Exhibit 10.1

 

SALE OF ACCOUNTS AND SECURITY AGREEMENT

 

This Sale of Accounts and Security Agreement (“Agreement”) is dated this 20th
day of March, 2015, by and among INTERCLOUD SYSTEMS, INC., a Delaware
corporation (“Intercloud”), TNS, INC., an Illinois corporation (“TNS”),
INTEGRATION PARTNERS – NY CORPORATION, a New Jersey corporation (“Integration
Partners”), ADEX CORPORATION, a New York corporation (“Adex”), AW SOLUTIONS,
INC., a Florida corporation (“AW Solutions”, together with Adex, Integration
Partners, TNS and Intercloud, jointly and severally, “Seller”), and FAUNUS GROUP
INTERNATIONAL, INC. (“FGI”), a Delaware corporation.

 

BACKGROUND

 

A. Seller desires to establish a sale of accounts facility with FGI and FGI is
willing to provide such facility to Seller under the terms and provisions
hereinafter set forth.

 

B. The parties desire to define the terms and conditions of their relationship
in writing.

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:

 

SECTION I. DEFINITIONS AND INTERPRETATION

 

1.1.          Terms Defined: As used in this Agreement, the following terms have
the following respective meanings:

 

Acceptable Account - See Exhibit A.

 

Account - Has the definition contained in the UCC and which shall include a
right to payment of a monetary obligation, whether or not earned by performance,
(i) for property that has been or is to be sold, leased, licensed, assigned, or
otherwise disposed of or (ii) for services rendered or to be rendered.

 

Account Debtor - Has the definition contained in the UCC and which includes any
Person who is obligated on an Account, Chattel Paper or General Intangible.

 

Accounting Changes - Changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants (or successor thereto or any agency with similar functions).

 

Advance(s) - Any monies advanced and/or credit extended to Seller by FGI under
this Agreement and the other Transaction Documents.

 

Advance Amount – Means an amount equal to the aggregate Purchase Price of
Purchased Accounts outstanding which Purchased Accounts meet the definition of
an Acceptable Account.

 

Advance Date – The date on which any Advance is made.

 

Advance Percentage – See Exhibit A.

 

 

 

 

Affiliate - With respect to any Person, (a) any Person which, directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person, or (iii)
any person described in clause (a) above. For purposes of this definition,
control of a Person shall mean the power, direct or indirect, (x) to vote 13.0%
or more of the Capital Stock having ordinary voting power for the election of
directors (or comparable equivalent) of such Person, or (y) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise. Control may be by ownership, contract, or otherwise.

 

Anti-Terrorism Laws - Any statute, treaty, law (including common law),
ordinance, regulation, rule, order, opinion, release, injunction, writ, decree
or award of any Governmental Authority relating to terrorism or money
laundering, including Executive Order No. 13224 and the USA Patriot Act.

 

Asset Sale - The sale, transfer, lease, license or other disposition by Seller,
or by any Subsidiary of Seller, to any Person other than Seller, of any Property
now owned, or hereafter acquired, of any nature whatsoever in any transaction or
series of related transactions other than the sale of Inventory in the ordinary
course of business. An Asset Sale includes, but is not limited to, a merger,
consolidation, division, conversion, dissolution or liquidation.

 

Authorized Officer - Any officer (or comparable equivalent) of Seller authorized
by specific resolution of Seller to request Advances or execute Compliance
Certificates.

 

Avoidance Claim - Any claim that any payment received by FGI from or for the
account of an Account Debtor is avoidable or subject to change under the
Bankruptcy Code or any other debtor relief statute, whether domestic or foreign.

 

Bankruptcy Code - Title 11 of the United States Code, as in effect from time to
time.

 

Base Rate – See Exhibit A.

 

Blocked Person - Any of the following: (a) a Person that is listed in the annex
to, or is otherwise subject to the provisions of, the Executive Order No. 13224;
(b) a Person owned or controlled by, or acting for or on behalf of, any Person
that is listed in the annex to, or is otherwise subject to the provisions of,
the Executive Order No. 13224; (c) a Person with which FGI is prohibited from
dealing or otherwise engaging in any transaction by any Anti-Terrorism Law; (d)
a Person that commits, threatens or conspires to commit or supports “terrorism”
as defined in the Executive Order No. 13224; (e) a Person that is named as a
“specially designated national” on the most current list published by the U.S.
Treasury Department Office of Foreign Asset Control at its official website or
any replacement website or other replacement official publication of such list;
or (f) a Person who is affiliated with a Person listed above.

 

Business Day - A day other than Saturday or Sunday or other day on which banks
are authorized or required to close in the State of New York when FGI is open
for business in New York, New York.

 

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Capitalized Lease Obligations - Any Indebtedness represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP, consistently applied.

 

Capital Stock - Any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
other ownership interests in a Person (other than a corporation) and any and all
warrants or options to purchase any of the foregoing.

 

Change of Control – (a) during any period of 12 consecutive months, a majority
of the members of the board of directors of Intercloud cease to be composed of
individuals (i) who were members of that board or equivalent governing body on
the first day of such period, (ii) whose election or nomination to that board
was approved by individuals referred to in clause (i) above constituting at the
time of such election or nomination at least a majority of that board, or (iii)
whose election or nomination to that board was approved by individuals referred
to in clauses (i) and (ii) above constituting at the time of such election or
nomination at least a majority of that board; (b) either (i) Mark Munro shall
cease to hold office as or perform the day-to-day duties of the Chief Executive
Officer of Intercloud or (ii) Timothy A. Larkin shall cease to hold office as or
perform the day-to-day duties of the Chief Financial Officer of Intercloud,
unless in either case (i) or (ii) of this subsection (b), prior to such event,
Intercloud shall have retained a replacement officer in place of such individual
who is acceptable to FGI as evidenced by FGI’s written consent; (c) any merger,
consolidation or sale of substantially all of the property or assets of Seller;
(d) an event or series of events by which any “person” or “group” (as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any
employee benefit plan of such person or its subsidiaries, and any person or
entity acting in its capacity as trustee, agent or other fiduciary or
administrator of any such plan) becomes the “beneficial owner” (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group
shall be deemed to have “beneficial ownership” of all securities that such
person or group has the right to acquire, whether such right is exercisable
immediately or only after the passage of time (such right, an “option right”)),
directly or indirectly, of more than 50.00% of the Equity Interests of
Intercloud entitled to vote for members of the board of directors or equivalent
governing body of Intercloud on a fully-diluted basis (and taking into account
all such securities that such person or group has the right to acquire pursuant
to any option right); or (e) the failure of Intercloud to own directly or
indirectly, beneficially and of record, 100.00% of the aggregate ordinary voting
power and economic interests represented by the issued and outstanding Equity
Interests of each of its Subsidiaries.

 

Chattel Paper - Has the definition contained in the UCC.

 

Closing Date – The date of this Agreement.

 

Collateral - All of the Property and interests in Property described in Section
3.1, and all Proceeds thereof, and all other Property, and interests in Property
that now or hereafter secure payment of the Obligations and satisfaction by
Seller of all covenants and undertakings contained in this Agreement and the
other Transaction Documents.

 

Compliance Certificate – A compliance certificate in the form of Exhibit B
attached hereto and made part hereof.

 

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Confidential Information - This Agreement and any other documents, instruments
and agreements executed in connection herewith or related hereto and, with
respect to a party, information about hardware, software, screens,
specifications, designs, plans, drawings, data, prototypes, discoveries,
research, developments, methods, processes, procedures, improvements,
“know-how”, compilations, market research, marketing techniques and plans,
business plans and strategies, customer names and all other information related
to customers, price lists, pricing policies and financial information or other
business and/or technical information and materials, in oral, demonstrative,
written, graphic or machine-readable form, which is unpublished, not available
to the general public or trade, and maintained as confidential and proprietary
information by the disclosing party for regulatory, customer relations, and/or
competitive reasons. Confidential Information also includes such confidential
and proprietary information or material belonging to a disclosing party or to
which the other party may obtain knowledge or access through or as a result of
the performance of its obligations under this Agreement.

 

Control Agreement - Each control agreement entered into among Seller, FGI and a
financial institution acceptable to FGI, as each may be amended, modified,
restated or extended from time to time.

 

Controlled Account – A deposit account (a) over which FGI has “control” for
purposes of Article 9 of the UCC, or (b) with respect to which FGI is the
depositary bank’s customer.

 

Currency Due – Section 9.23.

 

Date of Collection - Section 2.2(b).

 

Default - Any event, act, condition or occurrence which with notice, or lapse of
time or both, would constitute an Event of Default hereunder.

 

Dilution - For any period of time the percentage obtained by dividing (a) the
aggregate amount of credit memos, discounts, accrued credits, rebates, reserves
and other downward adjustments to the original invoiced price of Inventory sold
or services rendered by Seller during such period, by (b) gross collections for
such period, all as determined by FGI.

 

Dilution Percentage - See Exhibit A.

 

Dispute or Disputed Account - Any claim, whether or not provable, bona fide, or
with or without support, made by an Account Debtor as a basis for refusing to
pay a Purchased Account, either in whole or in part, including, but not limited
to, any contract dispute, charge back, credit, right to return Goods, or other
matter which diminishes or may diminish the dollar amount or timely collection
of such Account.

 

Distribution – (a) Cash dividends or other cash distributions on any now or
hereafter outstanding Capital Stock of Seller; (b) the redemption, repurchase,
defeasance or acquisition of such Capital Stock or of warrants, rights or other
options to purchase such Capital Stock; and (c) any loans or advances (other
than salaries), to any shareholder(s), partner(s) or member(s) of Seller.

 

Dollars or $ means United States dollars.

 

Environmental Laws - Any and all Federal, foreign, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees and any
and all common law requirements, rules and bases of liability regulating,
relating to or imposing liability or standards of conduct concerning pollution,
protection of the environment, or the impact of pollutants, contaminants or
toxic or hazardous substances on human health or the environment, as now or may
at any time hereafter be in effect.

 

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Equity Interests - means, with respect to any Person, any and all shares, rights
to purchase, options, warrants, general, limited or limited liability
partnership interests, member interests, participation or other equivalents of
or interest in (regardless of how designated) equity of such Person, whether
voting or nonvoting, including common stock, preferred stock, convertible
securities or any other “equity security” (as such term is defined in Rule
3a11-1 of the General Rules and Regulations promulgated by the SEC under the
Exchange Act), including in each case all of the following rights relating to
such Equity Interests, whether arising under the organizational documents of the
Person issuing such Equity Interests (the “issuer”) or under the applicable laws
of such issuer’s jurisdiction of organization relating to the formation,
existence and governance of corporations, limited liability companies or
partnerships or business trusts or other legal entities, as the case may be: (i)
all economic rights (including all rights to receive dividends and
distributions) relating to such Equity Interests; (ii) all voting rights and
rights to consent to any particular action(s) by the applicable issuer; (iii)
all management rights with respect to such issuer; (iv) in the case of any
Equity Interests consisting of a general partner interest in a partnership, all
powers and rights as a general partner with respect to the management,
operations and control of the business and affairs of the applicable issuer; (v)
in the case of any Equity Interests consisting of the membership/limited
liability company interests of a managing member in a limited liability company,
all powers and rights as a managing member with respect to the management,
operations and control of the business and affairs of the applicable issuer;
(vi) all rights to designate or appoint or vote for or remove any officers,
directors, manager(s), general partner(s) or managing member(s) of such issuer
and/or any members of any board of members/managers/partners/directors that may
at any time have any rights to manage and direct the business and affairs of the
applicable issuer under its organizational documents as in effect from time to
time or under applicable law; (vii) all rights to amend the organizational
documents of such issuer, (viii) in the case of any Equity Interests in a
partnership or limited liability company, the status of the holder of such
Equity Interests as a “partner”, general or limited, or “member” (as applicable)
under the applicable organizational documents and/or applicable law; and (ix)
all certificates evidencing such Equity Interests.

 

ERISA - The Employee Retirement Income Security Act of 1974, as the same may be
amended, from time to time.

 

Event of Default - Section 8.1.

 

Exchange Act - The Securities Exchange Act of 1934, as amended.

 

Executive Order No. 13224 - The Executive Order No. 13224 on Terrorist
Financing, effective September 24, 2001, as the same has been, or shall
hereafter be, renewed, extended, amended or replaced.

 

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Expenses – All of the following: (a) legal fees, banking fees and expenses of
FGI related to the analysis, administration, termination, preparation,
negotiation, documentation, execution, filing or delivery of this Agreement or
any other Transaction Document and any and all waivers, amendments or
modifications of any of the Transaction Documents or any of the terms and
provisions thereof and any and all client reviews, field examinations,
appraisals, audits, inspections, UCC, tax lien and judgment lien searches
conducted under this Agreement or any other Transaction Documents, (b) all fees
(including without limitation, legal fees and expenses), costs and other
expenses of FGI incurred in connection with collection of the Obligations, the
maintenance or preservation of the security interest in the Collateral, the
sale, disposition or other realization on the Collateral, or the enforcement of
FGI’s rights hereunder or under any Transaction Document, including, without
limitation, such fees, costs and expenses incurred by FGI which FGI, in its
reasonable business judgment, deems reasonably necessary to preserve or protect
the business conducted by Seller, the Collateral, or any portion thereof, (c)
all fees (including without limitation, legal fees and expenses), costs and
other expenses of FGI incurred in connection with the prosecution or defense of
any action in any way related to this Agreement or any other Transaction
Document, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
insolvency or bankruptcy proceeding (including without limitation, any adversary
proceeding, contested matter or motion brought by FGI or any other Person)
relating to Seller or any other Person and (d) any and all stamp and other taxes
or filing fees payable or determined to be payable in connection with the
execution and delivery of this Agreement, the Collateral and other documents to
be delivered hereunder, and agrees to save FGI harmless from and against any and
all liabilities with respect to or resulting from any delay in payment or
omission to pay such taxes (collectively, the “Expenses”).

 

Facility Amount – See Exhibit A.

 

Foreign Currency – Section 9.24.

 

Foreign Exchange Loss – Section 9.24.

 

GAAP - Generally accepted accounting principles as in effect on the Closing Date
applied in a manner consistent with the most recent audited financial statements
of Seller furnished to FGI and described in Section 5.7 herein.

 

General Intangibles - Has the definition contained in the UCC.

 

Goods - Has the definition contained in the UCC.

 

Governmental Authority - Any federal, state or local government or political
subdivision, or any agency, authority, bureau, central bank, commission,
department or instrumentality of either, or any court, tribunal, grand jury, or
arbitration.

 

Guarantors - See Exhibit A.

 

Guaranty Agreement – That certain guaranty agreement to be executed by each
Guarantor in favor of FGI, in form and substance satisfactory to FGI, on or
prior to the Closing Date.

 

Hazardous Substances - Any substances defined or designated as hazardous or
toxic waste, hazardous or toxic material, hazardous or toxic substance or
similar term, under any Environmental Law.

 

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Hedging Agreements - Any interest rate protection agreement, foreign currency
exchange agreement, commodity purchase or option agreement, or any other
interest rate hedging device or swap agreement (as defined in 11 U.S.C. § 101
et. seq.).

 

Indebtedness - Of any Person at any date, without duplication, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices), (ii) any other indebtedness of such Person which is evidenced by a
note, bond, debenture or similar instrument, (iii) all Capitalized Lease
Obligations of such Person, (iv) the face amount of all letters of credit issued
for the account of such Person and all drafts drawn thereunder, (v) all
obligations of other Persons which such Person has guaranteed, (vi) all
Obligations of such Person under Hedging Agreements, and (vii) all liabilities
secured by any Lien on any property owned by such Person even though such Person
has not assumed or otherwise become liable for the payment thereof.

 

Insolvency Proceeding - Any proceeding commenced by or against any Person under
any provision of the Bankruptcy Code or under any other state or federal
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.

 

Instrument - Has the definition contained in the UCC.

 

Intercreditor Agreements – All Intercreditor and Subordination Agreements
entered into by and between FGI and any holder of Subordinated Debt, as the same
may be amended, restated, supplemented, or otherwise modified from time to time.

 

Interest Rate – See Exhibit A.

 

Inventory - Has the definition contained in the UCC.

 

Investment Property - Has the definition contained in the UCC.

 

IRS - Internal Revenue Service.

 

Judgment Currency – Section 9.23.

 

Letter-of-Credit Rights - Has the definition contained in the UCC.

 

Lien - Any interest of any kind or nature in property securing an obligation
owed to, or a claim of any kind or nature in property by, a Person other than
the owner of the Property, whether such interest is based on the common law,
statute, regulation or contract, and including, but not limited to, a security
interest or lien arising from a mortgage, encumbrance, pledge, conditional sale
or trust receipt, a lease, consignment or bailment for security purposes, a
trust, or an assignment. For the purposes of this Agreement, Seller shall be
deemed to be the owner of any Property which it has acquired or holds subject to
a conditional sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes.

 

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Material Adverse Effect - A material adverse effect with respect to (a) the
business, assets, properties, financial condition, stockholders’ equity,
contingent liabilities, prospects, material agreements or results of operations
of Seller, or (b) Seller’s ability to pay the Obligations in accordance with the
terms hereof, or (c) the validity or enforceability of this Agreement or any of
the other Transaction Documents or the rights and remedies of FGI hereunder or
thereunder.

 

Maturity Date – See Exhibit A.

 

Minimum Net Funds - See Exhibit A.

 

Misdirected Payment Fee – See Exhibit A.

 

Net Invoice Amount - The invoice amount of the Purchased Account, less returns
(whenever made), all selling discounts (at FGI’s sole option, calculated on
shortest terms), and credit or deductions of any kind allowed or granted to or
taken by the Account Debtor at any time.

