Exhibit 10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOAN AND SECURITY AGREEMENT

 

by and between GEMCAP LENDING I, LLC

 

as Lender and

 

SYSOREX GLOBAL, SYSOREX USA and SYSOREX GOVERNMENT SERVICES INC.,

 

jointly and severally,

as Borrower

 

Dated: November 14, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOAN AND SECURITY AGREEMENT

 

LOAN AND SECURITY AGREEMENT, dated as of November 14, 2016, by and between
SYSOREX GLOBAL, a Nevada corporation with offices at 2479 East Bayshore Road,
Suite 195, Palo Alto, CA 94303 (“SG”), SYSOREX USA, a California corporation
with offices at 2479 East Bayshore Road, Suite 195, Palo Alto, CA 94303 (“SUSA”)
and SYSOREX GOVERNMENT SERVICES, INC., a Virginia corporation with offices at
2479 East Bayshore Road, Suite 195, Palo Alto, CA 94303 (“SGS” and together with
SUSA and SG, jointly and severally the “Borrower”), and GEMCAP LENDING I, LLC, a
Delaware limited liability company with offices at 24955 Pacific Coast Highway,
Suite A202, Malibu, CA 90265 (together with its successors and assigns, the
“Lender”).

 

R E C I T A L S:

 

WHEREAS, Borrower desires to enter into a revolving loan credit facility with
Lender; and

 

WHEREAS, Lender is willing to establish such credit facility on the terms and
conditions hereinafter set forth;

 

NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements herein contained and other good and valuable consideration, Lender
and Borrower mutually covenant, warrant and agree as follows:

 

SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION AND CONSTRUCTION

 

Specific Terms Defined. Capitalized terms used herein and not otherwise defined
have the following meanings:

 

1.1 “Account Debtor” or “account debtor” means “account debtor” as defined in
Article 9 of the UCC, and any other Persons obligated in respect of Accounts.

 

1.2 “Accounts” or “accounts” means “accounts” as defined in the UCC, and, in
addition, any and all obligations of any kind at any time due and/or owing to
Borrower, whether now existing or hereafter arising, and all rights of Borrower
to receive payment or any other consideration including, without limitation,
pursuant to invoices, contract rights, leases, accounts receivable, general
intangibles, choses-in-action, notes, drafts, acceptances, instruments, and all
other debts, obligations and liabilities in whatever form owing to Borrower from
any Person, and all of Borrower’s rights to receive payments for goods sold
(whether delivered, undelivered, in transit or returned) or assets leased or
services rendered (whether or not earned by performance), which may be
represented thereby, or with respect thereto, and all property pledged as
collateral security for any of the foregoing, and all rights as an unpaid vendor
(including stoppage in transit, replevin or reclamation), and all additional
amounts due from any Account Debtor, whether or not invoiced, together with all
Proceeds and products of any and all of the foregoing.

 

1.3 “ACH” has the meaning set forth in Section 2.5 hereof.

 

1.4 “Advance” has the meaning as set forth in Section 1(c)(ii) of the Loan
Agreement Schedule.

 

 2 

 

 

1.5 “Affiliate” means, with respect to any Person, (a) any other Person that,
directly or indirectly, controls, is controlled by, or is under common control
with such Person, including any Subsidiary, or (b) any other Person who is a
director, manager, officer or who may function in a similar role (i) of such
Person, (ii) of any Subsidiary of such Person or (iii) of any Person described
in clause (a) above. For the purposes of this definition, control of a Person
means the power (direct or indirect) to direct or cause the direction of the
management or the policies of such Person, whether through the ownership of any
voting securities, by contract or otherwise.

 

1.6 “Agreement” means this Loan and Security Agreement (including the Loan
Agreement Schedule, all Exhibits annexed hereto and the Borrower’s Disclosure
Schedule) as originally executed or, if amended, modified, supplemented, renewed
or extended from time to time, as so amended, modified, supplemented, renewed or
extended.

 

1.7 “Availability” means, as of any date of determination, the lesser of (i) the
Borrowing Base (as set forth in the most recently delivered Borrowing
Certificate), and (ii) Ten Million Dollars ($10,000,000).

 

1.8 “Balance Sheet” means the balance sheet of Borrower dated as of the Balance
Sheet Date

 

1.9 “Balance Sheet Date” means September 30, 2016.

 

1.10 “Bankruptcy Code” means the United States Bankruptcy Code, Title 11, United
States Code, as the same may be amended and modified from time to time.

 

1.11 “Borrower” has the meaning set forth in the introductory paragraph hereof.

 

1.12 “Borrower’s Disclosure Schedule” means the disclosure schedule prepared by
Borrower that is being delivered to Lender concurrently herewith or, if amended,
modified, supplemented, renewed, extended or replaced from time to time, as so
amended, modified, supplemented, renewed, extended or replaced.

 

1.13 “Borrower’s Premises” means the property leased by the Borrower located at
2479 East Bayshore Road, Suite 195, Palo Alto, CA 94303, and 17 East Sir Francis
Drake Boulevard, Suite 110, Larkspur, CA 94939.

 

1.14 “Borrowing Base” shall be calculated at any time as the product obtained by
multiplying the outstanding amount of all Eligible Accounts, net of all Taxes,
discounts, allowances and credits given or claimed, by up to eighty-five percent
(85%).

 

1.15 “Borrowing Certificate” has the meaning as set forth in Section 1(c)(v) of
the Loan Agreement Schedule.

 

1.16 “Business” means the provision of big data analytics and location based
products and related services for the cyber-security and Internet of Things
markets.

 3 

 

 

1.17 “Business Day” means any day other than a Saturday, Sunday or any other day
on which banks located in the State of California are authorized or required to
close under applicable banking laws.

 

1.18 “Chattel Paper” has the meaning ascribed to such term in the UCC.

 

1.19 “Closing Date” means the date of this Agreement.

 

1.20 “Collateral” has the meaning as set forth in Section 5.1 hereof.

 

1.21 “Collection Account” has the meaning set forth in Section 1(c)(vi) of the
Loan Agreement Schedule.

 

1.22 “Collections” means with respect to any Account, all cash collections on
such Account.

 

1.23 “Commercial Tort Claims” has the meaning ascribed to such term in the UCC.

 

1.24 “Default Interest Rate” has the meaning set forth in Section 3(b) of the
Loan Agreement Schedule.

 

1.25 “Deposit Accounts” has the meaning ascribed to such term in the UCC.

 

1.26 “Document” or “document” has the meaning ascribed to such term in the UCC.

 

1.27 “Domain Name, URL and IP Address Assignment” means the Domain Name, URL and
IP Address Assignment in form and substance acceptable to Lender as originally
executed or, if amended, modified, supplemented, renewed, extended or replaced
from time to time, as so amended, modified, supplemented, renewed, extended or
replaced.

 

1.28 “Electronic Chattel Paper” has the meaning ascribed to such term in the
UCC.

 

1.29 “Eligible Accounts” means Accounts created by Borrower which satisfy all of
the following criteria:

 

(1) such Accounts are created from, or arise in connection with, the sale of
Inventory or performance of services in the ordinary course of Borrower’s
Business;

 

(2) such Accounts are good and valid Accounts representing undisputed bona fide
Indebtedness incurred by the Account Debtor therein named, for a fixed sum as
set forth in the invoice relating thereto with respect to either an
unconditional sale and delivery upon the stated terms of Inventory sold by the
Borrower or the performance of services by Borrower, and collectible in
accordance with their terms; such Inventory has been shipped to the Account
Debtor; Borrower has possession of and has delivered to Lender, shipping and
delivery receipts evidencing shipment of such Inventory; and the Inventory sold
by Borrower giving rise to the Account shall have been accepted by the Account
Debtor as evidenced by acceptance documentation duly executed by the Account
Debtor and delivered to Lender, in form and substance satisfactory to Lender;
Borrower has performed all services for the Account Debtor; Borrower has
possession of and has delivered to Lender, documents evidencing the performance
of services;

 

 4 

 

 

(3) the amounts of the Accounts reported to Lender are the actual amounts
absolutely owing to Borrower and do not arise from sales on consignment,
guaranteed sales or other terms under which payment by the Account Debtors may
be conditional or contingent;

 

(4) such Accounts do not arise from progress billings, retainages, bill and hold
sales, or with respect to services, services not yet provided or services billed
on a deferred revenue basis;

 

(5) there are no contra relationships, setoffs, counterclaims or disputes
existing with respect thereto;

 

(6) the Inventory giving rise thereto are not subject to any Liens except for
the Liens of Lender;

 

(7) such Accounts are free and clear of all Liens except for the Liens of
Lender;

 

(8) such Accounts are not Accounts with respect to which the Account Debtor or
any officer or employee thereof is an officer, employee or agent of or is
affiliated with Borrower, directly or indirectly, whether by virtue of family
membership, ownership, control, management or otherwise;

 

(9) [Reserved]

 

(10) Borrower has delivered to Lender or Lender’s representative such documents
as Lender may have reasonably requested in connection with such Accounts and
Lender shall have received a verification of such Accounts, reasonably
satisfactory to it, if sent to the Account Debtor or any other obligor or any
bailee;

 

(11) there are no facts existing or threatened which might result in any
material adverse change in the Account Debtor’s financial condition;

 

(12) such Accounts are not owed by an Account Debtor with respect to which more
than 25% of such Account Debtor’s Accounts have remained unpaid for more than
ninety (90) days after the invoice date thereof;

 

(13) such Accounts have not remained unpaid for more than ninety (90) days after
the invoice date thereof;

 

(14) such Accounts continue to be in full conformity with the representations
and warranties made by Borrower to Lender with respect thereto;

 

(15) Lender is, and continues to be, reasonably satisfied with the credit
standing of the Account Debtor in relation to the amount of credit extended;

 

 5 

 

 

(16) such Accounts are not evidenced by chattel paper or an instrument of any
kind with respect to or in payment of the Account unless such instrument is duly
endorsed to and in possession of Lender or represents a check in payment of an
account;

 

(17) such Accounts are net of any returns, discounts, claims, credits and
allowances;

 

(18) Borrower is able to bring suit and enforce its remedies against the Account
Debtor through judicial process;

 

(19) such Accounts do not represent interest payments, late or finance charges
owing to Borrower;

 

(20) such Accounts have credit insurance in such amounts and in form and
substance reasonably acceptable to Lender in its sole and absolute discretion;

 

(21) Accounts that satisfy the criteria set forth in the foregoing items (1) –
(20), which are owed by any other single Account Debtor or its Affiliates so
long as such Accounts, in the aggregate, constitute no more than twenty percent
(20%) of all Eligible Accounts; and

 

(22) notwithstanding the provisions of items (1) – (21), Accounts which are
otherwise satisfactory to Lender in its sole and absolute discretion.

 

1.30 “Environment” means all air, surface water, groundwater or land, including,
without limitation, land surface or subsurface, including, without limitation,
all fish, wildlife, biota and all other natural resources.

 

1.31 “Environmental Law” or “Environmental Laws” means all federal, state and
local laws, statutes, ordinances and regulations now or hereafter in effect, and
in each case as amended or supplemented from time to time, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment relating to the regulation and protection of
human health, safety, the environment and natural resources (including ambient
air, surface water, groundwater, wetlands, land surface or subsurface strata,
wildlife, aquatic species and vegetation).

 

1.32 “Environmental Liabilities and Costs” means, as to any Person, all
liabilities, obligations, responsibilities, remedial actions, losses, damages,
punitive damages, consequential damages, treble damages, costs and expenses
(including all fees, disbursements and expenses of counsel, experts and
consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim or demand by
any other Person, whether based in contract, tort, implied or express warranty,
strict liability, criminal or civil statute, including any Environmental Law,
permit, order or agreement with any Governmental Authority or other Person, and
which arise from any environmental, health or safety conditions, or a Release or
conditions that are reasonably likely to result in a Release, and result from
the past, present or future operations of such Person or any of its Affiliates.

 

1.33 “Environmental Lien” means any Lien in favor of any Governmental Authority
for Environmental Liabilities and Costs.

 

 6 

 

 

1.34 “ERISA” means the Employee Retirement Income Security Act of 1974, as the
same now exists or may from time to time hereafter be amended, modified,
recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.

 

1.35 “Equipment” means “equipment”, as such term is defined in the UCC, now
owned or hereafter acquired by Borrower, wherever located, and shall include,
without limitation, the machinery and equipment set forth on Section 5.4(j) to
the Borrower’s Disclosure Schedule, and all other equipment, machinery,
furniture, Fixtures, computer equipment, telephone equipment, molds, tools,
dies, partitions, tooling, transportation equipment, all other tangible assets
used in connection with the manufacture, sale or lease of goods or rendition of
services, and Borrower’s interests in any leased equipment, and all repairs,
modifications, alterations, additions, controls and operating accessories,
attachments and parts thereof or thereto, and all substitutions and replacements
therefor.

 

1.36 “Equipment Certificate” has the meaning set forth in Section 7(b)(iv) of
the Loan Agreement Schedule.

 

1.37 “Equity Interests” means, with respect to any Person, any and all shares,
rights to purchase, options, warrants, general, limited or limited liability
partnership interests, membership interests, units, participations or other
equivalents of or interest in (regardless of how designated) equity of such
Person, whether voting or nonvoting, including common stock, preferred stock,
convertible securities or any other “equity security” (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC (or
any successor thereto) under the Securities Exchange Act of 1934, as amended).

 

1.38 “Event of Default” means the occurrence or existence of any event or
condition described in Section 11 of this Agreement.

 

1.39 “Financial Statements” has the meaning set forth in Section 8.9 hereof.

 

1.40 “Financing Statements” means the Uniform Commercial Code UCC Financing
Statements and Uniform Commercial Code UCC Financing Statement Amendments to be
filed with applicable Governmental Authorities of each State or Commonwealth or
political subdivisions thereof pursuant to which Lender shall perfect its
security interest in the Collateral.

 

1.41 “Fiscal Year” means that twelve (12) month period commencing on January 1
and ending on December 31.

 

1.42 “Fixtures” has the meaning ascribed to such term in the UCC.

 

1.43 “GAAP” means generally accepted accounting principles in effect in the
United States of America at the time of any determination, and which are applied
on a consistent basis. All accounting terms used in this Agreement which are not
expressly defined in this Agreement shall have the meanings given to those terms
by GAAP, unless the context of this Agreement otherwise requires.

 

1.44 “General Intangibles” has the meaning ascribed to such term in the UCC.

