Exhibit 10.1



 


Execution Copy


 


SECURED
REVOLVING CREDIT AGREEMENT


 


SECURED
REVOLVING CREDIT AGREEMENT (this “Agreement”) is made and entered into as of the 1st day of August,
2012, by and between HANOVER HOLDINGS I, LLC, a New York limited liability company (the “Lender”), and
XZERES CORP., a Nevada corporation (the “Borrower”).


 


WITNESSETH
:


 


WHEREAS,
the Borrower is engaged in the business of designing, developing, and marketing small wind turbine systems and related equipment
for electrical power generation, specifically for use in residential, small business, rural electric utility systems, other rural
locations, and other infrastructure applications (collectively, the “Business Operations”); and


 


WHEREAS,
in order to provide funds for the Borrower’s working capital and other general corporate
purposes, the Borrower has requested the Lender to extend to the Borrower a revolving credit facility upon the terms and
subject to the conditions of this Agreement; and


 


WHEREAS,
the Lender is willing and able to provide such revolving credit facility to the Borrower on the terms and conditions of this Agreement;


 


NOW,
THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows:


 


I.          DEFINITIONS


 


Section
1.01. Defined Terms. In addition to the other terms defined elsewhere in this Agreement, as used herein, the following
terms shall have the following meanings:


 


“Accounts”
shall mean “accounts” (as defined in the UCC) of the Borrower and/or its Subsidiaries from time to time.


 


“Account
Debtor” shall mean any Person who is obligated on an Account.


 


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


 


“Affiliate”
shall mean, with respect to any Person, any other Person in Control of, Controlled by, or under common Control with the first Person,
and any other Person who has a substantial interest, direct or indirect, in the first Person or any of its Affiliates, including,
without limitation, any officer or director of the first Person or any of its Affiliates and any family member of any such officer
or director; provided, however, that neither the Lender nor any of its Affiliates shall be deemed an “Affiliate”
of the Borrower for any purposes of this Agreement. For the purpose of this definition, a “substantial interest” shall
mean the direct or indirect legal or beneficial ownership of more than ten (10%) percent of any class of stock or similar interest.


 



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“Agreement”
shall mean this Revolving Credit Agreement as it may from time to time be amended, modified, supplemented and/or restated.


 


“Applicable
Law” shall mean all applicable provisions of all (a) constitutions, statutes, ordinances, rules, regulations and orders
of all governmental and/or quasi-governmental bodies, (b) Government Approvals, and (c) order, judgments and decrees of all courts
and arbitrators.


 


“Availability”
shall mean the amount (if any) by which, at the time of determination, (a) the Revolving Credit Commitment exceeds (b) the outstanding
principal amount of Drawdowns.


 


“Borrowing
Base” shall mean an amount, determined in accordance with the most recent borrowing base certificate (“Borrowing
Base Certificate”) substantially in the form attached hereto as Exhibit A theretofor provided to the Lender under Section
5.04(d) below, up to (a) 80% of Eligible Accounts, minus (b) such reserves as the Lender may establish from time to time
in its Permitted Discretion (including, without limitation, to account for Account concentration and other risks of collection,
and for obsolete, slow-moving or otherwise problematic inventory). In the event that the Borrower has not timely delivered a current
Borrowing Base Certificate in accordance with Section 5.04(d) below, then the applicable Borrowing Base shall be such amount as
is established by the Lender, until such time as the Borrower has delivered a current Borrowing Base Certificate.


 


“Business
Day” shall mean a day other than (a) a Saturday, (b) a Sunday, or (c) a day on
which banking institutions in the State of Florida or the State of New York are authorized or required by law or executive
order to close.


 


“Capital
Expenditures” shall mean with respect to any Person, all expenditures of such Person for tangible assets which
are capitalized, and the fair value of any tangible assets leased by such Person under any lease which would be a Capitalized Lease,
determined in accordance with GAAP, including all amounts paid or accrued by such Person in connection with the purchase (whether
on a cash or deferred payment basis) or lease (including Capitalized Lease Obligations) of any machinery, equipment, real property,
improvements to real property (including leasehold improvements), or any other tangible asset of such Person which is required,
in accordance with GAAP, to be treated as a fixed asset on the consolidated balance sheet of such Person.


 


“Capitalized
Lease” shall mean any lease which is or should be capitalized on the balance sheet of the lessee thereunder in accordance
with GAAP.


 


“Capitalized
Lease Obligation” shall mean with respect to any Person, the amount of the liability which reflects the amount of future
payments under all Capitalized Leases of such Person as at any date, determined in accordance with GAAP.


 



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“Cash
Equivalents” shall mean (a) marketable securities issued, or directly and fully guaranteed or insured, by the United
States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America
is pledged in support thereof) having maturities of not more than twelve (12) months from the date of
acquisition; (b) time deposits, demand deposits, certificates of deposit, acceptances or prime commercial paper issued by, or repurchase
obligations for underlying securities of the types described in clause (a) entered into with any commercial bank having a short-term
deposit rating of at least A-2 or the equivalent thereof by Standard & Poor’s Corporation or at least P-2 or the
equivalent thereof by Moody’s Investors Service, Inc.; (c) investment grade commercial paper maturing within twelve (12)
months after the date of acquisition; (d) marketable direct obligations issued by any state in the United States or any agency
or instrumentality thereof maturing within twelve (12) months from the date of acquisition thereof and, at the time of acquisition,
have one of the two highest ratings generally obtainable from either Standard & Poor’s Corporation or Moody’s Investors
Services, Inc.; (e) tax-exempt commercial paper of United States municipal, state or local governments rated at least A-2 or the
equivalent thereof by Standard & Poor’s Corporation or at least P-2 or the equivalent thereof by Moody’s Investors
Services, Inc. and maturing within twelve (12) months after the date of acquisition thereof; (f) any other items selected by the
Borrower and approved by the Lender (which approval shall not be unreasonably withheld or delayed); or (g) any mutual fund or other
pooled investment vehicle which invests principally in the foregoing obligations.


 


“Closing Date”
shall mean the date on which the Loan is funded.


 


“Code”
shall mean the Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder, as in effect from time to time.


 


“Collateral”
shall mean all collateral pledged by the Borrower and/or any of the Subsidiaries as security
for the payment and performance of the Obligations, whether pursuant to the Collateral Agreement or any other Security Document.


 


“Collateral
Agreement” shall mean the Collateral Agreement, dated as of the Closing Date, by and among the Borrower, its Subsidiaries
and the Lender, as same may be amended, modified, supplemented and/or restated from time to time.


 


“Common
Stock” shall mean the authorized common stock of the Company, $0.01 par value per share.


 


“Confidential
Information” shall mean information that the Borrower furnishes to the Lender which
is not generally available to the public or available to the Lender from a source other than the Borrower which is not,
to the Lender’s knowledge, bound by any confidentiality agreement in respect thereof.


 


“Contract”
shall mean any indenture, agreement (other than this Agreement), other contractual restriction, lease in which the Borrower or
any Subsidiary is a lessor or lessee, license or instrument.


 


“Control”
shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies
of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “Controlling”
and “Controlled” shall have meanings correlative thereto.


 



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“Debt
Service” shall mean, for the period in question, the sum of all principal payments scheduled or required to be made during
or with respect to such period in respect of Indebtedness of the Borrower and its Subsidiaries, and all Interest Expense of the
Borrower and its Subsidiaries for such period.


 


“Default”
shall mean any of the events specified in Article VII hereof, whether or not any requirement for the giving of notice, the
lapse of time, or both, has been satisfied.


 


“Disclosure
Schedule” shall mean the disclosure schedule, dated as of the Closing Date, executed and delivered by the Borrower
to the Lender, the section numbers of which correspond to the Section numbers of this Agreement.


 


“Dollars”
or “$” shall mean United States Dollars, lawful currency for the payment of public and private debts.


 


“Drawdowns”
shall mean the principal amounts loaned to the Borrower from time to time pursuant to Section 2.01 below.


 


“Drawdown
Date” means the Business Day on which the Lender makes a Loan hereunder.


 


“Eligible
Account” shall mean the face amount of each trade Account of the Borrower or a Subsidiary (if same has become a party
to the Collateral Agreement) of VG Energy, Inc. and any other company identified in the Collateral Agreement (collectively, the
“Purchase Orders”) for services rendered or goods and products sold in the ordinary course of the Business Operations
which the Lender, in its Permitted Discretion, deems to be an Eligible Account; provided,
however, that an Account shall not be deemed an Eligible Account unless it meets all of the following conditions:


 


(a)          the
subject services or products and goods have been rendered, shipped or delivered on an absolute sale basis to such Account Debtor
which is not an Affiliate, vendor or supplier of the Borrower or a Subsidiary, with an invoice date contemporaneous with or within
thirty (30) calendar days after the date of shipment or service, and which does not constitute a consignment
sale, bill-and-hold sale, sale-and-return or other such arrangement and is not subject to any other repurchase, return or
offset agreement binding upon the Borrower or a Subsidiary; the subject services or products
and goods have been rendered, shipped and delivered (or shipped f.o.b.) to such Account Debtor on an open account basis
(or with payment guaranteed by a letter of credit, drawn on or by a domestic financial institution, acceptable to the Lender in
all respects), and no part of the subject services, products or goods has been returned, rejected, lost or damaged; the Account
is not evidenced by chattel paper or an instrument of any kind; and such Account Debtor, unless pre-approved in writing by the
Lender, is not insolvent or the subject of any bankruptcy or insolvency proceeding of any kind in any jurisdiction;


 


(b)          it
is a valid, legally enforceable obligation of the Account Debtor there under payable in Dollars or other currency reasonably satisfactory
to the Lender, and is not subject to any recoupment, offset or other defense or any discount or chargeback on the part of such
Account Debtor (provided that prompt payment discounts granted in the ordinary course of business shall not cause an Account
to be disqualified hereunder, so long as only the discounted amount of such Account, if not otherwise disqualified, is included
in the calculation of the Borrowing Base) or to any claim on the part of such Account Debtor
denying liability there under (provided that the undisputed portion may be considered to be an Eligible Account);


 



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(c)          it
is subject to no Lien whatsoever, except for the Lien of the Lender;


 


(d)          it
has not remained unpaid in whole or in part for a period exceeding ninety (90) days after the original invoice date;


 


(e)          it
does not arise out of a transaction (whether direct or indirect) with an employee, officer, agent, director or Affiliate of the
Borrower or any Subsidiary or with any entity controlled by any employee, officer, agent or director of the Borrower or any Subsidiary;


 


(f)          it
is not subject to any contract retainage or other withholding of any portion of payments
on amounts invoiced, whether to secure the Borrower’s or any Subsidiary’s performance or otherwise;


 


(g)          it
does not represent the unpaid portion of an Account any portion of which was previously paid or agreed to be paid through the issuance
or delivery of equity securities or other non-cash consideration;


 


(h)          the Lender has a perfected
first priority Lien in such Account;


 


(i)          such Account is not payable by any person other than the Account Debtor (such as a beneficiary, recipient or subscriber individually), provided that the portion thereof which is payable by the Account Debtor may be considered to be an Eligible Account;


 


(j)         such Account is payable solely to the Borrower or a Subsidiary, and the Borrower or such Subsidiary is not aware of any dispute by the Account Debtor with respect to such Account; and


 


(k)          it is not otherwise determined by the Lender, in the Lender’s Permitted Discretion, to be difficult to collect, uncollectible
or otherwise unacceptable for any reason.


 


“ERISA”
shall mean the Employee Retirement Income Security Act of 1974, as in effect from time to time.


 


“ERISA
Affiliate” shall mean, with respect to any Person, any other Person which is under common control with the first Person
within the meaning of Section 414(b) or 414(c) of the Code; provided, however, that with respect to the Borrower,
no Person which is an Affiliate of the Lender (other than the Borrower and its Subsidiaries) shall be deemed an ERISA Affiliate
for purposes of this Agreement


 


“Event of Default”
has the meaning set forth in Article VII below.


 


“Exchange Act”
shall mean the Securities Exchange Act of 1934, as amended.


 


“Financial Statements”
has the meaning set forth in Section 3.01(a) below.


 



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“Fiscal
Year” shall mean the fiscal year of the Borrower which ends on June 30 of each year.


 


“GAAP”
shall mean generally accepted accounting principles in the United States of America, consistently applied, unless the context
otherwise requires, with respect to any financial terms contained herein, as then in effect with respect to the preparation of
financial statements.


 


“Government
Approval” shall mean an authorization, consent, non-action, approval, license or exemption of, registration or filing
with, or report to, any governmental or quasi-governmental department, agency, body or other unit.


 


“Guaranty”,
“Guaranteed” or to “Guarantee”, as applied to any Indebtedness, liability or other obligation,
shall mean (a) a guaranty, directly or indirectly, in any manner, including by way of endorsement (other than endorsements of negotiable
instruments for collection in the ordinary course of business), of any part or all of such obligation, and (b) an agreement, contingent
or otherwise, and whether or not constituting a guaranty, assuring, or intended to assure, the payment or performance (or payment
of damages in the event of non-performance) of any part or all of such obligation by any means (including, without limitation,
the purchase of securities or obligations, the purchase or sale of property or services, or the supplying of funds).


 


“Indebtedness”
shall mean (without duplication), with respect to any Person, (a) all obligations or liabilities, contingent or otherwise, for
borrowed money, (b) any and all obligations represented by promissory notes, bonds, debentures or the like, or on which interest
charges are customarily paid, (c) any liability secured by any mortgage, pledge, lien or security interest on property owned or
acquired, whether or not such liability shall have been assumed, (d) obligations of such Person under conditional sale or other
title retention agreements relating to property or assets purchased by such Person, (e) all obligations of such Person issued or
assumed as the deferred purchase price of property or services (excluding trade payables and accrued obligations incurred in the
ordinary course of business), (f) any obligations (contingent or otherwise) of such Person
as an account party or applicant in respect of letters of credit and/or bankers’ acceptances, or in respect of interest
rate swaps, interest rate caps, hedging agreements or other financial or hedging obligations, and (g) Guarantees, endorsements
(other than for collection in the ordinary course of business) and other contingent obligations in respect of the obligations of
others.


 


“Intellectual
Property” shall have the meaning ascribed thereto in the Collateral Agreement.


 


“Interest
Expense” shall mean, for the relevant period, total interest expense (including interest attributable to Capitalized
Leases in accordance with GAAP) and fees with respect to outstanding Indebtedness.


