no stockholders agreements or other similar agreements
with respect to the Company's capital stock to which the Company is a party or,
to the knowledge of the Company, between or among any of the Company's
stockholders.

 

2.13 Shell Company Status. The Company is not currently, and within the past
three years has not been, an issuer identified in Rule 144(i)(1) under the
Securities Act.

 

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2.14 DTC Eligibility. The Company, through the Transfer Agent, currently
participates in the DTC Fast Automated Securities Transfer (FAST) Program and
the Common Stock can be transferred electronically to third parties via the DTC
Fast Automated Securities Transfer (FAST) Program.

 

2.15 Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in a subsequent SEC Report filed prior
to the date hereof: (i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company's financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its stockholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any
request for confidential treatment of information. Except for the issuance of
the Securities contemplated by this Agreement, no event, liability, fact,
circumstance, occurrence or development has occurred or exists or is reasonably
expected to occur or exist with respect to the Company or its Subsidiaries or
their respective businesses, properties, operations, assets or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least 1 Trading Day prior to the
date that this representation is made.

 

2.16 Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an "Action") which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.

 

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2.17 Labor Relations. No labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company, which
could reasonably be expected to result in a Material Adverse Effect. None of the
Company's or its Subsidiaries' employees is a member of a union that relates to
such employee's relationship with the Company or such Subsidiary, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relationships
with their employees are good. To the knowledge of the Company, no executive
officer of the Company or any Subsidiary, is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement, or
any other contract or agreement or any restrictive covenant in favor of any
third party, and the continued employment of each such executive officer does
not subject the Company or any of its Subsidiaries to any liability with respect
to any of the foregoing matters. The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 

2.18 Compliance. Neither the Company nor any Subsidiary: (i) is in default under
or in violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the Company
or any Subsidiary under), nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
judgment, decree or order of any court, arbitrator or other governmental
authority or (iii) is or has been in violation of any statute, rule, ordinance
or regulation of any governmental authority, including, without limitation, all
foreign, federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety and
employment and labor matters, except in each case as could not have or
reasonably be expected to result in a Material Adverse Effect.

 

2.19 Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect ("Material Permits"), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.

 

11

 

 

2.20 Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and marketable
title in all personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of all Liens,
except for (i) Liens as do not materially affect the value of such property and
do not materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and (ii) Liens for the payment of
federal, state or other taxes, for which appropriate reserves have been made
therefor in accordance with GAAP and, the payment of which is neither delinquent
nor subject to penalties. Any real property and facilities held under lease by
the Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are in
compliance.

 

2.21 Intellectual Property. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights as described
in the SEC Reports as necessary or required for use in connection with their
respective businesses and which the failure to so have could have a Material
Adverse Effect (collectively, the "Intellectual Property Rights"). None of, and
neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of, the Intellectual Property Rights has expired, terminated
or been abandoned, or is expected to expire or terminate or be abandoned, within
two (2) years from the date of this Agreement. Neither the Company nor any
Subsidiary has received, since the date of the latest audited financial
statements included within the SEC Reports, a written notice of a claim or
otherwise has any knowledge that the Intellectual Property Rights violate or
infringe upon the rights of any Person, except as could not have or reasonably
be expected to not have a Material Adverse Effect. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights. The Company and its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

 

2.22 Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged, including, but not limited to, directors and
officers insurance coverage at least equal to the aggregate Subscription Amount.
Neither the Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business without a significant increase in cost.

 

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2.23 Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company or any Subsidiary and,
to the knowledge of the Company, none of the employees of the Company or any
Subsidiary is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from providing for the borrowing of money from or lending of
money to, or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee, stockholder, member or partner, in each case in
excess of $120,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including stock option agreements
under any stock option plan of the Company.