 

1.45 “Goods” has the meaning ascribed to such term in the UCC.

 

 7 

 

 

1.46 “Governmental Authority” or “Governmental Authorities” means any federal,
state, county or municipal governmental agency, court, tribunal, department,
instrumentality, board, commission, officer, official or entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

 

1.47 “Hazardous Substances” means (a) substances that are defined or listed in,
or otherwise classified pursuant to, any applicable laws or regulations as
“hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic
substances,” or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP
toxicity,” (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.

 

1.48 “Hillair Capital” means Hillair Capital Investments, L.P., a Cayman Island
exempt limited partnership.

 

1.49 “Indebtedness” means, with respect to any Person, all of the obligations of
such Person which, in accordance with GAAP, should be classified upon such
Person’s balance sheet as liabilities, or to which reference should be made by
footnotes thereto, including without limitation, with respect to Borrower, in
any event and whether or not so classified, including the following:

 

(a) all debt and similar monetary obligations of a Person, whether direct or
indirect;

 

(b) all obligations of a Person arising or incurred under or in respect of any
guaranties (whether direct or indirect) of such Person with respect to the
indebtedness of any other Person; and

 

(c) all obligations of a Person arising or incurred under or in respect of any
Lien upon or in any property owned by Borrower that secures indebtedness of
another Person, even though such Person has not assumed or become liable for the
payment of such indebtedness.

 

1.50 “Instruments” has the meaning ascribed to such term in the UCC.

 

1.51 “Intellectual Property” means all of the following intellectual property
used in the conduct of the Borrower’s Business: (a) inventions, processes,
techniques, discoveries, developments and related improvements, whether or not
patentable; (b) United States patents, patent applications, divisionals,
continuations, reissues, renewals, registrations, confirmations,
re-examinations, extensions and any provisional applications, of any such
patents or patent applications, and any foreign or international equivalent of
any of the foregoing; (c) unregistered, United States registered or pending
trademark, trade dress, service mark, service name, trade name, brand name,
logo, domain name, or business symbol and any foreign or international
equivalent of any of the foregoing; (d) work specifications, software (including
object and source code listing) and artwork; (e) technical, scientific and other
know-how and information, trade secrets, methods, processes, practices,
formulas, designs, assembly procedures, specifications owned or used by
Borrower; (f) copyrights; (g) work for hire; (h) customer and mailing lists; (i)
any and all rights of the Borrower to the name “ SYSOREX”, “SYSOREX USA” and
“SYSOREX GOVERNMENT SERVICES” or any derivation thereof; (j) Borrower’s entire
customer list and database and all assets used or useful by Borrower in the
conduct of its Business over the internet or in any electronic medium; (k) all
websites, IP addresses, URLs or domain names owned by Borrower; (l), the
patents, trademarks, websites, IP addresses, URLs, domain names and such other
items set forth on Section 8.21 to the Borrower’s Disclosure Schedule; and (m)
all goodwill associated with the items described in (a) through and including
(l).

 

 8 

 

 

1.52 “Interest Rate” means the Revolving Loan Interest Rate.

 

1.53 “Intercreditor Agreement” means collectively, the agreement, in form and
substance acceptable to Lender, between Lender and each of (i) Hillair Capital
whereby Hillair Capital, among other matters, subordinates its Lien in the
Collateral to the Lien in favor of Lender, and (ii) Avnet, Inc., whereby among
other matters, Avnet, Inc., among other matters, subordinates its Lien in the
Collateral to the Lien in favor of Lender.

 

1.54 “Inventory” has the meaning ascribed to such term in the UCC, now owned or
hereafter acquired by Borrower, wherever located, and, in any event, shall
include, without limitation, all raw materials, work-in-process, finished and
semi-finished Inventory including, without limitation, all materials, parts,
components and supplies relating to the manufacture or assembly thereof,
packaging and shipping supplies relating thereto, and all other inventory,
merchandise, goods and other personal property now or hereafter owned by
Borrower, which are held for sale, exchange or lease or are furnished or are to
be furnished under a contract of service or an exchange arrangement or which
constitute raw materials, work-in-process or materials used or consumed or to be
used or consumed in Borrower’s Business, or the processing, packaging, delivery
or shipping of the same, and all finished goods and the products of the
foregoing, whatever form and wherever located; and all names or marks affixed to
or to be affixed thereto for purposes of selling same by the seller,
manufacturer, lessor or licensor thereof and all right, title and interest of
Borrower therein and thereto.

 

1.55 “Investment Property” has the meaning ascribed to such term in the UCC.

 

1.56 “Landlord Waiver and Access Agreements” means the Landlord Waiver and
Access Agreement with each landlord of Borrower as originally executed or, if
amended, modified, supplemented, renewed, extended or replaced from time to
time, as so amended, modified, supplemented, renewed, extended or replaced.

 

1.57 “Lender” has the meaning set forth in the introductory paragraph hereof.

 

1.58 “Letter-of-Credit Rights” means “letter-of-credit rights” as such term is
defined in the UCC, including rights to payment or performance under a letter of
credit, whether or not the beneficiary thereof has demanded or is entitled to
demand payment or performance.

 

1.59 “Lien” or “lien” means any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, lien (statutory or other, including,
without limitation, liens imposed byany Governmental Authority or otherwise),
charge or other encumbrance of any kind or nature whatsoever (including, without
limitation, pursuant to any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the UCC or comparable
law of any jurisdiction to evidence any of the foregoing) on personal or real
property or fixtures.

 9 

 

 

1.60 “Loans” means the aggregate principal amount advanced to, made available
to, or paid for the benefit of, Borrower as Revolving Loans as set forth in this
Agreement and the other Loan Documents.

 

1.61 “Loan Agreement Schedule” means the Loan Agreement Schedule dated of even
date herewith, signed by Borrower and delivered together with this Agreement,
which Loan Agreement Schedule is incorporated herein by reference.

 

1.62 “Loan Documents” means this Agreement, the Loan Agreement Schedule, the
Borrower’s Disclosure Schedule, the Revolving Loan Note, the Intercreditor
Agreement, the Domain Name, URL and IP Address Assignment, the Landlord Waiver
and Access Agreements, the Patent and Trademark Security Agreement and any and
all other agreements, notes, documents, mortgages, financing statements,
guaranties, intercreditor agreements, subordination agreements, certificates and
such other documents and instruments executed and/or delivered at any time by
Borrower or any other Person to Lender pursuant to and in connection with the
Loans and this Agreement, as the same may be amended, modified, supplemented,
renewed or extended from time to time.

 

1.63 “Material Adverse Effect” means a material adverse effect on (a) the
Business, assets, liabilities, financial condition, results of operations or
business prospects of Borrower, (b) the ability of Borrower to perform its
obligations under any Loan Document to which it is a party, (c) the value of the
Collateral or the rights of Lender therein, (d) the validity or enforceability
of any of the Loan Documents, (e) the rights and remedies of Lender under any of
such Loan Documents, or (f) the timely payment of the principal of or interest
on the Loans or other amounts payable in connection therewith. All
determinations of materiality shall be made by the Lender in its sole and
absolute judgment acting in good faith.

 

1.64 “Material Contract” means any contract or other arrangement (other than
Loan Documents), whether written or oral, to which Borrower is a party as to
which the breach, nonperformance, cancellation or failure to renew by any party
thereto could have a Material Adverse Effect.

 

1.65 “Maturity Date” means the earlier of (i) November 13, 2018, and (ii) the
date Lender may exercise any of its remedies pursuant to the terms hereof.

 

1.66 “Maximum Credit” means up to Ten Million Dollars ($10,000,000) subject to
Availability, any Reserves and the Revolving Loan Commitment.

 

1.67 “Note” means the Revolving Loan Note.

 

1.68 “Obligations” means all obligations, liabilities, Loans and Indebtedness of
every kind, nature and description owing by Borrower to Lender pursuant to the
Loan Documents, including, without limitation, principal, interest, repurchase
obligations, charges, fees, costs and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the Term or after the
commencement of any case with respect to Borrower under the Bankruptcy Code or
any similar statute (including, without limitation, the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured.

 10 

 

 

1.69 “Organizational Documents” means, in the case of a corporation, its
Articles of Incorporation, Certificate of Incorporation and By-Laws; in the case
of a general partnership, its Articles of Partnership and any partnership
agreement; in the case of a limited partnership, its Articles of Limited
Partnership and any partnership agreement; in the case of a limited liability
company, its Articles of Organization and Operating Agreement or Regulations, if
any; in the case of a limited liability partnership, its Articles of Limited
Liability Partnership; or alternatively, in each case, the legal equivalent
thereof in the jurisdiction of its organization, together with all other
formation or governing documents, schedules, exhibits, amendments, addendums,
modifications, replacements, additions, or restatements of the foregoing, which
are in effect.

 

1.70 “Overadvance” has the meaning as set forth in Section 1(c)(iv) of the Loan
Agreement Schedule.

 

1.71 “Patent and Trademark Security Agreement” means the Patent and Trademark
Security Agreement as originally executed or, if amended, modified,
supplemented, renewed, extended or replaced from time to time, as so amended,
modified, supplemented, renewed, extended or replaced, and all documents
executed in connection with the Patent and Trademark Security Agreement.

 

1.72 “Payment Intangibles” has the meaning ascribed to such term in the UCC.

 

1.73 “Permitted Actions” means any or all of the following with respect to the
Collateral: inspect; assemble; appraise; display, sever; remove; maintain; use
or operate; prepare for sale or lease; process or repair; and/or lease, transfer
and/or sell any or all of the Collateral by private sale or public disposition
from any of the locations where any Collateral may be located.

 

1.74 “Permitted Encumbrances” means the Liens of Hillair Capital, the Liens of
Avnet, Inc., and the Liens set forth on Section 9.9 of the Borrower’s Disclosure
Schedule.

 

1.75 “Permitted Indebtedness” means (i) the unsecured Indebtedness consisting of
accounts payable or trade payables of the Borrower incurred in the ordinary
course of Business and repayable in accordance with customary trade practices,
(ii) Indebtedness secured by Permitted Encumbrances, (iii) the Indebtedness owed
to Western Alliance Bank which shall be repaid in full from the proceeds of the
first Loan, and (iv) Indebtedness set forth on Section 10.4 of the Borrower’s
Disclosure Schedule.

 

1.76 “Person” or “person” means, as applicable, any individual, sole
proprietorship, partnership, corporation, limited liability company, limited
liability partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any Governmental
Authorities.

 

1.77 “Proceeds” has the meaning ascribed to such term in the UCC and shall also
include, but not be limited to, (a) any and all proceeds of any and all
insurance policies (including, without limitation, life insurance, casualty
insurance, business interruption insurance and credit insurance), indemnity,
warranty or guaranty payable to Borrower from time to time with respect to any
of the Collateral or otherwise, (b) any and all payments (in any form
whatsoever) made or due and payable to Borrower from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any governmental body, authority, bureau or
agency or any other Person (whether or not acting under color of Governmental
Authority) and (c) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.

 

 11 

 

 

1.78 “Promissory Note” has the meaning ascribed to such term in the UCC.

 

1.79 “Release” means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing of a
Hazardous Substance into the Environment.

 

1.80 “Reserves” means, as of any date of determination, such amounts as Lender
may from time to time establish and revise in good faith reducing the amount of
the Revolving Loan Commitment (a) to reflect events, conditions, contingencies
or risks which, as determined by Lender in good faith, do or may adversely
affect either (i) the Collateral or any other property which is security for the
Obligations or its value, (ii) the assets, Business or prospects of Borrower,
(iii) the security interests and other rights of Lender in the Collateral
(including the enforceability, perfection and priority thereof), or (iv)
Borrower’s ability to perform its Obligations under the Loan Documents; or (b)
in respect of any state of facts which Lender determines in good faith
constitutes an Event of Default or may, with notice or passage of time or both,
constitute an Event of Default.

 

1.81 “Responsible Officer” means (i) for SG and SUSA, either the Chief Executive
Officer or the Chief Financial Officer, and (ii) for SGS, either the President
or the Chief Financial Officer.

 

1.82 “Revolving Loan Commitment” means, at any given time, the difference
between (i) Availability and (ii) the sum of the Reserves related to the
Revolving Loans plus outstanding Revolving Loans plus any other Obligations
relating to the Revolving Loans.

 

1.83 “Revolving Loan Note” means the “Secured Promissory Note (Revolving Loans)”
as may be amended, restated, modified or supplemented from time to time.

 

1.84 “Revolving Loan Prepayment Fee” has the meaning set forth in Section 4(b)
of the Loan Agreement Schedule.

 

1.85 “Revolving Loan Interest Rate” is as set forth in Section 3(a) of the Loan
Agreement Schedule.

 

1.86 “Revolving Loans” has the meaning as set forth in Section 1(c)(i) of the
Loan Agreement Schedule.

 

1.87 “SEC” means the United States Securities and Exchange Commission.

 

1.88 “Securities” has the meaning ascribed to such term in the UCC.

 

1.89 “Software” has the meaning ascribed to such term in the UCC.

 

1.90 “Subsidiary” means, as to any Person, a corporation, limited liability
company or other entity with respect to which more than fifty (50%) percent of
the outstanding Equity Interests of each class having voting power is at the
time owned by such Person or by one or more Subsidiaries of such Person or by
such Person.

 

 12 

 

 

1.91 “Tangible Chattel Paper” has the meaning ascribed to such term in the UCC.

 

1.92 “Tax” or “Taxes” has the meaning set forth in Section 8.12(d).

 

1.93 “Tax Deduction” has the meaning set forth in Section 8.12(c).

 

1.94 “Term” has the meaning set forth in Section 4.1.

 

1.95 “UCC” means the Uniform Commercial Code as presently enacted in California
(or any successor legislation thereto), and as the same may be amended from time
to time; provided that, if by reason of mandatory provisions of law, perfection,
or the effect of perfection or non-perfection, of a security interest in any
Collateral or the availability of any remedy under the Loan Documents is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than California, “UCC” means the Uniform Commercial Code as in effect in such
other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection or availability of such
remedy, as the case may be.

