Exhibit 10.1

 

ACCOUNTS RECEIVABLE PURCHASE AGREEMENT

 

THIS ACCOUNTS RECEIVABLE PURCHASE AGREEMENT (this “Agreement”) is made on this
23rd day of July, 2009, by and between REPUBLIC CAPITAL ACCESS, LLC, a Delaware
limited liability company having its principal place of business at 1818 Library
Street, Reston, Virginia 20190 (“Buyer”), and American Defense Systems, Inc., a
Delaware Corporation having its principal place of business at 230 Duffy Ave.,
Hicksville, NY 11801 (“Seller”).

 

WHEREAS, Buyer and RCA have performed, or have caused to be performed, all
necessary due diligence and have determined that Seller is an Eligible
Contractor; and

 

WHEREAS, Seller desires to sell certain Receivables that it now owns and from
time to time hereafter will own to Buyer, and Buyer is willing, on the terms and
subject to the conditions contained in this Agreement, to purchase such
Receivables from Seller at such time; and

 

WHEREAS, Buyer is a bona fide financing institution within the meaning of the
Assignment of Claims Act and the Federal Acquisition Regulations.

 

NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties hereto agree as follows:

 

SECTION 1

DEFINITIONS

 

1.1           Definitions. Certain terms used in this Agreement are defined in
this Section 1.1.  These terms, and the additional terms defined above, shall
have the meanings assigned wherever the terms appear in this Agreement. These
meanings are also applicable to the singular and plural forms of the terms
defined.

 

“Acceptance Date” shall have the meaning set forth in Section 2.2 hereof.

 

“Account Balance” shall mean, on any given day, the gross amount of all the
Purchased Receivables or any portion thereof unpaid on that day.

 

“Account Debtor” shall have the same meaning set forth in the UCC and shall
include any person liable on any Purchased Receivable, including, without
limitation, the Government and any guarantor of such Purchased Receivable.

 

“Accrual Period” shall mean, with respect to any Residual Payment Date, the
period from, and including, the immediately preceding Residual Payment Date
through, but excluding, such Residual Payment Date; provided, however, that the
initial Accrual Period shall commence on the date hereof.

 

“Applicable Law” shall mean all provisions of laws, statutes, rules,
regulations, codes, ordinances, judgments, writs, decrees and orders of any

 

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Governmental Authority or arbitrator applicable to the Person in question,
including judgments, writs, decrees and orders of all courts and arbitrators in
Proceedings in which the Person in question is a party.

 

“Anticipated Collection Date” shall mean, with respect to any Purchased
Receivable, the date which Buyer estimates in good faith to be the date that all
Collections related to such Eligible Receivable will be directly deposited to
the Segregated Account by the Account Debtor.

 

“Assignment of Claims Act” shall mean the United States Assignment of Claims Act
of 1940, 31 U.S.C. § 3727, 41 U.S.C. § 15, as amended.

 

“Availability Period” shall mean the period from and including the date hereof
to December 31, 2009, provided, however, that if the term of this Agreement is
extended in accordance with Section 10.10 hereof, the Availability Period will
be extended as determined by Buyer in its sole discretion.

 

“Bankruptcy Code” shall mean Title 11 of the United States Code (11 U.S.C. §§
101 et seq.).

 

“Business Day” shall mean any day that is not a Saturday, a Sunday or other day
on which commercial banking institutions in the City of New York are authorized
or obligated by Applicable Law to close.

 

“Buyer Indemnified Liabilities” shall have the meaning set forth in
Section 10.3.1 hereof.

 

“CBH” shall mean Cherry, Bekaert & Holland, L.L.P., or such other Person that
KBC approves in writing in its sole discretion that performs the obligations of
Cherry, Bekaert & Holland, L.L.P. under the Collateral Review Agreement.

 

“Collateral Review Agreement” shall mean the Letter of Arrangement dated as of
December 31, 2008 between CBH and the Buyer.

 

“Collections” shall mean all amounts received with respect to the Purchased
Receivables, including scheduled payments (whether received in whole or in part;
whether related to a current, future or prior due date; or whether paid
voluntarily by an Account Debtor or received in connection with the realization
of the amounts due under any Purchased Receivable or upon the sale or
disposition of any property acquired in respect thereof), all partial payments,
all full prepayments and all recoveries.

 

“Compliance Certificate” shall mean a certificate, in a form provided by Seller
to Buyer, which contains the certification of an officer of Seller that, among
other things, the representations and warranties set forth in this Agreement are
true and correct as of the date such certificate is delivered.

 

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“Confirmation List” shall mean a list, made either in writing or via email,
delivered to Seller on the Acceptance Date that shall set forth (i) each
Eligible Receivable Buyer agrees to purchase pursuant to any related Offer
Notice and (ii) the Initial Purchase Price that shall be paid to Seller with
respect to each such Eligible Receivable.

 

“Contract Disputes Act” shall mean the Contract Disputes Act of 1978, 41 U.S.C.
§§ 601-613, as amended.

 

“Contractor Review Agreement” shall mean that certain Letter Agreement dated as
of January 9, 2009 between the Underwriter and RCA.

 

“DCAA” shall mean the Defense Contract Audit Agency of the United States
Department of Defense.

 

“Deemed Collections” shall mean all reductions, adjustments, discounts, credits,
allowances, rebates, refunds, returns, disputes, counterclaims, offsets,
defenses, rights of recoupment, rights of return, warranty claims or short
payments, asserted by or on behalf of any Account Debtor with respect to any
Purchased Receivable.

 

“Direct Costs” shall have the meaning ascribed to such term in 48 C.F.R.
Section 2.101 and shall include all allocable and allowable costs in accordance
with FAR Part 31.

 

“Discount Factor” shall have the meaning set forth in Section 3.5 hereof.

 

“Discount Factor Rate” shall have the meaning set forth in Section 3.5 hereof.

 

“Eligible Contractor” means a Person that (a) is a U.S. resident or Person
organized under the laws of any state of the United States, (b) is not an
affiliate of RCA or Buyer, (c) is a party to a contract with an Account Debtor
pursuant to which it is entitled to receive payments from such Account Debtor,
(d) has been deemed to be “responsible” in accordance with the FAR and to have
been determined by the Account Debtor to be satisfactory after reviewing the
United States Government Contractor Performance Assessment Reporting System,
(e) has not been notified of the reduction or suspension of contract payments
upon a finding of fraud, or of the investigation of fraud, pursuant to FAR
32.006, (f) does not have a billing rate error of more than two percent (2%)
with respect to billings to the Government within the last twelve (12) months
prior to the purchase of any receivable generated by such Contractor by RCA,
(g) has not experienced any set-off or withholding of funds under any contract
with the Account Debtor as a result of a failure to pay its employees in
accordance with any federal wage and hour statutes, including, but not limited
to, the Service Contract Act, 41 U.S.C. § 351 et seq., or the Contract Work
Hours and Safety Standards Act, 40 U.S.C. § 3701 et seq., nor has it been
notified of an investigation of the foregoing matters, (h) has not experienced
any set-off or withholding of funds under any contract with the

 

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Account Debtor as a result of its Indebtedness to the Account Debtor, including
any monies owed for overpayment by the Account Debtor, nor has it been notified
of an investigation of such matter, (i) has been reviewed and approved pursuant
to the Contractor Review Agreement at least annually, and (j) satisfies all of
the representations and warranties it makes under this Agreement.

 

“Eligible Receivable” A bona fide receivable arising from an invoice that has
been sent to and approved for payment by an Account Debtor (to the extent
required by Buyer) pursuant to a contract between an Account Debtor, as obligor,
and Seller, and all Related Security thereof: (a) that is either (i) a “Service
Contract” (as defined in FAR 37.101) between Seller and the Account Debtor,
provided, however, that an Eligible Receivable shall not be deemed to arise from
a construction contract, or (ii) a contract between Seller and the Account
Debtor for the delivery of products, provided that the delivery of such products
can be verified by Buyer; (b) that has been purchased by the Buyer from the
Seller in accordance with this Agreement; (c) that has been executed by an
authorized officer of the Seller who has verified that adequate funds are
available and no appropriations approval is required for the Seller to enter
into the contract; (d) that satisfies all of the criteria of any due diligence
review conducted by Buyer, RCA, CBH or the Underwriter; (e) that is denominated
and payable only in U.S. dollars by electronic funds transfer and only in the
United States and no later than the later of (i) sixty (60) days from the
Account Debtor’s receipt of the invoice and (ii) sixty (60) days after the
Account Debtor has accepted the supplies delivered or the services performed to
which the invoice relates; (f) that has been validly assigned to Buyer pursuant
to the Assignment of Claims Act, and all payments with respect thereto have been
validly directed to be made directly to the Segregated Account; (g) with respect
to which, immediately following the transfer of such Eligible Receivable to
Buyer as contemplated by this Agreement, the Borrower shall have good title to
such Eligible Receivable, free and clear of any Liens; (h) the sale and
assignment of which by Seller to Buyer does not contravene or conflict with any
applicable laws or contractual obligation or other restriction, limitation or
encumbrance, and do not require any consent that has not been obtained; (i) the
contracts, documents, instruments and other items with respect to which
(i) contain customary and enforceable provisions such that the rights and
remedies of the holder thereof are adequate for the practical realization
against any related collateral or purchased assets of the benefits of the
security or ownership thereof and (ii) do not contain any confidentiality (or
any other) provisions that would restrict the ability of Buyer to exercise its
powers,  rights and remedies under this Agreement; (j) as to which the right to
receive payments thereunder is an “account” or a “payment intangible”, within
the meaning of the UCC; (k) which arises under contracts, documents, instruments
and other items that (i) have been duly authorized, are in full force and effect
and constitute the legal, valid and binding obligations of the related Account
Debtor and Seller, enforceable against such Account Debtor and Seller in
accordance with their terms (except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors’ rights generally
and the effects of general principles of equity) and (ii) are not subject to any
dispute, claim, defense, offset or counterclaim; (l) as to which no portion of
the Related Security has been

 

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released (in whole or in part) from any Lien or security interest therein
granted by the related Account Debtor to the Seller; (m) which, together with
the contracts, documents, instruments and other items related thereto, do not
contravene in any material respect any Applicable Laws; (n) which arises under
contracts, documents, instruments and other items, none of the parties to which
have done or failed to do anything that would or might permit any other party
thereto (other than the Borrower in exercising its rights or remedies
thereunder) to terminate any such contracts, documents, instruments and other
items or to suspend or reduce any payments or obligations due or to become due
thereunder at any time after it becomes an Eligible Receivable; and (o) which at
no point in time has failed to meet each of the criteria to constitute an
Eligible Receivable set forth in subsections (a) through (m) above.
Notwithstanding anything in this definition to the contrary, the first three
(3) invoices or the last invoice with respect to any contract shall not be
deemed an “Eligible Receivable” unless (i) any such receivable is submitted and
validated through a web-based system such as “Wide Area Workflow” (WAWF) or
(ii) KBC, in its sole discretion, is satisfied with the verbal confirmation that
KBC has received from an appropriate government official that any such
receivable is proper and will be submitted for payment.

 

“Enrollment Fee” shall have the meaning set forth in Section 3.1 hereof.

 

“Environmental Law” shall mean all requirements of applicable law and any
permit, approval, authorization, license, concession or permission from any
governmental authority imposing liability or standards of conduct for or
relating to the regulation and protection of human health, safety, the
environment and natural resources, including the United States Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. §§ 9601 et
seq.), the Solid Waste Disposal Act (42 U.S.C. §§ 6901 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. §§ 5101 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. §§ 136 et seq.), the Toxic
Substances Control Act (15 U.S.C. §§ 2601 et seq.), the Clean Air Act (42 U.S.C.
§§ 7401 et seq.), the Federal Water Pollution Control Act (33 U.S.C. §§ 1251 et
seq.), the Occupational Safety and Health Act (29 U.S.C. §§ 651 et seq.), the
Safe Drinking Water Act (42 U.S.C. §§ 300(f) et seq.), all regulations
promulgated under any of the foregoing, all analogous requirements of law and
any environmental transfer of ownership notification or approval statutes,
including the Industrial Site Recovery Act (N.J. Stat. Ann. §§ 13:1K-6 et seq.).

