information, pertaining directly or indirectly to the Collateral and all rights to retrieve data and other information pertaining directly or indirectly to the Collateral from third parties.

 

The term “ Collateral ,” as used herein, shall also include all SUPPORTING OBLIGATIONS, PRODUCTS and PROCEEDS of all of the foregoing (including without limitation, insurance payable by reason of loss or damage to the foregoing property).

 

(e)                                   “ Constituent Documents ” means (i) in the case of a corporation, its articles or certificate of incorporation and bylaws; (ii) in the case of a general partnership, its partnership agreement; (iii) in the case of a limited partnership, its certificate of limited partnership and partnership agreement; (iv) in the case of a trust, its trust agreement; (v) in the case of a joint venture, its joint venture agreement; (vi) in the case of a limited liability company, its articles of organization and operating agreement or regulations; and (vii) in the case of any other entity, its organizational and governance documents and agreements.

 

(f)                                     “ Control ” means 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 ability to exercise voting power, by contract or otherwise.  “ Controlling ” and “ Controlled ” have meanings correlative thereto.

 

(g)                                  “ Debt ” means as to any Person at any time (without duplication) all items of indebtedness, obligation or liability of a Person, whether mature or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, that should be classified as liabilities in accordance with GAAP.

 

(h)                                  “ GAAP ” means generally accepted accounting principles, applied on a consistent basis, as set forth in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their respective successors and which are applicable in the circumstances as of the date in question.  Accounting principles are applied on a “consistent basis” when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period.

 

(i)                                      “ Governmental Authority ” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

 

(j)                                      “ Indebtedness ” means (i) all indebtedness, obligations and liabilities of Debtor to Lender of any kind or character, now existing or hereafter arising, now existing or hereafter arising under the Note, this Agreement, the other Loan Documents, (ii) all accrued but unpaid interest on any of the indebtedness described in (i) above, (iii)  all costs and expenses incurred by Lender in connection with the collection and administration of all or any part of the indebtedness and obligations described in (i) and (ii) above or the protection or preservation of, or realization upon, the collateral securing all or any part of such indebtedness and obligations, including without limitation all reasonable attorneys’ fees, and (iv) all renewals, extensions, modifications and rearrangements of the indebtedness and obligations described in (i), (ii), and (iii) above.

 

(k)                                   “ Loan Documents ” means this Agreement, the Note and the other agreements, instruments and documents evidencing, securing, governing, guaranteeing or pertaining to the Loans.

 

(l)                                      “ Loans ” means all advances under the Credit Facility as established pursuant to the Loan Documents from time to time.

 

(m)                                “ Material Adverse Effect ” means a material adverse effect on (i) the business, assets, property, operations, condition (financial or otherwise), or prospects, of Debtor, (ii) the ability of Debtor to pay or perform the Indebtedness, (iii) any of the rights of or benefits available to Lender under the Loan Documents, or (iv) the validity or enforceability of the Loan Documents.

 

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(n)                                  “ Note ” means that certain AMENDED AND RESTATED PROMISSORY NOTE of even date herewith in the principal amount of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) executed by Debtor and payable to the order of Lender (as such Note may be amended, modified or restated from time to time).

 

(o)                                  “ Permitted Encumbrances ” means the following encumbrances: (i) liens for taxes, assessments or governmental charges or levies not yet due and payable or liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (ii)  liens in existence on the Closing Date which are listed, and the property subject thereto described, on Schedule 1(o) , without giving effect to any extensions or renewals thereof; (iii) liens arising from judgments, decrees, awards or attachments in circumstances not constituting an Event of Default; and (iv) liens in favor of Lender.

 

(p)                                  “ Person ” means any individual, corporation, limited liability company, business trust, association, company, partnership, joint venture, Governmental Authority, or other entity, and shall include such Person’s heirs, administrators, personal representatives, executors, successors and assigns.