 

1.96 Rules of Interpretation and Construction. In this Agreement unless the
context otherwise requires:

 

(a) All terms used herein which are defined in the UCC shall have the meanings
given therein unless otherwise defined in this Agreement;

 

(b) Sections mentioned by number only are the respective Sections of this
Agreement as so numbered;

 

(c) Words importing a particular gender shall mean and include the other gender
and words importing the singular mean and include the plural and vice versa;

 

(d) Words importing persons shall mean and include firms, associations,
partnerships (including limited partnerships), societies, trusts, corporations,
limited liability companies or other legal entities, including public or
governmental bodies, as well as natural persons;

 

(e) Each reference in this Agreement to a particular person shall be deemed to
include a reference to such person's successors and permitted assigns;

 

(f) Any headings preceding the texts of any Section of this Agreement, and any
table of contents or marginal notes appended to copies hereof are intended,
solely for convenience of reference and shall not constitute a part of this
Agreement, nor shall they affect its meaning, construction or effect;

 

(g) If any clause, provision or section of this Agreement shall be ruled invalid
or unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any of the remaining provisions thereof;

 

 13 

 

 

(h) The terms “herein”, “hereunder”, “hereby”, “hereto”, and any similar terms
as used in this Agreement refer to this Agreement; the term “heretofore” means
before the date of execution of this Agreement; and the term “hereafter” shall
mean after the date of execution of this Agreement;

 

(i) If any clause, provision or section of this Agreement shall be determined to
be apparently contrary to or conflicting with any other clause, provision or
section of this Agreement, then the clause, provision or section containing the
more specific provisions shall control and govern with respect to such apparent
conflict;

 

(j) Unless otherwise specified, (i) all accounting terms used herein or in any
Loan Document shall be interpreted in accordance with GAAP, (ii) all accounting
determinations and computations hereunder or thereunder shall be made in
accordance with GAAP and (iii) all financial statements required to be delivered
hereunder or thereunder shall be prepared in accordance with GAAP;

 

(k) An Event of Default that occurs shall exist or continue or be continuing
unless such Event of Default is waived by Lender in accordance with the terms of
this Agreement;

 

(l) The word “and” when used from time to time herein shall mean “or” or
“and/or” if such meaning is expansive of the rights or interests of Lender in
the given context;

 

(m) All references herein and in the other Loan Documents to times of day shall
refer to Los Angeles, California time, unless otherwise specified to the
contrary; and

 

(n) No provision of this Agreement shall be construed against or interpreted to
the disadvantage of any party hereto by reason of such party or his or its
counsel having, or being deemed to have, structured or drafted such provision.

 

SECTION 2. LOANS

 

2.1 Loans. The terms and provisions of Section 1(c) of the Loan Agreement
Schedule are incorporated herein by reference and made a part hereof.

 

2.2 Maximum Credit. The aggregate principal amount of the Loans shall not exceed
the amount of the Maximum Credit.

 

2.3 Use of Proceeds. Borrower shall use the proceeds of the Loans solely for the
purposes set forth in Section 1(d) the Loan Agreement Schedule.

 

2.4 Repayment. Borrower shall repay the Loans and other Obligations in
accordance with this Agreement and the Note.

 

2.5 ACH. In order to satisfy Borrower’s payment of amounts due under the Loans
and all fees, expenses and charges with respect thereto that are due and payable
under this Agreement or any other Loan Document, Borrower hereby irrevocably
authorizes the Lender to initiate manual and automatic electronic (debit and
credit) entries through the Automated Clearing House or other appropriate
electronic payment system (“ACH”) to all deposit accounts maintained by
Borrower, wherever located. At the request of the Lender, Borrower shall
complete, execute and deliver to the institution set forth below (with a copy to
the Lender) any ACH agreement, voided check, information and/or direction letter
reasonably necessary to so instruct Borrower’s depository institution. Borrower
(i) shall maintain in all respects this ACH arrangement; (ii) shall not change
depository institutions without Lender’s prior written consent, and if consent
is received, shall immediately execute similar ACH instruction(s), and (iii)
waives any and all claims for loss or damage arising out of debits or credits
to/from the depository institution, whether made properly or in error. Borrower
has so communicated with and instructed the institution(s) set forth in Section
1(e) of the Loan Agreement Schedule.

 

 14 

 

 

SECTION 3. INTEREST, FEES AND CHARGES

 

3.1 Interest. Interest on the Loans shall accrue as set forth in Sections 3(a)
and 3(b) of the Loan Agreement Schedule.

 

3.2 Fees. Borrower shall pay Lender the fees set forth in Section 3(c) of the
Loan Agreement Schedule. Such fees, other than the audit fees referenced
therein, shall be deemed fully earned on the date hereof, shall be paid from
Loan proceeds, and shall not be subject to rebate or proration for any reason.

 

3.3 Fees and Expenses. Borrower shall pay, on Lender’s demand, all costs,
expenses, filing fees and Taxes (other than taxes based on the income of Lender)
payable in connection with the preparation, execution, delivery, recording,
administration, collection, liquidation, defense and enforcement of the Loan
Documents, Lender’s rights in the Collateral, and all other existing and future
agreements or documents contemplated herein or related hereto, including any
amendments, waivers, supplements or consents which may now or hereafter be made
or entered into in respect hereof, or in any way involving claims or defenses
asserted by Lender or claims or defenses against Lender asserted by Borrower or
any third party directly or indirectly arising out of or related to the
relationship between Borrower and Lender, including, but not limited to the
following, whether incurred before, during or after the Term or after the
commencement of any case with respect to Borrower under the Bankruptcy Code or
any similar or successor statute: (a) all costs and expenses of filing or
recording (including Financing Statements and mortgage filing fees); (b) all
title insurance and other insurance premiums, appraisal fees, fees incurred in
connection with any environmental report and audit, survey and search fees and
charges; (c) all fees relating to the wire transfer of loan proceeds and other
funds and fees for returned checks; and (d) all costs, fees and disbursements of
counsel to Lender. If any fees, costs or charges payable to Lender hereunder are
not paid when due, such amounts shall be added to the Obligations and accrue
interest at the Default Interest Rate until paid.

 

3.4 Savings Clause. It is intended that the Interest Rate and the Default
Interest Rate shall never exceed the maximum rate, if any, which may be legally
charged in the State of California for commercial loans made to corporations
(the “Maximum Rate”). If the provisions for interest contained in the Revolving
Loan Note would result in a rate higher than the Maximum Rate, the interest
shall nevertheless be limited to the Maximum Rate and any amounts which may be
paid toward interest in excess of the Maximum Rate shall be applied to the
reduction of principal, or, at the option of Lender, returned to the Borrower.

 15 

 

 

SECTION 4. TERM

 

4.1 Term. This Agreement shall continue until all Obligations shall have been
indefeasibly paid in full (the “Term”).

 

4.2 Early Termination; Loan Prepayment Fees.

 

(a) Lender shall have the right to accelerate payment of the Obligations at any
time upon or after the occurrence of an Event of Default.

 

(b) Borrower may prepay the Loans as set forth in Sections 4(a) or 4(b) of the
Loan Agreement Schedule.

 

(c) Borrower shall prepay the Loans as set forth in Sections 4(c) and 4(d) of
the Loan Agreement Schedule.

 

SECTION 5. COLLATERAL

 

5.1 Security Interests in Borrower’s Assets. As collateral security for the
payment and performance of the Obligations, Borrower hereby grants and conveys
to Lender a first priority continuing security interest in and Lien upon all now
owned and hereafter acquired property and assets of Borrower and the Proceeds
and products thereof including, without limitation, the property described in
this Section 5.1 and all property of Borrower now or hereafter held or possessed
by Lender (which property, assets and Proceeds, together with all other
collateral security for the Obligations now or hereafter granted to or otherwise
acquired by Lender, are referred to herein collectively as the “Collateral”):

 

(a) Accounts;

 

(b) Chattel Paper;

 

(c) Commercial Tort Claims;

 

(d) Deposit Accounts;

 

(e) Documents;

 

(f) Electronic Chattel Paper;

 

(g) Equipment;

 

(h) Fixtures;

 

(i) General Intangibles;

 

(j) Goods;

 

(k) Instruments;

 

 16 

 

 

(l) Inventory;

 

(m) Investment Property;

 

(n) Letter-of-Credit Rights;

 

(o) Payment Intangibles;

 

(p) Promissory Notes;

 

(q) Software;

 

(r) Tangible Chattel Paper;

 

(s) Securities (whether certificated or uncertificated);

 

(t) warehouse receipts;

 

(u) cash monies;

 

(v) Tax and duty refunds;

 

(w) Intellectual Property;

 

(x) All present and future books and records relating to any of the above
including, without limitation, all present and future books of account of every
kind or nature, purchase and sale agreements, invoices, ledger cards, bills of
lading and other shipping evidence, statements, correspondence, memoranda,
credit files and other data relating to the Collateral or any Account Debtor,
together with the tapes, disks, diskettes and other data and software storage
media and devices, file cabinets or containers in or on which the foregoing are
stored (including any rights of Borrower with respect to any of the foregoing
maintained with or by any other Person); and

 

(y) Any and all products and Proceeds of the foregoing in any form including,
without limitation, all insurance claims, warranty claims and proceeds and
claims against third parties for loss or destruction of or damage to any or the
foregoing.

 

5.2 Financing Statements. Borrower hereby authorizes Lender to prepare and file
Financing Statements with respect to the Collateral in form reasonably
acceptable to Lender and its counsel, and hereby ratifies any actions taken by
Lender prior to or after the date hereof in respect of the preparation and
filing of Financing Statements. Borrower shall, at all times, do, make, execute,
deliver and record, register or file all Financing Statements and other
instruments, acts, pledges, leasehold or other mortgages, amendments,
modifications, assignments and transfers (or cause the same to be done), and
will deliver to Lender such instruments and/or documentation evidencing items of
Collateral, as may be reasonably requested by Lender to better secure or perfect
Lender’s security interest in the Collateral or any Lien with respect thereto.
Borrower acknowledges that it is not authorized to file any termination
statement with respect to any Financing Statement in favor of Lender without the
prior written consent of Lender and agrees that it will not do so without the
prior written consent of Lender. In addition, Borrower hereby authorizes Lender
to record the Liens in favor of the Lender in the U.S. Patent and Trademark
Office and the U.S. Copyright Office, as applicable, and the taking of any
actions required under the laws of jurisdictions outside the United States with
respect to Intellectual Property included in the Collateral.

 

 17 

 

 

5.3 License Grant. The terms of Section 5(b) of the Loan Agreement Schedule are
incorporated herein by reference and made a part hereof.

 

5.4 Representations, Warranties and Covenants Concerning the Collateral.
Borrower covenants, represents and warrants (each of which such covenants,
representations and warranties shall survive execution and delivery of this
Agreement and shall be deemed repeated upon the making of each request for a
Revolving Loan and made as of the time of each and every Revolving Loan
hereunder) as follows:

 

(a) (i) Borrower owns all of the Collateral free and clear of all Liens
(including any claim of infringement) except those in Lender’s favor and
Permitted Encumbrances, and except for the Liens in favor or Western Alliance
Bank which shall be released concurrently with the repayment of all Indebtedness
owed to Western Alliance Bank by Borrower from the proceeds of the first Loans
made hereunder, and (ii) none of the Collateral is subject to any agreement
prohibiting the granting of a Lien or requiring notice of or consent to the
granting of a Lien.

 

(b) It shall not encumber, mortgage, pledge, assign or grant any Lien upon any
Collateral or any other assets to anyone other than the Lender and except for
Permitted Encumbrances.

 

(c) The Liens granted pursuant to this Agreement, upon the filing of Financing
Statements in respect of Borrower in favor of the Lender in the applicable
filing office of the state of organization of Borrower, the recording of the
Liens in favor of the Lender in the U.S. Patent and Trademark Office and the
U.S. Copyright Office, as applicable, and the taking of any actions required
under the laws of jurisdictions outside the United States with respect to
Intellectual Property included in the Collateral which is created under such
laws, constitute valid perfected first priority security interests in all of the
Collateral in favor of the Lender, as security for the prompt and complete
payment and performance of the Obligations, enforceable in accordance with the
terms hereof.

 

(d) No security agreement, mortgage, deed of trust, financing statement,
equivalent security or Lien instrument or continuation statement covering all or
any part of the Collateral is or will be on file or of record in any public
office, except those relating to the Liens of Lender and Permitted Encumbrances.

 

(e) It shall not dispose of any of the Collateral whether by sale, lease or
otherwise except for (i) the sale of Inventory in the ordinary course of
business and (ii) the disposition or transfer in the ordinary course of business
of worn out or obsolete Equipment if consented to in advance in writing by
Lender, in Lender’s sole and absolute discretion, and then only to the extent
that the proceeds of any such disposition are used to acquire replacement
Equipment which is subject to the Lender’s security interest or are used to
repay the Obligations, as determined by Lender in its sole and absolute
discretion.

 

 18 

 

 

(f) It shall defend the right, title and interest of the Lender in and to the
Collateral against the claims and demands of all Persons whomsoever, and take
such actions, including (i) all actions necessary to grant the Lender “control”
of any Investment Property, Deposit Accounts, Letter- of-Credit Rights or
Electronic Chattel Paper owned by it, with any agreements establishing control
to be in form and substance satisfactory to the Lender, (ii) the prompt (but in
no event later than five (5) Business Days following the Lender’s request
therefor) delivery to the Lender of all original Instruments, Chattel Paper,
negotiable Documents and certificated Securities owned byit (in each case,
accompanied by stock powers, allonges or other instruments of transfer executed
in blank), (iii) notification to third parties of the Lender’s interest in
Collateral at the Lender’s request, and (iv) the institution of litigation
against third parties as shall be prudent in order to protect and preserve
Borrower’s and/or the Lender’s interests in the Collateral.

 

(g) It shall promptly, and in any event within five (5) Business Days after the
same is acquired by it, notify the Lender of any Commercial Tort Claim acquired
by it and shall execute and deliver to the Lender such documents as Lender shall
request to perfect, preserve or protect the Liens, rights and remedies of the
Lender with respect to any such Commercial Tort Claim.

 

(h) It shall perform in a reasonable time all other steps requested by the
Lender to create and maintain in the Lender’s favor a valid perfected first Lien
in all Collateral.

 

(i) It shall notify the Lender promptly, and in any event within three (3)
Business Days after obtaining knowledge thereof (i) of any material delay in its
performance of any of its obligations to any Account Debtor; (ii) of any
assertion by any Account Debtor of any material claims, offsets or
counterclaims; (iii) of any allowances, credits and/or monies granted by it to
any Account Debtor; (iv) of all material adverse information relating to the
financial condition of an Account Debtor; (v) of any material return of
Inventory; and (vi) of any loss, damage or destruction of any of the Collateral
.