 

2.24 Sarbanes-Oxley; Internal Accounting Controls. The Company and the
Subsidiaries are in compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and
all applicable rules and regulations promulgated by the Commission thereunder
that are effective as of the date hereof and as of the Closing Date. The Company
and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that: (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company and the Subsidiaries have
established disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such
disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms. The Company's certifying officers
have evaluated the effectiveness of the disclosure controls and procedures of
the Company and the Subsidiaries as of the end of the period covered by the most
recently filed periodic report under the Exchange Act (such date, the
"Evaluation Date"). The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no changes in the internal control over financial reporting (as such term
is defined in the Exchange Act) that have materially affected, or is reasonably
likely to materially affect, the internal control over financial reporting of
the Company and its Subsidiaries.

 

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2.25 Certain Fees. No brokerage or finder's fees or commissions are or will be
payable by the Company or any Subsidiaries to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or other Person
with respect to the transactions contemplated by the Transaction Documents.

 

2.26 Investment Company. The Company is not, and is not an Affiliate of, and
immediately after the Exchange, will not be or be an Affiliate of, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended. The Company shall conduct its business in a manner so that it will
not become an "investment company" subject to registration under the Investment
Company Act of 1940, as amended.

 

2.27 Registration Rights. Other than as disclosed in the SEC Reports, no Person
has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company or any Subsidiaries.

 

2.28 Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or I2(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. Except as set forth in the SEC
Reports, the Company has not, in the 12 months preceding the date hereof,
received notice from The Nasdaq Market LLC any other exchange or quotation
service on which the Company's securities are traded (the "Trading Market") on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market. Except as set forth in the SEC Reports, the Company is, and
has no reason to believe that it will not in the foreseeable future continue to
be, in compliance with all such listing and maintenance requirements.

 

2.29 Application of Takeover Protections. The Company and the Board of Directors
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company's certificate of incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become applicable to
the Purchaser as a result of the Purchaser and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including, without limitation, as a result of the Company's issuance of the
Securities pursuant to the Exchange.

 

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2.30 Disclosure. Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company confirms
that neither it nor any other Person acting on its behalf has provided the
Holder or its agents or counsel with any information that it believes
constitutes or might constitute material, non-public information. The Company
understands and confirms that the Holder will rely on the foregoing
representation in effecting transactions in securities of the Company. All of
the disclosure furnished by or on behalf of the Company to the Holder regarding
the Company and its Subsidiaries, their respective businesses and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made,
not misleading. The Company acknowledges and agrees that the Holder makes no nor
has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3 hereof.

 

2.31 No Integrated Offering. Assuming the accuracy of the Holder's
representations and warranties set forth in Section 3, neither the Company, nor
any of its Affiliates, nor any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause the Exchange to be
integrated with prior offerings by the Company for purposes of (i) the
Securities Act which would require the registration of any such securities under
the Securities Act, or (ii) any applicable shareholder approval provisions of
any Trading Market on which any of the securities of the Company are listed or
designated.

 

2.32 Solvency. The Company does not intend to incur debts beyond its ability to
pay such debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt). Except as set forth in the SEC
Reports, the Company has no knowledge of any facts or circumstances which lead
it to believe that it will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one year from the
Closing Date. The SEC Reports set forth as of the date hereof all outstanding
secured and unsecured Indebtedness of the Company or any Subsidiary, or for
which the Company or any Subsidiary has commitments. For the purposes of this
Agreement, "Indebtedness" means (x) any liabilities for borrowed money or
amounts owed in excess of $50,000 (other than trade accounts payable incurred in
the ordinary course of business), (y) all guaranties, endorsements and other
contingent obligations in respect of indebtedness of others, whether or not the
same, are, or should be, reflected in the Company's consolidated balance sheet
(or the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business; and (z) the present value of any lease payments in excess of
$50,000 due under leases required to be capitalized in accordance with GAAP.
Except as set forth in the SEC Reports, neither the Company nor any Subsidiary
is in default with respect to any Indebtedness.