 


“Investment”,
as applied to the Borrower or any Subsidiary, shall mean: (a) any shares of capital stock, evidence of Indebtedness or other security
issued by any other Person to the Borrower or any Subsidiary, (b) any loan, advance or extension of credit to, or contribution
to the capital of, any other Person, other than credit terms extended to customers in the
ordinary course of business, (c) any other investment by the Borrower or any Subsidiary in any assets or securities of any other
Person, and (d) any commitment to make any Investment.


 



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“Knowledge”
or “Known” or words of similar import shall mean, with respect to the Borrower and/or any Subsidiary, the actual
knowledge of the directors, officers, and managers of the Borrower or the applicable Subsidiary, as the case may be, after reasonable
inquiry of the appropriate employees of the Borrower and the Subsidiaries.


 


“Landlord
Waiver” shall mean a landlord waiver, subordination and/or access agreement, in form and substance reasonably satisfactory
to the Lender, executed in favor of the Lender by the landlord of a Leased Real Property.


 


“Leased
Real Property” shall mean any and all Real Properties (other than Owned Real Properties) leased or occupied by
the Borrower or any Subsidiary from time to time.


 


“Liabilities
and Contingencies” has the meaning set forth in Section 3.01(c) below.


 


“Lien”,
as applied to the property or assets (or the income or profits therefrom) of the Borrower or any Subsidiary, shall mean (in each
case, whether the same is consensual or non-consensual or arises by contract, operation of law, legal process or otherwise): (a)
any mortgage, lien, pledge, hypothecation, attachment, assignment, deposit arrangement, encumbrance, charge, lease constituting
a Capitalized Lease Obligation, conditional sale or other title retention agreement, or other
security interest or encumbrance of any kind in respect of any property (including, without limitation, stock of any Subsidiary)
of the Borrower or any Subsidiary, or upon the income or profits therefrom; (b) any arrangement under which any property of the
Borrower or any Subsidiary is transferred, sequestered or otherwise identified for the purpose of subjecting or making available
the same for the payment of Indebtedness or the performance of any other liability in priority to the payment of the general, unsecured
creditors of the Borrower or any Subsidiary; (c) any Indebtedness or liability which remains unpaid after the same shall become
due and payable and which, if unpaid, by law or otherwise is given any priority whatsoever over the general unsecured creditors
of the Borrower or any Subsidiary; and (d) any agreement (other than this Agreement) or other
arrangement which, directly or indirectly, prohibits the Borrower or any Subsidiary from creating or incurring any lien
on any of its properties or assets or which conditions the ability to do so on the security, on a pro rata or other basis,
of Indebtedness other than Indebtedness outstanding under this Agreement.


 


“Loan
Documents” shall mean the collective reference to this Agreement, the Revolving Credit Note, the Security Documents,
and the Warrants, and any and all other agreements, instruments, certificates and other documents as may be executed and delivered
by the Borrower and/or any of the Subsidiaries pursuant hereto or thereto.


 


“Loans” shall
mean, collectively, the Drawdowns.


 



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“Material
Adverse Effect” shall mean any event, act, omission, condition or circumstance
which has or would reasonably be expected to have a material adverse effect on (a) the business, operations, properties,
assets or condition, financial or otherwise, of the Borrower and the Subsidiaries, taken
as a whole, (b) the ability of the Borrower or any Subsidiary to perform any of its obligations under any of the Loan Documents,
or (c) the validity or enforceability of, or the Lender’s rights and remedies under, any of the Loan Documents, other
than due to the acts or omissions of the Lender or any of its Affiliates.


 


“Maturity Date”
shall mean Revolving Credit Maturity Date.


 


“Maximum Revolver Amount”
shall mean $1,500,000.


 


“Obligations”
shall mean the collective reference to all Indebtedness and other liabilities and obligations of every kind and description owed
by the Borrower to the Lender from time to time under or pursuant to this Agreement, the Revolving Credit Note, the Security Documents
and the other Loan Documents (excluding the Warrant), and/or otherwise in respect of the Loans, however evidenced, created or incurred,
fixed or contingent, now or hereafter existing, due or to become due.


 


“Organic
Documents” shall mean, with respect to any Person, the certificate of incorporation,
articles of incorporation, certificate of formation, certificate of limited partnership, by-laws, operating agreement, limited
partnership agreement or other such document of such Person.


 


“Owned
Real Property” shall mean each Real Property in which the Borrower or any Subsidiary holds an ownership or fee interest
from time to time.


 


“Permitted
Discretion” shall mean a determination or judgment made by the Lender in good faith in the exercise of reasonable business
judgment from the perspective of a secured lender.


 


“Permitted
Indebtedness” shall mean any and all Indebtedness expressly permitted pursuant to Section 6.01 below.


 


“Permitted
Liens” shall mean those Liens expressly permitted pursuant to Section 6.02 below.


 


“Person”
shall mean any individual, partnership, corporation, limited liability company, banking association, business trust, joint stock
company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature.


 


“Real
Properties” shall mean, collectively, any real properties (land, buildings and/or improvements) now owned or leased or
occupied by the Borrower or any of the Subsidiaries, and, during the period of the Borrower’s and/or Subsidiary’s occupancy
thereof, any other real properties heretofore owned or leased by the Borrower or any Subsidiary (provided that, with respect to
leased properties, the “Real Property” shall refer only to the portion of the subject property (excluding common areas)
leased by the Borrower or a Subsidiary).


 


“Revolving
Credit Commitment” shall mean the Lender’s agreement to make Drawdowns to the Borrower within the limitations set
forth in Section 2.01 below.


 



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“Revolving
Credit Maturity Date” shall mean the later of (a) August 1, 2013 or (b)
180 days after the last Drawdown Date.


 


“Revolving
Credit Note” shall mean the promissory note of the Borrower issued to the Lender to represent the Drawdowns and interest
thereon, as described in Section 2.01(f) below.


 


“Sale”
shall mean any transaction or series of related transactions (a) whereby Control of the
Borrower is held by a Person (or group of Persons acting in concert), provided that a “Sale” shall not be deemed
to have occurred solely by reason of normal market trading in the Common Stock which does
not result in the acquisition by a single Person or “group” (within the meaning of Section 13(d)(3) of the
Exchange Act) of a majority of the outstanding voting stock of the Borrower, (b) in which
the Borrower is a constituent party to any merger, consolidation or share exchange and as a result thereof (i) the holders
of the outstanding capital stock of the Borrower which ordinarily has voting power for the election of directors (including preferred
stock counted on an “as converted” basis into common stock) immediately prior to such merger or
consolidation cease to own a majority of the outstanding capital stock of the Borrower which ordinarily has voting power for the
election of directors (including preferred stock counted on an “as converted” basis into common stock), or (ii) the
Borrower is not the surviving corporation, or (c) whereby
all or any material portion of the assets of the Borrower or any Subsidiary are sold, assigned or transferred.


 


“SEC”
shall mean the United States Securities and Exchange Commission, and any successor agency performing the functions thereof.


 


“SEC
Reports” shall mean the periodic and current reports, registration statements, proxy statements and other reports filed
or required to be filed by the Borrower with the SEC from and after December 2008 pursuant to the Act and/or the Exchange Act,
and any amendments or supplements thereto filed with the SEC.


 


“Security
Documents” shall mean the Collateral Agreement, any collateral assignments, Landlord Waivers, financing statements, Lien
recordings or other such agreements or documents pursuant thereto, and any other agreements or instruments securing or creating
or evidencing Liens securing the Obligations.


 


“Subordinated
Debt” shall mean all Indebtedness for money borrowed and other liabilities of the Borrower or any Subsidiary, whether
or not evidenced by promissory notes, which is contractually subordinated in right of payment, in a manner satisfactory to the
Lender (as evidenced by the Lender’s prior written approval thereof), to all Obligations
of the Borrower and/or the subject Subsidiary to the Lender.


 


“Subsidiary”
or “Subsidiaries” shall mean the individual or collective reference to any corporation, limited liability company
or other entity of which 50% or more of the outstanding shares of stock or other equity interests of each class having ordinary
voting power and/or rights to profits (other than stock having such power only by reason
of the happening of a contingency) is at the time owned by the Borrower, directly or indirectly through one or more Subsidiaries
of the Borrower.


 



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“UCC”
means the Uniform Commercial Code as in effect in the State of New York on the date hereof and hereafter from time to time.


 


“Warrants”
shall mean (a) the 600,000 warrants to purchase shares of Common Stock to be issued by the Borrower to the Lender on the Closing
Date and (b) the warrants to purchase shares of Common Stock to be issued by the Borrower
to the Lender in connection with any Drawdown made after the Closing Date on a pro rata basis multiplied by .5.


 


“Wholly-Owned
Subsidiary” shall mean each Subsidiary of which all of the outstanding equity securities (other than directors’
qualifying shares) are owned by the Borrower or another such Wholly-Owned Subsidiary.


 


Section
1.02. Use of Defined Terms. All terms defined in this Agreement shall have their defined meanings when used in the Revolving
Credit Note, the Security Documents, the other Loan Documents, and all certificates, reports or other documents made or delivered
pursuant to this Agreement, unless otherwise defined therein or unless the specific context shall otherwise require.


 


Section
1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP.


 


Section
1.04. Other Definitional Provisions. The words “hereof,” “herein”, “hereto” 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 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. The word “including”
and words of similar import when used in this Agreement shall mean “including, without limitation,” unless otherwise
specified.


 


II.          GENERAL TERMS


 


Section
2.01. Revolving Credit Loans.


 


(a)          Subject
at all times to all of the terms and conditions of this Agreement, the Lender hereby agrees to extend to the Borrower a secured
revolving credit facility, from the Closing Date to the Revolving Credit Maturity Date, in an aggregate principal amount not to
exceed, at any time outstanding, the lesser of (i) the Borrowing Base at the subject time, or (ii) the Maximum Revolver Amount
(the “Revolving Credit Commitment”).


 


(b)          Such
revolving credit loans are herein sometimes referred to individually as an “Drawdown” and collectively
as the “Drawdowns.” Subject at all times to all of the terms and conditions of this Agreement, from the Closing
Date to the Revolving Credit Maturity Date and within the limits of the Revolving Credit Commitment, the Lender shall lend, and
the Borrower may borrow, prepay (without premium or penalty) and reborrow under this Section 2.01. Each request for an Drawdown
(i) shall be irrevocable, (ii) shall be deemed to constitute an express affirmation that all conditions precedent set forth in
part B of Article IV hereof are satisfied on the date of such request and will be satisfied on the requested Drawdown Date, and
(iii) shall be made to the Lender in writing in the form of a Borrowing Base Certificate ( each a
“Drawdown Notice”), not earlier than five (5) Business Days and later than one (1) Business Day (each
a “Drawdown Notice Date”) prior to the requested Drawdown Date, by an authorized officer of the Borrower or
by telephonic communication by such authorized officer to the Lender, which shall be confirmed by written notice to the Lender
to be delivered to the Lender by the Business Day next following the subject request. In no event shall the Borrower request, or
shall the Lender be required to honor, (A) any request for an Drawdown in an amount greater than the Availability at such time,
(B) any request for an Drawdown in an amount less than $10,000, or (C) more than one request for the borrowing of an Drawdown in
any seven (7) calendar day period.


 



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(c)          The
Borrower shall pay the Lender substantially even installments of the principal amount of all Drawdowns and interest on a cash on
cash basis on all Drawdowns at the rate(s) per annum as in effect from time to time in accordance with the Revolving Credit Note.
Such interest shall be payable based on a three hundred sixty (360) day year, counting the actual number of days elapsed.


 


(d)          In
the event and to the extent that, at any time, the outstanding principal amount of Drawdowns exceeds the Revolving Credit Commitment
then in effect, then the Borrower shall immediately, without notice or demand, make a payment to the Lender in respect of the Drawdowns
in an amount sufficient to cause the outstanding principal amount of Drawdowns to be equal to or less than the Revolving Credit
Commitment then in effect.


 


(e)          Unless
sooner due and payable by reason of an Event of Default or Sale having occurred, the Borrower shall pay in full all of the Obligations
to the Lender in respect of all Drawdowns on the Revolving Credit Maturity Date.


 


(f)          All
Drawdowns shall be evidenced by a secured Revolving Credit Note of the Borrower payable to the Lender or registered assigns.


 


Section
2.02. Fees.


 


(a)          The
Borrower has paid Lender $5,000 for due diligence fees upon the execution and delivery of the Term Sheet dated July 19, 2012 (the
“Term Sheet”) and shall pay the amount of $5,000, the remainder
of Lender’s due diligence fees, and Lender’s legal fees in an amount of $7,500 on the Closing Date. Such fees
shall not be refundable in whole or in part and shall not be subject to reduction or set-off under any circumstances.


 


(b)          In
the event of any prepayment of all or any portion of a Drawdown, the interest accrued thereon, and any other payment due
in connection therewith, the interest rate shall be adjusted to reflect a 16% cash on cash
annualized interest rate based on a 360 day year..


 


(c)          Payments
received in respect of the Obligations after 12:00 Noon (Eastern Time) on any day shall be deemed to be received on the
next succeeding Business Day, and if any payment is received other than by wire transfer of immediately available funds, such payment
shall be subject to three (3) Business Days’ clearance prior to being credited to the Obligations for interest calculation
purposes.


 



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Section
2.03. Use of Proceeds. The Borrower shall utilize the proceeds of the Loans solely to fulfill the Borrower’s obligations
under the Purchase Orders covered by the Collateral Agreement.


 


Section
2.04. Application of Payments. All amounts paid to or received by the Lender in respect of the Loans from whatever source
(whether from the Borrower, any realization upon any Collateral, or otherwise) shall, unless otherwise directed by the Borrower
with respect to any particular payment (unless an Event of Default shall then be continuing, in which event the Lender may disregard
the Borrower’s direction), be applied (a) first, to reimburse the Lender for all out-of-pocket costs and expenses incurred
by the Lender which are reimbursable to the Lender in accordance with this Agreement, the Revolving Credit Note and/or any of the
other Loan Documents, (b) next, to any accrued but unpaid fees or prepayment premiums, (c)
next, to unpaid accrued interest on the Drawdowns, (d) next, to the outstanding principal of the Drawdowns, and (e) finally,
to the payment of any other outstanding Obligations; and after payment in full of the Obligations, any further amounts paid to
or received by the Lender in respect of the Loans shall be paid over to the Borrower or such other Person(s) as may be legally
entitled thereto.


 


Section
2.05. Sale. Anything elsewhere contained in this Agreement and/or the Revolving
Credit Note to the contrary notwithstanding, the Revolving Credit Commitment shall terminate and all Obligations shall become immediately
due and payable, without requirement of any notice or demand, upon the consummation of any Sale.


 


Section
2.06. Obligations Unconditional.