 

(j) [Reserved]

 

(k) Section 5.4(k) of the Borrower’s Disclosure Schedule lists all banks and
other financial institutions at which it maintains deposits and/or other
accounts, and such Schedule correctly identifies the name, address and telephone
number of each such depository, the name in which the account is held, a
description of the purpose of the account, and the complete account number.
Borrower shall not establish any depository or other bank account with any
financial institution (other than the accounts set forth on Section 5.4(k) of
the Borrower’s Disclosure Schedule) without providing Lender with written
notification thereof and providing similar information related thereto.

 

(l) On the date hereof, its exact legal name (as indicated in the public record
of its jurisdiction of organization), jurisdiction of organization,
organizational identification number, if any, from the jurisdiction of
organization, and the location of its chief executive office and all other
offices or locations out of which it conducts business or operations, are
specified on Section 5.4(l) of the Borrower’s Disclosure Schedule. It has
furnished to the Lender its Organizational Documents and long- form good
standing certificate as of a date which is within thirty (30) days of the date
hereof. It is organized solely under the law of the jurisdiction so specified
and has not filed any certificates of domestication, transfer or continuance in
any other jurisdiction. Except as otherwise indicated on Section 5.4(l) of the
Borrower’s Disclosure Schedule, the jurisdiction of its organization of
formation is required to maintain a public record showing it to have been
organized or formed. Except as specified on Section 5.4(l) of the Borrower’s
Disclosure Schedule, it has not changed its name, jurisdiction of organization,
chief executive office or place of business or its corporate or company
structure in any way (e.g., by merger, consolidation, change in form or
otherwise) within the last five years and has not within the last five years
become bound (whether as a result of merger or otherwise) as a grantor under a
security agreement entered into by another Person, which has not heretofore been
terminated.

 

 19 

 

 

(m) Borrower shall maintain and keep all of its books and records concerning the
Collateral at its executive offices listed in Section 5.4(l) of the Borrower’s
Disclosure Schedule.

 

(n) It will not, except upon delivery to the Lender of all additional Financing
Statements and other documents and legal opinions requested by the Lender to
maintain the validity, perfection and priority of the security interests
provided for herein: (i) change its jurisdiction of organization or the location
of its chief executive office from that referred to in Section 5.4(l) of the
Borrower’s Disclosure Schedule; or (ii) change its name, identity or
organizational structure.

 

(o) None of the Collateral is subject to any prohibition against encumbering,
pledging, hypothecating or assigning the same or requires notice or consent to
Borrower’s doing of the same.

 

(p) (i) All Accounts represent complete bona fide transactions which require no
further act under any circumstances on its part to make such Accounts payable by
the Account Debtors,

(ii) no Account is subject to any present, future contingent offsets or
counterclaims of which Borrower is aware or should have been or be aware, and
(iii) no Account represents bill and hold sales, consignment sales, guaranteed
sales, sale or return or other similar understandings or obligations of any
Affiliate or Subsidiary of the applicable Borrower. It has not made, nor will it
make, any agreement with any Account Debtor for any extension of time for the
payment of any Account, any compromise or settlement for less than the full
amount thereof, any release of any Account Debtor from liability therefor, or
any deduction therefrom except for (i) extension of payment terms not greater
than ninety (90) days from the invoice date of each such Account, and (ii)
discounts not greater than two and one- half percent (2.5%) of the invoice
amount for each Account, and as previously disclosed to the Lender in writing.

 

(q) The additional representations, warranties and covenants set forth in
Section 5(c) of the Loan Agreement Schedule are incorporated herein by reference
and made a part hereof.

 

SECTION 6. CONDITIONS TO MAKING INITIAL LOANS

 

The obligation of Lender to make the initial Loans shall be subject to the
satisfaction or waiver by Lender, prior thereto or concurrently therewith, of
each of the following conditions precedent:

 

6.1 Loan Documents. Each of the Loan Documents shall have been duly and properly
authorized, executed and delivered by Borrower and the other parties thereto and
shall be in full force and effect as of the date hereof.

 

6.2 Representations and Warranties. Each of the representations and warranties
made by or on behalf of Borrower to Lender in this Agreement and in other Loan
Documents shall be true and correct in all respects as of the date hereof,
provided that any such representation or warranty that is qualified by
materiality shall be true and correct in all material respects as of the date
hereof.

 

 20 

 

 

6.3 Certified Copies of Formation Documents. Lender shall have received from
Borrower, certified by the Responsible Officer to be true and complete on and as
of a date which is not more than ten (10) Business Days prior to the date
hereof, a copy of each of the Organizational Documents of Borrower in effect on
such date of certification.

 

6.4 Proof of Action. Lender shall have received from Borrower a copy, certified
by the Responsible Officer to be true and complete on and as of the date hereof,
of the records of all corporate or limited liability company action taken by
Borrower to authorize (a) its execution and delivery of each of the Loan
Documents to which it is or is to become a party as contemplated or required by
this Agreement, (b) its performance of all of its agreements and obligations
under each of such documents, and (c) the incurring of the Obligations
contemplated by this Agreement.

 

6.5 Legal Opinion. Lender shall have received a written legal opinion, addressed
to Lender, dated the date hereof, from counsel for Borrower. Such legal opinion
shall be acceptable to Lender and its counsel.

 

6.6 Collateral. Lender shall have obtained a first priority, perfected security
interest in the Collateral.

 

6.7 Insurance. Lender shall have received evidence of insurance, additional
insured and loss payee endorsements required hereunder and under the other Loan
Documents, in form and substance satisfactory to Lender, and certificates of
insurance policies and/or endorsements naming Lender as additional insured and
loss payee.

 

6.8 Validity of Collateral Representation. Lender shall have received a
statement by the appropriate officers of Borrower which shall represent and
certify the validity of the Collateral.

 

6.9 ACH Agreement. Lender shall have received from Borrower an agreement
executed by Borrower which irrevocably authorizes Lender to initiate manual and
automatic electronic (debit and credit) entries through the Automated Clearing
House or other appropriate electronic payment system to all deposit accounts
maintained by Borrower, wherever located.

 

6.10 IRS Form 8821. Lender shall have received from Borrower an executed Form
8821 to be submitted to the Internal Revenue Service which shall grant Lender
access to Borrower’s Tax information.

 

6.11 IRS Form W-9. Lender shall have received from Borrower an executed Form W-9
to be submitted to the Internal Revenue Service which shall allow Lender to
verify Borrower’s tax identification number(s).

 

6.12 Pay Proceeds Letter. Borrower shall have delivered to Lender a pay proceeds
letter with respect to the disbursement of the proceeds of the initial Loans in
form and substance satisfactory to Lender, which letter shall provide for, among
other things, the payment or reimbursement of all costs and expenses incurred by
Lender in connection with this Agreement and the other Loan Documents,
including, without limitation, Lender’s due diligence expenses and legal fees.

 

6.13 No Event of Default. No event shall have occurred on or prior to the date
of each initial Loan by Lender hereunder and be continuing on the date of each
such initial Loan by Lender hereunder, and no condition shall exist on the date
of each Loan by Lender hereunder, which constitutes an Event of Default or which
would, with notice or the lapse of time, or both, constitute an Event of Default
under this Agreement or any other Loan Document; and, Lender shall have received
a certification from a Responsible Officer with respect to the foregoing in form
and substance satisfactory to Lender.

 

 21 

 

 

6.14 Additional Deliveries. Borrower shall have delivered to Lender such other
documents and instruments reasonably requested by Lender, including, without
limitation, the documents set forth on Section 6 of the Loan Agreement Schedule.

 

SECTION 7. CONDITIONS TO MAKING ALL LOANS

 

If it is contemplated in this Agreement that more than one advance will be made
by Lender under Section 2.1 hereof, the obligations of Lender to make all Loans
hereunder shall be subject to the satisfaction or waiver by Lender, prior
thereto or concurrently therewith, of each of the conditions set forth in
Section 6 and, in addition, all of the following conditions precedent:

 

7.1 Applications and Compliance. The application for such Loans shall have been
made by Borrower to Lender in accordance with the applicable provisions of this
Agreement and in compliance with all provisions of this Agreement.

 

7.2 Representations and Warranties. Each of the representations and warranties
made by or on behalf of Borrower to Lender in this Agreement or in other Loan
Documents shall have been true and correct in all material respects when made
(provided that any such representation or warrantythat is qualified as to
materiality shall be true and correct in all respects), shall, for all purposes
of this Agreement, be deemed to be repeated on and as of the date of each Loan
by Lender hereunder and shall be true and correct in all respects on and as of
each such date, except to the extent that any of such representations and
warranties relate, by the express terms thereof, solely to a date prior to the
date of each Loan by Lender hereunder, and Lender shall have received a
certification from a Responsible Officer of Borrower with respect to the
foregoing in form and substance satisfactory to Lender.

 

7.3 Performance, etc. Borrower shall have duly and properly performed, complied
with and observed each of its covenants, agreements and obligations contained in
this Agreement and in any other Loan Documents on the date of each Loan by
Lender hereunder, and Lender shall have received a certification from a
Responsible Officer with respect to the foregoing in form and substance
satisfactory to Lender. No event shall have occurred on or prior to the date of
each Loan by Lender hereunder and be continuing on the date of each Loan by
Lender hereunder, and no condition shall exist on the date of each Loan by
Lender hereunder, which constitutes an Event of Default or which would, with
notice or the lapse of time, or both, constitute an Event of Default under this
Agreement or any other Loan Document, and Lender shall have received a
certification from a Responsible Officer with respect to the foregoing in form
and substance satisfactory to Lender.

 

 22 

 

 

SECTION 8. REPRESENTATIONS AND WARRANTIES

 

Borrower hereby represents and warrants to Lender, knowing and intending that
Lender shall rely thereon in making the Loans contemplated hereby (each of which
representations and warranties shall be continuing unless expressly made in
relation only to a specific date), that:

 

8.1 Existence.

 

(a) Borrower (i) is a corporation or limited liability company duly organized or
formed, validly existing and in good standing under the laws of the jurisdiction
of its organization or formation, (ii) is in good standing in all other
jurisdictions in which it is required to be qualified to do business as a
foreign corporation or limited liability company, (iii) has all requisite
corporate or limited liability company power and authority and full legal right
to own or to hold under lease its properties and to carry on the business as
presently engaged and (iv) has been issued all required federal, state and local
licenses, certificates or permits necessary, required or appropriate to the
operation of its Business.

 

(b) Borrower has corporate or limited liability company power and authority and
has full legal rights to enter into each of the Loan Documents to which it is a
party, and to perform, observe and comply with all of its agreements and
obligations under each of such documents.

 

8.2 No Violation, etc. The execution and delivery by Borrower of the Loan
Documents to which Borrower is a party, the performance by Borrower of all of
its agreements and obligations under each of such documents, and the incurring
by Borrower of all of the Obligations contemplated by this Agreement, have been
duly authorized by all necessary corporate or limited liability company actions
on the part of Borrower and, if required, its shareholders, and do not and will
not (a) contravene any provision of Borrower’s Organizational Documents or this
Agreement (each as from time to time in effect), (b) conflict with, or result in
a breach of the terms, conditions, or provisions of, or constitute a default
under, or result in the creation of any Lien upon any of the property of
Borrower under, any agreement, mortgage or other instrument to which Borrower is
or may become a party other than the agreements, mortgages or other instruments
with or in favor of Western Alliance Bank with respect to the Indebtedness to be
repaid to Western Alliance Bank from the proceeds of the first Loans made to
Borrower hereunder, (c) violate or contravene any provision of any law,
regulation, order, ruling or interpretation thereunder or any decree, order or
judgment or any court or governmental or regulatory authority, bureau, agency or
official (all as from time to time in effect and applicable to such entity), (d)
other than waivers required from Borrower’s landlords, require any waivers,
consents or approvals by any third party, including any creditors or trustees
for creditors of Borrower, or (e) require any approval, consent, order,
authorization, or license by, or giving notice to, or taking any other action
with respect to, any Governmental Authority.

 

8.3 Binding Effect of Documents, etc. Borrower has duly executed and delivered
each of the Loan Documents to which Borrower is a party, and each of the Loan
Documents is valid, binding and in full force and effect. The agreements and
obligations of Borrower as contained in each of the Loan Documents constitute,
or upon execution and delivery thereof will constitute, legal, valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, subject, as to the enforcement of remedies only, to
limitations imposed by federal and state laws regarding bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights and
remedies generally, and by general principles of law and equity.

 23 

 

 

8.4  No Events of Default.

 

(a) No Event of Default has occurred and is continuing and no event has occurred
and is continuing and no condition exists that would, with notice or the lapse
of time, or both, constitute an Event of Default.

 

(b) Borrower is not in default under any Material Contract to which Borrower is
a party or by which Borrower or any property of Borrower is bound.

 

(c) Borrower’s execution, delivery and performance of and compliance with this
Agreement and the other Loan Documents will not, with or without the passage of
time or giving of notice, result in any violation of law, or be in conflict with
or constitute a default under any term or provision, or result in the creation
of any Lien upon any of Borrower’s properties or assets or the suspension,
revocation, impairment, forfeiture or nonrenewal, of any permit, license,
authorization or approval applicable to Borrower, or any of its businesses or
operations or any of its assets or properties.

 

8.5 No Governmental Consent Necessary. No consent or approval of, giving of
notice to, registration with or taking of any other action in respect of, any
Governmental Authority is required with respect to the execution, delivery and
performance by Borrower of this Agreement and the other Loan Documents to which
it is a party.

 

8.6 No Proceedings. Except as set forth on Section 8.6 of the Borrower’s
Disclosure Schedule, there are no actions, suits, or proceedings pending or, to
the best of Borrower’s knowledge, threatened against or affecting Borrower in
any court or before any Governmental Authority.

 

8.7 No Violations of Laws; Licenses and Permits. Borrower has conducted, and is
conducting, its Business, so as to comply in all material respects with all
applicable federal, state, county and municipal statutes and regulations.
Neither Borrower nor any officer, director, manager, member or shareholder of
Borrower is charged with, or so far as is known by Borrower, is under
investigation with respect to, any violation of any such statutes, regulations
or orders, which could have a Material Adverse Effect. Borrower has been issued
all required federal, state and local licenses, certificates or permits required
for the operation of its business.

 

8.8 Use of Proceeds of the Loans. Proceeds from the Loans shall be used only for
those purposes set forth in this Agreement. No part of the proceeds of the Loans
shall be used, directly or indirectly, for the purpose of purchasing or carrying
any margin stock or for the purpose of purchasing or carrying or trading in any
stock under such circumstances as to involve Borrower in a violation of any
statute or regulation. In particular, without limitation of the foregoing, no
part of the proceeds from the Loans is intended to be used to acquire any
publicly held stock of any kind.

