Exhibit 10.1

 

Execution Version

 

 

 

LOAN AND SECURITY AGREEMENT

 

 

 

Dated as of January 5, 2016

 

 

by and among

 

 

HUTTON VENTURES, LLC, as Lender

 

and

 

FONU2, INC., d/b/a Moon River Studios,

MOON RIVER RENTALS, LLC formerly Studioplex City Rentals, LLC and

  

STUDIOPLEX CITY CREWS, LLC, together as Borrowers

 

 

 

 

 

THIS LOAN and SECURITY AGREEMENT (as the same may from time to time hereafter be
modified, supplemented or amended, this “Agreement”), dated as of January 5,
2016 2015 (the “Closing Date”), is made by and among Hutton Ventures LLC, a
Delaware limited liability company (“Lender”), and FONU2, Inc. a Nevada
corporation (“FONU"), Moon River Rentals, LLC, formerly Studioplex City Rentals,
LLC, a Georgia limited liability company (“Moon River”) and Studioplex City
Crews, Inc., a Georgia corporation (“Studioplex”) (together “Borrowers”)

 

RECITALS

 

A.          Borrowers desire to obtain two loans (the “Loans”) from Lender in
the aggregate principal amount of up to Eight Hundred and Seventy Nine Thousand
Dollars (US$879,000) to be used exclusively for the matters set forth on
Schedule A hereto, and Lender is willing to make the Loans on the terms and
conditions set forth in this Agreement and the other Loan Documents.

 

NOW, THEREFORE, in consideration of the making of the Loans by Lender, the
Parties hereby agree as follows:

 

ARTICLE 1
DEFINITIONS; PRINCIPLES OF CONSTRUCTION

 

Section 1.1       Definitions.

 

For all purposes of this Agreement and the other Loan Documents, the following
terms shall have the following respective meanings:

 

“Affiliate” of any specified Person means any other person controlling,
controlled by or under common Control with such specified Person.

 

"Assignment of Lease" means a collateral assignment in the form of Exhibit C
pledging Borrower’s right, title and interest in, but not the obligations of
Borrower under, the Lease to Lender as security for the Loan.

 

“Authorized Officer” means the Chief Executive Officer, President, Vice
President or Chief Financial Officer.

 

“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks are authorized to close under the laws of, or are in fact
closed in, the State of New York.

 

"Borrower" means each of FONU, Moon River and Studioplex. The term "Borrowers"
refers to FONU, Moon River and Studioplex collectively.

 

“Code” means the Internal Revenue Code of 1986, as amended, and any successor
statutes thereto.

 

 2 

 

 

“Collateral” means the following property of the Borrowers, whether presently
owned or existing or hereafter acquired or coming into existence, wherever
situated, and all additions and accessions thereto and all substitutions and
replacements thereof, and all proceeds, products and accounts thereof,
including, without limitation, all proceeds from the disposition, sale or
transfer of the Collateral and of insurance covering the same and of any tort
claims in connection therewith:

 

(i)       All Goods of every kind and nature and wherever situated of the
Borrowers together with all documents of title and documents representing the
same, all additions and accessions thereto, replacements therefor, all parts
therefor, and all substitutes for any of the foregoing and all other items used
and useful in connection with Borrowers’ businesses and all improvements
thereto; and

 

(ii)      All Contract Rights and other General Intangibles of the Borrowers,
including without limitation the Assignment of Lease and Intellectual Property
identified on Schedule D hereto;

 

(iii)     All Accounts of the Borrowers together with all Instruments, all
documents of title representing any of the foregoing, all rights in any
merchandising, goods, and all right, title, security and guaranties with respect
to each account, including any right of stoppage in transit;

 

(iv)     All Equipment of the Borrowers;

 

(v)      All Documents, Letter-of-Credit rights, Instruments and Chattel Paper
of the Borrowers;

 

(vi)     All files, records, books of account, business papers, and computer
programs of the Borrowers;

 

(vii)    All Inventory of the Borrowers;

 

(viii)   All Accounts Receivable of the Borrowers;

 

(ix)      All of the Pledged Securities identified on Schedule E hereto; and

 

(x)       The Products and Proceeds of all of the foregoing Collateral set forth
in clauses (i)-(ix) above.

 

"Collection Agent" means the collection agent appointed under the Motion Picture
Production Finance and Distribution Agreement. (“PFD”)

 

“Completion Bonder” means the company providing the completion bond under the
PFD.

 

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“Control” (and terms correlative thereto) when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities or other beneficial interests, by contract or otherwise.

 

“Default Rate” means an interest rate equal to the lesser of: (a) the interest
rate of twenty four percent (24%) per annum, and (b) the maximum interest rate
permitted by applicable Legal Requirements.

 

“Dollar” and “$” mean lawful money of the United States.

 

“Equity Interests” means (a) partnership interests (general or limited) in a
partnership; (b) membership interests in a limited liability company; (c) shares
or stock interests in a corporation, and (d) the beneficial ownership interests
in a trust.

 

“Fiscal Year” means the 12-month period ending on September 30 of each year or
such other fiscal year of Borrowers as Borrowers may select from time to time
with the prior written consent of Lender, such consent not to be unreasonably
withheld or delayed.

 

“Governmental Authority” means any national, federal, state, regional or local
government, or any other political subdivision of any of the foregoing, in each
case with jurisdiction over Borrowers, or any Person with jurisdiction over
Borrowers or the Collateral exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.

 

"Guarantors" means Jake Shapiro and Roger Miguel, jointly and severally.

 

“Guaranty” means the conditional guaranty executed concurrent herewith attached
as Exhibit A hereto between Guarantors and Lender.

 

“Indebtedness” means, at any given time, the indebtedness, together with all
accrued and unpaid interest thereon and all other payments, fees, obligations
and liabilities due or to become due to Lender pursuant hereto or any of the
other Loan Documents.

 

“Indemnified Party” means each of Lender, each of its Affiliates and their
respective successors and assigns, any Person who is or will have been involved
with the servicing of the Loans, Persons who may hold or acquire or will have
held a full or partial interest in the Loans (including investors, as well as
custodians, trustees and other fiduciaries who hold or have held a full or
partial interest in the Loans for the benefit of third parties) (including any
other Person who holds or acquires or will have held a participation or other
full or partial interest in the Loans or the collateral therefor), and the
respective officers, directors, and employees, agents, Affiliates, successors
and assigns of any and all of the foregoing.

 

“Initial Draw Amount” means $429,000 (which amount includes the Initial Interest
Amount and the Initial Fee).

 

“Initial Fee” means a fully earned, non refundable loan fee of $64,000.

 

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“Initial Interest Amount” means $15,000.

 

"Lease" means the lease of real property located at Old River Road,
Bloomingdale, GA, 31302 in the form attached as Exhibit D hereto.

 

“Legal Fee” means the amount of $15,000 incurred by the Lender in the
preparation of the Agreement.

 

“Legal Requirements” means (a) all statutes, laws, rules, orders, regulations,
ordinances, judgments, orders, decrees and injunctions of Governmental
Authorities affecting Borrowers, the Loan Documents, or any part thereof, and
all Permits and regulations relating thereto, (b) all covenants, agreements,
restrictions and encumbrances contained in any instruments, either of record or
known to Borrowers, at any time in force affecting the Collateral or any part
thereof, (c) terms of any insurance policy maintained by or on behalf of
Borrowers and (d) the organizational documents of Borrowers.

 

“Lien” means any mortgage, deed of trust, deed to secure debt, lien pledge,
easement, restrictive covenant, hypothecation, assignment, security interest,
conditional sale or other title retention agreement, financing lease having
substantially the same economic effect as any of the foregoing, or financing
statement or similar instrument.

 

“Loan Amount” means the sum of (a) Initial Draw Amount, (b)  and the Second Draw
Amount,.

 

“Loan Documents” means, collectively, this Agreement, the Note, the Pledge
Agreement, the Guaranty, the Assignment of Lease, the Intercreditor Agreement,
the Lockbox Account Control Agreement, and all other documents, agreements,
instruments and certificates now or hereafter evidencing or delivered to Lender
in connection with such agreements and the Loans, as each may be (and each of
the defined terms shall refer to such documents as they may be) amended,
restated, or otherwise modified from time to time.

 

“Lockbox Account” means that certain deposit account no. __________ established
at the Lockbox Bank pursuant to the Lockbox Account Control Agreement into which
all Production Contract Receivables due under Production Agreement and other
amounts are directed to be deposited electronically via ACH or otherwise are to
be deposited for the benefit of Lender.

 

“Lockbox Account Control Agreement” means the Deposit Account Control Agreement
by and among Borrower, Lender and Lockbox Bank dated as of the date hereof in
the form of Exhibit E hereto.

 

“Lockbox Bank” means [________] or another commercial bank acceptable to Lender.

 

“Losses” means any losses, actual damages, costs, fees, expenses, claims, suits,
judgments, awards, liabilities (including strict liabilities), obligations,
debts, diminutions in value, fines, penalties, charges, amounts paid in
settlement, foreseeable and unforeseeable consequential damages, litigation
costs, reasonable attorneys’ fees, and investigation costs, of whatever kind or
nature, and whether or not incurred in connection with any judicial or
administrative proceedings, actions, claims, suits, judgments or awards.

 

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“Material Adverse Effect” means a material adverse effect upon (a) the business
or financial position or results of operation of Borrowers, or (b) the ability
of Borrowers to perform, or of Lender to enforce, any of the Loan Documents.

 

“Material Agreement” means each exclusive license of intellectual property to or
from Borrowers.

 

“Note” means that certain promissory note issued concurrently herewith by
Borrowers to Lender in the aggregate principal amount of the Loans attached as
Exhibit F hereto.

 

"Party" or "Parties" means each of the Lender and Borrowers hereto and
collectively the Lender and Borrowers.

 

“Permitted Indebtedness” means the Indebtedness set forth on Schedule B hereto.