 


(a)          The
payment and performance of all Obligations shall constitute the absolute and unconditional obligations of the Borrower, and shall
be independent of any defense or rights of set-off, recoupment or counterclaim which the Borrower might otherwise have against
the Lender. All payments required by this Agreement and/or the Revolving Credit Note shall be paid free of any deductions or withholdings
for any taxes (but only for the original Lender and any investment funds under common management with such Lender) or other amounts
and without abatement, diminution or set-off. If the Borrower is required by law to make such
a deduction or withholding from a payment hereunder, the Borrower shall pay to the Lender such additional amount as is necessary
to ensure that, after the making of such deduction or withholding, the Lender receives (free from any liability in respect of any
such deduction or withholding) a net sum equal to the sum which it would have received and so retained had no such deduction or
withholding been made or required to be made. The Borrower shall (i) pay the full amount
of any deduction or withholding, which it is required to make by-law, to the relevant authority within the payment period
set by the relevant law, and (ii) promptly after any such payment, deliver to the Lender an original (or certified copy) official
receipt issued by the relevant authority in respect of the amount withheld or deducted or,
if the relevant authority does not issue such official receipts, such other evidence of payment of the amount withheld or
deducted as is reasonably acceptable to the Lender.


 



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(b)          If,
at any time and from time to time after the Closing Date, (i) any change in any existing law, regulation, treaty or
directive or in the interpretation or application thereof, (ii) any new law,
regulation, treaty or directive enacted or application thereof, or (iii) compliance by the Lender with any request or
directive (whether or not having the force of law) from any governmental authority (A) subjects the Lender to any tax, levy,
impost, deduction, assessment, charge or withholding of any kind whatsoever with respect to any Loan Document, or changes the
basis of taxation of payments to the Lender of any amount payable thereunder (except for net income taxes, or franchise taxes
imposed in lieu of net income taxes, imposed generally by federal, state, local or foreign taxing authorities with respect to
interest or commitment fees or other fees payable hereunder or changes in the rate of tax on the overall net income of the
Lender or its members), or (B) imposes on the Lender any other condition or increased cost in connection with the
transactions contemplated thereby or participations therein, and the result of any of the foregoing is to increase the cost
to the Lender of making or continuing any Loan or to reduce any amount receivable hereunder, then, in any such case, the
Borrower shall promptly pay to the Lender any additional amounts necessary to compensate the Lender, on an after-tax basis,
for such additional cost or reduced amount as determined by the Lender. If the Lender becomes entitled to claim any
additional amounts pursuant to this Section 2.06(b), the Lender shall promptly notify the Borrower of the event by reason of
which the Lender has become so entitled and the basis therefor (to the extent known to the Lender) in reasonable detail, and
each such notice of additional amounts payable pursuant to this Section 2.06(b) submitted by the Lender to the Borrower
shall, absent manifest error, be final, conclusive and binding for all purposes.


 


Section
2.07. Reversal of Payments. To the extent that any payment or payments made to or received by the Lender pursuant to
this Agreement or any other Loan Document are subsequently invalidated, declared to be fraudulent or preferential, set aside, or
required to be repaid to any trustee, receiver or other person under any state or federal
bankruptcy or other such law, then, to the extent thereof, such amounts shall be revived as Obligations and continue in full force
and effect hereunder as if such payment or payments had not been received by the Lender.


 


III.          REPRESENTATIONS AND WARRANTIES


 


As
of the Closing Date and on each Drawdown Date (unless the representation and warranty refers to a specific date), the Borrower
hereby makes the following representations and warranties to the Lender, all of which representations and warranties shall survive
the Closing Date, the delivery of the Revolving Credit Note and the making of the Loans,
shall be continuing in nature so long as any Obligations are outstanding or the Revolving Credit Commitment remains in effect,
and are as follows:


 


Section
3.01. Financial Matters.


 


(a)          The
Borrower has heretofore furnished to the Lender the audited consolidated financial statements
(including balance sheets, statements of income and statements of cash flows) of the Borrower and its Subsidiaries as at
February 28, 2009 and 2010 and February 29 2011, and for the Fiscal Years then ended (collectively,
the “Financial Statements”).


 



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(b)          The
Financial Statements (i) have been prepared in accordance with GAAP and Regulation S-X promulgated under the Act on a consistent
basis for all periods (subject, in the case of unaudited statements, to the absence of full footnote disclosures, and to normal
non-material audit adjustments), (ii) are complete and correct in all material respects, (iii)
fairly present the consolidated financial condition of the Borrower and its Subsidiaries
as of said dates, and the results of their operations for the periods stated, (iv) contain and reflect all necessary adjustments
and accruals, as applicable, for a fair presentation of the Borrower’s and its Subsidiaries’ consolidated financial
condition and results of operations as of the dates of and for the periods covered by such Financial Statements, and (v) make full
and adequate provision, subject to and in accordance with GAAP, for the various assets and
liabilities (including, without limitation, deferred revenues) of the Borrower, fixed or contingent, and the results of
their operations and transactions in their accounts, as of the dates and for the periods referred to therein.


 


(c)          Except
as set forth in Schedule 3.01 of the Disclosure Schedule, neither the Borrower nor any of its Subsidiaries have any liabilities,
obligations or commitments of any kind or nature whatsoever, whether absolute, accrued, contingent or otherwise (collectively “Liabilities
and Contingencies”), including, without limitation, Liabilities and Contingencies under employment agreements and with
respect to any “earn-outs”, stock appreciation rights, or related compensation obligations, except: (i) Liabilities
and Contingencies disclosed in the Financial Statements or footnotes thereto, (ii) Liabilities and Contingencies incurred in the
ordinary course of business and consistent with past practice since the date of the most recent Financial Statements, or (iii)
those Liabilities and Contingencies which are not required to be disclosed under GAAP. The
reserves, if any, reflected on the balance sheet included in the most recent Financial Statements are appropriate and reasonable.
Neither the Borrower nor any of its Subsidiaries have any Indebtedness for money borrowed, outstanding obligations for the purchase
price of property, contingent obligations or liabilities for taxes, or any material or unusual forward or long-term commitments,
except as specifically set forth in Schedule 3.01 of the Disclosure Schedule.


 


(d)          Since
the date of the most recent Financial Statements, except as set forth in Schedule 3.01 of the Disclosure Schedule, there
has been no material adverse change in the working capital, condition (financial or otherwise), assets, liabilities, reserves,
business, management, operations or prospects of the Borrower or any of its Subsidiaries, including, without limitation, the following:


 


(i)          
there has been no material change in any assumptions underlying, or in any methods of calculating, any bad debt, contingency or
other reserve relating to the Borrower or any Subsidiary;


 


(ii)          
there have been (A) no material write-downs in the value of any inventory of, and there
have been no write-offs as uncollectible of any notes, accounts receivable or other receivables of, the Borrower or
any Subsidiary other than write-offs of accounts receivable reserved in full as of the date of the most recent financial
statements delivered to the Lender, and (B) no reserves established for the uncollectibility of any notes, Accounts or other
receivables of the Borrower or any Subsidiary except to the extent that same have been disclosed to the Lender in writing and
would not, individually or in the aggregate, cause the outstanding Drawdowns to exceed the Revolving Credit Commitment;


 



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(iii)          no debts which, individually or in the aggregate, are material to the Borrower and its Subsidiaries (taken as a whole) have been
cancelled, no claims or rights of substantial value have been waived and no properties or assets (real, personal or mixed, tangible
or intangible) have been sold, transferred, or otherwise disposed of by the Borrower or any Subsidiary except in the ordinary course
of business and consistent with past practice;


 


(iv)          there has been no change in any method of accounting or accounting practice utilized by the Borrower or any Subsidiary;


 


(v)          no material casualty, loss or damage has been suffered by the Borrower or any Subsidiary, regardless of whether such casualty,
loss or damage is or was covered by insurance;


 


(vi)          Any announced changes in the policies or practices of any customer, supplier or referral source of the Borrower or any Subsidiary
which the Borrower or such Subsidiary has received written notice of and which would reasonably be expected to have a Material
Adverse Effect;


 


(vii)          Any incurrence of (A) any liability or obligation outside of the ordinary course of business which, individually or in the aggregate,
is or will be material to the consolidated financial condition of the Borrower and its Subsidiaries, or (B) any Indebtedness other
than Permitted Indebtedness;


 


(viii)          Any declaration, setting aside or payment of any dividend or distribution or any other payment of any kind by the Borrower to or
in respect of any equity securities of the Borrower; and


 


(ix)          No action described in this Section 3.01(d) has been agreed to be taken by the Borrower or any Subsidiary.


 


(e)          The
Borrower and its Subsidiaries have in place adequate systems of internal controls and disclosure controls and procedures sufficient
to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements
in accordance with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization, (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any
differences, and (v) the Borrower and its management are able to obtain timely and accurate information regarding the Business
Operations and all material transactions relating to the Borrower and the Subsidiaries; and no material deficiency exists with
respect to the Borrower’s or any Subsidiary’s systems of internal controls.


 


(f)          All
of the SEC Reports (as amended), as of the respective dates thereof, complied in all material respects, as applicable, with the
Act and the Exchange Act.


 



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Section
3.02. Organization; Corporate Existence.


 


(a)          The Borrower (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada,
(ii) has all requisite corporate power and authority to own its properties and to carry on its business as now conducted and as
proposed hereafter to be conducted, (iii) is qualified to do business as a foreign corporation in each jurisdiction in which the
failure of the Borrower to be so qualified would have a Material Adverse Effect, and (iv) has all requisite corporate power and
authority to execute and deliver, and perform all of its obligations under, the Loan Documents. True and complete copies of the
Organic Documents of the Borrower, together with all amendments thereto to the date hereof, have been furnished to the Lender.


 


(b)          On
the date of this Agreement, the outstanding capital stock of the Borrower, the number and amount of all outstanding options, warrants,
convertible securities, subscriptions and other rights to acquire capital stock of the Borrower, and the number of shares reserved
or to be reserved under outstanding, authorized or proposed option plans or the like, are as set forth in Schedule 3.02
of the Disclosure Schedule. All of such outstanding capital stock is validly issued, fully paid and nonassessable. Except as set
forth in such Schedule 3.02, no holders of any such securities have any registration rights in respect thereof.


 


(c)          Schedule
3.02 of the Disclosure Schedule further sets forth, with respect to each Subsidiary on the date of this Agreement, (i)
its proper legal name, (ii) its jurisdiction of incorporation or formation, (iii) the jurisdictions in which it is qualified to
do business as a foreign entity, (iv) the number of shares of capital stock, equity securities or ownership interests outstanding
(all of which are validly issued, fully paid and nonassessable), and (v) the owner(s) of such outstanding capital stock, equity
securities or other ownership interests. Each of the Subsidiaries (A) is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or formation, (B) has all requisite power and authority to own
its properties and to carry on its business as now conducted and as proposed hereafter to be conducted, and to execute and deliver,
and perform all of its obligations under, the Loan Documents to which it is a party, and (C) is not required to be qualified to
do business as a foreign entity in any jurisdiction in which it is not so qualified and the failure to be so qualified would reasonably
be expected to have a Material Adverse Effect. True and complete copies of the Organic Documents of each Subsidiary, together with
all amendments thereto to the date hereof, have been furnished to the Lender.


 


Section
3.03. Authorization.


 


(a)          The execution, delivery and performance by the Borrower and the Subsidiaries of their respective
obligations under the Loan Documents have been duly authorized by all requisite corporate and other action and will not,
either prior to or as a result of the consummation of the transactions contemplated by this Agreement: (i) violate any provision
of Applicable Law, any order of any court or other agency of government, any provision of the Organic
Documents of the Borrower or any Subsidiary, or any Contract, indenture, agreement or other instrument to which the Borrower
or any of the Subsidiaries is a party, or by which the Borrower or any of the Subsidiaries or any of its assets or properties are
bound, or (ii) be in conflict with, result in a breach of, or constitute (after the giving of notice or lapse of time or both)
a default under, or, except as may be provided in the Loan Documents, result in the creation
or imposition of any Lien of any nature whatsoever upon any of the property or assets of the Borrower or any of the Subsidiaries
pursuant to, any such Contract, indenture, agreement or other instrument.


 



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(b)          This
Agreement and the other Loan Documents have been duly executed and delivered by the Borrower and its Subsidiaries party thereto,
and constitute the valid and binding obligations of the Borrower and its Subsidiaries party thereto, enforceable against the Borrower
and such Subsidiaries in accordance with their respective terms, except to the extent that enforceability may be limited by bankruptcy,
insolvency, reorganization, moretorium, fraudulent transfer or other similar laws now or hereafter in effect relating to creditors’
rights generally, and by general principles of equity.


 


(c)          Except
for compliance with applicable federal or state securities laws, as applicable, neither the Borrower nor any of the Subsidiaries
is required to obtain any Government Approval, consent or authorization from, or to file any declaration or statement with, any
governmental instrumentality or agency in connection with or as a condition to the execution, delivery or performance of any of
the Loan Documents.


 


(d)          Without
limitation of Sections 3.03(a) through 3.03(c) above, the issuance of the Term Revolving Credit Note and the Warrants has been
authorized by all requisite corporate action of the Borrower, and such issuance does not conflict with any shareholders’
agreement, preemptive rights, limitation under or requirement of Organic Documents, or other agreement or commitment of the Borrower.
Upon conversion of the Term Revolving Credit Note (in whole or in part) from time to time in accordance therewith, the shares of
Common Stock issuable upon such conversion will be validly issued, fully paid and nonassessable; and upon exercise of the Warrants
in accordance with the terms thereof, the Warrant Shares (as such term is defined in the Warrants) will be validly issued, fully
paid and nonassessable.


 


Section
3.04. Litigation. Except as disclosed on Schedule 3.04 of the Disclosure Schedule, there is no action, suit or
proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending or, to the knowledge
of the Borrower, threatened against or affecting the Borrower or any of the Subsidiaries
or any of their respective assets, which, if adversely determined, would have a Material Adverse Effect. The Borrower has
no Knowledge of any state of facts, events, conditions or circumstances which are reasonably likely to give rise to, or would properly
constitute grounds for or the basis of, any suit, action, arbitration, proceeding or investigation (including, without limitation,
any unfair labor practice charges, interference with union organizing activities, or other labor or employment claims) against
or with respect to the Borrower or any Subsidiary.


 


Section
3.05. Material Contracts. Except as disclosed on Schedule 3.05 of the Disclosure Schedule, neither the Borrower
nor any of the Subsidiaries is (a) a party to any Contract, agreement or instrument or subject to any charter or other corporate
or organizational restriction which has had or could reasonably be expected to have a Material Adverse Effect, (b) subject to any
liability or obligation under or relating to any collective bargaining agreement, or (c) in default in the performance, observance
or fulfillment of any of the obligations, covenants or conditions contained in any Contract, agreement or instrument to which it
is a party or by which any of its assets or properties is bound, which default, individually or in the aggregate, would have or
could reasonably be expected to have a Material Adverse Effect.