 

“ERISA” shall mean the United States Employee Retirement Income Security Act of
1974, as codified at 29 U.S.C. § 1001 et seq. and the rules and regulations
promulgated thereunder.

 

“Event of Default” shall have the meaning set forth in Section 9.1 hereof.

 

“Face Amount” shall mean, with respect to a Purchased Receivable, the face
amount of such Purchased Receivable as of the date Buyer shall have delivered
the Initial Purchase Price to Seller related to such Purchased Receivable.

 

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“FAR” means the United States Federal Acquisition Regulations, 48 C.F.R. Parts
1-53, as may be amended from time to time.

 

“GAAP” means generally accepted accounting principles in the United States of
America in effect from time to time consistently applied (except for accounting
changes in response to releases of the Financial Accounting Standards Board, or
other authoritative pronouncements).

 

“Government” means the United States Federal Government or any agency or
instrumentality thereof.

 

“Government Contract” means any prime contract, purchase order, task order,
delivery order, teaming agreement, joint venture agreement, strategic alliance
agreement, basic ordering agreement, pricing agreement, letter contract or other
similar arrangement of any kind that are currently active in performance between
Seller, as an Eligible Contractor, and the Government, which shall result in
Eligible Receivables owed to Seller which may be purchased by Buyer in
accordance with this Agreement. A task, purchase or delivery order under a
Government Contract shall not constitute a separate Government Contract, for
purposes of this definition, but shall be part of the Government Contract to
which it relates.

 

“Government Contract Bid” shall mean quotations, bids and proposals for awards
of new Government Contracts made by Seller for which no award has been announced
and for which Seller believes there is a reasonable prospect that such an award
to Seller may yet be made.

 

“Governmental Authority” shall mean any federal, state, municipal, local or
other governmental or regulatory department, commission, board, bureau, agency,
instrumentality, court or tribunal, in each case whether of the United States of
America, any political subdivision thereof or any foreign jurisdiction.

 

“Indebtedness” shall mean, with respect to any Person, without duplication, any
of the following, whether or not matured:  (a) all indebtedness for borrowed
money, (b) all other obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all reimbursement and all other obligations with
respect to (i) letters of credit, bank guarantees or bankers’ acceptances or
(ii) surety, customs, reclamation or performance bonds (in each case not related
to judgments or litigation), (d) all obligations to pay the deferred purchase
price of property or services, (e) all obligations created or arising under any
conditional sale or other title retention agreement, regardless of whether the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property, (f) all matured
obligations under any swap, cap, collar, forward purchase or similar hedging
agreements or arrangements dealing with interest rates, currency exchange rates
or commodity prices, either generally or under specific contingencies, (g) all
obligations of such Person under all leases which are capitalized in accordance
with GAAP and any financing leases involving substantially the same economic
effect, (h) any obligation,

 

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contingent or otherwise, of such Person directly or indirectly guaranteeing, or
indemnifying any Person against losses in respect of, any Indebtedness of any
other Person, (i) all Indebtedness referred to above secured by (or for which
the holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon or in property or other assets (including
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness and (j) all
other obligations that would be recorded on a person’s balance sheet as a
liability in accordance with GAAP.

 

“Indirect Costs” shall have the meaning ascribed to such term in 48 C.F.R.
Section 2.101 and in FAR Part 31.

 

“Initial Purchase Price” shall have the meaning set forth in Section 2.3.1
hereof.

 

“Initial Purchase Price Rate” shall have the meaning set forth in Section 2.3.1
hereof.

 

“KBC” shall mean KBC Bank, N.V., a banking institution organized under the laws
of the Kingdom of Belgium, acting through its New York Branch.

 

“Lien” shall mean any lien, security interest or other charge, encumbrance, or
other type of preferential arrangement having the practical effect of a lien or
security interest, of or on any assets or properties of any Person in favor of
any other Person, including a conditional sale or title retention agreement.

 

“Material Adverse Effect” shall mean a circumstance or condition affecting the
business, assets, operations, properties, condition (financial or otherwise), or
prospects of Seller and/or the Purchased Receivables that could materially
adversely affect (a) the business, assets, operations, properties, condition
(financial or otherwise) or prospects of Seller, (b) the ability of Seller to
perform any of its obligations under this Agreement, (c) the rights and remedies
of Buyer under this Agreement, (d) the value, existence or ownership of the
Purchased Receivables or (e) the collectability of the Purchased Receivables.

 

“Offer Notice” shall mean a notice, made either in writing or via email,
delivered to Buyer by Seller through which Seller shall offer to sell Eligible
Receivables for an amount greater than or equal to ten thousand dollars
($10,000).

 

“PAF Rate” shall have the meaning set forth in Section 3.3 hereof.

 

“Person” shall mean any individual, corporation, partnership, limited liability
company, limited liability partnership, joint venture, association, joint stock
company, trust (including any beneficiary thereof), unincorporated organization
or government or any agency or political subdivision thereof.

 

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“Plan” shall mean an employee benefit plan within the meaning of Section 3(3) of
ERISA which is subject to Title IV of ERISA and maintained or contributed to by
Seller, or any other plan covered by Title IV of ERISA that covers the employees
of Seller.

 

“Proceeding” shall mean any action, suit, proceeding or litigation in equity or
at law, or any other judicial or administrative proceeding or investigation.

 

“Program Access Fees” shall have the meaning set forth in Section 3.3 hereof.

 

“Program Continuance Fee” shall have the meaning set forth in Section 3.4
hereof.

 

“Purchased Receivables” shall mean all Eligible Receivables arising out of any
invoice and other agreements identified on or delivered with any Receivables
Invoice delivered by Seller to Buyer which Buyer elects to purchase pursuant to
Section 2.2 hereof.

 

“RCA” shall mean RCA Funding, LLC.

 

“Receivables” shall mean (i) all of Seller’s receivables listed on any
Receivables Invoice and all rights to, but not the obligations under, such
contracts and any and all rights and security arising thereunder, (ii) all
monies due or to become due with respect to the foregoing and (iii) all books
and records related to any of the foregoing.

 

“Receivables Invoice” shall have the meaning set forth in Section 2.1 hereof.

 

“Related Security” shall mean, with respect to any Eligible Receivable or other
receivable, all of the Seller’s right, title, interest and remedies in, to and
under any and all contracts, documents, instruments and other items related
thereto, and all proceeds of the foregoing, including, without limitation,
(i) the right of the Seller to receive all scheduled and unscheduled payments of
all amounts payable in connection with such Eligible Receivable or other
receivable, (ii) the right, if any, of the Seller to cause the repurchase of the
Seller’s interest in such Eligible Receivable or other receivable  and to
receive the purchase price, (iii) the right to enforce the Seller’s rights and
remedies under any purchase and sale, transfer or other applicable assignment
agreement, if any, with respect thereto, (iv) all Liens or security interests
and property subject thereto from time to time purporting to secure any of the
foregoing rights or interests, and the right to all collections in respect
thereof, if any, (v) all guarantees, casualty and other insurance policies
(including, without limitation, the right to receive all returned premiums
related thereto) and other agreements or arrangements of whatever character from
time to time supporting or securing or otherwise related to such Eligible
Receivable or other receivable and the related contracts, documents, instruments
and other items related thereto, (vi) all Collections and all accounts to

 

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which Collections in respect of such Eligible Receivable or other receivable are
deposited (including the Segregated Account), (vii) all other information,
documents, instruments, servicing files, records and computer-readable media,
personal property, contract rights, servicing rights, escrow funds, and general
intangibles of whatsoever kind evidencing, comprising or relating to the
ownership or transfer of such Eligible Receivable or other receivable or the
servicing thereof and all other documents or instruments delivered to the Seller
with respect thereto and (viii) all proceeds of the foregoing.

 

“Residual Calculation Date” shall mean the [second] Business Day immediately
following the date that any Collections are collected with respect to any
Purchased Receivable; provided that the amount of such Collections exceed the
sum of the Initial Purchase Price of such Purchased Receivable, plus the
Discount Factor related to such Purchased Receivable, plus any accrued Program
Access Fees owed during the applicable Accrual Period.

 

“Residual Payment Date” shall mean the Business Day immediately following the
Residual Calculation Date.

 

“Residual Purchase Price” shall have the meaning set forth in Section 2.3.2
hereof.

 

“Sale and Contribution Agreement” shall mean that certain Sale and Contribution
Agreement dated as of January 20, 2009, by and between RCA, as purchaser, and
Buyer, as seller.

 

“Segregated  Account” shall mean that segregated bank account, located at KBC,
specified by Buyer to Seller, in which any and all Collections shall be
deposited.

 

“Seller Obligations” shall mean all advances, financial accommodations,
liabilities, obligations, covenants and duties owing, arising, due or payable by
Seller to Buyer of any kind or nature, present or future, arising under or in
connection with this Agreement or under any other document, instrument or
agreement, whether or not evidenced by any note, guarantee or other instrument,
whether arising on account or by overdraft, whether direct or indirect
(including those acquired by assignment) absolute or contingent, primary or
secondary, due or to become due, now owing or hereafter arising and however
acquired, including, without limitation, all Initial Purchase Prices, Program
Access Fees, interest, Deemed Collections, fees, expenses, professional fees and
attorneys’ fees and any other sums chargeable to Seller hereunder or otherwise.

 

“Solvent” means, with respect any Person, that as of any day, both (a) (i) the
sum of such Person’s debts (including contingent and unliquidated liabilities)
does not exceed the present fair saleable value of such Person’s present assets
(both at fair value and fair saleable value); (ii) such Person’s capital is not
unreasonably small in relation to its business as contemplated on such day; and
(iii) such Person has not incurred and does not intend to incur, and believes
that it

 

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will not incur, debts including current obligations beyond its ability to pay
such debts as they become due (whether at maturity or otherwise); and (b) such
Person is  “solvent” within the meaning given that term and similar terms under
Applicable Laws relating to fraudulent transfers and conveyances.  For purposes
of this definition, the amount of any contingent liability at any time shall be
computed as the amount that, in light of all of the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability (irrespective of whether such contingent
liabilities meet the criteria for accrual under Statement of Financial
Accounting Standard No. 5)

 

“Termination Fee” shall have the meaning set forth in Section 3.2 hereof.

 

“Truth in Negotiations Act” shall mean the Truth in Negotiations Act of 1962, 10
U.S.C. § 2306(a), 41 U.S.C. § 254(b), as amended.

 

“UCC” shall mean the Uniform Commercial Code as in effect from time to time in
the State of New York, provided, however, that, in the event that, by reason of
mandatory provisions of law, any of the attachment, perfection or priority of
the Purchased Receivables under this Agreement is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of New York,
the term “UCC” shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions of this Agreement relating to such
attachment, perfection or priority and for purposes of definitions related to
such provisions.

 

“Underwriter” shall mean Credit Risk Management LLC.

 

“Unpurchased Receivable” shall mean any Receivable that is not a Purchased
Receivable.

 

“USA Patriot Act” shall mean the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act (Title II of
Pub. L. 107-56 (signed into law October 26, 2001)).