 

“Permitted Lien” means the Liens set forth on Schedule C hereto.

 

“Person” means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, or any
other entity, any Governmental Authority, and any fiduciary acting in such
capacity on behalf of any of the foregoing.

 

“Pledge Agreement” means the pledge agreement executed concurrent herewith
attached as Exhibit B hereto between FONU2, Inc. and Lender.

 

“Principal Indebtedness” means the principal amount of the entire Loan
outstanding as the same may be increased or decreased, as a result of prepayment
or otherwise, from time to time.

 

“Production Contract Receivables” means, with respect to the PFD , all amounts
due and payable or to become due and payable under such PFD to the Borrowers for
services rendered (or to be rendered), together with all rights to receive such
amounts under such PFD.

 

“Production Finance and Distribution Agreement” (“PFD”) means the agreement
between Fonu2, Inc. and Mara LLC ("MARA PFD"), for the production of the movies
Mara in the form approved by the Lender in its sole and absolute discretion.

 

“Second Draw Amount” means the Second Loan plus the Second Interest Amount.

 

“Second Interest Amount” means the amount of interest, to be calculated upon the
disbursement of the Second Draw Amount, which will accrue on the Second Draw
Amount following disbursement by the Lender and assuming the Second Draw Amount
is repaid in full on the six month anniversary of the disbursement of the Second
Draw Amount.

 

 6 

 

 

“Second Loan” means $450,000.

 

“Second Milestone Certificate” means a certificate of an Authorized Officer of
each of the Borrowers and Jake Shapiro certifying that:

 

(a)      Borrowers are not in default under the Loan Agreement or the Loan
Documents; and

 

(b)      as of such date, the conditions precedent for the Second Draw Amount
set forth in Section 2(b) below, have been satisfied.

 

“Transfer” means any conveyance, transfer, sale, Lease, assignment or Lien,
whether by operation of law or otherwise that results in or affects any change
in Control of Borrowers.

 

“UCC” means the Uniform Commercial Code of the State of New York and or any
other applicable law of any state or states which has jurisdiction with respect
to all, or any portion of, the Collateral or this Agreement, from time to time.
It is the intent of the parties that defined terms in the UCC should be
construed in their broadest sense so that the term “Collateral” will be
construed in its broadest sense. Accordingly if there are, from time to time,
changes to defined terms in the UCC that broaden the definitions, they are
incorporated herein and if existing definitions in the UCC are broader than the
amended definitions, the existing ones shall be controlling. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
shall have the respective meanings given such terms in Article 9 of the UCC.

 

Section 1.2     Principles of Construction. All references to sections and
schedules are to sections and schedules in or to this Agreement unless otherwise
specified. All uses of the word “including” shall mean “including, without
limitation” unless the context shall indicate otherwise. Unless otherwise
specified, the words “hereof,” “herein” and “hereunder” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. Unless otherwise specified,
all meanings attributed to defined terms herein shall be equally applicable to
both the singular and plural forms of the terms so defined.

 

ARTICLE 2
THE LOANS

 

Section 2.1     The Loans. Subject to the terms and conditions and relying upon
the representations and warranties herein set forth, Lender agrees to make the
Loans to Borrowers and Borrowers agree to accept the Loans from Lender.

 

Section 2.2      Draw Amounts.

 

(a)     Initial Draw Amount. On the date (the "Initial Funding Date") that all
of the conditions precedent set forth hereinbelow have been satisfied to the
Lender's sole and absolute discretion, the Lender shall disburse the Initial
Draw Amount less the Initial Fee, less the Legal Fee, and less the Initial
Interest Amount to Borrowers. The obligation of Lender to disburse the Initial
Draw Amount shall be subject to Borrowers' satisfaction of each of the following
conditions precedent, as determined by Lender in its sole and absolute
discretion:

 

(A)     Lender shall have received all of the following items, each in form and
substance satisfactory to Lender in its sole discretion:

 

(i)         a fully executed Loan Agreement;

 

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(ii)        a fully-executed Lockbox Account Control Agreement;

 

(iii)       a fully-executed Promissory Note;

 

(iv)       a fully-executed Assignment of Lease;

 

(v)        A certificate of an Authorized Officer of each of the Borrowers as to
authorizing resolutions, incumbency and representations and warranties of each
of the Borrowers, substantially in the form reasonably acceptable to Lender's
counsel;

 

(vi)       Good Standing Certificates for each of the Borrowers from the Office
of the Secretary of State of Nevada and Georgia; and

 

(viii)     a fully executed Intercreditor Agreement in the form attached as
Exhibit G hereto.

 

(ix)       a fully executed MARA PFD (including all schedules and exhibits
thereto) in form and substance reasonably acceptable to the Lender and such PFD
remains in full force and effect, in Lender's sole and absolute discretion. For
the avoidance of doubt, the MARA PFD must contain (a) Production Contract
Receivables equal to no less than $1,800,000, (b) a Completion Bond; (c)
executed foreign sales agreements and estimates equal to a minimum of $1,750,000
(d) all funds shall be placed with Collection Agent with all Production Contract
Receivables to be paid to the Lockbox Account, and (e) evidence reasonably
acceptable to the Lender that the full budget of MARA has been raised and funded
into an account held by the Collection Agent.

 

(B)     Each of the representations and warranties contained in Section 4 shall
be true and correct on the Closing Date.

 

(C)     UCC-1 financing statement naming Borrowers, as debtor, and Lender, as
secured party, describing the Collateral.

 

(D)     No Event of Default hereunder shall have occurred and be continuing on
the Initial Funding Date, nor shall Borrowers be aware that any such event has
occurred.

 

(E)     Each of the Borrowers shall not be in breach of any obligation or in
default of this Loan Agreement or any other Loan Document.

 

(F)     No Material Adverse Effect shall have occurred.

 

(G)     No default under the MARA PFD

 

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(b)      Second Draw Amount.

 

(A)      Borrowers may, on or after February 1, 2015 but no later than April 1,
2015 (the "Second Funding Date" and together with the Initial Funding Date, each
a "Funding Date"), provide written notice to Lender of Borrowers’ request for
the Second Draw Amount together with an executed Second Milestone Certificate,
and upon Lender’s receipt of both of the foregoing, and subject to the condition
precedents set forth in Section 2.2(b)B(i)-(vi) below being satisfied in full,
Lender shall disburse the Second Draw Amount less the Second Interest Amount
(which net amount will be equal to the Second Loan) to Borrowers on the third
(3rd) Business Day following Borrowers’ request and delivery of the Second
Milestone Certificate.

 

(B)       Lender shall not be obligated to make the Second Draw Amount unless
Borrowers shall have fulfilled the following conditions:

 

(i)         Preceding Conditions. All applicable conditions of the preceding
Section 2.2(a)(A)-(F) shall continue to be met as of the date of the Second Draw
Amount request;

 

(ii)        Second Milestone Certificate. Borrowers provides Lender with an
executed Second Milestone Request; and

 

(iii)       No Default. No Event of Default shall have occurred and be
continuing hereunder or under any of the other Loan Documents.

 

(iv)       All Production Contract Receivables provided for in the MARA PFD to
have been performed by Borrowers up to the date of the Second Draw Down request
shall have been performed and provided by the Borrowers and invoiced to Mara
LLC/Collection Agent.

 

(c)      Notwithstanding the foregoing, if the Initial Draw Down does not occur
on or before February 15, 2016, time being of the essence, this Agreement shall
terminate and all of the rights and obligations of the Lender and Borrowers
hereto shall be null and void and of no force and effect.

 

Section 2.3      Prepayment. Borrowers may voluntarily prepay the Indebtedness
in full or in part and upon prior written notice to Lender provided that any
prepaid interest on each draw down amount shall not be refunded or returned to
the Borrowers. Any such notice shall be irrevocable. Any prepayment shall
include all accrued but unpaid interest and other fees payable hereunder,
including, without limitation, any additional amounts required pursuant to this
Agreement. The delivery of a prepayment notice by Borrowers shall not prejudice,
stay or limit Lender’s right to take any action or exercise its rights in
respect of any Event of Default existing prior to the time the Indebtedness is
irrevocably discharged in full and any such Event of Default has been cured.

 

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Section 2.4      Interest Rate. The Loans shall bear interest on the outstanding
principal amount thereof at a rate of eighteen percent per annum (18%) (the
“Interest Rate”), compounded annually. The Initial Interest Amount and the
Second Interest Amount shall be prepaid by Borrowers via Lender withholding such
respective amounts from disbursements of the Initial Draw Amount and the Second
Draw Amount, respectively, as set forth hereinabove. Thereafter, beginning on
the 3 month anniversary of each respective Initial Draw Amount and Second Draw
Amount, until the Maturity Date, the Borrowers shall pay on each monthly
anniversary thereafter, interest at the Interest Rate (or the Default Rate) on
the outstanding Loan Amount of the Initial Draw Amount and Second Draw Amount,
respectively, including any shortfall of Interest not prepaid by the Borrower
via Lender's holdback.

 

Section 2.5      Payment of Loan Amount. The outstanding Indebtedness (inclusive
of the outstanding principal Loan Amount and accrued but unpaid interest and
fees) shall be repaid by Borrowers to Lender, for the account of Lender, on or
before January 5, 2017; provided however, that the entire outstanding
Indebtedness shall be repaid in its entirety on the earliest to occur of: (a)
payment by or on behalf of the Production Contract Receivables, (b) the date on
which the obligations hereunder are accelerated and the outstanding Indebtedness
declared immediately due and payable as a result of the occurrence of an Event
of Default in accordance with the terms of Article 8, and (d) the date on which
Borrower elects to exercise its right to prepay the Indebtedness pursuant to
Section 2.3 hereof (such date being the “Maturity Date”).

 

Section 2.6      Default Interest.