 

15

 

 

2.33 Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and its Subsidiaries each (i) has made or filed all United
States federal, state and local income and all foreign income and franchise tax
returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations and (iii) has set aside on its books provision
reasonably adequate for the payment of all material taxes for periods subsequent
to the periods to which such returns, reports or declarations apply. There are
no unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company or of any Subsidiary know
of no basis for any such claim.

 

2.34 Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to
the knowledge of the Company or any Subsidiary, any agent or other person acting
on behalf of the Company or any Subsidiary, has: (i) directly or indirectly,
used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or employees or
to any foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company or any
Subsidiary (or made by any person acting on its behalf of which the Company is
aware) which is in violation of law or (iv) violated in any material respect any
provision of FCPA.

 

2.35 Accountants. The Company's accounting firm is BDO USA, LLP. To the
knowledge and belief of the Company, such accounting firm: (i) is a registered
public accounting firm as required by the Exchange Act and (ii) shall express
its opinion with respect to the financial statements to be included in the
Company's Annual Report for the fiscal year ending December 31, 2014.

 

2.36 No Disagreements with Accountants and Lawyers. There are no disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise, between the Company and the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees owed
to its accountants and lawyers which could affect the Company's ability to
perform any of its obligations under any of the Transaction Documents,

 

16

 

 

2.37 Acknowledgment Regarding Holder's Exchange of Warrants. The Company
acknowledges and agrees that the Holder is acting solely in the capacity of an
arm's length party with respect to the Transaction Documents and the
transactions contemplated thereby.

 

2.38 Regulation M Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the issuance or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Company.

 

2.39 Office of Foreign Assets Control. Neither the Company nor any Subsidiary
nor, to the Company's knowledge, any director, officer, agent, employee or
affiliate of the Company or any Subsidiary is currently subject to any U.S.
sanctions administered by the Office of Foreign Assets Control of the U.S.
Treasury Department ("OFAC").

 

2.40 Bank Holding Company Act. Neither the Company nor any of its Subsidiaries
or Affiliates is subject to the Bank Holding Company Act of 1956, as amended
(the "BHCA") and to regulation by the Board of Governors of the Federal Reserve
System (the "Federal Reserve"). Neither the Company nor any of its Subsidiaries
or Affiliates owns or controls, directly or indirectly, five percent (5%) or
more of the outstanding shares of any class of voting securities or twenty-five
percent or more of the total equity of a bank or any entity that is subject to
the BHCA and to regulation by the Federal Reserve. Neither the Company nor any
of its Subsidiaries or Affiliates exercises a controlling influence over the
management or policies of a bank or any entity that is subject to the BHCA and
to regulation by the Federal Reserve.

 

2.41 Money Laundering. The operations of the Company and its Subsidiaries are
and have been conducted at all times in compliance with applicable financial
record-keeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, applicable money laundering
statutes and applicable rules and regulations thereunder (collectively, the
"Money Laundering Laws"), and no action, suit or proceeding by or before any
court or governmental agency, authority or body or any arbitrator involving the
Company or any Subsidiary with respect to the Money Laundering Laws is pending
or, to the knowledge of the Company or any Subsidiary, threatened.

 

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Section 3. Representations and Warranties of the Holder. The Holder represents
and warrants to the Company that:

 

3.1 Ownership of the Existing Warrants. The Holder is the legal and beneficial
owner of the Existing Warrants. The Holder paid for the Existing Warrants, and
has continuously held the Existing Warrants since its issuance or purchase. The
Holder, individually or through an affiliate, owns the Existing Warrants
outright and free and clear of any options, contracts, agreements, liens,
security interests, or other encumbrances.

 

3.2 No Public Sale or Distribution. The Holder is acquiring the Securities in
the ordinary course of business for its own account and not with a view toward,
or for resale in connection with, the public sale or distribution thereof;
provided, however, that by making the representations herein, the Holder does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with an exemption from the registration requirements of the Securities Act and
applicable state securities laws. The Holder does not presently have any
agreement or understanding, directly or indirectly, with any person to
distribute, or transfer any interest or grant participation rights in, the
Existing October Warrants or the Securities.

