Exhibit 10.1

 

 

 

  

BRIDGE FINANCING AGREEMENT

 

dated as of December 2, 2014

 

by and between

 

GPB LIFE SCIENCE HOLDINGS LLC (LENDER)

 

and

 

INTERCLOUD SYSTEMS, INC. (BORROWER)

 

 

 

 

 

 

 

 

BRIDGE FINANCING AGREEMENT

 

THIS BRIDGE FINANCING AGREEMENT (the “Agreement”) is made as of December 2,
2014, by and between GPB LIFE SCIENCE HOLDINGS LLC (the “Lender”), and
INTERCLOUD SYSTEMS, INC. (together with all of its successors and current and
future, direct and/or indirect Subsidiaries, collectively, the “Borrower”).

 

THE PARTIES HERETO agree as follows:

 

ARTICLE 1.

DEFINITIONS

 

Section 1.01. Defined Terms. In addition to terms defined elsewhere in this
Agreement or any Supplement or Exhibit hereto, when used herein, the following
terms shall have the following meanings:

 

“1933 Act” shall mean the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“1934 Act” shall mean the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

 

“31 Group” shall mean 31 Group, LLC.

 

“Account Debtor” shall mean any Person who is or who may become obligated to
Borrower under, with respect to, or on account of an Account Receivable or other
Collateral.

 

“Accounts Receivable” shall mean any and all accounts (as such term is defined
in the UCC) of Borrower and each and every right of Borrower to (i) the payment
of money or (ii) the receipt or disbursement of products, goods, services or
other valuable consideration, whether such right now exists or hereafter arises,
whether such right arises out of a sale, lease or other disposition of
Inventory, or out of a rendering of services, or out of a policy of insurance
issued or to be issued, or from a secondary obligation or arising out of the use
of a credit or charge card or information contained on or for use with such
card, incurred or to be incurred, or any other transaction or event, whether
such right is created, generated or earned by Borrower or by some other Person
who subsequently transfers its interest to Borrower, whether such right is or is
not already earned by performance, and howsoever such right may be evidenced,
together with all other rights and interests (including all liens and security
interests) which Borrower may at any time have by law or agreement against any
Account Debtor or other Person obligated to make any such payment or against any
property of such Account Debtor or other Person.

 

“Affiliate” shall mean any Person which, directly or indirectly, owns or
controls, on an aggregate basis, a ten percent (10%) or greater interest in any
other Person, or which is controlled by or is under common control with any
other Person.

 

“Bankruptcy Code” means the federal Bankruptcy Reform Act of 1978 (11 U.S.C.
Sections 101 et seq,).

 

1

 

 

“Bankruptcy Laws” means, collectively: (a) the Bankruptcy Code; and (b) all
other liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors, moratorium, rearrangement, receivership, insolvency, reorganization,
or similar debtor-relief Laws of the United States or other applicable
jurisdictions from time to time in effect and affecting the rights of creditors
generally.

 

“Blocked Account Agreement” means the Agreement to be entered into upon the
earlier to occur of no later than the date (i) ten (10) days from the Closing
Date, and (ii) (a) one (i) Business Day from the date of an Event of Default,
and (b) five (5) Business Days following a request by the Lender if Lender
reasonably believes an Event of Default could occur within a reasonable amount
of time, by and among the Lender, the Borrower and the Blocked Account Bank and
all schedules, supplements, amendments, exhibits and ancillary documents to the
Blocked Account Agreement pursuant to which Lender obtains control (within the
meaning of the Uniform Commercial Code) over the Blocked Account which Blocked
Account Agreement shall be in form and substance satisfactory to the Lender.

 

“Blocked Account” means the Borrower’s deposit account at PNC Bank (the “Blocked
Account Bank”).

 

“Business Day” shall mean any day other than a Saturday or Sunday or any other
day on which the Federal Reserve Bank of New York is not open for business.

 

“Change of Control” means any Major Transaction other than (i) any merger of the
Borrower or any of its, direct or indirect, wholly-owned Subsidiaries with or
into any of the foregoing Persons, (ii) any reorganization, recapitalization or
reclassification of the shares of Common Stock in which holders of the
Borrower’s Voting Stock immediately prior to such reorganization,
recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded securities and,
directly or indirectly, are, in all material respects, the holders of the voting
power of the surviving entity (or entities with the authority or voting power to
elect the members of the board of directors (or their equivalent if other than a
corporation) of such entity or entities) after such reorganization,
recapitalization or reclassification, or (iii) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Borrower or any of its Subsidiaries).

 

“Closing” shall mean the time of issuance and sale by the Borrower of the
$2,500,000 aggregate principal amount Note to the Lender for the $2,375,000
Purchase Price and the simultaneous issuance by the Borrower to the Lender of
the Warrant on the Closing Date.

 

“Closing Date” shall mean the date of the $2,500,000 Aggregate Principal Amount
Note is purchased by the Lender from the Borrower for the $2,375,000 Purchase
Price and the simultaneous issuance of the Warrant by the Borrower to the Lender
pursuant to this Agreement.

 

2

 

 

“Collateral” shall mean all of the assets of Borrower, howsoever arising,
wherever located and whether now owned or existing or hereafter existing or
acquired, including, but not limited to, the following:

 

(i) all Equipment;

 

(ii) all Accounts Receivable;

 

(iii) all Inventory;

 

(iv) any and all monies, reserves, deposits, deposit accounts, securities, cash,
cash equivalents, balances, credits, and interest and dividends on any of the
foregoing;

 

(v) all chattel paper, whether tangible or electronic chattel paper, contract
rights, letter of credit rights, documents and instruments and all supporting
obligations of any of the foregoing;

 

(vi) all General Intangibles;

 

(vii) all investment property;

 

(viii) all furniture and fixtures;

 

(ix) all goods and all documents of title and receipts, whether negotiable or
non-negotiable, including all goods covered by such documents;

 

(x) all commercial tort claims;

 

(xi) all books, records and computer records in any way relating to the above
property;

 

(xii) any and all substitutions, renewals, improvements, replacements, additions
and proceeds of (i) through (xi); and

 

(xiii) all of the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance or commercial tort claims
covering or relating to any or all of the foregoing, and any and all Accounts
Receivable, books and records, chattel paper, deposit accounts, Equipment,
General Intangibles, Inventory, investment property, negotiable collateral,
supporting obligations, money, or other tangible or intangible property
resulting from the sale, lease, license, exchange, collection, or other
disposition of any of the foregoing, the proceeds of any award in condemnation
with respect to any of the foregoing, any rebates or refunds, whether for taxes
or otherwise, and all proceeds of any such proceeds, or any portion thereof or
interest therein, and the proceeds thereof, and all proceeds of any loss of,
damage to, or destruction of the above, whether insured or not insured, and, to
the extent not otherwise included, any indemnity, warranty, or guaranty payable
by reason of loss or damage to, or otherwise with respect to any of the
foregoing (the “Proceeds”). Without limiting the generality of the foregoing,
the term “Proceeds” includes whatever is receivable or received when investment
property or proceeds are sold, exchanged, collected, or otherwise disposed of,
whether such disposition is voluntary or involuntary, and includes proceeds of
any indemnity or guaranty payable to Borrower or the Lender from time to time
with respect to any of the investment property.

 

3

 

 

Notwithstanding the foregoing, the term Collateral excludes all of the
outstanding capital stock and Account Receivables of VaultLogix, LLC, a
subsidiary of the Borrower (“VaultLogix”), until such time as such capital stock
and Accounts Receivable of VaultLogix are eligible under the White Oak Credit
Agreement and the White Oak Credit Agreement Documents to be considered
Collateral.

 

“Collateral Locations” shall mean the locations set forth on Schedule 1.01-A.

 

“Contingent Obligation” shall mean as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

 

“Common Stock” shall mean (i) the Borrower’s common stock, $0.0001 par value per
share, and (ii) any capital stock into which such common stock shall have been
changed or any share capital resulting from a reclassification of such common
stock.

 

“Documents” shall mean collectively, this Agreement, the Blocked Account
Agreement, the Letter from the Borrower to Corporate Stock Transfer, Inc., the
Borrower’s Transfer Agent, dated the date hereof related to the Warrant Shares
(the “TA Letter”), all financing statements (or comparable documents now or
hereafter filed in accordance with the Uniform Commercial Code or other
comparable or similar laws, rules and/or regulations) in favor of the Lender as
a secured party perfecting all Liens the Lender has on any Collateral and/or
other assets of the Borrower, the U.C.C. Financing Statement Amendment amending
the UCC-1 financing statement previously filed by White Oak the effect of which
resulting in certain assets of the Borrower being excluded from the White Oak
Liens, including, but not limited to, the Accounts Receivable of the Borrower,
filed on or about the Closing Date (the “White Oak Financing Statement
Amendment”), the Perfection Certificate dated the date hereof from Borrower to
the Lender in the form annexed hereto as Exhibit II (the “Perfection
Certificate”), the Note, the Warrant, the Pay-Off Letter and all other
instruments, certificates, supplements, amendments, exhibits and schedules
required and/or attached pursuant to this Agreement and/or the above documents,
and/or any other document and/or instrument related to the above documents and
the transactions hereunder and/or thereunder to and/or any other documents or
instruments required or contemplated hereunder or thereunder, whether now
existing or at any time hereafter arising.

 

“Dollar(s)” and “$” means lawful money of the United States.

 

“Environmental Laws” shall mean any and all laws, rules, orders, regulations,
statutes, ordinances, guidelines, codes, decrees, or other legally enforceable
requirements (including, without limitation, common law) of any international
authority, foreign government, the United States, or any state, local, municipal
or other governmental authority, regulating, relating to or imposing liability
or standards of conduct concerning protection of the environment or of human
health, or employee health and safety, as has been, is now, or may at any time
hereafter be, in effect.

 

4

 

 

“Equipment” shall mean all machinery and equipment owned by Borrower, wherever
located, whether now owned or hereafter existing or acquired by Borrower, any
embedded software thereon, any additions thereon, accessions thereto or
replacements of parts thereof.

 

“Event of Default” shall have the meaning set forth in Section 7 hereof.

 

“GAAP” shall mean generally accepted accounting principles in the United States
of America as in effect from time to time.

 

“General Intangibles” shall mean all general intangibles (as such term is
defined in the UCC) owned by Borrower, including, but not limited to payment
intangibles, goodwill, software, trademarks, trade names, licenses, patents,
patent applications, copyrights, inventions, franchises, books and records of
Borrower, designs, trade secrets, registrations, prepaid expenses, all rights to
and payments of refunds, overpayments, rebates and return of monies, including,
but not limited to, sales tax refunds, tax refunds, tax refund claims and rights
to and payments of refunds, overpayments or overfundings under any pension,
retirement or profit sharing plans and any guarantee, security interests or
other security held by or granted to Borrower to secure payment by an Account
Debtor of any of the Accounts Receivable.

 

“Indebtedness” shall mean, with respect to any Person at any date, without
duplication, (a) all indebtedness of such Person for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all capital lease obligations of
such Person, (f) all obligations of such Person, contingent or otherwise, as an
account party or applicant under acceptance, letter of credit, surety bond or
similar facilities, (g) all obligations of such Person, contingent or otherwise,
to purchase, redeem, retire or otherwise acquire for value any capital stock of
such Person, (h) all obligations for any earn-out consideration, (i) the
liquidation value of preferred capital stock of such Person, (j) all guarantee
obligations of such Person in respect of obligations of the kind referred to in
clauses (a) through (i) above, (k) all obligations of the kind referred to in
clauses (a) through (j) above secured by (or for which the holder of such
obligation has an existing right, contingent or otherwise, to be secured by) any
lien on property (including, without limitation, accounts and contract rights)
owned by such Person, whether or not such Person has assumed or become liable
for the payment of such obligation and all obligations of such Person in respect
of hedge agreements; and (l) all Contingent Obligations in respect to
indebtedness or obligations of any Person of the kind referred to in clauses
(a)-(j) above. The Indebtedness of any Person shall include, without
duplication, the Indebtedness of any other entity (including any partnership in
which such Person is a general partner) to the extent such Person is liable
therefor as a result of such Person’s ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness expressly provide that such Person is not liable therefor.

 

5

 

 

“Inventory” shall mean any and all goods, finished goods, whole goods,
materials, raw materials, work-in-progress, components or supplies, wheresoever
located and whether now owned or hereinafter acquired and owned by Borrower,
including, without limitation, goods, finished goods, whole goods, materials,
raw materials, work-in-process, components or supplies in transit, wheresoever
located, whether now owned or hereafter acquired by Borrower, which are held for
demonstration, illustration, sale or lease, furnished under any contract of
service or held as raw materials, work-in-process for manufacturing or
processing or supplies for manufacturing or processing, and all materials used
or consumed in the business of Borrower, and shall include such other property,
the sale or disposition of which has given rise to an Accounts Receivable and
which has been returned to or repossessed or stopped in transit by or on behalf
of Borrower.

 

“Lending Parties” shall have the meaning set forth in the White Oak Credit
Agreement.

 

“Liens” or “liens” shall mean a lien, charge pledge, security interest,
encumbrance, right of first refusal, preemptive right or other restriction,
clouds on title and/or encumbrances.

 

“Liabilities” shall mean all direct and/or indirect liabilities, Indebtedness
and obligations of any kind of Borrower to the Lender, howsoever created,
arising or evidenced, whether now existing or hereafter arising, whether direct
or indirect (including those acquired by assignment), absolute or contingent,
due or to become due, primary or secondary, joint or several, whether existing
or arising through discount, overdraft, purchase, direct loan, participation,
operation of law, or otherwise, all liabilities, indebtedness and obligations of
Borrower to the Lender pursuant to any letter of credit, any standby letter of
credit, or any of the Documents and outside attorneys’ and paralegals’ fees or
charges relating to the preparation of the Documents and the enforcement of
Lender’s rights, remedies, powers and security interests under this Agreement
and the other Documents, including, but not limited to, the drafting of any
documents and the preparation and enforcement of this Agreement, and the other
Documents.

 

“Loan” shall mean the $2,500,000 aggregate principal amount Note.

 

“Loan Maturity Date” shall mean the earlier of (i) the date one hundred and
eighty (180) days from the Closing Date, and (ii) the date of a Major
Transaction.

 

“Major Transaction” shall mean any of the following (i) the Borrower, directly
or indirectly, in one or more related transactions effects any merger or
consolidation of the Borrower with or into another Person, (ii) the Borrower,
directly or indirectly, effects any sale, lease, license, assignment, transfer,
conveyance or other disposition of all or substantially all of its assets in one
or a series of related transactions, (iii) any, direct or indirect, purchase
offer, tender offer or exchange offer (whether by the Borrower or another
Person) is completed pursuant to which holders of Common Stock are permitted to
sell, tender or exchange their shares for other securities, cash or property and
has been accepted by the holders of 50% or more of the outstanding Common Stock,
(iv) the Borrower, directly or indirectly, in one or more related transactions
effects any reclassification, reorganization or recapitalization of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property,
(v) the Borrower, directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than 50% of the outstanding shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock or share purchase agreement or other business combination), (vi) the
majority of directors of the Borrower as of the date hereof are no longer the
majority number of directors; and/or (vii) a Qualified Offering.

 

6

 

 

“Material Adverse Effect” shall mean a material adverse effect on (a) the
business, assets, property, operations, or condition (financial or otherwise) of
Borrower, (b) the validity or enforceability of this Agreement or any of the
other Documents or (c) the rights or remedies of the Lender hereunder or
thereunder.

 

“Note” shall mean the 12% senior secured note of the Borrower in the aggregate
principal amount of $2,500,000, dated the Closing Date, which the Lender,
subject to the terms and conditions set forth in this Agreement, shall purchase
from the Borrower for the $2,375,000 Purchase Price, which form of Note is
annexed hereto as Exhibit I. The term “Note” also shall mean any and all similar
Note(s) issued in exchange, transfer or replacement of the $2,500,000 aggregate
principal amount of Note.

 

“OFAC” shall mean the United States Department of the Treasury’s Office of
Foreign Assets Control.

 

“OFAC Regulations” shall mean the regulations promulgated by OFAC, as amended
from time to time.

 

“Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity
security is quoted or listed on an Eligible Market, or, if there is more than
one such Person or Parent Entity, the Person or Parent Entity with the largest
public market capitalization as of the date of consummation of a Major
Transaction.

 

“Permitted Governmental Indebtedness” means Indebtedness provided by the Export
and Import Bank of the United States of America or other similar governmental
entity for the purpose of supporting product sales by the Borrower.