 

(a)      Any outstanding portion of the Loan Amount or any other amount payable
by Borrowers under the Loan Documents not paid when due (without regard to any
other applicable grace periods), whether at stated maturity, by acceleration or
otherwise, shall thereafter bear interest at an interest rate per annum at all
times equal to the Default Rate.

 

(b)      While any Event of Default exists, interest on the outstanding
Indebtedness and all other outstanding obligations hereunder shall accrue at an
interest rate per annum at all times equal to the Default Rate to the fullest
extent permitted by applicable Legal Requirements.

 

(c)      All interest accruing under this Section 2.6 shall be due and payable
upon demand by Lender.

 

Section 2.7      Late Charge. If the Loan Amount or any other amount required to
be paid to Lender under this Agreement or any other Loan Document, is not paid
to Lender on or before the tenth (10th) calendar day after the same has become
due and payable, then in addition to all other amounts payable to Lender
hereunder, an additional payment equal to five percent (5%) of the amount
required to be paid but not so paid (a “Late Charge”) shall immediately become
due and payable to Lender and until paid shall accrue interest at the Default
Rate.

 

Section 2.8      Computation of Interest and Fees. All computations of interest
on the Loans shall be made on the basis of a 360-day year and actual days
elapsed.

 

Section 2.9     Evidence of Indebtedness. In addition to the Note, Borrowers’
obligations in respect of the Indebtedness shall be evidenced by one or more
accounts or records maintained by Lender in the ordinary course of business. The
accounts or records maintained by Lender shall be conclusive, absent manifest
error, of the amount of Borrowers’ obligations in respect of the Indebtedness
and payments thereon. Any failure to so record or any error in doing so shall
not, however, limit or otherwise affect the obligation of Borrowers hereunder to
pay any amount owing with respect to the Indebtedness.

 

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Section 2.10    Payments Generally.

 

(a)      All payments received by Lender after 11:59 a.m. EST shall in each case
be deemed received on the next succeeding Business Day and any applicable
interest or fee shall continue to accrue. If any payment to be made by Borrowers
shall come due on a day other than a Business Day, payment shall be made on the
next following Business Day, and such extension of time shall be reflected in
computing interest or fees, as the case may be.

  

(b)      The Loan shall be repaid, in part, from the proceeds of the Production
Contract Receivables and the Collateral. Borrower shall irrevocably direct that
the escrow agent/Collection Agent pay all Production Contract Receivables and
other funds due to the Borrower to the Lockbox Account. All Production Contract
Receivables received either electronically via ACH to the Borrowers, including
prepayments from the disposition of Collateral, insurance proceeds or otherwise,
shall be remitted to Lender upon receipt. To the extent that an Event of Default
has not occurred or continuing under terms hereof or of a Loan Document, the
Lender will release to the Borrower 40% of the Production Contract Receivables.
All payments received and retained by the Lender shall be first applied to fees
and expenses of the Lender, then to the accrued but unpaid Interest and then
allocated to the principal amount of the outstanding Loan Amount.

 

(c)      All payments hereunder shall be made without any deduction, abatement,
set-off or counterclaim whatsoever, the rights to which are hereby specifically
waived by Borrowers.

 

Section 2.11   Use of Proceeds. All of the proceeds of the Loan Amount shall be
used solely as set forth on Schedule A hereto.

 

Section 2.12    Savings Clause. Notwithstanding anything to the contrary set
forth in this instrument, if at any time until payment in full of all of the
Indebtedness due hereunder, the interest rate on such Indebtedness exceeds the
highest rate of interest permissible under any law that a court of competent
jurisdiction shall, in a final determination, deem applicable hereto (the
“Maximum Lawful Rate”), then in such event and so long as the Maximum Lawful
Rate would be so exceeded, the Interest Rate shall be equal to the Maximum
Lawful Rate; provided, however, that if at any time thereafter the Interest Rate
is less than the Maximum Lawful Rate the Borrowers shall continue to pay
interest hereunder at the Maximum Lawful Rate until such time as the total
interest received by the Lender from the making of the Loans hereunder is equal
to the total interest the Lender would have received had the interest rate been
(but for the operation of this paragraph) the interest rate payable since the
initial funding of the Loans. Thereafter, the interest rate payable hereunder
shall be the interest rate provided for in this instrument unless and until the
interest rate so provided for again exceeds the Maximum Lawful Rate, in which
event this paragraph shall again apply. In no event shall the total interest
received by the Lender pursuant to the term hereof exceed the amount such Lender
could lawfully have received had the interest due hereunder been calculated for
the full terms hereof at the Maximum Lawful Rate. If a court of competent
jurisdiction, notwithstanding the provisions of this paragraph, makes a final
determination that the Lender has received interest in excess of the Maximum
Lawful Rate, the Lender shall, to the extent permitted by applicable law,
promptly apply such excess first to any interest due and not yet paid under this
Agreement, then to the outstanding principal balance due under this Agreement,
then to other unpaid indebtedness and thereafter shall refund any excess to the
Borrowers or as a court of competent jurisdiction may otherwise order.

 

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ARTICLE 3
SECURITY INTERESTS

 

Section 3.1      Grant of Security Interest in Collateral. As an inducement for
the Lender to extend the loan as evidenced by the Note and to secure the
complete and timely payment, performance and discharge in full, as the case may
be, of all of the Obligations, Borrower hereby unconditionally and irrevocably
pledges, grants and hypothecates to Lender a security interest in and to, a lien
upon and a right of set-off against all of their respective right, title and
interest of whatsoever kind and nature in and to, the Collateral (a “Security
Interest” and, collectively, the “Security Interests”).

 

Section 3.2     Delivery of Certain Collateral. Contemporaneously or prior to
the execution of this Agreement, Borrower shall deliver or cause to be delivered
to the Lender, any and all certificates and other instruments or documents
representing any of the Collateral. All Collateral will at all times be kept by
Borrower at the locations set forth on Schedule C hereto and shall not, without
concurrent written notice to Lender, be moved therefrom and in any case shall
not be moved outside the continental United States.

 

Section 3.3      Financing Statements. Borrower hereby authorizes the Lender to
file one or more financing statements under the UCC, with respect to the
Security Interests, with the proper filing and recording agencies in any
jurisdiction deemed proper by it and authorizes the Lender to take any other
action in Lender’s absolute discretion to effectuate, memorialize and protect
the Lender' interest and rights under this Agreement. Borrower will from time to
time, promptly execute and deliver all such further instruments and documents,
and take all such further action as may be necessary or desirable, or as the
Lender may reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable the Lender to
exercise and enforce their rights and remedies hereunder and with respect to any
Collateral or to otherwise carry out the purposes of this Agreement.

 

Section 3.4      Duty to Hold In Trust. Upon the occurrence of any Event of
Default and at any time thereafter, Borrower shall, upon receipt of any revenue,
income, dividend, interest or other sums subject to the Security Interests,
whether payable pursuant to the Note or otherwise, or of any check, draft, note,
trade acceptance or other instrument evidencing an obligation to pay any such
sum, hold the same in trust for the Lender and shall forthwith endorse and
transfer any such sums or instruments, or both, to the Lender, for application
to the satisfaction of the Obligations.

 

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Section 3.5      Applications of Proceeds. The proceeds of any such sale, lease
or other disposition of the Collateral hereunder or from payments made on
account of any insurance policy insuring any portion of the Collateral shall be
applied first, to the expenses of retaking, holding, storing, processing and
preparing for sale, selling, and the like (including, without limitation, any
taxes, fees and other costs incurred in connection therewith) of the Collateral,
to the reasonable attorneys’ fees and expenses incurred by the Lender in
enforcing its rights hereunder and in connection with collecting, storing and
disposing of the Collateral, and then to satisfaction of the Obligations, and to
the payment of any other amounts required by applicable law, after which the
Lender shall pay to the applicable Borrower any surplus proceeds. If, upon the
sale, license or other disposition of the Collateral, the proceeds thereof are
insufficient to pay all amounts to which the Lender are legally entitled, the
Borrower will be liable for the deficiency, together with interest thereon, at
the Default Rate, and the reasonable fees of any attorneys employed by the
Lender to collect such deficiency. To the extent permitted by applicable law,
Borrower waives all claims, damages and demands against the Lender or the Lender
arising out of the repossession, removal, retention or sale of the Collateral,
unless due solely to the gross negligence or willful misconduct of the Lender or
the Lender as determined by a final judgment (not subject to further appeal) of
a court of competent jurisdiction.

 

Section 3.6      Responsibility for Collateral. The Borrower assumes all
liabilities and responsibility in connection with all Collateral, and the
Obligations shall in no way be affected or diminished by reason of the loss,
destruction, damage or theft of any of the Collateral or its unavailability for
any reason. Without limiting the generality of the foregoing, (a) neither the
Lender (i) has any duty (either before or after an Event of Default) to collect
any amounts in respect of the Collateral or to preserve any rights relating to
the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the
Collateral for sale, and (b) Borrower shall remain obligated and liable under
each contract or agreement included in the Collateral to be observed or
performed by such Borrower thereunder. The Lender shall not have any obligation
or liability under any such contract or agreement by reason of or arising out of
this Agreement or the receipt by the Lender of any payment relating to any of
the Collateral, nor shall the Lender be obligated in any manner to perform any
of the obligations of Borrower under or pursuant to any such contract or
agreement, to make inquiry as to the nature or sufficiency of any payment
received by the Lender in respect of the Collateral or as to the sufficiency of
any performance by any party under any such contract or agreement, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to the Lender or to which
the Lender may be entitled at any time or times.