 

Obligations - All existing and future debts, liabilities and obligations of
every kind or nature at any time owing by Seller to FGI or any other subsidiary
or Affiliate of FGI, whether under this Agreement, or any other existing or
future instrument, document or agreement, between Seller or FGI or any other
subsidiary or Affiliate of FGI, direct or indirect, liquidated or unliquidated,
secured or unsecured, original or renewed or extended, whether joint or several,
related or unrelated, primary or secondary, matured or contingent, due or to
become due (including debts, liabilities and obligations obtained by
assignment), and whether principal, interest, fees, indemnification obligations
hereunder or Expenses (specifically including interest accruing after the
commencement of any bankruptcy, insolvency or similar proceeding with respect to
Seller, whether or not a claim for such post-commencement interest is allowed),
including, without limitation, debts, liabilities and obligations in respect of
this Agreement, and any extensions, modifications, substitutions, increases and
renewals thereof; the payment of all amounts advanced by FGI or any other
subsidiary or Affiliate of FGI to preserve, protect and enforce rights hereunder
and in the Collateral; and all Expenses incurred by FGI or any other subsidiary
or Affiliate of FGI. Without limiting the generality of the foregoing,
Obligations shall include any other debts, liabilities or obligations owing to
FGI and any other subsidiary or Affiliate of FGI in connection with any other
loan, advances or extension of credit, under any existing or future loan
agreement, promissory note, or other instrument, document or agreement between
Seller and FGI or any other subsidiary or Affiliate of FGI.

 

Payment Location – See Exhibit A.

 

PBGC - The Pension Benefit Guaranty Corporation.

 

Permitted Indebtedness – See Exhibit A.

 

Permitted Investments - See Exhibit A.

 

Permitted Liens - (a) Liens securing taxes, assessments or governmental charges
or levies or the claims or demands of materialmen, mechanics, carriers,
warehousemen, and other like persons, each to the extent not yet due; (b) Liens
incurred or deposits made in the ordinary course of business in connection with
workers’ compensation, unemployment insurance, social security and other like
laws; (c) Liens on fixed assets securing purchase money Indebtedness permitted
under Section 7.6; (d) Liens existing on the Closing Date and shown on Schedule
1.1(b) attached hereto and made part hereof; (e) Liens securing Subordinated
Debt, subject to the provisions of the Intercreditor Agreements.

 

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Permitted Tax Distributions – See Exhibit A.

 

Person - An individual, partnership, corporation, trust, limited liability
company, limited liability partnership, unincorporated association or
organization, joint venture, unlimited liability company, joint venture
government or any agency or political subdivision thereof or any other entity.

 

Property - Any interest of Seller in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.

 

Public Reports – Seller’s reports filed with the United States Securities and
Exchange Commission and publicly available on www.sec.gov.

 

Purchase Date – Section 9.24.

 

Purchase Price - Section 2.2(a).

 

Purchased Account(s) - All Accounts acquired or originated by Seller.

 

Related Rights – With respect to Accounts, the benefit of all insurances, all
negotiable and non-negotiable instruments, all securities, bonds guarantees and
indemnities, any security interests securing the Account, all collections and
rights to collection on the Account, all books and records relating thereto or
evidencing thereof and all other proceeds thereof.

 

Required Reserve Amount - The Reserve Percentage multiplied by the unpaid
balance of all Purchased Accounts and as such amount may change in accordance
herewith.

 

Reserve Account - (a) A bookkeeping account on the books of FGI and/or (b) an
account of FGI in which FGI deposits the Required Reserve Amount from time to
time, in either case representing an unpaid portion of the Purchase Price,
maintained by FGI to ensure Seller’s performance with the provisions hereof.

 

Reserve Percentage – See Exhibit A.

 

Reserve Shortfall - The amount by which the Reserve Account is less than the
Required Reserve Amount; provided that if the Reserve Account has a negative
balance the Reserve Shortfall shall be the sum of such balance and the Required
Reserve Amount.

 

Schedule of Accounts - A schedule of Accounts in a form supplied by FGI from
time to time wherein Seller lists all the existing Accounts of Seller, which
Seller is required to offer for sale to FGI under the terms of this Agreement.

 

SEC - The Securities and Exchange Commission or any successor thereto.

 

Subordinated Debt – Indebtedness of Seller that is (a) subject to payment terms
and subordination provisions acceptable to FGI in FGI’s sole and absolute
discretion, and (b) subordinated to the Obligations subject to the Intercreditor
Agreements.

 

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Subsidiary - With respect to any Person at any time, (i) any corporation more
than 50% of whose voting stock is legally and beneficially owned by such Person
or owned by a corporation more than 50% of whose voting stock is legally and
beneficially owned by such Person; (ii) any trust of which a majority of the
beneficial interest is at such time owned directly or indirectly, beneficially
or of record, by such Person or one or more Subsidiaries of such Person; and
(iii) any partnership, joint venture, limited liability company or other entity
of which ownership interests having ordinary voting power to elect a majority of
the board of directors or other Persons performing similar functions are at such
time owned directly or indirectly, beneficially or of record, by, or which is
otherwise controlled directly, indirectly or through one or more intermediaries
by, such Person or one or more Subsidiaries of such Person.

 

Supporting Obligation - Has the definition contained in the UCC.

 

Termination Fee - A fee payable to FGI in the event that either (a) Seller
terminates this Agreement prior to the Maturity Date or (b) FGI terminates this
Agreement following the occurrence of an Event of Default prior to the Maturity
Date.

 

Transaction Documents – Collectively, this Agreement, the Guaranty Agreement,
the Intercreditor Agreements, and all agreements, instruments and documents
executed and/or delivered in connection therewith, all as may be supplemented,
restated, superseded, amended or replaced from time to time.

 

UCC - The Uniform Commercial Code as adopted in the State of New York, as the
same may be amended from time to time.

 

Any other capitalized terms used without further definition herein shall have
the respective meaning set forth in the UCC.

 

1.2. Accounting Principles: Where the character or amount of any asset or
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, this shall be done in accordance with GAAP,
consistently applied, to the extent applicable, except as otherwise expressly
provided in this Agreement; provided, however, that if Seller notifies FGI that
Seller requests an amendment to any provision hereof to eliminate the effect of
any Accounting Change occurring after the date of this Agreement or in the
application thereof on the operation of such provision or if FGI notifies Seller
that FGI requests an amendment to any provision hereof for such purpose,
regardless of whether any such notice is given before or after such Accounting
Change or in the application thereof, then FGI and Seller agree that they will
negotiate in good faith amendments to the provisions of this Agreement that are
directly affected by such Accounting Change with the intent of having the
respective positions of FGI and Seller after such Accounting Change conform as
nearly as possible to their respective positions as of the date of this
Agreement and, until any such amendments have been agreed upon and agreed to by
FGI, the provisions in this Agreement shall be calculated as if no such
Accounting Change had occurred. When used herein, the term “financial
statements” shall include the notes and schedules thereto. Whenever the term
“Seller” is used in respect of a financial covenant or a related definition, it
shall be understood to mean Seller and its Subsidiaries on a consolidated basis,
unless the context clearly requires otherwise.

 

1.3. Construction: No doctrine of construction of ambiguities in agreements or
instruments against the interests of the party controlling the drafting shall
apply to any Transaction Documents.

 

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SECTION II. THE PURCHASE FACILITY

 

2.1.        Purchase Facility:

 

a. Seller hereby offers to sell, assign, transfer, convey and deliver to FGI, as
absolute owner, in accordance with the procedure detailed herein, all of
Seller’s right, title and interest in and to Seller’s Accounts and their Related
Rights subject to Section 2.2(d) hereof. Seller acknowledges and agrees that FGI
has no obligation to purchase any Account from Seller hereunder or to otherwise
make any Advance to Seller hereunder but rather that FGI, in its sole and
absolute discretion and upon satisfaction of the conditions specified in Section
4.3 below, may purchase Accounts from Seller hereunder or otherwise make
Advances to Seller hereunder.

 

b. All Accounts shall be submitted to FGI on a Schedule of Accounts listing each
Account separately. The Schedule of Accounts shall be signed by a person acting
or purporting to act on behalf of Seller. At the time a Schedule of Accounts is
presented, Seller shall also deliver to FGI one copy of the sales contract,
purchase order, and invoice for each Account listed on the Schedule of Accounts
together with evidence of shipment, furnishing and/or delivery of the applicable
Goods or the applicable rendition of service(s). Accounts shall be included in
the Schedule of Accounts within ten (10) days of origination.

 

c. The purchase by FGI of Purchased Accounts shall be on a full recourse basis,
and the Seller shall retain all risk of nonpayment with respect thereto. Each
Purchased Account(s) assigned to and purchased by FGI is with full recourse to
Seller and at Seller’s sole credit risk.

 

d. Seller may, and at FGI’s request from time to time with respect to any
Purchased Account specified by FGI will, deliver to FGI a specific assignment of
an Account submitted by Seller to it (including a Purchased Account) in a form
specified by FGI.

 

e. FGI reserves the right, in its sole and absolute discretion, to obtain credit
insurance in its name, at Seller’s sole cost and expense, with respect to each
specific Purchased Account (in each case with such insurance companies, in such
amounts and with such coverage as determined by FGI in its sole and absolute
discretion) with the proceeds of such insurance being the sole and exclusive
property of FGI. Payments on such credit insurance received by FGI with respect
to such Purchased Account shall either be applied to the Seller’s repurchase
obligations with respect to such Purchased Account or otherwise applied to the
Reserve Account.

 

f. FGI shall have the right to charge back to Seller’s Reserve Account the
amount of such Purchased Accounts at any time and from time to time either
before or after their maturity. Seller agrees to pay FGI upon demand the full
amount thereof, together with all expenses incurred by FGI up to the date of
such payment, including reasonable attorney’s fees in attempting to collect or
enforce such payment or payment of such Account(s).

 

g. This Agreement shall evidence Seller’s unconditional obligation to repay FGI
for all Advances made under this Agreement and the other Transaction Documents,
with interest as herein provided. FGI, as a non-fiduciary agent for Seller,
shall maintain a register showing the principal amount of the Advances, owing to
FGI from time to time and shall, absent manifest error, conclusively be presumed
to be correct and accurate. Seller acknowledges that there is no, and it will
not seek or attempt to establish any, fiduciary relationship between FGI and
Seller, and Seller waives any right to assert, now or in the future, the
existence or creation of any fiduciary relationship between FGI and Seller in
any action or proceeding (whether by way of claim, counterclaim, cross-claim or
otherwise) for damages.

 

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h. The term of the purchase facility established hereunder shall expire on the
Maturity Date. On such date, unless having been sooner accelerated by FGI
pursuant to the terms hereof, all Obligations shall be due and payable in full,
and as of and after such date Seller shall not request and FGI shall not be
obligated to make any further Advances. Notwithstanding the foregoing, this
Agreement shall continue to be extended automatically for the same term
initially provided hereunder from the Closing Date to the Maturity Date unless
written notice of termination is given by one party hereto to the other party
hereto at least sixty (60) days, but not more than ninety (90) days, prior to
the Maturity Date or any extension thereof. Any such notice of termination shall
be conditioned upon payment in full of all Obligations by Seller, and an
exchange of releases in a form reasonably satisfactory to FGI and Seller. Seller
understands that this provision constitutes a waiver of its rights under § 9-513
of the UCC. FGI shall not be required to record any terminations or
satisfactions of any of FGI’s liens on the Collateral unless and until Seller
(or any assignee pursuant to an assignment for the benefit of creditors) has
executed and delivered to FGI said general release and Seller shall have no
authority to do so without FGI’s express written consent. Any termination of
this Agreement shall not affect FGI’s security interest in the Collateral and
FGI’s ownership of the Purchased Accounts, and this Agreement shall continue to
be effective, until all transactions entered into and Obligations incurred
hereunder have been completed and satisfied in full. Notwithstanding anything to
the contrary, and assuming no default by Seller in which event FGI may terminate
without notice, FGI may terminate this Agreement at any time by giving not less
than thirty (30) days’ notice in which event, Seller shall not be obligated to
pay any Termination Fee.

 

2.2.        Purchase Price, Advances and Payments:

 

a. The purchase price that FGI pays to Seller for each Purchased Account and its
Related Rights shall equal the Net Invoice Amount of such Purchased Account less
any fees, actual or estimated, that are payable to FGI hereunder (the “Purchase
Price”). No discount, credit, allowance or deduction with respect to any
Purchased Account, unless shown on the face of the invoice delivered to FGI
prior to FGI’s purchase of such Account, shall be granted or approved by Seller
to any Account Debtor in a manner that would increase Dilution and no return of
Inventory shall be accepted by Seller without FGI’s prior written consent. A
discount, credit or allowance may be claimed only by the Account Debtor.

 

b. The Purchase Price for a Purchased Account and its Related Rights shall be
payable by FGI to Seller on the date a check, draft or other item representing
payment on such Account is received by FGI plus three (3) business days (the
“Date of Collection”). The following amounts shall be remitted to Seller from
time to time at the discretion of FGI: (i) any Required Reserve Amount or credit
balance that FGI, in FGI’s sole and absolute discretion, determines to hold, and
(ii) the outstanding balance of all Advances in respect of such Account and of
any other moneys remitted, paid, or otherwise advanced by FGI to or on behalf of
Seller.

 

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c. FGI shall be entitled, in its sole and absolute discretion, to withhold the
Required Reserve Amount, and may increase or decrease the Required Reserve
Amount or Reserve Percentage at any time and from time to time if FGI deems it
necessary to do so in order to protect FGI’s interests. In no event shall Seller
permit a Reserve Shortfall to occur and shall pay to FGI the amount thereof on
demand. FGI may charge against the Reserve Account any amount for which Seller
may be obligated to FGI at any time, whether under the terms of this Agreement
or otherwise pursuant to applicable law, including but not limited to the
repayment of any Advance, the amount of any Purchased Account not constituting
an Acceptable Account, any damages suffered by FGI as a result of Seller’s
breach of any representation or warranty herein or of any other provision hereof
(whether intentional or unintentional), any adjustments due and any attorneys’
fees, costs and disbursements due. Seller recognizes that the Reserve Account
may, in FGI’s sole discretion, represent bookkeeping entries only and not cash
funds. It is further agreed that with respect to the balance in the Reserve
Account, FGI is authorized to withhold, without giving prior notice to Seller,
any payments and credits otherwise due to Seller under the terms of this
Agreement to protect FGI for reasonably anticipated claims or to adequately
satisfy reasonably anticipated obligation Seller may owe FGI. Upon the
occurrence of an Event of Default, or, in the event Seller shall cease selling
Accounts to FGI, FGI shall be under no obligation to pay the amount maintained
in the Reserve Account until all Purchased Accounts listed on all Schedules of
Accounts have been collected or FGI has determined, in its sole and absolute
discretion, that it will make no further efforts to collect any Accounts and all
sums due FGI hereunder have been paid.

 

d. In FGI’s sole and absolute discretion FGI may from time to time advance to
Seller against the Purchase Price of Purchased Accounts; provided the aggregate
amount of Advances shall not exceed at any time an amount equal to the lesser of
(i) the Facility Amount or (ii) the Advance Percentage of the Advance Amount.
Each Advance shall be payable by Seller to FGI on demand until the Date of
Collection of the related Purchased Account and shall bear interest at the
Interest Rate before and after default and judgment, with interest on overdue
interest at the same rate from the date such Advance is made until earlier of
(i) the date the Advance is repaid in full or (ii) the date FGI would otherwise
be obligated hereunder to pay the Purchase Price of the Purchased Account
against which such Advance was made.