 

SECTION 2

PURCHASE AND SALE OF RECEIVABLES

 

2.1           Delivery of Invoices; Validation of Receivables.  During the
Availability Period, and simultaneously with the delivery of the same to any
Account Debtor, Seller shall deliver to Buyer and KBC any and all invoices
prepared relating to Receivables arising under contracts with an Account Debtor
for which Seller has assigned the rights to receive payments therefrom to Buyer
or Buyer’s designee (each, a “Receivables Invoice”). Upon receipt of any
Receivables Invoices, Buyer shall perform, or shall cause another Person to
perform, any and all due diligence necessary to determine which Receivables set
forth in the Receivables Invoices are Eligible Receivables.

 

2.2           Offer and Acceptance of Receivables.  At any time during the
Availability Period, provided that there does not then exist any Event of
Default or any event that,

 

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with notice, lapse of time or otherwise, would constitute an Event of Default,
Seller may deliver to Buyer an Offer Notice; provided, however, that Seller
shall not deliver more than three (3) Offer Notices to Buyer in any calendar
week. Within two (2) Business Days of Buyer’s receipt of an Offer Notice (the
“Acceptance Date”), Buyer shall (i) deliver to Seller a Confirmation List and
(ii) and pay to Seller by wire transfer an amount equal to the Initial Purchase
Price of each Eligible Receivable set forth on such Confirmation List, it being
hereby agreed to and accepted that the satisfaction of items (i) and (ii) above
shall evidence Buyer’s acceptance to purchase the Eligible Receivables set forth
on the Confirmation List. Notwithstanding the foregoing, Buyer shall have no
obligation to purchase all or any portion of Eligible Receivables set forth in
any Offer Notice or to give a Confirmation List. Upon Buyer’s acceptance of any
Eligible Receivable as set forth in this Section 2.2, such Eligible Receivable
shall become a “Purchased Receivable”; provided, however, that it shall be a
condition to the payment of each Initial Purchase Price that: (i) all of the
conditions, representations, warranties and covenants set forth herein be true
and correct on and as of the Acceptance Date as though made at and as of each
such date, and (ii) no Event of Default, or any event or condition that with
notice, lapse of time or otherwise would constitute an Event of Default, shall
have occurred and be continuing, or would result from the payment of such
Initial Purchase Price.

 

2.3           Purchase Price of Receivables.

 

2.3.1        Initial Purchase Price.  As set forth in Section 2.2 hereof, Buyer
shall pay to Seller an amount equal to ninety percent (90%) (the “Initial
Purchase Price Rate”) of the Face Amount of each Eligible Receivable set forth
in any Confirmation List (each, an “Initial Purchase Price”). The Initial
Purchase Price Rate shall remain in effect throughout the term of this
Agreement.

 

2.3.2        Residual Purchase Price.  Provided that there does not then exist
an Event of Default or any event or condition that, with notice, lapse of time
or otherwise, would constitute an Event of Default, Buyer shall pay to Seller by
wire transfer on the Residual Payment Date, the amount, if any, which Buyer owes
to Seller on such Residual Payment Date, according to the accounting prepared by
Buyer as of such Residual Calculation Date (the “Residual Purchase Price”). For
each individual Purchased Receivable, the Residual Purchase Price shall be an
amount equal to: (A) the total amount of Collections related to such Purchased
Receivable as of the Residual Calculation Date; minus (B) the sum of (i) the
Initial Purchase Price paid for such Purchased Receivable, plus (ii) the
Discount Factor owed with respect to such Purchased Receivable, plus (iii) the
total as of the Residual Calculation Date of (a) any and all accrued and unpaid
Program Access Fees multiplied by a fraction, the numerator of which is equal to
the total amount of Collections collected in such applicable Accrual Period and
the denominator of which is the average daily Account Balance during such
applicable Accrual Period, (b) Deemed Collections related to such Purchased
Receivable, and (c) any other amounts due, including professional fees and
expenses, as set forth in Section 10.2 hereof for which oral or written demand
has been made by Buyer to Seller as of the Residual Calculation Date to the
extent Buyer has agreed to accept payment thereof by deduction from the Residual
Purchase Price.

 

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2.4           Effectiveness of the Sale to Buyer.  Effective upon Buyer’s
payment of the Initial Purchase Price, and for and in consideration therefore
and in consideration of the covenants of this Agreement, Seller hereby
absolutely sells, transfers and assigns to Buyer, all of Seller’s right, title
and interest in and to each Purchased Receivable and any Related Security and
all monies due or which may become due on or with respect to such Purchased
Receivable and any Related Security. Buyer shall be the absolute owner of each
Purchased Receivable and any Related Security. Buyer shall have, with respect to
any goods related to the Purchased Receivable and any Related Security, all the
rights and remedies of an unpaid seller under the UCC and other applicable laws,
including the rights of replevin, claim and delivery, reclamation and
stoppage in transit.

 

2.5           Unpurchased Receivables.  In the event that any collections
deposited into the Segregated Account relate to an Unpurchased Receivable, Buyer
shall remit, or shall cause RCA or KBC to remit, all such collections to Seller
within the two (2) Business Days immediately following such collection, provided
that the Seller has submitted the proper banking information and invoice
documentation required by the Buyer.

 

2.6           True Sales.

 

2.6.1        Each of Buyer and Seller intend the transactions hereunder to
constitute true sales of Purchased Receivables by Seller to Buyer providing
Buyer with the full benefits of ownership thereof, and no party hereto intends
the transactions contemplated hereunder to be, or for any purpose to be
characterized as, a loan from or through Buyer to Seller.

 

2.6.2        In the event, but only to the extent, that the conveyance of
Purchased Receivables by Seller hereunder is characterized by a court or other
governmental authority as a loan rather than a sale, Seller shall be deemed
hereunder to have granted to Buyer effective as of the date of the first
purchase under this Agreement, a security interest in all of Seller’s right,
title and interest in, to and under all of the Purchased Receivables sold by it,
whether now or hereafter owned, existing or arising. Such security interest
shall secure any and all rights of, and payments owed to, Buyer under this
Agreement, whether now or hereafter existing or arising, due or to become due,
direct or indirect, absolute or contingent. Buyer shall have, with respect to
the property described in this Section 2.6.2, and in addition to all the other
rights and remedies available to Buyer under this Agreement and applicable law,
all the rights and remedies of a secured party under the UCC, and this Agreement
shall constitute a security agreement under applicable law.

 

SECTION 3

FEES; ACCOUNTING

 

3.1           Enrollment Fee. Immediately upon the execution of this Agreement,
Seller shall pay to Buyer an amount equal to fifteen thousand dollars ($15,000)
(the “Enrollment Fee”) in consideration of Buyer’s commitment to purchase
Receivables hereunder.

 

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3.2           Termination Fee.  In the event that Seller terminates this
Agreement prior to the end of the term of this Agreement as set forth in
Section 10.10 hereof, Seller shall pay to Buyer an amount equal to zero dollars
($0) (the “Termination Fee”) in consideration for such early termination of this
Agreement. The Termination Fee shall be paid to Buyer within twenty (20) days of
such early termination, and may be charged to Seller directly or offset from any
Residual Purchase Price or Unpurchased Receivable payments owed to Seller at or
after the time at which such Termination Fee arises.

 

3.3           Program Access Fees.  On each Residual Payment Date, Buyer shall,
or shall cause KBC to, deduct from any Collections an amount equal to the sum of
.0181% (the “PAF Rate”) of the daily ending Account Balance for each day during
the applicable Accrual Period (the “Program Access Fees”). At all times
throughout the term of this Agreement, as set forth in Section 10.10 hereof,
Buyer shall have the right to adjust the PAF Rate as Buyer may deem necessary to
account for any material changes in the direct, third party charges that are
payable by Buyer in connection with the Purchased Receivables, including,
without limitation, any servicing fees, underwriting fees and licensing fees;
provided, however, that the PAF Rate shall be adjusted no more frequently that
once per calendar quarter and any increase shall be effective upon thirty (30)
days prior written notice to Seller.

 

3.4           Program Continuance Fee.  Throughout the term of this Agreement,
as set forth in Section 10.10 hereof, Seller shall pay to Buyer a quarterly fee
equal to three thousand seven hundred and fifty dollars ($3,750) (the “Program
Continuance Fee”) if the average daily use of the facility is less than
$2,250,000; provided, however, that Buyer, may reduce, in whole or in part, the
Program Continuance Fee assessed in a given calendar quarter based on Buyer’s
review of the collectability of the Purchased Receivables and the amount of
Receivables Seller elects to sell to Buyer hereunder.

 

3.5           Discount Factor. On each Residual Payment Date, Buyer shall, or
shall cause to, deduct from any Collections an amount equal to .524% (the
“Discount Factor Rate”) of the Face Amount of each Purchased Receivable for
which the Residual Purchase Price, if any, is paid on such Residual Payment Date
(the “Discount Factor”). At all times throughout the term of this Agreement, as
set forth in Section 10.10 hereof, Buyer shall have the right to adjust the
Discount Factor Rate in its sole discretion as Buyer may deem necessary to
account for adjustments in the purchase prices of Receivables hereunder;
provided, however, that the Discount Factor Rate may only be adjusted as of the
first day of each calendar month, and only shall be applied prospectively.

 

3.6           Accounting.  Buyer shall prepare and send to Seller on each
Residual Calculation Date, an accounting of the transactions as of such Residual
Calculation Date, including the amount of all Purchased Receivables, Collections
and Program Access Fees. The accounting shall be deemed correct and conclusive
unless Seller makes written objection to Buyer within thirty (30) days after
Buyer delivers the accounting to Seller.

 

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SECTION 4

NO RECOURSE; DEEMED COLLECTIONS

 

4.1           No Recourse.  Subject to Section 4.2 hereof, the purchase and sale
of Receivables under this Agreement shall be without recourse to Seller for
non-payment of Purchased Receivables due to credit problems of the Account
Debtor; provided, however, that Seller shall be liable to Buyer for (i) any and
all fraudulent statements related to any Receivable contained in the Receivables
Invoices or otherwise and (ii) any breach of  any representations, warranties,
covenants and indemnities made by Seller pursuant to the terms of this
Agreement, it being understood that such Obligations of Seller will not arise on
account of the failure of the Account Debtor for credit reasons to make any
payment in respect of a Purchased Receivable.

 

4.2           Deemed Collections; Repurchase

 

4.2.1        If on any day the Account Balance is reduced or adjusted as a
result of any defective, rejected or returned merchandise or services, any cash
discount, any credit, any incorrect billing, pricing adjustment or any other
adjustment by Seller or is reduced or canceled as a result of a setoff in
respect of any claim by the Account Debtor thereof against Seller (whether such
claim arises out of the same or a related or unrelated transaction) or as a
result of any dispute or any obligation of Seller to pay to the related Account
Debtor any rebate or refund, or to rework any product or service, Seller shall
directly deposit into the Segregated Account in immediately available funds an
amount equal to the Deemed Collections of such reduction or adjustment.

 

4.2.2        If on any day any of the representations or warranties herein are
not true with respect to any Purchased Receivable as of the date it was sold
hereunder, Seller shall directly deposit into the Segregated Account in
immediately available funds an amount equal to the portion of the Account
Balance related to such Purchased Receivable for application by KBC to the same
extent as if Collections pertaining to such Purchased Receivable had actually
been received on such date.

 

4.2.3        If and to the extent that Buyer shall be required for any reason to
pay over to the Account Debtor (or any trustee, receiver, custodian or similar
official in the event of bankruptcy, etc.) any amount received by it hereunder,
such amount shall be deemed not to have been so received but rather to have been
retained by Seller and, accordingly, Buyer shall have a claim against Seller for
such amount, payable when and to the extent that any distribution from or on
behalf of Seller is made in respect thereof.