 



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Section
3.06. Title to Properties. Except as set forth in Schedule 3.06 of the Disclosure Schedule, the Borrower and
each of the Subsidiaries has good title to all of its properties and assets, free and clear of all mortgages, security interests,
restrictions, encumbrances or other Liens of any kind, except for restrictions on the nature of use thereof imposed by Applicable
Law, and except for Permitted Liens, none of which materially interfere with the use and enjoyment of such properties and assets
in the normal course of the Business Operations as presently conducted, or materially impair the value of such properties and assets
for the purpose of such business.


 


Section
3.07. Real Property. Neither the Borrower nor any Subsidiary owns any Owned Real Property. Schedule 3.07 of the
Disclosure Schedule sets forth a correct and complete lists of all Leased Real Properties. The Borrower has a valid lessee’s
interest in each Leased Real Property currently leased or occupied by the Borrower and neither the Borrower nor, to the Borrower’s
Knowledge, any other party thereto, is in material breach or violation of any requirements of any such lease. All Real Properties
currently owned or occupied by the Borrower or any Subsidiary are in good condition (reasonable wear and tear excepted) and are
adequate for the current and proposed businesses of the Borrower and its Subsidiaries. To the Borrower’s Knowledge, its use
of the Real Properties in the normal conduct of the Business Operations does not violate any applicable building, zoning or other
law, ordinance or regulation affecting such Real Properties, and no covenants, easements, rights-of-way or other such conditions
of record materially impair the Borrower’s use of the Real Properties in the normal conduct of the Business Operations.


 


Section
3.08. Machinery and Equipment. The machinery and equipment owned and/or used by the Borrower and the Subsidiaries is,
as to each individual material item of machinery and equipment, and in the aggregate as to all such equipment, in good and usable
condition and in a state of good maintenance and repair (reasonable wear and tear excepted), and adequate for its use in the Business
Operations.


 


Section
3.09. Capitalization. Except as set forth in Schedule 3.02 of the Disclosure Schedule and for new Subsidiaries
which may hereafter be formed or acquired in compliance with this Agreement, the Borrower does not, directly or indirectly, own
any capital stock of or any form of equity interest in any other Person.


 


Section
3.10. Solvency. After giving effect to the Loans and the other transactions contemplated hereby, the borrowings made
and/or to be made by the Borrower under this Agreement do not and will not render the Borrower insolvent or with unreasonably small
capital for its business; the fair saleable value of all of the assets and properties of the Borrower does now, and will, upon
the funding of the Loans contemplated hereby, exceed the aggregate liabilities and Indebtedness
of the Borrower (including contingent liabilities); the Borrower is not contemplating either the filing of a petition under
any state or federal bankruptcy or insolvency law, or the liquidation of all or any substantial portion of its assets or property;
the Borrower has no Knowledge of any Person contemplating the filing of any such petition
against the Borrower; and the Borrower reasonably anticipates that it will be able to pay its debts as they mature.


 


Section
3.11. No Investment Company. The Borrower is not an “investment company” or a company “controlled”
by an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.


 



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Section
3.12. Margin Securities. The Borrower does not own or have any present intention of acquiring any “margin security”
or any “margin stock” within the meaning of Regulations T, U or X of the Board of Governors of the Federal Reserve
System (herein called “margin security” and “margin stock”). None of the proceeds of the Loans will be
used, directly or indirectly, for the purpose of purchasing or carrying, or for the purpose
of reducing or retiring any Indebtedness which was originally incurred to purchase or carry, any margin security or margin
stock or for any other purpose which might constitute the transactions contemplated hereby a “purpose credit” within
the meaning of said Regulations T, U or X, or cause this Agreement to violate any other regulation of the Board of Governors of
the Federal Reserve System or the Exchange Act, or any rules or regulations promulgated under such statutes.


 


Section
3.13. Taxes.


 


(a)          Except
as set forth in Schedule 3.13 of the Disclosure Schedule, all material federal, state, local and foreign tax returns and
tax reports required to be filed by the Borrower and/or any Subsidiary have been timely filed with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required to be filed, and all of such tax returns, tax reports
and other filings are correct and complete in all material respects. All federal, state, local and foreign income, franchise, sales,
use, property, excise, ad valorem, value-added, payroll and other taxes (including interest, penalties and additions to tax and
including estimated tax installments where required to be filed and paid) due from or with respect to the Borrower and the Subsidiaries
have been fully paid, and appropriate accruals have been made on the Borrower’s books for taxes not yet due and payable.
All taxes and other assessments and levies which the Borrower and/or any Subsidiary is required by law to withhold or to collect
have been duly withheld and collected, and have been paid over to the proper governmental authorities to the extent due and payable.
Except as set forth in Schedule 3.13 of the Disclosure Schedule, there are no outstanding or pending claims, deficiencies
or assessments for taxes, interest or penalties with respect to any taxable period of the Borrower or any Subsidiary, and no outstanding
tax Liens.


 


(b)          Except
as disclosed in Schedule 3.13 of the Disclosure Schedule, the Borrower has no Knowledge
and has not received notice of any pending audit with respect to any federal, state, local or foreign tax returns of the
Borrower or any Subsidiary, and no waivers of statutes of limitations have been given or
requested with respect to any tax years or tax filings of the Borrower or any Subsidiary.


 



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Section
3.14. ERISA. Except as set forth in Schedule 3.14 of the Disclosure Schedule, neither
the Borrower nor any ERISA Affiliate of the Borrower maintains or has any obligation to make any contributions to any pension,
profit sharing or other similar plan providing for deferred compensation to any employee. With respect to any such plan(s)
as may now exist or may hereafter be established by the Borrower or any ERISA Affiliate of the Borrower, and which constitutes
an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA, except as set forth on Schedule
3.14 of the Disclosure Schedule: (a) the Borrower or the subject ERISA Affiliate has
paid and shall cause to be paid when due all amounts necessary to fund such plan(s) in accordance with its terms, (b) except
for normal premiums payable by the Borrower to the Pension Benefit Guaranty Corporation (“PBGC”), the Borrower
or the subject ERISA Affiliate has not taken and shall not take any action which could result in any liability to the PBGC,
or any of its successors or assigns, (c) the present value of all accrued benefits thereunder shall not at any time exceed
the value of the assets of such plan(s) allocable to such accrued benefits, (d) there have not been and there shall not be any
transactions such as would cause the imposition of any tax or penalty under Section 4975
of the Code or under Section 502 of ERISA, which would adversely affect the funded benefits attributable to the Borrower
or the subject ERISA Affiliate, (e) there has not been and there shall not be any termination or partial termination thereof (other
than a partial termination resulting solely from a reduction in the number of employees of
the Borrower or an ERISA Affiliate of the Borrower, which reduction is not anticipated by the Borrower), and there has not
been and there shall not be any “reportable event” (as such term is defined in Section 4043(b) of ERISA) on or after
the effective date of Section 4043(b) of ERISA with respect to any such plan(s) subject to Title IV of ERISA, (f) no “accumulated
funding deficiency” (as defined in Section 412 of the Code) has been or shall be incurred on or after the effective date
of Section 412 of the Code, (g) such plan(s) have been and shall be determined to be “qualified”
within the meaning of Section 401(a) of the Code, and have been and shall be duly administered in compliance with ERISA
and the Code, and (h) the Borrower is not aware of any fact, event, condition or cause which might adversely affect the qualified
status thereof. As respects any “multi-employer plan” (as such term is defined in Section 3(37) of ERISA) to which
the Borrower or any ERISA Affiliate thereof has heretofore been, is now, or may hereafter be required to make contributions, the
Borrower or such ERISA Affiliate has made and shall make all required contributions thereto, and there has not been and shall not
be any “complete withdrawal” or “partial withdrawal” (as such terms are respectively defined in Sections
4203 and 4205 of ERISA) therefrom on the part of the Borrower or such ERISA Affiliate. Neither the Borrower nor any of its Subsidiaries
is or has at any time been an employer (for purposes of Sections 38 to 51 of the Pensions
Act 2004 under English law) of an occupational pension scheme which is not a money purchase scheme (both terms as defined
in the Pensions Schemes Act 1993 under English law), or “connected” with an “associate” of such an employer
(as those terms are used in Sections 39 and 43 of the Pensions Act 2004 under English law).


 


Section
3.15. Intellectual Property.


 


(a)          To
the Knowledge of the Borrower, the Borrower and the Subsidiaries own or have the valid right to use all material patents, trademarks,
copyrights, software, computer programs, equipment designs, network designs, equipment configurations,
technology and other intellectual property used, marketed and/or sold in the Business Operations, and the Borrower and the
Subsidiaries are in compliance in all material respects with all licenses, user agreements and other such agreements regarding
the use of intellectual property used in the Business Operations; and the Borrower has no
Knowledge of or received written notice claiming that any such intellectual property infringes upon or violates the rights
of any other Person.


 


(b)          Schedule
3.15(b) of the Disclosure Schedule sets forth all material Intellectual Property owned by the Borrower and its Subsidiaries
(“Owned Intellectual Property”), including the name, if any, and a brief description thereof. Except
as set forth in such Schedule 3.15(b), to the Knowledge fo the Borrower, either the Borrower or one of its Subsidiaries
holds, good, valid and indefeasible title to all Owned Intellectual Property, free and clear of any liens or encumbrances of any
kind, except for: (i) any lien for current taxes not yet due and payable, and (ii) liens that have arisen in the ordinary course
of business and that do not (individually or in the aggregate) materially detract from the
value of the assets subject thereto or materially impair the operations of the Borrower and its Subsidiaries.


 



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(c)          Schedule
3.15(c) of the Disclosure Schedule sets forth: (i) all material Intellectual Property licensed by the Borrower or any of its
Subsidiaries from third parties and used in the conduct of the business of the Borrower and its Subsidiaries (“Licensed
Intellectual Property”), including a brief description thereof; (ii) with respect to any Owned Intellectual Property
that is the subject of any registration or pending application in any jurisdiction, the names of the jurisdictions, any registration
and/or application serial numbers, and the current status thereof; (iii) a brief description
of all material licenses, sublicenses, and other agreements pursuant to which the Borrower (or any of its Subsidiaries)
or any sublicensee of the Borrower (or any of its Subsidiaries) has granted to any third party the right to use any of the Owned
Intellectual Property; (iv) all other material consents, indemnifications, forbearances to sue, settlement agreements and licensing
or cross-licensing arrangements to which the Borrower or any of its Subsidiaries is a party relating to the Owned Intellectual
Property; and (v) any ongoing royalty or payment obligations with respect to the Licensed Intellectual Property.


 


(d)          To
the Knowledge of the Borrower, the Borrower and its Subsidiaries have a valid right to use, license, and otherwise exploit all
Licensed Intellectual Property, and any rights thereunder will not be affected by the Borrower and its Subsidiaries entering into
this Agreement, the other Loan Documents and the agreements and transactions contemplated
hereby and thereby. Except as set forth in Schedule 3.15(d) of the Disclosure Schedule, neither the Borrower
nor any of its Subsidiaries is under any obligation to pay royalties or other payments in connection with any license, sublicense,
or other agreement, nor restricted from assigning its right under any sublicense or agreement respecting the Licensed Intellectual
Property, nor will the Borrower or any of its Subsidiaries otherwise be, as a result of the execution and delivery of this
Agreement, the other Loan Documents or the performance of their obligations hereunder and thereunder, in breach of any license,
sublicense or other agreement relating to the Licensed Intellectual Property.


 


(e)          To
the Knowledge of the Borrower, the Borrower’s and each Subsidiary’s rights in all of the Owned Intellectual
Property are valid, subsisting, and enforceable. None of the Owned Intellectual Property
or any registrations therefor have been cancelled or adjudicated invalid or unenforceable, or are subject to any outstanding
order, judgment, or decree restricting its use or adversely affecting or reflecting the Borrower’s or any of its Subsidiaries’
rights thereto. To the Knowledge of the Borrower, all Owned Intellectual Property that is the subject of a registration or pending
application is valid, subsisting, unexpired, and in proper form, and all renewal fees and
other maintenance fees that have fallen due on or prior to the Closing Date have been paid. Either the Borrower or its applicable
Subsidiary has timely made all filings and payments with the appropriate intellectual property
offices required to maintain in subsistence all Owned Intellectual Property. All documentation necessary to confirm and
effect the Borrower’s and its Subsidiaries’ ownership of and rights in any Owned Intellectual Property that is the
subject of a registration or pending application acquired by the Borrower or any of its Subsidiaries from third parties has been
filed in the United States Patent and Trademark Office and the United States Copyright Office, and any and all other relevant intellectual
property offices and agencies in other jurisdictions. Except for any pending application by the Borrower or a Subsidiary, no Owned
Intellectual Property is the subject of any legal or governmental proceeding before any governmental,
registration or other authority in any jurisdiction, including any office action or other form of preliminary or final refusal
of registration.


 



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(f)          The consummation of the transactions contemplated hereby will not materially alter or impair any Owned Intellectual Property. To
the Knowledge of the Borrower, no Owned Intellectual Property has been used, divulged, disclosed or appropriated to the detriment
of the Borrower or any of its Subsidiaries for the benefit of any third party; and, to the Knowledge
of the Borrower, no employee or agent of the Company or any of its Subsidiaries has misappropriated
any material trade secrets or other material confidential information of any third party in the course of the performance of his
or her duties as an employee of the Borrower or any of its Subsidiaries. To the Knowledge of the Borrower, (i) none of the
Owned Intellectual Property infringes on any Intellectual Property owned or used by any other Person; (ii) none of the
products that are or have been designed, created, developed, assembled, manufactured or sold by the Borrower or any of its
Subsidiaries is infringing, misappropriating, or making any unlawful use of any Intellectual Property owned by any other Person,
and the Borrower and its Subsidiaries have all rights and licenses reasonably necessary in order to make, have made, use or sell
such products, (iii) no other Person is infringing, misappropriating or making any unlawful
use of, and no Intellectual Property owned or used by any other Person infringes on any Owned Intellectual Property, and
(iv) there is no claim, suit, action or proceeding pending or threatened or asserted against the Borrower or any of its Subsidiaries:
(A) alleging any conflict or infringement by the Borrower or any of its Subsidiaries of any other Person’s intellectual
property or proprietary rights; or (B) challenging the Borrower’s or any of its Subsidiaries’ ownership or use of,
or the validity or enforceability of, any of the Owned Intellectual Property or the Licensed Intellectual Property.