 

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Section 3.7      Security Interests Absolute. All rights of the Lender and all
obligations of the Borrower hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Note or any agreement entered into in connection with the foregoing, or any
portion hereof or thereof; (b) any change in the time, manner or place of
payment or performance of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Note or any other agreement entered into in connection with the
foregoing; (c) any exchange, release or non-perfection of any of the Collateral,
or any release or amendment or waiver of or consent to departure from any other
collateral for, or any guarantee, or any other security, for all or any of the
Obligations; (d) any action by the Lender to obtain, adjust, settle and cancel
in its sole discretion any insurance claims or matters made or arising in
connection with the Collateral; or (e) any other circumstance which might
otherwise constitute any legal or equitable defense available to a Borrower, or
a discharge of all or any part of the Security Interests granted hereby. Until
the Obligations shall have been paid and performed in full, the rights of the
Lender shall continue even if the Obligations are barred for any reason,
including, without limitation, the running of the statute of limitations or
bankruptcy. Borrower expressly waives presentment, protest, notice of protest,
demand, notice of nonpayment and demand for performance. In the event that at
any time any transfer of any Collateral or any payment received by the Lender
hereunder shall be deemed by final order of a court of competent jurisdiction to
have been a voidable preference or fraudulent conveyance under the bankruptcy or
insolvency laws of the United States, or shall be deemed to be otherwise due to
any party other than the Lender, then, in any such event, Borrower’s obligations
hereunder shall survive cancellation of this Agreement, and shall not be
discharged or satisfied by any prior payment thereof and/or cancellation of this
Agreement, but shall remain a valid and binding obligation enforceable in
accordance with the terms and provisions hereof. Borrower waives all right to
require the Lender to proceed against any other person or entity or to apply any
Collateral which the Lender may hold at any time, or to marshal assets, or to
pursue any other remedy. Borrower waives any defense arising by reason of the
application of the statute of limitations to any obligation secured hereby.

 

ARTICLE 4
REPRESENTATIONS AND WARRANTIES

 

Each Borrowers, jointly and severally, represents and warrants to Lender as of
the Closing Date as follows:

 

Section 4.1      Organization. Each Borrowers is duly formed, validly existing
and in good standing under the laws of the jurisdiction of its formation. Each
Borrowers has furnished to Lender a complete and correct copy of its certificate
of incorporation and such organizational documents are in full force and effect.
Schedule F hereto is full and complete corporate organization chart identifying
all of the Persons that such Borrower has an Equity Interest in.

 

Section 4.2      Authorization. Each Borrowers has the requisite power and
authority to carry on its business as now being conducted, and has the requisite
power to execute and deliver, and perform its obligations under the Loan
Documents. The execution, delivery and performance by each Borrower of the Loan
Documents and the consummation of the transactions contemplated thereby have
been duly and validly authorized by all necessary company action on the part of
Borrower. The execution and delivery by Borrower of the Loan Documents and
Borrower’s performance of its obligations thereunder, (a) will not violate any
provision of any applicable Legal Requirements and (b) will not be in conflict
with, result in a breach of, or constitute (with due notice or lapse of time or
both) a default under, or result in the creation or imposition of any Lien of
any nature whatsoever upon any of the property or assets of Borrower pursuant to
any indenture or agreement or instrument. Borrower is not required to obtain any
consent, approval or authorization from, or to file any declaration or statement
with, any Governmental Authority in connection with or as a condition to the
execution, delivery or performance of the Loan Documents. The Loan Documents to
which Borrower is a party have been duly executed and delivered by Borrower.

 

Section 4.3      Enforceability. The Loan Documents executed by Borrower in
connection with the Loans are the legal, valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their terms, subject
only to bankruptcy, insolvency and other limitations on creditors’ rights
generally and to equitable principles. Such Loan Documents are, as of the
Closing Date, not subject to any right of rescission, set-off, counterclaim or
defense by Borrower, including the defense of usury.

 

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Section 4.4     Litigation. There are no actions, suits or proceedings at law or
in equity by or before any Governmental Authority or other agency now pending
and served or, to Borrower’s knowledge, threatened, involving or concerning the
Collateral. The Borrowers from time to time are threatened with litigation as an
ordinary course of business. No current actions or threatened actions concern
the Collateral.

 

Section 4.5      Full and Accurate Disclosure; No Material Adverse Effect. No
statement of fact made by or on behalf of Borrower in the Loan Documents or in
any other document or certificate delivered to Lender by Borrower contains any
untrue statement of a material fact or omits to state any material fact
necessary to make statements contained herein or therein not misleading. There
is no fact, circumstance or obligation, contingent or otherwise, presently known
to Borrower which has not been disclosed to Lender which has had, or, as far as
Borrower can foresee, would be reasonably likely to have a Material Adverse
Effect.

 

Section 4.6      Compliance. Borrower’s operations are in compliance in all
material respects with all applicable Legal Requirements.

 

Section 4.7      Indebtedness. Borrowers are not in default under the MARA PFD.

 

Section 4.8      Title to the Collateral; Liens. Borrower owns good,
indefeasible, marketable and insurable title to the Collateral, free and clear
of all Liens other than Permitted Liens. There are no matters, conditions,
encumbrances, defects or Liens materially affecting title to the Collateral.
Other than with respect to Permitted Liens, there is not on file in any
governmental or regulatory authority, agency or recording office an effective
financing statement, security agreement, license or transfer or any notice of
any of the foregoing covering or affecting any of the Collateral.

 

Section 4.9      Valid Security Interest. This Agreement creates in favor of the
Lender a valid security interest in the Collateral, securing the payment and
performance of the obligations under this Agreement and the Loan Document (the
"Obligations"). Upon making the filings described in the immediately following
paragraph, all security interests created hereunder in any Collateral which may
be perfected by filing Uniform Commercial Code financing statements shall have
been duly perfected. No consent of any third parties and no authorization,
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the creation or perfection of the
Security Interests created hereunder in the Collateral or (iii) the enforcement
of the rights of the Lender hereunder.

 

Section 4.10    Correct Information. All information heretofore, herein or
hereafter supplied to the Lender by or on behalf of Borrower with respect to the
Collateral is accurate and complete in all material respects as of the date
furnished.

 

 15 

 

 

Section 4.11    No Disagreements with Accountants and Lawyers. There are no
material disagreements of any kind presently existing, or reasonably anticipated
by the Borrower to arise between the Borrower and the accountants and lawyers
presently employed by the Borrower, including but not limited to disputes or
conflicts over payment owed to such accountants and lawyers, nor have there been
any such disagreements during the two years prior to the Closing Date.

 

Section 4.12   Investment Company. Neither the Borrower nor any Affiliate of the
Borrower is an “investment company” within the meaning of the Investment
Borrower Act of 1940, as amended.

 

Section 4.13    Foreign Corrupt Practices. Neither the Borrower, nor to the
knowledge of the Borrower, any agent or other person acting on behalf of the
Borrower, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Borrower (or made by any person
acting on its behalf of which the Borrower is aware) which is in violation of
law, or (iv) violated in any material respect any provision of the Foreign
Corrupt Practices Act of 1977, as amended.

 

Section 4.14   Reporting Borrower. The Borrower is a publicly held company
subject to reporting obligations pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and has a class of common
stock registered pursuant to Section 12(g) of the 1934 Act (the "Common Stock").
Pursuant to the provisions of the 1934 Act, the Borrower has timely filed all
reports and other materials required to be filed thereunder with the Securities
and Exchange Commission during the preceding twelve months.

 

Section 4.15   Listing. The Borrower's Common Stock is quoted on the OTC Markets
under the symbol FONU. The Borrower has not received any oral or written notice
that its Common Stock is not eligible nor will become ineligible for quotation
on the OTC Markets nor that its Common Stock does not meet all requirements for
the continuation of such quotation. The Borrower satisfies all the requirements
for the continued quotation of its Common Stock on the OTC Markets.

 

Section 4.16    DTC Status. The Borrower’s transfer agent is a participant in,
and the Common Stock is eligible for transfer pursuant to, the Depository Trust
Borrower Automated Securities Transfer Program.

 

 16 

 

 

ARTICLE 5
COVENANTS

 

Section 5.1      Affirmative Covenants. Borrowers, jointly and severally,
covenant and agree that, from the Closing Date and until payment in full of the
Obligations:

 

(a)      Compliance with Legal Requirements; Impositions and Other Claims;
Contests.

 

(i)        Borrower shall do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its existence, rights,
licenses, Permits and franchises necessary for the conduct of its business and
comply in all material respects with all applicable Legal Requirements,
contracts, Permits, and private covenants, conditions and restrictions that
apply to Borrower or the Collateral. Borrower shall notify Lender promptly of
any written notice or order that Borrower receive from any Governmental
Authority relating to Borrower’s material failure to comply with such Legal
Requirements.

 

(ii)       Borrower shall pay all insurance premiums with respect to itself, the
Collateral in accordance with the terms hereof.

 

(b)      Access to Property and Records; Inspection; Period Audits. Borrower
shall permit the representatives of Lender, at the reasonable expense of
Borrower, during normal business hours, upon reasonable notice, to (i) visit and
inspect any of its offices or properties or any other place where Collateral is
located to inspect the Collateral and/or to examine or audit all of Borrower’s
books of account, records, reports and other papers, (ii) make copies and
extracts therefrom, and (iii) discuss Borrower’s business, operations,
prospects, properties, assets, liabilities, condition with Borrower’s officers
and independent public accountants (and by this provision such officers and
accountants are authorized to discuss the foregoing).

 

(c)      Financial and Other Reporting.

 

(i)        Borrower shall keep and maintain or shall cause to be kept and
maintained, on a Fiscal Year basis, in accordance with sound accounting
principles consistently applied, books, records and accounts reflecting in
reasonable detail all of the financial affairs of Borrower and all items of
income and expense in connection with the operation of the Borrower.

 

(ii)       Borrower shall give prompt written notice to Lender of any litigation
or governmental proceedings pending or threatened involving Borrower in excess
of $250,000.

 

(iii)      Borrower shall provide to Lender, Financial Statements for Borrower
within 90 days after their respective Fiscal Year ends, prepared by a certified
public accountant acceptable to Lender.