 

4.2.4        If on any day, and for any reason, a Purchased Receivable is
determined to not have qualified as an Eligible Receivable as of the date such
Purchased Receivable was purchased by Buyer from Seller in accordance with this
Agreement or at any time thereafter, Seller shall deposit directly into the
Segregated Account in immediately available funds an amount equal to the Initial
Purchase Price plus any Residual Purchase Price paid with respect to such
Purchased Receivable and any and all costs incurred by Buyer in connection with
such determination and adjustment, including reasonable fees and disbursements
of counsel, within twenty-five (25) days of Seller’s

 

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receipt of notice of such determination. Seller shall deposit directly into the
Segregated Account any amounts arising under this Section 4.2.4.

 

SECTION 5

POWER OF ATTORNEY; SERVICING OF PURCHASED RECEIVABLES;

ADDITIONAL RIGHTS

 

5.1           Power of Attorney.  Seller does hereby irrevocably appoint Buyer
and its successors and assigns as Seller’s true and lawful attorney in fact, and
hereby authorizes Buyer, regardless of whether there has been an Event of
Default, (i) to sell assign, transfer, pledge, compromise or discharge the whole
or any part of the Purchased Receivables, (ii) to demand, collect, receive, sue,
and give releases to any Account Debtor for the monies due or which may become
due upon or with respect to the Purchased Receivables and to compromise,
prosecute or defend any Proceeding relating to the Purchased Receivables,
including the filing of a claim or the voting of such claims in any bankruptcy
case, all in Buyer’s name or Seller’s name, as Buyer may choose, (iii) to
prepare, file and sign Seller’s name on any notice, claim, assignment, demand,
draft or notice of or satisfaction of lien or mechanics’ lien or similar
document with respect to Purchased Receivables, (iv) to notify all Account
Debtors with respect to the Purchased Receivables to pay Buyer directly, (v) to
receive, open and dispose of all mail addressed to Seller for the purpose of
collecting Purchased Receivables (provided, however, that any mail of Seller not
related to collecting Purchased Receivables shall be promptly returned to
Seller), (vi) to endorse Seller’s name on any checks or other forms of payment
on the Purchased Receivables, (vii) to execute on behalf of Seller any and all
instruments, documents, financing statements and the like to perfect Buyer’s
interests in the Purchased Receivables, as set forth herein, (viii) to make any
ministerial corrections to invoices related to Purchased Receivables in order to
ensure their timely payment, and (ix) to do all acts and things necessary or
expedient in furtherance of any such purposes. If Buyer receives a wire transfer
or item which is payment for both a Purchased Receivable and another Receivable,
the funds shall first be applied to the Purchased Receivable and, so long as
there does not exist an Event of Default or an event that with notice, lapse of
time or otherwise would constitute an Event of Default, the excess shall be
remitted to Seller. Upon the occurrence and continuation of an Event of Default,
all of the power of attorney rights granted by Seller to Buyer hereunder shall
be applicable with respect to all Purchased Receivables.

 

5.2           Servicing of Purchased Receivables. Subject to Buyer’s ownership
of the Purchased Receivables, KBC shall have the sole right to service,
administer and collect the Purchased Receivables, to assign such right and to
delegate such right to others. In consideration of Buyer’s purchase of the
Purchased Receivables, Seller agrees to cooperate fully with Buyer and/or KBC to
facilitate the full and proper performance of such duties and obligations for
the benefit of Buyer, RCA and/or KBC. To the extent that Buyer, individually or
through KBC, has granted or grants powers of attorney to RCA or to KBC, Seller
hereby grants a corresponding power of attorney on the same terms to RCA or KBC.
Seller hereby acknowledges and agrees that Buyer, in all of its capacities, may
assign to RCA, which in turn may assign to KBC for the benefit of RCA such
powers of attorney and other rights and interests granted by Seller to Buyer
pursuant to Section 5.1 hereof, and agrees to cooperate fully with KBC in the
exercise of such rights.

 

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Notwithstanding anything herein to the contrary, to the extent that (i) Seller
desires to withdraw a contract with an Account Debtor from eligibility under the
Receivables purchase program contemplated by this Agreement and (ii) all
Collections relating to all Purchased Receivables arising under such contract
have been received in full by Buyer, then Buyer, for itself and on behalf of its
Affiliates, agrees to take all commercially reasonable efforts to cooperate with
Seller to cause such contract and any and all accounts receivable arising
thereunder to be reassigned to Seller.

 

5.3           Rights of Buyer; Enforcement Rights.

 

5.3.1        Buyer shall account for all collections of Receivables, but shall
have no obligation to replace, to substitute or to return any Purchased
Receivables to Seller. Buyer shall have no obligation to return to Seller,
Collections, or any interest or fees collected pursuant thereto, without regard
to whether such Collections and fees are in excess of the Initial Purchase
Prices and Residual Purchase Prices paid for such Purchased Receivables.
Notwithstanding anything contained herein to the contrary, if an Event of
Default occurs, then Buyer shall be obligated to return any and all collections
of Receivables to which Seller is entitled after all of Seller’s obligations
arising under this Agreement have been paid in full.

 

5.3.2        Buyer shall have the unrestricted right to further assign,
transfer, deliver, hypothecate, subdivide or otherwise deal with the Purchased
Receivables, and all of Buyer’s right, title and interest in, to and under this
Agreement, on whatever terms Buyer shall determine.

 

5.3.3        Buyer shall have the sole right to retain any gains or profits
created by buying, selling or holding the Purchased Receivables and, except as
expressly set forth in the this Agreement, shall have the sole risk of and
responsibility for losses or damages created by such buying, selling or holding.

 

SECTION 6

CONDITION TO PURCHASES

 

6.1           Conditions Precedent to Initial Purchases. The initial purchase of
Purchased Receivables under this Agreement is subject to the condition precedent
that Buyer shall have received each of the following (with copies to KBC), on or
before the date of such purchase, each in form and substance satisfactory to
Buyer and KBC:

 

6.1.1        This Agreement, duly executed by the parties hereto, together with
evidence reasonably satisfactory to Buyer that all conditions precedent to the
initial purchase of Purchased Receivables shall have been met;

 

6.1.2        Certificates of officers of Seller certifying (i) a copy of the
resolutions of its Board of Directors, or similar governing body, approving this
Agreement to be delivered by it hereunder and the transactions contemplated
hereby; (ii) the names and true signatures of the officers authorized on its
behalf to sign this Agreement to be delivered by it hereunder, (iii) a copy of
its by-laws or operating

 

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agreement, as the case may be, and (iv) all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to this
Agreement;

 

6.1.3        Seller’s certificate of incorporation or formation, as the case may
be, duly certified by the appropriate government official in the state where
Seller is organized, as of a recent date acceptable to Buyer;

 

6.1.4        If necessary, acknowledgment copies or time stamped receipt copies,
of the proper financing statements that have been duly executed and name Seller
as the debtor and Buyer as the secured party and purchaser of the Receivables or
other, similar instruments or documents, which will be assigned to RCA to the
extent that such receivables are purchased by RCA under the Sale and
Contribution Agreement,  as may be necessary or desirable under the UCC or any
comparable law of all appropriate jurisdictions to perfect Buyer’s ownership
interest in all Receivables in which an ownership interest may be assigned to it
hereunder; and

 

6.1.5        Such other agreements, instruments, UCC financing statements,
certificates, opinions and other documents as Buyer or KBC may reasonably
request.

 

6.2           Conditions Precedent to All Purchases Each purchase under this
Agreement is subject to the condition precedent that the agreement of Seller to
sell Receivables, and the agreement of Buyer to purchase Receivables, shall not
have terminated under the terms of this Agreement, and shall be subject further
to the conditions precedent that:

 

6.2.1        In the case of each purchase, Seller shall have delivered to KBC
prior to such purchase (i) all Receivables Invoices with respect to the
immediately preceding calendar month and (ii) an Offer Notice, together with
such additional information as may be reasonably requested by Buyer or KBC;

 

6.2.2        Seller shall have delivered acknowledgment copies of proper
financing statements, if any, necessary to release all security interests and
other rights of any Person in the Purchased Receivables previously granted by
Seller;

 

6.2.3        Seller shall have delivered to Buyer any and all financial
statements of Seller required under this Agreement or reasonably requested by
Buyer;

 

6.2.4        Prior to the sale of any Receivables hereunder, Seller shall
(i) execute all other agreements, instruments, notices, forms and documents and
shall perform all further acts which Buyer may require with respect to the
Purchased Receivables to ensure compliance with the Assignment of Claims Act,
and all applicable regulations issued pursuant thereto, (ii) cause to be filed
or submitted with the Government any and all agreements, instruments, notices,
forms and documents required pursuant to the Assignment of Claims Act and all
applicable regulations issued pursuant thereto, and (iii) have received, prior
to the sale of any Purchased Receivables under this Agreement, any and all
necessary and applicable approvals and consents from the Government pursuant to
Assignment of Claims Act and all applicable regulations issued pursuant thereto;

 

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6.2.5        Since March 31, 2009, no event or events shall have occurred which
have had or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;

 

6.2.6        No Event of Default or shall have occurred and be continuing or be
imminent or pending or result from the purchase of the Purchased Receivables;

 

6.2.7        Buyer and Seller shall have provided any information reasonably
requested by the other party under or in connection with the USA Patriot Act;

 

6.2.8        Buyer shall have completed any due diligence or shall have received
and be satisfied in its sole discretion with any and all confirmations related
to Seller as an Eligible Contractor or the Receivables as Eligible Receivables;

 

6.2.9        Buyer shall have completed and be satisfied in its sole discretion
any and all due diligence performed by Buyer relating to Seller, the Receivables
or any transactions contemplated herein, and Buyer shall have approved the
invoice relating to, and be satisfied with, the Initial Purchase Price being
paid by Buyer for each Purchased Receivables sold under this Agreement;

 

6.2.10      Seller shall have been found to have met any and all requirements of
the Underwriter’s annual review set forth in the Contractor Review Agreement.

 

6.2.11      The representations and warranties contained herein are true and
correct on and as of such day as though made on and as of such day and shall be
deemed to have been made on such day (except that any such representation or
warranty that is expressly stated as being made only as of a specified earlier
date shall be true and correct in all material respects as of such earlier
date).

 

6.3           Certification as to Representations and Warranties.  Seller, by
accepting the Initial Purchase Price paid for each purchase of Purchased
Receivables on any day, shall be deemed to have certified that its
representations and warranties contained herein are true and correct on and as
of such day, with the same effect as though made on and as of such day (except
that any such representation or warranty that is expressly stated as being made
only as of a specified earlier date shall be true and correct in all material
respects as of such earlier date).

 

6.4           Effect of Payment of Purchase Price.  Upon the payment of the
Initial Purchase Price for any purchase of Purchased Receivables, title to such
Purchased Receivables shall vest in Buyer, whether or not the conditions
precedent to such purchase were in fact satisfied; provided that Buyer shall not
be deemed to have waived any claim it may have under this Agreement for the
failure by Seller in fact to satisfy any such condition precedent.

 

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SECTION 7

REPRESENTATIONS AND WARRANTIES

 

7.1           Representations and Warranties.  In order to induce Buyer to enter
into this Agreement and to make purchases thereunder, Seller hereby represents
and warrants as follows:

 

7.1.1        Organization and Good Standing.  Seller has been duly organized and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its organization, with power and authority to own its properties
and to conduct its business as such properties are presently owned and such
business is presently conducted.

 

7.1.2        Due Qualification.  Seller is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary licenses
and approvals, in all jurisdictions in which the ownership or lease of property
or the conduct of its business requires such qualification, licenses or
approvals except where the failure to so qualify or have such licenses or
approvals has not had, and could not reasonably be expected to have, a Material
Adverse Effect.

 

7.1.3        Power and Authority; Due Authorization.  Seller (A) has all
necessary power, authority and legal right to (i) execute and deliver this
Agreement, (ii) carry out the terms of this Agreement, and (iii) sell and assign
the Receivables on the terms and conditions herein provided and (B) has been
duly authorized by all necessary corporate and other action to the execute,
deliver and perform its obligations under this Agreement.