 

e. IT IS THE INTENTION OF THE PARTIES HERETO THAT AS TO ALL PURCHASED ACCOUNTS,
THE TRANSACTIONS CONTEMPLATED HEREBY SHALL CONSTITUTE A TRUE PURCHASE AND SALE
OF SUCH ACCOUNT(S) UNDER § 9-318 OF THE UCC AND AS SUCH, THE SELLER SHALL HAVE
NO LEGAL OR EQUITABLE INTEREST IN THE ACCOUNTS SOLD. NEVERTHELESS, IN THE EVENT
ALL OR ANY PORTION OF THIS TRANSACTION IS CHARACTERIZED AS A LOAN, THE PARTIES
HERETO INTEND TO CONTRACT IN STRICT COMPLIANCE WITH APPLICABLE USURY LAW FROM
TIME TO TIME IN EFFECT. IN FURTHERANCE THEREOF SUCH PARTIES STIPULATE AND AGREE
THAT NONE OF THE TERMS AND PROVISIONS CONTAINED IN THIS AGREEMENT SHALL EVER BE
CONSTRUED TO CREATE A CONTRACT TO PAY, FOR THE USE, FORBEARANCE OR DETENTION OF
MONEY, INTEREST IN EXCESS OF THE MAXIMUM RATE (AS HEREINAFTER DEFINED) FROM TIME
TO TIME IN EFFECT. NEITHER SELLER, ANY PRESENT OR FUTURE GUARANTOR OR ANY OTHER
PERSON HEREAFTER BECOMING LIABLE FOR THE PAYMENT OF THE ADVANCES, SHALL EVER BE
LIABLE FOR ANY OBLIGATION THAT MAY BE CHARACTERIZED AS UNEARNED INTEREST THEREON
OR SHALL EVER BE REQUIRED TO PAY ANY OBLIGATION THAT MAY BE CHARACTERIZED AS
INTEREST THEREON IN EXCESS OF THE MAXIMUM AMOUNT THAT MAY BE LAWFULLY CHARGED
UNDER APPLICABLE LAW FROM TIME TO TIME IN EFFECT, AND THE PROVISIONS OF THIS
SECTION SHALL CONTROL OVER ALL OTHER PROVISIONS OF THIS AGREEMENT WHICH MAY BE
IN CONFLICT THEREWITH. IF ANY INDEBTEDNESS OR OBLIGATION OWED BY SELLER
HEREUNDER IS DETERMINED TO BE IN EXCESS OF THE LEGAL MAXIMUM, OR FGI SHALL
OTHERWISE COLLECT MONEYS WHICH ARE DETERMINED TO CONSTITUTE INTEREST WHICH WOULD
OTHERWISE INCREASE THE INTEREST ON ALL OR ANY PART OF SUCH OBLIGATIONS TO AN
AMOUNT IN EXCESS OF THAT PERMITTED TO BE CHARGED BY APPLICABLE LAW THEN IN
EFFECT, THEN ALL SUCH SUMS DETERMINED TO CONSTITUTE INTEREST IN EXCESS OF SUCH
LEGAL LIMIT SHALL, WITHOUT PENALTY, BE PROMPTLY APPLIED TO REDUCE THE THEN
OUTSTANDING INDEBTEDNESS OR OBLIGATIONS OR, AT FGI’S OPTION, RETURNED TO SELLER
OR THE OTHER PAYOR THEREOF UPON SUCH DETERMINATION. IF AT ANY TIME THE RATE AT
WHICH INTEREST IS PAYABLE HEREUNDER EXCEEDS THE MAXIMUM RATE, THE AMOUNT
OUTSTANDING HEREUNDER SHALL CEASE BEARING INTEREST UNTIL SUCH TIME AS THE TOTAL
AMOUNT OF INTEREST ACCRUED HEREUNDER EQUALS (BUT DOES NOT EXCEED) THE MAXIMUM
RATE APPLICABLE HERETO. AS USED IN THIS SECTION, THE TERM “APPLICABLE LAW” MEANS
THE LAWS OF THE STATE OF NEW YORK OR, IF DIFFERENT, THE LAWS OF THE STATE OR
TERRITORY IN WHICH THE SELLER RESIDES, WHICHEVER LAW ALLOWS THE GREATER RATE OF
INTEREST, AS SUCH LAWS NOW EXIST OR MAY BE CHANGED OR AMENDED OR COME INTO
EFFECT IN THE FUTURE AND THE TERM “MAXIMUM RATE” MEANS THE MAXIMUM NONUSURIOUS
RATE OF INTEREST THAT FGI IS PERMITTED UNDER APPLICABLE LAW TO CONTRACT FOR,
TAKE, CHARGE OR RECEIVE WITH RESPECT TO THE ADVANCES OR ANY OTHER OBLIGATIONS.

 

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f. Upon FGI’s acceptance of each Purchased Account in accordance herewith, FGI
shall be the sole owner and holder of such Purchased Account. Seller hereby
sells, transfers, conveys and assigns to FGI all of its right, title and
interest in and to each Purchased Account effective at the time of acceptance
thereof by FGI. Seller agrees to execute and deliver to each Account Debtor
obligated under an Account and/or a Purchased Account such written notice of
sale of the Purchased Account as FGI may request in the form attached hereto as
Exhibit D or in such form as required by FGI.

 

g. FGI shall provide Seller online access via a secured website to information
on the Purchased Accounts and a reconciliation of the relationship relating to
billing, collection and account maintenance such as aging, posting, error
resolution and mailing of statements in the ordinary course of FGI’s business.
All of the foregoing shall be in a format and in such detail, as FGI, in its
sole and absolute discretion, deems appropriate. Furthermore, FGI’s books and
records shall be admissible as evidence without objection as prima facie
evidence of the status of the Purchased Accounts, non-purchased Accounts and
Reserve Account between FGI and Seller. Each statement, report, or accounting
rendered or issued by FGI to Seller, if any, and all online information shall be
deemed conclusively accurate and binding on Seller unless within fifteen (15)
days after the date of issuance or posting Seller notifies FGI to the contrary
by registered or certified mail, setting forth with specificity the reasons why
Seller believes such statement, report, or accounting is inaccurate, as well as
what Seller believes to be correct amount(s) therefore. FGI’s failure to provide
or Seller’s failure to receive such online access shall not relieve Seller of
Seller’s obligations under this Agreement or the responsibility of Seller to
request such statement and Seller’s failure to do so shall nonetheless bind
Seller to whatever FGI’s records would have reported.

 

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h.           i. Except to the extent otherwise set forth in this Agreement, all
payments of principal and of interest hereunder and all Expenses, fees,
indemnification obligations and all other charges and any other Obligations of
Seller, shall be made to FGI at the Payment Location (or such other address as
may be required by FGI from time to time), in United States dollars, in
immediately available funds. FGI shall have the unconditional right and
discretion (and Seller hereby authorizes FGI) to charge Seller’s operating
and/or deposit account(s) for all of Seller’s Obligations as they become due
from time to time under this Agreement including, without limitation, interest,
principal, fees, indemnification obligations and reimbursement of Expenses. Any
payments received prior to 2:00 p.m. Eastern time on any Business Day shall be
deemed received on such Business Day. Any payments (including any payment in
full of the Obligations), received after 2:00 p.m. Eastern time on any Business
Day shall be deemed received on the immediately following Business Day.

 

ii. Unless FGI receives notice from Seller prior to the date on which any
payment is due to FGI that Seller will not make such payment in full as and when
required, FGI may assume that Seller has made (or will make) such payment in
full to FGI on such date in immediately available funds.

 

iii. All payments to be made hereunder by Seller shall be remitted to FGI and
all such payments, and all proceeds of Collateral received by FGI, shall be
applied, so long as no Event of Default has occurred and is continuing, to
reduce the balance of the Advances outstanding and, thereafter, to Seller or
such other Person entitled thereto under applicable law.

 

i. Seller shall notify all Account Debtors and take other necessary or
appropriate means to ensure that all of Seller’s Account(s), whether or not
purchased by FGI, shall be paid directly to FGI by transmission to a Controlled
Account. FGI shall have the right at any time, either before or after the
occurrence of an Event of Default and without notice to Seller, to notify any or
all Account Debtors of the assignment to FGI and to direct such Account Debtors
to make payment of all amounts due or to become due to Seller directly to FGI.
Unless otherwise required by FGI, all invoices of all of Seller’s Accounts shall
plainly state on their face:

 

All amounts owing under this invoice have been assigned to FGI Finance and all
such amounts payable hereunder are payable to FGI Finance at such account as FGI
may designate.

 

FGI, as the sole and absolute owner of the Purchased Accounts, shall have the
sole and exclusive power and authority to collect each such Purchased Account,
through legal action or otherwise, and FGI may, in its sole discretion, settle,
compromise, or assign (in whole or in part) any of such Purchased Accounts, or
otherwise exercise, to the maximum extent permitted by applicable law, any other
right now existing or hereafter arising with respect to any of such Purchased
Accounts. Notwithstanding the foregoing, FGI may, in its sole and absolute
discretion, elect to appoint Seller as the agent of FGI, with respect of
Purchased Accounts under and in accordance with this Agreement until notice from
FGI to the contrary and for the purpose of administering the accounts of Account
Debtors and procuring the collection of Purchased Accounts for the benefit of
FGI. In such event, Seller accepts such appointment and undertakes (i) to act
promptly and efficiently in carrying out the tasks in relation to which it is
FGI’s agent; (ii) not to hold itself out as an agent of FGI for any other
purpose; and (iii) to adhere to the debt collection procedures of Seller in
force at, and notified to and approved by FGI, on or before the date hereof and
to obtain the prior written consent of FGI to any proposed variations to such
procedures. FGI may by notice to Seller withdraw the agency appointment made in
this Section 2.2(i).

 

15

 

 

j. Should Seller receive payment of all or any portion of any Purchased Account,
Seller shall immediately notify FGI in writing of the receipt of the payment,
hold said payment in trust for FGI separate and apart from Seller’s own property
and funds, and shall deliver said payment to FGI without delay in the identical
form in which received with all necessary endorsements in no event later than
the second Business Day after receipt. In the event any Goods, the sale of which
gave rise to a Purchased Account, are returned to or repossessed by Seller, such
Goods shall be held by Seller in trust for FGI, separate and apart from Seller’s
own property and subject to FGI’s sole direction and control. Seller shall not
accept returns and shall not grant any allowance or credit to any Account Debtor
unless otherwise permitted under this Agreement

 

2.3. Interest: Interest upon the daily total outstanding balance of each Advance
shall be charged to Seller’s Reserve Account at a per annum rate equal to the
Interest Rate on the net daily balance of all outstanding Advances. Changes in
the interest rate applicable to the Obligations shall become effective on the
same day that there is a change in the Base Rate. Interest on the Obligations
shall be payable monthly, in arrears, on the last day of each calendar month,
beginning on the last day of the first calendar month after the Closing Date.

 

2.4. Additional Interest Provisions:

 

a. Interest on the Obligations shall be calculated on the basis of a year of
three hundred sixty (360) days but charged for the actual number of days
elapsed.

 

b. After the occurrence and during the continuance of an Event of Default
hereunder, the per annum effective rate of interest on all Obligations shall be
increased by three hundred (300) basis points. All such increases may be applied
retroactively to the date of the occurrence of the Event of Default and remain
in effect until such time as the Default has been waived by FGI or the
Obligations are fully paid and satisfied. Seller agrees that the default rate
payable to FGI is a reasonable estimate of FGI’s damages and is not a penalty.

 

c. All contractual rates of interest chargeable on outstanding principal under
the Obligations shall continue to accrue and be paid even after Default, an
Event of Default, maturity, acceleration, judgment, bankruptcy, insolvency
proceedings of any kind or the happening of any event or occurrence similar or
dissimilar.

 

d. Any adjustment in FGI’s interest rate, whether downward or upward, will
become effective on the day in which the Base Rate is decreased or increased. If
during any month, a net credit balance exists (i.e., the reserve or credit
balance exceeds outstanding Accounts), then Seller agrees to credit FGI’s
Reserve Account as of the last day of each month with interest at a rate equal
to the Interest Rate.

 

16

 

 

2.5. Fees and Charges: FGI shall have fully earned and Seller shall
unconditionally pay to FGI the fees set forth on Exhibit C attached hereto and
made part hereof.

 

2.6. Use of Proceeds: The extensions of credit under and proceeds of the
Advances shall be used for working capital and general corporate purposes in
accordance with the terms of this Agreement.

 

SECTION III. COLLATERAL

 

3.1. Collateral: As security for the payment of the Obligations and satisfaction
by Seller of all covenants and undertakings contained in this Agreement and the
other Transaction Documents (in addition to the sale of Purchased Accounts),
Seller hereby assigns and grants to FGI a continuing mortgage, charge,
assignment, pledge and Lien on and security interest in, upon and to all assets
of Seller, including but not limited to the following Property, all whether now
owned or hereafter acquired, created or arising and wherever located: (a)
Accounts; (b) Chattel Paper; (c) Documents; (d) Instruments; (e) Inventory; (f)
General Intangibles, including all files, correspondence, computer programs,
tapes, disks and related data processing software which contain information
identifying or pertaining to any of the Collateral or any Account Debtor or
showing the amounts thereof or payments thereon or otherwise necessary or
helpful in the realization thereon or the collection thereof); (g) Equipment;
(h) Fixtures; (i) Deposit Accounts; (j) Goods; (k) Letter of Credit Rights
identified and described on Schedule 5.21 attached hereto and made part hereof
(as amended or supplemented from time to time); (l) Supporting Obligations; (m)
Investment Property; (n) Commercial Tort Claims identified and described on
Schedule 5.20 attached hereto and made part hereof (as amended or supplemented
from time to time); (o) Property of Seller, now or hereafter in FGI’s
possession; and (p) Proceeds (including, without limitation, insurance
proceeds), whether cash or non-cash, of all of the foregoing Property described
in clauses (a) through and including (o).

 

3.2. Lien Documents: On the Closing Date and thereafter as FGI deems necessary,
Seller shall execute and/or deliver to FGI, or have executed and delivered (all
in form and substance satisfactory to FGI and its counsel) any other agreements,
documents, instruments and writings, including, without limitation, intellectual
property security agreements, required by FGI to evidence, perfect or protect
the Liens and security interests in the Collateral or as FGI may reasonably
request from time to time. Seller agrees to comply with the requests of FGI in
order for FGI to have and maintain a valid and perfected first security interest
in the Collateral including, without limitation, executing and causing any other
Person to execute such documents as FGI may require to obtain Control (as
defined in the UCC) over all Deposit Accounts, Letter of Credit Rights and
Investment Property. Seller hereby authorizes FGI to file financing statements
and amendments to financing statements without Seller’s signature, in accordance
with the UCC. Seller hereby authorizes FGI to file all such financing statements
and amendments to financing statements describing the Collateral in any filing
office as FGI, in its sole discretion may determine, including financing
statements listing “All Assets” in the collateral description therein.

 

3.3. Other Actions: In addition to the foregoing, Seller shall do anything
further that may be reasonably required by FGI to secure FGI and effectuate the
intentions and objects of this Agreement, including, without limitation, the
execution and delivery of security agreements, contracts and any other documents
required hereunder and the delivery of motor titles with FGI’s lien noted
thereon. At FGI’s reasonable request, Seller shall also immediately deliver
(with execution by Seller of all necessary documents or forms to reflect,
implement or enforce the Liens described herein), or cause to be delivered, to
FGI all items for which FGI must receive possession to obtain a perfected
security interest, including without limitation, all notes, stock powers,
letters of credit, certificates and documents of title, Chattel Paper, Warehouse
Receipts, Instruments, and any other similar instruments constituting
Collateral.

 

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3.4. Searches, Certificates: FGI shall, prior to or on the Closing Date, and
thereafter as FGI may determine from time to time, at Seller’s expense, obtain
the following searches (the results of which are to be consistent with the
warranties made by Seller in this Agreement): (i) UCC searches with the
Secretary of State and local filing office of each state where Seller and each
Guarantor is organized, maintains its executive office, a place of business, or
assets; and (ii) judgment, state and federal tax lien and corporate tax lien
searches, in all applicable filing offices of each state searched under clause
(i) above. Seller shall, prior to or on the Closing Date and at its expense,
obtain and deliver to FGI good standing certificates showing Seller to be in
good standing in its state of organization and in each other state in which it
is doing and presently intends to do business for which qualification is
required.

 

3.5. Landlord’s and Warehouseman’s Waivers: Seller will cause each owner of any
premises occupied by Seller or to be occupied by Seller and each warehouseman of
any warehouse, where, in either event Collateral is held, to execute and deliver
to FGI an instrument, in form and substance satisfactory to FGI, under which
such owner(s) or warehouseman subordinates its/his/their interests in and waives
its/his/their right to distrain on or foreclose against the Collateral and
agrees to allow FGI to remain on such premises to dispose of or deal with any
Collateral located thereon.

 

3.6. Power of Attorney: Each of the officers of FGI is hereby irrevocably made,
constituted and appointed the true and lawful attorney for Seller (without
requiring any of them to act as such) with full power of substitution to do the
following: (a) endorse the name of Seller upon any and all checks, drafts, money
orders and other instruments for the payment of monies that are payable to
Seller and constitute collections on Seller’s Accounts or proceeds of other
Collateral including checks or other payment instruments received by FGI
pursuant to this Agreement; (b) execute and/or file in the name of Seller any
financing statements, schedules, assignments, instruments, documents and
statements that Seller is obligated to give FGI hereunder or is necessary to
perfect (or continue or evidence the perfection of such security interest or
Lien) FGI’s security interest or Lien in the Collateral; (c) receive, open and
dispose of any mail addressed to Seller and put FGI’s address on any statements
mailed to Account Debtors; (d) pay, settle, compromise, prosecute or defend any
action, claim, conditional waiver and release, or proceeding relating to
Purchased Accounts or Collateral; (e) during the continuance of an Event of
Default, notify, in the name of the Seller, the U.S. Post Office to change the
address for delivery of mail addressed to Seller to such address as FGI may
designate, however, FGI shall turn over to Seller all such mail not relating to
Purchased Accounts or Collateral; (f) effect debits to any demand deposit or
other deposit account that Seller or any Guarantor maintains at any bank for any
sums due to or from the Seller under this Agreement and (g) during the
continuance of an Event of Default, do such other and further acts and deeds in
the name of Seller that FGI may reasonably deem necessary or desirable to
enforce any Account or other Collateral. The powers and authority granted to FGI
herein are coupled with an interest and are irrevocable until this Agreement is
terminated and all Obligations are fully satisfied.

 

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SECTION IV. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES

 

4.1. Conditions to Closing: Closing under this Agreement is subject to the
following conditions precedent (all instruments, documents and agreements to be
in form and substance satisfactory to FGI and FGI’s counsel):

 

a. Delivery of Document: Seller shall have delivered, or caused to be delivered,
to FGI this Agreement properly executed by Seller, together with all Schedules
hereto;

 

b. Fees and Expenses: Seller shall have paid all fees set forth on Exhibit C
which are due and payable on the Closing Date and Expenses;

 

c. Absence of Certain Events: On the Closing Date, no Default or Event of
Default hereunder shall have occurred and be continuing;

 

d. Warranties and Representations at Closing: The warranties and representations
contained in Section V as well as any other Section of this Agreement shall be
true and correct in all respects on the Closing Date with the same effect as
though made on and as of that date. Seller shall not have taken any action or
permitted any condition to exist which would have been prohibited by any Section
hereof; and

 

e. Compliance with this Agreement: Seller shall have performed and complied with
all agreements, covenants and conditions contained herein including, without
limitation, the provisions of Sections VI and VII hereof, which are required to
be performed or complied with by Seller before or at the Closing Date.

 

4.2. Waiver of Rights: By completing the closing hereunder, or by making
Advances hereunder, FGI does not waive a breach of any warranty or
representation made by Seller hereunder or under any agreement, document, or
instrument delivered to FGI or otherwise referred to herein, and any claims and
rights of FGI resulting from any breach or misrepresentation by Seller are
specifically reserved by FGI.