 

“Permitted Indebtedness” means (i) Indebtedness evidenced by this Note, (ii)
Indebtedness set forth in the unaudited condensed, consolidated financial
statements of the Borrower, included in the Borrower’s Quarterly Report on Form
10-Q for the quarter ending September 30, 2014, (iii) Indebtedness set forth on
Schedule 1.01(b) hereto, (iv) Indebtedness secured by Permitted Liens described
in clauses “(iv)” and “(v)” of the definition of Permitted Liens, (iv) Permitted
Governmental Indebtedness, and (v) $2,000,000 aggregate principal amount of
other future Indebtedness of the Borrower, provided (a) such Indebtedness
constitutes Subordinated Debt of the Borrower with interest payable in cash or
in kind, provided that no Subordinated Debt shall mature and/or be paid or
repaid in whole or in part directly and/or indirectly, while any Liabilities
and/or other amounts owed by Borrower to Lender are outstanding; and no interest
regardless of the form such interest is to be paid in (i.e., cash, in-kind,
securities or otherwise), shall be paid upon and during the continuance of an
Event of Default, and (b) all of the documents creating and/or evidencing any
such Subordinated Debt expressly provide that such Subordinated Debt is
unsecured and subordinated in all respects to all Borrower’s liabilities and
obligations to the Lender.

 

7

 

 

“Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or
being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP, (ii) any statutory Lien
arising in the ordinary course of business by operation of law with respect to a
liability that is not yet due or delinquent, (iii) any Lien created by operation
of law, such as materialmen’s liens, mechanics’ liens and other similar liens,
arising in the ordinary course of business with respect to a liability that is
not yet due or delinquent or that are being contested in good faith by
appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or
held by the Borrower or any of its Subsidiaries to secure the purchase price of
such equipment or indebtedness incurred solely for the purpose of financing the
acquisition or lease of such equipment, (b) existing on such equipment at the
time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment, (c) upon any real estate to secure the purchase price, incurred
solely to purchase the acquisition thereof, (v) Liens incurred in connection
with the extension, renewal or refinancing of the Indebtedness secured by Liens
of the type described in clause (iv) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase, (vi) all Liens (the “White Oak Liens”) on the
assets of the Borrower in favor of White Oak (solely to the extent of the assets
expressly set forth in the White Oak UCC Financing Statement Amendment),
including the Lien, perfected by a UCC-1 Financing Statement on file with the
Secretary of State of the State of Delaware in favor of White Oak Global
Advisors, LLC (“White Oak”), filed with the Secretary of State of the State of
Delaware on October 1, 2014 (File No. 20144233300), but in no event shall
additional Liens and/or security interests be placed on any assets of the
Borrower that were not so expressly provided for in the White Oak Credit
Agreement and/or the White Oak Credit Agreement Documents on the date such
documents were originally executed and (vii) all Liens of the Lender.

 

“Person” shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party or government (whether national, federal, state,
county, city, municipal or otherwise including, without limitation, any
instrumentality, division, agency, body or department thereof).

 

“Principal Market” shall mean the market or exchange on which the Common Stock
is listed or quoted for trading on the date in question.

 

“Purchase Price” means the $2,375,000 aggregate purchase price to be paid by the
Lender to purchase the $2,500,000 aggregate principal amount Note.

 

“Qualified Offering” means (i) the sale by the Borrower of its securities in one
or a series of related public offerings and/or private placements exempt from
the registration requirements of the federal securities laws resulting in the
receipt by the Borrower and/or its Subsidiaries of no less than $3,000,000 of
gross proceeds, and/or (ii) the entering into any agreement(s) and/or
instrument(s) pursuant to which the Borrower may borrow (regardless of whether
the Borrower borrows funds), in the aggregate principal amount of $3,000,000 or
more.

 

8

 

 

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

 

“Solvent” shall mean, with respect to any Person, as of any date of
determination, (i) the amount of the “present fair saleable value” of the assets
of such Person will, as of such date, exceed the amount of all “liabilities of
such Person, contingent or otherwise”, as of such date, as such quoted terms are
determined in accordance with applicable federal and state laws governing
determinations of the insolvency of debtors, (ii) the present fair saleable
value of the assets of such Person will, as of such date, be greater than the
amount that will be required to pay the liability of such Person on its debts as
such debts become absolute and matured, (iii) such Person will not have, as of
such date, an unreasonably small amount of capital with which to conduct its
business, and (iv) such Person will be able to pay its debts as they mature. For
purposes of this definition, (i) “debt” means liability on a “claim”, and (ii)
“claim” means any (a) right to payment, whether or not such a right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured or (b) right to an
equitable remedy for breach of performance if such breach gives rise to a right
to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured
or unsecured.

 

“Subordinated Debt” shall mean indebtedness due and owing by Borrower to any
Person (whether such indebtedness shall be now existing or hereinafter arising)
which is permitted to exist pursuant to this Agreement and is expressly
subordinated to the Liabilities pursuant to a legally valid and binding
Subordination Agreement in form and substance satisfactory to Lender.

 

“Subordination Agreement” shall mean each agreement given to the Lenders from
time to time by any Person with respect to the Subordinated Debt, all in the
form and substance reasonably satisfactory to the Lender.

 

“Subsidiary” shall mean, with respect to any Person, a corporation, partnership,
limited liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person.

 

“Successor Entity” shall mean the Person (or, if so elected by the Holder, the
Parent Entity) formed by, resulting from or surviving any Major Transaction or
the Person (or, if so elected by the Holder, the Parent Entity) with which such
Major Transaction shall have been entered into.

 

“Trading Market” shall mean any of the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question: the
OTC Bulletin Board, The NASDAQ Global Market, The NASDAQ Global Select Market,
The NASDAQ Capital Market, the New York Stock Exchange, NYSE Arca, the NYSE MKT,
or the OTCQX Marketplace or the OTCQB Marketplace operated by OTC Markets Group
Inc. (or any successor to any of the foregoing).

 

9

 

 

“UCC” shall mean the Uniform Commercial Code as in effect from time to time in
the State of New York; provided, however, that in the event that, by reason of
mandatory provisions of law, any or all of the attachment, perfection, priority,
or remedies with respect to the Lender’s liens on any Collateral is governed by
the Uniform Commercial Code as enacted and in effect in a jurisdiction other
than the State of New York, the term “UCC” shall mean the Uniform Commercial
Code as enacted and in effect in such other jurisdiction solely for purposes of
the provisions thereof relating to such attachment, perfection, priority, or
remedies.

 

“Voting Stock” of a Person means capital stock of such Person of the class or
classes pursuant to which the holders thereof have the general voting power to
elect, or the general power to appoint, at least a majority of the board of
directors, managers, trustees or other similar governing body of such Person
(irrespective of whether or not at the time capital stock of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency).

 

“Warrant” shall mean the four (4) year common stock purchase warrants of the
Borrower issuable to the Lender on the Closing Date to purchase such number of
shares of Common Stock (the “Warrant Shares”), and at the initial exercise price
per Warrant Share, all as provided in the Warrant. The Warrant shall be in the
form annexed hereto as Exhibit III and have the terms and conditions.

 

“White Oak” shall have the meaning set forth in the definition of “Permitted
Liens,” provided elsewhere herein.

 

“White Oak Credit Agreement” shall have the meaning set forth in Section
5.02(a).

 

“White Oak Credit Agreement Documents” shall mean all instruments, certificates,
documents, schedules, agreements, amendments, exhibits, supplements and other
items entered into by the parties to the White Oak Credit Agreement and/or their
respective Affiliates related to and/or contemplated by the White Oak Credit
Agreement when initially executed by the parties thereto including, but not
limited to, the Security Agreement dated as of October 1, 2014 executed by the
Borrower and certain other persons stated therein in favor of White Oak.

 

“White Oak Guaranty” shall mean that certain Continuing Guaranty, dated as of
October 1, 2014, made by the Borrower in favor of White Oak.

 

“White Oak Lien” shall have the meaning set forth in the definition of
“Permitted Liens” provided elsewhere herein.

 

Section 1.02. Other Definitional Provisions.

 

(a) Use of Defined Terms. Unless otherwise specified therein, all terms defined
in this Agreement shall have the defined meanings when used in the other
Documents or any certificate or other document made or delivered pursuant hereto
or thereto.

 

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(b) Accounting Terms. As used herein and in the other Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to Borrower not defined in Section 1.01 and accounting
terms partly defined in Section 1.01, to the extent not defined, shall have the
respective meanings given to them under GAAP (provided that all terms of an
accounting or financial nature used herein shall be construed, and all
computations of amounts referred to herein shall be made without giving effect
to (i) any election under Accounting Standards Codification 825-10-25
(previously referred to as Statement of Financial Accounting Standards 159) (or
any other Accounting Standards Codification or Financial Accounting Standard
having a similar result or effect) to value any Indebtedness or other
liabilities of Borrower at “fair value”, as defined therein, and (ii) any
treatment of Indebtedness in respect of convertible debt instruments under
Accounting Standards Codification 470-20 (or any other Accounting Standards
Codification or Financial Accounting Standard having a similar result or effect)
to value any such Indebtedness in a reduced or bifurcated manner as described
therein, and such Indebtedness shall at all times be valued at the full stated
principal amount thereof).

 

(c) Construction. The words “hereof”, “herein” and “hereunder” and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.

 

(d) UCC Terms. Terms used in this Agreement which are defined in the UCC shall,
unless the context indicates otherwise or are otherwise defined in this
Agreement, have the meanings provided for by the UCC.

 

ARTICLE 2.
LOAN

 

Section 2.1. Closing. The Closing shall occur at 10:00 am (EST) on the Closing
Date at the offices of Gusrae Kaplan Nusbaum PLLC, 120 Wall Street, 25th Floor,
New York, New York 10005, on the first (1st) Trading Day on which the conditions
to Closing set forth in Section 6 hereof are satisfied and/or waived in writing
as provided elsewhere herein, or on such other date and/or time as agreed to by
the Borrower and Lender.

 

Section 2.2. Conditions to the Making of the Loan by the Lender to the Borrower.
Subject to the terms and conditions of this Agreement, the Lender will on the
Closing Date make the Loan to the Borrower by purchasing the $2,500,000
aggregate principal amount Note from the Borrower for the $2,375,000 Purchase
Price, provided that (i) no Event of Default or event that with the passage of
time or the giving of notice, or both, would become an Event of Default shall
have occurred or would result therefrom; and (ii) the conditions in Section 6.01
have been satisfied.

 

Section 2.3. Note. The Loan shall be evidenced by the $2,500,000 aggregate
principal amount Note.

 

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Section 2.4. Purchase Price and Payment of the Purchase Price for the Notes. The
Purchase Price for the $2,500,000 aggregate principal amount Note shall be
$2,375,000 in the aggregate, representing an original issue discount. On the
Closing Date, the Lender shall pay the Borrower the $2,375,000 Purchase Price
(less (i) the $40,000 of Lender’s Expenses (as defined below), (ii) the $83,125
Aegis Fee (as defined below), (iii) $30,000 representing the November 2014
advisory fee owed by the Borrower to Aegis pursuant to an Agreement between the
Borrower and Aegis (the “$30,000 Aegis Advisory Fee,” and together with the
$83,125 Aegis Fee, collectively the “$113,125 Aegis Payment”), and (iv) the
$1,797,600 31 Group Payment Amount (as defined below)), for the $2,500,000
aggregate principal amount Note by wire transfer of immediately available funds
to the Borrower in accordance with the Borrower’s written wiring instructions,
against delivery of the duly executed $2,500,000 aggregate principal amount Note
and the Warrant.

 

Section 2.5. Cash Interest, Etc. The $2,500,000 aggregate principal amount of
the Note shall accrue and bear interest at an annual rate of interest equal to
twelve (12%) percent (“Cash Interest”), from the Closing Date through and
including the date all amounts (including Liabilities) owed by the Borrower to
the Lender are received in full in cash by the Lender. Cash Interest shall be
due and payable by the Borrower to the Lender monthly in arrears with the first
Cash Interest payment payable to the Lender on January 2, 2015, and, thereafter,
on the 2nd day of each succeeding month (each a “Cash Interest Payment Date”),
and/or at such other times as specified in this Agreement, until and through the
date all amounts due to the Lender from the Borrower are received by the Lender
in full in cash. Each Cash Interest payment shall be paid to the Lender from the
Borrower on each Cash Interest Payment Date (and/or at such other times as
specified herein), in cash by wire transfer of immediately available funds
pursuant to wire instructions provided by the Lender to the Borrower. Cash
Interest hereunder shall be due and payable to the Lender from the Borrower in
accordance with the terms hereof and elsewhere in this Agreement, both before
and after judgment, and both before and after the commencement of any proceeding
under the Bankruptcy Laws. Cash Interest shall be calculated on the basis of a
360 day year.

 

Section 2.6. Additional Interest. In addition to Cash Interest, the $2,500,000
aggregate principal amount of the Note shall accrue and bear interest at an
annual rate of interest equal to four (4%) percent (the “Additional Interest”),
from the Closing Date, through and including the date all amounts (including
Liabilities) owed by the Borrower to the Lender are received in full in cash by
the Lender. All Additional Interest shall be due and payable by the Borrower to
the Lender on the Loan Maturity Date, and/or at such other time as specified in
this Agreement, until and through the date all amounts due to the Lender from
the Borrower are received by the Lender in cash by wire transfer of immediately
available funds pursuant to wiring instructions provided by the Lender to the
Borrower. Additional Interest shall be due and payable in accordance with the
terms hereof both before and after judgment, and both before and after the
commencement of any proceeding under the Bankruptcy Laws. Additional Interest
shall be calculated on the basis of a 360 day year and for the actual number of
days elapsed.

 

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Section 2.7. Default Rate. Notwithstanding anything to the contrary provided
herein or elsewhere, from and after the occurrence and during the continuance of
any Event of Default (i) the 12% annual interest rate for Cash Interest; and
(ii) the four (4%) percent annual interest rate for the Additional Interest
shall automatically and without any further action be increased to the higher of
(a) the highest rate allowed by law, and (b) (I) sixteen percent (16.0%) per
annum for the Cash Interest rate, and (II) eight (8%) percent per annum for the
Additional Interest rate. In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding sentence shall
cease to be effective as of the calendar day immediately following the date of
such cure; provided that the Cash Interest and Additional Interest as calculated
and unpaid at such increased rate during the continuance of such Event of
Default shall in both cases continue to apply to the extent relating to the days
after the occurrence of such Event of Default through and including the date of
such cure of such Event of Default.

 

Section 2.8. Optional Prepayment of Note; Payment of the Loan Maturity Date.

 

(e) Optional Prepayment. Prior to the Loan Maturity Date, Borrower may prepay
all (but not less than all) of the Aggregate Principal Amount of the Note (an
“Optional Prepayment”), by paying to the Lender the following amounts (the
“Optional Prepayment Amount”):

 

Period During which Optional Prepayment Amount is Received by Lender

Optional Prepayment Amount to be Paid to Lender

Closing Date until the date 60 Days following the Closing Date The sum of (a)
the product of (i) 105%, multiplied by (ii) the $2,500,000 aggregate principal
amount of the Note; (b) all accrued but unpaid Cash Interest; (c) all accrued
but unpaid Additional Interest, and (d) other amounts due to Lender under this
Agreement and the other Documents Day 61 from the Closing Date until the date 90
days following the Closing Date The sum of (a) the product of (i) 103%,
multiplied by (ii) the $2,500,000 aggregate principal amount of the Note; (b)
all accrued but unpaid Cash Interest; (c) all accrued but unpaid Additional
Interest, and (d) other amounts due to Lender under this Agreement and the other
Documents Day 91 from the Closing Date until the date 180 days following the
Closing Date The sum of (a) the product of (i) 102%, multiplied by (ii) the
$2,500,000 aggregate principal amount of the Note; (b) all accrued but unpaid
Cash Interest; (c) all accrued but unpaid Additional Interest, and (d) other
amounts due to Lender under this Agreement and the other Documents

 

13

 

 

An Optional Prepayment shall be paid upon not less than five (5) Business Days
prior irrevocable written notice (the “Optional Prepayment Notice”), to the
Lender from the Borrower detailing the Optional Prepayment Amount to be paid and
setting forth the specific date the Optional Prepayment Amount shall be paid
(such date hereinafter to be referred to as the “Optional Prepayment Date”). The
Optional Prepayment Amount shall be paid in full in cash to the Lender by the
Borrower by wire transfer of immediately available funds on the Optional
Prepayment Date. Other than as expressly permitted in this Section 2.8(a) or
elsewhere herein, the Borrower may not prepay any portion of the Aggregate
Principal Amount of the Note, accrued but unpaid Cash Interest and/or any other
amounts due to Lender pursuant to the Note, this Agreement and/or any of the
other Documents.