 

All words and phrases used herein shall have the meaning specified in the Code except to the extent such meaning is inconsistent with this Agreement. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined.  The words “hereof”, “herein”, and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.  Any accounting term used in the Loan Documents shall have, unless otherwise specifically provided therein, the meaning customarily given such term in accordance with GAAP, and all financial computations thereunder shall be computed, unless otherwise specifically provided therein, in accordance with GAAP consistently applied; provided, that all financial covenants and calculations in the Loan Documents shall be made in accordance with GAAP as in effect on the Closing Date unless Debtor and Lender shall otherwise specifically agree in writing.  That certain items or computations are explicitly modified by the phrase “in accordance with GAAP” shall in no way be construed to limit the foregoing.

 

2.                                        Credit Facility .

 

(a)                                   Establishment of Credit Facility .   Subject to the terms and conditions set forth in this Agreement and the other Loan Documents, Lender hereby agrees to lend to Debtor an aggregate sum not to exceed the lesser of (i) an amount equal to the Borrowing Base, or (ii)  FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) (the “ Credit Facility ”), on a revolving basis from time to time during the period commencing on the date hereof and continuing until: (i) the acceleration of the Indebtedness pursuant to the terms of the Loan Documents; (ii)  SEPTEMBER 16, 2010 ; or (iii) such other date as may be established by a written instrument between Debtor and Lender from time to time (the “ Revolving Credit Maturity Date ”).  If at any time the sum of the aggregate principal amount of Loans outstanding hereunder exceeds lesser of the Credit Facility or the Borrowing Base, such amounts shall be deemed an “ Overadvance .”  Debtor shall immediately repay the amount of such Overadvance plus all accrued and unpaid interest thereon upon written demand from Lender.  Notwithstanding anything contained herein to the contrary, an Overadvance shall be considered a Loan and shall bear interest at the Rate as set forth in the Note and be secured by this Agreement.  Subject to the terms and conditions hereof, Debtor may borrow, repay and reborrow funds under the Credit Facility.

 

(b)                                  Certain Defined Terms Relating to the Credit Facility .  With respect to Loans under Credit Facility, the following terms shall have the following meanings:

 

(i)                                      “ Borrowing Base ” means a sum equal to up to: EIGHTY PERCENT (80.00%) of the amount of Debtor’s Eligible Accounts, provided, however, Lender shall have the right to create and adjust eligibility standards and related reserves from time to time in its reasonable credit judgment with respect to Debtor’s Eligible Accounts.

 

(ii)                                   “ Eligible Accounts ” means, at any time, all accounts receivable of Debtor, created in the ordinary course of business that are acceptable to the Lender in its sole discretion and satisfy the following conditions:

 

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(1)                                   The account complies with all applicable laws, rules, and regulations;

 

(2)                                   The account has not been outstanding for more than NINETY (90) days past the original date of invoice;

 

(3)                                   The account does not represent a commission and the account was created under an enforceable contract in connection with (A) the sale of goods by Debtor in the ordinary course of business and such sale has been consummated and such goods have been shipped and delivered and received by the account debtor, or (B) the performance of services by Debtor in the ordinary course of business and such account was created in accordance with the terms of the contract between Debtor and the account debtor and accepted by the account debtor;

 

(4)                                   The account does not arise from the sale of any good that is on a bill-and-hold, guaranteed sale, sale-or-return, sale on approval, consignment, or any other repurchase or return basis;

 

(5)                                   Debtor has good and indefeasible title to the account and the account is not subject to any lien except liens in favor of the Lender;

 

(6)                                   The account does not arise out of a contract with or order from, an account debtor that, by its terms, prohibits or makes void or unenforceable the grant of a security interest by Debtor to the Lender in and to such account;

 

(7)                                   The account is not subject to any setoff, counterclaim, defense, dispute, recoupment, or adjustment other than normal discounts for prompt payment;

 

(8)                                   The account debtor is not insolvent or the subject of any bankruptcy or insolvency proceeding and has not made an assignment for the benefit of creditors, suspended normal business operations, dissolved, liquidated, terminated its existence, ceased to pay its debts as they become due, or suffered a receiver or trustee to be appointed for any of its assets or affairs;

 

(9)                                   The account is not evidenced by chattel paper or an instrument;

 

(10)                             No default exists under the account by any party thereto;

 

(11)                             The account debtor has not returned or refused to retain, or otherwise notified Debtor of any dispute concerning, or claimed nonconformity of, any of the goods from the sale of which the account arose;

 

(12)                             The account is not owed by an Affiliate, employee, officer, director or equity holder of Debtor;

 

(13)                             The account is payable in U.S. Dollars by the account debtor;

 

(14)                             The account shall be ineligible if the account debtor is domiciled in any country other than the United States of America;

 

(15)                             The account shall be ineligible if the account debtor is the United States of America or any department, agency, or instrumentality thereof, and the Federal Assignment of Claims Act of 1940, as amended, shall not have been complied with;

 

(16)                             The account is otherwise acceptable in the sole discretion of the Lender.