 


Section
3.16. Compliance with Laws. The Borrower and the Subsidiaries are in compliance with all occupational safety, health,
wage and hour, employment discrimination, environmental, flammability, labeling and other Applicable Law which are material to
the Business Operations, except where such non-compliance would not, individually or in the aggregate, have a Material Adverse
Effect. Neither the Borrower nor any Subsidiary has any Knowledge of any state or facts,
events, conditions or occurrences which may now or hereafter constitute or result in a violation of any Applicable Law,
or which may give rise to the assertion of any such violation, which in either case could have a Material Adverse Effect. Neither
the Borrower nor any Subsidiary has received written notice of default or violation, nor is the Borrower or any Subsidiary in default
or violation, with respect to any Applicable Law. Neither the Borrower nor any Subsidiary
has received written notice of or been charged with, or is, to the Borrower’s Knowledge, under investigation with
respect to, any violation of any provision of any Applicable Law, which violation would have a Material Adverse Effect.


 


Section
3.17. Licenses and Permits. The Borrower and each Subsidiary has all federal, state and local licenses and permits required
to be maintained in connection with and material to the Business Operations, and all such licenses and permits are valid and in
full force and effect. The Borrower and each Subsidiary has complied with the requirements of such licenses and permits in all
material respects, and has received no notice of any pending or threatened proceedings for the suspension, termination, revocation
or limitation thereof. There is no circumstance or condition Known to the Borrower that would cause or permit any of such licenses
or permits to be voided, revoked or withdrawn.


 



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Section
3.18. Insurance. Schedule 3.18 of the Disclosure Schedule lists all insurance coverages maintained by the Borrower
on the date of this Agreement, including the names of insurers, policy limits and deductibles. The Borrower has not received written
notice of cancellation or intent not to renew any of such policies, and there has not occurred, and there does not exist, any condition
(other than general industry-wide conditions) such as would cause any of such insurers to cancel any of such insurance coverages,
or would be reasonably likely to materially increase the premiums charged to the Borrower for coverages consistent with the scope
and amounts of coverages as in effect on the date hereof.


 


Section
3.19. Environmental Laws.


 


(a)          The
Borrower and each Subsidiary has complied in all material respects with all Environmental Laws relating to its business and properties,
and to the Knowledge of the Borrower there exist no Hazardous Substances in amounts in violation of applicable Environmental
Laws or underground storage tanks on any of the Real Properties the existence of which would have a Material Adverse Effect, except
those that are stored and used in compliance with Applicable Laws.


 


(b)          Neither
the Borrower nor any Subsidiary has received written notice of any pending or threatened litigation or administrative proceeding
which in any instance (i) asserts or alleges any violation of applicable Environmental Laws
on the part of the Borrower or any Subsidiary, (ii) asserts or alleges that the Borrower or any Subsidiary is required to
clean up, remove or otherwise take remedial or other response action due to the disposal, depositing, discharge, leaking or other
release of any Hazardous Substances or materials, or (iii) asserts or alleges that the Borrower or any Subsidiary is required to
pay all or any portion of the costs of any past, present or future cleanup, removal or remedial
or other response action which arises out of or is related to the disposal, depositing, discharge, leaking or other release
of any hazardous substances or materials by the Borrower or any Subsidiary. To the Borrower’s Knowledge, neither the
Borrower nor any Subsidiary is subject to any judgment, decree, order or citation related
to or arising out of any Environmental Laws. To the Borrower’s Knowledge, neither the Borrower nor any Subsidiary
has been named or listed as a potentially responsible party by any governmental body or agency in any matter arising under any
Environmental Laws. Neither the Borrower nor any Subsidiary is a participant in, nor does
the Borrower have Knowledge of, any governmental investigation involving any of the Real Properties.


 


(c)          To
the Borrower’s Knowledge, neither the Borrower, any Subsidiary nor any other Person has caused or permitted any Hazardous
Substances or other materials to be stored, deposited, treated, recycled or disposed of on, under or at any of the Real Properties
in violation of applicable Environmental Laws, which materials, if known to be present, would reasonably be expected to require
or authorize cleanup, removal or other remedial action under any applicable Environmental Laws.


 


(d)          As
used in this Section 3.19 and in Section 5.08 below, the following terms have the following meanings:


 



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“Environmental
Laws” include all federal, state, local and foreign laws, rules, regulations, ordinances, permits, orders, and consent
decrees agreed to by the Borrower or any Subsidiary, relating to health, safety, and environmental
matters applicable to the business and property of the Borrower or any Subsidiary. Such laws and regulations include but are not
limited to the Resource Conservation and Recovery Act (“RCRA”),
42 U.S.C. §6901 et seq., as amended; the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”),
42 U.S.C. §9601 et seq., as amended; the Toxic Substances Control Act (“TSCA”), 15 U.S.C. §2601 et
seq., as amended; and the Clean Water Act, 33 U.S.C. §1331 et seq., as amended.


 


“Hazardous
Substances”, “Release”, “Respond” and “Response” shall have
the meanings assigned to them in CERCLA, 42 U.S.C. §9601, as amended.


 


“Notice”
means any actual summons, citation, directive, information request, notice of potential responsibility, notice of violation or
deficiency, order, claim, complaint, investigation, proceeding, judgment, letter, or other communication, written or oral, from
the United States Environmental Protection Agency or other federal, state, local or foreign
agency or authority, or any other entity or individual, public or private, concerning any intentional or unintentional act
or omission which involves management of Hazardous Substances in amounts in violation of Environmental Laws on or off any Real
Properties; the imposition of any lien on any Real Properties, including but not limited to liens asserted by government entities
in connection with any Borrower’s or Subsidiary’s response to the presence or Release of Hazardous Substances in amounts
in violation of Environmental Laws; and any alleged violation of or responsibility under any Environmental Laws.


 


Section
3.20. Sensitive Payments. Neither the Borrower nor any Subsidiary has (a) made any contributions, payments or gifts
to or for the private use of any governmental official, employee or agent where either the payment or the purpose of such contribution,
payment or gift is illegal under the laws of the United States or the jurisdiction in which
made, (b) established or maintained any unrecorded fund or asset for any purpose or made any false or artificial entries on its
books, (c) made any payments to any person with the intention that any part of such payment was to be used for any purpose other
than that described in the documents supporting the payment, or (d) engaged in any “trading
with the enemy” or other transactions violating any rules or regulations of the Office of Foreign Assets Control or
any similar laws, rules or regulations.


 


Section
3.21. Full Disclosure. No statement of fact made by the Borrower in this Agreement
or any other Loan Document, in any SEC Report (as amended), or in any information memorandum, business summary, agreement,
certificate, schedule or other written statement furnished by the Borrower or any Subsidiary to the Lender pursuant hereto, contains
or will contain any untrue statement of a material fact, or omits or will omit to state any material fact necessary to make any
statements contained herein or therein not misleading. Except for matters of a general economic or political nature which do not
affect the Borrower or any Subsidiary uniquely, there is no fact presently known to the Borrower which has not been disclosed to
the Lender, which has had or would reasonably be expected to have a Material Adverse Effect.


 


Section
3.22. Reaffirmation. Each and every request by the Borrower for an Drawdown shall
constitute a reaffirmation of the truth and accuracy of the Borrowers’ and each Subsidiary’s representations and warranties
made in this Agreement and the Security Documents on and as of the date of such request.


 



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IV.          CONDITIONS OF MAKING THE LOANS


 


A.
The obligation of the Lender to make the initial Loan hereunder and to consummate the other
transactions contemplated hereby are subject to the following conditions precedent:


 


Section
4.01. Representations and Warranties. The representations and warranties set forth in Article III hereof and in the
other Loan Documents shall be true and correct on and as of the Closing Date.


 


Section
4.02. Loan Documents. The Borrower and its Subsidiaries (as applicable) shall have duly executed and/or delivered to
the Lender all of the following:


 


(a)          The
Revolving Credit Note;


 


(b)          The
Collateral Agreement and any and all other Security Documents required by the Lender at the
Closing Date (including, without limitation, Control Agreements in respect of the Borrower’s and its Subsidiaries’
deposit accounts, and any Landlord Waivers, warehousemen’s waivers, bailee letters or consents required by the Lender);


 


(c)          The
Warrants;


 


(d)          A
certificate or certificates of insurance, with loss payable endorsements, evidencing the insurance required by Section 5.01(d)
below;


 


(f)          A
current Borrowing Base Certificate in conformity with Section 5.04(d) below, and a written request for the borrowing of
he initial Drawdown;


 


(g)          A
certificate of the Secretary or an Assistant Secretary of the Borrower and each Subsidiary, as applicable, certifying the vote
of the Boards of Directors or other governing body of the Borrower and each Subsidiary, authorizing and directing the execution
and delivery of the Loan Documents and all further agreements, instruments, certificates and other documents pursuant hereto and
thereto;


 


(h)          A certificate of the Secretary or an Assistant Secretary of the Borrower and each Subsidiary,
as applicable, certifying the names of the officers of the Borrower and each Subsidiary who are authorized to execute and
deliver the Loan Documents and all other agreements, instruments, certificates and other documents to be delivered pursuant hereto
and thereto, together with the true signatures of such officers. The Lender may conclusively rely on such certificate until the
Lender shall receive any further such certificate canceling or amending the prior certificate and submitting the signatures of
the officers named in such further certificate;


 


(i)          Certified copies of the Organic Documents of the Borrower and each Subsidiary, and a certificate of the Secretary of State or other
appropriate official of the jurisdiction of incorporation of the Borrower and each Subsidiary and of each jurisdiction in which
the Borrower and each Subsidiary is qualified to do business as a foreign corporation, dated reasonably prior to the Closing Date,
stating that the Borrower and each Subsidiary is duly formed or qualified and in good standing in such jurisdiction;


 



    	25



    	 



    

 


(j)          Such other agreements, instruments, documents and certificates (including, without limitation, satisfactory lien and judgment searches
respecting the Borrower and its Subsidiaries) as the Lender or its counsel may reasonably request.


 


Section
4.03. Fees and Reimbursements. The Borrower shall have paid to the Lender the due
diligence fees and Legal Fees and shall have paid or reimbursed the Lender for its reasonable out-of-pocket costs, charges
and expenses incurred in connection with any Drawdown, as applicable. Failure of the Lender to effect any such charge shall not
excuse the Borrower from its obligation to pay such amounts.


 


Section
4.04. Further Matters. All legal matters, and the form and substance of all documents, incident to the transactions
contemplated hereby shall be satisfactory to the Lender and its counsel.


 


Section
4.08. No Default. No Default or Event of Default shall have occurred and be continuing.


 


B.          The obligation of the Lender to make any Drawdowns subsequent to the Closing Date is subject to (a) the representations and warranties
set forth in Article III and in the other Loan Documents being true and correct in all material
respects (except that, to the extent that any representation or warranty is already qualified by concepts of materiality
and/or Material Adverse Effect, then such representations and warranties shall be true and correct in all respects) on and as of
the subject Drawdown Date, (b) the Lender’s receipt of a current Borrowing Base Certificate in conformity with Section
5.04(d) below, (c) the execution and delivery of such further Security Documents as the Lender may have reasonably requested pursuant
to the Security Documents theretofore executed and delivered, (d) receipt by Lender of the Warrants to be
issued in connection with the applicable Drawdown, and (e) there being no continuing Default or Event of Default.


 


V.          AFFIRMATIVE COVENANTS


 


The
Borrower hereby covenants and agrees that, from the date hereof and until all Obligations (whether now existing or hereafter arising)
have been paid in full and the Revolving Credit Commitment has been terminated, unless the Lender shall otherwise consent in writing,
the Borrower shall, and shall cause each of its Subsidiaries to:


 



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Section
5.01. Corporate and Insurance. Do or cause to be done all things necessary to at all times (a) preserve, renew and keep
in full force and effect its corporate or other legal existence, rights, licenses, permits and franchises, (b) comply with the
Loan Documents and any other agreements and instruments executed and delivered hereunder and thereunder (to the extent a party
thereto), (c) maintain, preserve and protect all of its franchises and material trade names, and
preserve all of its material property used or useful in the conduct of its business and keep the same in good repair, working
order and condition (reasonable wear and tear excepted), and from time to time make, or cause to be made, all needed and proper
repairs, renewals, replacements, betterments and improvements thereto, so that the Business Operations carried on in connection
therewith may be properly and advantageously conducted at all times, consistent with past practice, (d) maintain insurance in amounts,
on such terms and against such risks (including fire and other hazards insured against by extended coverage, and public liability
insurance covering claims for personal injury, death or property damage) as are customary for companies of similar size in the
same or similar businesses and operating in the same or similar locations, as well as all
such other insurance as is required by the Collateral Agreement, each of which policies (other than workers compensation
or any similar statutorily-required employee coverage) shall be issued by a financially sound and reputable insurer reasonably
satisfactory to the Lender and shall name the Lender as loss payee and additional insured as its interest appears and provide for
the Lender to receive written notice thereof at least thirty (30) days prior to any cancellation of the
subject policy, and (e) comply in all material respects with all material Contracts and material obligations to which it is a party
or by which it is bound, all benefit plans which it maintains or is required to contribute to, and all Applicable Law (including,
without limitation, Environmental Laws) material to its Business Operations, and all requirements of its insurers, whether now
in effect or hereafter enacted, promulgated or issued; provided, however, that
the Borrower shall be permitted to contest any of the foregoing matters in good faith by appropriate proceedings, and subject
to the maintenance of appropriate reserves therefor on its books in accordance with GAAP. The Borrower will provide to the Lender
a certificate of the foregoing insurance, promptly upon request.


 


Section
5.02. Payment of Taxes. File, pay and discharge, or cause to be paid and discharged, all material taxes, assessments
and governmental charges or levies imposed upon the Borrower and/or any Subsidiary or upon its income and profits or upon any of
its property (real, personal or mixed) or upon any part thereof, before the same shall become in default, as well as all lawful
claims for labor, materials, supplies and otherwise, which, if unpaid when due, might become a Lien or charge upon such property
or any part thereof; provided, however, that neither the Borrower nor any Subsidiary shall be required to pay and
discharge or cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as (a) the validity thereof
shall be contested in good faith by appropriate proceedings and the Borrower or such Subsidiary shall
have set aside on its books adequate reserves (to the extent required by GAAP) with respect to any such tax, assessment,
charge, levy or claim so contested, and (b) payment with respect to any such tax, assessment, charge, levy or claim shall be made
before any of the Borrower’s or such Subsidiary’s property shall be seized or sold in satisfaction thereof.