 

7.1.4        Binding Obligations.  This Agreement constitutes a legal, valid and
binding obligation of Seller, enforceable in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors’ rights generally and
by general principles of equity, regardless of whether such enforceability is
considered in a Proceeding.

 

7.1.5        No Violation.  The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof will not (i) conflict
with, result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time or both) a default under Seller’s
articles of incorporation or certification of formation, by-laws or operating
agreement, each as the case may be, or any other Obligation, (ii) result in the
creation or imposition of any Lien upon Seller’s properties pursuant to the
terms of any such contractual obligation, other than this Agreement, or
(iii) violate any applicable law.

 

7.1.6        No Proceedings.  Except as set forth on Schedule 7.1.5 attached
hereto, there is no litigation, Proceeding or investigation pending or, to the
best of Seller’s knowledge, threatened, before any governmental authority or
arbitrator (i) asserting the invalidity of this Agreement, (ii) seeking to
prevent the sale and assignment of the Receivables, the collectability of the
Receivables or the consummation of any of the other transactions contemplated by
this Agreement, or (iii) seeking any determination or ruling that could
reasonably be expected to have a Material Adverse Effect.

 

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7.1.7        Government Contract Regulatory Matters.

 

7.1.7.1     Compliance with Contract Requirements.  (i) Seller has fully
complied with all material terms and conditions of each Government Contract to
which it is a party, and has performed in all material respects all obligations
required to be performed by it thereunder, (ii) Seller has complied with all
statutory and regulatory requirements, including, without limitation, the
Federal Property and Administrative Services Act, the FAR, any applicable agency
specific acquisition regulation, related cost principles, and the cost
accounting standards, where and as applicable to each of the Government
Contracts and the Government Contract Bids, and (iii) the representations,
certifications and warranties made by Seller with respect to the Government
Contracts or Government Contract Bids were accurate as of their effective dates
and Seller has fully complied in all material respects with all such
certifications.  Seller has not received a substantially adverse or negative
government past performance evaluation or rating for the past ten (10) years
that could be reasonably expected to adversely affect the evaluation by the
Government or proposals for future Government Contracts.

 

7.1.7.2     Notice of Non-Compliance. With respect to any Government Contract
with Seller, neither the Government, any prime contractor or higher-tier
subcontractor under a Government Contract nor any other Person has notified
Seller in writing of any actual or alleged violation or breach of any statute,
regulation, representation, certification, disclosure obligation, contract term,
condition, clause, provision or specification, including, without limitation,
the Procurement Integrity Act, the Service Contract Act, the Trade Agreements
Act and the Buy American Act, that could be reasonably expected to adversely
affect the collectability of any Purchased Receivable or adversely affect the
award of Government Contracts to Seller in the future.

 

7.1.7.3     False Claims, Defective Pricing and Requests for Pricing
Reductions.  Seller is not party to any ligation and has taken no action that
could reasonably be expected to give rise to (i) liability under the False
Claims Act, (ii) a claim for price adjustment under the Truth in Negotiations
Act or (iii) any other request for a material reduction in the price of any
Government Contracts.

 

7.1.7.4     Termination for Default or Convenience.  (i) Seller has not received
any written or oral show cause, cure, deficiency, default or similar notice
relating to any Government Contracts, (ii) no termination for default, cure
notice or show cause notice has been issued or threatened and remains unresolved
with respect to any Government Contract or Government Contract Bid, and no
event, condition or omission has occurred or exists that would constitute
grounds for such action, (iii) no past performance evaluation received by Seller
with respect to any such Government Contract has set forth a default or other
material failure to perform thereunder or termination or default thereof,
(iv) there has not been any material withholding or setoff under any Government
Contract, (v) all invoices and claims (including requests for progress payments
and provisional

 

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costs payments) submitted under each Government Contract were current, accurate
and complete in all material respects as of their submission date and (vi) none
of the execution, delivery or performance of this Agreement and any other
consents, certificates or deliverables required herein does or will conflict
with or result in a material breach of or default under any Government Contract
or cause a termination of any Government Contract due to loss of preferential
status.  Seller has not received any written or oral notice terminating any of
the Government Contracts for convenience or indicating an intent to terminate
any of the Government Contracts for convenience.

 

7.1.7.5     Disputes and Claims.  Seller has not received any written notice of
any outstanding material claims or contract disputes to which Seller is a party
(i) relating to the Government Contracts or Government Contract Bids and
involving either the Government, any prime contractor, any higher-tier
subcontractor, vendor or any third party; or (ii) relating to the Government
Contracts under the Contract Disputes Act or any other federal statute.

 

7.1.7.6     Suspension and Debarment.  Neither Seller, any of Seller’s
affiliates nor any of Seller’s respective managers, directors, officers or
employees in connection with the performance of the duties for or on behalf of
Seller or any of Seller’s affiliates has been debarred, suspended, proposed for
suspension or debarment from bidding on any Government Contract, declared
nonresponsible or ineligible, or otherwise excluded from participation in the
award of any Government Contract or for any reason been listed on the List of
Parties Excluded from Federal Procurement and Non-procurement Programs.  Within
the last ten (10) years, no debarment, suspension or exclusion proceeding has
been initiated against Seller, any of Seller’s affiliates or any of their
respective directors, officers or employees in connection with the performance
of the duties for or on behalf of Seller or any of Seller’s affiliates.  No
circumstances exist that would reasonably warrant the institution of suspension
or debarment proceedings against Seller, any of Seller’s affiliates or any of
their respective managers, directors, officers or employees in connection with
the performance of the duties for or on behalf of Seller or any of Seller’s
affiliates.

 

7.1.7.7     Responsibility Determinations. No negative determination of
responsibility has been issued against Seller since its inception with respect
to any quotation, bid or proposal for a Government Contract.

 

7.1.7.8     Audits, Investigations and Enforcement Actions.  Except as described
in Schedule 7.1.7.8 attached hereto, no audit, review, inspection,
investigation, survey or examination of Seller’s records by the Government is
threatened or pending; (ii) Seller has not received any official notice that it
is being specifically audited or investigated by the Government Accountability
Office, the DCAA, any state or federal agency Inspector General, the contracting
officer with respect to any Government Contract, or the U.S. Department of
Justice (including any U.S. Attorney); and (iii) Seller has not received any
written notice or otherwise become aware that any audit, review, inspection,
investigation, survey or examination of records described in the attached

 

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schedule, has revealed any fact, occurrence or practice that could reasonably be
expected to adversely effect Seller.

 

7.1.7.9     Disclosure.  Seller has not made any disclosure to the Government or
other customer or prime contractor or higher-tier subcontractor related to any
suspected, alleged or possible violation of a material requirement of a
Government Contract, any apparent or alleged material irregularity, misstatement
or omission arising under or relating to a Government Contract or Government
Contract Bid, or any violation of Law or regulation relating to a Government
Contract or Government Contract Bid.

 

7.1.7.10       No Violations.  Seller has not engaged in or been charged with,
or received or been advised in writing of any charge, investigation, claim or
assertion of, nor has Seller, any of its directors, officers or employees in
their capacities as such been subject to any criminal indictment or information,
lawsuit, subpoena, civil investigative demand, discovery request, administrative
proceeding, voluntary disclosure, claim, dispute, mediation or arbitration with
regard to, any material violation of any requirement pertaining to a Government
Contract or Government Contract Bid, including material violations of any
statutory or regulatory requirements or violations of any applicable laws
relating thereto.

 

7.1.7.11       No Litigation.  Seller has not taken any action and is not a
party to any litigation that could reasonably be expected to give rise to (i) a
claim for price adjustment under the Truth in Negotiations Act; or (ii) any
other request for a material reduction in the price of any Government Contract,
including but not limited to claims based on actual or alleged defective
pricing.  To Seller’s best knowledge, there exists no basis for a claim of any
liability of Seller by the Government as a result of defective cost and pricing
data submitted to the Government. Seller is not participating in any pending
claim and Seller is unaware of any potential claim under the Contract Disputes
Act against the Government or any prime contractor, subcontractor or vendor
arising under or relating to any Government Contract or Government Contract Bid.

 

7.1.7.12       DCAA-Approved Rates.  All Direct Costs and Indirect Cost rates
are being billed by Seller under the Government Contracts consistent with
DCAA-approved rates or provisional rate agreements.

 

7.1.7.13       National Security Obligations.  Seller is in compliance with all
applicable national security obligations, including those specified in the
National Industrial Security Program Operating Manual, DOD 5220.22-M
(January 1995), and any supplements, amendments or revised editions thereof.

 

7.1.7.14       No Events of Omissions.  To Seller’s best knowledge, there are no
events or omissions that would reasonably be expected to result in (i) a
material claim against Seller by the Government or any prime contractor,
subcontractor, vendor, or other third party arising under or relating to any
Government Contract or Government Contract Bid; or (ii) a material dispute

 

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between Seller and the Government or any prime contractor, subcontractor,
vendor, or other third party arising under or relating to any Government
Contract or Government Contract Bid.

 

7.1.7.15       Losses and Cost Overruns; No Improper Payments.  No Government
Contract has incurred or currently projects losses or cost overruns in an amount
exceeding fifty thousand dollars ($50,000).  No payment has been made by Seller,
or by a Person acting on Seller’s behalf, to any Person (other than to any bona
fide employee or agent of Seller, as defined in subpart 3.4 of the FAR), which
is or was improperly contingent upon the award of any Government Contract or
which would otherwise be in violation of any applicable procurement law or
regulation or any other applicable laws.

 

7.1.7.16       Costs Allowable.  All of Seller’s costs (both Direct Costs and/or
Indirect Costs) that have been, prior to the date hereof, charged to any
Government Contract are allowable in accordance with applicable cost accounting
standards and cost principles (except for costs properly charged to a reserve
account appearing on Seller’s balance sheet as of the close of March 31, 2009).

 

7.1.8        Assignment of Claims Act.  Prior to each sale of Purchased
Receivables hereunder, all steps shall have been taken necessary or appropriate
under the Assignment of Claims Act to insure that (i) each Purchased Receivable
being sold has been validly assigned to Buyer, or Buyer’s designee, as bona fide
financing institution(s), (ii) Seller has validly assigned such Purchased
Receivables to Buyer, or Buyer’s designee, and (ii) all payments and Collections
with respect to such Purchased Receivables have been validly directed to be made
directly to the Segregated Account.

 

7.1.9        Government Approvals.  Except as set forth or required herein, no
governmental action, approval or consent is required for the due execution,
delivery and performance by Seller of this Agreement.

 

7.1.10      Quality of Title; Valid Sale; No Other Liens.

 

7.1.10.1   Seller is the sole legal and beneficial owner of the Receivables,
free and clear of any Lien. Without limiting the generality of the foregoing, no
security agreement, financing statement or other public notice with respect to
all or any part of the Receivables that evidences a Lien securing any
indebtedness of Seller is on file or of record in any public office, except such
as may have been filed in favor of Buyer pursuant to this Agreement.

 

7.1.10.2   Seller acquired its rights in the Receivables in good faith without
notice of any Lien as defined in the UCC, except as set forth in
Section 7.1.10.1 hereof.

 

7.1.10.3   Seller has not authorized the filing of and is not aware of any
financing statements against Seller that include a description of collateral
covering the Receivables other than any financing statements relating to any
Receivables sold to Buyer hereunder.

 

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7.1.10.4         There are no judgment lien or tax lien filings against Seller.
Except as set forth in this Agreement, Seller has not, pledged, assigned, sold,
granted a security interest in or otherwise conveyed or disposed of any interest
in any of the Receivables.

 

7.1.10.5         Each Receivable constitutes an “account” as such term is
defined in the UCC.

 

7.1.11      Accuracy of Information.  Each report, information, exhibit,
financial statement, document, book, record or report furnished or to be
furnished at any time by or on behalf of it to Buyer or KBC in connection with
this Agreement is or will be accurate in all material respects as of its date or
as of the date so furnished, and no such item 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 therein, in the light
of the circumstances under which they were made, not materially misleading.