 

8.9  Financial Statements; Indebtedness.

 

(a) The balance sheet of Borrower as of September 30, 2016, and the related
statement of operations, stockholders’ equity and cash flows (together with the
related notes) for the Fiscal Year ended December 31, 2015, and the balance
sheet of Borrower and the related statement of operations, stockholders’ or
members’ equity and cash flows (together with the related notes) for the 9-
month period ended September 30, 2016 (collectively, the “Financial Statements”)
fairly present, as of the date thereof, the financial position of Borrower, and
the results of its operations, cash flows and stockholders’ equity in all
material aspects.

 

 24 

 

 

(b) Except as shown on the most recent Financial Statements, (i) Borrower has no
Indebtedness as of the date hereof which would adversely affect the financial
condition of Borrower or the Collateral, and (ii) Borrower has no liabilities,
contingent or otherwise, except those which, individually or in the aggregate,
are not material to the financial condition or operating results of Borrower.

 

8.10 Changes in Financial Condition. Since the Balance Sheet Date, there has
been no material adverse change and no material adverse development in the
Business, properties, operations, condition (financial or otherwise), results of
operations or prospects of Borrower. Since the Balance Sheet Date, Borrower has
not (i) declared or paid any dividends, (ii) sold any assets, individually or in
the aggregate, outside of the ordinary course of business, (iii) had capital
expenditures outside of the ordinary course of business, (iv) engaged in any
transaction with any Affiliate or (v) engaged in any other transaction outside
of the ordinary course of business.

 

8.11 Equipment. Borrower shall keep and maintain its Equipment in good operating
condition, and shall make all necessary repairs and replacements thereof so that
the value and operating efficiency shall at all times be maintained and
preserved.

 

8.12 Taxes and Assessments.

 

(a) Borrower has paid and discharged when due all Taxes, assessments and other
governmental charges which may lawfully be levied or assessed upon its income
and profits, or upon all or any portion of any property belonging to it, whether
real, personal or mixed, to the extent that such Taxes, assessment and other
charges have become due. Borrower has filed all Tax returns, federal, state and
local, and all related information, required to be filed by it.

 

(b) Borrower shall make all payments to be made by it hereunder without any Tax
Deduction. If a Tax Deduction is required, the amount of the payment due from
Borrower to Lender shall be increased and grossed up to an amount equal to the
payment which would have been due if no Tax Deduction had been required. If a
Tax Deduction is required, Borrower shall promptly make any payment required in
connection with that Tax Deduction.

 

(c) “Tax Deduction” means a deduction or withholding for or on account of a Tax
from a payment received by Lender under a Loan Document.

 

(d) “Tax” or “Taxes” means any tax, levy, impost, duty or other charge or
withholding of a similar nature, including any income, franchise, stamp,
documentary, excise or property tax, charge or levy (in each case, including any
related penalty or interest).

 

8.13 ERISA. Borrower is in compliance in all material respects with the
applicable provisions of ERISA and all regulations issued thereunder by the
United States Treasury Department, the Department of Labor and the Pension
Benefit Guaranty Corporation.

 

 25 

 

 

8.14 Environmental Matters.

 

(a) Borrower has duly complied with, and its facilities, assets, property,
leaseholds and Equipment are in material compliance in all respects with, the
provisions of all Environmental Laws.

 

(b) Borrower has been issued all required federal, state and local licenses,
certificates or permits required under Environmental Laws for the operation of
its Business.

 

8.15  United States Anti-Terrorism Laws; Holding Company Status.

 

(a) In this Section 8.15:

 

“Anti-Terrorism Law” means each of: (i) Executive Order No. 13224 of September
23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten To Commit, or Support Terrorism (the “Executive Order”); (ii) the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (commonly known
as the USA Patriot Act); (iii) the Money Laundering Control Act of 1986, Public
Law 99-570; and (iv) any similar law enacted in the United States of America
subsequent to December 31, 2004.

 

“holding company” has the meaning given to it in the United States Public
Utility Holding Company Act of 1935, and any successor legislation and rules and
regulations promulgated thereunder.

 

“investment company” has the meaning given to it in the United States Investment
Company Act of 1940.

 

“public utility” has the meaning given to it in the United States Federal Power
Act of 1920.

 

“Restricted Party” means any person listed: (i) in the Annex to the Executive
Order; (ii) on the Specially Designated Nationals and Blocked Persons list
maintained by the Office of Foreign Assets Control of the United States
Department of the Treasury; or (iii) in any successor list to either of the
foregoing.

 

(b) Borrower is not (i) a holding company or subject to regulation under the
United States Public Utility Holding Company Act of 1935; (ii) a public utility
or subject to regulation under the United States Federal Power Act of 1920;
(iii) required to be registered as an investment company or subject to
regulation under the United States Investment Company Act of 1940; or (iv)
subject to regulation under any United States Federal or State law or regulation
that limits its ability to incur or guarantee Indebtedness.

 

(c) To the best of Borrower’s knowledge, Borrower (i) is not, and is not
controlled by, a Restricted Party; (ii) has not received funds or other property
from a Restricted Party; and (iii) is not in breach of and is not the subject of
any action or investigation under any Anti-Terrorism Law.

 

(d) Borrower has taken reasonable measures to ensure compliance with the Anti-
Terrorism Laws.

 

 26 

 

 

8.16 Customers and Vendors. There are no disputes with any customers, suppliers,
manufacturers, vendors and independent contractors of Borrower in excess of
$5,000 in the aggregate with any such party.

 

8.17 Representations, Warranties and Covenants Concerning the Collateral. The
representations, warranties and covenants of Borrower set forth in Section 5.4
hereof are incorporated in this Section 8.17 by reference.

 

8.18 Books and Records. Borrower maintains its chief executive office and its
books and records related to the Collateral at its address set forth in Section
5.4(l) of the Borrower’s Disclosure Schedule.

 

8.19 Ownership and Control. All of the issued and outstanding Equity Interests
of Borrower are owned beneficially and of record according to the percentages
set forth in Section 8.19 of the Borrower’s Disclosure Schedule.

 

8.20 Changes. Since the Balance Sheet Date, except as disclosed in Section 8.20
of the Borrower’s Disclosure Schedule, with respect to Borrower, there has not
been:

 

(a) any change in its Business, assets, liabilities, condition (financial or
otherwise), properties, operations or prospects, which, individually or in the
aggregate, has had, or could reasonably be expected to have, a Material Adverse
Effect;

 

(b) any resignation or termination of any of its officers, key employees or
groups of employees;

 

(c) any change, except in the ordinary course of business, in its contingent
obligations by way of guaranty, endorsement, indemnity, warranty or otherwise;

 

(d) any damage, destruction or loss, whether or not covered byinsurance, which
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;

 

(e) any waiver by it of a valuable right or of a material debt owed to it;

 

(f) any direct or indirect loans made by it to any of its stockholders,
managers, employees, officers or directors, other than advances made in the
ordinary course of business;

 

(g) any material change in any compensation arrangement or agreement with any
employee, manager, officer, director or equity holder;

 

(h) any declaration or payment of any dividend or other distribution of its
assets;

 

(i) any labor organization activity related to it;

 

(j) any debt, obligation or liability incurred, assumed or guaranteed by it,
except those for immaterial amounts and for current liabilities incurred in the
ordinary course of business;

 

 27 

 

 

(k) any sale, assignment, transfer, abandonment or other disposition of any
Collateral other than Inventory in the ordinary course of business;

 

(l) any change in any Material Contract to which it is a party or by which it is
bound which, either individually or in the aggregate, has had, or could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;

 

(m) any other event or condition of any character that, either individually or
in the aggregate, has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect; or

 

(n) any arrangement or commitment by it to do any of the acts described in
subsection (a) through (m) of this Section 8.20.

 

8.21 Intellectual Property.

 

(a) (1) Borrower holds all Intellectual Property that it owns free and clear of
all Liens other than Permitted Encumbrances and the Liens in favor or Western
Alliance Bank which will be released concurrently with the payment in full of
the Indebtedness owed to Western Alliance Bank from the proceeds of the first
Loans made hereunder to Borrower, and restrictions on use or transfer, whether
or not recorded, and has sole title to and ownership of or has the full,
exclusive (subject to the rights of its licensees) right to use in its field of
business such Intellectual Property; and Borrower holds all Intellectual
Property that it uses but does not own under valid licenses or sub-licenses from
others; (2) the use of the Intellectual Property by Borrower does not violate or
infringe on the rights of any other Person; (3) Borrower has not received any
notice of any conflict between the asserted rights of others and Borrower with
respect to any Intellectual Property; (4) Borrower has used its commercially
reasonable best efforts to protect its rights in and to all Intellectual
Property; (5) Borrower is in compliance with all material terms and conditions
of its agreements relating to the Intellectual Property; (6) Borrower is not,
and since the Balance Sheet Date has not been, a defendant in any action, suit,
investigation or proceeding relating to infringement or misappropriation by
Borrower of any Intellectual Property nor has Borrower been notified of any
alleged claim of infringement or misappropriation by Borrower of any
Intellectual Property; (7) to the knowledge of Borrower, none of the products or
services Borrower is researching, developing, proposes to research and develop,
make, have made, use, or sell, infringes or misappropriates any Intellectual
Property right of any third party; and (8) to Borrower’s knowledge, none of the
material processes and formulae, research and development results and other
know-how relating to Borrower's Business, the value of which to Borrower is
contingent upon maintenance of the confidentiality thereof, has been disclosed
to any Person other than Persons bound by written confidentiality agreements.

 

(b) Section 8.21 of the Borrower’s Disclosure Schedule sets forth a true and
complete list of (i) all Intellectual Property owned or claimed by Borrower,
together with any and all registration or application numbers for any
Intellectual Property filed or issued by any Intellectual Property registry (and
in the case of any and all domain names registered by or on behalf of Borrower,
the name of the registrar(s) thereof) and (ii) all Intellectual Property
licenses which are material to the Borrower’s Business.

 

 28 

 

 

8.22 Employees. Borrower has no collective bargaining agreements with any of its
employees. There is no labor union organizing activity pending or, to Borrower’s
knowledge, threatened with respect to Borrower. Except as set forth in Section
8.22 of the Borrower’s Disclosure Schedule, Borrower is not a party to or bound
by any currently effective deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. To Borrower’s knowledge, no employee of
Borrower, nor any consultant with whom Borrower has contracted, is in violation
of any material term of any employment contract or any other contract relating
to the right of any such individual to be employed by, or to contract with,
Borrower or to receive any benefits; and, to Borrower’s knowledge, the continued
employment by Borrower of its present employees, and the performance of
Borrower’s contracts with its independent contractors, will not result in any
such violation. Except for employees who have a current effective employment
agreement with Borrower, as set forth in Section 8.22 of the Borrower’s
Disclosure Schedule, no employee of Borrower has been granted the right to
continued employment by Borrower or to any material compensation following
termination of employment with Borrower. Borrower is not aware that any officer,
director, manager, partner, key employee or group of employees intends to
terminate his, her or their employment with Borrower, nor does Borrower have a
present intention to terminate any of the same.

 

8.23 Tax Status. Borrower (i) has made or filed all federal and state income and
all other 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 shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and for which it has
set aside on its books a provision in the amount of such Taxes being contested
in good faith and (iii) has set aside on its books provisions reasonably
adequate for the payment of all Taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid Taxes
payable by Borrower claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Borrower know of no basis for any such
claim.

 

8.24 Representations and Warranties: True, Accurate and Complete. None of the
representations, certificates, reports, warranties or statements now or
hereafter made or delivered to Lender pursuant hereto or in connection with this
Agreement or any other Loan Document or the transactions contemplated hereby
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances in which they are
made, not misleading.

 

8.25 Fees; Brokers; Finders. There are no fees, commissions or other
compensation due to any third party acting on behalf of or at the direction of
Borrower in connection with the Loan Documents, except as set forth on Section
8.25 of the Borrower’s Disclosure Schedule. All negotiations relative to the
Loan Documents, and the transactions contemplated thereby, have been carried on
by the Borrower with the Lender without the intervention of any other person or
entity acting on behalf of the Borrower, and in such manner as not to give rise
to any claim against the Borrower or the Lender for any finder's fee, brokerage
commission or like payment due to any third party acting on behalf of or at the
direction of Borrower, and if any such fee, commission or payment is payable, it
shall be the sole responsibility of the Borrower and the Borrower shall pay, and
indemnify the Lender for, the same.

 

 29 

 

 

SECTION 9. AFFIRMATIVE COVENANTS

 

Until the indefeasible payment and satisfaction in full of all Obligations and
the termination of this Agreement, Borrower hereby covenants and agrees as
follows:

 

9.1 Notify Lender. Borrower shall promptly, and in any event within three (3)
Business Days of any determining of the following, inform Lender (a) if any one
or more of the representations and warranties made by Borrower in this Agreement
or in any document related hereto shall no longer be entirely true, accurate and
complete in any respect; (b) of any Equipment which is not in good order and
repair, and in running and marketable condition, or of any Equipment that is
removed or is missing from the Borrower’s Premises; (c) of all material adverse
information relating to the financial condition of Borrower; (d) of any material
return of goods; (e) of any loss, damage or destruction of any of the
Collateral; (f) the occurrence of an Event of Default or a Material Adverse
Effect; and (g) of any other events or occurrences set forth in Section 7(a) of
the Loan Agreement Schedule.

 

9.2 Change in Ownership, Directors, Managers or Officers. Borrower shall
promptly notify Lender of any changes in Borrower’s managers, directors and/or
officers and in the ownership of Borrower.

 

9.3 Pay Taxes and Liabilities; Comply with Agreement. Borrower shall promptly
pay, when due, or otherwise discharge, all Indebtedness, sums and liabilities of
any kind now or hereafter owing by Borrower to its employees as wages or
salaries or to Lender and Governmental Authorities however created, incurred,
evidenced, acquired, arising or payable, including, without limitation, income
Taxes, excise Taxes, sales and use Taxes, license fees, and all other Taxes with
respect to any of the Collateral, or any wages or salaries paid by Borrower or
otherwise, unless the validity of which are being contested in good faith by
Borrower by appropriate proceedings, provided that Borrower shall have
maintained reasonably adequate reserves and accrued the estimated liability on
Borrower’s balance sheet for the payment of same.