 

(d)      Material Agreement. Borrower shall not, without Lender’s prior written
consent (which consent shall not be unreasonably withheld) to enter into,
modify, surrender, terminate or waive any provision of any Material Agreement to
which it is a party (unless the other party thereto is in material default and
the termination of such agreement would be commercially reasonable), except for
such waivers and modifications that are on an arms’-length basis and on
commercially reasonable terms.

 

(e)      Books and Records.     Borrower shall at all times maintain its Books
and Records relating to the Collateral at its principal place of business and
its Collateral at the locations set forth above and may not relocate such books
of account and records or tangible Collateral unless it delivers to the Lender
at least 30 days prior to such relocation (i) written notice of such relocation
and the new location thereof (which must be within the United States) and (ii)
evidence that appropriate financing statements under the UCC and other necessary
documents have been filed and recorded and other steps have been taken to
perfect the Security Interests to create in favor of the Lender a valid,
perfected and continuing perfected first priority lien in the Collateral, except
as otherwise permitted hereby.

 

 17 

 

 

(f)       Security Interests. Borrower shall at all times maintain the Liens and
Security Interests provided for hereunder as valid and perfected first priority
liens and security interests in the Collateral in favor of the Lender until this
Agreement and the Security Interest hereunder shall be terminated. Borrower
hereby agrees to defend the same against the claims of any and all persons and
entities. Borrower shall safeguard and protect all Collateral for the account of
the Lender. Upon request of the Lender, Borrower will sign and deliver to the
Lender at any time or from time to time one or more financing statements
pursuant to the UCC in form reasonably satisfactory to the Lender and will pay
the cost of filing the same in all public offices wherever filing is, or is
deemed by the Lender to be, necessary or desirable to effect the rights and
obligations provided for herein. Without limiting the generality of the
foregoing, Borrower shall pay all fees, taxes and other amounts necessary to
maintain the Collateral and the Security Interests hereunder, and Borrower shall
obtain and furnish to the Lender from time to time, upon demand, such releases
and/or subordinations of claims and liens which may be required to maintain the
priority of the Security Interests hereunder.

 

(g)      Adverse Change in Collateral. Borrower shall, within ten (10) days of
obtaining knowledge thereof, advise the Lender promptly, in sufficient detail,
of any material adverse change in the Collateral, and of the occurrence of any
event which would have a material adverse effect on the value of the Collateral
or on the Lender’ security interest.

 

(h)      Further Instruments. Borrower shall promptly execute and deliver to the
Lender such further deeds, mortgages, assignments, security agreements,
financing statements or other instruments, documents, certificates and
assurances and take such further action as the Lender may from time to time
request and may in its sole discretion deem necessary to perfect, protect or
enforce the Lender’s security interest in the Collateral in which the Lender
have been granted a security interest hereunder, all substantially in forms
reasonably acceptable to the Lender, and other such documents and agreements
other than as stated therein, shall be subject to all of the terms and
conditions hereof

 

(i)       Enforcement of Contracts. Borrower shall take commercially reasonable
steps necessary to diligently pursue and seek to preserve, enforce and collect
any rights, claims, causes of action and accounts receivable in respect of the
Collateral.

 

(j)       Notice of Attachment. Borrower shall promptly notify the Lender in
sufficient detail upon becoming aware of any attachment, garnishment, execution
or other legal process levied against any Collateral and of any other
information received by such Borrower that may materially affect the value of
the Collateral, the Security Interest or the rights and remedies of the Lender
hereunder.

 

(k)      Third Party Notification. To the extent that any Collateral is in the
possession of any third party, the Borrower shall join with the Lender in
notifying such third party of the Lender’s security interest in such Collateral
and shall use its commercially reasonable best efforts to obtain an
acknowledgement and agreement from such third party with respect to the
Collateral, in form and substance reasonably satisfactory to the Lender.

 

 18 

 

 

(l)       Intentionally Omitted.

 

(m)     Litigation. Borrower shall promptly, and in any event within five (5)
Business Days after Borrower or any officer of Borrower obtains knowledge
thereof, notify Lender in writing of (i) any pending litigation, suit,
investigation, arbitration, formal dispute resolution proceeding or
administrative proceeding brought against or initiated by Borrower or otherwise
affecting or involving or relating to Borrower or any of its property or assets
to the extent (A) the amount in controversy exceeds Fifty Thousand Dollars
($50,000), or (B) to the extent any of the foregoing seeks injunctive relief,
(ii) any Event of Default, which notice shall specify the nature and status
thereof, the period existence thereof and what action is proposed to be taken
with respect thereto, (iii) any other development, event, fact, circumstance or
condition that would reasonably be expected to have a material adverse effect,
in each case describing the nature and status thereof and the action proposed to
be taken with respect thereto, (iv) any notice received by Borrower from any
customer of a claim, suit or other action such customer has, claims or has filed
against Borrower, (v) any matter(s) affecting the value, enforceability or
collectability of any of the Collateral, including without limitation, claims or
disputes in the amount of Fifty Thousand Dollars ($50,000) or more, singly or in
the aggregate, in existence at any one time, and (vi) receipt of any material
notice or request from any Governmental Authority.

 

(n)      Current Business. Borrower shall (i) engage only in the business it
currently provides, (ii) maintain all of its material properties, assets and
equipment used or useful in its business in good repair, working order and
condition (normal wear and tear excepted and except as may be disposed of in the
ordinary course of business and in accordance with the terms of the Loan
Documents and otherwise as determined by Borrower using commercially reasonable
business judgment), (iii) from time to time to make all necessary or desirable
repairs, renewals and replacements thereof, as determined by Borrower using
commercially reasonable business judgment, (iv) maintain and keep in full force
and effect its existence and all material Permits and qualifications to do
business and good standing in each jurisdiction in which the ownership or lease
of property or the nature of its business makes such Permits or qualification
necessary; and (v) remain in good standing in the jurisdiction of its
organization.

 

(o)      Compliance with Laws, etc. Borrower shall (i) substantially comply with
all laws, statutes, rules, regulations, ordinances and tariffs of all
Governmental Authorities applicable to it or its business, assets or operations,
(ii) pay all taxes, assessments, fees, governmental charges, claims for labor,
supplies, rent and all other obligations or liabilities of any kind, except
liabilities being contested in good faith and against which adequate reserves
have been established, (iii) perform in accordance with its terms each contract,
agreement or other arrangement to which it is a party or by which it or any of
the Collateral is bound, and (iv) maintain and comply with all Permits necessary
to conduct its business.

 

 19 

 

 

(p)      Diligently Pursue. Borrower shall take commercially reasonable steps
necessary to diligently pursue and seek to preserve, enforce and collect any
rights, claims, causes of action and accounts receivable in respect of the
Collateral.

 

(q)      Borrower shall (i) within five (5) Business Days after Lender’s
reasonable request, take such further actions, and duly execute and deliver such
further agreements, assignments, instructions or documents and do such further
acts and things as may be necessary or proper in the reasonable opinion of
Lender to carry out more effectively the provisions and purposes of this
Agreement and the Loan Documents, and (ii) upon the exercise by Lender of any
power, right, privilege or remedy pursuant to this Agreement or under applicable
law or at equity which requires any consent, approval, registration,
qualification or authorization of any Person, including without limitation a
Governmental Authority, execute and deliver, or cause the execution and delivery
of, all applications, certificates, instruments and other documents that Lender
may be required to obtain for such consent, approval, registration,
qualification or authorization.

 

(r)       Except as otherwise prescribed in the Loan Documents, Borrower shall
pay, discharge or otherwise satisfy at or before maturity (subject to applicable
grace periods and, in the case of trade payables, to ordinary course payment
practices) all of its material Indebtedness, except when the amount or validity
thereof is being contested in good faith by appropriate proceedings and such
reserves as required by GAAP shall have been made.

 

(s)      If Liens exist other than a Permitted Lien, Borrower immediately shall
take, execute and deliver all actions, documents and instruments necessary to
release and terminate such Liens.

 

(t)       Reporting by Borrower. Borrower shall provide Lender with the
following reports at times requested by the Lender:

 

(i)       Borrower shall deliver to Lender by electronic transmission, a report
of all invoices submitted to the Completion Bonder in the prior week.

 

(ii)      Borrower shall deliver to Lender its Weekly Borrower Report (the
“Weekly Borrower Report”) with respect to the construction activity in the
immediately preceding weekly period.

 

(iii)     As soon as practicable, but not later than thirty (30) days from
receipt of Lender’s notice, all other reports or information requested by
Lender.

 

Section 5.2      Negative Covenants. Borrower covenants and agrees that as of
the Closing Date and until all of Borrower’s obligations to Lender have been
satisfied, Borrower shall not:

 

(a)       Loans or Advances. Make any loans or advances to any Person, including
without limitation its officers and employees.

 

(b)      Investments. Except as contemplated herein, make investments in, or
advances to, any Person. Except for contemplated herein, Borrower will not
purchase or otherwise invest in or hold securities, real estate or other
non-operating assets or purchase all or substantially all the assets of any
entity other than in connection with an acquisition approved by Lender in
writing.

 

 20 

 

 

(c)      Merger. Merge or consolidate or be merged or consolidated with or into
any other entity.

 

(d)      Sale of Assets. Transfer or otherwise dispose of any of its assets or
Collateral except in the ordinary and usual course of business.

 

(e)      Restriction on Liens. Grant any security interest in, or mortgage of,
its properties or assets other than such Liens or Permitted Lien as contemplated
herein.

 

(f)      Other Business. Engage in any business other than the business
currently engaged in by the Borrowers.