 

7.1.12      Offices; Billing Address.  The principal place of business and chief
executive office of Seller, and the location where Seller keeps all of its
books, records and documents evidencing or relating to Purchased Receivables, is
located at the address set forth on the first page of this Agreement. Seller has
a billing address located in the United States, its territories or possessions.

 

7.1.13      Maintenance of Books and Records.  Seller has accounted for each
sale of Purchased Receivables in its books and financial statements as sales,
consistent with GAAP.

 

7.1.14      Solvency.  Seller is Solvent; and at the time of (and immediately
after) each sale pursuant to this Agreement it shall be Solvent.

 

7.1.15      Compliance with this Agreement.  Seller has complied with all of the
terms, covenants and agreements contained in this Agreement applicable to it.

 

7.1.16      Corporate Name.  Seller’s complete corporate name is as forth on the
first page of this Agreement, and Buyer does not use and has not during the last
six (6) years used any other corporate name, trade name, doing business name or
fictitious name.

 

7.1.17      Eligible Receivables.  Each Purchased Receivable sold by it to Buyer
hereunder that is designated as an Eligible Receivable on any Invoice Remittal
is in fact an Eligible Receivable.

 

7.1.18      No Termination Events.  No event has occurred and is continuing, or
would result from a purchase, in respect of the Receivables or from the
application of proceeds therefrom, which would cause the early termination of
this Agreement.

 

7.1.19      No Consents.  Subject to Section 6.2.4 hereof, no authorization,
consent, license, order or approval of, or registration or declaration with, any

 

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governmental authority or other Person is required to be obtained, effected or
made by Seller in connection with the execution and delivery by Seller of this
Agreement or its performance of its obligations under this Agreement or the
transactions contemplated hereby, or for the exercise by Buyer of its rights
hereunder except for filings required hereunder and those that have been
obtained, effected or made.

 

7.1.20      No Default.  No Event of Default has occurred and is continuing,
both before and immediately after giving effect to this Agreement.  Seller is
not in default in the performance, observance or fulfillment of any contractual
obligations applicable to it or its property.

 

7.1.21      ERISA.  Seller has complied in all material respects with ERISA and
has not incurred and does not expect to incur any liabilities to the Pension
Benefit Guaranty Corporation (or any successor thereto) under ERISA.  Seller is
not a sponsor of, or a member of a controlled group of any Person that is a
sponsor of, any Plan.

 

7.1.22      Anti-Money Laundering Laws; Patriot Act.  Seller is in compliance,
in all material respects, with the (a) Trading with the Enemy Act, and each of
the foreign assets control regulations of the United States Treasury Department
(31 CFR, Subtitle B, Chapter V, as amended), and any other enabling legislation
or executive order relating thereto, and (b) any applicable anti money
laundering laws and regulations, including the USA Patriot Act.

 

7.1.23      Taxes  Seller has filed or caused to be filed all federal and
material state, local and foreign tax returns which are required to be filed
with any governmental authority after giving effect to applicable extensions,
and has paid or has caused to be paid all taxes as shown on said returns or on
any assessment received by it in writing, to the extent that such taxes have
become due other than those (a) not yet delinquent or (b) being diligently
contested in good faith by appropriate Proceedings as to which adequate reserves
have been provided in accordance with GAAP and which if unpaid, individually or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect. No tax return is under audit or examination by any governmental
authority and no notice of such an audit or examination or any assertion of any
claim for taxes has been given or made by any governmental authority, except
such audits, examinations or claims that have been disclosed to Buyer in
writing, none of which could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Seller believes that the charges,
accruals and reserves on its books in respect of taxes or other governmental
charges are adequate.

 

7.1.24      True and Complete Disclosure.

 

7.1.24.1   Neither this Agreement nor any agreement, document, certificate or
written statement furnished to Buyer by or on behalf of Seller in connection
with the transactions contemplated hereby, at the time it was furnished,
contained any untrue statement of  material fact or omitted to state a material
fact, under the circumstances under which it was made, necessary in order to
make the statements contained herein or therein not misleading, it being
understood that for purposes of this Section 7.1.24.1, such factual information
and

 

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data shall not include pro forma financial information or projections (including
financial estimates, forecasts and other forward looking information or
information of a general economic or general industry nature).

 

7.1.24.2   The written projections (including any financial estimates, forecasts
and other forward-looking information) contained in the information and data
referred to in paragraph (a) above were based on good faith estimates and
assumptions believed by the Person making such projections to be reasonable at
the time made, it being recognized by Buyer that such projections as to future
events are not to be viewed as facts and that actual results during the period
or periods covered by any such projections may differ from the projected
results.

 

7.1.25      Material Adverse Effect. Since March 31, 2009, there have been no
events, circumstances, developments or other changes in facts that, individually
or in the aggregate, would have or could reasonably be expect to result in a
Material Adverse Effect.

 

7.1.26      Environmental Matters. (a) The operations of Seller are and have
been in compliance with all applicable Environmental Laws, including obtaining,
maintaining and complying with all permits required by any applicable
Environmental Law, other than non-compliances that, in the aggregate, would not
have a reasonable likelihood of resulting in liabilities exceeding ten thousand
dollars ($10,000) in the aggregate, (b) Seller is not party to, and no real
property currently or, to the knowledge of Seller, previously owned, leased,
subleased, operated or otherwise occupied by or for Seller is subject to or the
subject of, any contractual obligation or any pending or, to the knowledge of
Seller, threatened, order, action, investigation, suit, Proceeding, audit,
claim, demand, dispute or notice of violation or of potential liability or
similar notice under or pursuant to any Environmental Law other than those that,
in the aggregate, are not reasonably likely to result in liabilities exceeding
ten thousand dollars ($10,000) in the aggregate, (c) no Lien in favor of any
governmental authority securing, in whole or in part, environmental liabilities
has attached to any property of Seller and, to the knowledge of Seller, no
facts, circumstances or conditions exist that could reasonably be expected to
result in any such Lien attaching to any such property, (d) Seller has not
caused or suffered to occur a release of hazardous materials at, to or from any
real property of Seller and each such real property is free of contamination by
any hazardous materials except for such release or contamination that could not
reasonably be expected to result, in the aggregate, in liabilities exceeding ten
thousand dollars ($10,000) in the aggregate, (e) Seller (i) is not or has not
been engaged in, or has permitted any current or former tenant to engage in,
operations, or (ii) does not know of any facts, circumstances or conditions,
including receipt of any information request or notice of potential
responsibility under any Environmental Laws, that, in the aggregate, would have
a reasonable likelihood of resulting in liabilities exceeding ten thousand
dollars ($10,000) in the aggregate and (f) Seller has made available to Buyer
copies of all existing environmental reports, reviews and audits and all
documents pertaining to actual or potential environmental liabilities, in each
case to the extent such reports, reviews, audits and documents are in their
possession, custody or control.

 

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7.1.27      Transfer Filings.  Each Purchased Receivable been validly sold or
contributed to Buyer free and clear of all Liens and rights of others; all
filings (including filings under the UCC) necessary in the United States to give
Buyer an ownership interest in such Purchased Receivables have been duly
executed and delivered to Buyer; all such filings indicate that they are being
made in order to perfect absolute assignments (rather than pledges) of the
Purchased Receivables; and all fees in connection with such filings have been
paid.

 

7.1.28      Eligible Receivables; Eligible Contractor.  Each Purchased
Receivable sold by Seller hereunder shall at the time of such sale meet in all
respects all requirements to constitute an “Eligible Receivable” within the
definition of such term set forth herein. Without limiting the foregoing, Seller
meets or shall at the time of such sale of any Purchased Receivables shall meet
in all respects the requirements to constitute an “Eligible Contractor” within
the definition of such term set forth herein.

 

7.1.29      Origination of Purchased Receivables.  All Purchased Receivables
purchased or to be purchased by Buyer (a) were originated or shall at the time
of such purchase have been originated in the regular course of business of
Seller in accordance with applicable laws and (b) were or will be purchased
Buyer from Seller and no adverse selection procedures have been or will have
been utilized in selecting such Purchased Receivables from all other similar
Receivables owned by Seller.

 

SECTION 8

COVENANTS

 

8.1           Affirmative Covenants.  From the date hereof until the termination
of this Agreement:

 

8.1.1        Compliance with Laws, Etc.  Seller will comply in all material
respects with all applicable laws, including those with respect to the
Receivables, except where noncompliance could not reasonably be expected to have
a Material Adverse Effect, and Seller shall provide Buyer with a Compliance
Certificate (i) on a quarterly basis to be received by Buyer not later than the
fifth calendar day following each calendar quarter, and (ii) on a more frequent
or other basis if and as requested by Buyer.

 

8.1.2        Preservation of Corporate Existence.  Seller will preserve and
maintain its corporate or limited liability existence, rights, franchises and
privileges in the jurisdiction of its formation, and qualify and remain
qualified in good standing as a foreign corporation or organization in each
jurisdiction where the failure to preserve and maintain such existence, rights,
franchises, privileges and qualification could reasonably be expected to have a
Material Adverse Effect.

 

8.1.3        Audits.  (A) Seller will at any time and from time to time during
regular business hours, permit Buyer or KBC or any of its agents or
representatives, (i) to examine and make copies of and abstracts from all books,
records and documents (including, without limitation, computer tapes and disks)
in its possession or under its control relating to Purchased Receivables,
(ii) to visit its offices and properties for the purpose of examining such
materials described in clause (A)(i) above, and with the

 

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permission of Seller’s senior management, which shall not be unreasonably
withheld, to discuss matters relating to Purchased Receivables or its
performance hereunder with any of its officers or employees having knowledge of
such matters, and (iii) to verify the existence and amount of the Purchased
Receivables; and (B) without limiting the provisions of clause (A) above, from
time to time on request of KBC, permit certified public accountants or other
auditors acceptable to KBC to conduct, at Seller’s expense, a review of its
books and records with respect to the Purchased Receivables; provided that
unless this Agreement is terminated early, Seller shall not be responsible for
the cost of more than three (3) such audits during the twelve (12) month period
beginning on the date of the initial purchase of Purchased Receivables, or one
such audit in any calendar year thereafter.

 

8.1.4        Keeping of Records and Books of Account.  Seller will maintain and
implement administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing Purchased Receivables in
the event of the destruction of the originals thereof), and keep and maintain
all documents, books, records and other information reasonably necessary or
advisable for the collection of all Purchased Receivables (including, without
limitation, records adequate to permit the daily identification of each new
Purchased Receivable and all Collections of and adjustments to each existing
Purchased Receivable). Further, Seller shall indicate in its consolidated
financial statements and computer records that the Purchased Receivables have
been absolutely transferred, conveyed, sold and assigned to Buyer or its
designee, and Seller will not otherwise claim in its records ownership of any of
the Purchased Receivables or the proceeds thereof. Seller shall not take any
action that is inconsistent with Buyer’s ownership of the Purchased Receivables.
Without limiting the foregoing, Seller shall treat the sale of the any Purchased
Receivables as a sale for federal, state and local income tax purposes.