 

3.3 Accredited Holder and Affiliate Status. The Holder is an "accredited
investor" as that term is defined in Rule 501 of Regulation D under the
Securities Act. The Holder is not, and has not been, for a period of at least
three months prior to the date of this Agreement (a) an officer or director of
the Company, (b) an "affiliate" of the Company (as defined in Rule 144) (an
"Affiliate") or (c) a "beneficial owner" of more than 10% of the common stock
(as defined for purposes of Rule 13d-3 of the Exchange Act).

 

3.4 Reliance on Exemptions. The Holder understands that the Exchange is being
made in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
in part upon the truth and accuracy of, and the Holder's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Holder set forth herein in order to determine the availability of such
exemptions and the eligibility of the Holder to complete the Exchange and to
acquire the Securities.

 

3.5 Information. The Holder has been furnished with all materials relating to
the business, finances and operations of the Company and materials relating to
the Exchange which have been requested by the Holder. The Holder has been
afforded the opportunity to ask questions of the Company. Neither such inquiries
nor any other due diligence investigations conducted by the Holder or its
representatives shall modify, amend or affect the Holder's right to rely on the
Company's representations and warranties contained herein. The Holder
acknowledges that all of the documents filed by the Company with the SEC under
Sections 13(a), 14(a) or 15(d) of the Exchange Act that have been posted on the
SEC's EDGAR site are available to the Holder, and the Holder has not relied on
any statement of the Company not contained in such documents in connection with
the Holder's decision to enter into this Agreement and the Exchange.

 

18

 

 

3.6 Risk. The Holder understands that its investment in the Securities involves
a high degree of risk. The Holder is able to bear the risk of an investment in
the Securities including, without limitation, the risk of total loss of its
investment. The Holder has sought such accounting, legal and tax advice as it
has considered necessary to make an informed investment decision with respect to
the Exchange. There is no assurance that the Securities will continue to be
quoted, traded or listed for trading or quotation on the Nasdaq Capital Market
or on any other organized market or quotation system.

 

3.7 No Governmental Review. The Holder understands that no United States federal
or state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement in connection with the Exchange or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the Securities.

 

3.8 Organization; Authorization. The Holder is duly organized, validly existing
and in good standing under the laws of its state of formation and has the
requisite organizational power and authority to enter into and perform its
obligations under this Agreement.

 

3.9 Validity; Enforcement. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Holder and shall constitute the legal,
valid and binding obligations of the Holder enforceable against the Holder in
accordance with its terms. The execution, delivery and performance of this
Agreement by the Holder and the consummation by the Holder of the transactions
contemplated hereby (including, without limitation, the irrevocable surrender of
the Existing October Warrants) will not result in a violation of the
organizational documents of the Holder.

 

3.10 Prior Investment Experience. The Holder acknowledges that it has prior
investment experience, including investment in securities of the type being
exchange, including the Existing Warrants or the Securities, and has read all of
the documents furnished or made available by the Company to it and is able to
evaluate the merits and risks of such an investment on its behalf, and that it
recognizes the highly speculative nature of this investment.

 

3.11 Tax Consequences. The Holder acknowledges that the Company has made no
representation regarding the potential or actual tax consequences for the Holder
which will result from entering into the Agreement and from consummation of the
Exchange. The Holder acknowledges that it bears complete responsibility for
obtaining adequate tax advice regarding the Agreement and the Exchange.

 

19

 

 

3.12 No Registration, Review or Approval. The Holder acknowledges, understands
and agrees that the Securities are being exchanged hereunder pursuant to an
exchange offer exemption under Section 3(a)(9) of the Securities Act.