 

9.4 Observe Covenants, etc. Borrower shall observe, perform and comply with the
covenants, terms and conditions of this Agreement and the other Loan Documents.

 

9.5 Maintain Corporate Existence and Qualifications. Borrower shall maintain and
preserve in full force and effect, its corporate existence and rights,
franchises, licenses and qualifications necessary to continue its Business, and
comply with all applicable statutes, rules and regulations pertaining to the
operation, conduct and maintenance of its existence and Business including,
without limitation, all federal, state and local laws relating to benefit plans,
environmental safety, or health matters, and hazardous or liquid waste or
chemicals or other liquids (including use, sale, transport and disposal
thereof).

 

9.6 Financial Reports and Other Information. Borrower shall deliver or cause to
be delivered to Lender:

 

(a) Reports. The financial reports and other information set forth in Section
7(b) of the Loan Agreement Schedule, on the dates set forth therein. The
Borrower shall further comply with all its covenants set forth therein.

 

 30 

 

 

(b) Notice of Litigation, Judgments, Environmental, Health or Safety Complaints.

 

(i) Within five (5) Business Days after commencement or receipt by Borrower,
written notice to Lender of all litigation and of all proceedings involving the
Borrower or any of its assets, together with a copy of all pleadings and
demands;

 

(ii) Within five (5) Business Days thereafter, written notice to Lender of the
entry of any judgment or the institution of any lawsuit or of other legal or
equitable proceedings or the assertion of any cross claim or counterclaim
seeking monetary damages from Borrower; and

 

(iii) Within five (5) Business Days thereafter, notice or copies if written of
all claims, complaints, orders, citations or notices, whether formal or
informal, written or oral, from a governmental body or private person or entity,
relating to air emissions, water discharge, noise emission, solid or liquid
waste disposal, hazardous waste or materials, or any other environmental, health
or safety matter, which adversely affect Borrower. Such notices shall include,
among other information, the name of the party who filed the claim, the
potential amount of the claim, and the nature of the claim.

 

(c) Other Information. Upon demand,

 

(i) Certificates of insurance for all policies of insurance to be maintained by
Borrower pursuant hereto;

 

(ii) All information received by Borrower affecting the financial status or
condition of any Account Debtor or the payment of any Account, including but not
limited to, invoices, original orders, shipping and delivery receipts; and

 

(iii) An estoppel certificate executed bythe Responsible Officer of Borrower
indicating that there then exists no Event of Default and no event which, with
the giving of notice or lapse of time, or both, would constitute an Event of
Default.

 

(d) Additional Information. From time to time, such other information as Lender
may reasonably request, including financial projections and cash flow analysis.

 

9.7 Comply with Laws. Borrower shall comply with the requirements of all
applicable laws, rules, regulations and orders of any Governmental Authority,
compliance with which is necessary to maintain its corporate existence or the
conduct of its Business or non-compliance with which would adversely affect in
any respect its ability to perform its obligations or any security given to
secure its obligations.

 

9.8 Insurance Required.

 

(a) Borrower shall cause to be maintained, in full force and effect on all
Collateral, insurance in such amounts against such risks as is reasonably
satisfactory to Lender, including, but without limitation, business
interruption, liability, fire, theft, burglary, pilferage, vandalism, malicious
mischief, loss in transit, and hazard insurance and, if as of the date hereof,
any of the leased real property of Borrower is in an area that has been
identified by the Secretary of Housing and Urban Development as having special
flood or mudslide hazards, and on which the sale of flood insurance has been
made available under the National Flood Insurance Act of 1968, then Borrower
shall maintain flood insurance. Said policy or policies shall:

 

(i) Be in a form and with insurers which are satisfactory to Lender;

 

 31 

 

 

(ii) Be for such risks, and for such insured values as Lender or its assigns may
reasonably require in order to replace the property in the event of actual or
constructive total loss;

 

(iii) Designate Lender as additional insured and loss payee as Lender’s interest
may from time to time appear;

 

(iv) Contain a “breach of warranty clause” whereby the insurer agrees that a
breach of the insuring conditions or any negligence by Borrower or any other
person shall not invalidate the insurance as to Lender and its assignee;

 

(v) Provide that they may not be canceled or altered without thirty (30) days
prior written notice to Lender; and

 

(vi) Upon demand, be delivered to Lender.

 

(b) Borrower shall obtain such additional insurance as Lender may reasonably
require.

 

(c) Borrower shall, in the event of loss or damage of any Collateral, forthwith
notify Lender and file proofs of loss with the appropriate insurer. Borrower
hereby authorizes Lender to endorse any checks or drafts constituting insurance
proceeds.

 

(d) Borrower shall forthwith upon receipt of insurance proceeds endorse and
deliver the same to Lender.

 

(e) In no event shall Lender be required either to (i) ascertain the existence
of or examine any insurance policy or (ii) advise Borrower in the event such
insurance coverage shall not comply with the requirements of this Agreement.

 

9.9 Condition of Collateral; No Liens. Borrower shall (i) maintain all
Collateral in good condition and repair at all times, (ii) preserve the
Collateral against any loss, damage, or destruction of any nature, (iii) keep
the Collateral free and clear of any Liens, except for the Liens of Lender and
Permitted Encumbrances set forth on Section 9.9 of the Borrower’s Disclosure
Schedule, and shall not permit Collateral to become a fixture to real estate or
accessions to other personal property.

 

9.10 Payment of Proceeds. Borrower shall forthwith upon receipt of all Proceeds
of Collateral, pay such Proceeds (insurance or otherwise) up to the amount of
the then-outstanding Obligations over to Lender for application against the
Obligations in such order and manner as Lender may elect.

 

 32 

 

 

9.11 Records. Borrower shall at all times keep accurate and complete records of
its operations, of the Collateral and the status of each Account, which records
shall be maintained at its executive offices as set forth on Section 5.4(l) of
the Borrower’s Disclosure Schedule.

 

9.12 Pay Obligations. Borrower shall promptly and timely pay all Obligations
when due in accordance with the Loan Documents.

 

9.13 Delivery of Documents. If any Proceeds of Accounts shall include, or any of
the Accounts shall be evidenced by, notes, trade acceptances or instruments or
documents, or if any Inventory is covered by documents of title or chattel
paper, whether or not negotiable, then Borrower waives protest regardless of the
form of the endorsement. If Borrower fails to endorse any instrument or
document, Lender is authorized to endorse it on Borrower’s behalf.

 

9.14 United States Contracts. Section 7(c) of the Loan Agreement Schedule is
hereby incorporated by reference and made a part hereof.

 

9.15 Further Assurances. Borrower shall at any time or from time to time upon
request of Lender take such steps and execute and deliver such Financing
Statements and other documents all in the form of substance reasonably
satisfactory to Lender relating to the creation, validity or perfection of the
security interests provided for herein, under the UCC or which are reasonably
necessary to effectuate the purposes and provisions of this Agreement. Borrower
shall defend the right, title and interest of Lender in and to the Collateral
against the claims and demands of all Persons whomsoever, and take such actions,
including (i) all actions necessary to grant Lender “control” of any Investment
Property, Deposit Accounts, Letter-of-Credit Rights or Electronic Chattel Paper
owned by it, with any agreements establishing control to be in form and
substance satisfactory to Lender, (ii) the prompt (but in no event later than
five (5) Business Days following Lender’s request therefor) delivery to Lender
of all original Instruments, Chattel Paper, negotiable Documents and
certificated Securities owned by it (in each case, accompanied by stock powers,
allonges or other instruments of transfer executed in blank),

(iii) notification of Lender’s interest in Collateral at Lender’s request, and
(iv) the institution of litigation against third parties as shall be prudent in
order to protect and preserve Borrower’s and/or Lender’s respective and several
interests in the Collateral.

 

9.16 Indemnification. Borrower shall indemnify, protect, defend and hold Lender,
and Lender’s members, managers, directors, officers, employees, agents,
attorneys, and representatives (each, an “Indemnified Party”) harmless from and
against any and all claims, demands, suits, judgments, losses, damages,
liabilities, expenses, costs and fees (including reasonable attorneys’ fees) and
liabilities of any kind or nature relating to, resulting from, arising out of or
in connection with the Loan Documents and the transactions contemplated by the
Loan Documents; provided that such indemnity shall not, as to any Indemnified
Party, be available to the extent such losses, claims damages, liabilities or
related expenses are determined by a court of competent jurisdiction by a final
non- appealable judgment to have resulted by the gross negligence or willful
misconduct of such Indemnified Party. If a claim or action shall be brought
against an Indemnified Party based upon any of the above, the Indemnified Party
shall select counsel to defend such claim or action. Borrower shall be
responsible for payment of all costs and expenses and reasonable attorneys’ fees
of such counsel selected by the Indemnified Party and all costs and expenses
incurred by the Indemnified Party and the Indemnified Party and counsel selected
by Indemnified Party shall defend, compromise, settle or pursue such claim or
action at Borrower’s expense, subject in each case to the proviso in the first
sentence of this Section 9.16. The Indemnified Party and counsel selected by the
Indemnified Party shall defend, compromise, settle or purse such claim or action
at Borrower’s expense. The provisions of this Section shall survive the
termination of this Agreement and the final repayment of the Obligations.

 

 33 

 

 

9.17 Additional Covenants. The terms and provisions of Section 8 of the Loan
Agreement Schedule are incorporated herein by reference and made a part hereof.

 

9.18 Name Changes; Location Changes.

 

(a) Borrower shall promptly notify Lender of any changes in the name of Borrower
or if Borrower is known by or conducting business under any names other than
those set forth in this Agreement.

 

(b) Borrower shall deliver not less than thirty (30) days prior written notice
to Lender if Borrower intends to conduct any of its Business or operations at or
out of offices or locations other than those set forth in Section 5.4(l) of the
Borrower’s Disclosure Schedule, or if it changes the location of its chief
executive office or the address at which it maintains its books and records.

 

SECTION 10. NEGATIVE COVENANTS

 

Until payment and satisfaction in full of all Obligations and the termination of
this Agreement, Borrower hereby covenants and agrees as follows:

 

10.1 [Reserved]

 

10.2 Disposition of Assets or Collateral. Borrower will not sell, lease,
transfer, convey, or otherwise dispose of any or all of its assets or
Collateral, other than the sale of Inventory in the ordinary course of business
or the sale of Equipment in accordance with Lender’s prior written consent under
Section 5.4(e) hereof.

 

10.3 Other Liens. Borrower will not incur, create or permit to exist any Lien on
any of its property or assets, whether now owned or hereafter acquired, except
for (a) those Liens in favor of Lender created by this Agreement and the other
Loan Documents; and (b) the Permitted Encumbrances.

 

10.4 Other Liabilities. Borrower will not incur, create, assume, or permit to
exist, any Indebtedness or liability on account of either borrowed money or the
deferred purchase price of property, except (i) Obligations to Lender, (ii) debt
expressly subordinated to Borrower’s Obligations to Lender pursuant to a
subordination agreement in form and substance satisfactory to Lender or (iii)
Permitted Indebtedness set forth on Section 10.4 of the Borrower’s Disclosure
Schedule.

 

10.5 [RESERVED]

 

10.6 Loans. Borrower will not make any loans to any Person, other than advances
to employees of Borrower in the ordinary course of business, with outstanding
advances to any employee not to exceed $1,000 at any time.

 

10.7 Guaranties. Borrower will not assume, guaranty, endorse, contingently agree
to purchase or otherwise become liable upon the obligation of any Person, except
by the endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business.

 

 34 

 

 

10.8 Transfers of Notes or Accounts. Borrower will not sell, assign, transfer,
discount or otherwise dispose of any Accounts or any promissory note payable to
Borrower, with or without recourse.

 

10.9 Dividends. Borrower will not declare or pay any cash dividend, make any
distribution on, redeem, retire or otherwise acquire directly or indirectly, any
of its Equity Interests without the prior written consent of Lender except for
dividends declared by SUSA and SGS and payable only and directly to SG. For the
avoidance of doubt, SG will not declare or pay any cash dividend without the
prior written consent of Lender.

 

10.10 Payments to Affiliates. Except as set forth in Section 10.10 of the
Borrower’s Disclosure Schedule, or as otherwise approved by Lender in writing in
advance, Borrower shall not make any payments of cash or other property to any
Affiliate.

 

10.11 Modification of Documents. Borrower will not change, alter or modify, or
permit any change, alteration or modification of its Organizational Documents in
any manner that might adversely affect Lender’s rights hereunder as a secured
lender or its Collateral without Lender's prior written consent.

 

10.12 Change Business or Name. Borrower will not engage in any business other
than the Business, or change its names as it appears in the official filings of
its state of organization.

 

10.13 Settlements. Other than in the ordinary course of its Business, Borrower
will not compromise, settle or adjust any claims in any amount relating to any
of the Collateral, without the prior written consent of Lender.

 

SECTION 11. EVENTS OF DEFAULT

 

The occurrence of any of the following shall constitute an event of default
(hereinafter referred to as an “Event of Default”):

 

11.1 Failure to Pay. The failure by Borrower to pay, (a) when due, any payment
of principal, (b) within two (2) Business Days of the date when due, interest,
fees or other charges due and owing to Lender pursuant to any obligations of
Borrower to Lender including, without limitation, those Obligations arising
pursuant to this Agreement or any Loan Document, or under any other agreement
for the payment of monies then due and payable to Lender, or (c) any Taxes due
to any Governmental Authority.

 

11.2 Failure of Insurance. Failure of one or more of the insurance policies
required hereunder to remain in full force and effect; failure on the part of
Borrower to pay or cause to be paid all premiums when due on the insurance
policies pursuant to this Agreement; failure on the part of Borrower to take
such other action as may be requested by Lender in order to keep said policies
of insurance in full force and effect until all Obligations have been
indefeasibly paid in full; and failure on the part of Borrower to execute any
and all documentation required by the insurance companies issuing said policies
to effectuate said assignments.

 

 35 

 

 

11.3 Failure to Perform. Borrower’s failure to perform or observe any covenant,
term or condition of this Agreement or in any other Loan Document.

 

11.4 Cross Default. Borrower’s breach of or default under any agreement or
contract with( i) Hillair Capital, or (ii) Avnet, Inc., or (iii) any other third
party which default with respect to any other third party would result in a
liability to Borrower in excess of $20,000.