 

8.1.5        Financial Statements; Reports.  Seller shall furnish or cause to be
furnished to Buyer (i) within ninety (90) days after the end of each fiscal year
of Seller commencing with the fiscal year ending 2009, the audited balance sheet
of Seller (or, if audited financial statements are not available, unaudited
balance sheet and unaudited combined statements of income, stockholder or member
equity and cash flows of Seller together with a certificate of an officer of
Seller, to the effect that such financial statements present fairly in all
material respects the financial positions of Seller as at the end of the fiscal
year and the results of operations for the fiscal year then ended in conformity
with GAAP)  as at the end of, and the related audited combined statements of
income, stockholder or member equity and cash flows for, such fiscal year,
together with a certificate signed by an officer of Seller, to the effect that
such financial statements, present fairly in all material respects the
consolidated financial condition and results of operation of Seller as of the
dates and for the periods indicated in accordance with GAAP applied on a basis
consistent with that of the preceding year or containing disclosure of the
effect on the financial condition or results of operations of any change in the
application of accounting principles and practices during such year; and
(ii) within forty-five (45) days after the end of each of the first three
(3) fiscal quarters of each fiscal year of Seller, commencing with the fiscal
quarter ending September 30, 2009, the unaudited consolidated balance sheets of
Seller and the related unaudited consolidated statements of income, stockholder
or member equity and cash flows of Seller for, such fiscal quarter,

 

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and for the portion of the fiscal year through the end of such fiscal quarter,
together with a certificate signed by an officer of Seller, to the effect that
such financial statements present fairly in all material respects the financial
positions of Seller as at the end of the fiscal quarter and the results of
operations for the fiscal quarter then ended in conformity with GAAP, subject to
normal year-end audit adjustments and the absence of footnotes.

 

8.1.6        Due Diligence.  Seller agrees to satisfy or cause to be satisfied
any and all due diligence or confirmation requests of Buyer or KBC related to
this Agreement, as deemed reasonably necessary in Buyer’s or KBC’s sole
discretion.

 

8.1.7        Deemed Collections; Repurchase.  If it is determined that Seller is
obligated to Buyer or its designee any amounts with respect to any Deemed
Collections or repurchase amounts arising pursuant to Section 4.2 hereunder,
Seller will, within two (2) Business Days of such determination, pay such
amounts to the Segregated Account. Seller shall also pay promptly to the
Segregated Account upon demand any reasonable out-of-pocket expenses incurred by
Buyer or KBC in connection with any such Deemed Collection or repurchase,
including reasonable fees and disbursements of counsel. All payments under this
Section 8.1.7 shall be paid by Seller in immediately available funds directly to
the Segregated Account, without any withholding, deduction, set-off or
counterclaim.

 

8.1.8        Notices.  Seller will give written notice to Buyer and KBC
promptly, but in any event within three (3) Business Days, upon becoming aware
of the occurrence of (i) any Event of Default or pending or anticipated Event of
Default; (ii) the submission of any claim or the initiation or threat of any
legal process or Proceeding, or rule making or disciplinary proceeding by or
against Seller, or the promulgation of any proceeding or any proposed or final
rule which could reasonably be expected to have a Material Adverse Effect;
(iii) any damage to or loss, elimination or destruction of any portion of the
Purchased Receivables or (iv) the receipt of notice that (a) any license,
permit, charter, registration or approval necessary for the conduct of Seller’s
business is to be, or may be, suspended or revoked or (b) Seller is to cease and
desist any practice, procedure or policy employed by Seller in the conduct of
its business, and such suspension, revocation or cessation may reasonably be
expected to have a Material Adverse Effect.

 

8.1.9        Maintenance of Insurance.  (A) Seller shall (i) maintain or cause
to be maintained in full force and effect all policies of insurance of any kind
with respect to Seller’s property and business (including policies of life
(including “key man” coverage, as applicable), fire, theft, product liability,
public liability, property damage, other casualty, employee fidelity, workers’
compensation, business interruption and employee health and welfare insurance)
with financially sound and reputable insurance companies or associations (in
each case that are not affiliates of Seller) of a nature and providing such
coverage as is sufficient and as is customarily carried by businesses of the
size and character of Seller’s business and in any event in form and substance
reasonably acceptable to Buyer and (ii) cause all such insurance relating to any
property or business Seller to name Buyer, as additional insured or loss payee,
as appropriate and shall use its commercially reasonable efforts to provide that
no cancellation, material addition in amount or material change in coverage
shall be effective until after thirty (30) days (or

 

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ten (10) days in the case of a payment default) notice thereof to Buyer. Buyer
shall be entitled, upon reasonable advance notice, to review Seller’s insurance
policies carried and maintained with respect to the Grantors’ obligations under
this Section 8.1.9.  Upon request, Seller shall furnish Buyer with copies of all
insurance policies, binders, and cover notes or other evidence of such
insurance.  Notwithstanding anything to the contrary herein, no provision of
this Section 8.1.9 or any provision of this Agreement shall impose on Buyer any
duty or obligation to verify the existence or adequacy of the insurance coverage
maintained by Seller, nor shall Buyer be responsible for any representations or
warranties made by or on behalf of Seller to any insurance broker, company or
underwriter. Buyer, at its sole option, may obtain such insurance if not
provided by Seller and in such event, Seller shall reimburse Buyer upon demand
for the cost thereof together with interest.  Seller shall also carry and
maintain, should Seller’s risk profile change during the term of this Agreement,
any other insurance that Buyer may reasonably require from time to time.

 

8.1.10      Location of Records.  Seller will keep its principal place of
business and chief executive office, and the offices where it keeps its records
concerning the Purchased Receivables, at its address set forth on the first
page of this Agreement or, upon thirty (30) days’ prior written notice to KBC,
at such other locations acceptable to Buyer and KBC.

 

8.1.11      Further Assurances.  Seller, upon the reasonable request of Buyer,
shall duly execute and deliver, or cause to be duly executed and delivered, at
the cost and expense of Seller, such further agreements, documents and
instruments, and do such other acts and things, as may be necessary or
reasonably requested by Buyer to carry out the provisions and purposes of this
Agreement.

 

8.1.12      Maintenance of Licenses.  Seller shall maintain all licenses,
permits, charters and registrations the loss or suspension of which could
reasonably be expected to have a Material Adverse Effect.

 

8.2           Negative Covenants.  From the date hereof until the termination of
this Agreement without Buyer’s prior written consent:

 

8.2.1        Sales, Liens, Etc.  Seller will not, except as otherwise provided
herein, sell, assign (by operation of law or otherwise) or otherwise dispose of,
or create or suffer to exist any Lien upon or with respect to, any Purchased
Receivable or any interest therein.

 

8.2.2        Extension or Amendment of Receivables.  Seller will not extend,
amend or otherwise modify, or permit any Person to extend, amend or otherwise
modify, the terms of any Purchased Receivable.

 

8.2.3        Change in Business or Credit and Collection Policy.  Seller will
not make any change in the character of its business, which change could impair
the collectability of any Purchased Receivable or otherwise adversely affect the
interests or remedies of Buyer under this Agreement or result in a Material
Adverse Effect.

 

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8.2.4        Termination.  Seller will not terminate, or take or permit any
action that would cause the termination of this Agreement other than in
accordance with the terms herein.

 

8.2.5        Consolidation; Merger.  Seller will not consolidate or merge with
or into any other Person or convey, transfer or dispose of its properties and
assets in one or more transactions substantially as an entirety to any Person,
or wind up, liquidate or dissolve its affairs.

 

8.2.6        Impair Effectiveness.  Seller will not permit the validity or
effectiveness of this Agreement to be impaired, or permit any Person (other than
Buyer) to be released from any covenants or obligations with respect to this
Agreement, except as may be expressly permitted hereby.

 

8.2.7        Prohibited Transactions. Seller will not engage in a “prohibited
transaction”, as defined in Section 406 of ERISA or Section 4975 of the Code,
with respect to any Plan or knowingly consent to any other “party in interest”
or any “disqualified person”, as such terms are defined in Section 3(14) of
ERISA and Section 4975(e)(2) of the Code, respectively, engaging in any
“prohibited transaction”, with respect to any Plan; or permit any Plan to incur
any “accumulated funding deficiency”, as defined in Section 302 of ERISA or
Section 412 of the Code, unless such incurrence shall have been waived in
advance by the Internal Revenue Service; or terminate any Plan in a manner which
could result in the imposition of a Lien on any property of Seller pursuant to
Section 4068 of ERISA; or breach or knowingly permit any employee or officer or
any trustee or administrator of any Plan to breach any fiduciary responsibility
imposed under Title I of ERISA with respect to any Plan; engage in any
transaction which would result in the incurrence of a liability under
Section 4069 of ERISA; or fail to make contributions to a Plan which could
result in the imposition of a Lien on any property of Seller pursuant to
Section 302(f) of ERISA or Section 412(n) of the Code, if the occurrence of any
of the foregoing events (alone or in the aggregate) would result in a liability
which would be reasonably likely to result in a Material Adverse Effect.

 

8.2.8        Instructions to Account Debtors.  Seller will not provide any
instructions to Account Debtors contrary to the requirement that Collections be
deposited directly into the Segregated Account.

 

8.2.9        Waiver of Stay or Execution of Laws.  Seller covenants (to the
extent it may lawfully do so) that it shall not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or execution law, including filing a voluntary petition under Chapter
11 of the Bankruptcy Code, wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of or the exercise of
any remedies under this Agreement. Seller (to the extent that it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it shall not hinder, delay or impede the execution of any power
herein granted to Buyer, but shall suffer and permit the execution of every such
power as though no such law had been enacted.

 

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8.2.10      Mergers, Acquisitions, Sales, Etc.  Seller will not (i) be a party
to any merger or consolidation, or purchase or otherwise acquire all or
substantially all of the assets or any stock of any class of, or any partnership
or joint venture interest in, any other Person or (ii) sell, transfer, convey or
lease all or any substantial part of its assets, or sell or assign with or
without recourse any Receivables or any interest therein (other than pursuant
hereto or to this Agreement), in each case if such actions would have any
adverse or potentially adverse effect on the validity or effectiveness of this
Agreement or the Purchased Receivables.

 

SECTION 9

DEFAULT

 

9.1           Events of Default.  The occurrence of any one or more of the
following shall constitute an “Event of Default” hereunder:

 

9.1.1        Seller fails to pay any amount owed to Buyer or its designee as and
when due under this Agreement or otherwise;

 

9.1.2        There shall be commenced by or against Seller any voluntary or
involuntary case under the Bankruptcy Code, any assignment for the benefit of
creditors or appointment of a receiver or custodian for any of its assets;

 

9.1.3        Seller shall not be Solvent, or Seller is generally not paying its
debts as they become due or is left with unreasonably small capital;

 

9.1.4        Any voluntary Lien, garnishment, attachment or the like is issued
against or attaches to the Receivables;

 

9.1.5        Seller shall breach any condition, warranty, representation or
covenant set forth herein other than as set forth in Section 9.1.1, unless the
same is cured to Buyer’s satisfaction within five (5) days after Buyer has given
Seller oral or written notice thereof; provided, that if such breach is
incapable of being cured within such five (5)-day cure period, it shall
constitute an immediate default hereunder;

 

9.1.6        Subject to the provisions set forth in Section 9.1.5 above, Seller
is not in compliance with, or otherwise is in default under, any term of any
document, instrument or agreement evidencing a debt, obligation or liability of
any kind or character of Seller, now or hereafter existing, in favor of Buyer or
any division or affiliate of Buyer, regardless of whether such debt, obligation
or liability is direct or indirect, primary or secondary, joint, several or
joint and several or fixed or contingent, together with any and all renewals and
extensions of such debts, obligations and liabilities, or any part thereof; or

 

9.1.7        This Agreement or any material provision herein shall terminate in
whole (except in accordance with the terms hereof), or shall cease to be
effective or to be the legally valid, binding and enforceable obligation of
Buyer or Seller.