 

Section 4. Conditions Precedent to Obligations of the Company. The obligation of
the Company to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion by providing the Holder with prior
written notice thereof:

 

4.1 No Prohibition. No order of any court, arbitrator, or governmental or
regulatory authority shall be in effect which purports to enjoin or restrain any
of the transactions contemplated by this Agreement; and

 

4.2 Representations. The accuracy in all material respects when made and on the
applicable Closing Date of the representations and warranties of the Holder
contained herein (unless as of a specific date therein);

 

Section 5. Conditions Precedent to Obligations of the Holder. The obligation of
the Holder to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of each of the following conditions, provided that
these conditions are for the Holder's sole benefit and may be waived by the
Holder at any time in its sole discretion by providing the Company with prior
written notice thereof:

 

5.1 On or prior to the Closing Date the Company shall have issued (or cause to
be issued) to the Holder (or its designee) the Exchange Shares and the Exchange
Warrants and delivered the Exchange Certificate to the Holder (or its designee);

 

5.2 no order of any court, arbitrator, or governmental or regulatory authority
shall be in effect which purports to enjoin or restrain any of the transactions
contemplated by this Agreement;

 

5.3 the accuracy in all material respects (except for such representations and
warranties qualified by materiality or material adverse effect, which shall be
true and correct in all respects) when made and on the applicable Closing Date
of the representations and warranties of the Company contained herein (unless as
of a specific date therein, which shall be true and correct as of such specific
date);

 

5.4 all obligations, covenants and agreements of the Company required to be
performed at or prior to the applicable Closing Date shall have been performed;
and

 

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5.5 from the date hereof to the relevant Closing Date, trading in the Company's
common stock shall not have been suspended by the SEC or any trading market and,
at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by such service, or on any trading market, nor shall a banking moratorium have
been declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of hostilities or
other national or international calamity of such magnitude in its effect on, or
any material adverse change in, any financial market which, in each case, in the
reasonable judgment of the Holder makes it impracticable or inadvisable to
purchase the Securities at the closing.

 

Section 6. Covenants.

 

6.1 Disclosure of Transaction. The Company shall, on or before 5:30 p.m., New
York City Time, on the fourth business day after the date of this Agreement,
issue a press release and/or Current Report on Form 8-K (collectively, the
"Press Release") disclosing all material terms of the transactions contemplated
hereby. From and after the issuance of the Press Release, the Holder shall not
be in possession of any material, nonpublic information received from the
Company or any of its respective officers, directors, employees or agents, that
is not disclosed in the Press Release. The Company shall not, and shall cause
its officers, directors, employees and agents, not to, provide the Holder with
any material, nonpublic information regarding the Company from and after the
filing of the Press Release without the express written consent of the Holder.
The Company shall not disclose the name of the Holder in any filing,
announcement, release or otherwise, unless such disclosure is required by law or
regulation.

 

6.2 No Integration. None of the Company, its Subsidiaries, any of their
affiliates, or any Person acting on their behalf shall, directly or indirectly,
make any offers or sales of any security (as defined in the Securities Act) or
solicit any offers to buy any security or take any other actions, under
circumstances that would require registration of any of the Securities under the
Securities Act or cause this offering of the Securities to be integrated with
such offering or any prior offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provisions, including,
without limitation, under the rules and regulations of the principal exchange on
which the Common Stock is then traded (the "Principal Market") and/or any
exchange or automated quotation system on which any of the securities of the
Company are listed or designated.

 

6.3 Listing. The Company shall promptly secure the listing or designation for
quotation (as applicable) of all of the Exchange Shares and Exchange Warrant
Shares upon each national securities exchange and automated quotation system, if
any, upon which the Common Stock is then listed or designated for quotation (as
applicable) (subject to official notice of issuance) and shall maintain such
listing of all the Exchange Shares and Exchange Warrant Shares from time to time
issuable under the terms hereof. The Company shall maintain the Common Stock's
authorization for quotation on the Principal Market. Neither the Company nor any
of its Subsidiaries shall take any action which would be reasonably expected to
result in the delisting or suspension of the Common Stock on the Principal
Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 6.3.