 

4.3. Conditions for Future Advances: The making of any Advance under this
Agreement in any form following the Closing Date is subject to the following
conditions precedent (all instruments, documents and agreements to be in form
and substance satisfactory to FGI and its counsel) on each Advance Date:

 

a. Delivery of Documents: Seller shall have delivered, or caused to be
delivered, to FGI all Transaction Documents properly executed by the parties
thereto;

 

b. Effectiveness of Sale of Accounts and Security Agreement: This Agreement and
each of the other Transaction Documents shall be effective;

 

c. Fees and Expenses: Seller shall have paid all fees set forth on Exhibit C
which are due and payable on the Closing Date and Expenses;

 

19

 

 

d. Financing Statements: UCC-1 financing statements naming Seller and Guarantors
as debtors and FGI as secured party and listing “all assets” as collateral shall
be on file and effective in all applicable jurisdictions;

 

e. Other Documents: Each of the other documents to be executed and/or delivered
by Seller or any other Person pursuant to this Agreement shall have been
executed and delivered to FGI, and FGI shall have received such other documents
reasonably required by FGI;

 

f. Indebtedness: (1) Seller shall not have any Indebtedness except for Permitted
Indebtedness; (2) FGI shall have completed its review of all Indebtedness of
Seller and shall be satisfied in its sole and absolute discretion of the results
of such review; and (3) FGI shall have entered into intercreditor agreements in
form and substance satisfactory to FGI with respect to all Indebtedness of
Seller other that such Indebtedness as is permitted pursuant to clauses (a),
(b), and (c) of the definition of “Permitted Indebtedness”;

 

g. Seller Documents: FGI shall have received certified copies of (i) resolutions
of Seller’s and each Guarantor’s board of directors’ or managing members (as
applicable) authorizing the execution, delivery and performance of this
Agreement and each of the other Transaction Documents required to be delivered
by any Section hereof and (ii) Seller’s and each Guarantor’s articles or
certificate of incorporation and by-laws or certificate of formation and
operating agreement, as applicable;

 

h. Incumbency: FGI shall have received an incumbency certificate for Seller
identifying all Authorized Officers, with specimen signatures and an incumbency
certificate for each Guarantor identifying all individuals authorized to execute
a Guaranty Agreement with specimen signatures;

 

i. Opinion: FGI shall have received a written opinion of Seller’s and each
Guarantor’s independent counsel addressed to FGI and opinions of such other
counsel as FGI deems reasonably necessary;

 

j. Collateral Audit: FGI shall have completed a collateral audit of Seller’s
assets, liabilities, books and records, satisfactory in all respects to FGI;

 

k. Financial Statements: FGI shall have received such financial statements,
reports, certifications and other operational information as FGI may reasonably
require, satisfactory in all respects to FGI;

 

l. Searches: FGI shall have received the searches and certificates required
under Section 3.4;

 

m. No Material Adverse Effect: No event or condition shall have occurred or
become known to Seller, or would result from the making of any requested
Advance, which could have a Material Adverse Effect;

 

n. No Default or Event of Default: No Default or Event of Default then exists or
after giving effect to the making of the Advance would exist;

 

o. Compliance with this Agreement: Seller shall have performed and complied with
all agreements, covenants and conditions contained herein including, without
limitation, the provisions of Sections VI and VII hereof, which are required to
be performed or complied with by Seller before or at such Advance Date; and

 

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p. Representations and Warranties: Each representation and warranty set forth in
Section V and any other Transaction Document in effect at such time (as amended
or modified from time to time) is then true and correct in all material respects
as if made on and as of such Advance Date except to the extent such
representations and warranties are made only as of a specific earlier date.

 

Each request for an Advance by Seller and the acceptance of any Advance
hereunder by Seller shall constitute a representation and warranty by Seller as
of the applicable Advance Date that the conditions contained in this Section 4.3
shall have been satisfied.

 

SECTION V. REPRESENTATIONS AND WARRANTIES

 

Seller warrants and represents to FGI on the Closing Date and on each Advance
Date that:

 

5.1. Organization and Validity:

 

a. Seller (i) is a corporation or limited liability company (as designated in
the first paragraph of this Agreement), duly organized and validly existing and
in good standing under the laws of the state of incorporation or organization,
as applicable, designated in the first paragraph of this Agreement, (ii) has the
appropriate power and authority to operate its business and to own its Property
and (iii) is duly qualified, is validly existing and in good standing and has
lawful power and authority to engage in the business it conducts in each state
where the nature and extent of its business requires qualification, except where
the failure to so qualify does not and could not have a Material Adverse Effect.
A list of all states and other jurisdictions where Seller is qualified to do
business is shown on Schedule 5.1 attached hereto and made part hereof.

 

b. The making and performance of this Agreement and the other Transaction
Documents will not violate any law, government rule or regulation, court or
administrative order or other such order, or the charter, minutes or bylaw
provisions of Seller, or of Seller’s operating agreement or partnership
agreement, as applicable, or violate or result in a default (immediately or with
the passage of time) under any contract, agreement or instrument to which Seller
is a party, or by which Seller is bound. Seller is not in violation of any term
of any agreement or instrument to which it is a party or by which it may be
bound which violation has or could have a Material Adverse Effect, or of its
charter, minutes or bylaw provisions, or of Seller’s operating agreement or
partnership agreement, as applicable,.

 

c. Seller has all requisite power and authority to enter into and perform this
Agreement and to incur the obligations herein provided for, and has taken all
proper and necessary action to authorize the execution, delivery and performance
of this Agreement, and the other Transaction Documents as applicable.

 

d. This Agreement and all of the other Transaction Documents, when delivered,
will be valid and binding upon Seller, and enforceable in accordance with their
respective terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors’ rights generally and by general equitable
principles.

 

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5.2. Places of Business: The only places of business of Seller, and the places
where Seller keeps and intends to keep its Property, are at the addresses shown
on Schedule 5.2 attached hereto and made part hereof.

 

5.3. Pending Litigation: There are no lawsuits, judgments or judicial or
administrative orders or proceedings pending, or to the knowledge of Seller,
threatened, against Seller in any court or before any Governmental Authority
except as shown on Schedule 5.3 attached hereto and made part hereof. To the
knowledge of Seller, there are no investigations (civil or criminal) pending or
threatened against Seller in any court or before any Governmental Authority.
Seller is not in default with respect to any order of any Governmental
Authority. To the knowledge of Seller, no shareholder or executive officer of
Seller has been indicted in connection with or convicted of engaging in any
criminal conduct, or is currently subject to any lawsuit or proceeding or under
investigation in connection with any anti-racketeering or other conduct or
activity which may result in the forfeiture of any property to any Governmental
Authority.

 

5.4. Title to Properties:

 

a. Seller has good, valid and marketable title to all the Property it purports
to own, free from Liens and free from the claims of any other Person, except for
Permitted Liens.

 

b. Immediately prior to the execution and at the time of delivery of each
Schedule of Account, Seller is the sole owner and holder of each of the Account
described thereon and its Related Rights and that upon FGI’s acceptance of each
Purchased Account and Related Rights, FGI shall become the sole owner and holder
of such Purchased Account(s) and Related Rights.

 

c. No Purchased Account shall have been previously sold or transferred or be
subject to any lien, encumbrance, security interest or other claim of any kind
of nature.

 

d. The amount of each Purchased Account is due and owing to Seller and
represents an accurate statement of a bona fide sale, delivery and acceptance of
Goods or performance of service by Seller to or for an Account Debtor. The
information regarding an Account on each Schedule of Accounts will be accurate.
The terms for payment of Purchased Accounts are no greater than sixty (60) days
from date of invoice (unless agreed upon in writing by FGI) and the payment of
such Purchased Accounts is not contingent upon the fulfillment by Seller of any
further performance of any nature whatsoever. Each Account Debtor’s business is
solvent to the best of Seller’s knowledge at the time Seller provides Schedules
to FGI.

 

e. There are and shall be no set-offs, allowances, discounts, deductions,
counterclaims, or disputes with respect to any Purchased Account, either at the
time it is accepted by FGI for FGI or prior to the date it is to be paid that
have not been disclosed in writing to FGI.

 

5.5. Governmental Consent: Neither the nature of Seller or of its business or
Property, nor any relationship between Seller and any other Person, nor any
circumstance affecting Seller in connection with the issuance or delivery of
this Agreement or any other Transaction Documents is such as to require a
consent, approval or authorization of, or filing, registration or qualification
with, any Governmental Authority on the part of Seller.

 

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5.6. Taxes: All federal and state tax returns required to be filed by Seller in
any jurisdiction have been filed, and all taxes, assessments, fees and other
governmental charges upon Seller, or upon any of its Property, income or
franchises, which are shown to be due and payable on such returns have been
paid, except for those taxes being contested in good faith with due diligence by
appropriate proceedings for which appropriate reserves have been maintained
under GAAP and as to which no Lien has been entered. Seller is not aware of any
proposed additional tax assessment or tax to be assessed against or applicable
to Seller.

 

5.7. Financial Statements: The annual audited consolidated balance sheet of
Seller as of December 31, 2013, and the related statements of profit and loss,
stockholder’s equity and cash flow as of such date accompanied by reports
thereon from Seller’s independent certified public accountants, and the interim
consolidated balance sheet of Seller as of September 30, 2014, and the related
statements of profit and loss, stockholder’s equity and cash flow as of such
date have been prepared in accordance with GAAP and present fairly the financial
position of Seller as of such dates and the results of its operations for such
periods. The fiscal year for Seller currently ends on December 31. Seller’s
federal tax identification number and state organizational identification number
are as shown on Schedule 5.7 attached hereto and made part hereof.

 

5.8. Full Disclosure: The financial statements referred to in Section 5.7 do
not, nor does any other written statement of Seller to FGI contain any untrue
statement of a material fact. Such statements do not omit a material fact, the
omission of which would make the statements contained therein misleading. There
is no fact known to Seller which has not been disclosed in writing to FGI which
has or could have a Material Adverse Effect.

 

5.9. Subsidiaries: Seller does not have any Subsidiaries or Affiliates, except
as shown on Schedule 5.9 attached hereto and made part hereof.

 

5.10. Investments, Guarantees, Contracts, etc.:

 

a. Seller does not own or hold equity or long term debt investments in, or have
any outstanding advances to, any other Person, except as shown on Schedule
5.10(a) attached hereto and made part hereof.

 

b. Seller has not entered into any leases for real or personal Property (whether
as landlord or tenant or lessor or lessee), except as shown on Schedule 5.10(b)
attached hereto and made part hereof.

 

c. Seller is not a party to any contract or agreement, or subject to any charter
or other corporate restriction, which has or could have a Material Adverse
Effect.

 

d. Except as otherwise specifically provided in this Agreement, Seller has not
agreed or consented to cause or permit any of its Property whether now owned or
hereafter acquired to be subject in the future (upon the happening of a
contingency or otherwise), to a Lien not permitted by this Agreement.

 

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5.11. Government Regulations, etc.:

 

a. The use of the proceeds hereunder will not directly or indirectly violate or
result in a violation of Section 7 of the Securities Exchange Act of 1934, as
amended, or any regulations issued pursuant thereto, including, without
limitation, Regulations U, T and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II. Seller does not own or intend to carry or
purchase any “margin stock” within the meaning of said Regulation U.

 

b. Seller has obtained all licenses, permits, franchises or other governmental
authorizations necessary for the ownership of its Property and for the conduct
of its business.

 

c. As of the date hereof, no employee benefit plan (“Pension Plan”), as defined
in Section 3(2) of ERISA, maintained by Seller or under which Seller could have
any liability under ERISA (i) has failed to meet the minimum funding standards
established in Section 302 of ERISA, (ii) has failed to comply in a material
respect with all applicable requirements of ERISA and of the Internal Revenue
Code, including all applicable rulings and regulations thereunder, (iii) has
engaged in or been involved in a prohibited transaction under Section 406 of
ERISA or Section 4975 of the Internal Revenue Code which would subject Seller to
any material liability, or (iv) has been terminated if such termination would
subject Seller to any material liability. Seller has not assumed, or received
notice of a claim asserted against Seller for, withdrawal liability (as defined
in Section 4207 of ERISA) with respect to any multi employer pension plan and is
not a member of any Controlled Group (as defined in ERISA). Seller has timely
made all contributions when due with respect to any multi employer pension plan
in which it participates and no event has occurred triggering a claim against
Seller for withdrawal liability with respect to any multi employer pension plan
in which Seller participates. All Employee Benefit Plans and multi employer
pension plans in which Seller participates are shown on Schedule 5.11(c)
attached hereto and made part hereof.

 

d. Seller is not in violation of or receipt of written notice that it is in
violation of any applicable statute, regulation or ordinance of the United
States of America, or of any state, city, town, municipality, county or of any
other jurisdiction, or of any agency, or department thereof, (including, without
limitation, Environmental Laws or government procurement regulations), a
violation of which causes or could cause a Material Adverse Effect.

 

e. Seller is current with all reports and documents required to be filed with
any state or federal securities commission or similar agency and is in full
compliance in all material respects with all applicable rules and regulations of
such commissions.

 

5.12. Business Interruptions: Within two (2) years prior to the date hereof,
none of the business, Property or operations of Seller have been materially and
adversely affected in any way by any casualty, strike, lockout, combination of
workers, order of the United States of America, or any state or local
government, or any political subdivision or agency thereof, directed against
Seller. There are no pending or, to Seller’s knowledge, threatened labor
disputes, strikes, lockouts or similar occurrences or grievances affecting
Seller. No labor contract of Seller is scheduled to expire prior to the Maturity
Date.

 

5.13. Names and Intellectual Property:

 

a. Within two (2) years prior to the Closing Date, Seller has not conducted
business under or used any other name (whether corporate or assumed) except for
the names shown on Schedule 5.13(a) attached hereto and made part hereof. Within
five (5) years prior to the Closing Date, Seller has not changed its legal name
to any name except for the names shown on Schedule 5.13(a) attached hereto and
made part hereof. Seller is the sole owner of all names listed on such Schedule
5.13(a) and any and all business done and all invoices issued in such trade
names are Seller’s sales, business and invoices. Each trade name of Seller
represents a division or trading style of Seller and not a separate Subsidiary
or Affiliate or independent entity.

 

24

 

 

b. All trademarks, service marks, patents or copyrights which Seller uses, plans
to use or has a right to use are shown on Schedule 5.13(b) attached hereto and
made part hereof and Seller is the sole owner of such Property except to the
extent any other Person has claims or rights in such Property, as such claims
and rights are shown on Schedule 5.13(b). Seller is not in violation of any
rights of any other Person with respect to such Property.

 

c. Except as shown on Schedule 5.13(c) attached hereto and made part hereof, (i)
Seller does not require any copyrights, patents, trademarks or other
intellectual property, or any license(s) to use any patents, trademarks or other
intellectual property in order to provide services to its customers in the
ordinary course of business; and (ii) FGI will not require any copyrights,
patents, trademarks or other intellectual property or any licenses to use the
same in order to provide such services after the occurrence of an Event of
Default.

 

5.14. Other Associations: Seller is not engaged and has no interest in any joint
venture or partnership with any other Person except as shown on Schedule 5.14
attached hereto and made part hereof.

 

5.15. Environmental Matters:

 

a. To the best of Seller’s knowledge after due inquiry, no Property presently
owned, leased or operated by Seller contains, or has previously contained, any
Hazardous Substances in amounts or concentrations which (i) constitute or
constituted a violation of, or (ii) could give rise to liability under, any
Environmental Law.

 

b. To the best of Seller’s knowledge after due inquiry, Seller is in compliance,
and, for the duration of all applicable statutes of limitations periods, has
been in compliance with all applicable Environmental Laws, and there is no
contamination at, under or about any properties presently owned, leased, or
operated by Seller or violation of any Environmental Law with respect to such
properties which could reasonably be expected to interfere with any of their
continued operations or reasonably be expected to impair the fair saleable value
thereof.

 

c. Seller has not received any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding environmental matters
or compliance assessment with Environmental Laws and Seller has no knowledge
that any such notice will be received or is being threatened.

 

d. To the best of Seller’s knowledge after due inquiry, Hazardous Substances
have not been transported or disposed of in a manner or to a location which are
reasonably likely to give rise to liability of Seller under any Environmental
Law.

 

e. No judicial proceeding or governmental or administrative action is pending ,
or to the knowledge of Seller, threatened under any Environmental Law to which
Seller is, or to Seller’s knowledge will be, named as a party, nor are there any
consent decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding, the
implementation of which is reasonably likely to have a Material Adverse Effect
on any natural resources or on Seller’s business, financial condition, Property
or prospects under any Environmental Law.

 

25

 

 

5.16. Anti-Terrorism Laws: Neither Seller nor any Affiliate of Seller is in
violation of any Anti-Terrorism Law or engages in or conspires to engage in any
transaction that evades or avoids, or has the purpose of evading or avoiding, or
attempts to violate, any of the prohibitions set forth in any Anti-Terrorism
Law. Neither Seller nor any Affiliate of Seller, or to Seller’s knowledge, any
of its respective agents acting or benefiting in any capacity in connection with
this Agreement or other transactions hereunder, is a Blocked Person.

 

5.17. Capital Stock: The authorized and outstanding Capital Stock of Seller is
as shown in the Public Reports referenced on Schedule 5.17 attached hereto and
made part hereof. All of the Capital Stock of Seller has been duly and validly
authorized and issued and is fully paid and non-assessable and has been sold and
delivered to the holders thereof in compliance with, or under valid exemption
from, all Federal and state laws and the rules and regulations of all
Governmental Authorities governing the sale and delivery of securities. Except
for the rights and obligations shown in the Public Reports referenced on
Schedule 5.17, there are no subscriptions, warrants, options, calls,
commitments, rights or agreements by which Seller or any of the shareholders of
Seller is bound relating to the issuance, transfer, voting or redemption of
shares of its Capital Stock or any pre-emptive rights held by any Person with
respect to the shares of Capital Stock of Seller. Except as shown in the Public
Reports referenced on Schedule 5.17, Seller has not issued any securities
convertible into or exchangeable for shares of its Capital Stock or any options,
warrants or other rights to acquire such shares or securities convertible into
or exchangeable for such shares.