 

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9.2           Remedies upon Default.  Upon the occurrence of an Event of
Default, (i) without implying any obligation to buy Receivables, Buyer may cease
buying Receivables or extending any financial accommodations to Seller, (ii) all
or a portion of the Seller Obligations shall be, at the option of and upon
demand by Buyer, or with respect to an Event of Default described in
Section 9.1.2 hereof, automatically and without notice or demand, due and
payable in full, and (iii) Buyer shall have and may exercise all the rights and
remedies under this Agreement and under applicable law, including the rights and
remedies of a secured party under the UCC, all the power of attorney rights
described in Section 5.1 hereof with respect to the Purchased Receivables and
the right to collect, dispose of, sell, lease, use and realize upon such
Purchased Receivables in any commercially reasonable manner. Seller and Buyer
agree that any notice of sale required to be given to Seller shall be deemed to
be reasonable if given ten (10) days prior to the date on or after which the
sale may be held.

 

SECTION 10

MISCELLANEOUS

 

10.1         Accrual of Interest.  If any amount owed by Seller hereunder is not
paid when due, including, without limitation, any Deemed Collections or
repurchases due under Section 4.2 hereof or amounts due under Section 10.2
hereof, such amounts shall bear interest at a per annum rate equal to the PAF
Rate until the earlier of (i) payment in immediately available funds or
(ii) entry of a final judgment thereof, at which time the principal amount of
any money judgment remaining unsatisfied shall accrue interest at the highest
rate allowed by applicable law.

 

10.2         Fees, Costs and Expenses.  Seller will pay to Buyer immediately on
demand all fees, costs and expenses (including attorneys’ and professional fees
and their costs and expenses) that Buyer or its designee incurs or may impose in
connection with any of the following: (i) preparing, negotiating, administering
and enforcing this Agreement or any other agreement executed in connection with
this Agreement, including any amendments, waivers or consents, (ii) any
litigation or dispute (whether instituted by Buyer, Seller or any other Person)
about the Purchased Receivables, this Agreement or any other agreement executed
in connection with this Agreement, (iii) enforcing any rights against Seller,
any guarantor or any Account Debtor, (iv) protecting or enforcing its interest
in the Purchased Receivables, (v) collecting the Purchased Receivables and the
Obligations and (vi) the representation of Buyer or its designee in connection
with any bankruptcy case or insolvency proceeding involving Seller, any
Purchased Receivable, any Account Debtor or any guarantor.  The maximum fees,
costs and expenses payable by the Seller in connection with the underwriting,
site review and Buyer’s legal fees in connection with the execution of
this Agreement shall be seven thousand five hundred dollars ($7,500.00).

 

10.3         Indemnification.

 

10.3.1      Seller agrees to pay, indemnify and hold Buyer, its designees and
their respective directors, officers, employees and agents harmless from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever arising out of, relating

 

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to or resulting from any of the following (collectively, the “Buyer Indemnified
Liabilities”): (i) the failure of any representation or warranty or statement
made or deemed made by Seller under or in connection with this Agreement or in
any certificate or report delivered pursuant hereto, including, without
limitation, any Receivables Invoice, to be true and correct in any material
respect when made; (ii) the failure by Seller to perform its Seller Obligations
under this Agreement or (iii) the failure by Seller to comply with any
Applicable Law, rule or regulation of any governmental authority with respect to
the sale, transfer, delivery and assignment of any Purchased Receivables.

 

10.3.2      Without limiting or being limited by the foregoing, Seller agrees to
pay, on demand, to each of Buyer and its directors, officers, employees and
agents any and all amounts necessary to indemnify Buyer and its directors,
officers, employees and agents from and against any and all Buyer Indemnified
Liabilities relating to or resulting from any Proceeding related to any of the
matters referred to in Section 10.3.1 hereof or any investigation, litigation or
proceeding with respect to any action, or failure to act, by Seller under this
Agreement.

 

10.3.3      Notwithstanding anything in this Section 10.3 to the contrary,
Seller shall have no obligation to indemnify any of the Buyer and its directors,
officers, employees and agents under this Section 10.3 in respect of Buyer
Indemnified Liabilities to the extent resulting from (i) the gross negligence or
willful misconduct on the part of Buyer or its directors, officers, employees
and agents as determined by the final judgment of a court of competent
jurisdiction no longer subject to appeal or (ii) litigation between Buyer and
its Buyer and its directors, officers, employees and agents not involving an
actual or alleged act or omission of Seller or any of Seller’s affiliates.

 

10.4         Severability, Waiver and Amendment.  In the event that any
provision of this Agreement is deemed invalid by reason of law, this Agreement
will be construed as not containing such provision and the remainder of the
Agreement shall remain in full force and effect. Buyer retains all of its
rights, even if it makes payment of Initial Purchase Price after a default. If
Buyer waives a default, it may enforce a later default. Any consent or waiver
under, or amendment of, this Agreement must be in writing. Nothing contained
herein, or any action taken or not taken by Buyer at any time, shall be
construed at any time to be indicative of any obligation or willingness on the
part of Buyer to amend this Agreement or to grant to Seller any waivers or
consents.

 

10.5         Choice of Law.  This Agreement is governed by and interpreted in
accordance with the laws of the State of New York, excluding principles of
conflict of laws.

 

10.6         Waiver of Jury Trial.  Each of the parties hereto hereby
irrevocably waives all right to a trial by jury in any Proceeding or
counterclaim arising out of or relating to this Agreement or any agreement or
any instrument or document delivered thereunder.

 

10.7         Notices.  All notices shall be given to Buyer and Seller at the
address set forth on the first page of this Agreement, or the facsimile number
or email address as the parties may exchange from time to time, and shall be
deemed to have been delivered and received (i) if mailed, three (3) calendar
days after deposited in the U.S. mail, first class,

 

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postage pre-paid, (ii) one (1) calendar day after deposit with an overnight mail
or messenger service, or (iii) on the same date of confirmed transmission if
sent by hand delivery, facsimile or email.

 

10.8         Arbitration.  At the request at any time of either party, any
controversies concerning this Agreement will be settled by arbitration in
accordance with the U.S. Arbitration Act, and under the Commercial Arbitration
Rules and Administration of the American Arbitration Association. The U.S.
Arbitration Act will supplement New York law, as appropriate, even though this
Agreement provides that it is otherwise governed by New York law.

 

10.9         Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of Seller and Buyer and their respective successors
(whether by merger, consolidation or otherwise) and assigns. The provisions of
this Agreement are for the benefit of Seller and Buyer and such respective
successors and assigns, and nothing in this Agreement, whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Purchased Receivables or under or in respect of
this Agreement or any covenants, conditions or provisions contained herein,
except as provided in the last sentence of this Section 10.9.  Seller may not
assign, transfer or dispose of all or any portion of its rights or obligations
hereunder without the prior written consent of Buyer, and any such assignment
without the prior written consent of Buyer shall be null and void. Seller hereby
consents to the grant by Buyer to RCA of all Buyer’s right, title and interest
in and to the Purchased Receivables, including the collateral assignment of any
interest of Buyer in and to this Agreement.  Seller understands that Buyer or
RCA may grant a security interest in all its right, title and interest in the
Purchased Receivables (including the right to all revenues and proceeds of the
Purchased Receivables), and its rights under this Agreement, to secure future
debt obligations. Seller hereby consents to the grant of such security interest
and, in connection therewith, (a) agrees that any such future lender shall be a
third party beneficiary of this Agreement, (b) agrees that such lender may have
the right to exercise Buyer’s rights and remedies hereunder, (c) agrees that
such lender may have the right to foreclose on its security interest in Buyer’s
rights under this Agreement and to exercise Buyer’s rights and remedies
hereunder, and (d) acknowledges and agrees that it will upon the reasonable
request of Buyer agree with such lender that neither this Agreement nor any of
the terms hereof may be amended, supplemented, modified or waived without the
written consent of such lender.  Seller and Buyer hereby consent to the grant by
RCA to KBC of all RCA’s right, title and interest in and to the Purchased
Receivables, including the collateral assignment of any interest of RCA in and
to this Agreement.

 

10.10       Term and Termination.  The term of this Agreement shall expire
December 31, 2009, and shall be year to year thereafter unless terminated in
writing by Buyer or Seller. Seller and Buyer shall each have the right to
terminate this Agreement at any time. Notwithstanding the foregoing, any
termination of this Agreement shall not affect Buyer’s security interest, if
any, in and ownership of the Purchased Receivables, and this Agreement shall
continue to be effective, and Buyer’s rights and remedies hereunder shall
survive such termination, until all transactions entered into and Obligations
incurred hereunder or in connection herewith have been completed and satisfied
in full.

 

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10.11       Survival of Agreement.  All covenants, agreements, representations
and warranties made by Seller herein and/or in the exhibits, schedules,
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by
Buyer, shall survive the sale of any Purchased Receivables to Buyer, regardless
of any investigation made by Buyer or any party providing financing to Buyer or
on their behalf, and shall continue in full force and effect so long as this
Agreement has not been terminated.

 

10.12       Titles and Section Headings.  The titles and section headings used
herein are for convenience only and shall not be used in interpreting this
Agreement.

 

10.13       Other Agreements.  The terms and provisions of this Agreement shall
not adversely affect the rights of Buyer or any other division or affiliate of
Buyer under any other document, instrument or agreement. The terms of such other
documents, instruments and agreements shall remain in full force and effect
notwithstanding the execution of this Agreement. In the event of a conflict
between any provision of this Agreement and any provision of any other document,
instrument or agreement between Seller on the one hand, and Buyer or any other
division or affiliate of Buyer on the other hand, Buyer shall determine, in its
sole discretion, which provision shall apply. Seller acknowledges specifically
that any Liens and/or security interests currently securing payment of any
obligations of Seller owing to Buyer or any other division or affiliate of Buyer
also secure Seller’s obligations under this Agreement, and are valid and
subsisting and are not adversely affected by execution of this Agreement. Seller
further acknowledges that (i) any collateral under other outstanding security
agreements or other documents between Seller and Buyer or any other division or
affiliate of Buyer secures the obligations of Seller under this Agreement and
(ii) a default by Seller under this Agreement constitutes a default under other
outstanding agreements between Seller and Buyer or any other division or
affiliate of Buyer.

 

10.14       Counterparts.  This Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts, each of which
shall be an original and all of which together constitute one and the same
agreement.

 

10.15       Confidentiality.  Seller and Buyer each agrees to maintain the
confidentiality of this Agreement in communications with third parties and
otherwise; provided, that this Agreement may be disclosed (i) to third parties
to the extent such disclosure is made pursuant to a written agreement of
confidentiality in form and substance reasonably satisfactory to Buyer, (ii) to
the legal counsel and auditors of Buyer and Seller if they agree to hold it
confidential (iii) to the extent required by applicable law or regulation or by
any court, regulatory body or agency having jurisdiction over such party, and
(iv) to the extent required under applicable securities laws, the Securities and
Exchange Commission or the NYSE Amex; and provided, further, that such party
shall have no obligation of confidentiality in respect of any information which
may be generally available to the public or becomes available to the public
through no fault of such party.

 

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10.16       Acknowledgments. Seller hereby acknowledges that (i) it has been
advised by counsel in the negotiation, execution and delivery of this Agreement,
(ii) no joint venture is created hereby or otherwise exists by virtue of the
transactions contemplated hereby between Buyer and Seller and (iii) that nothing
in this Agreement or otherwise will be deemed to create an advisory, fiduciary
or agency relationship or fiduciary or other implied duty between Buyer and
Seller.

 

{Signatures appear on the following page.}

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized representatives all as of the day and year first above
written, with the specific intention that this Agreement constitutes a document
under seal.

 

 

 

SELLER:

 

 

 

 

 

AMERICAN DEFENSE SYSTEMS, INC.

 

 

 

 

By:

/s/ Gary Sidorsky

 

Name:

Gary Sidorsky

 

Title:

CFO

 

 

 

 

 

 

 

BUYER:

 

 

 

 

REPUBLIC CAPITAL ACCESS, LLC

 

 

 

 

By:

/s/ Timothy J. Gilmore

 

Name:

Timothy J. Gilmore

 

Title:

Chief Financial Officer

 

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