 

(b) Payments on the Loan Maturity Date. The Borrower shall pay to the Lender on
the Loan Maturity Date, the Loan Maturity Date Payment Amount. The “Loan
Maturity Date Payment Amount” shall equal, if the Loan Maturity Date Payment
Amount is received by the Lender in cash in full by wire transfer of immediately
available funds on or prior to January 7, 2015, the sum of (i) the $2,500,000
aggregate principal amount of the Note, (ii) all accrued but unpaid Cash
Interest and Additional Interest; and (iii) all other amounts (including, but
not limited to, Liabilities), owed to the Lender by the Borrower under the Note,
this Agreement and/or the other Documents. If the Loan Maturity Date Payment
Amount is not received in full in cash by the Lender by 11:59 p.m. (EST) on
January 7, 2015, the Loan Maturity Date Payment Amount shall equal:

 

Period During which Loan Maturity Date Payment Amount is Received by Lender

Loan Maturity Date Payment Amount to be Paid to the Lender

January 8, 2015, until the date 60 Days following the Closing Date The sum of
(a) product of (i) 105%, multiplied by (ii) the $2,500,000 aggregate principal
amount of the Note; (b) all accrued but unpaid Cash Interest; (c) all accrued
but unpaid Additional Interest, and (d) other amounts due to Lender under this
Agreement and the other Documents Day 61 from the Closing Date until the date 90
days following the Closing Date The sum of  (a) the product of (i) 103%,
multiplied by (ii) the $2,500,000 aggregate principal amount of the Note; (b)
all accrued but unpaid Cash Interest; (c) all accrued but unpaid Additional
Interest, and (d) other amounts due to Lender under this Agreement and the other
Documents Day 91 from the Closing Date until the date all amounts due to the
Lender from the Borrower are received by the Lender The sum of (a) the product
of (i) 102%, multiplied by (ii) the $2,500,000 aggregate principal amount of the
Note; (b) all accrued but unpaid Cash Interest; (c) all accrued but unpaid
Additional Interest, and (d) other amounts due to Lender under this Agreement
and the other Documents

 

14

 

 

The Loan Maturity Date Payment Amount shall be payable by the Borrower to the
Lender on the Loan Maturity Date in cash by wire transfer in immediately
available funds pursuant to wire transfer instructions provided by the Borrower
to the Lender.

 

Section 2.9. Aegis Fee and Aegis Payment. In connection with the sale of the
$2,500,000 aggregate principal amount Note by the Borrower to the Lender, the
Borrower shall be obligated to pay to Aegis Capital Corp (“Aegis”), on the
Closing Date, a non-refundable fee equal to $83,125 (representing 3.5%, of the
$2,375,000 Purchase Price of the Note on the Closing Date purchased by the
Lender from the Borrower (the “Aegis Fee”)); and in addition, on the Closing
Date, the Borrower also shall pay to Aegis, the $30,000 Aegis Advisory Fee,
resulting in the payment of the $113,125 Aegis Payment being owed to Aegis from
the Borrower on the Closing Date. While the payment of the $113,125 Aegis
Payment is the sole and exclusive obligation and responsibility of the Borrower,
the Lender shall pay the $113,125 Aegis Payment directly to Aegis on the Closing
Date in cash by wire transfer directly to Aegis in immediately available funds
pursuant to wiring instructions provided to the Lender by Aegis. No portion of
the $113,125 Aegis Payment shall directly or indirectly reduce and/or result in
any set-off of any portion of the Aggregate Principal Amount of the Note and/or
reduce and/or result in a set-off of any other amounts due to the Lender by the
Borrower.

 

Section 2.10. Lender’s Cost and Expenses. On the Closing Date, all direct and
indirect costs and expenses of the Lender related to the negotiation, due
diligence, preparation, closing, and all other items regarding and/or related to
the Documents and all of the transactions contemplated thereto, including, but
not limited to the $35,000 legal fee payable to the Lender’s legal counsel
together with all documented out-of-pocket expenses of such legal counsel,
including, but not limited to, filing fees, lien search fees and other expenses
relating to securing the Collateral and for blue sky compliance (collectively,
the “Lender’s Expenses”), shall be due and payable from the Borrower to the
Lender and the Lender shall subtract from the $2,375,000 Purchase Price to be
paid to the Borrower for the $2,500,000 aggregate principal amount of the Note,
all of Lender’s Expenses and the Lender shall pay on the Closing Date to the
Lender’s counsel the fees and expenses set forth above in immediately available
funds by wiring such funds to Lender’s counsel pursuant to wiring instructions
provided to the Lender by its legal counsel. Although the Lender’s Expenses are
the sole responsibility and obligation of the Borrower, but are being subtracted
by the Lender from the Purchase Price actually delivered to the Borrower, such
Lender’s Expenses shall constitute part of the Purchase Price and shall not
directly and/or indirectly reduce and or result in any set-off the Aggregate
Principal Amount of the Note or result in a set-off and/or reduction of any
other funds owed by the Borrower to the Lender.

 

Section 2.11. Use of Proceeds. The Borrower agrees, covenants, represents and
warrants to the Lender that as a condition to Lender purchasing the $2,500,000
aggregate principal amount Note for the $2,375,000 Purchase Price pursuant to
this Agreement, Borrower shall use the net proceeds received of the $2,375,000
Purchase Price as follows: (i) to pay at the Closing on the Closing Date to 31
Group, $1,797,600.00 (the “31 Group Payment”), representing (a) $1,500,000
aggregate principal amount outstanding on the Senior Convertible Note, Issuance
Date July 1, 2014, in the Original Principal Amount of U.S. $1,500,000 sold by
the Borrower to 31 Group (the “31 Group Note”), pursuant to the Securities
Purchase Agreement dated as of July 31, 2014 by and between the Borrower and 31
Group (the “31 Group SPA”), and (b) $297,600 of accrued but unpaid interest on
the 31 Group Note; and (ii) the balance for working capital and general
corporate purposes. The payment of the 31 Group Payment to 31 Group shall be
payable by the Lender on behalf of the Borrower, by the Lender paying in cash
directly to the 31 Group the 31 Group Payment by the wiring of immediately
available funds pursuant to wiring instructions provided to the Lender from 31
Group. The Lender and the Borrower agree that the payment of the 31 Group
Payment directly to 31 Group by the Lender shall constitute and be considered
part of the $2,375,000 Purchase Price and thus shall not directly and/or
indirectly reduce and/or result in any set off of the Aggregate Principal Amount
of the Note nor reduce and/or result in any set-off of any other amounts
(including, but not limited to, Liabilities), owed to the Lender by the
Borrower.

 

Section 2.12. Warrant. On the Closing Date, the Borrower shall issue to Lender
the Warrant.

 

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Section 2.13. Possible Purchase of Additional $1,500,000 Aggregate Principal
Amount Note by Lender from the Borrower. If on or before January 7, 2015, the
Lender and Borrower expressly agree in writing that the Lender (and/or its
assignee), will purchase an additional $1,500,000 aggregate principal amount
note of the Borrower (the “$1,500,000 Additional Note”), from the Borrower for a
purchase price of $1,425,000, which amount includes original issue discount (the
“Additional Note Purchase Price”), then the Lender shall have five (5) business
days to pay to the Borrower such $1,425,000 Additional Note Purchase Price (less
all fees and expenses resulting from the purchase of such $1,500,000 Additional
Note) to purchase such $1,500,000 Aggregate Principal Amount Note from the
Borrower by the payment of cash by wire transfer of immediately available funds
to the bank account of Borrower pursuant to wire instructions provided from the
Borrower to the Lender. The documents and terms and conditions related to the
purchase of the Additional Note and such other obligations of the Borrower to
the Lender, including, but not limited to, the security interests and liens
granted by the Borrower in favor of the Lender to secure repayment of the
Additional Note and the payment of all the fees, expenses and related items in
connection with the purchase of such $1,500,000 Additional Note, including, but
not limited to, the warrants and warrant coverage shall be substantially similar
as provided herein relating to the purchase by the Lender of the $2,500,000
aggregate principal amount of Note with such changes as the Lender and the
Borrower shall mutually agree, except that the Lender shall receive as
additional Collateral securing the repayment of all principal, interest and all
other liabilities and obligations of the Borrower to the Lender relating to the
purchase of the $1,500,000 Additional Note, a first priority senior lien on all
assets of the Borrower not covered by White Oak Liens, second in priority only
to the Liens and security interest granted to the Lender in connection with the
Documents. For purposes of clarity, and notwithstanding anything to the contrary
provided herein or elsewhere, Lender is under no obligation to purchase from the
Borrower the Additional $1,500,000 Note (or any other securities of the
Borrowers, except the $2,500,000 Aggregate Principal Amount of the Note being
purchased pursuant to Section 2.2 hereof), except to the extent subsequently
agreed to in writing by the Lender and the Borrower.

 

ARTICLE 3.
COLLATERAL

 

Section 3.01. Security Interests. To secure payment of all amounts owed by the
Borrower to the Lender pursuant to the Documents (including, but not limited to
the Liabilities), Borrower as a condition to and effective solely upon the sale
of the Note to the Lender, hereby irrevocably pledges, assigns, transfers,
conveys and sets over to the Lender and hereby grants to the Lender (i) a first
priority security interest in and to all Accounts Receivable of the Borrower
(except those of VaultLogix), howsoever arising, wherever located and whether
now owned or existing or hereafter existing or acquired, and (ii) a first
priority security interest and Lien to all Collateral of the Borrower, which
Liens and security interest will only go into effect at such time as White Oak
releases the White Oak Liens and security interest on any Collateral and the
Borrower’s obligation to grant, pledge or otherwise assign a Lien in favor of
Administrative Agent (as defined in the White Oak Guaranty) is terminated
pursuant to Section 13(c)(i) of the White Oak Guaranty (the “Released
Collateral”) of the Borrower (the “Lender’s Springing Lien”). The Borrower
represents, warrants, covenants and agrees with and the Lender that upon the
termination of the White Oak Liens in all or any portion of the Collateral, the
Lender’s Springing Lien shall be a first priority security lien in such Released
Collateral.

 

Section 3.02. Perfection Authorization and Filing Requirements. As a condition
to the Lender’s obligation to purchase the Note, Borrower shall perform (whether
before and/or after the Closing Date), any and all acts requested by the Lender
to establish, maintain and continue the Lender’s security interest and liens in
the Accounts Receivable and the Lender’s Springing Lien in any Released
Collateral, including but not limited to, executing and/or authenticating
financing statements and such other instruments and documents when and as
reasonably requested by the Lenders. Borrower hereby authorizes Lender through
any of the Lender’s employees, agents or attorneys, such authorization effective
solely upon the sale of the Note to the Lender, to file any (i) UCC financing
statements (and/or amendments, supplements, etc. and/or similar statements/
documents), including, without limitation, any continuations, transfers or
amendments thereof required to perfect the Lender’s security interests and liens
in the Borrower’s Accounts Receivable and/or on the Blocked Account, (ii)
UCC-3(s) (and/or amendments, supplements, etc. and/or other documents) to
terminate any financing statement of White Oak and/or any other Lending Parties
following the date any such White Oak Liens are terminated, and (iii) UCC-1
financing statement (or other similar documents) perfecting the Lender’s
Springing Lien in any Released Collateral, in all such cases without
authentication or execution by Borrower.

 

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Section 3.03. Collection of Accounts Receivable.

 

(g) Blocked Account. Borrower shall promptly, but in no event later than 24
hours following date of execution of the Blocked Account Agreement and the
establishment of the Blocked Account (both of which must be completed in the
time frame set forth in the definition of “Blocked Account Agreement” provided
in the definition section of this Agreement), instruct its customers to deliver
all remittances upon Accounts Receivables (whether paid by check or by wire
transfer of funds) to the Blocked Account. The Borrower hereby agrees with the
Lender that the Blocked Account Agreement shall contain a provision that
provides the Lender “control” (for purposes of Articles 8 and 9 of the UCC),
over such Blocked Account. All funds deposited in such Blocked Account shall
immediately become subject to a first priority Lien and security interest of
Lender. The Blocked Account Agreement shall include, among other provisions,
provisions providing that the Blocked Account Bank waives any offset rights
against the funds deposited in the Blocked Account Bank and/or that were
deposited in any other account of the Borrower that should have been deposited
in the Blocked Account, and that until the occurrence and continuation of an
Event of Default all funds in the Blocked Account shall be available to
Borrower.

 

(h) Contact by the Lender. The Lender, at any time after the occurrence and
continuation of an Event of Default, may, in its sole discretion, notify any or
all of the Account Debtors that (1) the Accounts Receivable have been assigned
to the Lender; and/or (2) that all further payments on the Accounts Receivable
should be paid directly to the Lender. When requested by the Lenders after the
occurrence of an Event of Default, Borrower at its expense will notify or cause
to be notified any or all Account Debtors to pay directly to the Lender any sum
or sums then due or to become due on the Accounts Receivable or any part thereof
and all bills and statements thereafter sent by Borrower to such Account Debtors
shall state that the same have been assigned to the Lender and are payable
solely to the Lender.

 

(i) Rights of Lender after Event of Default. In addition to any rights of the
Lender in the event an Account Debtor is notified under Section 3.03(b) hereof,
that an Event of Default has occurred under the terms of this Agreement and/or
the Note, the Lender shall have and succeed to all rights, remedies, securities
and liens of Borrower in respect to such Accounts Receivable and/or other
Collateral, including, but not limited to, the right of stoppage in transit of
any merchandise, guarantees or other contracts or suretyship with respect to any
such merchandise, warranties, unpaid seller’s liens, statutory liens, artisans’
liens, or the right to other collateral security held by or to which Borrower is
entitled for the payment of any such merchandise, and shall have the right to
enforce the same in its name or to direct the enforcement thereof by Borrower
for the benefit of the Lender, and Borrower shall, at the request of the Lender,
deliver to the Lender a separate written assignment of any of the same. The
Lender, however, shall not incur any obligation or liability of Borrower to any
Account Debtor, including, but not limited to, obligations or liabilities
pursuant to any contract, agreement, warranty, guarantee, judicial decree or
jury award. The Lender, in such an event, is also hereby irrevocably authorized
to endorse Borrower’s name on all notes, checks, drafts, bills of exchange,
money orders, commercial paper of any kind whatsoever, and any other instruments
or documents received howsoever in payment of the Accounts Receivable, or any
part thereof, and the Lender or any officer or employee thereof are hereby
irrevocably constituted and appointed agent and attorney-in-fact for Borrower
for the foregoing purpose.

 

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(j) Compromise of Accounts Receivable. Borrower shall not collect, compromise or
accept any sum in full payment or satisfaction of any Accounts Receivable for
materially less than the amount due without the express written consent of the
Lender.

 

(k) Verification of Accounts Receivable. The Lender may directly contact the
Account Debtors for written confirmations of the Accounts Receivable at any time
whether before or after the occurrence of an Event of Default.

 

Section 3.04. Use of Collateral. Borrower shall at all times keep the Collateral
in good condition and repair and free and clear of all unpaid charges
(including, but not limited to, taxes), liens and encumbrances, and shall pay or
cause to be paid all material obligations as they come due, including but not
limited to, mortgage payments, real estate taxes, assessments and rent due on
the premises where the Collateral is or may be located. Borrower agrees that in
the event Borrower fails to pay such obligations, the Lender, may, in its sole
and arbitrary discretion, pay such obligations for the account of Borrower. The
Lender may, in its sole discretion, discharge taxes, liens or security interests
or other encumbrances at any time levied or placed on the Collateral and may, in
its sole and arbitrary discretion, pay for the maintenance and preservation of
the Collateral. Any payments made by the Lender pursuant to this Section 3.04
shall be repayable to the Lender by Borrower immediately upon the Lender’s
demand therefor, with interest at an annual rate equal to sixteen (16%) percent
during the period from and including the date funds are so expended by the
Lenders to the date of repayment in full of such amounts due, and any such
amounts due and owing the Lender shall be an additional obligation of Borrower
to the Lenders secured hereunder.

 

Section 3.05. Third Party Waivers. At the Lenders’ request, Borrower shall use
its best efforts to deliver to Lender landlord waivers, bailee waivers,
warehouse waivers or other third party waivers required by Lender (individually,
a “Third Party Waiver”) executed by the lessors, mortgagors, bailors, warehouse
owners and/or operators and consignors of or at the Collateral Locations used by
Borrower, all in form and substance reasonably satisfactory to the Lenders.

 

Section 3.06. Delivery of Instruments and Chattel Paper. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any instrument, certificated security and/or chattel paper, such instrument,
certificated security or chattel paper shall be immediately delivered to the
Lender, duly indorsed in a manner satisfactory to the Lender, to be held as
Collateral pursuant to this Agreement.

 

Section 3.07. Payment of Obligations. Borrower shall pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all taxes, assessments and governmental charges or levies imposed
upon the Collateral or in respect of income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral.