 

(g)      Charter Documents; Fiscal Year; Dissolution; Use of Proceeds. Borrower
shall not (i) change its jurisdiction of formation or jurisdiction of its
organization, (ii) change or amend, modify, restate or change its certificate of
incorporation or formation or bylaws or similar charter documents in a manner
that would be materially adverse to Lender without at least thirty (30) days’
notice to Lender, (iii) change its legal name, (iv) change its fiscal year,
unless Borrower demonstrates to Lender’s satisfaction compliance with the
covenants contained herein for both the fiscal year in effect prior to any
change and the new fiscal year period by delivery to Lender of appropriate
interim and annual pro forma, historical and current compliance certificates for
such periods and such other information as Lender may reasonably request, (v)
amend, alter or suspend or terminate or make provisional in any material way,
any Permit without the prior written consent of Lender, which consent shall not
be unreasonably withheld, or (vi) wind up, liquidate or dissolve (voluntarily or
involuntarily) or commence or suffer any proceedings seeking to wind up,
liquidate or dissolve or that would result in any of the foregoing.

  

(h)     Other Indebtedness. Borrower shall not incur, create, assume, allow to
exist, become or be liable in any manner with respect to any other indebtedness
or monetary obligations, except for the Principal Indebtedness or Permitted
Indebtedness. 

 

 21 

 

 

(i)       Restriction on Redemption and Cash Dividends. Borrower shall not, and
Borrower shall cause each of its subsidiaries to not, directly or indirectly,
redeem, repurchase or declare or pay any cash dividend or distribution on any of
its capital stock, membership interests or other Equity Securities without the
prior express written consent of the Lender.

 

ARTICLE 6
TRANSFERS AND CHANGE OF BUSINESS

 

Each Borrower, jointly and severally, covenants and agrees that, from the
Closing Date and until payment in full of the Indebtedness:

 

Section 6.1       Transfer. Borrower will not allow any Transfer to occur;

 

Section 6.2      Other Indebtedness. Borrower shall not incur, create, assume,
allow to exist, become or be liable in any manner with respect to any other
indebtedness, except for (a) the indebtedness existing as of the date hereof
under a Permitted Lien, (b) Permitted Indebtedness or any additional
indebtedness incurred by the Borrower from time to time under existing loan
agreements or other documents evidencing Permitted Indebtedness (as amended) to
the extent such additional indebtedness is subordinated to the Loans pursuant to
the subordination agreement(s) executed between Lender and the applicable
lenders in connection with this Agreement (or pursuant to separate subordination
agreement(s) consistent therewith) and (c) unsecured indebtedness owing in the
ordinary course of business to trade suppliers and (d) service providers.

 

ARTICLE 7
INSURANCE AND CASUALTY

 

Section 7.1      Types of Insurance. At all times during the term of the Loans,
Borrowers shall maintain, at their sole cost and expense, the following policies
of insurance:

 

(a)      Insurance with respect to the Collateral (except intellectual property)
against any peril included within the classification “All Risks of Physical
Loss” with extended coverage in amounts at all times sufficient to prevent
Borrowers from becoming a co-insurer within the terms of the applicable
policies, but in any event such insurance shall be maintained in an amount equal
to the full insurable value of the Collateral. The policy referred to in this
Section 7.1(a) shall contain a replacement cost endorsement and a waiver of
depreciation. As used herein, “full insurable value” means the actual
replacement cost of the Collateral (without taking into account any
depreciation), determined annually by an insurer or by Borrowers or, at the
request of Lender, by an insurance broker (subject to Lender’s reasonable
approval).

 

(b)      Comprehensive general liability insurance, including contractual
injury, bodily injury, broad form death and property damage liability against
any and all claims, including all legal liability to the extent insurable
imposed upon Borrowers and all court costs and attorneys’ fees and expenses,
with a combined limit of not less than $2,000,000 in the aggregate and
$1,000,000 per occurrence, plus umbrella coverage.

 

(c)      Statutory workers’ compensation insurance.

 

 22 

 

 

Section 7.2      Blanket Policy. The insurance coverage required under Section
7.1 may be effected under a blanket policy or policies covering the Collateral
and other property and assets not constituting a part of the Collateral;
provided that any such blanket policy shall provide coverage in an amount and
scope which is at least equal to what would be provided if the required coverage
was purchased on an individual basis and which shall in any case comply in all
other respects with the requirements of this Article 7.

 

Section 7.3      General Insurance Requirements. Borrowers agree that all
insurance policies shall: (i) be in such form and with such endorsements and in
such amounts as may be reasonably satisfactory to Lender (provided, however,
that the insurance described in Schedule G hereto shall be deemed satisfactory
to Lender for all purposes of this Article 7); and (ii) with respect to
commercial general liability, provide for claims to be made on an occurrence
basis.

 

Section 7.4      Certificates of Insurance and Delivery of Policies. Upon
Lender’s request, certified copies of all insurance policies required pursuant
to this Article 7 shall be promptly delivered by Borrowers to Lender except for
blanket policies as to which certificates of same only need to be provided.
Certificates of insurance with evidence of premium payment with respect to all
renewal and replacement policies shall be delivered to Lender not less than ten
(10) calendar days prior to the expiration date of any of the insurance policies
required to be maintained hereunder and certified copies of such insurance
policies shall be delivered to Lender promptly after Borrowers’ receipt thereof,
as applicable. If Borrowers fail to maintain and deliver to Lender the
certificates of insurance required by this Agreement, Lender may, at its option,
after notice to Borrowers, procure such insurance, and Borrowers shall reimburse
Lender for the amount of all premiums paid by Lender thereon promptly, after
demand by Lender, with interest thereon at the Default Rate from the date paid
by Lender to the date of repayment, and such sum shall be a part of the
Indebtedness. Lender shall not by the fact of approving, disapproving,
accepting, preventing, obtaining or failing to obtain any insurance, incur any
liability for or with respect to the amount of insurance carried, the form or
legal sufficiency of insurance contracts, solvency of insurance companies, or
the carriers’ or Borrowers’ payment or defense of lawsuits, and Borrowers hereby
expressly assume full responsibility therefor and all liability, if any, with
respect thereto. Borrowers represent that no claims have been made under any of
such insurance policies, and no party, including a Borrower has done, by act or
omission, anything which would impair the coverage of any of such insurance
policies.

 

ARTICLE 8
DEFAULTS

 

Section 8.1      Event of Default. The occurrence of one or more of the
following events shall be an “Event of Default” hereunder:

 

(a)      if Borrowers fail to (i) make any scheduled payment of principal, or
interest, on any Maturity Date, or (ii) pay any other amount payable pursuant to
the Loan Documents within five (5) calendar days after written notice from
Lender (provided such notice and cure period shall not apply to the payment due
on the Maturity Date);

 

(b)      the occurrence of the events identified elsewhere in this Agreement or
the other Loan Documents as constituting an “Event of Default” hereunder or
thereunder;

 

 23 

 

 

(c)      the occurrence of a Transfer;

 

(d)      if any representation or warranty made herein or in any other Loan
Document, or in any report, certificate, financial statement or other
Instrument, agreement or document furnished by Borrowers in connection with this
Agreement or any other Loan Document shall be false in any material respect as
of the date such representation or warranty was made or remade;

 

(e)      if Borrowers (i) make an assignment for the benefit of creditors, (ii)
have a receiver, liquidator or trustee appointed for them, (iii) are adjudicated
as bankrupt or insolvent, or if any petition for bankruptcy, reorganization or
arrangement pursuant to federal bankruptcy law or any similar federal or state
law shall be filed by or against, consented to, solicited by, or acquiesced in
by them, or (iv) have any proceeding for its insolvency, dissolution or
liquidation instituted against them (any of the foregoing in clauses (i) through
(iv), an “Insolvency Action”); provided, however, that if such Insolvency Action
was involuntary and not consented to by Borrowers , such Insolvency Action shall
not be an Event of Default unless the same is not discharged, stayed or
dismissed within ninety (90) calendar days after the filing or commencement
thereof;

 

(f)       the failure of Borrowers to maintain the insurance required pursuant
to Article 7; or

 

(g)      a default under the MARA PFD, or

 

(h)      a default shall be continuing under any of the other obligations,
agreements, undertakings, terms, covenants, provisions or conditions of this
Agreement not otherwise referred to in this Section 8.1, or under any other Loan
Document, for ten (10) calendar days after written notice to Borrowers, in the
case of any default which can be cured by the payment of a sum of money or for
twenty (20) calendar days after written notice to Borrowers, in the case of any
other default (unless otherwise provided herein or in such other Loan Document);
provided, however, that if such non-monetary default under this clause (i) is
susceptible of cure but cannot reasonably be cured within such twenty (20)
calendar day period and provided further that Borrowers shall have commenced to
cure such default within such twenty (20) calendar day period and thereafter
diligently and expeditiously proceeds to cure the same, such twenty (20)
calendar day period shall be extended for such time as is reasonably necessary
for Borrowers in the exercise of due diligence to cure such default, but in no
event shall such period exceed sixty (60) calendar days after the original
notice.

 

Section 8.2     Remedies. Upon the occurrence and during the continuance of an
Event of Default, all or any one or more of the rights, powers and other
remedies available to Lender against Borrowers under any Loan Document, or at
law or in equity may be exercised by Lender at any time and from time to time
(including the right to accelerate and declare the outstanding Indebtedness to
be immediately due and payable), without notice or demand, whether or not all or
any portion of the Indebtedness shall be declared due and payable.
Notwithstanding anything contained to the contrary herein, the outstanding
Indebtedness shall be accelerated and immediately due and payable, without any
election by Lender upon the occurrence of an Insolvency Action.

 

 24 

 

 

Section 8.3      Remedies Cumulative. The rights, powers and remedies of Lender
under this Agreement shall be cumulative and not exclusive of any other right,
power or remedy which Lender may have against Borrowers pursuant to this
Agreement or the other Loan Documents executed by or with respect to Borrowers,
or existing at law or in equity or otherwise. Lender’s rights, powers and
remedies may be pursued singly, concurrently or otherwise, at such time and in
such order as Lender may determine in Lender’s discretion. No delay or omission
to exercise any remedy, right or power accruing upon an Event of Default shall
impair any such remedy, right or power or shall be construed as a waiver
thereof, but any such remedy, right or power may be exercised from time to time
and as often as may be deemed expedient. A waiver of any Event of Default shall
not be construed to be a waiver of any subsequent Event of Default or to impair
any remedy, right or power consequent thereon.