 

11.5 False Representation or Warranty. Borrower shall have made any statement,
representation or warranty in this Agreement or in any other Loan Document to
which Borrower is a party or in a certificate executed by Borrower incident to
this Agreement, which is at any time found to have been false in any material
respect at the time such representation or warranty was made.

 

11.6 Liquidation, Voluntary Bankruptcy, Dissolution, Assignment to Creditors.
Any resolution shall be passed or any action (including a meeting of creditors)
shall be taken by Borrower for the termination, winding up, liquidation or
dissolution of Borrower, or Borrower shall make an assignment for the benefit of
creditors, or Borrower shall file a petition in voluntary liquidation or
bankruptcy, or Borrower shall file a petition or answer or consent seeking, or
consenting to, the reorganization of Borrower or the readjustment of any of the
Indebtedness of Borrower under any applicable insolvency or bankruptcy laws now
or hereafter existing (including the Bankruptcy Code), or Borrower shall consent
to the appointment of anyreceiver, administrator, liquidator, custodian or
trustee of all or any part of the property or assets of Borrower or any
corporate or company action shall be taken by Borrower for the purposes of
effecting any of the foregoing.

 

11.7 Involuntary Petition Against Borrower. Any petition or application for any
relief is filed against Borrower under applicable insolvency or bankruptcy laws
now or hereafter existing (including the Bankruptcy Code) or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity), and is not dismissed or stayed within thirty (30)
days of the filing thereof.

 

11.8 Judgments; Levies. Judgments or attachments aggregating in excess of
$20,000 at any given time are obtained against Borrower which remain unstayed
for a period of ten (10) days or are enforced.

 

11.9 [Reserved]

 

11.10 Environmental Claims. Lender determines that any Environmental Liabilities
and Costs or Environmental Lien with respect to Borrower will have a potentially
Material Adverse Effect.

 

11.11 Failure to Notify. If at any time Borrower fails to provide Lender
immediately with notice or copies, if written, of all complaints, orders,
citations or notices with respect to environmental, health or safety complaints
within five (5) Business Days of Borrower’s receipt of such complaints, orders,
citations, or notices or Borrower’s becoming aware of such.

 

11.12 Failure to Deliver Documentation. Borrower shall fail to obtain and
deliver to Lender any other documentation required to be signed or obtained as
part of this Agreement, or shall have failed to take any reasonable action
requested by Lender to perfect, protect, preserve and maintain the security
interests and Lien on the Collateral provided for herein.

 

 36 

 

 

 

11.13 Material Adverse Effect. A Material Adverse Effect shall have occurred.

 

11.14 Dissolution; Maintenance of Existence. Borrower is dissolved, or Borrower
fails to maintain its corporate existence in good standing, or the usual
business of Borrower ceases or is suspended in any respect.

 

11.15 Indictment. The indictment of Borrower or any director or Responsible
Officer of Borrower under any criminal statute, or commencement of criminal or
civil proceedings against Borrower, pursuant to which statute or proceedings the
penalties or remedies sought or available include forfeiture of any portion of
the property of Borrower.

 

11.16 Tax Liens. The filing of a Lien for any unpaid Taxes filed by any
Governmental Authority against Borrower or any of its assets.

 

11.17 Challenge to Validity of Loan Documents. Borrower attempts to terminate or
challenge the validity of, or its liability under, this Agreement or any other
Loan Document, or any proceeding shall be brought to challenge the validity,
binding effect of any Loan Document, or any Loan Document ceases to be a valid,
binding and enforceable obligation of Borrower.

 

11.18 Claims Against Lender. Any claim asserted by Borrower seeking to challenge
the Loan Documents, Lender’s Liens in the Collateral or otherwise commencing any
cause of action against the Lender.

 

11.19 Other Events of Default. Any events and/or occurrences set forth on
Section 9 of the Loan Agreement Schedule.

 

 37 

 

 

SECTION 12. REMEDIES

 

12.1 Acceleration; Other Remedies. Upon the occurrence and during the
continuation of an Event of Default:

 

(a) Lender shall have all rights and remedies provided in this Agreement, any of
the other Loan Documents, the UCC or other applicable law, all of which rights
and remedies may be exercised without notice to Borrower, all such notices being
hereby waived, except such notice as is expressly provided for hereunder or is
not waivable under applicable law. All rights and remedies of Lender are
cumulative and not exclusive and are enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions and in
any order Lender may determine. Without limiting the foregoing, Lender may (i)
accelerate the payment of all Obligations and demand immediate payment thereof
to Lender, (ii) with or without judicial process or the aid or assistance of
others, enter upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the Collateral, (iii) require
Borrower, at Borrower’s expense, to assemble and make available to Lender any
part or all of the Collateral at any place and time designated by Lender, (iv)
collect, foreclose, receive, appropriate, setoff and realize upon any and all
Collateral, (v) notify Account Debtors or other obligors to make payment
directly to Lender, or notify bailees as to the disposition of Collateral, (vi)
extend the time of payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all Accounts or other
Collateral which includes a monetary obligation and discharge or release the
Account Debtor or other obligor, without affecting any of the Obligations, and
(vii) sell, lease, transfer, assign, deliver or otherwise dispose of any and all
Collateral (including, without limitation, entering into contracts with respect
thereto, by public or private sales at any exchange, broker's board, any office
of Lender or elsewhere) at such prices or terms as Lender may deem reasonable,
for cash, upon credit or for future delivery, with Lender having the right to
purchase the whole or any part of the Collateral at any such public sale, all of
the foregoing being free from any right or equity of redemption of Borrower,
which right or equity of redemption is hereby expressly waived and released by
Borrower. If any of the Collateral or other security for the Obligations is sold
or leased by Lender upon credit terms or for future delivery, the Obligations
shall not be reduced as a result thereof until payment therefor is finally
collected by Lender. If notice of disposition of Collateral is required by law,
ten (10) days prior notice by Lender to Borrower designating the time and place
of any public sale, or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrower waives any other notice. In the event Lender institutes an
action to recover any Collateral or seeks recovery of any Collateral byway of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required. In addition to the foregoing and without limitation to
any other provision hereof, Borrower hereby grants Lender its assignee or any of
its representatives and also grants to any purchasers of any Collateral at any
public or private sale conducted by Lender, the right and license, for a period
of up to one hundred twenty (120) days commencing on the date of the conclusion
of such public or private sale conducted by Lender, to use all of the Borrower’s
names, trade names, business names and trademarks, to enter upon and use the
premises where the Collateral is located and to do with the Collateral so
purchased, any or all of the Permitted Actions at no cost to Lender and at no
cost to any purchaser of any Collateral at a public or private sale conducted by
Lender or by any purchaser of any Collateral. Borrower acknowledges and agrees
that the foregoing rights of Lender and any purchasers of Collateral pursuant to
a public or private sale conducted by Lender shall survive the Term.

 

(b) Lender may apply the Proceeds of Collateral actually received by Lender from
any sale, lease, foreclosure or other disposition of the Collateral to payment
of any of the Obligations, in whole or in part (including attorneys' fees and
legal expenses incurred by Lender with respect thereto or otherwise chargeable
to Borrower) and in such order as Lender may elect, whether or not then due.
Borrower shall remain liable to Lender for the payment on demand of any
deficiency together with interest at the Default Interest Rate and all costs and
expenses of collection or enforcement, including reasonable attorneys' fees and
legal expenses.

 

(c) Lender may, at its option, cure any default by Borrower under any agreement
with a third party or pay or bond on appeal any judgment entered against
Borrower, discharge Taxes and Liens at any time levied on or existing with
respect to the Collateral, and pay any amount, incur any expense or perform any
act which, in Lender's sole and absolute judgment, is necessary or appropriate
to preserve, protect, insure, maintain, or realize upon the Collateral. Such
amounts paid by Lender shall be repayable by Borrower on demand and added to the
Obligations, with interest payable thereon at the Default Interest Rate. Lender
shall be under no obligation to effect such cure, payment, bonding or discharge,
and shall not, by doing so, be deemed to have assumed any obligation or
liability of Borrower.

 

(d) Lender and Lender’s agents shall have the right to utilize any of Borrower’s
customer lists, registered names, trade names or trademarks to publicly
advertise, sell, lease, transfer, assign, deliver or otherwise dispose of any
and all Collateral and Borrower will be deemed to have waived and voided any
confidentiality agreements by and between Borrower and Lender.

 

 38 

 

 

12.2 Set-off. Lender shall have the right, immediately and without notice of
other action, to set-off against any of Borrower’s liabilities to Lender any
money or other liability owed by Lender or any Affiliate of Lender (and such
Affiliate of Lender is hereby authorized to effect such set-off) in any capacity
to Borrower, whether or not due, and Lender or such Affiliate shall be deemed to
have exercised such right of set-off and to have made a charge against any such
money or other liability immediately upon the occurrence of such Event of
Default even though the actual book entries may be made at a time subsequent
thereto. The right of set-off granted hereunder shall be effective irrespective
of whether Lender shall have made demand under or in connection with the Loans.
None of the rights of Lender described in this Section are intended to diminish
or limit in anyway Lender’s or Affiliates of Lender’s common-law set-off rights.

 

12.3 Costs and Expenses. Borrower shall be liable for all costs, charges and
expenses, including attorneys’ fees and disbursements, incurred by Lender by
reason of the occurrence of any Event of Default or the exercise of Lender's
remedies with respect thereto, each of which shall be repayable by Borrower on
demand with interest at the Default Interest Rate, and added to the Obligations.

 

12.4 No Marshalling. Lender shall be under no obligation whatsoever to proceed
first against any of the Collateral or other property which is security for the
Obligations before proceeding against any other of the Collateral. It is
expressly understood and agreed that all of the Collateral or other property
which is security for the Obligations stands as equal security for all
Obligations, and that Lender shall have the right to proceed against any or all
of the Collateral or other property which is security for the Obligations in any
order, or simultaneously, as in its sole and absolute discretion it shall
determine. It is further understood and agreed that Lender shall have the right
to sell any or all of the Collateral or other property which is security for the
Obligations in any order or simultaneously, as Lender shall determine in its
sole and absolute discretion.

 

12.5 No Implied Waivers; Rights Cumulative. No delay on the part of Lender in
exercising any right, remedy, power or privilege hereunder or under any other
Loan Document or provided by statute or at law or in equity or otherwise shall
impair, prejudice or constitute a waiver of any such right, remedy, power or
privilege or be construed as a waiver of any Event of Default or as an
acquiescence therein. No right, remedy, power or privilege conferred on or
reserved to Lender hereunder or under any other Loan Document or otherwise is
intended to be exclusive of any other right, remedy, power or privilege. Each
and every right, remedy, power or privilege conferred on or reserved to Lender
under this Agreement or under any of the other Loan Documents or otherwise shall
be cumulative and in addition to each and every other right, remedy, power or
privilege so conferred on or reserved to Lender and may be exercised by Lender
at such time or times and in such order and manner as Lender shall (in its sole
and absolute discretion) deem expedient.

 

 39 

 

 

SECTION 13. OTHER RIGHTS OF LENDER

 

13.1 Collections. Borrower hereby authorizes Lender to, and Lender shall make
such arrangements as it shall deem necessary or appropriate to, collect the
Accounts and any other monetary obligations included in, or Proceeds of, the
Collateral at any time whether or not an Event of Default has occurred. Borrower
shall, at Borrower’s expense and in the manner requested by Lender from time to
time, direct that remittances and all other Proceeds of accounts and other
Collateral be (a) remitted in kind to Lender, (b) sent to a post office box
designated by and/or in the name of Lender, or in the name of Borrower, but as
to which access is limited to Lender and/or (c) deposited into a bank account
maintained in the name of Lender and/or a blocked bank account under
arrangements with the depository bank under which all funds deposited to such
blocked bank account are required to be transferred solely to Lender. In
connection therewith, Borrower shall execute such post office box and/or blocked
bank account agreements as Lender shall specify.

 

13.2 Repayment of Obligations; Application. All Obligations shall be payable at
Lender's office set forth in the Loan Agreement Schedule or at a bank or such
other place as Lender may expressly designate from time to time for purposes of
this Section. Lender shall apply all payments received from Borrower and all
Proceeds of Collateral received by Lender and all other amounts received by
Lender to the Loans whether or not then due or to any other Obligations then
due, in whatever order or manner Lender shall determine.

 

13.3 Lender Appointed Attorney-in-Fact.

 

(a) Borrower hereby irrevocably constitutes and appoints Lender, with full power
of substitution, as its true and lawful attorney-in-fact, with full irrevocable
power and authority in its place and stead and in its name or otherwise, from
time to time in Lender's discretion, at Borrower’s sole cost and expense, to
take any and all appropriate action and to execute and deliver any and all
documents and instruments which Lender may deem reasonably necessary or
advisable to accomplish the purposes of this Agreement, including, without
limiting the generality of the foregoing: (i) at any time any of the Obligations
are outstanding, (A) to transmit to Account Debtors, other obligors or any
bailees notice of the interest of Lender in the Collateral or request from
Account Debtors or such other obligors or bailees at any time, in the name of
Borrower or Lender or any designee of Lender, information concerning the
Collateral and any amounts owing with respect thereto, (B) to execute in the
name of Borrower and file against Borrower in favor of Lender Financing
Statements or amendments with respect to the Collateral, or record a copy or an
excerpt hereof in the United States Copyright Office or the United States Patent
and Trademark Office and to take all other steps as are necessary in the
reasonable opinion of Lender under applicable law to perfect the security
interests granted herein, and (C) to pay or discharge Taxes, Liens, security
interests or other encumbrances levied or placed on or threatened against the
Collateral; and (ii) after and during the continuation of an Event of Default,
(A) to receive, take, endorse, assign, deliver, accept and deposit, in the name
of Lender or Borrower, any and all cash, checks, commercial paper, drafts,
remittances and other instruments and documents relating to the Collateral or
the Proceeds thereof, (B) to notify Account Debtors or other obligors to make
payment directly to Lender, or notify bailees as to the disposition of
Collateral, (C) to change the address for delivery of mail to Borrower and to
receive and open mail addressed to Borrower, (D) take or bring, in the name of
Lender or Borrower, all steps, actions, suits or proceedings deemed by Lender
necessary or desirable to effect collection of or other realization upon the
Collateral, (E) to obtain and adjust insurance required pursuant to this
Agreement and to pay all or any part of the premiums therefor and the costs
thereof, (F) to assemble, market and/or sell any Inventory or other Collateral,
(G) to take any and all action and to execute and deliver any and all documents
and instruments which Lender may deem reasonably necessary or advisable to (a)
accomplish the purposes of perfecting, continuing and preserving, a continuing
first priority security interest in any of the Collateral in favor of Lender,
and (b) effect a transfer of any of the Collateral to Lender or to Lender’s
designees, and (H) to extend the time of payment of, compromise or settle for
cash, credit, return of merchandise, and upon anyterms or conditions, any and
all Accounts or other Collateral which includes a monetary obligation and
discharge or release the Account Debtor or other obligor, without affecting any
of the Obligations.