 

5.18. Solvency: After giving effect to the transactions contemplated under this
Agreement, Seller is solvent, is able to pay its debts as they become due, and
has capital sufficient to carry on its business and all businesses in which it
is about to engage, and now owns Property having a value both at fair valuation
and at present fair salable value greater than the amount required to pay
Seller’s debts. Seller will not be rendered insolvent by the execution and
delivery of this Agreement or any of the other Transaction Documents executed in
connection with this Agreement or by the transactions contemplated hereunder or
thereunder.

 

5.19. Perfection and Priority: This Agreement and the other Transaction
Documents are effective to create in favor of FGI legal, valid and enforceable
Liens in all right, title and interest of Seller in the Collateral, and when
financing statements have been filed in the offices of the jurisdictions shown
on Schedule 5.19 attached hereto and made part hereof under Seller’s name,
Seller will have granted to FGI, and FGI will have perfected first priority
Liens in the Collateral (except as may be provided to the contrary in the
Intercreditor Agreements), superior in right to any and all other Liens,
existing or future.

 

5.20. Commercial Tort Claims: As of the Closing Date, Seller is not a party to
any Commercial Tort Claims, except as shown on Schedule 5.20 attached hereto and
made part hereof.

 

5.21. Letter of Credit Rights: As of the Closing Date, Seller has no Letter of
Credit Rights, except as shown on Schedule 5.21 attached hereto and made part
hereof.

 

26

 

 

5.22. Deposit Accounts: As of the Closing Date, all Deposit Accounts of Seller
are shown on Schedule 5.22 attached hereto and made part hereof.

 

SECTION VI. SELLER’S AFFIRMATIVE COVENANTS

 

Seller covenants that until all of the Obligations are paid and satisfied in
full and the commitment of FGI hereunder has been terminated, that:

 

6.1. Payment of Taxes and Claims: Seller shall pay, before they become
delinquent, all taxes, assessments and governmental charges, or levies imposed
upon it, or upon Seller’s Property, and all claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other Persons, entitled to the
benefit of statutory or common law Liens which, in any case, if unpaid, would
result in the imposition of a Lien upon its Property; provided, however, that
Seller shall not be required to pay any such tax, assessment, charge, levy,
claim or demand if the amount, applicability or validity thereof, shall at the
time, be contested in good faith and by appropriate proceedings by Seller, and
if Seller shall have set aside on its books adequate reserves in respect
thereof, if so required in accordance with GAAP; which deferment of payment is
permissible so long as no Lien other than a Permitted Lien has been entered and
Seller’s title to, and its right to use, its Property are not materially
adversely affected thereby.

 

6.2. Maintenance of Properties and Corporate Existence:

 

a. Property - Seller shall maintain its Property in good condition (normal wear
and tear excepted) make all necessary renewals, replacements, additions,
betterments and improvements thereto and will pay and discharge when due the
cost of repairs and maintenance to its Property, and will pay all rentals when
due for all real estate leased by Seller.

 

b. Property Insurance, Public and Products Liability Insurance - Seller shall
maintain insurance (i) on all insurable tangible Property against fire, flood,
casualty and such other hazards (including, without limitation, extended
coverage, workmen’s compensation, boiler and machinery, with inflation coverage
by endorsement) and (ii) against public liability, product liability and
business interruption, in each case in such amounts, with such deductibles and
with such insurers as are customarily used by companies operating in the same
industry as Seller. At or prior to the Closing Date, Seller shall furnish FGI
with duplicate original policies of insurance or such other evidence of
insurance as FGI may require, and any certificates of insurance shall be issued
on Acord Form-27. In the event Seller fails to procure or cause to be procured
any such insurance or to timely pay or cause to be paid the premium(s) on any
such insurance, FGI may do so for Seller, but Seller shall continue to be liable
for the same. The policies of all such casualty insurance shall contain standard
FGI’s lender loss payable clauses (and, with respect to liability and
interruption insurance, additional insured clauses) issued in favor of FGI under
which all losses thereunder shall be paid to FGI as FGI’s interest may appear.
Such policies shall expressly provide that the requisite insurance cannot be
altered or canceled without thirty (30) days prior written notice to FGI and
shall insure FGI notwithstanding the act or neglect of Seller. Seller hereby
appoints FGI as Seller’s attorney-in-fact, exercisable at FGI’s option, to
endorse any check which may be payable to Seller in order to collect the
proceeds of such insurance and any amount or amounts collected by FGI pursuant
to the provisions of this Section may be applied by FGI, in its sole discretion,
to any Obligations or to repair, reconstruct or replace the loss of or damage to
Collateral as FGI in its discretion may from time to time determine. Seller
further covenants that all insurance premiums owing under its current policies
have been paid. Seller shall notify FGI, immediately, upon Seller’s receipt of a
notice of termination, cancellation, or non-renewal from its insurance company
of any such policy.

 

27

 

 

c. Financial Records - Seller shall keep current and accurate books of records
and accounts in which full and correct entries will be made of all of its
business transactions, and will reflect in its financial statements adequate
accruals and appropriations to reserves, all in accordance with GAAP and shall
reflect on its books the absolute sale of the Purchased Accounts to FGI. Seller
shall not change its fiscal year end date without the prior written consent of
FGI.

 

d. Existence and Rights - Seller shall do (or cause to be done) all things
necessary to preserve and keep in full force and effect its existence, good
standing, rights and franchises.

 

e. Compliance with Laws - Seller shall be in compliance with any and all laws,
ordinances, governmental rules and regulations, and court or administrative
orders or decrees to which it is subject, whether federal, state or local,
(including, without limitation, Environmental Laws and government procurement
regulations) and shall obtain any and all licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its Property or to the
conduct of its businesses, which violation or failure to obtain causes or is
reasonably likely to cause a Material Adverse Effect. Seller shall timely
satisfy all assessments, fines, costs and penalties imposed (after exhaustion of
all appeals, provided a stay has been put in effect during such appeal) by any
Governmental Authority against Seller or any Property of Seller.

 

6.3. Business Conducted: Seller shall continue in the business presently
operated by it using its best efforts to maintain its customers and goodwill.
Seller shall not engage, directly or indirectly, in any material respect in any
line of business substantially different from the businesses conducted by Seller
immediately prior to the Closing Date.

 

6.4. Litigation: Seller shall give prompt notice to FGI of any litigation
claiming in excess of the dollar amount set forth on Exhibit A or which may
otherwise have a Material Adverse Effect.

 

6.5. Taxes: Seller shall pay all taxes (other than taxes based upon or measured
by FGI’s income or revenues or any personal property tax), if any, in connection
with this Agreement and the recording of any lien documents. The obligations of
Seller hereunder shall survive the payment of Seller’s Obligations hereunder and
the termination of this Agreement.

 

6.6. Bank Accounts: Seller shall maintain its major depository and disbursement
account(s) with financial institution acceptable to FGI. Seller shall provide
FGI prompt written notice upon the opening of any new depository account or
disbursement account. Upon FGI’s request, Seller shall establish a lockbox
through which Seller shall instruct all Account Debtors to make payment on
Accounts. Seller shall execute such agreements as FGI may require, to establish
the lockbox.

 

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6.7. Employee Benefit Plans: Seller shall (a) fund all of its Pension Plan(s) in
a manner that will satisfy the minimum funding standards of Section 302 of
ERISA, (b) furnish FGI, promptly upon FGI’s request, with copies of all reports
or other statements filed with the United States Department of Labor, the PBGC
or the IRS with respect to all Pension Plan(s), or which Seller, or any member
of a Controlled Group, may receive from the United States Department of Labor,
the IRS or the PBGC, with respect to all such Pension Plan(s), and (c) promptly
advise FGI of the occurrence of any reportable event (as defined in Section 4043
of ERISA, other than a reportable event for which the thirty (30) day notice
requirement has been waived by the PBGC) or prohibited transaction (under
Section 406 of ERISA or Section 4975 of the Internal Revenue Code) with respect
to any such Pension Plan(s) and the action which Seller proposes to take with
respect thereto. Seller will make all contributions when due with respect to any
multi employer pension plan in which it participates and will promptly advise
FGI upon (x) its receipt of notice of the assertion against Seller of a claim
for withdrawal liability, (y) the occurrence of any event which, to the best of
Seller’s knowledge, would trigger the assertion of a claim for withdrawal
liability against Seller, and (z) upon the occurrence of any event which, to the
best of Seller’s knowledge, would place Seller in a Controlled Group as a result
of which any member (including Seller) thereof may be subject to a claim for
withdrawal liability, whether liquidated or contingent.

 

6.8. Reserved.

 

6.9. Financial and Business Information: Seller shall deliver or cause to be
delivered to FGI the following:

 

a. Financial Statements and Collateral Reports: such data, reports, statements
and information, financial or otherwise, as FGI may reasonably request,
including, without limitation:

 

i. within thirty (30) days after the end of each calendar month, the
consolidated and consolidating (if applicable) income and cash flow statements
of Seller and its Subsidiaries for such month and for the expired portion of the
fiscal year ending with the end of such month and the consolidated and
consolidating (if applicable) balance sheet of Seller and its Subsidiaries as at
the end of such month, setting forth in comparative form the corresponding
figures as at the end of and for the corresponding periods of the previous
fiscal year, all in reasonable detail, including all supporting schedules and
certified by Seller’s chief financial officer to have been prepared in
accordance with GAAP;

 

ii. within one hundred and five (105) days after the end of each fiscal year of
Seller, the consolidated and consolidating (if applicable) income and cash flow
statements of Seller and its Subsidiaries for such year, and the consolidated
and consolidating (if applicable) balance sheet of Seller and its Subsidiaries
as at the end of such fiscal year, setting forth in comparative form the
corresponding figures as at the end of and for the previous fiscal year, all in
reasonable detail, including all supporting schedules, and audited by an
independent public accounting firm acceptable to FGI, and unqualifiedly
certified to have been prepared in accordance with GAAP, together with copies of
any management letters provided by such accountants to management of Seller;

 

iii. on the first Business Day of each calendar week (as of the last Business
Day of the prior calendar week), Seller’s accounts receivable aging report,
accounts payable aging report, Inventory reports and such other reports as FGI
reasonably deems necessary, certified by Seller’s chief financial officer as
true and correct, all in form and substance reasonably satisfactory to FGI;

 

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iv. on the first Business Day of each calendar week (as of the last Business Day
of the prior calendar week), for each Account Debtor who is indebted on a
Purchased Account that has been purchased, a weekly report in a form and
substance satisfactory to FGI itemizing all such returns and allowances made
during the previous week with respect such Purchased Accounts and at FGI’s
option a check (or wire transfer) payable to FGI for the amount thereof or in
FGI’s sole and exclusive discretion, FGI may accept the issuance of a credit
memo and apply same to the Reserve Account; and

 

v. no later than thirty (30) days prior to each fiscal year-end, Seller’s annual
consolidated financial statement projections for the upcoming fiscal year.

 

b. Notice of Event of Default - promptly upon becoming aware of the existence of
any condition or event which constitutes a Default or an Event of Default under
this Agreement, a written notice specifying the nature and period of existence
thereof and what action Seller is taking (and proposes to take) with respect
thereto;

 

c. Dispute - promptly upon learning that there exists any Account which is
subject to a Dispute;

 

d. Avoidance Claim - within two (2) Business Days of it becoming aware of the
assertion of an Avoidance Claim;

 

e. Notice of Claimed Default - promptly upon receipt by Seller, notice of
default, oral or written, given to Seller by any creditor for Indebtedness for
borrowed money, otherwise holding long term Indebtedness of Seller in excess of
$100,000;

 

f. Deposit Accounts – promptly upon the request of FGI, information with respect
to the deposit accounts of Seller (including copies of bank statements); and

 

g. Securities and Other Reports - if Seller shall be required to file reports
with the Securities and Exchange Commission pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, promptly upon its becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by Seller to stockholders generally, and, a copy of each regular
or periodic report, and any registration statement, or prospectus in respect
thereof, filed by Seller with any securities exchange or with federal or state
securities and exchange commissions or any successor agency; unless such report
is publicly available on EDGAR and accessible via www.sec.gov.

 

6.10. Officers’ Certificates: Along with the set of financial statements
delivered to FGI at the end of each calendar month pursuant to Section 6.9(a)(i)
hereof and the annual financial statements delivered pursuant to Section
6.9(a)(ii) hereof, Seller shall deliver to FGI a Compliance Certificate from the
chief financial officer, chief executive officer or president of Seller.

 

6.11. Audits and Inspection: Seller shall permit any of FGI’s officers or other
representatives to visit and inspect any of the locations of Seller (and if no
Event of Default or Default exists, upon reasonable notice during business
hours), to examine and audit all of Seller’s books of account, records, reports
and other papers, to make copies and extracts therefrom and to discuss its
affairs, finances and accounts with its officers, employees and independent
certified public accountants all at Seller’s expense at the standard rates
charged by FGI for such activities, plus FGI’s reasonable out-of-pocket expenses
(all of which amounts shall be Expenses). FGI shall have the right to confirm
and verify all Accounts by any manner and through any medium it considers
advisable and do whatever it may deem reasonably necessary to protect its
interests under this Agreement.

 

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6.12. Tax Returns, Financial Statements and Other Reports: Promptly after each
calendar year (but in any event no later than May 1), Seller shall promptly
furnish, or shall cause to be furnished, to FGI copies of (a) the annual federal
and state income tax returns of Seller for the immediately preceding year, (b)
proof of payment of all federal, state, foreign and local tax obligations (c) to
the extent not included in the consolidated financial statements of Seller, the
income tax return of each Guarantor for the immediately preceding year, and (d)
personal financial statement (on FGI’s form) for each Guarantor that is an
individual. Seller further agrees that, if requested by FGI, it shall promptly
furnish FGI with copies of all reports filed with any federal, state or local
Governmental Authority.

 

6.13. Material Adverse Developments: Seller agrees that immediately upon
becoming aware of any development or other information which could reasonably be
expected to have a Material Adverse Effect it shall give to FGI telephonic
notice specifying the nature of such development or information and such
anticipated effect. In addition, such verbal communication shall be confirmed by
written notice thereof to FGI on the same day such verbal communication is made
or the next Business Day thereafter.

 

6.14. Places of Business: Seller shall give thirty (30) days prior written
notice to FGI of any changes in the location of any of its respective places of
business, of the places where records concerning its Accounts or where its
Inventory are kept, or the establishment of any new, or the discontinuance of
any existing place of business.

 

6.15. Commercial Tort Claims: Seller will immediately notify FGI in writing in
the event that Seller becomes a party to or obtains any rights with respect to
any Commercial Tort Claim. Such notification shall include information
sufficient to describe such Commercial Tort Claim, including, but not limited
to, the parties to the claim, the court in which the claim was commenced, the
docket number assigned to such claim, if any, and a detailed explanation of the
events that gave rise to the claim. Seller shall execute and deliver to FGI all
documents and/or agreements necessary to grant FGI a security interest in such
Commercial Tort Claim to secure the Obligations. Seller authorizes FGI to file
(without Seller’s signature) initial financing statements or amendments, as FGI
deems necessary to perfect its security interest in the Commercial Tort Claim.

 

6.16. Letter of Credit Rights: Seller shall provide FGI with written notice of
any Letters of Credit for which Seller is the beneficiary. Seller shall execute
and deliver (or cause to be executed or delivered) to FGI, all documents and
agreements as FGI may require in order to obtain and perfect its security
interest in such Letter of Credit Rights.

 

6.17. Dilution: Seller covenants and agrees that at the end of each month,
Dilution shall not exceed the Dilution Percentage.

 

6.18. Dissolution of Tropical: Seller shall deliver to FGI, no later than
December 31, 2015, evidence that Tropical Communications, Inc. has been
dissolved.

 

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6.19. Scott Davis Indebtedness: Seller shall deliver to FGI, no later than March
20, 2015, evidence that all Indebtedness of Seller to Scott Davis has been
converted into Equity Interests of Intercloud.

 

6.20. Investment Property: Seller shall deliver to FGI, no later than five (5)
Business Days following the Closing Date, (1) stock certificates and executed
stock powers for each Subsidiary of Intercloud that is a corporation (other than
such Subsidiaries whose equity interests are the first priority collateral of
White Oak Global Advisors, LLC, as set forth in the Intercreditor Agreement
between White Oak Global Advisors, LLC and FGI, and (2) unit certificates and
executed transfer powers for each Subsidiary of Intercloud that (x) is not a
corporation and (y) has opted into Article 8 of the UCC (other than such
Subsidiaries whose equity interests are the first priority collateral of White
Oak Global Advisors, LLC, as set forth in the Intercreditor Agreement between
White Oak Global Advisors, LLC and FGI).

 

SECTION VII. SELLER’S NEGATIVE COVENANTS:

 

Seller covenants that until all of the Obligations are paid and satisfied in
full and the commitment of FGI hereunder has been terminated, that:

 

7.1. Merger or Consolidation, Jurisdiction of Organization: Seller shall not (a)
engage in any Asset Sale other than equipment that is replaced by other
equipment of comparable or superior quality and value within thirty (30) days of
such Asset Sale, (b) merge or consolidate with any other Person or commence a
dissolution or liquidation or (c) change its jurisdiction of organization.