 

Section 8.4       Intentionally Omitted.

 

Section 8.5      Lender’s Right to Perform. If Borrowers fail to perform any
covenant or obligation contained herein for a period of five (5) Business Days
after Borrowers’ receipt of notice thereof from Lender, without in any way
limiting Section 8.1, Lender may, but shall have no obligation to, perform, or
cause performance of, such covenant or obligation, and the expenses of Lender
incurred in connection therewith shall be payable by Borrowers to Lender upon
demand, together with interest thereon at the Default Rate. Notwithstanding the
foregoing, Lender shall have no obligation to send notice to Borrowers of any
such failure.

 

ARTICLE 9
INTENTIONALLY OMITTED

 

ARTICLE 10
INTENTIONALLY OMITTED

 

ARTICLE 11
INTENTIONALLY OMITTED

 

ARTICLE 12
MISCELLANEOUS

 

Section 12.1   Survival. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the execution and delivery of this Agreement and
the execution and delivery by Borrowers of the Note, and shall continue in full
force and effect so long as any portion of the Indebtedness is outstanding and
unpaid. Whenever in this Agreement any of the parties hereto is referred to,
such reference shall be deemed to include the successors and assigns of such
party. All covenants, promises and agreements in this Agreement contained, by or
on behalf of Borrowers, shall inure to the benefit of the respective successors
and assigns of Lender. Nothing in this Agreement or in any other Loan Document,
express or implied, shall give to any Person other than the parties and the
holder(s) of the Note and the other Loan Documents, and their legal
representatives, successors and assigns, any benefit or any legal or equitable
right, remedy or claim hereunder.

 

 25 

 

 

Section 12.2    Lender’s Discretion. Whenever pursuant to this Agreement or any
other Loan Document, Lender exercises any right, option or election given to
Lender to approve or disapprove, or consent or withhold consent, or any
arrangement or term is to be satisfactory to Lender or is to be in Lender’s
discretion, the decision of Lender to approve or disapprove, consent or withhold
consent, or to decide whether arrangements or terms are satisfactory or not
satisfactory or acceptable or not acceptable to Lender in Lender’s discretion,
shall (except as is otherwise specifically herein provided) be in the sole and
absolute discretion of Lender.

 

Section 12.3    Governing Law; Jurisdiction and Venue.

 

(a)      This Agreement and each of the other Loan Documents shall be
interpreted and enforced according to the laws of the State of New York.

 

(b)      Borrowers hereby consent and submit to the exclusive jurisdiction and
venue of any state or federal court sitting in City of New York with respect to
any legal action or proceeding arising with respect to the Loan Documents and
waive all objections which they may have to such jurisdiction and venue.

 

Section 12.4    Modification, Waiver in Writing. No modification, amendment,
extension, discharge, termination or waiver of any provision of this Agreement,
the Note or any other Loan Document, or consent to any departure by Borrowers
therefrom, shall in any event be effective unless the same shall be in a writing
signed by the party against whom enforcement is sought, and then such waiver or
consent shall be effective only in the specific instance, and for the purpose,
for which given. Except as otherwise expressly provided herein, no notice to or
demand on Borrowers shall entitle Borrowers to any other or future notice or
demand in the same, similar or other circumstances.

 

Section 12.5    Delay Not a Waiver. Neither any failure nor any delay on the
part of Lender in insisting upon strict performance of any term, condition,
covenant or agreement, or exercising any right, power, remedy or privilege under
any Loan Document, or any other instrument given as security therefor, shall
operate as or constitute a waiver thereof, nor shall a single or partial
exercise thereof preclude any other future exercise, or the exercise of any
other right, power, remedy or privilege. In particular, and not by way of
limitation, by accepting payment after the due date of any amount payable under
any Loan Document, Lender shall not be deemed to have waived any right either to
require prompt payment when due of all other amounts due under any Loan
Document, or to declare a default for failure to effect prompt payment of any
such other amount.

 

 26 

 

 

Section 12.6    Notices. All notices, consents, approvals and requests required
or permitted hereunder or under any other Loan Document shall be given in
writing and shall be effective for all purposes if hand delivered or sent by (a)
hand delivery, with proof of attempted delivery, (b) certified or registered
United States mail, postage prepaid, (c) expedited prepaid delivery service,
either commercial or United States Postal Service, with proof of attempted
delivery, or (d) telecopier (with answerback acknowledged) provided that such
telecopied notice must also be delivered by one of the means set forth in (a),
(b) or (c) above, addressed to the parties as follows:

 

  If to Lender: Hutton Ventures LLC     333 Seventh Avenue, 3rd Floor     New
York, NY 10001     Attention:  Manager       Facsimile No.: (212) 656-1214

 

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

 

    Robert A. Schechter, Esq.     Schechter & Hillo, PC     333 Seventh Avenue,
3rd Floor     New York, New York  10001     Facsimile No.:  (212) 245-9101

 

If to Borrowers, to the address set forth on the signature pages hereto.

 

A Party receiving a notice which does not comply with the technical requirements
for notice under this Section 12.6 may elect to waive any deficiencies and treat
the notice as having been properly given. A notice shall be deemed to have been
given: (a) in the case of hand delivery, at the time of delivery; (b) in the
case of registered or certified mail, when delivered or the first attempted
delivery on a Business Day; (c) in the case of expedited prepaid delivery upon
the first attempted delivery on a Business Day; or (d) in the case of telecopier
or email upon being sent.

 

Section 12.7     Waiver of Right to Trial By Jury. BORROWERS HEREBY AGREE NOT TO
ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT
TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST WITH REGARD TO THIS AGREEMENT, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION
ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN
KNOWINGLY AND VOLUNTARILY BY BORROWERS, AND IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY
JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS
PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWERS.

 

Section 12.8     Headings. The Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.

 

Section 12.9     Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.

 

 27 

 

 

Section 12.10    Preferences. Lender shall have the continuing and exclusive
right to apply or reverse and reapply any and all payments by Borrowers to any
portion of the obligations of Borrowers hereunder. To the extent Borrowers make
a payment or payments to Lender for Borrowers’ benefit, which payment or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or proceeds
received, the obligations hereunder or part thereof intended to be satisfied
shall be revived and continue in full force and effect, as if such payment or
proceeds had not been received by Lender.

 

Section 12.11    Waiver of Notice. Borrowers shall not be entitled to any
notices of any nature whatsoever from Lender except with respect to matters for
which this Agreement or the other Loan Documents specifically and expressly
provide for the giving of notice by Lender to Borrowers and except with respect
to matters for which Borrowers are not, pursuant to applicable Legal
Requirements, permitted to waive the giving of notice. Borrowers hereby
expressly waive the right to receive any notice from Lender with respect to any
matter for which this Agreement or the other Loan Documents does not
specifically and expressly provide for the giving of notice by Lender to
Borrowers. Notwithstanding the foregoing and any other waiver of notice set
forth herein, Lender will attempt to provide Borrowers with notice of Lender’s
exercise of Lender’s rights hereunder, it being agreed by Borrowers that the
providing of any such notice shall be for information purposes only and shall
not be required of Lender or restrict or limit the waivers of Borrowers set
forth herein

 

Section 12.12    Remedies of Borrowers. In the event that a claim or
adjudication is made that Lender or its agents, has acted unreasonably or
unreasonably delayed acting in any case where by law or under any Loan Document,
Lender or such agent, as the case may be, has an obligation to act reasonably or
promptly, Borrowers agree that neither Lender nor its agents, shall be liable
for any monetary damages, and Borrowers’ sole remedies shall be limited to
commencing an action seeking injunctive relief or declaratory judgment. The
parties hereto agree that any action or proceeding to determine whether Lender
has acted reasonably shall be determined by an action seeking declaratory
judgment.

 

Section 12.13    Exhibits and Schedules Incorporated. The information set forth
on the cover, heading and recitals hereof, and the Exhibits and Schedules
attached hereto, are hereby incorporated herein as a part of this Agreement with
the same effect as if set forth in the body hereof.

 

Section 12.14    Offsets, Counterclaims and Defenses. Any assignee of Lender’s
interest in and to the Loan Documents shall take the same free and clear of all
offsets, counterclaims or defenses which are unrelated to the Loans, and the
Loan Documents which Borrowers may otherwise have against any assignor, and no
such unrelated counterclaim or defense shall be interposed or asserted by
Borrowers in any action or proceeding brought by any such assignee upon, the
Loan Documents and any such right to interpose or assert any such unrelated
offset, counterclaim or defense in any such action or proceeding is hereby
expressly waived by Borrowers.

 

 28 

 

 

Section 12.15    No Joint Venture or Partnership. Borrowers and Lender intend
that the relationship created hereunder be solely that of borrower and lender.
Nothing herein is intended to create a joint venture, partnership,
tenancy-in-common, or joint tenancy relationship between Borrowers and Lender.

 

Section 12.16     Intentionally Omitted.

 

Section 12.17    Waiver of Counterclaim. Borrowers hereby waive the right to
assert a counterclaim, other than compulsory counterclaim, in any action or
proceeding brought against Borrowers by Lender or Lender’s agents.

 

Section 12.18    Construction of Documents. The Parties hereto acknowledge that
they were represented by counsel in connection with the negotiation and drafting
of the Loan Documents and that the Loan Documents shall not be subject to the
principle of construing their meaning against the Party which drafted the same.