 

 40 

 

 

(b) Borrower hereby ratifies, to the extent permitted by law, all that Lender
shall lawfully and in good faith do or cause to be done by virtue of and in
compliance with this Agreement. The powers of attorney granted pursuant to this
Agreement are each a power coupled with an interest and shall be irrevocable
until the Obligations are paid indefeasibly in full.

 

13.4 Release of Lender. Borrower hereby releases and exculpates Lender, its
officers, partners, members, directors, employees, agents, representatives and
designees, from any liability arising from any acts or occurrence under this
Agreement or in furtherance thereof, whether as attorney- in-fact or otherwise,
whether of omission or commission, and whether based upon any error of judgment
or mistake of law or fact, except for gross negligence or willful misconduct as
determined by a final and non-appealable order from a court of competent
jurisdiction. In no event will Lender have any liability to Borrower for lost
profits or other special or consequential damages.

 

13.5 Uniform Commercial Code. At all times prior and subsequent to an Event of
Default hereinafter, Lender shall be entitled to all the rights and remedies of
a secured party under the UCC with respect to all Collateral.

 

13.6 Preservation of Collateral. At all times prior and subsequent to an Event
of Default hereinafter, Lender may (but without any obligation to do so) take
any and all action which in its sole and absolute discretion is necessary and
proper to preserve its interest in the Collateral, including without limitation
the payment of debts of Borrower which might, in Lender's sole and absolute
discretion, impair the Collateral or Lender's security interest therein, and the
sums so expended by Lender shall be secured by the Collateral, shall be added to
the amount of the Obligations due Lender and shall be payable on demand with
interest at the rate applicable to the Loans set forth in Section 3.1 hereof
from the date expended by Lender until repaid by Borrower. After written notice
by Lender to Borrower and automatically, without notice, after an Event of
Default, Borrower shall not, without the prior written consent of Lender in each
instance, (a) grant any extension of time of payment of any Accounts, (b)
compromise or settle any Accounts for less than the full amount thereof, (c)
release in whole or in part any Account Debtor or other person liable for the
payment of any of the Accounts or any such other Collateral, or (d) grant any
credits, discounts, allowances, deductions, return authorizations or the like
with respect to any of the Accounts.

 

13.7 Lender's Right to Cure. In the event Borrower shall fail to perform any of
its Obligations hereunder or under any other Loan Document, then Lender, in
addition to all of its rights and remedies hereunder, may perform the same, but
shall not be obligated to do so, at the cost and expense of Borrower. Such costs
and expenses shall be added to the amount of the Obligations due Lender, and
Borrower shall promptly reimburse Lender for such amounts together with interest
at the Default Interest Rate from the date such sums are expended until repaid
by Borrower.

 

 41 

 

 

13.8 Inspection of Collateral. From time to time as requested by Lender, Lender
or its designee shall have access, (a) prior to an Event of Default, at the sole
expense of Borrower, subject to the Loan Agreement Schedule, during reasonable
business hours to all of the premises where Collateral is located for the
purpose of inspecting the Collateral and to all of Borrower’s Collateral, and
all books and records of Borrower, and Borrower shall permit Lender or Lender’s
designees to make copies of such books and records or extracts therefrom as
Lender may request, and (b) on or after an Event of Default, at the sole expense
of Borrower, at any time, to all of the premises where Collateral is located for
the purposes of inspecting, disposing and realizing upon the Collateral, and all
Borrower’s books and records, and Borrower shall permit Lender or its designee
to make such copies of such books and records or extracts therefrom as Lender
may request. Without expense to Lender, Lender may use such of Borrower’s
personnel, equipment, including computer equipment, programs, printed output and
computer readable media, supplies and premises for the realization on the
Collateral as Lender, in its sole and absolute discretion, deems appropriate.
Borrower hereby irrevocably authorizes all accountants and third parties to
disclose and deliver to Lender at Borrower’s expense all financial information,
books and records, work papers, management reports and other information in its
possession regarding Borrower.

 

SECTION 14.PROVISIONS OF GENERAL APPLICATION

 

14.1 Waivers. Borrower waives demand, presentment, notice of dishonor or protest
and notice of protest of any instrument of Borrower or others which may be
included in the Collateral.

 

14.2 Survival. All covenants, agreements, representations and warranties made by
Borrower herein or in any other Loan Document or in any certificate, report or
instrument contemplated hereby shall survive any independent investigation made
by Lender and the execution and delivery of this Agreement, and such
certificates, reports or instruments and shall continue so long as any
Obligations are outstanding and unsatisfied, applicable statutes of limitations
to the contrary notwithstanding.

 

14.3 Notices. All notices, requests and demands to or upon the respective
parties hereto shall be in writing and either (a) delivered by registered or
certified mail, return receipt requested, (b) delivered by hand, or (c)
delivered by national overnight courier service with next Business Day delivery,
and shall be deemed to have been duly given or made (i) upon the earlier of
actual receipt and three (3) Business Days after deposit in the United States
Mail, registered or certified mail, return receipt requested, with proper
postage prepaid, (ii) one (1) Business Day after deposit with a national
overnight courier with all charges prepaid, or (iii) when hand-delivered. All
notices, requests and demands are to be given or made to the respective parties
at the addresses set forth on Section 11 of the Loan Agreement Schedule (or to
such other addresses as either party may designate by notice in accordance with
the provisions of Section 11 of the Loan Agreement Schedule).

 

14.4 Amendments; Waiver of Defaults. The terms of this Agreement shall not be
amended, waived, altered, modified, supplemented or terminated in any manner
whatsoever except by a written instrument signed by Lender and Borrower. Any
default or Event of Default by Borrower may only be waived by a written
instrument specifically describing such default or Event of Default and signed
by the Lender.

 

 42 

 

 

14.5 Binding on Successors.

 

(a) This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, provided, however, that
Borrower may not assign any of its rights or obligations under this Agreement or
the other Loan Documents to any Person without the prior written consent of
Lender.

 

(b) Lender may assign any or all of the Obligations together with any or all of
the security therefor to any Person which is an “Eligible Assignee” (as defined
below) and any such assignee shall succeed to all of Lender’s rights with
respect thereto. Lender shall notify Borrower of any such assignment. Upon such
assignment, Lender shall have no further obligations under the Loan Documents.
Lender may from time to time sell or otherwise grant participations in any of
the Obligations and the holder of any such participation shall, subject to the
terms of any agreement between Lender and such holder, be entitled to the same
benefits as Lender with respect to any security for the Obligations in which
such holder is a participant. As used herein the term “Eligible Assignee” means
(i) if an Event of Default has not occurred and is no continuing or Lender has
not exercised any of its remedies in Section 12.1, any Person with sufficient
financial resources to be able to meet its commitments hereunder, provided that
such Person is not a direct competitor of Borrower, and (ii) if an Event of
Default has occurred and is continuing or if Lender has excercised any of its
remedies in Section 12.1, then any Person with no limitations.

 

14.6 Invalidity. Any provision of this Agreement which may be determined by
competent authority to be prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in anyjurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

 

14.7 Publicity. Borrower hereby authorizes Lender to make appropriate
announcements of the financial arrangement entered into by and between Borrower
and Lender, including, without limitation, announcements which are commonly
known as tombstones, in such publications and to such selected parties as Lender
shall in its sole and absolute discretion deem appropriate, or as required by
applicable law.

 

14.8 Section or Paragraph Headings. Section and paragraph headings are for
convenience only and shall not be construed as part of this Agreement.

 

14.9 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THESTATE OF CALIFORNIA, THE LAWS OF
WHICH THE BORROWER HEREBY EXPRESSLY ELECTS TO APPLY TO THIS AGREEMENT, WITHOUT
GIVING EFFECT TO PROVISIONS FOR CHOICE OF LAW THEREUNDER. THE BORROWER AGREES
THAT ANY ACTION OR PROCEEDING BROUGHT TO ENFORCE OR ARISING OUT OF THIS
AGREEMENT SHALL BE COMMENCED IN ACCORDANCE WITHTHE PROVISIONS OF THIS AGREEMENT.

 

 43 

 

 

14.10 WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER
HEREBY WAIVES ANY AND ALL RIGHTS THAT IT MAY NOW OR HEREAFTER HAVE UNDER THE
LAWS OF THE UNITED STATES OF AMERICA OR ANY STATE TO A TRIAL BY JURY OF ANY AND
ALL ISSUES ARISING EITHER DIRECTLY OR INDIRECTLY IN ANY ACTION OR PROCEEDING
BETWEEN BORROWER AND LENDER OR THEIR SUCCESSORS AND ASSIGNS, OUT OF OR IN ANY
WAY CONNECTED WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS
AND/OR THE COLLATERAL. IT IS INTENDED THAT SAID WAIVER SHALL APPLY TO ANY AND
ALL DEFENSES, RIGHTS, AND/OR COUNTERCLAIMS IN ANY ACTION OR PROCEEDINGS BETWEEN
BORROWER AND LENDER. BORROWER WAIVES ALL RIGHTS TO INTERPOSE ANY CLAIMS,
DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND, NATURE OR DESCRIPTION IN ANY
ACTION OR PROCEEDING INSTITUTED BY LENDER WITH RESPECT TO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, THE OBLIGATIONS, THE COLLATERAL OR ANY MATTER ARISING
THEREFROM OR RELATING THERETO, EXCEPT COMPULSORY COUNTERCLAIMS.

 

14.11 CONSENT TO JURISDICTION. BORROWER HEREBY (a) IRREVOCABLY SUBMITS AND
CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED
IN THE STATE OF CALIFORNIA, LOS ANGELES COUNTY WITH RESPECT TO ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE
OBLIGATIONS AND/OR THE COLLATERAL OR ANY MATTER ARISING THEREFROM OR RELATING
THERETO, AND (b) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE BASED ON
VENUE OR FORUM NON CONVENIENS WITH RESPECT THERETO. IN ANY SUCH ACTION OR
PROCEEDING, BORROWER WAIVES PERSONAL SERVICEOF THE SUMMONS AND COMPLAINT OR
OTHER PROCESS AND PAPERS THEREIN AND AGREES THAT THE SERVICE THEREOF MAY BE MADE
BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO BORROWER AT ITS OFFICES
SET FORTH HEREIN OR OTHER ADDRESS THEREOF OF WHICH LENDER HAS RECEIVED NOTICE AS
PROVIDED IN THIS AGREEMENT. NOTWITHSTANDING THE FOREGOING, BORROWER CONSENTS TO
THE COMMENCEMENT BY LENDER OF ANY SUIT, ACTION OR PROCEEDING IN ANY OTHER
JURISDICTION TO ENFORCE LENDER’S RIGHTS AND BORROWER WAIVES ANY OBJECTIONS WHICH
IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY
SUCH SUIT, ACTION OR PROCEEDING.

 

14.12 Confidentiality.

 

(a) Lender agrees to maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (i) to its Affiliates (it being
understood that the Persons to whom such disclosure is made will be informed of
the confidential nature of such Information and instructed to keep such
Information confidential), (ii) to the extent required or requested by any
regulatory authority purporting to have jurisdiction over Lender (including any
self-regulatory authority), (iii) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (iv) in connection with
the exercise of any remedies hereunder or under any other Loan Document or any
action or proceeding relating to this Agreement or any other Loan Document or
the enforcement of rights hereunder or thereunder, (v) subject to an agreement
containing provisions substantially the same as those of this Section, to any
permitted participant in, or any prospective participant in, any of its rights
and obligations under this Agreement or any Eligible Assignee or perspective
Eligible Assignee pursuant to Section 14.5(b), and (vi) with the consent of
Borrower or to the extent such Information (1) becomes publicly available other
than as a result of a breach of this Section or (2) becomes available to the
Lender or any of its Affiliates on a nonconfidential basis from a source other
than Borrower. For purposes of this Section, “Information” means all information
received from Borrower or any Subsidiary relating to Borrower or any Subsidiary
or any of their respective businesses, other than any such information that is
available to Lender on a nonconfidential basis prior to disclosure by Borrower
or any Subsidiary, provided that, in the case of information received from
Borrower or any Subsidiary after the date hereof, such information is clearly
identified at the time of delivery as confidential. Any Person required to
maintain the confidentiality of Information as provided in this Section shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.

 

 44 

 

 

(b) Lender acknowledges that (i) the Information may include material non-public
information concerning Borrower or a Subsidiary, as the case may be, (ii) it has
developed compliance procedures regarding the use of material non-public
information and (iii) it will handle such material non-public information in
accordance with applicable Law, including United States federal and state
securities laws.

 

(c) If an Event of Default occurs and is continuing or Lender exercise any of
its remedies in Section 12.1, then Lender shall be relieved of the
confidentiality provisions of this Section 14.12 for the exercise of such
remedies.

 

14.13 Entire Agreement. This Agreement, the other Loan Documents, any
supplements or amendments hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith contains the
entire agreement and understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.

 

14.14 Counterparts. This Agreement may be executed in counterparts and by
facsimile or other electronic signatures, each of which when so executed, shall
be deemed an original, but all of which shall constitute but one and the same
instrument.

 

14.15 Joint and Several Obligations. If more than one Person is a Borrower
hereunder, the provisions of Section 12 of the Loan Agreement Schedule shall
apply.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK AND SIGNATURES ON NEXT PAGE]

 

 45 

 

 

 

IN WITNESS WHEREOF, this Loan and Security Agreement has been duly executed as
of the day and year first above written.

 

  BORROWER:         SYSOREX GLOBAL         By:   /s/ Nadir Ali   Name: Nadir Ali
  Title:   CEO         SYSOREX USA         By:   /s/ Nadir Ali   Name: Nadir Ali
  Title:   CEO         SYSOREX GOVERNMENT SERVICES, INC.         By:   /s/ Wendy
Loundermon   Name: Wendy Loundermon   Title:   President         LENDER:        
GEMCAP LENDING I, LLC         By:   /s/ David Ellis     David Ellis,
Co-President

 

[SIGNATURE PAGE - LOAN AND SECURITY AGREEMENT]

 

 

46