 


Section
5.03. Notices. Give prompt written notice to the Lender of (a) the filing by the Borrower of any SEC Reports, (b) any
proceedings instituted against the Borrower or any Subsidiary in any federal, state, local or foreign court or before any commission
or other regulatory body, whether federal, state, local or foreign, which, if adversely determined, could reasonably be expected
to have a Material Adverse Effect (c) occupancy of any new or additional Real Property, and (d) the occurrence of any material
casualty to any Collateral, any Material Adverse Effect, or any Default or Event of Default,
and the action that the Borrower has taken, is taking, or proposes to take with respect thereto.


 



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Section
5.04. Periodic Reports. Furnish to the Lender:


 


(a)          Within ninety (90) calendar days after the end of each Fiscal Year, consolidated balance sheets, and consolidated and consolidating
statements of income, statements of stockholders’ equity, and statements of cash flows of the Borrower and its Subsidiaries,
together with footnotes and supporting schedules thereto, certified (as to the consolidated statements) by independent certified
public accountants selected by the Borrower and reasonably satisfactory to the Lender, showing the financial condition of the Borrower
and its Subsidiaries at the close of such Fiscal Year and the results of operations of the Borrower and its Subsidiaries during
such Fiscal Year;


 


(b)          Within
thirty (30) calendar days after the end of each calendar month (forty-five (45) calendar days in the case of the end of a fiscal
quarter), consolidated and consolidating unaudited balance sheets, statements of income and
statements of cash flows of the Borrower and its Subsidiaries, in each case with supporting schedules thereto, prepared
by the Borrower and certified by the Borrower’s Chairman, President, Chief Executive Officer, Chief Financial Officer
or Chief Accounting Officer, such balance sheets to be as of the close of such calendar month and such statements of income and
statements of cash flows to be for the period from the beginning of the then-current Fiscal Year to the end of such calendar month,
together with comparative statements of income and cash flows for the corresponding period in the immediately preceding Fiscal
Year, in each case subject to normal audit and year-end adjustments;


 


(c)          Concurrently
with the delivery of each of the financial statements required by Sections 5.04(a) and 5.04(b) above, a certificate on behalf
of the Borrower (signed by the Chairman, President, Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer
of the Borrower), certifying that he has examined the provisions of this Agreement and that,
to the best of his knowledge, no Default or Event of Default (including, without limitation, under Sections 6.16 and 6.17
below, as demonstrated by detailed calculations included in such certificate) has occurred and/or is continuing;


 


(d)          On
or prior to the fifth (5th) Business Day of each calendar month, a detailed calculation of the Borrowing Base as of
the end of the immediately preceding calendar month, in form and substance, and with supporting
documentation (including, without limitation, receivables and payables agings as of the close of the immediately preceding calendar
month) as may reasonably be required by the Lender; and, on or prior to the twentieth
(20th) calendar day of each calendar month, a detailed calculation of the Borrowing Base as of a date not earlier
than the fifteenth (15th) calendar day of such calendar month, with supporting documentation as aforesaid;


 


(e)          As
soon as approved by the Borrower’s Board of Directors (but in any event not later than thirty (30) days after the
beginning of each Fiscal Year), a budget and operating plan (on a quarter-by-quarter basis) for such Fiscal Year, in such detail
as may reasonably be required by the Lender;


 


(f)          As
and when distributed to the Borrower’s shareholders, copies of all proxy materials, reports and other information
which the Borrower provides to its shareholders; and as and when distributed to any other holders of Indebtedness of the Borrower
or the Subsidiaries, copies of all reports, statements and other information provided to such lenders; and


 



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(g)          Promptly, from time to time, such other information (including, without limitation, receivables and payables agings, and sales
reports) regarding the Borrower’s or any Subsidiary’s operations, assets, business, affairs and financial condition,
as the Lender may reasonably request.


 


To the extent that
the financial statements required by Sections 5.04(a) and 5.04(b) are contained in any SEC Reports filed by the Borrower within
the required time period hereunder for the delivery of such financial statements, then the Borrower shall be deemed to have complied
with the subject financial statement delivery by notifying the Lender of the filing of the subject SEC Report.


 


To the extent that
any report or other delivery required under this Section 5.04 or elsewhere in this Agreement
will, at the time of anticipated delivery to the Lender, contain any material non-public information, the Borrower will
notify the Lender thereof as promptly as practicable prior to the delivery of such report (but without disclosing the specific
items of material non-public information or the nature thereof), and if so requested by the Lender prior to the required date of
the information delivery hereunder, the Borrower shall (x) if reasonably practicable, redact
such material non-public information from the subject report prior to the delivery thereof to the Lender, or (y) defer delivery
of such report until such time as the Borrower has made public disclosure of the subject material information or the Lender has
affirmatively requested delivery of such report. Absent timely request by the Lender as aforesaid, the Borrower shall make the
required delivery to the Lender on a timely basis; provided, that the Lender shall keep such material non-public information
confidential in accordance with Section 9.13 below, and shall refrain from trading in the Common Stock until the earlier of such
time as such information ceases to be material or 48 hours after such information has become generally available to the public.


 


Section
5.05. Books and Records; Inspection. Maintain centralized books and records regarding all of the Business Operations
at the Borrower’s principal place of business, and permit agents or representatives of the Lender to inspect, at any time
during normal business hours, upon reasonable notice, and without material disruption of
the Business Operations, all of the Borrower’s and its Subsidiaries’ various books and records, to make copies,
abstracts and/or reproductions thereof, and to discuss the business and affairs of the Borrower and the Subsidiaries with the management
of the Borrower; provided, that to the extent of any material non-public information disclosed to the Lender (after fair
warning to the Lender of the material non-public nature of such information) or otherwise obtained by the Lender in connection
with any such inspection, the Lender shall keep such information confidential in accordance with Section 9.13 below, and shall
refrain from trading in the Common Stock until the earlier of such time as such information ceases to be material or 48 hours after
such information has become generally available to the public.


 


Section
5.06. Accounting. Maintain a standard system of accounting in order to permit the preparation of financial statements
in accordance with GAAP and Regulation S-X promulgated under the Act.


 



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Section
5.07. Reimbursements. Pay or reimburse the Lender or other appropriate Persons
on demand for all reasonable costs, expenses and other charges incurred or payable from time to time in connection with
the transactions contemplated by this Agreement, any waivers or amendments in respect of any
Loan Documents (whether or not completed or executed), and any “workout” or enforcement action (whether or not
consummated or completed, and regardless of the outcome thereof), including but not limited
to any and all search fees, recording fees, costs of inspections, reasonable legal and accounting fees, and costs related
to routine Exchange Act filings in respect of the Lender’s and its Affiliates’ position in securities of the Borrower.


 


Section
5.08. Environmental Response. In the event of any material discharge, spill, injection, escape, emission, disposal,
leak or other Release of Hazardous Substances in amounts in violation of applicable Environmental Laws by the Borrower or any Subsidiary
on any Real Property owned or leased by the Borrower or any Subsidiary, which is not authorized
by a permit or other approval issued by the appropriate governmental agencies and which requires notification to or the
filing of any report with any federal or state governmental agency, the Borrower shall promptly: (a) notify the Lender; and (b)
comply with the notice requirements of the Environmental Protection Agency and applicable state agencies, and take all steps necessary
to promptly clean up such discharge, spill, injection, escape, emission, disposal, leak or other Release in accordance with all
applicable Environmental Laws and the Federal National Contingency Plan, and, if required, receive a certification from all applicable
state agencies or the Environmental Protection Agency, that such Real Property has been cleaned up to the satisfaction of such
agency(ies).


 


Section
5.09. Management. Cause Frank Greco and Steve Shum to continue to be employed or to function as respectively the Chief
Executive Officer and Chief Financial Officer of the Borrower, unless a successor is appointed within sixty (60) days after the
termination of any such individual’s employment and such successor is reasonably satisfactory to the Lender.


 


Section
5.10. Use of Proceeds. Cause all proceeds of the Loans to be utilized solely in the manner and for the purposes set
forth in Section 2.05 above.


 


Section
5.11. Future Subsidiaries. At any time and from time to time when the Borrower or any of its Subsidiaries proposes to
form or acquire any Subsidiary subsequent to the Closing Date, the Borrower shall give written notice thereof to the Lender reasonably
in advance of (and in no event less than fifteen (15) days prior to) the formation or acquisition of such Subsidiary, accompanied
by true and complete copies of the Organic Documents of such Subsidiary and stating, with respect to such Subsidiary, (a) its proper
legal name, (b) its jurisdiction of incorporation or formation, (c) the jurisdictions (if any) in which it is qualified or is required
to be qualified to do business as a foreign entity, (d) the number of shares of capital stock, equity securities or ownership interests
outstanding, and (e) the record owners of such outstanding capital stock, equity securities or other ownership interests; and contemporaneously
with the formation or acquisition of such new Subsidiary, such new Subsidiary shall be deemed to have made and joined in all of
the representations and warranties made by the Borrower in this Agreement and the other Loan Documents (all of which shall be applicable
to such new Subsidiary as if named therein), and the Borrower shall cause such new Subsidiary to execute and deliver to the Lender
a Collateral Agreement (with completed perfection certificate and other appropriate Security Documents) in substantially the form
of the Collateral Agreement as then in effect (or a joinder agreement with respect to the existing Collateral Agreement in form
and substance reasonably satisfactory to the Lender) and other Security Documents as reasonably
requested by the Lender.


 



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Section
5.12. Landlord Waivers. Unless in effect at the Closing Date, and to the extent requested by the Lender from time to
time subsequent to the Closing Date, use their commercially reasonable efforts to obtain, within thirty (30) days after the Lender’s
request therefor, in form and substance reasonably satisfactory to the Lender, any and all bailee waivers, warehousemen’s
waivers, Landlord Waivers and/or access agreements requested by the Lender in respect of locations where there is stored or held
Collateral having an aggregate fair market value in excess of $25,000.


 


VI.          NEGATIVE COVENANTS


 


The
Borrower hereby covenants and agrees that, until all Obligations (whether now existing or hereafter arising) have been paid in
full and the Revolving Credit Commitment has been terminated, unless the Lender shall otherwise consent in writing, the Borrower
shall not, and shall not permit any Subsidiary to, directly or indirectly:


 


Section
6.01. Indebtedness. Incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any
Indebtedness, other than:


 


(a)          Indebtedness
to the Lender pursuant to the Loan Documents;


 


(b)          liabilities
with respect to trade obligations, accounts payable, advances, royalty or other similar payments, operating leases and other normal
accruals incurred in the ordinary course of business, or with respect to which the Borrower or the subject Subsidiary is contesting
in good faith the amount or validity thereof by appropriate proceedings, and then only to the extent that the Borrower or the subject
Subsidiary has set aside on its books adequate reserves therefor;


 


(c)          Indebtedness
existing on the date of this Agreement owed to those Persons, in those amounts and having those maturities as set forth in Schedule
3.01 of the Disclosure Schedule, and any Indebtedness that refinances any of such Indebtedness (provided that such refinancing
shall not cause an increase in the principal amount of the refinanced Indebtedness immediately prior to such refinancing);


 


(d)          Capitalized
Leases reflected in the Financial Statements, and Capitalized Leases hereafter entered into by the Borrower or its Subsidiaries,
subject to the limitations of Section 6.16 below;


 


(e)          purchase
money Indebtedness incurred in connection with the Borrower’s or its Subsidiaries’ acquisition of assets, including
capital assets, subject to the limitations of Section 6.16 below;


 


(f)          Subordinated
Debt and subordinated convertible preferred stock; and

(h) Guarantees to the extent permitted pursuant to Section 6.03 below.


 



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Section
6.02. Liens. Create, incur, assume or suffer to exist any Lien or other encumbrance
of any nature whatsoever on any of its assets, now or hereafter owned, other than:


 


(a)          subject
to Section 5.02 above, Liens securing the payment of taxes which are either not yet due or the validity of which is being contested
in good faith by appropriate proceedings, and as to which the Borrower or the subject Subsidiary shall have set aside on its books
adequate reserves;


 


(b)          deposits
under workers’ compensation, unemployment insurance and social security laws, or to secure the performance of bids,
tenders, contracts (other than for the repayment of money borrowed) or leases, or to secure statutory obligations or surety or
appeal bonds, or to secure indemnity, performance or other similar bonds in the ordinary course of business;


 


(c)          statutory
Liens of landlords and Liens imposed by law, such as, carriers’, warehousemen’s,
materialmen’s or mechanics’ liens, incurred by the Borrower or any Subsidiary in good faith in the ordinary
course of business and discharged promptly after same are incurred; fully bonded Liens arising out of a judgment or award against
the Borrower or any Subsidiary with respect to which the Borrower or such Subsidiary shall
currently be prosecuting an appeal, a stay of execution pending such appeal having been secured; and Liens arising out of
a judgment or award against the Borrower or any Subsidiary which are fully covered by insurance
(subject to applicable deductibles) and for which the relevant insurer has not denied or disclaimed coverage;


 


(d)          other
Liens incurred in connection with Indebtedness expressly permitted pursuant to Section 6.01(d) and/or Section 6.01(e) above, provided
that such Liens do not extend to any assets or property other than the specific assets or properties acquired pursuant to such
permitted Indebtedness;


 


(e)          encumbrances
consisting of easements, rights-of-way, survey exceptions and other similar restrictions on the use of Real Property, or irregularities
in title thereto which do not materially impair the use of such property in the operation
of the business of the Borrower and its Subsidiaries;


 


(f)          Liens
in existence on the date of this Agreement, as set forth on Schedule 6.02 of the Disclosure Schedule;


 


(g)          Liens
arising out of judgments or awards (i) which are fully covered by insurance (subject to applicable deductibles) and for which the
relevant insurer has not denied or disclaimed coverage, or (ii) with respect to which the
Borrower or the subject Subsidiary shall be prosecuting an appeal in good faith and in respect of which a stay of execution
shall have been issued;


 


(h)          Liens created by standard account agreements in favor of the depository institution in respect of funds in the Borrower’s
and its Subsidiaries’ bank accounts;


 


(i)          Liens in favor of the Lender;


 


(j)          any other Liens specifically
consented to by the Lender in writing; and


 



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(k)          extensions, renewals or replacements of any Lien referred to in clauses (a) through (f) above, provided that same shall not extend
such Lien to any additional assets or effect any increase in any principal amount secured thereby.


 


Section
6.03. Guarantees. Guarantee, endorse or otherwise in any manner become or be responsible for obligations of any other
Person, except (a) endorsements of negotiable instruments for collection in the ordinary
course of business, (b) Guarantees by the Borrower of obligations of Wholly-Owned Subsidiaries in the ordinary course of
business.