 

Section 12.19    Brokers and Financial Advisors. Borrowers and Lender hereby
represent that they have dealt with no financial advisors, brokers,
underwriters, placement agents, agents or finders in connection with the
transactions contemplated by this Agreement except as disclosed to Lender.
Borrowers hereby agrees to indemnify and hold Lender harmless from and against
any and all Losses relating to or arising from a claim by any Person that such
Person acted on behalf of Borrowers in connection with the transactions
contemplated herein. The provisions of this Section 12.19 shall survive the
expiration and termination of this Agreement and the repayment of the
Indebtedness.

 

Section 12.20     Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.

 

Section 12.21    Estoppel Certificates. Borrowers and Lender each hereby agree
at any time and from time to time, but in no event more than one time per
calendar quarter, upon not less than fifteen (15) calendar days prior written
notice by Borrowers or Lender to execute, acknowledge and deliver to the Party
specified in such notice, a statement, in writing, certifying that this
Agreement is unmodified and in full force and effect (or if there have been
modifications, that the same, as modified, is in full force and effect and
stating the modifications hereto), and stating whether or not, to the knowledge
of such certifying Party, any Event of Default has occurred, and, if so,
specifying each such Event of Default; provided, however, that it shall be a
condition precedent to Lender’s obligation to deliver the statement pursuant to
this Section 12.21, that Lender shall have received, together with Borrowers’
request for such statement, a certificate of Borrowers stating that no Event of
Default exists as of the date of such certificate (or specifying such Event of
Default).

 

Section 12.22    Assignment. Borrowers shall not have the right to assign this
Agreement or any of their rights and obligations hereunder without the prior
written consent of Lender. Lender, without the consent of the Borrowers,
reserves the right to sell, assign, transfer or negotiate any interest in or
grant participations in its rights and benefits hereunder and under any Note or
Loan Documents executed pursuant hereto, of the Loans. Lender may, in connection
therewith, disclose all documents and information which it may have relating to
Borrowers or their business, this Agreement, and any other Loan Documents.

 

 29 

 

 

Section 12.23    Bankruptcy Waiver. Borrowers hereby agree that, in
consideration of the recitals and mutual covenants contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, if Borrowers (i) file with any bankruptcy court of
competent jurisdiction or be the subject of any petition under Title 11 of the
U.S. Code, as amended, (ii) are the subject of any order for relief issued under
Title 11 of the U.S. Code, as amended, (iii) file or are the subject of any
petition seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or law relating to
bankruptcy, insolvency or other relief of Borrowers, (iv) have sought or consent
to or acquiesce in the appointment of any trustee, receiver, conservator or
liquidator or (v) are the subject of any order, judgment or decree entered by
any court of competent jurisdiction approving a petition filed against such
party for any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future federal
or state act or law relating to bankruptcy, insolvency or other relief for
Borrowers, the automatic stay provided by the U.S. Bankruptcy Code shall be
modified and annulled as to Lender, so as to permit Lender to exercise any and
all of its rights and remedies, upon request of Lender made on notice to
Borrowers and any other party in interest but without the need of further proof
or hearing. Neither Borrowers nor any Affiliate of Borrowers shall contest the
enforceability of this Section 12.23.

 

Section 12.24    Entire Agreement. This Agreement, together with the Exhibits
hereto and the other Loan Documents constitutes the entire agreement among the
Parties hereto with respect to the subject matter contained in this Agreement,
the Exhibits hereto and the other Loan Documents and supersedes all prior
agreements, understandings and negotiations between the Parties.

 

Section 12.25     Liability and Indemnification.

 

(a)          Lender shall not be liable for any loss sustained by Borrowers
resulting from any act or omission of any Indemnified Party unless it is finally
judicially determined that such loss was solely caused by the fraud, gross
negligence or willful misconduct of Lender or any Indemnified Party. Lender
shall not be obligated to perform or discharge any obligation, duty or liability
with respect to the ownership, operation and/or maintenance of the Collateral or
under or by reason of any Loan Document.

 

(b)          Borrowers shall jointly and severally indemnify and hold the
Indemnified harmless against any and all Losses, and reimburse them for any
costs and expenses incurred, in connection with, arising out of or as a result
of (i) the negotiation, preparation, execution and delivery of any amendment,
waiver or consent relating to any of the Loan Documents, (ii) the exercise of
any of Lender’s or the Indemnified Parties’ remedies under any Loan Document, or
(iii) any alleged obligations or undertakings to perform or discharge any
obligation, duty or liability with respect to the Collateral, except to the
extent that it is finally judicially determined that any such Loss resulted
directly and solely from the fraud, gross negligence or willful misconduct of
such Indemnified Party. If any Indemnified Party becomes involved in any action,
proceeding or investigation in connection with any matter described in clauses
(i) through (iii) above, Borrowers shall periodically reimburse any Indemnified
Party upon demand therefor in an amount equal to its reasonable legal and other
expenses (including the costs of any investigation and preparation) incurred in
connection therewith to the extent such legal or other expenses are the subject
of indemnification hereunder.

 

 30 

 

 

Section 12.26     Time of the Essence. Time shall be of the essence in the
performance of all obligations of Borrowers hereunder and under each of the
other Loan Documents.

 

Section 12.27     Further Assurances. Borrowers shall execute and deliver to
Lender such documents, instruments, certificates, assignments and other
writings, and do such other acts necessary, to (a) evidence, preserve and/or
protect the Collateral and/or (b) enable Lender to exercise and enforce Lender’s
rights and remedies under any Loan Document, as Lender shall require from time
to time in its discretion.

  

[Signatures on the following pages]

 

 31 

 

 

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed by their duly authorized representatives, all as of the day and year
first above written.

 

BORROWERS:   LENDER:       FONU2, INC. d/b/a Moon River Studios
a Nevada corporation   HUTTON VENTURES, LLC
a Delaware limited liability company           By:   By:   Name:     Name:  
Title:      Title:           MOON RIVER RENTALS, LLC
a Georgia corporation               By:           Name:         Title:         
        STUDIPLEX CITY CREWS, LLC
A Georgia corporation                 By:           Name:         Title:        
          Address for Notices:                  

135 Goshen Road Ext.

 

Suite 205

 

Rincon, GA 31326

 

Attention: Jake Shapiro

     

 

 

 

  

Exhibit A

 

Guaranty

 

See attached

 

 

 

 

Exhibit B

 

Pledge Agreement

 

See attached

 

 

 

 

Exhibit C

 

Assignment of Lease

 

 

 

 

Exhibit D

 

Lease

 

Please see attached Lease as Exhibit D

 

 

 

 

Exhibit E

 

Lockbox Agreement

 

 

 

 

Exhibit F

 

Promissory Note

 

 

 

 

Exhibit G

 

Inter-creditor Agreement

 

 

 

 

Schedule A

 

USE OF PROCEEDS

 

I. Initial Drawn Down Amount: Four Hundred Twenty Nine Thousand Dollars
($429,000)

 

1.     Initial Fee: Sixty Four Thousand Dollars ($64,000).

 

2.     Initial Interest Amount: Fifteen Thousand Dollars ($15,000)

 

3.     Three Hundred Fifty Thousand Dollars ($350,000) for Mara.

 

II. Second Drawn Down Amount: $450,000 plus 6 months of interest reserve.

 

1.     Four Hundred Fifty Thousand Dollars ($450,000) for MARA PFD.

 

2.     Six (6) months of interest

 

 

 

 

Schedule B

 

Permitted Indebtedness

 

A. Unsecured Convertible debt. See attached Convertible Note Log.     B. Secured
Debt in the amount of approximately $320,000 provided by Loeb Term Solutions,
LLC.     C. Secured Debt in the amount of approximately $570,000 provided by
AppleBox Productions, Inc.     D. Secured Debt in the amount of approximately
$510,000 provided by Effingham County Industrial Development Authority.

 

 

 

 

Schedule C

 

Permitted Liens

 

A. Lien on AppleBox Equipment issued to Loeb Term Solutions, LLC in the
principal amount of approximately $320,000.

 

B. Lien on AppleBox Equipment issued to AppleBox Productions, Inc. in the
principal amount of approximately $570,000.

 

C. Lien on the Lease / Promissory Note issued to the Effingham County IDA in the
principal amount of approximately $510,000.

 

 

 

 

Schedule D

 

Intellectual Property

 

Intellectual Property means the collective reference to all rights, priorities
and privileges relating to intellectual property, whether arising under United
States, multinational or foreign laws or otherwise, including without
limitation, (i) all copyrights arising under the laws of the United States, any
other country or any political subdivision thereof, whether registered or
unregistered and whether published or unpublished, all registrations and
recordings thereof, and all applications in connection therewith, including,
without limitation, all registrations, recordings and applications in the United
States Copyright Office, (ii) all letters patent of the United States, any other
country or any political subdivision thereof, all reissues and extensions
thereof, and all applications for letters patent of the United States or any
other country and all divisions, continuations and continuations-in-part
thereof, (iii) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade dress, service marks, logos,
domain names and other source or business identifiers, and all goodwill
associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof, or otherwise, and all common law
rights related thereto, (iv) all trade secrets arising under the laws of the
United States, any other country or any political subdivision thereof, (v) all
rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all
licenses for any of the foregoing, and (vii) all causes of action for
infringement of the foregoing.

 

Without limiting the foregoing, the Intellectual Property includes without
limitation: The Borrowers' rights to Mara, LLC, which includes the script,
copyright, and complete chain of title for the motion picture titled Mara.

 

 

 

 

 

Schedule E

 

Pledged Interests

 

1. All loans and/or recievables made to or due from Mara, LLC

 

2. All equity and profit participation rights from Mara, LLC

 

3. All equity and profit participation rights in any LLC or entity in which
Borrowers have an equity or profit participation rights ownership in.

 

 

 

 

Schedule F

 

Organization Chart

 

 [ex10i_001.jpg]

 

 

 

 

Schedule G

 

Existing Insurance

 

1.  Vehicle Insurance: State Farm     2.  $1,600,000 policy for the grip and
electric gear: The Hanover Group     3. Construction Insurance:     4.
Property/Plant/Equipment Insurance;