 

18

 

 

Section 3.08. Commercial Tort Claims. If Borrower shall at any time commence a
suit, action or proceeding with respect to any commercial tort claim held by it
with a value which Borrower reasonably believes to be of $50,000 or more,
Borrower shall promptly notify the Lender thereof in a writing signed by
Borrower and describing the details thereof and shall grant to the Lenders in
such writing a security interest therein and in the proceeds thereof, all upon
the terms of this Agreement, with such writing to be in form and substance
satisfactory to the Lender.

 

Section 3.09. Representations, Warranties, Agreements and Covenants of the
Borrower Regarding the Collateral and Related Items. The Borrower hereby
represents, warrants, agrees and covenants to and with the Lender as follows: 

 

(a) The Borrower is the sole owner of, and has full title to all Accounts
Receivable of the Borrower and the Collateral free and clear of any liens,
security interests, encumbrances, rights or claims (including, but not limited
to, the Released Collateral when released from the White Oak Liens and security
interest pursuant to the White Oak Credit Agreement and/or the White Oak Credit
Agreement Documents) and is fully authorized to grant the security interests in
the Borrower’s Accounts Receivable to the Lender (and to the Released Collateral
when released from the White Oak Liens and security interest pursuant to the
White Oak Credit Agreement and/or the White Oak Credit Agreement Documents).
There is not on file in any governmental or regulatory authority, agency or
recording office an effective financing statement, security agreement, license
or transfer or any notice of any of the foregoing (other than those that have
been filed in favor of the Lender pursuant to this Agreement) covering or
affecting any of the Borrower’s Accounts Receivable (except for the Collateral
subject to the White Oak Liens). So long as this Agreement shall be in effect,
Borrower shall not execute and shall not knowingly permit to be on file in any
such office or agency any such financing statement or other document or
instrument (except to the extent filed or recorded in favor of the Lender
pursuant to the terms of this Agreement).

 

(b) The Borrower will maintain the Collateral so as to preserve its value
subject to wear and tear in the ordinary course. 

 

(c) Borrower will pay when due all existing or future charges, liens, or
encumbrances on the Accounts Receivable and the Collateral, and will pay when
due all taxes and assessments now or hereafter imposed or affecting the
Collateral unless such taxes or assessments are diligently contested by Borrower
in good faith and reasonable reserves are established therefor. Borrower shall
promptly notify the Lender in sufficient detail upon becoming aware of any
attachment, garnishment, execution or other legal process levied against any of
its Accounts Receivable and/or the other Collateral and of any other information
received by Borrower that may materially affect the value of any of its Accounts
Receivable and/or the other Collateral, the security interest or the rights and
remedies of the Lender hereunder.

 

19

 

 

(d) This Agreement creates in favor of the Lender a valid security interest in
the Borrower’s Accounts Receivable (and as a result of the Lender’s Springing
Lien in the Released Collateral, when released) securing the payment and
performance of the Note and all other Liabilities of Borrower under the
Documents and, upon making the filings described herein, a perfected first
priority security interest in all of the Borrower’s Accounts Receivable and the
Released Collateral. No authorization or approval of or filing with or notice to
any governmental authority or regulatory body is required either (i) for the
grant by Borrower of, or the effectiveness of, the security interest granted
hereby or (ii) for the perfection of or exercise by the Lender of its rights and
remedies hereunder.

  

(e) The Lender will prepare, execute and file with the Secretary of State in the
State of Delaware, UCC-1 Financing Statements covering (i) the Borrower’s
Accounts Receivable on the date of execution of this Agreement and (ii) on each
date any Collateral is released from the White Oak Liens and security interests
naming the Lender as the secured party thereunder.

 

(f) Borrower will keep its records concerning the Accounts Receivables and the
other Collateral at its address shown in Section 9.3 below. Such records will be
of such character as to enable the Lender or its representatives to determine at
any time the status thereof, and Borrower will not, unless the Lender shall
otherwise consent in writing, maintain any such record at any other address.

 

(g) Borrower will, at such times as the Lender may request, deliver to the
Lender a schedule identifying the Accounts Receivable and the other Collateral
subject to the security interest of this Agreement. Borrower shall permit the
Lender and its representatives and agents to inspect the Accounts Receivable and
the other Collateral at any time, and to make copies of records pertaining to
the Accounts Receivable and the other Collateral as may be requested by the
Lender from time to time. 

 

(h) No part of the Accounts Receivable and the other Collateral has been judged
invalid or unenforceable. No written claim has been received that any Accounts
Receivable and the other Collateral or Borrower’s use of any Accounts Receivable
and the other Collateral violates the rights of any third party. There has been
no adverse decision to Borrower’s claim of ownership rights in or exclusive
rights to use the Accounts Receivables and the other Collateral in any
jurisdiction or to Borrower’s right to keep and maintain such Accounts
Receivable and the other Collateral in full force and effect, and there is no
proceeding involving said rights pending or, to the best knowledge of Borrower,
threatened before any court, judicial body, administrative or regulatory agency,
arbitrator or other governmental authority. 

 

(i) Borrower shall promptly execute and deliver to the Lender such further
deeds, mortgages, assignments, security agreements, financing statements or
other instruments, documents, certificates and assurances and take such further
action as the Lender may from time to time request and may in its sole
discretion deem necessary to perfect, protect or enforce its security interest
in the Accounts Receivable and the other Collateral.

 

20

 

 

(j) Other than in the ordinary course of business, Lender shall not sell,
transfer, assign, convey, license or grant any right to use or otherwise dispose
of any Accounts Receivable and the other Collateral without the prior written
consent of the Borrower.

 

(k) Notwithstanding the exercise of any remedy available to the Lender hereunder
and/or pursuant to any other Document, at law and/or in equity and/or in
connection with an Event of Default or otherwise, Borrower shall remain liable
to repay the outstanding Aggregate Principal Amount of the Note, Cash Interest
and all other amounts due to the Lender by the Borrower under the other
Documents or otherwise after the value or proceeds received by the Lender in
connection with such remedy is subtracted.

 

(l) Borrower shall remain liable under the contracts and agreements included in
the Accounts Receivables and the other Collateral to the extent set forth
therein and shall perform all of its duties and obligations under such contracts
and agreements to the same extent as if this Agreement had not been executed.

 

(m) The Lender shall not have any obligation or liability under any such
contracts or agreements included in the Accounts Receivable and the other
Collateral by reason of this Agreement, nor shall the Lender be obligated to
perform any of the obligations or duties of Borrower thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.

 

(n) All rights of the Lender related to the Blocked Account whether provided by
law, the Blocked Account Agreement and/or otherwise and the security interests
granted to the Lender hereunder shall be absolute and unconditional, to the
maximum extent permitted by law, irrespective of:

 

(1)Any lack of validity or enforceability of this Agreement, the Note, the
Blocked Account Agreement, any other Document and/ or any other document or
instrument relating thereto;

  

(2)Any change in the time, manner or place of payment of, or in any other term
of, all or any part of the Liabilities or any other amendment to or waiver of or
any consent to any departure from the Note, this Agreement or any other Document
or instrument relating thereto;

  

(3)Any exchange, release or non-perfection of any Collateral (including the
Collateral and/or the Accounts Receivable), or any release of or amendment to or
waiver of or consent to or departure from any guaranty, for all or any of the
Liabilities; or

  

(4)Any other circumstance which might otherwise constitute a defense available
to, or a discharge of, Borrower, a guarantor or a third party grantor of a
security interest.

 

21

 

  

(q) Borrower has executed and delivered to the Lender a Perfection Certificate
in the form of Exhibit II hereto (the “Perfection Certificate”). Borrower
represents and warrants to the Lender as follows:

 

  (i) Borrower’s exact legal name is as indicated on the Perfection Certificate
and on the signature page hereof;         (ii) Borrower is an organization of
the type, and is organized in the jurisdiction, set forth in the Perfection
Certificate;         (iii) the Perfection Certificate accurately sets forth
Borrower’s organizational identification number and taxpayer identification
number or accurately states that Borrower has none;         (iv) the Perfection
Certificate accurately sets forth Borrower’s place of business or, if more than
one, its chief executive office as well as Borrower’s mailing address, if
different; and         (v) all other information set forth on the Perfection
Certificate is accurate and complete.

 

(r) Borrower will immediately notify the Lender of any claim, suit or proceeding
against any Accounts Receivable and/or any other Collateral and/or any event
causing loss or depreciation in the value of any Accounts Receivable and/or any
other Collateral, including the amount of such loss or depreciation. 

 

ARTICLE 4.

REPRESENTATIONS AND WARRANTIES

 

Section 4.01. Representation and Warranties. Borrower represents and warrants to
Lender that on the Closing Date:

 

(l) Organization, Etc. Borrower is duly organized, validly existing and in good
standing under the laws of the state of their respective organization and are
duly qualified and in good standing or has applied for qualification as a
foreign corporation authorized to do business in each jurisdiction where,
because of the nature of its activities or properties, such qualification is
required except where the failure to be so qualified would not reasonably be
expected to have a Material Adverse Effect.

 

(m) Authorization: No Conflict. The execution, delivery and performance of the
Documents to which Borrower is a party, including, but not limited to, the
borrowing hereunder and the use of the proceeds thereof as provided herein (i)
are within Borrower’s corporate powers, (ii) have been duly authorized by all
necessary action by or on behalf of Borrower, (iii) have, or by the time of
their execution and delivery shall have, received all necessary governmental or
regulatory approval (if any shall be required), (iv) do not and shall not
contravene or conflict with any provision of, or require any consents under (1)
any law, rule, regulation or ordinance, (2) Borrower’s organizational documents;
or (3) any agreement binding upon Borrower or any of Borrower’s properties
except as would not reasonably be expected to have a Material Adverse Effect,
including, but not limited to, the White Oak Credit Agreement and/or the White
Oak Credit Agreement Documents, and (v) do not result in, or require, the
creation or imposition of any lien and/or encumbrance on any of Borrower’s
properties or revenues pursuant to any law, rule, regulation or ordinance or any
such agreement.

 

22

 

 

(n) Validity and Binding Nature. The Documents to which Borrower is a party are
the legal, valid and binding obligations of Borrower, enforceable against
Borrower in accordance with their respective terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization and other similar laws of
general application affecting the rights and remedies of creditors and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).

 

(o) Title to Assets. Borrower has good and marketable title to all assets owned
by Borrower, including, but not limited to, the Collateral, subject to no (i)
liens, encumbrances, security interests, or mortgages; (ii) zoning, building,
fire, health or environmental code violations of any governmental authority; and
(iii) violations of any covenants, conditions or restrictions of record.
Borrower has obtained all required permits, certificates, licenses, approvals
and other authorizations from governmental agencies and entities (whether
federal, state or local) necessary to carry on its respective operations.

 

(p) No Violations of Laws. Borrower is not in material violation of any law,
ordinance, rule, regulation, judgment, decree or order of any federal, state or
local governmental body or court.

 

(q) Burdensome Obligations. Borrower is not a party to any indenture, agreement,
lease, contract, deed or other instrument, or subject to any partnership
restrictions or has any knowledge of anything which could have a Material
Adverse Effect.

 

(r) Taxes. All federal, and material state and local tax returns required to be
filed by Borrower have been filed with the appropriate governmental agencies and
all taxes due and payable by Borrower have been timely paid.

 

(s) Employee Benefit Plans. The term “Plan” shall mean an “employee pension
benefit plan” (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
Borrower or by any member of the Controlled Group. Each plan and/or employee
benefit plan, if any, (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended from time to time) maintained by
Borrower complies in all material respects with all applicable requirements of
law and regulations and all payments and contributions required to be made with
respect to such plans have been timely made.

 

(t) Federal Laws and Regulations. Borrower is not (i) an “investment Borrower”
or a Borrower “controlled”, whether directly or indirectly, by an “investment
Borrower”, within the meaning of the Investment Borrower Act of 1940, as
amended; or (ii) engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System).

 

23

 

 

(u) Fiscal Year. The fiscal year of Borrower ends on December 31 of each year.

 

(v) Subsidiaries; Locations; Security Rights. All Subsidiaries of the Borrower
on the closing date are set forth in the Public Reports. The Public Reports sets
forth as of the date hereof all outstanding securities of the Borrower, the
amounts outstanding and the terms thereof. All securities of the Borrower issued
and outstanding were duly and validly issued, no person has any rescission
rights with respect to any securities of the Borrower sold to any such person
and all securities issued by the Borrower were issued in accordance with all
federal and state securities laws. The Public Reports set forth, as of the
closing date, Borrower’s jurisdiction of organization, identification number
from the jurisdiction of organization (if any), and the location of Borrower’s
chief executive office or sole place of business or principal residence, as the
case may be. Except as set forth on the Public Reports, as of the date hereof,
there are no outstanding subscriptions, convertible, exchangeable, exercisable,
securities (include debt securities), options, warrants, calls, preemptive or
registration rights or other agreements or commitments of any nature relating to
any capital stock of Borrower. Except as set forth on the Public Reports, as of
the date hereof, there are no contracts, commitments, understandings, or
arrangements by which Borrower is or may become bound to issue additional
capital stock or options, securities or rights convertible into capital stock.
Except as set forth on the Public Reports, as of the date hereof, Borrower is
not party to or bound by any agreement or understanding granting registration or
anti-dilution rights to any Person with respect to any of its equity or debt
securities. Borrower is not a party to, and it has no knowledge of, any
agreement or understanding restricting the voting or transfer of any of its
capital stock.

 

(w) Officers and Ownership. As of the date hereof, the Persons set forth in the
Public Reports holds the respective office or offices, position or positions
(including director positions if a director), in Borrower and (ii) own the
percentage of each and every class of issued and outstanding capital stock or
other ownership interests of Borrower and the Voting Power over said capital
stock or other ownership interests.

 

(x) Genuineness of Accounts Receivable. All the Accounts Receivable of Borrower
are genuine and were incurred in the ordinary course of business and are not in
default. Each of the Accounts Receivables shall be a bona fide and valid account
representing a bona fide indebtedness incurred by the customer therein named,
for a fixed sum as set forth in the invoice relating thereto with respect to an
absolute sale or lease and delivery of goods upon stated terms of Borrower. Same
shall be due and owing in accordance with Borrower’s standard terms of sale
without dispute, setoff or counterclaim. Each customer of Borrower, to the best
of Borrower’s knowledge, as of the date each Account Receivable is created, is
and will be solvent and able to pay all Accounts Receivables on which the
customer is obligated in full when due. With respect to such customers of
Borrower who are not solvent, Borrower has set up on its books and in its
financial records bad debt reserves adequate to cover such Account Receivables.

 

(y) Collateral Locations. All of the tangible Collateral is located at the
Collateral Locations.

 

24

 

 

(z) Pay-Off Letter. All information in the Pay-Off Letter is true and complete
in all respects.

 

(aa) White Oak Credit Agreement; Etc. No provision of the White Oak Credit
Agreement, the other White Oak Credit Agreement Documents, and/or any other
related documents directly and/or indirectly (i) have since their original
execution been amended, supplemented, waived and/or otherwise changed in such a
manner that could directly and/or indirectly effect any of the Lender’s rights
under any of the Documents and/or (ii) provide White Oak, the Lending Parties
and/or any other person and/or entity with any security interest and/or Lien in
any Accounts Receivable of the Borrower and/or any proceeds therefrom.

 

(bb) Rule 506(d) Bad Actor Disqualification Representations and Covenants.

 

(i) No Disqualification Events. Neither the Borrower, nor any of its
predecessors, affiliates, any manager, executive officer, other officer of the
Borrower participating in the offering, any beneficial owner (as that term is
defined in Rule 13d-3 under the Exchange Act) of 20% or more of the Borrower’s
outstanding voting equity securities, calculated on the basis of voting power,
nor any promoter (as that term is defined in Rule 405 under the Securities Act)
connected with the Borrower in any capacity as of the date of this Agreement and
on the Closing Date (each, a “Borrower Covered Person” and, together, “Borrower
Covered Persons”) is subject to any of the “Bad Actor” disqualifications
described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a
“Disqualification Event”), except for a Disqualification Event covered by Rule
506(d)(2) or (d)(3). The Borrower has exercised reasonable care to determine (i)
the identity of each person that is a Borrower Covered Person; and (ii) whether
any Borrower Covered Person is subject to a Disqualification Event. The Borrower
will comply with its disclosure obligations under Rule 506(e).

 

(ii) Other Covered Persons. The Borrower is not aware of any person (other than
any Borrower Covered Person) that has been or will be paid (directly or
indirectly) remuneration in connection with the Loan, the Note and/or the
Warrants that is subject to a Disqualification Event (each an “Other Covered
Person”).

 

(iii) Reasonable Notification Procedures. With respect to each Borrower Covered
Person, the Borrower has established procedures reasonably designed to ensure
that the Borrower receives notice from each such Borrower Covered Person of (i)
any Disqualification Event relating to that Borrower Covered Person, and (ii)
any event that would, with the passage of time, become a Disqualification Event
relating to that Borrower Covered Person; in each case occurring up to and
including the Closing Date.