 


Section
6.04. Sales of Assets Except as disclosed in Schedule 6.04 of the Disclosure Schedule,
(a) sell, lease, transfer, encumber or otherwise dispose of any of the Borrower’s or any Subsidiary’s properties,
assets, rights, licenses or franchises other than (i) sales of inventory in the ordinary
course of business, (ii) licenses, joint ventures and related transactions entered into, modified or terminated in the ordinary
course of business, (iii) the disposition of surplus, obsolete or worn-out personal properties in the ordinary course of business,
or the abandonment or disposition of Intellectual Property as and to the extent permitted
by the Collateral Agreement, or (b) permit any Affiliate of the Borrower (other than a Subsidiary which is a party to the
Collateral Agreement) to own or obtain any patent, patent application, copyright, copyright application, trademark, trademark application,
license, or other intangible asset relating to the Business Operations except in the normal course of business on terms and conditions
no less favorable to the Borrower or any Subsidiary than those which could be obtained in an arms’ length transaction with
an unaffiliated third party.


 


Section
6.05. Sale-Leaseback. Enter into any arrangement, directly or indirectly, with any Person whereby the Borrower or any
Subsidiary shall sell or transfer any property (real, personal or mixed) used or useful in the Business Operations, whether now
owned or hereafter acquired, and thereafter rent or lease such property.


 


Section
6.06. Investments; Acquisitions. Make any Investment in, or otherwise acquire or hold securities (including, without
limitation, capital stock and evidences of Indebtedness) of, or make loans or advances to, or enter into any arrangement for the
purpose of providing funds or credit to, any other Person (including any Affiliate), except:


 


(a)          Advances (to the extent permitted by Applicable Law, including federal securities laws) to employees of the Borrower or any Wholly-Owned
Subsidiaries for normal business expenses not to exceed at any time $10,000 in the aggregate;


 


(c)          Investments
of excess cash generated in the Business Operations in Cash Equivalents; and


 


(d)          Investments
of cash in overnight deposits or other customary cash management Investments with commercial banks or in commercial paper satisfying
the criteria for such banks or commercial paper as set forth in the definition of Cash Equivalents.


 



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Section
6.07. Corporate Form; Acquisitions. Purchase or acquire any Real Property or any ownership interest in any Real Property;
cause or permit any reduction in the Borrower’s ultimate percentage ownership interest in any Subsidiary; or dissolve or
liquidate, or consolidate or merge with or into, sell all or substantially all of the assets of the Borrower or any Subsidiary
to, or acquire all or substantially all of the securities, assets or properties of, any other Person, except for (a) consolidations
of a Subsidiary with a Wholly-Owned Subsidiary (provided that no domestic Subsidiary shall be consolidated with a foreign Subsidiary);
(b) mergers of a Wholly-Owned Subsidiary into the Borrower or into a Wholly-Owned Subsidiary (provided that no domestic
Subsidiary shall be merged into any foreign Subsidiary); or (c) sales to the Borrower or another Subsidiary for fair value.


 


Section
6.08. Dividends and Redemptions. Directly or indirectly declare or pay any dividends, or make any distribution of cash
or property, or both, to any Person in respect of any of the shares of the capital stock or other equity securities of the Borrower
or any other Person, or directly or indirectly redeem, purchase or otherwise acquire for
consideration any securities or shares of the capital stock or other equity securities of the Borrower or any other Person;
unless the Borrower is current with all of its obligations to Lender; Borrower has provided
Lender with reasonable notice of any such intended declaration or payment; and the payment of any such dividends or redemptions
will not materially affect Borrower’s ability to meet its ongoing obligations to Lender provided, that this Section
6.08 shall not be deemed to prohibit the payment of dividends or distributions by any Subsidiary to the Borrower.


 


Section
6.09. Compensation. Directly or indirectly pay any cash compensation to any executive officers of the Borrower except
in accordance with the compensation levels disclosed in Schedule 6.09 of the Disclosure Schedule or as otherwise approved
by the independent members of the Board of Directors of the Borrower but in no case in any amount or amounts which would cause
or reasonably be expected to cause a Material Adverse Effect.


 


Section
6.10. Change of Business. Directly or indirectly: (a) engage in a business materially different from the general nature
of the Business Operations (i) as now being conducted, or (ii) as the same may hereafter be reasonably expanded from time to time
in like areas of business; (b) wind up the Business Operations or cease substantially all of its normal Business Operations for
a period in excess of thirty (30) consecutive days; or (c) suffer any material disruption, interruption or discontinuance of a
material portion of its normal Business Operations for a period in excess of thirty (30) consecutive days.


 


Section
6.11. Receivables. Sell or assign in any way any accounts receivable, promissory notes or trade acceptances held by
the Borrower or any Subsidiary with or without recourse, except for collections (including endorsements) in the ordinary course
of business.


 


Section
6.12. Certain Amendments. Agree, consent, permit or otherwise undertake to amend any of the terms or provisions of the
Borrower’s or any Subsidiary’s Organic Documents in a manner which may impair in any respect any of the Lender’s
rights under any of the Loan Documents.


 


Section
6.13. Affiliate Transactions. Enter into any Contract, agreement or transaction with any Affiliate of the Borrower except
(a) as disclosed in Schedule 6.13 of the Disclosure Schedule, or (b) for intercompany
Indebtedness between the Borrower and any Wholly-Owned Subsidiary or between any Wholly-Owned Subsidiaries (subject to the
limitations provided in Section 6.06(a) above), or (c) in the normal course of business on terms and conditions no less favorable
to the Borrower or any Subsidiary than those which could be obtained in an arms’ length transaction with an unaffiliated
third party.


 



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Section
6.14. Fiscal Year. Amend its Fiscal Year.


 


Section
6.15. Subordinated Debt. Prepay any of the Indebtedness listed in Schedule 3.01 of
the Disclosure Schedule; or prepay, redeem or purchase any Subordinated Debt, or make any payment on any Subordinated Debt,
in each case in violation of the applicable subordination agreement.


 


Section
6.16. Capital Expenditures. Make aggregate Capital Expenditures in excess of $100,000 in any Fiscal Year; provided,
however, that there shall not be counted against such limitation any Capital Expenditures included in the purchase price
of any business acquired after the Closing Date (provided that any required consent with respect thereto under this Agreement has
been obtained).


 


Section
6.17. Coverage Test. Permit, as of the end of any quarter of any Fiscal Year, the ratio of Debt Service, for the four
(4) consecutive quarters then ended to be less than 1.25 to 1.00.


 


VII.          DEFAULTS


 


Section
7.01. Events of Default. Each of the following events is herein, and in the Revolving Credit Note, sometimes referred
to as an Event of Default:


 


(a)          if
any representation or warranty made herein or in any other Loan Document, or in any certificate, financial statement, Borrowing
Base Certificate, instrument or other written statement furnished by the Borrower or any Subsidiary in connection with this Agreement,
any other Loan Document or any of the borrowings hereunder shall be false, inaccurate or misleading in any material respect when
made or when deemed made hereunder;


 


(b)          any
default in the payment of any principal or interest under any of the Revolving Credit Note or any other Obligations when the same
shall be due and payable, whether at the due date thereof or at a date required for prepayment or by acceleration or otherwise,
and the continuance of any such non-payment (in whole or in part) for a period of five (5) Business Days;


 


(c)          any
default in the due observance or performance of any covenant, condition or agreement contained
in any Section of Article VI hereof, which, if capable of being cured, is not fully cured within thirty (30) days after
the occurrence thereof;


 


(d)          any
default in the due observance or performance of any covenant, condition or agreement to be observed or performed under Article
V hereof, or otherwise pursuant to the terms hereof or any other Loan Document and not addressed in Sections 7.01(a), (b) or (c),
and the continuance of such default unremedied for a period of thirty (30) days (ten (10) Business Days in the case of Section
5.01(d) hereof) after written notice thereof to the Borrower, or such other cure period as may be provided in the applicable Loan
Document;


 



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(e)          any
uncured default or event of default with respect to any Indebtedness of the Borrower or any of the Subsidiaries (other than
to the Lender) in an amount in excess of $100,000, if the effect of such default or event
of default is to permit the holder, with or without notice or lapse of time or both, to accelerate the maturity of any such
Indebtedness for money borrowed or to cause such Indebtedness for money borrowed to become due prior to the stated maturity thereof;


 


(f)          if
the Borrower or any Subsidiary shall: (i) apply for or consent to the appointment of a receiver, trustee, custodian or liquidator
of it or any of its properties, (ii) admit in writing its inability to pay its debts as they mature, (iii) make a general assignment
for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent or be the subject of an order for relief under Title
11 of the United States Code or any bankruptcy, reorganization, insolvency, readjustment
of debt, dissolution or liquidation law or statute of any other jurisdiction or foreign country, or (v) file a voluntary
petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage
or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting
the material allegations of a petition filed against it in any proceeding under any such law, or (vi) take or permit to be taken
any action in furtherance of or for the purpose of effecting any of the foregoing;


 


(g)          if
any order, judgment or decree shall be entered, without the application, approval or consent of the Borrower or any Subsidiary,
by any court of competent jurisdiction, approving a petition seeking liquidation or reorganization
of the Borrower or any Subsidiary, or appointing a receiver, trustee, custodian or liquidator of the Borrower or any Subsidiary,
or of all or any substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any
period of sixty (60) days;


 


(h)          if final judgment(s) or administrative order for the payment of money in an uninsured amount in excess of $100,000, individually
or in the aggregate shall be rendered against the Borrower and/or any Subsidiary, and the same shall remain undischarged or unbonded
for a period of thirty (30) consecutive days, during which execution shall not be effectively stayed;


 


(i)          the occurrence of any levy upon or seizure or attachment of, or any uninsured loss of or damage to, any property of the Borrower
or any Subsidiary having an aggregate fair value or repair cost (as the case may be) in excess of $100,000 individually or in the
aggregate, and any such levy, seizure or attachment shall not be set aside, bonded or discharged within thirty (30) days after
the date thereof;


 


(j)          if any Lien purported to be created by any Security Document shall cease to be a valid perfected first priority Lien (subject only
to any priority accorded by law to Permitted Liens) on the assets or properties covered thereby, or the Borrower or any Subsidiary
shall assert in writing that any Lien purported to be created by any Security Document is not a valid perfected first priority
lien (subject only to any priority accorded by law to Permitted Liens) on the assets or properties
purported to be covered thereby; or if any Subsidiary which is a Wholly-Owned Subsidiary shall cease to be a Wholly-Owned
Subsidiary;


 



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(k)          if any of the Loan Documents shall cease to be in full force and effect (other than as a
result of the discharge thereof in accordance with the terms thereof or by written agreement of all parties thereto);


 


(l)          if the Common Stock shall not be listed or traded on any national securities exchange or any NASDAQ market, or shall cease to be
listed or quoted on the OTC Marketplace, for any period in excess of thirty (30) consecutive days;


 


(m)          if the Borrower or any Subsidiary shall be indicted for, convicted of or plead nolo contendere to any criminal offense;
or


 


(n)          the occurrence of a Material
Adverse Effect.


 


Section
7.02. Remedies. Upon the occurrence of any Event of Default, and at all times thereafter during the continuance thereof:
(a) the Revolving Credit Note, and any and all other Obligations, shall, at the Lender’s option (except in the case of Sections
7.01(f) and 7.01(g) hereof, the occurrence of which shall automatically effect acceleration, regardless of any action or forbearance
in respect of any prior or ongoing Default or Event of Default which may be inconsistent with such automatic acceleration), become
immediately due and payable, both as to principal, interest and other charges, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Revolving
Credit Note or other evidence of such Obligations to the contrary notwithstanding, (b) all outstanding Obligations under the Revolving
Credit Note, and all other outstanding Obligations, shall bear interest at the default rates
of interest provided in the Revolving Credit Note, (c) the Lender may file suit against the Borrower on the Revolving Credit
Note and against the Borrower and the Subsidiaries under the other Loan Documents and/or seek specific performance or injunctive
relief thereunder (whether or not a remedy exists at law or is adequate), (d) the Lender
shall have the right, in accordance with the Security Documents, to exercise any and all remedies in respect of such or
all of the Collateral as the Lender may determine in its discretion (without any requirement of marshalling of assets or other
such requirement, all of which are hereby waived by the Borrower), and (e) the Revolving
Credit Commitment shall, at the Lender’s option (except in the case of Sections 7.01(f) and 7/01(g) hereof, the occurrence
of which shall automatically effect termination, regardless of any action or forbearance in respect of any prior or ongoing Default
or Event of Default which may be inconsistent with such automatic termination), be immediately terminated or reduced, and the Lender
shall be under no further obligation to consider making any further Drawdowns.


 


VIII.          PARTICIPATING LENDERS; ASSIGNMENT.


 


Section
8.01. Participations. Anything in this Agreement to the contrary notwithstanding, the Lender may, at any time and from
time to time, without in any manner affecting or impairing the validity of any Obligations,
transfer, assign or grant participating interests in the Loans as the Lender shall in its sole discretion determine, to
such other Persons (the “Participants”) as the Lender may determine. Notwithstanding the granting of any such
participating interests: (a) the Borrower shall look solely to the Lender for all purposes
of this Agreement and the transactions contemplated hereby, (b) the Borrower shall at all times have the right to rely upon
any waivers or consents signed by the Lender as being binding upon all of the Participants, and (c) all communications in respect
of this Agreement and such transactions shall remain solely between the Borrower and the Lender (exclusive of Participants) hereunder.


 



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Section
8.02. Transfer and Assignment. Anything in this Agreement to the contrary notwithstanding, the Lender may, at any time
and from time to time, subject to Section 8.03 below, without in any manner affecting or impairing the validity of any Obligations,
transfer and assign all or any portion of its interest in this Agreement, the Revolving Credit Note and the other Loan Documents
to any Person (an “Assignee Lender”) as the Lender may determine; provided, however, that unless
an Event of Default shall have occurred and be continuing, the Lender shall not, without
the Borrower’s prior written consent, make any such assignment to any Person which, to the Lender’s knowledge,
derives any material amount of revenues from the operation (directly or through any Affiliate) of any business competitive with
the Business Operations. Upon any such transfer or assignment, the Assignee Lender shall be deemed to succeed (to the extent of
the interest assigned) to the rights and obligations of the Lender for all purposes of this Agreement. In the event of any transfer
and assignment of the Lender’s entire interest in this Agreement, the Revolving Credit Note and the Security Documents, the
Lender shall be replaced by the Assignee Lender as “Secured Party” under the
Collateral Agreement and all other Security Documents.