 

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6.4 Holding Period. For the purposes of Rule 144, the Company acknowledges that
the holding period of (i) the Exchange Shares may be tacked onto the holding
period of the Existing October Warrant and (ii) the Exchange Warrants (and upon
exercise of the Exchange Warrants, the Exchange Warrant Shares (if acquired
using a Cashless Exercise (as defined in the Exchange Warrants))) may be tacked
onto the holding period of the Existing Other Warrants, and the Company agrees
not to take a position contrary to this Section 6.4. The Company agrees to take
all actions, including, without limitation, the issuance by its legal counsel of
any necessary legal opinions, necessary to issue the Exchange Shares and the
Exchanged Warrant Shares that are freely tradable on the Principal Market
without restriction and not containing any restrictive legend without the need
for any action by the Holder.

 

6.5 Form D and Blue Sky. The Company shall make all filings and reports relating
to the Exchange required under applicable securities or "Blue Sky" laws of the
states of the United States following the date hereof, if any.

 

6.6 Most Favored Nation. The Company hereby represents and warrants as of the
date hereof and covenants and agrees from and after the date hereof that none of
the terms offered to any Person with respect to any consent, release, amendment,
settlement or waiver relating to the terms, conditions and transactions
contemplated hereby (each a "Settlement Document"), is or will be more favorable
to such Person than those of the Holder and this Agreement. If, and whenever on
or after the date hereof, the Company enters into a Settlement Document, then
(i) the Company shall provide notice thereof to the Holder immediately following
the occurrence thereof and (ii) the terms and conditions of this Agreement shall
be, without any further action by the Holder or the Company, automatically
amended and modified in an economically and legally equivalent manner such that
the Holder shall receive the benefit of the more favorable terms and/or
conditions (as the case may be) set forth in such Settlement Document, provided
that upon written notice to the Company at any time the Holder may elect not to
accept the benefit of any such amended or modified term or condition, in which
event the term or condition contained in this Agreement shall apply to the
Holder as it was in effect immediately prior to such amendment or modification
as if such amendment or modification never occurred with respect to the Holder.
The provisions of this Section 6.6 shall apply similarly and equally to each
Settlement Document.

 

22

 

 

Section 7. Registration Rights Agreement. The Holder hereby agrees that upon
issuance of the Exchange Shares and the Exchange Warrants and delivery of the
Exchange Certificates to the Holder, that certain Registration Rights Agreement,
dated as of October 8, 2014, between the Company and the Buyers, shall, without
any further action by the parties, be terminated and be of no further force or
effect.

 

Section 8. Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement
shall be construed under the laws of the state of New York, without regard to
principles of conflicts of law or choice of law that would permit or require the
application of the laws of another jurisdiction. The Company and the Holder each
hereby agrees that all actions or proceedings arising directly or indirectly
from or in connection with this Agreement shall be litigated only in the Supreme
Court of the State of New York or the United States District Court for the
Southern District of New York located in New York County, New York. The Company
and the Holder each consents to the exclusive jurisdiction and venue of the
foregoing courts and consents that any process or notice of motion or other
application to either of said courts or a judge thereof may be served inside or
outside the State of New York or the Southern District of New York by generally
recognized overnight courier or certified or registered mail, return receipt
requested, directed to such party at its or his address set forth below (and
service so made shall be deemed "personal service") or by personal service or in
such other manner as may be permissible under the rules of said courts. THE
COMPANY AND THE HOLDER EACH HEREBY WAIVES ANY RIGHT TO A JURY TRIAL IN
CONNECTION WITH ANY LITIGATION PURSUANT TO THIS AGREEMENT.

 

Section 9. Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.