 

(iv) Notice of Disqualification Events. The Borrower will notify the Lender
immediately in writing upon becoming aware of (i) any Disqualification Event
relating to any Borrower Covered Person and (ii) any event that would, with the
passage of time, become a Disqualification Event relating to any Borrower
Covered Person and/or Other Covered Person.

 

25

 

 

(cc) Schedules. All Schedules of the Borrower to this Agreement and any other
Documents, shall be updated and provided to the Lender no later than the Closing
Date, so that on the Closing Date all such Schedules be true, accurate and
complete.

 

(dd) Accuracy of Information, etc. No statement or information contained in this
Agreement, the Public Reports (as defined below), any other Document or any
other document, certificate or statement furnished to the Lender by or on behalf
of Borrower in writing for use in connection with the transactions contemplated
by this Agreement and/or the other Documents, contained as of the date such
statement, information, document or certificate was made or furnished, as the
case may be, any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements contained herein or therein,
taken as a whole, not materially misleading. There is no fact known to Borrower
that could have a Material Adverse Effect that has not been expressly disclosed
herein, in the other Documents, or in any other documents, certificates and
statements furnished to the Lenders for use in connection with the transactions
contemplated hereby and by the other Documents.

 

(ee) Solvency. Borrower is as of the date hereof Solvent; and shall be Solvent
immediately prior to, and immediately following the Closing, after giving effect
to the incurrence of all Indebtedness and all other obligations being incurred
by the Borrower herewith and pursuant to the other Documents and the use of the
$2,375,000 Purchase Price as provided elsewhere herein, including, but not
limited to, the full payment of the $113,125 Aegis Payment, the $40,000 of
Lender’s Expenses and the $1,797,600 31 Group Payment will be, Solvent.

 

(ff) Affiliate Transactions. Other than as disclosed in the Public Reports,
Borrower has not purchased, acquired or leased any property from, or sold,
transferred or leased any property to, or entered into any other transaction
with (i) any Affiliate, (ii) any officer, director, manager, shareholder or
member of Borrower or any Affiliate of any thereof, or (iii) any member of the
immediate family of any of the foregoing, except on terms comparable to the
terms which would prevail in an arms-length transaction between unaffiliated
third parties and have been disclosed to Lenders in writing.

 

(gg) Deposit Accounts. All deposit accounts, checking accounts, securities
accounts and investment accounts of Borrower are set forth on Schedule 4.01(v).

 

(hh) Intellectual Property. The Borrower has, or has rights to use, all patents,
patent applications, trademarks, trademark applications, service marks, trade
names, trade secrets, inventions, copyrights, licenses and other intellectual
property rights and similar rights as described in the Public Reports as
necessary or required for use in connection with their respective businesses and
which the failure to so have could have a Material Adverse Effect (collectively,
the “Intellectual Property Rights”). None of, and the Borrower has not received
a notice (written or otherwise) that any of, the Intellectual Property Rights
has expired, terminated or been abandoned, or is expected to expire or terminate
or be abandoned. The Borrower has not received, since the date of the latest
audited financial statements included within the Public Reports, a written
notice of a claim or otherwise has any knowledge that the Intellectual Property
Rights violate or infringe upon the rights of any Person, except as could not
have or reasonably be expected to not have a Material Adverse Effect. To the
knowledge of the Borrower, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of the
Intellectual Property Rights. The Borrower has taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties, except where failure to do so could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
All Intellectual Property Rights of the Borrower are set forth in the Public
Reports.

 

26

 

 

(ii) [Reserved].

 

(jj) USA Patriot Act. Borrower is in compliance, in all material respects, with
(a) the Trading with the Enemy Act, as amended, and each of the foreign assets
control regulations of the United States Treasury Department (31 C.F.R.,
Subtitle B, Chapter V, as amended) and any other enabling legislation or
executive order relating thereto, and (b) the USA Patriot Act (Title III of Pub.
L. 107-56, signed into law October 26, 2001) (the “Act”). No part of the
proceeds of the Loan will be used, directly or indirectly, for any payments to
any governmental official or employee, political party, official of a political
party, candidate for political office, or anyone else acting in an official
capacity, in order to obtain, retain or direct business or obtain any improper
advantage, in violation of the United States Foreign Corrupt Practices Act of
1977, as amended.

 

(kk) Foreign Asset Control Laws. Borrower is not a Person named on a list
published by OFAC or a Person with whom dealings are prohibited under any OFAC
Regulations.

 

(ll) [Reserved].

 

(mm) Indebtedness; Liens, Etc. The Borrower has no Indebtedness (except
Permitted Indebtedness), and has no Liens (except Permitted Liens).

 

(nn) Authorization; Enforcement. All corporate action on the part of the
Borrower, its officers, directors and stockholders necessary for the
authorization, execution and delivery of the Documents and the performance of
all obligations of the Borrower under the Documents, and the authorization (or
reservation for issuance), sale and issuance of the Notes, Warrants and the
Warrant Shares, have been taken on or prior to the date hereof. Each of the
Documents has been duly executed by the Borrower and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and
binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

 

(oo) Valid Issuance of the Warrant and the Warrant Shares; Reservation of
Shares. Each of the Notes and Warrants has been duly authorized and, when issued
and paid for in accordance with this Agreement, will be duly and validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the
Borrower other than restrictions on transfer under this Agreement and under
applicable state and federal securities laws. Upon the issuance of the Warrant
Shares pursuant to the exercise of the Warrant, the Warrant Shares when issued
and delivered in accordance with the terms of the Warrant, will be duly and
validly issued, fully paid and non-assessable, free and clear of all Liens
imposed by the Borrower other than restrictions on transfer under this
Agreement, the Warrant and applicable state and federal securities laws. The
Borrower has reserved from its duly authorized capital stock a sufficient number
of shares of Common Stock for the issuance of all of the Warrant Shares. The
Warrant, the Note, and the Warrant Shares shall sometimes be collectively
referred to as the “Securities.”

 

27

 

 

(pp) Capitalization and Voting Rights. The authorized capital stock of the
Borrower and the shares thereof issued and outstanding were as set forth in the
Public Reports (as defined below) as of the dates reflected therein. All of the
outstanding shares of Common Stock have been duly authorized and validly issued,
and are fully paid and nonassessable. Except as set forth in the Public Reports
and this Agreement, there are no agreements or arrangements under which the
Borrower is obligated to register the sale of any securities under the 1933 Act.
Except as set forth in the Public Reports, no shares of Common Stock are
entitled to preemptive rights and there are no outstanding debt securities and
no contracts, commitments, understandings, or arrangements by which the Borrower
is or may become bound to issue additional shares of the capital stock of the
Borrower or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of capital stock of the
Borrower other than those issued or granted in the ordinary course of business
pursuant to the Borrower’s equity incentive and/or compensatory plans or
arrangements. Except for customary transfer restrictions contained in agreements
entered into by the Borrower to sell restricted securities or as set forth in
the Public Reports, the Borrower is not a party to, and it has no knowledge of,
any agreement restricting the voting or transfer of any shares of the capital
stock of the Borrower. Except as set forth in the Public Reports, the offer and
sale of all capital stock, convertible or exchangeable securities, rights,
warrants or options of the Borrower issued prior to the applicable
Representation Date complied with all applicable federal and state securities
laws, and no stockholder has any right of rescission or damages or any “put” or
similar right with respect thereto that would have a Material Adverse Effect.
Except as set forth in the Public Reports, there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the Note, the Warrants, this Agreement, or the consummation of the
transactions described herein or therein.

 

(qq) Offering. Subject to the truth and accuracy of the Lender’s representations
set forth in Section 11 of this Agreement, the offer and sale of the Securities
as contemplated by this Agreement are exempt from the registration requirements
of the 1933 Act, and the qualification or registration requirements of state
securities laws or other applicable blue sky laws. Neither the Borrower nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemptions.

 

(rr) Public Reports. The Borrower is current in its filing obligations under the
1934 Act, including, without limitation, as to its filings of Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K
(collectively, the “Public Reports”). The Public Reports do, at the time filed
with the SEC, did not contain any untrue statement of a material fact or omit to
state any fact necessary to make any statement therein not misleading. The
financial statements included within the Public Reports for the fiscal year
ended December 31, 2013 and for the quarterly periods (the “Financial
Statements”) have been prepared in accordance with generally accepted accounting
principles (“GAAP”) applied on a consistent basis throughout the periods
indicated and with each other, except that unaudited Financial Statements may
not contain all footnotes required by generally accepted accounting principles.
The Financial Statements fairly present, in all material respects, the financial
condition and operating results of the Borrower as of the dates, and for the
periods, indicated therein, subject in the case of unaudited Financial
Statements to normal year-end audit adjustments.

 

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(ss) Sarbanes-Oxley Act. The Borrower is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.

 

(tt) Arbitration, Absence of Litigation. Except as disclosed in the Public
Reports, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the Borrower, threatened against or
affecting the Borrower, the Common Stock or any of the Borrower’s officers or
directors in their capacities as such.

 

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

 

(vv) Disclosure. Except with respect to the material terms and conditions of the
transactions contemplated by the Documents, the Borrower confirms that neither
it nor any other Person acting on its behalf has provided the Investor or its
agents or counsel with any information that it believes constitutes material,
non-public information. The Borrower understands and confirms that the Lender
will rely on the foregoing representation and the Public Reports in effecting
the Loan and purchasing the Warrant. All of the disclosure furnished by or on
behalf of the Borrower to the Lender in the Documents or the Public Report
regarding, among other matters relating to the Borrower, its business and the
transactions contemplated hereby, including the Schedules to this Agreement, are
true and correct in all material respects as of the date made and do not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Borrower
acknowledges and agrees that the Lender does not make nor has it made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in herein and/or in Section 11
hereof.

 

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(ww) No Integrated Offering. Assuming the accuracy of the Lender’s
representations and warranties set forth in Section 11, neither the Borrower,
nor any of its affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Borrower
for purposes of (i) the 1933 Act which would require the registration of any
such securities under the 1933 Act, or (ii) any applicable shareholder approval
provisions of any Trading Market on which any of the securities of the Borrower
are listed or designated.

 

(xx) Bankruptcy Status; Indebtedness. The Borrower has no current intention or
expectation to file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the applicable
representation date. All outstanding secured and unsecured Indebtedness (as
defined below) of the Borrower, or for which the Borrower has commitments, is
set forth in the Public Reports.

 

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

 

(zz) No Consents, Etc. No direct and/or indirect consent, approval,
authorization and/or similar item is required to be obtained by the Borrower to
enter into this Agreement, the Note and/or the other Documents and/or to perform
and/or undertake any of the transactions contemplated pursuant to this
Agreement, the Note and/or any of the other Documents including, but not limited
to, by White Oak, any of the Lending Parties and/or any other party to the White
Oak Credit Agreement and/or the White Oak Credit Agreement Documents, including,
but not limited to, for the Lender to obtain a first priority security lien in
the Borrower’s Accounts Receivables on the Closing Date, and to the Released
Collateral on each date any Released Collateral is released pursuant to the
White Oak Credit Agreement and/or the White Oak Credit Agreement Documents.

 

(aaa) No Senior or Pari Passu Liens. Notwithstanding anything to the contrary
provided herein or elsewhere, no person has any direct and/or indirect liens
and/or security interests in any of the Borrower’s Accounts Receivable that are
senior and/or pari passu to the Lender’s Liens evidencing the $2,500,000 of
Indebtedness represented by the $2,500,000 aggregate principal amount Note and
all other obligations and Liabilities of the Borrower to the Lender, except for
the White Oak Liens with respect to the Collateral, excluding the Borrower’s
Accounts Receivable.

 

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ARTICLE 5.

 

COVENANTS

 

Section 5.01. Affirmative Covenants. Commencing on the Closing Date and until
all the Liabilities are paid in full and this Agreement, Borrower covenants and
agrees that:

 

(bbb) Financial Statements and Certificates. While any amounts are owed to the
Lender from the Borrower (including, but not limited to, any Liability),
Borrower will furnish the following to the Lender, all in form and scope
acceptable to the Lenders, unless such information is included in the Borrower’s
most recent Public Reports:

 

(i) within 105 days after the close of each fiscal year of Borrower, a copy of
the annual report of Borrower consisting of a balance sheet, statement of
operating results and retained earnings, statement of cash flows and notes to
financial statements, profit and loss statement and statement of changes in
financial position of Borrower, prepared in conformity with GAAP, duly prepared
by certified public accountants of recognized standing selected by Borrower and
reasonably approved by the Lenders;

 

(ii) within 50 days after the end of each fiscal quarter, (a) a copy of an
unaudited financial statement of Borrower prepared in the same manner as the
report referred to in paragraph (i) above, signed by the chief financial officer
of Borrower and consisting of a balance sheet as at the close of such fiscal
quarter and statements of earnings, cash flow, income and source and application
of funds for such fiscal quarter and for the period from the beginning of such
fiscal year to the close of such fiscal quarter, and (b) a duly completed
compliance certificate, dated the date of such financial statements and
certified as true and correct by the chief executive officer or chief financial
officer of Borrower, stating that Borrower has not become aware of any Event of
Default that has occurred and is continuing or, if there is any such Event of
Default describing it and the steps, if any, being taken to cure it;

 

(iii) a duly completed compliance certificate, dated the date of such financial
statements and certified as true and correct by the chief executive officer or
chief financial officer of Borrower, stating that Borrower has not become aware
of any Event of Default that has occurred and is continuing or, if there is any
such Event of Default describing it and the steps, if any, being taken to cure
it. Each compliance certificate shall be in substantially the form as Exhibit A
to the White Oak Credit Agreement, as applicable;

 

(iv) copies of any and all reports, examinations, notices, warnings and
citations issued by any governmental or quasi-governmental (whether federal,
state or local), unit, agency, body or entity with respect to Borrower that
could have a Material Adverse Effect; and

 

(v) such other information as the Lender from time to time reasonably requests.

 

(ccc) Books, Records and Inspections. Borrower shall (i) maintain complete and
accurate books and records; (ii) permit access by the Lender and its agents
and/or representatives to such books and records as they relate to this
Agreement, the Loan, the Accounts Receivable, the Collateral and/or the other
Documents; and (iii) permit such persons, upon two (2) days prior written
notice, to inspect the properties, whether real or personal, and operations of
Borrower.

 

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(ddd) Insurance. Borrower shall maintain such insurance as may be required by
law and such other insurance to the extent and against such hazards and
liabilities as is customarily maintained by companies similarly situated. All
property insurance policies shall, within 30 days following the Closing Date,
contain lender loss payable clauses in form and substance reasonably
satisfactory to the Lender, naming the Lender as a lender loss payee, mortgagee
and/or additional insured, as its interest may appear, and providing that such
policies and lender loss payable clauses may not be canceled, amended or
terminated unless at least thirty (30) days (or ten (10) days in the case of
non-payment of premiums) prior written notice thereof has been given to the
Lender. All insurance proceeds received by the Lender may be retained by the
Lender, in its sole discretion, for application to the payment of the
Liabilities as the Lender may determine. In addition to the foregoing.

 

(eee) Taxes and Liabilities. Borrower shall pay when due all material taxes,
assessments and other liabilities except as contested in good faith and by
appropriate proceedings and for which adequate reserves in conformity with GAAP
have been established.

 

(fff) Maintenance of Business; Borrower Names. Borrower shall (i) keep all
property and systems useful and necessary in its business in good working order
and condition, (ii) preserve its existence, rights and privileges in the
jurisdiction of its organization or formation, as set forth on the Public
Reports an become or remain, and cause each of its Subsidiaries to become or
remain, duly qualified and in good standing in each jurisdiction in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary (iii) not operate in any
business other than a business substantially the same as the business as in
effect on the date of this Agreement; provided, however, that it may change its
jurisdiction of organization or formation establishment upon thirty (30) days
prior written notice to the Lender. Borrower shall give Lender thirty (30) days’
prior written notice before Borrower changes its name or does business under any
other name.

 

(ggg) Employee Benefit Plans, Etc. Borrower shall (i) maintain each plan and/or
each employee benefit plan as to which it may have any liability in substantial
compliance with all applicable requirements of law and regulations; (ii) make
all payments and contributions required to be made pursuant to such Plans and/or
plans in a timely manner; and (iii) neither establish any new Plan and/or
employee benefit plan, agree or contribute to any Plan and/or multi-employer
plan nor amend any existing Plan and/or employee pension benefit plan in a
manner which would increase its obligation to contribute to such Plan and/or
plan.

 

(hhh) Good Title. Borrower shall at all times maintain good and marketable title
to all of its assets necessary for the operation of its business.

 

(iii) Maintenance of Intellectual Property Rights. The Borrower will take all
reasonable action necessary or advisable to maintain all of the Intellectual
Property Rights of the Borrower that are necessary or material to the conduct of
its business in full force and effect.