 

The amount of the Eligible Accounts owed by an account debtor to Debtor shall be reduced by the amount of all “contra accounts” and other obligations owed by Debtor to such account debtor.  In the event that Lender, at any time in its reasonable discretion, determines that the dollar amount of Eligible Accounts collectable by Debtor is reduced or diluted as a result of discounts or rebates granted by Debtor, returned,

 

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rejected or disputed goods or services, or such other reasons or factors as Lender deems applicable, Lender may reduce or otherwise modify the percentage of Eligible Accounts included within Borrowing Base, and/or reduce the dollar amount of Debtor’s Eligible Accounts by an amount determined by Lender in its reasonable discretion.

 

(c)                                   Funding .  Lender reserves the right to require not less than ONE (1)  Business Day prior notice of each Loan under the Credit Facility, specifying the aggregate amount of such Loan together with any documentation relating thereto as Lender may reasonably request; including, but not limited to, a Borrowing Base report.  Debtor shall give Lender notice of each Loan under the Credit Facility by no later than 1:00 p.m. (Dallas, Texas time) on the date provided herein.  Lender at its option may accept telephonic requests for such Loan, provided that such acceptance shall not constitute a waiver of Lender’s right to require delivery of a written request in connection with subsequent Loans.  Lender shall have no liability to Debtor for any loss or damage suffered by Debtor as a result of Lender’s honoring of any requests, execution of any instructions, authorizations or agreements or reliance on any reports communicated to it telephonically, by facsimile or electronically and purporting to have been sent to Lender by Debtor and Lender shall have no duty to verify the origin of any such communication or the identity or authority of the Person sending it.  Subject to the terms and conditions of this Agreement, each Loan under this section shall be made available to Debtor by depositing the same, in immediately available funds, in an account of Debtor designated by Debtor or by paying the proceeds of such Loan to a third party designated by Debtor.

 

(d)                                  Use of Proceeds .  The Loans under the Credit Facility shall be used by Debtor solely for business operations.

 

3.                                        Note, Rate and Computation of Interest .  The Credit Facility shall be evidenced by the Note.  The principal of and interest on the Note shall be due and payable in accordance with the respective terms and conditions set forth in the Note and in this Agreement.

 

4.                                        Collateral .

 

(a)                                   Grant of Security Interest .  As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Indebtedness, Debtor hereby pledges to and grants Lender, a security interest in, all of Debtor’s right, title and interest in the Collateral, whether now owned by Debtor or hereafter acquired and whether now existing or hereafter coming into existence.

 

(b)                                  Additional Documents .  To secure full and complete payment and performance of the Indebtedness, Debtor shall execute and deliver or cause to be executed and delivered all of the Loan Documents reasonably required by Lender covering the Collateral.  Debtor shall execute and cause to be executed such further documents and instruments, as Lender, in its reasonable discretion, deems necessary or desirable to create, evidence, preserve, and perfect its liens and security interests in the Collateral.  In the event any of the Loan Documents evidencing or securing the Indebtedness misrepresents or inaccurately reflects the correct terms and/or provisions of the Indebtedness, Debtor shall upon request by Lender and in order to correct such mistake, execute such new documents or initial corrected, original documents as Lender may deem necessary to remedy said errors or mistakes.  Debtor shall execute such other documents as Lender shall deem reasonably necessary to correct any defects or deficiencies in the Loan Documents.  Debtor’s failure to execute such documents as requested shall constitute an Event of Default under this Agreement.