 

Section 10. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

 

Section 11. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

 

23

 

 

Section 12. Entire Agreement; Amendments. This Agreement supersedes all other
prior oral or written agreements between the Holder, the Company, their
affiliates and persons acting on their 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 the Company nor the Holder makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Holder. No provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought.

 

Section 13. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (a) upon receipt, when
delivered personally; (b) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (c) one calendar day (excluding
Saturdays, Sundays, and national banking holidays) after deposit with an
overnight courier service, in each case properly addressed to the party to
receive the same.

 

The addresses and facsimile numbers for such communications shall be:

 

If to the Company:

 

InterCloud Systems, Inc.

1030 Broad Street, Suite 102

Shrewsbury, NJ, 07702

Attn: Daniel Sullivan

 

With a copy (which shall not constitute notice) to:

 

Pryor Cashman LLP 7 Times Square

New York, NY 10036-6569

Attn: M. Ali Panjwani

 

If to the Holder:

 

to the address set forth on the signature pages hereto

 

or to such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.

 

Section 14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Securities. The Holder may assign some or all of
their rights hereunder without the consent of the Company, in which event such
assignee shall be deemed to be the Holder hereunder with respect to such
assigned rights.

 

24

 

 

Section 15. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

 

Section 16. Survival of Representations. The representations and warranties of
the Company and the Holder contained in Sections 2 and 3, respectively, will
survive the closing of the transactions contemplated by this Agreement.

 

Section 17. 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
any 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.

 

Section 18. Independent Nature of Holder's Obligations and Exchange Warrants.
The obligations of the Holder under this Agreement or the other Transaction
Documents are several and not joint with the obligations of any other Person
(each, an "Other Person"), and the Holder shall not be responsible in any way
for the performance of the obligations of any Other Person under any other
Transaction Document or similar agreement of any Other Person (the "Other
Documents"). Nothing contained herein or in any Other Document or any other
Transaction Document, and no action taken by the Holder pursuant hereto, shall
be deemed to constitute the Holder and such Other Persons as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Holder and Other Person are in any way acting in concert or
as a group with respect to such obligations or the transactions contemplated by
this Agreement, any Other Documents or any other Transaction Document and the
Company acknowledges that neither the Holder nor any Other Person are acting in
concert or as a group with respect to such obligations or the transactions
contemplated by this Agreement, any Other Document and any other Transaction
Document. The Company and the Holder confirm that the Holder has independently
participated in the negotiation of the transactions contemplated hereby with the
advice of its own counsel and advisors. The Holder shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement, any Other Document or out of any other
Transaction Documents, and it shall not be necessary for any Other Person to be
joined as an additional party in any proceeding for such purpose.

 

[Signature Page Follows]

 

25

 

 

IN WITNESS WHEREOF, the parties have executed this Exchange Agreement as of the
date first written above.

 

  INTERCLOUD SYSTEMS, INC.         By: /s/ Timothy A. Larkin   Name: Timothy A.
Larkin   Title: CFO         HOLDER:

 

  31 Group, LLC

  

  By: /s/ Joshua Sason   Name: Joshua Sason,   Title: Managing Member

 

Aggregate number of shares of Common Stock issuable upon exercise of the
Existing Warrants as of April 2nd, 2015 (without regard to any limitation on
exercise set forth therein:

 

Existing April Warrant:   125,000         Existing July Warrant:   58,870    
    Existing October Warrant:   2,433,758 

 

Address for Notice:

 

Magna

5 Hanover Square, Ste. 1604

New York, NY 10004

 

 

 

 

EXHIBIT A

 

Holder  Exchange Shares 31 Group, LLC  1,146,977 shares*         *$4,315,000
worth of common stock, valued at the closing price of the common stock on the
trading day immediately prior to the date of this Agreement ($2.15), less
860,000 shares of common stock

 

 

 

 

Exhibit B-1

 

Exchange April Warrant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit B-2

 

Exchange July Warrant