 

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(jjj) Collateral Locations. Borrower shall give the Lenders thirty (30) days
prior written notice of a change in (i) its jurisdiction of organization or the
location of its Chief Executive Office or sole place of business or principal
residence, (ii) its name or (iii) the location of any Collateral at any place
other than the Collateral Locations, and, simultaneously therewith shall deliver
to the Lender all additional executed financing statements and other documents
reasonably requested by the Lender to maintain the validity, perfection and
priority of the security interests provided for in the Documents.

 

(kkk) Securities Law Disclosure; Publicity. The Borrower shall by 5:30 p.m. (New
York City time) on the fourth Trading Day immediately following the Closing
Date, issue a Current Report on Form 8-K (the “Current Report”) disclosing the
material terms of the transactions contemplated hereby, and including the
Documents as exhibits thereto, within the time required by the 1934 Act. From
and after the issuance of the Current Report, the Borrower represents to the
Lender that the Borrower shall have publicly disclosed all material, non-public
information delivered to the Lender as of such time by the Borrower or any of
its subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the transactions contemplated by the Documents. The
Borrower shall afford the Lender and its counsel with a reasonable opportunity
to review and comment upon, shall consult with the Lender and its counsel on the
form and substance of, and shall give due consideration to all such comments
from the Lender or its counsel on, any press release, SEC filing or any other
public disclosure made by or on behalf of the Borrower relating to the Lender,
its purchases hereunder or any aspect of the Documents or the transactions
contemplated thereby, prior to the issuance, filing or public disclosure
thereof, and the Borrower shall not issue, file or publicly disclose any such
information to which the Lender shall reasonably object. For the avoidance of
doubt, the Borrower shall not be required to submit for review any such
disclosure contained in periodic reports filed with the SEC under the 1934 Act
if it shall have previously provided the same disclosure for review in
connection with a previous filing.

 

(lll) Notices. Borrower shall, after receipt of knowledge thereof, give prompt
written notice to the Lender of:

 

(i) the occurrence of any Event of Default or any event which with the passage
of time or the giving of notice or both would become an Event of Default;

 

(ii) any litigation, investigation or proceeding which may exist at any time
between Borrower and any governmental authority, that in either case, if not
cured or if adversely determined, as the case may be, could have a Material
Adverse Effect;

 

(iii) any litigation or proceeding affecting Borrower (1) in which the amount
involved is $1,000,000 or more, (2) in which injunctive and/or other equitable
relief is sought and/or (3) which relates to any Document, any of the
transactions contemplated by any Document, the White Oak Credit Agreement and/or
the White Oak Credit Agreement Documents;

 

(iv) any Lien (other than security interests created hereby or Permitted Liens)
on any of the Collateral and/or any Indebtedness other than Indebtedness related
to the Documents or Permitted Indebtedness;

 

33

 

 

(v) Any matter developed and/or event that has resulted or could reasonably be
expected to result in a Material Adverse Effect, including any such matter
arising from: any breach or non-performance of, or any default under the
Documents, the White Oak Credit Agreement, the White Oak Credit Agreement
Documents and/or any other material agreements that the Borrower is a party to
and/or any of its property is bound by; and

 

(vi) the occurrence of any other event which could reasonably be expected to
have a material adverse effect on the Blocked Account, the Accounts Receivable
and/or the other Collateral or on the security interests created by the
Documents; and

 

(vii) the release and/or failure to release when required of any Collateral from
the White Oak Liens and security interests pursuant to the White Oak Credit
Agreement, the White Oak Credit Agreement Documents and/or otherwise and/ or any
claim by White Oak of any new Liens on any asset of the Borrower’s assets as
well as any correspondence with White Oak and/or documents filed by White Oak
perfecting a Lien (whether such Liens are valid and/or invalid);

 

Each notice pursuant to this Section 5.01(k) shall be accompanied by a statement
of Borrower setting forth details of the occurrence referred to therein and
stating what action Borrower proposes to take with respect thereto.

 

(mmm) Environmental Laws. Borrower shall (i) comply in all material respects
with, and endeavor to ensure compliance in all material respects by all tenants
and subtenants, if any, with, all applicable Environmental Laws, and obtain and
comply in all material respects with and maintain, and endeavor to ensure that
all tenants and subtenants obtain and comply in all material respects with and
maintain, any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws, and (ii) conduct and complete
all investigations, studies, sampling and testing, and all remedial, removal and
other actions required under Environmental Laws and promptly comply in all
material respects with all lawful orders and directives of all governmental
authorities regarding Environmental Laws.

 

(nnn) Further Assurances. Borrower shall, from time to time execute and deliver,
or cause to be executed and delivered, such additional instruments, certificates
or documents, and take such actions, as the Lender may reasonably request for
the purposes of implementing or effectuating the provisions of this Agreement
and the other Documents, or of more fully perfecting or renewing the rights of
the Lenders with respect to the Collateral (or with respect to any additions
thereto or replacements or proceeds thereof or with respect to any other
property or assets hereafter acquired by Borrower which may be deemed to be part
of the Collateral) pursuant hereto or thereto. Upon the exercise by the Lender
of any power, right, privilege or remedy pursuant to this Agreement or the other
Documents which requires any consent, approval, recording, qualification or
authorization of any governmental authority, Borrower will execute and deliver,
or will cause the execution and delivery of, all applications, certifications,
instruments and other documents and papers that the Lender may be required to
obtain from Borrower for such governmental consent, approval, recording,
qualification or authorization.

 

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Section 5.02. Negative Covenants. Until all the Liabilities are paid in full,
Borrower covenants and agrees that:

 

(ooo) Restricted Payments. The Borrower shall not directly or indirectly,
redeem, defease, repurchase, repay or make any payments in respect of, by the
payment of cash or cash equivalents (in whole or in part, whether by way of open
market purchases, tender offers, private transactions or otherwise), all or any
portion of any Indebtedness, whether by way of payment in respect of principal
of (or premium, if any) or interest on, such Indebtedness, except for Permitted
Indebtedness.

 

(ppp) Restricted Issuances. The Borrower shall not, directly or indirectly, (i)
issue any Notes (other than as contemplated by this Agreement) or (ii) issue any
other securities that would cause a breach or default and/or an Event of Default
under the Note and/or any other Document.

 

(qqq) Restriction on Redemption and Dividends. Except as set forth on Schedule
5.02(c), the Borrower shall not, directly or indirectly, redeem, repurchase or
declare or pay any dividend or distribution on any of its capital stock whether
in cash, stock rights and/or property (other than dividends and distributions to
the Borrower to or from any wholly-owned Subsidiary of the Borrower or between
wholly-owned Subsidiaries of the Borrower).

 

(rrr) Restriction on Transfer of Assets. The Borrower shall not, directly or
indirectly, sell, lease, license, assign, transfer, spin-off, split-off, close,
convey or otherwise dispose of any assets or rights of the Borrower or any
Subsidiary owned or hereafter acquired whether in a single transaction or a
series of related transactions, other than (i) sales, leases, licenses,
assignments, transfers, conveyances and other dispositions of such assets or
rights by the Borrower in the ordinary course of business, (ii) any license to
any Person in furtherance of a business plan of the Borrower approved by the
board of directors of the Borrower and not in violation of any other provisions
of the Documents below and (iii) sales of a majority of the Independent
directors of Inventory in the ordinary course of business.

 

(sss) Change in Nature of Business. The Borrower shall not, directly or
indirectly, engage in any business substantially different from the business
conducted by the Borrower on the Issuance Date or any business substantially
related or incidental thereto. The Borrower shall not, directly or indirectly,
modify its or their corporate structure for any purpose.

 

(ttt) Indebtedness. Borrower shall not incur or permit to exist any
Indebtedness, except for Permitted Indebtedness.

 

(uuu) Liens. Borrower shall not create or permit to exist any mortgage, pledge,
title retention lien, or other lien, encumbrance or security interest with
respect to any assets and/or the Collateral whether now owned or hereafter
acquired and owned, except for Permitted Liens.

 

(vvv) Guaranties, Loans or Advances. Borrower shall not become or be a guarantor
or surety of, or otherwise become or be responsible in any manner with respect
to any undertaking of any other Person, or make or permit to exist any loans or
advances to or investments in any other Person, except for the endorsement, in
the ordinary course of collection, of instruments payable to it or to its order.

 

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(www) Violation of Law. Borrower shall not violate any law, statute, ordinance,
rule, regulation, judgment, decree, order, writ or injunction of any federal,
state or local authority, court, agency, bureau, board, commission, department
or governmental body if such violation could have a Material Adverse Effect.

 

(xxx) Unconditional Purchase Obligations. Borrower shall not enter into or be a
party to any contract for the purchase of materials, supplies or other property
or services if such contract requires that payment be made by it regardless of
whether or not delivery is ever made of such materials, supplies or other
property or services.

 

(yyy) Use of Proceeds. Borrower shall not permit any proceeds of the Loan to be
used either directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of “purchasing or carrying any margin stock” within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System,
as amended from time to time.

 

(zzz) Negative Pledge Clauses. Borrower shall not enter into or suffer to exist
or become effective any agreement that prohibits or limits the ability of
Borrower to create, incur, assume or suffer to exist any lien upon the
Collateral, whether now owned or hereafter acquired, to secure the Liabilities,
other than pursuant to this Agreement and the other Documents.

 

(aaaa) Hedge Agreements. Borrower shall not enter into any hedge agreement other
than hedge agreements entered into in the ordinary course of business, and not
for speculative purposes, to protect against changes in interest rates or
foreign exchange rates.

 

(bbbb) ERISA. Borrower shall not create or become obligated under any Plan.

 

(cccc) No Other Blocked Account. The Borrower shall not directly and/or
indirectly create any bank account, or similar account and/or make any other
arrangement similar to and/or for the purpose of the Blocked Account.

 

(dddd) Certain Actions. The Borrower shall take any and all action necessary,
required and/or requested by the Lender including the filing of UCC-3(s) and/or
similar forms to remove and terminate all Liens and/or security interests
(including the White Oak Liens), on all assets of the Borrower evidencing
Indebtedness of the Borrower to White Oak, the other Lending Parties, and any
other person, as soon as possible as provided in the Loan and Security Agreement
dated as of October 1, 2014, among White Oak, the Lending Parties, VaultLogix
and the other parties named therein (the “White Oak Credit Agreement”), in the
White Oak Credit Agreement Documents and/or in any other document. The Borrower
shall not directly and/or indirectly take any action to extend the period of
time that the White Oak Liens and/or any other Liens and/or any security
interests of White Oak, the other Lending Parties, and/or any other person may
have on any assets of the Borrower as set forth in the White Oak Credit
Agreement, the White Oak Credit Agreement Documents, and/or the other document
from the date such documents were originally executed.

 

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ARTICLE 6.

CLOSING CONDITIONS

 

Section 6.01. Closing Conditions of the Lender. The Lender’s obligation to enter
into the Documents and purchase the Note is subject to the fulfillment of each
and every one of the following conditions prior to or contemporaneously with the
Lender entering into the Documents and purchasing the Note (unless waived by
Lender in their sole and absolute discretion):

 

(eeee) Delivery of Documents. The Lender shall have received from the Borrower
each of the following, in form and substance reasonably satisfactory to the
Lender and its counsel, and where applicable, duly executed and recorded:

 

(i) certificates of the Chief Executive Officer and Secretary of Borrower and
certifying as to (a) copies of the Certificate of Incorporation and by-laws of
the Borrower, as restated or amended as of the date of this Agreement; (b) all
actions taken and consents made by the Borrower and its Board of Directors and
shareholders, as applicable to authorize the transactions provided for or
contemplated under this Agreement and the other Documents and the execution,
delivery and performance of the Documents; and (c) the names of the directors
and officers of the Borrower authorized to sign the Documents, together with a
sample of the true signature of each such Person;

 

(ii) the results of a recent lien search in the “location” (as defined in UCC)
of Borrower and each such search shall reveal no liens on any of such assets;

 

(iii) each Document and/or document (including, without limitation, any UCC
financing statement, any filing required to be made with any governmental agency
to secure any patents and deposit account control agreements) required by this
Agreement or under law or requested by the Lenders to be filed, registered or
recorded in order to create in favor of the Lenders a perfected lien on the
Accounts Receivable and the other Collateral described therein, prior and
superior in right to any other Person, shall have been filed, registered or
recorded or shall have been delivered to the Lenders in proper form for filing,
registration or recordation;

 

(iv) this Agreement;

 

(v) the Note;

 

(vi) the Warrant;

 

(vii) Certificates of good standing for Borrower in the jurisdiction of
Borrower’s incorporation or formation, in the principal places in which Borrower
conducts business and in places in which Borrower owns real estate and/or
Collateral;

 

(viii) The Lender has received the fully executed, dated and completed Pay-Off
Letter, in form and substance reasonably satisfactory to the Lender;

 

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(ix) The Lender has received the fully executed, dated and completed Perfection
Certificate from the Borrower in form and substance reasonably satisfactory to
the lender;

 

(x) The Lender has received the fully executed Blocked Account Agreement and all
other documents and/or instruments in connection and/or related thereto in form
and substance satisfactory to the Lender;

 

(xi) The executed Transfer Agent Instruction Letter, a legal opinion of the
Borrower’s corporate and securities counsel customarily given in connection with
transactions of the nature set forth in this Agreement and the other Documents
and in form and substance reasonably satisfactory to the Lenders; provided,
however, that notwithstanding anything to the contrary provided herein or
elsewhere such executed legal opinion shall be delivered to the Lender and its
counsel no later than five (5) Business Days following the Closing Date, in form
and substance reasonably satisfactory to the Lender and its counsel;

 

(xii) Satisfactory proof that (i) the 31 Lien, and (ii) the 31 Lock-Box
Arrangements, each have been terminated and are of no further force and/or
effect; and

 

(xiii) Such other documents, certificates, opinions, instruments and/or other
items reasonable requested by the Lender and/or its legal counsel.

 

(xiv) The issuance by the Borrower to 31 Group of the

 

(ffff) Approvals. The receipt by the Lender of all governmental and third party
approvals necessary in connection with the continuing operations of Borrower,
the execution and performance of the Documents and the transactions contemplated
thereby, all of which consents/approvals shall be in full force and effect.

 

(gggg) Additional Conditions. The fulfillment of each and every one of the
following conditions prior to or contemporaneously with the making of the Loan.

 

(i) Representations and Warranties. Each of the representations and warranties
made by Borrower in or pursuant to the Documents and all Schedules and/or
Exhibits to this Agreement and/or any of the other Documents shall be true and
correct in all material respects on and as of the Closing Date as if made (or
given) on and as of such date (except where such representation and warranty
speaks of a specific date in which case such representation and warranty shall
be true and correct as of such date).

 

(ii) No Events of Default. No Event of Default or event which with the passage
of time or the giving of notice or both would become an Event of Default shall
have occurred or would result from the making of the Loan.

 

(iii) Fees, Etc. The Lender’s Expenses, the $113,125 Aegis Payment and the 31
Group Payment shall have been received by such parties.

 

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(iv) Compliance with Laws. The Borrower shall have complied with all applicable
federal, state and local governmental laws, rules, regulations and ordinances in
connection with the execution, delivery and performance of this Agreement and
the other Documents to which it is a party and the consummation of the
transactions contemplated hereby and thereby, including, without limitation, the
Borrower shall have obtained all permits and qualifications required by any
applicable state securities or “Blue Sky” laws for the offer and sale of the
Securities by the Borrower to the Investor).

 

(v) No Injunction. No statute, regulation, order, decree, writ, ruling or
injunction shall have been enacted, entered, promulgated, threatened in writing
or endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of or which would materially modify or delay
the execution and performance of the Documents and/or any of the transactions
contemplated by the Documents.

 

(vi) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any court or governmental authority shall have been commenced or
threatened in writing, and no inquiry or investigation by any governmental
authority shall have been commenced or threatened in writing, against the
Borrower or any Subsidiary, or any of the officers, directors or affiliates of
the Borrower or any Subsidiary, seeking to restrain, prevent or change the
Documents and/or any of the transactions contemplated by the Documents, or
seeking material damages in connection with such Documents and/or transactions.

 

(vii) Listing of Securities. All of the Warrant Shares and the other securities
that may be issued pursuant to the Warrant, shall have been approved for listing
or quotation on the Trading Market as of the Closing Date, in each case, and as
required, without regard to any limitations on exercise of the Warrants.

 

(viii) No Material Adverse Effect. No condition, occurrence, state of facts or
event constituting a Material Adverse Effect shall have occurred and be
continuing.