 

7.2. Acquisitions: Seller shall not acquire all or a material portion of the
Capital Stock or assets of any Person in any transaction or in any series of
related transactions or enter into any sale and leaseback transaction without
the prior written consent of FGI.

 

7.3. Liens and Encumbrances: Seller shall not: (a) execute a negative pledge
agreement with any Person covering any of its Property, or (b) cause or permit
or agree or consent to cause or permit in the future (upon the happening of a
contingency or otherwise), its Property (including, without limitation, the
Collateral), whether now owned or hereafter acquired, to be subject to a Lien or
be subject to any claim except for Permitted Liens.

 

7.4. Transactions With Affiliates or Subsidiaries: Seller shall not (a) create
or acquire any Subsidiary or (b) enter into any transaction with any Subsidiary
or other Affiliate, including, without limitation, the purchase, sale, or
exchange of Property, or the loaning or giving of funds to any Affiliate or any
Subsidiary unless: (i) such Subsidiary or Affiliate is engaged in a business
substantially related to the business conducted by Seller, is a Seller hereunder
and the transaction is in the ordinary course of and pursuant to the reasonable
requirements of Seller’s business and upon terms substantially the same and no
less favorable to Seller as it would obtain in a comparable arm’s length
transactions with any Person not an Affiliate or a Subsidiary, and so long as
such transaction is not prohibited hereunder; or (ii) such transaction is
intended for incidental administrative purposes; provided, however, that
notwithstanding the foregoing, Seller shall not take any action set forth in
clause 7.4(b) above with respect to any person or entity that is not (x) party
hereto as Seller or (y) party to the Guaranty Agreement as a Guarantor.

 

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7.5. Guarantees: Excepting the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection, Seller shall not become or be
liable, directly or indirectly, primary or secondary, matured or contingent, in
any manner, whether as guarantor, surety, accommodation maker, or otherwise, for
the existing or future Indebtedness of any kind of any Person.

 

7.6. Distributions, Bonuses and Other Indebtedness: Seller shall not: (a)
without the consent of FGI which shall not be unreasonably withheld, declare or
pay or make any forms of Distribution to holders of Seller’s Capital Stock,
other than Permitted Tax Distributions (if any); (b) declare or pay any bonus
compensation to its officers if an Event of Default exists or would result from
the payment thereof; (c) hereafter incur or become liable for any Indebtedness
other than Permitted Indebtedness; (d) make any prepayments or payments of
principal or interest on any existing or future Indebtedness (other than the
Obligations and regularly scheduled payment of Capitalized Lease Obligations)
except for such payments as FGI may approve in writing in its sole and absolute
discretion; or (e) make any payments on Subordinated Debt in violation of the
Intercreditor Agreements; provided, however, that so long as no Default or Event
of Default (including without limitation an Event of Default resulting from a
Change of Control) exists at the time of or would exist after giving pro-forma
effect to the following Distributions, Seller shall be permitted to make
Distributions with respect to up to an aggregate of 1,200,000 shares of Seller’s
common stock issued to 31 Group LLC and Capital Ventures International pursuant
to securities purchase agreements entered into with such investors in October
2014.

 

7.7. Loans and Investments: Seller shall not make or have outstanding loans,
advances, extensions of credit or capital contributions to, or investments in,
any Person other than Permitted Investments.

 

7.8. Use of Name: Seller shall not use FGI’s name in connection with any of its
business operations. Nothing herein contained is intended to permit or authorize
Seller to make any contract on behalf of FGI.

 

7.9. Miscellaneous Covenants: Seller shall not (a) become or be a party to any
contract or agreement which at the time of becoming a party to such contract or
agreement materially impairs Seller’s ability to perform under this Agreement,
or under any other instrument, agreement or document to which Seller is a party
or by which it is or may be bound or (b) carry or purchase any “margin stock”
within the meaning of Regulations U, T or X of the Board of Governors of the
Federal Reserve System, 12 C.F.R., Chapter II.

 

SECTION VIII. DEFAULT

 

8.1. Events of Default: Each of the following events shall constitute an event
of default (each an “Event of Default”):

 

a. Payments - if Seller fails to make any payment of principal or interest under
the Obligations on the date such payment is due and payable; or

 

b. Other Charges - if Seller fails to pay any other charges, fees, Expenses or
other monetary obligations owing to FGI arising out of or incurred in connection
with this Agreement within five (5) Business Days of the date such payment is
due and payable; or covenant or undertaking contained in this Agreement and or
any other Transaction Document; or

 

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c. Covenant Defaults - if Seller fails to perform, comply with or observe any
covenant or undertaking contained in this Agreement and or any other Transaction
Document; or

 

d. Financial Information - if any statement, report, financial statement,
schedule, profit and loss statement or certificate made or delivered by Seller
or any of its officers, employees or agents, to FGI is not true and correct, in
all material respects, when made; or

 

e. Uninsured Loss - if there shall occur any uninsured damage to or loss, theft,
or destruction in excess of $250,000 in the aggregate with respect to any
portion of any Property of Seller; or

 

f. Warranties or Representations - if any warranty, representation or other
statement by or on behalf of Seller contained in or pursuant to this Agreement,
the other Transaction Documents or in any document, agreement or instrument
furnished in compliance with, relating to, or in reference to this Agreement, is
false, erroneous, or misleading in any material respect when made; or

 

g. Agreements with Others - (i) if Seller shall default beyond any grace period
in the payment of principal or interest of any Indebtedness of Seller in excess
of $100,000 in the aggregate; or (ii) if Seller otherwise defaults under the
terms of any such Indebtedness if the effect of such default is to enable the
holder of such Indebtedness to accelerate the payment of Seller’s obligations,
which are the subject thereof, prior to the maturity date or prior to the
regularly scheduled date of payment;

 

h. Other Agreements - if Seller breaches or violates the terms of, or if a
default (and expiration of any applicable cure period), or an Event of Default,
occurs under, any other existing or future agreement (related or unrelated)
between Seller and FGI; or

 

i. Judgments - if any final judgment for the payment of money in excess of
$100,000 in the aggregate (i) which is not fully and unconditionally covered by
insurance or (ii) for which Seller has not established a cash or cash equivalent
reserve in the full amount of such judgment, shall be rendered by a court of
record against Seller and such judgment shall continue unsatisfied and in effect
for a period of thirty (30) consecutive days without being vacated, discharged,
satisfied or bonded pending appeal or appropriate proceeding for review and a
stay of execution pending such appeal is obtained; or

 

j. Assignment for Benefit of Creditors, etc. - if Seller makes or proposes in
writing, an assignment for the benefit of creditors generally, offers a
composition or extension to creditors, or makes or sends notice of an intended
bulk sale of any business or assets now or hereafter owned or conducted by
Seller; or

 

k. Bankruptcy, Dissolution, etc. - upon the commencement of any action for the
dissolution, winding up or liquidation of Seller, or the commencement of any
proceeding to avoid any transaction entered into by Seller, or the commencement
of any case or proceeding for reorganization or liquidation of Seller’s debts
under the Bankruptcy Code or any other state or federal law, now or hereafter
enacted for the relief of debtors, whether instituted by or against Seller;
provided however, that Seller shall have thirty (30) days to obtain the
dismissal or discharge of involuntary proceedings filed against it, it being
understood that during such thirty (30) day period, FGI shall not be obligated
to make Advances hereunder and FGI may seek adequate protection in any
bankruptcy proceeding; or similar official or fiduciary for any Seller or for
Seller’s Property; or

 

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l. Receiver - upon the appointment of a receiver, liquidator, custodian, trustee
or similar official or fiduciary for any Seller or for Seller’s Property; or

 

m. Execution Process, etc. - the issuance of any execution or distraint process
against any Property of Seller; or

 

n. Termination of Business - if Seller ceases any material portion of its
business operations as presently conducted; or

 

o. Pension Benefits, etc. - if Seller fails to comply with ERISA so that
proceedings are commenced to appoint a trustee under ERISA to administer
Seller’s employee plans or the PBGC institutes proceedings to appoint a trustee
to administer such plan(s), or a Lien is entered to secure any deficiency or
claim or a “reportable event” as defined under ERISA occurs; or

 

p. Investigations - any indication or evidence received by FGI that reasonably
leads it to believe Seller may have directly or indirectly been engaged in any
type of activity which, would be reasonably likely to result in the forfeiture
of any material property of Seller to any governmental entity, federal, state or
local; or

 

q. Change of Control - if there shall occur a Change of Control; or

 

r. Guaranty Agreement - if any breach or default occurs under the Guaranty
Agreement, if any Guarantor dies, or if the Guaranty Agreement, or any
obligation to perform thereunder is terminated; or

 

s. Liens - if any Lien in favor of FGI shall cease to be valid, enforceable and
perfected and prior to all other Liens other than Permitted Liens or if Seller
or any Governmental Authority shall assert any of the foregoing; or

 

t. Material Adverse Effect – if there is any change in Seller’s financial
condition, business, operations or prospects which, in FGI’s reasonable opinion,
has or would be reasonably likely to have a Material Adverse Effect, or

 

u. Subordinated Debt Default – if an event of default occurs under any document
or instrument evidencing Subordinated Debt, which default shall not have been
cured or waived within any applicable grace period, or if any Person party to
any Intercreditor Agreement breaches or violates, or attempts to terminate or
challenge the validity of, any of the Intercreditor Agreements.

 

8.2. Cure: Nothing contained in this Agreement or the Transaction Documents
shall be deemed to compel FGI to accept a cure of any Event of Default
hereunder.

 

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8.3. Rights and Remedies on Default:

 

a. In addition to all other rights, options and remedies granted or available to
FGI under this Agreement or the other Transaction Documents (each of which is
also then exercisable by FGI), or otherwise available at law or in equity, upon
or at any time after the occurrence and during the continuance of a Default or
an Event of Default, FGI may in its sole discretion cease purchasing Accounts
from Seller and otherwise withhold or cease making other Advances.

 

b. In addition to all other rights, options and remedies granted or available to
FGI under this Agreement or the Transaction Documents (each of which is also
then exercisable by FGI), or otherwise available at law or in equity, upon or at
any time after the occurrence and during the continuance of an Event of Default
FGI may in its sole discretion terminate the commitments of FGI under this
Agreement and declare the Obligations immediately due and payable, all without
demand, notice, presentment or protest or further action of any kind (it also
being understood that the occurrence of any of the events or conditions set
forth in Sections 8.1(j),(k) or (l) shall automatically cause an acceleration of
the Obligations).

 

c. In addition to all other rights, options and remedies granted or available to
FGI under this Agreement or the Transaction Documents (each of which is also
then exercisable by FGI), or otherwise available at law or in equity, upon or at
any time after the acceleration of the Obligations following the occurrence of
an Event of Default (other than the rights with respect to clause (iv) below
which FGI may exercise at any time after an Event of Default and regardless of
whether there is an acceleration), FGI may, in its sole discretion, exercise all
rights under the UCC and any other applicable law or in equity, and under all
Transaction Documents permitted to be exercised after the occurrence of an Event
of Default, including the following rights and remedies (which list is given by
way of example and is not intended to be an exhaustive list of all such rights
and remedies):

 

i. The right to take possession of, send notices regarding and collect directly
the Collateral, with or without judicial process (including without limitation
the right to notify the United States postal authorities to redirect mail
addressed to Seller to an address designated by FGI); or

 

ii. By its own means or with judicial assistance, enter Seller’s premises and
take possession of the Collateral, or render it unusable, or dispose of the
Collateral on such premises in compliance with subsection (e) below, without any
liability for rent, storage, utilities or other sums, and Seller shall not
resist or interfere with such action; or

 

iii. Require Seller at Seller’s expense to assemble all or any part of the
Collateral (other than real estate or fixtures) and make it available to FGI at
any place designated by FGI;

 

iv. The right to modify the terms and conditions upon which FGI may be willing
to consider making Advances or to take additional reserves; or

 

v. Freeze, debit and/or effect a set-off against any fund or account Seller may
maintain with any bank, trust company, credit union, savings and loan
association, other financial institution or like organization.

 

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d. Seller hereby agrees that a notice received by it at least ten (10) days
before the time of any intended public sale or of the time after which any
private sale or other disposition of the Collateral is to be made, shall be
deemed to be reasonable notice of such sale or other disposition. If permitted
by applicable law, any perishable Inventory or Collateral which threatens to
speedily decline in value or which is sold on a recognized market may be sold
immediately by FGI without prior notice to Seller. Seller covenants and agrees
not to interfere with or impose any obstacle to FGI’s exercise of its rights and
remedies with respect to the Collateral, after the occurrence of an Event of
Default hereunder. FGI shall have no obligation to clean up or prepare the
Collateral for sale. If FGI sells any of the Collateral upon credit, Seller will
only be credited with payments actually made by the purchaser thereof, that are
received by FGI. FGI may, in connection with any sale of the Collateral
specifically disclaim any warranties of title or the like.

 

e. In the event FGI deems it necessary to seek equitable relief, including
injunctive or receivership remedies, Seller waives any requirement that FGI post
or otherwise obtain or procure any bond. Alternatively, in the event FGI, in its
sole and exclusive discretion, desires to procure and post a bond, FGI may
procure and file with the court a bond in an amount up to and not greater than
$10,000 (or the equivalent thereof in any currency) notwithstanding any common
or statutory law requirement to the contrary. Upon FGI’s posting of such bond it
shall be entitled to all benefits as if such bond was posted in compliance with
applicable law. Seller also waives any right it may be entitled to, including an
award of attorney’s fees or costs, in the event any equitable relief sought by
and awarded to FGI is thereafter, for whatever reason, vacated, dissolved or
reversed. All post-judgment interest shall bear interest at the greater of the
contract rate and 18% per annum.

 

8.4. Nature of Remedies: All rights and remedies granted FGI hereunder and under
the other Transaction Documents, or otherwise available at law or in equity,
shall be deemed concurrent and cumulative, and not alternative remedies, and FGI
may proceed with any number of remedies at the same time until all Obligations
are satisfied in full. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy, and FGI, upon or at any
time after the occurrence of an Event of Default, may proceed against Seller, at
any time, under any agreement, with any available remedy and in any order. In
the event that any part of this transaction between Seller and FGI is construed
to be a loan from FGI to Seller, any advances or payments made as the Purchase
Price for all Purchased Accounts shall be secured by the Purchased Accounts and
the Collateral and FGI shall have all rights and remedies available to FGI under
the UCC in addition to its rights and remedies hereunder. FGI shall have no
liability of any kind for exercising or failing to exercise any rights or
remedies FGI may have under this Agreement or otherwise.

 

8.5. Application of Proceeds: Notwithstanding any other provisions of this
Agreement or any other Transaction Document to the contrary, at any time that an
Event of Default has occurred and is continuing, all payments remitted to FGI
and all proceeds of Collateral received by FGI shall be applied in such manner
to the Obligations as determined by FGI in its sole discretion.

 

SECTION IX. MISCELLANEOUS

 

9.1. Governing Law: THIS AGREEMENT, AND ALL MATERS ARISING OUT OF OR RELATING TO
THIS AGREEMENT, AND ALL RELATED AGREEMENTS AND DOCUMENTS, SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK.
THE PROVISIONS OF THIS AGREEMENT AND ALL OTHER AGREEMENTS AND DOCUMENTS REFERRED
TO HEREIN ARE TO BE DEEMED SEVERABLE, AND THE INVALIDITY OR UNENFORCEABILITY OF
ANY PROVISION SHALL NOT AFFECT OR IMPAIR THE REMAINING PROVISIONS WHICH SHALL
CONTINUE IN FULL FORCE AND EFFECT.

 

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9.2. Integrated Agreement: The Transaction Documents, all related agreements,
and this Agreement shall be construed as integrated and complementary of each
other, and as augmenting and not restricting FGI’s rights and remedies. If,
after applying the foregoing, an inconsistency still exists, the provisions of
this Agreement shall constitute an amendment thereto and shall control.

 

9.3. Waiver: No omission or delay by FGI in exercising any right or power under
this Agreement or any related agreements and documents will impair such right or
power or be construed to be a waiver of any Default, or Event of Default or an
acquiescence therein, and any single or partial exercise of any such right or
power will not preclude other or further exercise thereof or the exercise of any
other right, and as to Seller no waiver will be valid unless in writing and
signed by FGI and then only to the extent specified.

 

9.4. Indemnity: Seller releases and shall indemnify, defend and hold harmless
FGI and its officers, employees and agents, of and from any claims, demands,
liabilities, obligations, judgments, injuries, losses, damages and costs and
expenses (including, without limitation, reasonable legal fees) resulting from
(i) acts or conduct of Seller under, pursuant or related to this Agreement and
the other Transaction Documents, (ii) Seller’s breach or violation of any
representation, warranty, covenant or undertaking contained in this Agreement or
the other Transaction Documents, (iii) Seller’s failure to comply with any or
all laws, statutes, ordinances, governmental rules, regulations or standards,
whether federal, state or local, or court or administrative orders or decrees,
(including, without limitation Environmental Laws, etc.), (iv) any Avoidance
Claim and (v) any claim by any other creditor of Seller against FGI arising out
of any transaction whether hereunder or in any way related to the Transaction
Documents and all costs, expenses, fines, penalties or other damages resulting
therefrom, unless resulting solely from acts or conduct of FGI constituting
willful misconduct or gross negligence. Promptly after receipt by an indemnified
party under this Section 9.4 of notice of the commencement of any action by a
third party, such indemnified party shall, if a claim in respect thereof is to
be made against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof. The omission so to
notify the indemnifying party shall relieve the indemnifying party from any
liability which it may have to any indemnified party under such subsection only
if the indemnifying party is unable to defend such actions as a result of such
failure to so notify. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnified party), and, after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such subsection for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation.