 


Section
8.03. Recordation of Assignment. In respect of any negotiation, transfer or assignment of all or any portion of any
Lender’s interest in this Agreement, any Revolving Credit Note and/or any other Loan
Documents at any time and from time to time, the following provisions shall be applicable:


 


(a)          The
Borrower, or any agent appointed by the Borrower, shall maintain a register (the “Register”) in which
there shall be recorded the name and address of each Person holding any Revolving Credit Note(s) hereunder or any commitment to
lend hereunder, and the principal amount payable to such Person under such Person’s Revolving Credit Note(s) or committed
by such Person under such Person’s lending commitment. The Borrower hereby irrevocably appoints the Lender (and/or any subsequent
Lender appointed by the Lender then maintaining the Register) as the Borrower’s agent for the purpose of maintaining the
Register.


 


(b)          In
connection with any negotiation, transfer or assignment as aforesaid, the transferor/assignor shall deliver to the Lender then
maintaining the Register an assignment and assumption agreement executed by the transferor/assignor and the transferee/assignee,
setting forth the specifics of the subject transaction, including but not limited to the amount and nature of Obligations and/or
lending commitments being transferred or assigned (and being assumed, as applicable), and the proposed effective date of such transfer
or assignment and the related assumption (if applicable).


 


(c)          Subject
to receipt of completed tax forms (indicating withholding status, or exemption from withholding,
as applicable, of the transferee/assignee) reasonably required by the Person then maintaining the Register, and (if required
by such Person) surrender of the negotiated, transferred or assigned Revolving Credit Note(s) for reissuance by the Borrower, such
Person shall record the subject transfer, assignment and assumption in the Register. Anything contained in any Revolving Credit
Note or other Loan Document to the contrary notwithstanding, no negotiation, transfer or assignment shall be effective until it
is recorded in the Register pursuant to this Section 8.03(c). The entries in the Register shall be conclusive and binding for all
purposes, absent manifest error; and the Borrower and each Lender shall treat each Person whose name is recorded in the Register
as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and each
Lender at any reasonable time and from time to time upon reasonable prior notice.


 



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IX.          MISCELLANEOUS


 


Section
9.01. Survival. This Agreement and all covenants, agreements, representations and warranties made herein and in the
certificates delivered pursuant hereto, shall survive the making by the Lender of the Loans and the execution and delivery to the
Lender of the Revolving Credit Note, and shall continue in full force and effect for so long as the Revolving Credit Note or any
other Obligations are outstanding and unpaid or the Revolving Credit Commitment remains outstanding. Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such
party; and all covenants, promises and agreements in this Agreement contained, by or on behalf of the Borrower shall inure to the
benefit of the successors and assigns of the Lender.


 


Section
9.02. Indemnification. The Borrower shall indemnify the Lender and its directors, officers, employees, attorneys and
agents against, and shall hold the Lender and such Persons harmless from, any and all losses, claims, damages and liabilities and
related expenses, including reasonable counsel fees and expenses, incurred by the Lender or any such Person arising out of, in
any way connected with, or as a result of: (a) any breach by the Borrower or any Subsidiary of any of the Loan Documents; (b) the
use of any of the proceeds of the Loans made by the Lender to the Borrower; (c) this Agreement, the ownership and operation of
the Borrower’s and any Subsidiary’s assets, including all Real Properties and
improvements or any Contract, the performance by the Borrower or any other Person of their respective obligations thereunder,
and the consummation of the transactions contemplated by this Agreement; (d) any finder’s fee, brokerage commission of other
such obligation payable or alleged to be payable in respect of the transactions contemplated by this Agreement which arises or
is alleged to arise from any agreement, action or conduct of the Borrower or any of its Affiliates, and/or (e) any claim,
litigation, investigation or proceeding relating to any of the foregoing, whether or not the Lender or its directors, officers,
managers, employees, attorneys or agents are a party thereto; provided that such indemnity shall not apply to any such losses,
claims, damages, liabilities or related expenses arising from (i) any unexcused breach by the Lender of any of its obligations
under this Agreement, (ii) the willful misconduct or gross negligence of the Lender as determined
by a final, non-appealable judgment of a court of competent jurisdiction, or (iii) the breach of any commitment or legal
obligation of the Lender to any Person other than the Borrower or its Affiliates, provided that such breach is determined
pursuant to a final and nonappealable decision of a court of competent jurisdiction. The foregoing indemnity shall remain operative
and in full force and effect regardless of the expiration or any termination of this Agreement, the consummation of the transactions
contemplated by this Agreement, the repayment of the Loans, the invalidity or unenforceability of any term or provision of any
Loan Document, any investigation made by or on behalf of the Lender, and the content or accuracy
of any representation or warranty made by the Borrower or any Subsidiary in any Loan Document. All amounts due under this
Section 9.02 shall be payable on written demand therefor.


 



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Section
9.03. Governing Law. This Agreement and the other Loan Documents shall (irrespective of where same are executed and
delivered) be governed by and construed in accordance with the laws of the State of New York (without giving effect to principles
of conflicts of laws).


 


Section
9.04. Waiver and Amendment. Neither any modification or waiver of any provision of this Agreement, the Revolving Credit
Note, or any other Loan Document, nor any consent to any departure by the Borrower or any Subsidiary therefrom, shall in any event
be effective unless the same shall be set forth in writing duly signed or acknowledged by
the Lender (or, in the event that there are multiple Lenders at any time, Lenders holding a majority of the outstanding
principal balance of the maximum Revolving Credit Commitment) and all parties to such Loan Document, and then such waiver
or consent shall be effective only in the specific instance, and for the specific purpose, for which given. No notice to or demand
on the Borrower in any instance shall entitle the Borrower to any other or future notice or demand in the same, similar or other
circumstances.


 


Section
9.05. Reservation of Remedies. Neither any failure nor any delay on the part of the Lender in exercising any right,
power or privilege hereunder or under the Revolving Credit Note or any other Loan Document shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or future exercise, or the
exercise of any other right, power or privilege.


 


Section
9.06. Notices. All notices, requests, demands and other communications under or in respect of this Agreement or any
transactions hereunder shall be in writing and shall be personally delivered, sent by prepaid recognized overnight courier service,
or telecopied by facsimile transmission to the applicable party at its address or telecopier
number indicated below.


 


If to the Lender:


 


HANOVER HOLDINGS i, LLC


5 Hanover Place


New York, NY 10004


Attention: Joshua Sason, Chief
Executive Officer


Telecopier: (646) 737-9948 -


 


with
a copy to:


 


Gersten
Savage LLP


600 Lexington Avenue, 9th Floor


New York, New York 10022-6018


Attention: David E. Danovitch, Esq.


Telecopier: (212) 980-5192


 


If to the Borrower:


 


XZERES Corp.


9025 SW Hillman Court, Suite
3126


Wilsonville, OR 97070


 



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Attention: Frank Greco, Chief
Executive Officer


Telecopier: (503) 217-7260 with a copy to:


 


XZERES Corp.


 


9025 SW Hillman Court, Suite
3126


Wilsonville, OR 97070


Attention: Steve Shum, Chief
Financial Officer


Telecopier: (503) 217-7260


 


or, as to each party,
at such other address or telecopier number as shall be designated by such party in a written notice to the other party delivered
as aforesaid. All such notices, requests, demands and other communications shall be deemed given (a) when personally delivered,
(b) three (3) Business Days after being delivered to the telegraph company or overnight courier service, if prepaid and sent overnight
delivery, addressed as aforesaid and with all charges prepaid or billed to the account of the sender, or (c) when sent by facsimile
transmission to a telecopier number designated by such addressee (provided that, if such facsimile is sent other than
during normal business hours at the point of receipt, such facsimile shall be deemed to have been sent on the next succeeding
Business Day).


 


Section
9.07. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Borrower and the Lender and
their respective successors and assigns, except that the Borrower shall not assign any of
its rights or obligations hereunder without the prior written consent of the Lender.


 


Section
9.08. Consent to Jurisdiction; Waiver of Jury Trial. Each of the Lender and the Borrower
hereby consents to the sole and exclusive jurisdiction of all courts of the State of New York and the United States District
Court for the Southern District of New York, as well as to the jurisdiction of all courts from which an appeal may be taken from
such courts, for the purpose of any suit, action or other proceeding arising out of or with respect to this Agreement, any other
Loan Document, any other agreements, instruments, certificates or other documents executed in connection herewith or therewith,
or any of the transactions contemplated hereby or thereby, or any of the Lender’s, the Borrower’s or any Subsidiary’s
obligations hereunder or thereunder. The Borrower hereby waives the right to interpose any counterclaims (other than compulsory
counterclaims) in any action brought by the Lender hereunder or in respect of any other Loan Document, provided that this waiver
shall not preclude the Borrower from pursuing any such claims by means of separate proceedings. EACH OF THE LENDER AND THE BORROWER
HEREBY EXPRESSLY WAIVES ANY AND ALL OBJECTIONS WHICH IT MAY HAVE AS TO VENUE IN ANY
OF SUCH COURTS, AND ALSO WAIVES TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING.
Each party may file a copy of this Agreement as evidence of the foregoing waiver of right to jury trial. Each party consents
to the service of process and the delivery of any notice in connection of any such suit, action or other proceeding in accordance
with the Notice provisions set forth herein or in accordance with the provisions of Applicable Law.


 



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Section
9.09. Certain Waivers. The Borrower and the Lender each hereby waives any claims for special, consequential or punitive
damages in any way arising out of or relating to this Agreement, any of the other Loan Documents, or any breach hereof or thereof.


 


Section
9.10. Severability. If any provision of this Agreement is held invalid or unenforceable, either in its entirety or by
virtue of its scope or application to given circumstances, such provision shall thereupon be deemed modified only to the extent
necessary to render same valid, or not applicable to given circumstances, or excised from this Agreement, as the situation may
require, and this Agreement shall be construed and enforced as if such provision had been included herein as so modified in scope
or application, or had not been included herein, as the case may be.


 


Section
9.11. Captions. The Article and Section headings in this Agreement are included herein
for convenience of reference only, and shall not affect the construction or interpretation of any provision of this Agreement.


 


Section
9.12. Sole and Entire Agreement. This Agreement, the Revolving Credit Note, the other Loan Documents, and the other
agreements, instruments, certificates and documents referred to or described herein and therein constitute the sole and entire
agreement and understanding between the parties hereto as to the subject matter hereof, and
supersede all prior discussions, agreements and understandings of every kind and nature between the parties as to such subject
matter.


 


Section
9.13. Confidentiality. The Lender shall not disclose any Confidential Information to any Person, or use Confidential
Information except in connection with the administration of this Agreement and the other Loan Documents, without the prior written
consent of the Borrower; provided, however, that nothing herein contained shall limit any disclosure of the tax structure
of the transactions contemplated hereby, or the disclosure of any information (a) to the extent required by statute, rule, regulation
or judicial process, (b) to counsel for the Lender, (c) to bank examiners, auditors, accountants or, if required by law, any regulatory
authority, (d) to the officers, partners, managers, directors, employees, agents and advisors (including independent auditors and
counsel) of the Lender, subject to the requirements of this Section 9.13, (e) in connection with any litigation which relates to
this Agreement to which the Lender is a party, (f) to a subsidiary or Affiliate of the Lender, subject to the requirements
of this Section 9.13, or (g) to any assignee or participant (or prospective assignee or participant) which agrees to be
bound by this Section 9.13, and further provided, that in no event shall the Lender
be obligated or required to return any materials furnished by the Borrower. The obligations of the Lender under this Section
9.13 shall supersede and replace the obligations of the Lender under any confidentiality letter in respect of this financing previously
signed and delivered by the Lender to the Borrower. In no event shall the Lender trade in any securities of the Borrower using
non-public information of the Borrower.


 



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Section
9.14. Counterparts; Fax Signatures. This Agreement may be executed in any number of counterparts, all of which shall
constitute one and the same agreement. This Agreement may be executed by fax or e-mailed signatures, each of which shall be fully
binding on the signing party.


 


[The
remainder of this page is intentionally blank]


 



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


 


	 	HANOVER HOLDINGS I, LLC
	 	 	 
	 	By:	/s/ Joshua Sason
	 	Name: 	Joshua Sason
	 	Title:	CEO
	 	 	 
	 	XZERES CORP.
	 	 	 
	 	By:	/s/ Frank Greco
	 	Name:	Frank Greco
	 	Title:	CEO


 



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Exhibit
A


Borrowing
Base Certificate


 


	BORROWING BASE CERTIFICATE AND REQUEST FOR DRAWDOWN
	Xzeres Corp.
	 	 	BBC as of	 	Comments
	A: Purchase Orders	 	 	 	 
	Plus:	 	 	 	 
	Purchase Orders Created Since Last Notice	 	 	 	 
	Less:	 	 	 	 
	Purchase Orders Collections for Period	 	 	 	 
	Discounts Issued Since Last Reporting Period	 	 	 	 
	Credit Memos Issued Since Last Reporting Period	 	 	 	 
	Other Reductions/Additions Since Last Reporting Period Explain under comments	 	 	 	 
	A: PURCHASE ORDERS (ENDING BALANCE)	 	 	 	 
	A1: Less ineligible Purchase Orders:	 	 	 	 
	Relates to obsolete inventory	 	 	 	 
	Relates to slow moving inventory	 	 	 	 
	Risks of collection	 	 	 	 
	Other	 	 	 	 
	Total Ineligible Purchase Orders	 	 	 	 
	Net Eligible Purchase Orders	 	 	 	 
	 	 	 	 	 
	TOTAL NET PURCHASE ORDERS ENDING BALANCE	 	 	 	 
	Purchase Orders advance rate (80%):	 	 	 	 
	TOTAL BORROWING BASE	 	 	 	 
	 	 	 	 	 
	LINE AVAILABILITY	 	 	 	 
	Amount of Commitment 1,500,000	 	 	 	 
	Current Debt Outstanding Balance	 	 	 	 
	 	 	 	 	 
	TOTAL OUTSTANDING	 	 	 	 
	Remaining Unused Balance of Line	 	 	 	 
	Remaining BB Eligibility (Total BB Less O/S)	 	 	 	 
	Available to Draw	 	 	 	 
	Draw Request	 	 	 	 
	 	 	 	 	 
	Remaining Eligibility After Draw	 	 	 	 
	 	 	 	 	 


 


[Continues
on following page]


 



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The
undersigned officer of Borrower certifies that the above stated information and the information contained in any reports submitted
to the herewith are true and accurate and that the Borrower is in compliance with borrowing limitations con in the Secured Revolving
Credit Agreement dated August ___, 2012.


 


The undersigned officer
of Borrower also certifies that as of the date of this certificate, no event of default, prevent, which with the giving of notice
or the passing of time, or otherwise, would constitute an event of default, has occurred and is continuing.


 







Name:


Title:


 



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