 

(ix) Current Public Information. All reports, schedules, registrations, forms,
statements, information and other documents required to have been filed by the
Borrower with the SEC since January 1, 2014, pursuant to the reporting
requirements of the 1934 Act, including all material required to have been filed
pursuant to Section 13(a) or 15(d) of the 1934 Act, shall have been filed with
the SEC under the 1934 Act.

 

(x) No Suspension of Trading in or Notice of Delisting of Common Stock. Trading
in the Common Stock shall not have been suspended by the SEC, the Principal
Trading Market or FINRA. The (except for any suspension of trading of less than
fourteen (14) days), the Borrower shall not have received any final and
non-appealable notice that the listing or quotation of the Common Stock on the
Principal Trading Market shall be terminated on a date certain (unless, prior to
such date certain, the Common Stock is listed or quoted on any other Principal
Trading Market), trading in securities generally as reported on the Principal
Trading Market shall not have been suspended or limited, nor shall a banking
moratorium have been declared either by the U.S. or New York State authorities,
there shall not have been imposed any suspension of electronic trading or
settlement services by the Depository Trust Company (“DTC”) with respect to the
Common Stock that is continuing, the Borrower shall not have received any notice
from DTC to the effect that a suspension of electronic trading or settlement
services by DTC with respect to the Common Stock is being imposed or is
contemplated (unless, prior to such suspension, DTC shall have notified the
Borrower in writing that DTC has determined not to impose any such suspension),
nor shall there have occurred any material outbreak or escalation of hostilities
or other national or international calamity or crisis that has had or would
reasonably be expected to have a material adverse change in any U.S. financial,
credit or securities market that is continuing.

 

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(xi) Release of 31 Group Lien, Etc. (i) The Security Agreement dated as of
October 6, 2014 and effective as of August 1, 2014 by and between 31 Group and
the Borrower (the “Security Agreement”), securing the obligations of the
Borrower to 31 Group in connection with the $1,500,000 31 Note and the 31 SPA,
(ii) the 31 Note, (iii) the 31 SPA, and (iv) all other documents and instruments
contemplated by the Security Agreement, the 31 Note and the 31 SPA including,
but not limited to, UCC-1(s) and/or other financing statements establishing a
lien in favor of 31 Group in any of the Borrower’s assets set forth in the
Security Agreement (and/or otherwise) covering any assets of the Borrower,
shall, upon receipt by the 31 Group of the 31 Group Payment as set forth in
Schedule 2.11 and the Pay-Off Letter and the filing of the appropriate documents
with the Secretary of State of the State of Delaware and/or any other State, be
terminated in full and be of no further force and/or effect (to the extent so
provided in any such document).

 

(xii) Completion of Due Diligence. Lender shall have completed its legal,
business and financial due diligence of the Borrower to its full satisfaction
and is fully satisfied with the results thereof.

 

(xiii) 31 Group Lock-Box Arrangement. All lock-box and similar arrangements for
and on behalf of 31 Group relating to the Accounts Receivable of the Borrower
and other items shall upon receipt by 31 Group of the 31 Group Payment in
immediately available funds in the amounts set forth in Schedule 2.11 hereto and
the Pay-Off Letter, shall be terminated and of no further force and effect.

 

(xiv) Allied Affiliate Funding, L.P.; Other Liens; Etc. All liens and security
interests of Allied Affiliate Funding, L.P., and or its Affiliates and all other
parties (except the White Oak Liens), shall have been terminated and of no
further effect and the Borrower shall provide proof to the Lender of such
termination in form and substance satisfactory to the Lender; and no Liens or
security interest shall exist and/or be created that are senior or pari passu to
the Liens evidencing the Indebtedness of the Borrower to the Lender pursuant to
this Agreement, the Note and the other Documents, except for the White Oak Liens
to the Collateral but excluding all of the Borrower’s Accounts Receivable.

 

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Section 6.02 Closing Conditions of Borrower. The obligation of the Borrower to
sell and issue the Note and the Warrant to the Lender at the Closing is subject
to the fulfillment, to the Borrower’s reasonable satisfaction, prior to or
contemporary at the Closing, of each of the following conditions (unless waived
by the Borrower):

 

(hhhh) Representations and Warranties. Each of the representations and
warranties made by Borrower in or pursuant to the Documents and all Schedules
and/or Exhibits to this Agreement and/or any of the other Documents shall be
true and correct in all material respects on and as of the Closing Date as if
made (or given) on and as of such date (except where such representation and
warranty speaks of a specific date in which case such representation and
warranty shall be true and correct as of such date).

 

(iiii) No Injunction. No statute, regulation, order, decree, writ, ruling or
injunction shall have been enacted, entered, promulgated, threatened in writing
or endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of or which would materially modify or delay
any of the transactions contemplated by the Documents.

 

(jjjj) Receipt of the $2,375,000 Purchase Price. The Borrower shall receive at
or substantially simultaneously with the Closing, the $2,375,000 Purchase Price
less the (i) $40,000 of Lender’s Expenses including, but not limited to, the
$35,000 of legal fees owed by Borrower to Lender’s legal counsel (plus such
counsel’s documented cost and expenses), (ii) the $1,797,600 31 Group Payment as
set forth in Schedule 2.11 hereto and the Pay-Off Letter, and (iii) the $113,125
Aegis Payment, all of which funds set forth in (i) (ii) and (iii) of this
Section 6.02(c), while constituting part of the $2,375,000 Purchase Price shall
be paid directly to the Lender, the Lender’s legal counsel, 31 Group and Aegis,
as the case may be, by the Lender directly without resulting in any set-off
and/or reduction in the Aggregate Principal Amount of the Note and/or any
set-off or reduction in any other Liabilities or amounts owed by the Borrower to
the Lender.

 

ARTICLE 7.

EVENTS OF DEFAULT

 

Each of the following acts, occurrences or omissions shall constitute an event
of default under this Agreement (herein referred to as an “Event of Default”),
whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or
nongovernmental body or tribunal:

 

(kkkk) Payment Default Under the Note. Default in the payment when due of any
amount and/or Liabilities due and owing to the Lender by the Borrower under
and/or related to the Note on account of (i) the Aggregate Principal Amount of
the Note, (ii) interest (including, but not limited to, Cash Interest), and/or
(iii) otherwise; or

 

(llll) Other Payment Defaults. Except for the Event of Default set forth in
Section 7(a), hereof, the default, and continuance thereof for five (5) Business
Days after the date due, in the payment of any other amount owing by Borrower to
the Lender pursuant to the Documents or any other agreement, note, instrument or
guarantee; or

 

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(mmmm) Breach of Representations and Warranties. Any representation or warranty
made by Borrower contained herein and/or in any of the other Documents shall at
any time prove to have been materially incorrect in any respect when made
(unless such representation and/or warranty refers to a specific date, in which
case, it shall be an Event of Default if the representation and/or warranty
shall prove to have been materially incorrect as of such specified date), and
such default shall continue unremedied for five (5) Business Days; or

 

(nnnn) Breach of Certain Covenants. Borrower shall default in the performance or
observance of any material term, covenant, condition or agreement on its part to
be performed or observed by it hereunder and/or in any other Document, and such
default shall continue unremedied for five (5) Business Days; or

 

(oooo) Bankruptcy Events. Either: (i) Borrower shall fail to be Solvent or
generally fail to pay, or admit in writing its inability to pay, such Person’s
debts as they become due, or a proceeding under any bankruptcy, reorganization,
arrangement of debt, insolvency, readjustment of debt or receivership law or
statute is filed by or against Borrower or Borrower makes an assignment for the
benefit of creditors; provided, however, that no Event of Default shall exist
pursuant to this paragraph (e) due to an involuntary bankruptcy case, proceeding
or petition filed against Borrower unless such involuntary case, proceeding or
petition shall not have been dismissed or withdrawn within sixty (60) days after
the date of such involuntary filing; (ii) Borrower shall be dissolved, whether
voluntarily or involuntarily; or (iii) corporate or other action shall be taken
by Borrower for the purpose of effectuating any of the foregoing; or

 

(pppp) Collateral Defects. Any of the provisions of ARTICLE 3 hereto shall
cease, for any reason, to be in full force and effect, or any Person shall so
assert, or any Lien created thereby shall cease to be enforceable and of the
same effect and priority purported to be created thereby or the Lender
reasonably believes that the Collateral, any Lien securing the Collateral and/or
the Blocked Accounts are not of sufficient current value to equal all
Liabilities owed or to be owed by the Borrower to the Lender and/or that the
enforceability, legality and/or validity of any such arrangements is in
question; or

 

(qqqq) Cross Defaults. Subject to any applicable cure and/or notice periods, any
default shall occur under any material agreement, document or instrument binding
upon Borrower, or any assets of Borrower, including, but not limited to, any
default in the payment when due of any principal of or interest on any
Indebtedness for money borrowed or guaranteed by Borrower, or any default in the
payment when due, or in the performance or observance of, any material
obligation of, or condition agreed to by, Borrower with respect to any purchase
or lease of any real or personal property or services, in any such case the
effect of which is to cause, or to permit the holder or beneficiary of such
Indebtedness to cause, with the giving of notice if required, such Indebtedness
to become due prior to its stated maturity date or to become subject to a
mandatory offer to purchase by the obligor thereunder or (in the case of any
such Indebtedness constituting a guarantee obligation) to become payable;

 

(rrrr) Trading Suspensions. The suspension from trading or the failure of the
Common Stock to be trading or listed (as applicable) on Eligible Market for a
period of ten (10) consecutive days or for more than an aggregate of thirty (30)
days in any 365-day period; or

 

(ssss) Judgments. One or more judgments or decrees shall be entered against
Borrower involving a liability of $500,000 or more, and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending appeal
within thirty (30) days from the entry thereof.

 

42

 

 

ARTICLE 8.

REMEDIES

 

Section 8.01. Remedies Upon Default. Upon the occurrence and continuance of any
Event of Default, notwithstanding anything to the contrary provided herein, in
the other Documents and/or elsewhere, Lender may, in its sole and absolute
discretion, among other actions (i) declare the $2,500,000 aggregate principal
amount of the Note (plus any premium thereon as provided elsewhere herein), all
accrued but unpaid interest on the Note (including, but not limited to, Cash
Interest and Additional Interest), and/or any other Liabilities, and/or other
amounts owed to the Lender by the Borrower under the Documents or otherwise, all
through and including the date all amounts owed to the Lender from the Borrower
pursuant to this Agreement, the other Documents, and/or otherwise, are received
in full by the Lender in cash by the payment of immediately available funds by
wire transfer pursuant to wire transfer instruction provided to the Borrower
from the Lender (the “Amount”), to be immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrower, and Borrower shall pay to Lender an
amount equal to the Loan Maturity Date Payment Amount, assuming the period
during which the Loan Maturity Date Payment Amount is received by the Lender as
a result of an Event of Default shall be during the period commencing on January
8, 2015, until the date 60 days following the Closing Date, regardless of when
such Event of Default occurs and/or when such Loan Maturity Date Payment Amount
is received by the Lender as a result of an Event of Default (collectively, the
“Event of Default Payment Amount”); provided, that upon the occurrence of an
Event of Default under Section 7.01(e) hereof, all amounts set forth in this
Section 8.01(i) shall automatically become forthwith due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrower and Borrower shall pay to Lender the
Event of Default Payment Amount; (ii) without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by the
Borrower, exercise all of the remedies of a secured party and mortgage holder
under applicable law, including, but not limited to, the UCC, and all of its
rights and remedies under the Documents; (iii) require Borrower to make the
Collateral and the records pertaining to the Collateral available to the Lender
at a place designated by the Lender which is reasonably convenient to the Lender
to take possession of the Collateral and the records pertaining to the
Collateral without the use of any judicial process and without any prior notice
thereof to Borrower; (iv) sell any or all of the Collateral at public or private
sale upon such terms and conditions as Lenders may reasonably deem proper, and,
to the extent permitted by applicable law, Lenders may purchase any or all of
the Collateral at any such sale, and apply the net proceeds, after deducting all
costs, expenses and attorneys’ fees incurred at any time in the collection of
the Liabilities and in the protection and sale of the Collateral, to the payment
of the Liabilities, returning the remaining proceeds, if any, to Borrower, with
Borrower remaining liable for any amount remaining unpaid after such
application; (v) grant extensions, compromise claims and settle Accounts
Receivable for less than face value, all without prior notice to Borrower; (vi)
use, in connection with any assembly or disposition of the Collateral, any
trademark, trade name, trade style, copyright, patent right or technical process
used or utilized by Borrower and (vii) take all action permitted under any other
provision of this Agreement and/or any of the other Documents including, but not
limited to, Article 3 of this Agreement. Borrower shall, upon the request of the
Lender, forthwith upon receipt, transmit and deliver to the Lender in the form
received, all cash, checks, drafts and other instruments for the payment of
money (properly endorsed, where required, so that such items may be collected by
Lenders) which may be received by Borrower at any time in full or partial
payment of any Collateral. Borrower shall not commingle any such items which may
be so received by Borrower with any other of its funds or property but shall
hold them separate and apart from their own funds or property and in trust for
the Lenders until delivery is made to the Lender. The Lenders may exercise all
of its rights and remedies against Borrower under applicable law and the
Document.

 

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Section 8.02. Attorney-In-Fact. Borrower hereby appoints the Lender as the
Borrower’s attorney-in-fact, with full authority in the Borrower’s place and
stead and in such Borrower’s name or otherwise, from time to time in Lender’s
sole and arbitrary discretion after the occurrence and continuation of any Event
of Default, to, acting jointly, take any action and to execute any instrument
which Lenders may deem necessary or advisable to accomplish the purpose of this
Agreement.

 

Section 8.03. Remedies Are Severable and Cumulative. All provisions contained
herein pertaining to any remedy of the Lender shall be and are severable and
cumulative and in addition to all other rights and remedies available in the
Documents, at law and in equity, and any one or more may be exercised
simultaneously or successively. Any notification required pursuant to this
ARTICLE 8 or under applicable law shall be reasonably and properly given to
Borrower at the address and by any of the methods of giving such notice as set
forth in Section 9.3.

 

Section 8.04. No Waiver. No waiver or failure to exercise at any time any
default, remedy or right upon a default shall operate as a direct and/or
indirect waiver of any other default or right or of the same default or right on
any subsequent occasion.

 

ARTICLE 9.

MISCELLANEOUS

 

Section 9.1. No Waiver; Modifications In Writing. No failure or delay on the
part of Lenders in exercising any right, power or remedy pursuant to the
Documents shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof, or the exercise of any other right, power or remedy. No
amendment, modification, supplement, termination or waiver of any provision of
the Documents, nor any consent by the Lender to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
the Lender. Any waiver of any provision of the Documents and any consent by the
Lender to any departure by Borrower from the terms of any provision of the
Documents shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on Borrower in any case shall
entitle Borrower to any other or further notice or demand in similar or other
circumstances.

 

Section 9.2. Set-Off. The Lender shall have the right to set-off, appropriate
and apply toward payment of any of the Liabilities, in such order of application
as the Lender may from time to time and at any time elect, any cash, credit,
deposits, accounts, securities and any other property of Borrower which is in
transit to or in the possession, custody or control of Lender, or any agent,
bailee, or Affiliate of the Lender. Borrower hereby grants to Lenders a security
interest in all such property.

 

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Section 9.3. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex, facsimile or e-mail if
sent during normal business hours of the recipient; if not, then on the next
Trading Day, (c) five (5) Trading Days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt:

 

 If to Borrower: InterCloud Systems, Inc.   1030 Broad Street Suite 102
Shrewsbury, NJ 07702
Attention: Chief Financial Officer
Fax No.: (561) 988-2307
Email: lsands@intercloudsys.com

  

With copies to 

(which shall not constitute notice):

 

Pryor Cashman LLP 7 Times Square New York, NY 10036
Attention: M. Ali Panjwani, Esq.
Fax No.: (212) 798-6319 Email: ali.panjwani@pryorcashman.com

  

If to GPB Life Science Holdings LLC:

 

GPB Life Science Holdings LLC 535 West 24th Street, 4th Floor New York, NY 10011

Attention: Dustin Muscato
Phone: (212) 235-2650
Email: dmuscato@gpb-cap.com

 

With copies to 

(which shall not constitute notice): 

 

Gusrae Kaplan Nusbaum PLLC
120 Wall Street
New York, New York 10005
Attention: Lawrence G. Nusbaum, Esq.
Phone: (212) 269-1400
Fax No.: (212) 809-5449 Email: LNusbaum@gusraekaplan.com

 

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Any party hereto may from time to time change its address for notices by giving
written notice of such changed address to the other party hereto.