 

9.5. Time: Whenever Seller shall be required to make any payment, or perform any
act, on a day which is not a Business Day, such payment may be made, or such act
may be performed, on the next succeeding Business Day. Time is of the essence in
Seller’s performance under all provisions of this Agreement and all related
agreements and documents.

 

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9.6. Expenses: Seller agrees to pay immediately upon demand all Expenses. Seller
hereby authorizes FGI, at FGI’s sole discretion, to deduct such fees, costs and
expenses from the Reserve Account or may make demand therefore.

 

9.7. Brokerage: This transaction was brought about and entered into by FGI and
Seller acting as principals without any brokers (other than Aegis Capital Corp.,
to whom Seller is obligated to pay a fee upon closing of this transaction),
agents or finders being the effective procuring cause hereof. Seller represents
that it has not committed FGI to the payment of any brokerage fee, commission or
charge in connection with this transaction. If any such claim is made on FGI by
any broker, finder or agent or other person, Seller hereby indemnifies, defends
and saves such party harmless against such claim and further will defend, with
counsel satisfactory to FGI, any action or actions to recover on such claim, at
Seller’s own cost and expense, including such party’s reasonable counsel fees.
Seller further agrees that until any such claim or demand is adjudicated in such
party’s favor, the amount demanded shall be deemed an Obligation of Seller under
this Agreement.

 

9.8. Notices: Any notices or consents required or permitted by this Agreement
shall be in writing and shall be deemed given if delivered in person to the
person listed below or if sent by facsimile or by nationally recognized
overnight courier, as set forth on Exhibit A, unless such address is changed by
written notice hereunder. Any notice sent by FGI or Seller by any of the above
methods shall be deemed to be given when so received. FGI shall be fully
entitled to rely upon any facsimile transmission or other writing purported to
be sent by any Authorized Officer (whether requesting an Advance or otherwise)
as being genuine and authorized.

 

9.9. Headings: The headings of any paragraph or Section of this Agreement are
for convenience only and shall not be used to interpret any provision of this
Agreement.

 

9.10. Survival: All warranties, representations, and covenants made by Seller
herein, or in any agreement referred to herein or on any certificate, document
or other instrument delivered by it or on its behalf under this Agreement, shall
be considered to have been relied upon by FGI, and shall survive the delivery to
FGI of this Agreement, regardless of any investigation made by FGI or on its
behalf. All statements in any such certificate or other instrument prepared
and/or delivered for the benefit of FGI shall constitute warranties and
representations by Seller hereunder. Except as otherwise expressly provided
herein, all covenants made by Seller hereunder or under any other agreement or
instrument shall be deemed continuing until all Obligations are satisfied in
full. All indemnification obligations under this Agreement, including under
Sections 6.5, 9.4 and 9.7, shall survive the termination of this Agreement and
payment of the Obligations.

 

9.11. Successors and Assigns: This Agreement shall bind and inure to the benefit
of each signatory, its successors and assigns; provided, however that, Seller
shall not have the right to assign or delegate its obligations and duties under
this Agreement or any other Transaction Documents or any interest therein except
with the prior written consent of FGI. FGI may, without the consent of Seller,
(a) assign to one or more banks or other financial institutions all or a portion
of its rights and obligations under this Agreement and (b) sell participations
to one or more parties (a “Participant”) in or to all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of its Commitments or the Advances owing to it). In connection with the
efforts of FGI to assign its rights or obligations or to participate interests,
FGI may disclose any information in its possession regarding Seller, its
finances and/or Property; provided, however, that such information shall only be
provided once the intended recipient of such information has agreed to maintain
the confidentiality of such information.

 

39

 

 

 

9.12. Duplicate Originals: Two or more duplicate originals of this Agreement may
be signed by the parties, each of which shall be an original but all of which
together shall constitute one and the same instrument.

 

9.13. Modification: Neither the amendment or waiver of any provision of this
Agreement or any other Transaction Document, nor the consent to any departure by
Seller therefrom, shall in any event be effective unless the same shall be in
writing and signed by FGI and each such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

 

9.14. Third Parties: No rights are intended to be created hereunder, or under
any related agreements or documents for the benefit of any third party donee,
creditor or incidental beneficiary of Seller. Nothing contained in this
Agreement shall be construed as a delegation to FGI of Seller’s duty of
performance, including, without limitation, Seller’s duties under any account or
contract with any other Person.

 

9.15. Discharge of Taxes, Seller’s Obligations, Etc.: FGI, in its sole
discretion, shall have the right at any time, and from time to time, with at
least ten (10) days prior notice to Seller if Seller fails to do so, to: (a) pay
for the performance of any of Seller’s obligations hereunder, and (b) discharge
taxes or Liens, at any time levied or placed on Seller’s Property in violation
of this Agreement unless Seller is in good faith with due diligence by
appropriate proceedings contesting such taxes or Liens and maintaining proper
reserves therefor in accordance with GAAP. Expenses and advances shall be added
to the Obligations, and bear interest at the rate applicable to the Obligations,
until reimbursed to FGI. Such payments and advances made by FGI shall not be
construed as a waiver by FGI of a Default or Event of Default under this
Agreement.

 

9.16. Withholding and Other Tax Liabilities: FGI shall have the right to refuse
to make any Advances from time to time unless Seller shall, at FGI’s request,
have given to FGI evidence, reasonably satisfactory to FGI, that Seller has
properly deposited or paid, as required by law, all withholding taxes and all
federal, state, city, county or other taxes due up to and including the date of
the requested Advance. In the event that any Lien, assessment or tax liability
against Seller shall arise in favor of any taxing authority, whether or not
notice thereof shall be filed or recorded as may be required by law, FGI shall
have the right (but shall not be obligated, nor shall FGI hereby assume the
duty) to pay any such Lien, assessment or tax liability by virtue of which such
charge shall have arisen; provided, however, that FGI shall not pay any such
tax, assessment or Lien if the amount, applicability or validity thereof is
being contested in good faith and by appropriate proceedings by Seller. In order
to pay any such Lien, assessment or tax liability, FGI shall not be obliged to
wait until such lien, assessment or tax liability is filed before taking such
action as hereinabove set forth. Any sum or sums which FGI shall have paid for
the discharge of any such Lien shall be added to the Obligations and shall be
paid by Seller to FGI with interest thereon at the rate applicable to the
Obligations, upon demand, and FGI shall be subrogated to all rights of such
taxing authority against Seller.

 

9.17. Consent to Jurisdiction: Any legal proceeding arising out of or in any way
related to this agreement, the purchase of Accounts or any other relationship
between FGI and Seller may be brought and litigated in any of the state or
federal courts located in the State of New York in any county in which FGI has a
business location, the selection of which shall be in the exclusive discretion
of FGI. Seller hereby waives and agrees not to assert, by way of motion, as a
defense or otherwise, that any such proceeding is brought in any inconvenient
forum or that the venue thereof is improper. Seller irrevocably agrees to
service of process by certified mail, return receipt requested to the address of
the appropriate party set forth herein.

 

40

 

 

9.18. Waiver of Jury Trial: SELLER AND FGI EACH HEREBY WAIVE ANY AND ALL RIGHTS
IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION, PROCEEDING OR
COUNTERCLAIM ARISING WITH RESPECT TO RIGHTS AND OBLIGATIONS OF THE PARTIES
HERETO OR UNDER THE TRANSACTION DOCUMENTS OR WITH RESPECT TO ANY CLAIMS ARISING
OUT OF ANY DISCUSSIONS, NEGOTIATIONS OR COMMUNICATIONS INVOLVING OR RELATED TO
ANY PROPOSED RENEWAL, EXTENSION, AMENDMENT, MODIFICATION, RESTRUCTURE,
FORBEARANCE, WORKOUT, OR ENFORCEMENT OF THE TRANSACTIONS CONTEMPLATED BY THE
TRANSACTION DOCUMENTS.

 

9.19. Additional Documentation: Seller shall execute and/or re-execute, and
cause any Guarantor or other Person party to any Transaction Document, to
execute and/or re-execute and to deliver to FGI or FGI’s counsel, as may be
deemed appropriate, any document or instrument signed in connection with this
Agreement which was incorrectly drafted and/or signed, as well as any document
or instrument which should have been signed at or prior to the Closing Date, but
which was not so signed and delivered. Seller agrees to comply with any written
request by FGI within ten (10) days after receipt by Seller of such request.

 

9.20. Information regarding Account Debtors: In the event that FGI furnishes
Seller with information as to the credit standing of any Account Debtor, such
information shall be deemed to have been requested of FGI by Seller and FGI’s
advice containing such information is recognized as a privileged communication.
Seller agrees that such information shall not be given to Seller’s customers or
to Seller’s sales representative(s).

 

9.21. Consequential Damages: Neither FGI nor agent or attorney of FGI shall be
liable for any consequential damages arising from any breach of contract, tort
or other wrong relating to the establishment, administration or collection of
the Obligations.

 

9.22. Advertisement/Confidentiality:

 

a. FGI, in its sole discretion and at its expense, shall have the right to
announce and publicize the financing established hereunder, as it deems
appropriate, by means and media selected by FGI. Such publication shall include
all pertinent information relating to such financing, including without
limitation, the term, purpose, pricing, amount and name of Seller. The form and
content of the published information shall be in the sole discretion of FGI and
shall be considered the sole and exclusive property of FGI.

 

b. i. Except as otherwise provided in clause (a) above or otherwise in this
Agreement, FGI and Seller agree not to use Confidential Information of the other
for any purpose other than the fulfillment of its obligations under the
Agreement and enforcement of its rights hereunder. FGI and Seller shall not
disclose, publish, release, transfer or otherwise make available Confidential
Information of the other in any form to, or for the use or benefit of, any
Person without the other’s consent. FGI and Seller shall, however, be permitted
to disclose relevant aspects of the other’s Confidential Information to its
officers, agents, subcontractors, and employees to the extent that such
disclosure is reasonably necessary for the performance of its duties and
obligations under the Agreement and such disclosure is not prohibited by
applicable law; provided, however, that FGI and Seller shall take all reasonable
measures to ensure that Confidential Information of the other is not disclosed
or copied in contravention of these provisions by such officers, agents,
subcontractors and employees. FGI and Seller further agree promptly to advise
the other in writing of any misappropriation, or unauthorized disclosure or use
by any person of Confidential Information which may come to its attention and to
take all steps reasonably requested by the other to limit, stop or otherwise
remedy such misappropriation, or unauthorized disclosure or use.

 

41

 

 

ii. Notwithstanding anything to the contrary contained herein, neither FGI nor
Seller shall have any obligation with respect to any Confidential Information of
the other party, or any portion thereof, which the receiving party can establish
by competent proof: (A) is or becomes generally known to companies engaged in
the same or similar businesses as the parties hereto on a non-confidential
basis, through no wrongful act of the receiving party; (B) is lawfully obtained
by the receiving party from a third party which has no obligation to maintain
the information as confidential and which provides it to the receiving party
without any obligation to maintain the information as proprietary or
confidential; (C) was known prior to its disclosure to the receiving party
without any obligation to keep it confidential as evidenced by the tangible
records kept by the receiving party in the ordinary course of its business; (D)
is independently developed by the receiving party without reference to the
disclosing party’s Confidential Information; or (E) is the subject of a written
agreement whereby the disclosing party consents to the use or disclosure of such
Confidential Information.

 

iii. If a receiving party or any of its representatives shall be under a legal
obligation in any administrative or judicial circumstance to disclose any
Confidential Information, the receiving party shall give the disclosing party
prompt notice so that the disclosing party may seek a protective order and/or
waive the duty of nondisclosure; provided that in the absence of such order or
waiver, if the receiving party or any such representative shall, in the opinion
of its counsel, stand liable for contempt or suffer other censure or penalty for
failure to disclose, disclosure pursuant to the order of such tribunal may be
made by the receiving party or its representative without liability hereunder.

 

iv. For as long as FGI or Seller continues to possess or control Confidential
Information furnished by the other, and for so long as the Confidential
Information remains unpublished, confidential and legally protectable as the
property of the disclosing party, except as otherwise specified herein, the
receiving party shall make no use of such Confidential Information whatsoever,
notwithstanding the termination or expiration of the Agreement. FGI and Seller
acknowledge their understanding that the termination or expiration of the
Agreement shall not be deemed to give either a right or license to use or
disclose the Confidential Information of the other. Any materials or documents,
including copies that contain Confidential Information, shall be promptly
returned or destroyed when necessary to prevent disclosure of the Confidential
Information to third parties. If any materials are destroyed, rather than
returned, as permitted by the previous sentence, the party that destroyed such
materials shall provide a certificate to the other party that specifically
identifies the materials destroyed and confirm that the materials were in fact
destroyed.

 

42

 

 

v. It is agreed that the unauthorized disclosure or use of any Confidential
Information may cause immediate or irreparable injury to the party providing the
Confidential Information, and that such party may not be adequately compensated
for such injury in monetary damages. FGI and Seller therefore acknowledge and
agree that, in such event, the other shall be entitled to seek any temporary or
permanent injunctive relief necessary to prevent such unauthorized disclosure or
use, or threat of disclosure or use.

 

9.23. Foreign Currency: If, for the purposes of obtaining judgment in any court
in any jurisdiction with respect to this Agreement or any other agreement
between Seller and FGI, it becomes necessary to convert into a particular
currency (the “Judgment Currency”) any amount due under this Agreement or such
other agreement in any currency other than the Judgment Currency (the “Currency
Due”), then conversion shall be made at the rate of exchange prevailing on the
business day (in New York, New York) before the day on which judgment is given.
In this Section 9.23, “rate of exchange” means the rate at which FGI is able, on
the relevant date, to purchase the Currency Due with the Judgment Currency in
accordance with its normal practice at its office in New York, New York. In the
event that there is a change in the rate of exchange prevailing between such
business day and the date of receipt by FGI of the amount due, Seller will, on
the date of receipt by FGI, pay FGI such additional amount, if any, or be
entitled to receive reimbursement of such amount, if any, as may be necessary to
ensure that the amount received by FGI on such date is the amount in the
Judgment Currency which when converted at the rate of exchange prevailing on the
date of receipt by it is the amount then due under this Agreement or such other
agreement in the Currency Due. If the amount of the Currency Due which FGI is so
able to purchase is less than the amount of the Currency Due originally due to
it, Seller shall indemnify and save FGI harmless from and against all loss or
damage arising as a result of such deficiency. This indemnity shall constitute
an obligation separate and independent from the other obligations contained in
this Agreement and any such other agreement, shall give rise to a separate and
independent cause of action, shall apply irrespective of any indulgence granted
by FGI from time to time and shall continue in full force and effect
notwithstanding any judgment or order for a liquidated sum in respect of an
amount due under this Agreement or any such other agreement or under any
judgment or order.

 

9.24. Currency Risk:

 

(a) Seller acknowledges that, at Seller’s request, FGI may make Advances and
other payments to Seller hereunder or in connection herewith in one or more
currencies other than U.S. Dollars (each such other currency, a “Foreign
Currency”). If Seller requests such Foreign Currency Advances, Seller hereby
agrees to reimburse FGI, on demand, for all reasonable fees, charges and other
expenses, including currency exchange fees and charges, that FGI may pay or
otherwise incur in connection with (i) the purchase of any such Foreign Currency
with U.S. Dollars or (ii) the purchase of U.S. Dollars with any amount FGI
receives in a Foreign Currency from Seller or any other Person under, pursuant
to or in respect of this Agreement, any related agreement, any Purchased
Account, any Related Rights or any Collateral.

 

43

 

 

(b) Seller agrees that it will, on demand, indemnify and save FGI harmless in
respect of any loss (a “Foreign Exchange Loss”) that FGI may incur or suffer as
a result of (i) FGI purchasing any amount in a Foreign Currency with U.S.
Dollars in connection with enabling FGI to advance or pay such amount to or for
the credit of Seller as contemplated by this Agreement, (ii) FGI purchasing any
amount in U.S. Dollars with any Foreign Currency that FGI may receive in
connection with this Agreement and (iii) there having occurred any change in
applicable rates of exchange in relation to U.S. Dollars and any Foreign
Currency on or after the date hereof (and whether before or after the end of the
Term). In particular, but without in any way limiting the generality of the
preceding sentence, Seller agrees that, if (x) on any day (the “Purchase Date”)
FGI purchases with U.S. Dollars an amount in a Foreign Currency for the purpose
of paying such amount in such Foreign Currency to or for the benefit of Seller
pursuant hereto, (y) FGI thereafter receives an amount in any Foreign Currency
from Seller or any other Person under, pursuant to or in respect of this
Agreement, any related agreement, any Purchased Account, any Related Rights or
any Collateral, and (z) there has occurred a change in any applicable rate of
exchange following the Purchase Date, Seller will, on demand, pay FGI such
additional amount (whether in U.S. Dollars or a Foreign Currency) as FGI, in its
discretion, believes is desirable to help ensure that the amounts so received by
and paid to FGI, assuming that any such amount received or paid in a Foreign
Currency is converted into U.S. Dollars at the rate of exchange prevailing on
the date so received by or paid to FGI, will be sufficient to ensure that FGI
will not suffer a Foreign Exchange Loss as a result of such matters or
transactions. For the purpose of this Section 9.24, “rate of exchange” means the
rate at which FGI is able, on any particular relevant date, to purchase U.S.
Dollars with a particular Foreign Currency in accordance with its normal
practice at its office in New York, New York.

 

(c) A certificate of FGI setting forth the amount or amounts to be paid to or by
FGI pursuant to this Section 9.24, together with a brief calculation thereof,
shall be sent to Seller and shall be conclusive absent manifest error. In
preparing any such certificate, FGI shall be entitled to use averages and make
reasonable estimates, and shall not be required to match or isolate particular
transactions or payments. Seller shall pay FGI, or FGI shall pay Seller (or
credit to the Reserve Account), the amount shown as due by Seller or FGI,
respectively, on any such certificate within ten (10) days after receipt thereof
by Seller.