 

(c)                                   Setoff .  If an Event of Default shall have occurred and be continuing, Lender shall have the right to set off and apply against the Indebtedness in such manner as Lender may determine, at any time and without notice to Debtor, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from Lender to Debtor whether or not the Indebtedness is then due.  Debtor hereby grants to Lender as lien and security interest in all deposit accounts of Debtor with Lender.   The rights and remedies of Lender hereunder are in addition to any other rights and remedies (including, without limitation, other rights of setoff) which Lender may have.

 

(d)                                  Satisfaction of Indebtedness .  Until the Indebtedness has been indefeasibly paid and fully satisfied (other than contingent indemnification obligations to the extent no unsatisfied claim has been

 

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asserted) and the commitments of Lender under the Credit Facility have been terminated, Lender shall be entitled to retain the security interests in the Collateral granted under the Loan Documents and the ability to exercise all rights and remedies available to Lender under the Loan Documents and applicable laws.

 

5.                                        Conditions Precedent .

 

(a)                                   Initial Loan .  The obligation of Lender to make the initial Loan under the Credit Facility, is subject to the condition precedent that Lender shall have received on or before the day of such Loan all of the following, each dated (unless otherwise indicated) as of the Closing Date, in form and substance satisfactory to Lender:

 

(i)                                      Resolutions .  Resolutions of the governing body of Debtor certified by an authorized officer or representative of Lender which authorize the execution, delivery, and performance of the Loan Documents that Lender is a party to;

 

(ii)                                   Incumbency Certificate .  A certificate of incumbency certified by an authorized officer or representative of Debtor certifying the names of the individuals or other Persons authorized to sign the Loan Documents to which Debtor that is not a natural Person is to be a party (including the certificates contemplated herein) together with specimen signatures of such Persons;

 

(iii)                                Constituent Documents .  The Constituent Documents of Debtor that is not a natural Person certified to Lender as being true and correct as of the date of this Agreement;

 

(iv)                               Loan Documents .  The Loan Documents executed by Debtor;

 

(v)                                  Fees and Expenses .  Evidence that the costs and expenses of Lender (including reasonable attorneys’ fees) and all fees owing to Lender, shall have been paid in full by Debtor;

 

(vi)                               Other Matters .  Such other documents and agreements as may be required by Lender in its reasonable discretion.

 

(b)                                  All Loans .  The obligation of Lender to make any Loan shall be subject to the following additional conditions precedent:

 

(i)                                              Request for Loan .  Lender shall have received in accordance with this Agreement, a request for a Loan in form and content satisfactory to Lender in its reasonable discretion dated as of the date of request and executed by an authorized officer of Debtor;

 

(ii)                                           No Event of Default, Etc .  No Event of Default, event which with the passage of time and/or notice would be an Event of Default, or event which would reasonably be expected to have a Material Adverse Effect shall have occurred and be continuing, or would result from or after giving effect to such Loan;  and

 

(iii)                                        Representations and Warranties .  All of the representations and warranties contained in the Loan Documents shall be true and correct in material respects on and as of the date of such Loan with the same force and effect as if such representations and warranties had been made on and as of such date.

 

6.                                        Representations and Warranties .  Debtor hereby represents and warrants, and upon each request for a Loan represents and warrants to Lender as follows:

 

(a)                                   Existence .  Debtor (i) is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization; (ii) has all requisite power and authority to own its assets and carry on its business as now being or as proposed to be conducted; and (iii) is qualified to do business in all jurisdictions in which the nature of its business makes such qualification necessary and where failure to so qualify would have a Material Adverse Effect.  Debtor has the power and authority to execute, deliver, and

 

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perform its obligations under the Loan Documents to which it is or may become a party.  The federal tax identification number and state organizational number for Debtor are set forth below:

 

Federal Tax Identification Number		State Filing Number
74-2095844		0051318400

 

(b)                                  Binding Obligations .  The execution, delivery, and performance of the Loan Documents by Debtor have been duly authorized by all necessary action by Debtor, and constitute legal, valid and binding obligations of Debtor, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency or similar laws of general application relating to the enforcement of creditors’ rights and except to the extent specific remedies may generally be limited by equitable principles.