 

Section 9.4. Costs, Expenses and Taxes. Notwithstanding anything to the contrary
provided herein or elsewhere, Borrower agrees to pay (A) on the Closing Date all
of the Lender’s Expenses; and (B) following the Closing Date, all fees and
expenses incurred by the Lender (including, but not limited to, outside counsel
to the Lenders) in connection with the administration and enforcement of the
Documents, the Collateral and/or and the Loan. Without limitation, Borrower
acknowledges and agrees that the Lender’s field audit and appraisal fees shall
be charged to Borrower. In addition, Borrower shall pay any and all stamp,
transfer and other similar taxes payable or determined to be payable in
connection with the execution and delivery of the Documents agrees to hold the
Lender harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes. If any suit or
proceeding arising from any of the foregoing is brought against the Lender,
Borrower, to the extent and in the manner directed by Lender, will resist and
defend such suit or proceeding or cause the same to be resisted and defended by
counsel approved by Lender. If Borrower shall fail to do any act or thing which
each has covenanted and/or agreed to do under this Agreement and/or any other
Document or any representation or warranty on the part of Borrower contained in
this Agreement and/or any other Document shall be breached, the Lender may, in
its sole and absolute discretion, do the same or cause it to be done or remedy
any such breach, and may expend its funds for such purpose; and any and all
amounts so expended by the Lender shall be repayable to the Lenders by Borrower
immediately upon each Lender’s demand therefor, with interest at a rate equal to
sixteen (16%) percent during the period from and including the date funds are so
expended by the Lender to the date of repayment in full, and any such amounts
due and owing to the Lender shall be deemed to be part of the Liabilities
secured hereunder and under the other Documents. The obligations of Borrower
under this Section 9.4 shall survive the termination of this Agreement and the
discharge of the other obligations of Borrower under the Documents.

 

Section 9.5. Indemnity, Etc. In addition to the payment of expenses pursuant to
Section 9.4, whether or not all and/or any of the transactions contemplated
hereby shall be consummated, Borrower agrees to indemnify, pay and hold Lender,
and each of such Lender’s assignees and affiliates and their respective
officers, directors, employees, agents, consultants, auditors, Persons engaged
by it to evaluate or monitor the Collateral, and attorneys of any of them
(collectively called the “Indemnities”) harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including the reasonable fees and disbursements of counsel for such Indemnitees
in connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such Indemnitee shall be designated a
party thereto) that may be imposed on, incurred by, or asserted against that
Indemnitee, in any manner relating to or arising out of the SEC Reports, this
Agreement and/or the other Documents, the consummation of the transactions
contemplated by this Agreement and the other Documents, the statements contained
in any term sheet delivered by the Lender, the Lender’s agreement to make the
Loan, the use or intended use of the proceeds of the Loan or the exercise of any
right or remedy hereunder or under the other Documents (the “Indemnified
Liabilities”); provided that Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Liabilities directly arising from the
gross negligence or willful misconduct of that Indemnitee, as determined by a
court of competent jurisdiction by a final and nonappealable judgment. In no
event shall any Lender and/or any of their respective employees, agents,
partners, affiliates, members, equity and/or debt holders, managers, officers,
directors and/or other related or similar type of Person, have any liability to
the Borrower and/or any of its officers, directors, employees, agent, attorneys,
affiliates, consultants, equity and/or debt holders except for any actions or
lack of actions of such persons that are found by a court of competent
jurisdiction after the time for all appeals has passed to have resulted from
Lender’s intentional misconduct or gross negligence.

 

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Section 9.6. Counterparts; Signatures. This Agreement may be executed in any
number of counterparts, each of which counterparts, once they are executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same agreement. This Agreement
and the Documents may be executed by any party to this Agreement or any of the
Documents by original signature, facsimile and/or electronic signature.

 

Section 9.7. Binding Effects; Assignment. This Agreement shall be binding upon,
and inure to the benefit of, the Lenders, Borrower and their respective
successors, assigns, representatives and heirs. Borrower shall not assign any of
its rights nor delegate any of its obligations under Documents without the prior
written consent of Lenders. Unless an Event of Default has occurred and is
continuing, no Lender may delegate any of its obligations under the Documents
without the prior written consent of Borrower. Each Lender, however, may assign
any of its rights, hereunder, and/or in any of the other Documents except that
no Lender may assign any of its rights hereunder or under any other Document to
any competitor of Borrower or any of such competitor’s parent companies.

 

Section 9.8. Headings. Captions contained in this Agreement are inserted only as
a matter of convenience and in no way define, limit or extend the scope or
intent of this Agreement or any provision of this Agreement and shall not affect
the construction of this Agreement.

 

Section 9.9. Entire Agreement. This Agreement, together with the other
Documents, contains the entire agreement between the parties hereto with respect
to the transactions contemplated herein and therein and supersede all prior
representations, agreements, covenants and understandings, whether oral or
written, related to the subject matter of this Agreement and the other
Documents. Except as specifically set forth in this Agreement, the Lenders make
no covenants to Borrower, including, but not limited to, any commitments to
provide any additional financing to Borrower.

 

Section 9.10. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED EXCLUSIVELY IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS.

 

47

 

 

Section 9.11. Severability Of Provisions. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.

 

Section 9.12. Conflict. In the event of any conflict between this Agreement and
any of the other Documents, the terms and provisions of this Agreement shall
govern and control.

 

Section 9.13. Customer Identification - USA Patriot Act Notice; OFAC and Bank
Secrecy Act. Lender hereby notifies Borrower that pursuant to the requirements
of the Act and such Lender’s policies and practices, Lender is required to
obtain, verify and record certain information and documentation that identifies
Borrower, which information includes the name and addresses of Borrower and such
other information that will allow the Lender to identify Borrower in accordance
with the Act. In addition, Borrower shall (a) ensure that no person who owns a
controlling interest in or otherwise controls Borrower is or shall be listed on
the Specially Designated Nationals and Blocked Person List or other similar
lists maintained by OFAC, the Department of the Treasury or included in any
Executive Orders, (b) not use or permit the use of the proceeds of the Loan to
violate any of the foreign asset control regulations of OFAC or any enabling
statute or Executive Order relating thereto, and (c) comply, and cause any of
its Subsidiaries to comply, with all applicable Bank Secrecy Act (“BSA”) laws
and regulations, as amended.

 

Section 9.14. JURISDICTION; WAIVER. BORROWER ACKNOWLEDGES THAT THIS AGREEMENT IS
BEING SIGNED BY THE LENDER IN PARTIAL CONSIDERATION OF THE LENDER’S RIGHT TO
ENFORCE IN THE JURISDICTION STATED BELOW THE TERMS AND PROVISION OF THIS
AGREEMENT AND THE DOCUMENTS. BORROWER CONSENTS TO THE EXCLUSIVE AND SOLE
JURISDICTION IN NEW YORK, NEW YORK AND VENUE IN ANY FEDERAL OR STATE COURT IN
NEW YORK, NEW YORK FOR SUCH PURPOSES AND WAIVES ANY AND ALL RIGHTS TO CONTEST
SAID JURISDICTION AND VENUE AND ANY OBJECTION THAT NEW YORK, NEW YORK IS NOT
CONVENIENT. BORROWER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST THE LENDER
IN ANY JURISDICTION EXCEPT NEW YORK, NEW YORK. THE LENDER AND BORROWER HEREBY
EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY
WITH RESPECT TO ANY MATTER WHATSOEVER RELATING TO, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE LOAN, THE DOCUMENTS AND/OR THE TRANSACTIONS WHICH ARE THE
SUBJECT OF THE DOCUMENTS.

 

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Section 9.15. SERVICE OF PROCESS. BORROWER AGREES THAT SERVICE OF PROCESS IN ANY
ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY CERTIFIED MAIL
(OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, RETURN RECEIPT
REQUESTED, TO BORROWER AT THE ADDRESS SET FORTH IN SECTION 9.3 OR AT SUCH OTHER
ADDRESS OF WHICH THE LENDERS SHALL HAVE BEEN NOTIFIED PURSUANT THERETO. BORROWER
AGREES THAT SUCH SERVICE, TO THE FULLEST EXTENT PERMITTED BY LAW (i) SHALL BE
DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER IN ANY SUIT,
ACTION OR PROCEEDING, AND (ii) SHALL BE TAKEN AND HELD TO BE VALID PERSONAL
SERVICE UPON AND PERSONAL DELIVERY TO BORROWER. SOLELY TO THE EXTENT PROVIDED BY
APPLICABLE LAW, SHOULD BORROWER, AFTER BEING SERVED, FAIL TO APPEAR OR ANSWER TO
ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE NUMBER OF DAYS
PRESCRIBED BY LAW AFTER THE DELIVERY OR MAILING THEREOF, BORROWER SHALL BE
DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY THE COURT
AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS
OR PAPERS. NOTHING HEREIN SHALL AFFECT THE LENDER’S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW.

 

Section 9.16. Survival. The representations, and warranties of Borrower shall
survive the execution and delivery hereof and the Closing Date; the obligations,
Liabilities, agreements and covenants of the Borrower set forth in this
Agreement and all other Documents shall survive the execution and delivery
hereof and the Closing Date, as shall all rights and remedies of the Lender set
forth in this Agreement and/or any of the other Documents.

 

Section 9.17. No Integration. Neither the Borrower, nor any of its affiliates,
nor any person acting on behalf of the Borrower or such affiliate, will sell,
offer for sale, or solicit offers to buy or otherwise negotiate with respect to
any security (as defined in the Securities Act of 1933) which will be integrated
with the sale of the Securities in a manner which would require the registration
of the Securities under the 1933 Act, or require stockholder approval, under the
rules and regulations of the Trading Market for the Common Stock. The Borrower
will take all action that is appropriate or necessary to assure that its
offerings of other securities will not be integrated for purposes of the 1933
Act or the rules and regulations of the Trading Market, with the issuance of
Securities contemplated herein.

 

Section 9.18. No Frustration. From and after the date hereof and so long as the
Lender or its affiliates holds any Note, neither the Borrower nor any of its
affiliates or Subsidiaries, nor any of its or their respective officers,
employees, directors, agents or other representatives, will, without the prior
written consent of the Lender (which consent may be withheld, delayed or
conditioned in the Lender’s sole discretion), effect, enter into, announce or
recommend to its stockholders any agreement, plan, arrangement or transaction
(or issue, amend or waive any security) that would or would reasonably be
expected to restrict, delay, conflict with or impair the ability or right of the
Borrower to timely perform its obligations under the Documents.

 

Section 9.19. Finders’ Fees. Except for the $83,125 Aegis Fee owed by the
Borrower to Aegis payable on the Closing Date, as described elsewhere herein,
each party represents that it neither is nor will be obligated for any finders’
fee or commission in connection with this transaction. The Borrower shall
indemnify and hold harmless the Lender from any liability for any commission or
compensation in the nature of a finders’ fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Borrower
or any of its officers, employees or representatives is responsible.

 

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ARTICLE 10.

 

USURY

 

Section 10.1. Usury Saving Clause. Notwithstanding anything to the contrary
provided in this Agreement, or elsewhere, the Lender shall never be entitled to
charge, receive or collect, nor shall amounts received by the Lender be credited
as interest so that the Lender shall be paid by the Borrower, a sum greater than
interest at the maximum nonusurious interest rate, if any, that at any time may
be contracted for, charged, received, or collected on the indebtedness evidenced
by the Note under applicable law (the "Maximum Rate"). It is the intention of
the Borrower and the Lender that this Agreement, the other Documents and the
Warrant comply with all applicable law. If the Lender ever contracts for,
charges, receives, or collects, anything of value from the Borrower which is
deemed to be interest under applicable law, and if the occurrence of any
circumstance, event or contingency, should cause such interest to exceed the
Maximum Rate, any such excess amount shall be applied to the reduction of the
unpaid aggregate principal amount of the Note owed to the Lender by the Borrower
and if the Note is already paid in full, any remaining excess shall be paid to
the Borrower. In determining whether or not interest paid or payable with
respect to the Note exceeds the Maximum Amount, the Borrower and the Lenders
shall, to the maximum extent permitted by applicable law, (i) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest, (ii)
amortize, prorate, allocate and spread the total amount of interest throughout
the full term of the Note so that the actual rate of interest on account of such
indebtedness is uniform throughout the term of the Note and/or (iii) allocate
interest between portions of the Notes, to the end that no such portion shall
bear interest at a rate greater than that permitted by applicable law. The terms
and provisions of this Section 10.01 shall control and supersede every other
conflicting provision of all agreements between the Borrower and the Lenders.

 

Section 10.2. Independent Advice. The Borrower hereby acknowledges, represents
and warrants that it (i) has been advised by the Lender to seek the advice of
its legal, tax and accounting experts in connection with the Loan and other
transactions set forth in this Agreement and the other Documents, as to, among
other items, the tax and accounting effects thereof, and (ii) it has had the
opportunity and has subsequent the advice of legal, tax and accounting experts
of the Borrower’s choice in connection with the Loan and other transactions set
forth in this Agreement and the other Documents.

 

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ARTICLE 11

 

REPRESENTATIONS AND WARRANTIES OF THE LENDER

 

Section 11.1. Authorization. The Lender has full power and authority to enter
into this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby and has taken all action necessary to authorize
the execution and delivery of this Agreement, the performance of its obligations
hereunder and thereunder and the consummation of the transactions contemplated
hereby and thereby.

 

Section 11.2. No Public Sale or Distribution. The Lender is (i) acquiring the
Notes and the Warrant, and (ii) upon exercise of the Warrant will acquire the
Warrant Shares for its own account, not as a nominee or agent, and not with a
view towards, or for resale in connection with, the public sale or distribution
of any part thereof, except pursuant to sales registered or exempted under the
1933 Act. The Lender is acquiring the Securities hereunder in the ordinary
course of its business. The Lender does not presently have any contract,
agreement, undertaking, arrangement or understanding, directly or indirectly,
with any individual, a limited liability Borrower, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof (a “Person”) to sell, transfer, pledge,
assign or otherwise distribute any of the Securities.

 

Section 11.3. Accredited Lender Status; Investment Experience. The Lender is an
“accredited investor” as that term is defined in Rule 501(a) of Regulation D.
The Lender can bear the economic risk of its investment in the Securities, and
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of an investment in the Securities.

 

Section 11.4. Reliance on Exemptions. The Lender understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Borrower is relying in part upon the truth and accuracy of, and the
Lender’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Lender set forth herein in order to
determine the availability of such exemptions and the eligibility of the Lender
to acquire the Securities.

 

Section 11.5. Information. The Lender has been furnished with all materials
relating to the business, finances and operations of the Borrower and materials
relating to the offer and sale of the Securities which have been requested by
the Lender. The Lender has been afforded the opportunity to ask questions of the
Borrower. Neither such inquiries nor any other due diligence investigations
conducted by the Lender shall modify, amend or affect the Lender’s right to rely
on the Borrower’s representations and warranties contained herein. The Lender
understands that its investment in the Securities involves a high degree of
risk. The Lender has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities. The Lender is relying solely on its own
accounting, legal and tax advisors, and not on any statements of the Borrower or
any of its agents or representatives, for such accounting, legal and tax advice
with respect to its acquisition of the Securities and the transactions
contemplated by this Agreement.

 

Section 11.6. No Governmental Review. The Lender understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 

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Section 11.7. Validity; Enforcement; No Conflicts. This Agreement and each
Transaction Document to which the Lender is a party have been duly and validly
authorized, executed and delivered on behalf of the Lender and shall constitute
the legal, valid and binding obligations of the Lender enforceable against the
Lender in accordance with their respective terms, except as such enforceability
may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies. The execution, delivery and performance by the Lender of
this Agreement and each Transaction Document to which the Lender is a party and
the consummation by the Lender of the transactions contemplated hereby and
thereby will not (i) result in a violation of the organizational documents of
the Lender or (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Lender is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
applicable to the Lender, except in the case of clause (ii) above, for such
conflicts, defaults or rights which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the ability of the
Lender to perform its obligations hereunder.

 

Section 11.8. Organization and Standing. The Lender is a limited liability
Borrower duly organized, validly existing and in good standing under the laws of
the State of where it was formed.

 

Section 11.9. Brokers or Finders. The Lender represents and warrants, to the
best of its knowledge, that no finder, broker, agent, financial advisor or other
intermediary, nor any purchaser representative or any broker-dealer acting as a
broker, is entitled to any compensation in connection with the transactions
contemplated by this Agreement or the transactions contemplated hereby except
Aegis.

 

Section 11.10. Ability to Perform. There are no actions, suits, proceedings or
investigations pending against Lender or Lender’s assets before any court or
governmental agency (nor is there any threat thereof) which would impair in any
way Lender’s ability to enter into and fully perform its commitments and
obligations under this Agreement or the transactions contemplated hereby.

 

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.

 

LENDER: GPB LIFE SCIENCE HOLDINGS LLC       By: /s/ David Gentile   Name: David
Gentile   Title: Member       BORROWER: INTERCLOUD SYSTEMS, INC.       By: /s/
Daniel J. Sullivan   Name: Daniel J. Sullivan   Title: Chief Accounting Officer