 

[SIGNATURES TO FOLLOW ON SEPARATE PAGE]

 

44

 

 

IN WITNESS WHEREOF, the undersigned parties have executed this Agreement the day
and year first above written.

 

SELLER: INTERCLOUD SYSTEMS, INC.         By: /s/ Daniel J. Sullivan   Name:
Daniel J. Sullivan   Title: Chief Accounting Officer         TNS, INC.        
By:   Name:   Title:         INTEGRATION PARTNERS – NY CORPORATION         By:
/s/ Daniel J. Sullivan   Name: Daniel J. Sullivan   Title: Chief Accounting
Officer         ADEX CORPORATION         By:   Name:   Title:               AW
SOLUTIONS, INC.         By:   Name:   Title:

 

(SIGNATURE PAGE TO SALE OF ACCOUNTS AND SECURITY AGREEMENT)

 

S-1

 

  

IN WITNESS WHEREOF, the undersigned parties have executed this Agreement the day
and year first above written.

 

SELLER: INTERCLOUD SYSTEMS, INC.         By:     Name:     Title:           TNS,
INC.         By: /s/ Lawrence Sands   Name: Lawrence Sands   Title: V.P        
INTEGRATION PARTNERS – NY CORPORATION         By: /s/ Lawrence Sands   Name:
Lawrence Sands   Title: V.P         ADEX CORPORATION         By: /s/ Lawrence
Sands   Name: Lawrence Sands   Title: V.P         AW SOLUTIONS, INC.         By:
/s/ Lawrence Sands   Name: Lawrence Sands   Title: V.P

  

(SIGNATURE PAGE TO SALE OF ACCOUNTS AND SECURITY AGREEMENT)

 

S-2

 

 

  FGI:       FAUNUS GROUP INTERNATIONAL, INC.         By: /s/ David DiPiero  
Name: David DiPiero   Title: CEO/President

  

(SIGNATURE PAGE TO SALE OF ACCOUNTS AND SECURITY AGREEMENT)

 

S-3

 

 

EXHIBITS AND SCHEDULES

 

Exhibits             Exhibit A - Defined Terms/Designated Terms Exhibit B - Form
of Compliance Certificate Exhibit C - Fees Exhibit D - Form of Account Debtor
Notice

 

Schedules

 

Schedule 1.1(a) - Permitted Indebtedness Schedule 1.1(b) - Permitted Liens
Schedule 5.1 - Foreign Qualifications Schedule 5.2 - Places of Business Schedule
5.3 - Litigation Schedule 5.7 - Tax and Organizational Identification Numbers
Schedule 5.9 - Subsidiaries Schedule 5.10(a) - Permitted Investments Schedule
5.10(b) - Leases Schedule 5.11(c) - Employee Benefit Plans Schedule 5.13(a) -
Trade Names Schedule 5.13(b) - Intellectual Property Schedule 5.13(c) - Licenses
Schedule 5.14 - Joint Ventures Schedule 5.17 - Capital Stock Schedule 5.19 -
Perfection Schedule 5.20 - Commercial Tort Claims Schedule 5.21 - Letter of
Credit Rights Schedule 5.22 - Deposit Accounts

 

Sale of Accounts and Security Agreement

 

 

 

 

EXHIBIT A

 

Defined Terms/Designated Terms

Section 1.1

 

Acceptable Account - All Accounts of Seller that have been billed and invoiced
to the applicable Account Debtor(s) meeting all of the following specifications:
(i) the Account is lawfully and exclusively owned by Seller and subject to no
Lien (other than Permitted Liens, if applicable, and Liens granted under this
Agreement) and Seller has the right of assignment thereof and the power to grant
a security interest therein; (ii) the Account is valid and enforceable
representing the undisputed indebtedness of an Account Debtor not more than 90
days past the original invoice date and does not represent a rebilling; (iii)
not more than 50% of the aggregate balance of all Accounts owing from an Account
Debtor obligated on the Account are outstanding more than 90 days past their
original invoice dates; (iv) the amount of the Account, when aggregated with all
other Accounts of such Account Debtor, is less than 25% of the face value of all
Accounts of Seller then outstanding; (v) the Account is not subject to any
defense, set-off, or counterclaim, deduction, discount, credit, chargeback,
freight claim, allowance or adjustment of any kind; (vi) the Account is net of
any portion thereof attributable to the sale of goods that have been returned,
rejected, lost or damaged; (vii) if the Account arises from the sale of goods by
Seller, such sale was an absolute sale and not on consignment or on approval or
on a sale-or-return basis nor subject to any other repurchase or return
agreement, and such goods have been shipped to the Account Debtor or its
designee; (viii) if the Account arises from the performance of services, such
services have actually been performed; (ix) the Account arose in the ordinary
course of Seller’s business; (x) no notice of the bankruptcy, receivership,
reorganization, liquidation, dissolution, or insolvency of the Account Debtor
has been received by FGI or Seller; (xi) the Account is an Account for which FGI
believes that the validity, enforceability or collection of the Account is not
invalid or otherwise impaired; (xii) the Account Debtor is not a Subsidiary or
Affiliate of Seller; (xiii) the sale does not represent a sale pursuant to a
government contract unless Seller has complied, for the benefit of FGI, with the
Assignment of Claims Act; (xiv) the Account is not an Account of an Account
Debtor having its principal place of business or executive office outside the
United States, unless the payment of such Account is guaranteed by an
irrevocable letter of credit satisfactory to FGI or by credit insurance
satisfactory to FGI or is otherwise acceptable to FGI in its sole discretion;
(xv) the Account is not an Account on which the Account Debtor is obligated to
Seller under any Instrument; (xvi) the transaction which gave rise to the
Account complies in all respects with all applicable laws, rules and regulations
of any Governmental Authority; and (xvii) the Account meets such other
reasonable specifications and requirements which may from time to time be
established by FGI. Acceptable Accounts shall not include that portion of an
Account representing interest or finance charges for past due balances or debit
memos.

 

Advance Percentage – (a) 80% with respect to Intercloud, TNS, Adex, and AW
Solutions, and (b) 75% with respect to Integration Partners.

 

Base Rate – The Prime Rate for any day as found in the Wall Street Journal,
Interactive Edition, or any successor edition or publication as selected by FGI,
or such other interest rate index acceptable to FGI in the event that the Wall
Street Journal, Interactive Edition, ceases to publish such an interest rate
index, or adequate and reasonable means do not exist for ascertaining such
interest rate index.

 

Sale of Accounts and Security Agreement

 

A-1

 

 

 

Dilution Percentage – (a) 0.5% with respect to Intercloud, (b) 1.50% with
respect to Adex, (c) 5.70% with respect to Integration Partners, (d) 1.50% with
respect to TNS, and (e) 1.70% with respect to AW Solutions.

 

Facility Amount - $15,000,000.

 

Guarantors – RentVM, Inc., Adex Puerto Rico, LLC, Adexcomm Corporation, Tropical
Communications, Inc., AW Solutions Puerto Rico, LLC, Rives Monteiro Leasing,
LLC, Rives Monteiro Engineering, LLC, and any other Person who may hereafter
guaranty, as surety, all or any portion of the Obligations.

 

Interest Rate – The per annum rate equal to the greater of (a) 5.5% or (b) the
Base Rate plus 2.5%.

 

Maturity Date – Thirty six (36) months from the date of this Agreement.

 

Minimum Net Funds - $3,500,000.

 

Misdirected Payment Fee – 15% of the amount of any payment on account of an
Account which has been received by Seller and not delivered in kind to FGI on
the next Business Day following the date of receipt by Seller.

 

Payment Location - (a) For wires, the following wire instructions: Bank:
Citizens Bank, ABA/Routing #: 021313103, Swift: CTZIUS33, Beneficiary: FGI
Finance, Account #: 4001212330, or such other account as FGI may designate in
writing from time to time, and (b) for checks, the following remittance address:
c/o Citizens Bank FBO FGI Finance, 1 Citizens Drive, Riverside RI, 02915, or
such other address as FGI may designate in writing from time to time.

 

Permitted Indebtedness – (a) Indebtedness to FGI in connection hereunder or
otherwise pursuant to the Transaction Documents; (b) trade payables incurred in
the ordinary course of Seller’s business; (c) purchase money Indebtedness
(including Capitalized Lease Obligations) hereafter incurred by Seller to
finance the purchase of fixed assets; provided that, (i) such Indebtedness
incurred in any fiscal year shall not exceed $100,000, (ii) such Indebtedness
shall not exceed the purchase price of the assets funded and (iii) no such
Indebtedness may be refinanced for a principal amount in excess of the principal
amount outstanding at the time of such refinancing, (d) Indebtedness existing on
the Closing Date that is identified and described on Schedule 1.1(a) attached
hereto and made part hereof, and (e) Subordinated Debt.

 

Permitted Investments - (a) Investments and advances existing on the Closing
Date that are disclosed on Schedule 5.10(a) attached hereto and made part
hereof, or (b) (i) obligations issued or guaranteed by the United States of
America or any agency thereof, (ii) commercial paper with maturities of not more
than one hundred eighty (180) days and a published rating of not less than A-1
or P-1 (or the equivalent rating) by a nationally recognized investment rating
agency, (iii) certificates of time deposit and bankers’ acceptances having
maturities of not more than one hundred eighty (180) days and repurchase
agreements backed by United States government securities of a commercial bank if
(A) such bank has a combined capital and surplus of at least $500,000,000, or
(B) its debt obligations, or those of a holding company of which it is a
Subsidiary, are rated not less than A (or the equivalent rating) by a nationally
recognized investment rating agency, and (iv) U.S. money market funds that
invest solely in obligations issued or guaranteed by the United States of
America or an agency thereof

 

Sale of Accounts and Security Agreement

 

A-2

 

 

 

Permitted Tax Distributions – None.

 

Reserve Percentage – (a) with respect to Intercloud, TNS, Adex, and AW
Solutions, 20% of the face amount of the Purchased Accounts and as such percent
may change in accordance herewith, and (b) with respect to Integration Partners,
25% of the face amount of the Purchased Accounts and as such percent may change
in accordance herewith.

 

Section 6.4 (Litigation)

 

Litigation amount: $250,000

 

Section 9.8 (Notices)

 

  If to FGI: Faunus Group International, Inc.     80 Broad Street, 22nd Floor  
  New York, New York 10004     Attention: Guy Joseph Albertelli     Facsimile:
(212) 248-3404         With a copy to: Blank Rome LLP     One Logan Square - 130
North 18th Street     Philadelphia, PA 19103     Attention: Kevin Baum, Esq.    
Facsimile: (215) 832-5612         If to Seller: c/o InterCloud Systems, Inc.    
1030 Broad Street, Suite 102     Shrewsbury, NJ 07702     Attention: Daniel
Sullivan     Facsimile: (__ ) ___-____

 

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EXHIBIT B

 

COMPLIANCE CERTIFICATE

 

                  , 201__

 

Faunus Group International, Inc.

80 Broad Street, 22nd Floor

New York, New York 10004

 

The undersigned, the _______________ of each of INTERCLOUD SYSTEMS, INC., a
Delaware corporation (“Intercloud”), TNS, INC., an Illinois corporation (“TNS”),
INTEGRATION PARTNERS – NY CORPORATION, a New Jersey corporation (“Integration
Partners”), ADEX CORPORATION, a New York corporation (“Adex”), AW SOLUTIONS,
INC., a Florida corporation (“AW Solutions”, together with Adex, Integration
Partners, TNS and Intercloud, jointly and severally, “Seller”), gives this
certificate to Faunus Group International, Inc. (“FGI”), in accordance with the
requirements of Section 6.10 of that certain Sale of Accounts and Security
Agreement dated March 20, 2015, by and between Seller and FGI (“Purchase
Agreement”). Capitalized terms used in this Certificate, unless otherwise
defined herein, shall have the meanings ascribed to them in the Purchase
Agreement.

 

No Default or Event of Default exits on the date hereof [other than:_______:]
[IF NONE, SO STATE].

 

  Very truly yours,         By:   Name:   Title:

 

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EXHIBIT C

 

Fees

 

1.                  Closing Fee. Seller shall unconditionally pay and FGI shall
be entitled to receive a facility fee in an amount equal to 1.00% of the
Facility Amount and paid in immediately available funds upon signing of the
Agreement.

 

2.                  Collateral Management Fee. Seller shall, both before and
after the termination of this Agreement, pay a non-refundable collateral
management fee of 0.54% per month of the original face amount of each Purchased
Account for the period commencing upon the invoice date with respect to such
Purchased Account while such Purchased Account is open on FGI’s books (the
“Collateral Management Fee”). For the purpose of this Section, a Purchased
Account shall be considered to be open on FGI’s books for the number of days, or
any part thereof, elapsed (including the first day and the last day) in the
period that commences upon the invoice date with respect to such Purchased
Account and that ends on the first to occur of (x) the day on which such
Purchased Account has been collected in full and (y) the day on which FGI has
determined, in its sole and absolute discretion, that it will make no further
efforts to collect such Purchased Account. FGI will charge each Collateral
Management Fee to the Reserve Account; provided that, if the Reserve Account
would, following any such charge, not have a credit balance, or would have a
credit balance that is less than the Required Reserve Amount, Seller will pay
the fee in question to FGI on demand or if the funds are not available therein
payable by Seller in cash on demand. For purposes of calculating the Collateral
Management Fee, payments shall be deemed received on the Date of Collection. All
Collateral Management Fees shall be computed on the basis of a year of 360 days
and shall be payable for the actual number of days elapsed (including the first
day and the last day).

 

3.                  Misdirected Payment Fee. Should Seller receive any check or
other payment instrument with respect to any Account and fail to surrender and
deliver to FGI said check or payment instrument on the next business day
following the date of receipt by Seller, FGI shall be entitled to charge Seller
a Misdirected Payment Fee to compensate FGI for the additional administrative
expenses that the parties acknowledge is likely to be incurred as a result of
such breach.

 

4.                  Minimum Net Funds Fee. In addition to interest owing
pursuant to Section 2.3, Seller shall unconditionally pay to FGI a
non-refundable net minimum net funds fee in respect of (x) each month during the
term and (y) the period that commences on the day following the last full month
of the term and that ends on the last day of the term. Each minimum net funds
fee shall be equal to the sum of (i) a fee calculated at the Interest Rate on
the difference, if positive, during the period for which the calculation is
made, between Minimum Net Funds and the average unpaid principal amount of the
Advances that are outstanding during such period (such difference, the
“Unadvanced Amount” for such period) plus (ii) a fee equal to Collateral
Management Fee per month of the amount determined by dividing the Unadvanced
Amount during the period for which the calculation is made by Advance
Percentage. FGI shall charge the minimum net funds fee for a particular period
to the Reserve Account on the last day of such period; provided that, if the
Reserve Account would, following any such charge, not have a credit balance, or
would have a credit balance that is less than the Required Reserve Amount,
Seller shall pay the fee in question to FGI in cash on demand. All minimum net
funds fee shall be computed on the basis of a year of 360 days and shall be
payable for the actual number of days elapsed (including the first day and the
last day).

 

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5.                  Termination Fee. In the event Seller terminates this
Agreement or FGI terminates this Agreement following the occurrence of an Event
of Default prior to the Maturity Date, Seller shall pay to FGI an early
Termination Fee in the amount of (x) 3.0% of the Facility Amount if this
Agreement is terminated on or after the Closing Date to and including the date
immediately preceding the first anniversary of the Closing Date, (y) 2.0% of the
Facility Amount if this Agreement is terminated on or after the first
anniversary of the Closing Date to and including the date immediately preceding
the second anniversary of the Closing Date, and (z) 1.5% of the Facility Amount
if this Agreement is terminated on or after the second anniversary of the
Closing Date to and including the date immediately preceding the third
anniversary of the Closing Date.

 

6.                  Late Fee. Seller shall unconditionally pay to FGI a late
charge equal to 5.0% of any and all payments of principal or interest on the
Obligations that are not paid within fifteen (15) days of the due date. Such
late charge shall be due and payable regardless of whether FGI has accelerated
the Obligations. Seller agrees that any late fee payable to FGI is a reasonable
estimate of FGI’s damages and is not a penalty.

 

7.                  Overadvance Fee. Seller shall unconditionally pay to FGI an
overadvance fee equal to 3% above the Interest Rate. Such overadvance fee shall
be due and payable regardless of whether FGI has accelerated the Obligations.
Seller agrees that any overadvance fee payable to FGI is a reasonable estimate
of FGI’s damages and is not a penalty.

 

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EXHIBIT D

 

 Form of Account Debtor Notice

 

[on the letterhead paper of Intercloud Systems, Inc.]

 

Ladies and Gentlemen:

 

As a valued customer, Intercloud Systems is pleased to advise you that to
accommodate our customers and fund our continued growth, InterCloud has secured
additional liquidity through a FGI Finance (“FGI”) working capital facility. As
a result, we have assigned all of our invoices issued to you to FGI.

 

Please note that you will continue to remit your payments in the exact way you
have in the past. As far as you are concerned, nothing has changed. To the
extent that you are now indebted or may in the future become indebted to us on
an account (i.e., invoices) or a general intangible, payment thereof is to be
delivered and made payable only to the account listed below. Payment in any
other way will not constitute payment and will not discharge your obligation.

 

So that there is no confusion, please continue to remit payments as documented
below:

 

< WIRE INSTRUCTIONS >

 

All checks must be payable to and mailed to the below address:

 

< CHECK INSTRUCTIONS >

 

This letter may only be revoked by a writing signed by one of FGI's officers
whose signature may only be relied on if acknowledged before a notary public.

 

Thank you.

 

Very truly yours,

 

Intercloud Systems, Inc.

 

  By:   Title:  

 

 

 

Sale of Accounts and Security Agreement

 

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