 

(c)                                   No Consent .  The execution, delivery and performance of the Loan Documents, and the consummation of the transactions contemplated thereby, do not (i) conflict with, result in a violation of, or constitute a default under (1) any provision of the Constituent Documents (if any) or other instrument binding upon Debtor,  (2) any law, governmental regulation, court decree or order applicable to Debtor, or (3) any contractual obligation, agreement, judgment, license, order or permit applicable to or binding upon Debtor, (ii) require the consent, approval or authorization of any third party, or (iii) result in or require the creation of any lien, charge or encumbrance upon any property of Debtor except as may be expressly contemplated in the Loan Documents.

 

(d)                                  Financial Condition .  Each financial statement of Debtor supplied to Lender truly discloses and fairly presents such Person’s financial condition as of the date of each such statement.  There has been no material adverse change in such financial condition or results of operations of Debtor subsequent to the date of the most recent financial statement supplied to Lender.

 

(e)                                   Operation of Business .  Debtor possesses all contracts, licenses, permits, franchises, patents, copyrights, trademarks, and tradenames, or rights thereto, necessary to conduct its businesses substantially as now conducted and as presently proposed to be conducted, and Debtor and is not in violation of any valid rights of others with respect to any of the foregoing, except any violations that would not reasonably be expected to have a Material Adverse Effect.

 

(f)                                     Litigation and Judgments .  There is no action, suit, investigation, or proceeding before or by any Governmental Authority or arbitrator pending, or to the knowledge of Debtor, threatened against or affecting Debtor that would, if adversely determined, have a Material Adverse Effect.  There are no outstanding judgments against Debtor.

 

(g)                                  Rights in Properties; Liens .  Debtor has good title to or valid leasehold interests in its properties and assets, including the properties and assets reflected in the financial statements provided to Lender, and none of the Collateral is subject to any lien, except Permitted Encumbrances.

 

(h)                                  Disclosure .  No statement, information, report, representation, or warranty made by Debtor in the Loan Documents or furnished to Lender in connection with the Loan Documents or any of the transactions contemplated hereby contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein not misleading.  There is no fact known to Debtor which would reasonably be expected to have a Material Adverse Effect that has not been disclosed in writing to Lender.

 

(i)                                      Agreements .  Debtor is not a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate or other organizational restriction which would reasonably be expected to have a Material Adverse Effect.  Debtor is not in default in any material respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business.

 

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(j)                                      Compliance with Laws .  Debtor is not in violation of any law, rule, regulation, order, or decree of any Governmental Authority or arbitrator, the violation of which would reasonably be expected to have a Material Adverse Effect.

 

(k)                                   Taxes; Governmental Charges .  Debtor has filed all federal, state and local tax reports and returns required by any law or regulation to be filed by it and has either duly paid all taxes, duties and charges indicated due on the basis of such returns and reports, or made adequate provision for the payment thereof, and the assessment of any material amount of additional taxes in excess of those paid and reported is not reasonably expected.

 

(l)                                      Security Interest .  Debtor has and will have at all times full right, power and authority to grant a security interest in the Collateral to Lender in the manner provided herein, free and clear of any lien, security interest or other charge or encumbrance other than for the Permitted Encumbrances.  This Agreement creates a legal, valid and binding first priority security interest (subject to Permitted Encumbrances) in favor of Lender in the Collateral securing the Indebtedness.

 

(m)                                Location .  Debtor’s chief executive office and the office where the records concerning the Collateral are kept are at its address set forth on the signature page hereof.

 

(n)                                  Solvency .  On the Closing Date and on the date of each Loan, Debtor will be and after giving effect to the requested Loan, will be, solvent.

 

7.                                        Covenants .  Until all Indebtedness of Debtor under the Loan Documents is indefeasibly paid or performed, and Lender has no further commitment to lend under the Credit Facility, Debtor agrees and covenants as follows:

 

(a)                                   Payment of Obligations .  Debtor will pay its obligations, including tax liabilities, that, if not paid, could become a lien on any of its property, before the same shall become delinquent or in default, except where (i) the validity or amount thereof is being contested in good faith by appropriate proceedings, and (ii) Debtor has set aside on its books adequate reserves with respect thereto in accordance with GAAP.

 

(b)                                  Maintenance and Conduct of Business .  Debtor will (i) keep, maintain and preserve all property (tangible and intangible) material to the conduct of its business in goo