Exhibit 10.42

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REVOLVING PROMISSORY NOTE

 

$6,000,000.00

   April 2, 2007

For value received, U.S. HOME SYSTEMS, INC., a corporation (“Borrower”, whether
one or more) does hereby promise to pay to the order of THE FROST NATIONAL BANK
(“Lender”), at P.O. Box 1600, San Antonio, Texas 78296, or at such other address
as Lender shall from time to time specify in writing, in lawful money of the
United States of America, the sum of SIX MILLION AND 00/100 DOLLARS
($6,000,000.00), or so much thereof as from time to time may be disbursed by
Lender to Borrower under the “Borrowing Base Line of Credit” pursuant to the
terms of that certain First Amended and Restated Loan Agreement dated as of
February 9, 2006, to be effective for all purposes as of February 10, 2006,
between Borrower and Lender (as from time to time amended, modified or restated,
the “Loan Agreement”), and be outstanding, together with interest from date
hereof on the principal balance outstanding from time to time as hereinafter
provided. Interest shall be computed on a per annum basis of a year of 360 days
and for the actual number of days elapsed, unless such calculation would result
in a rate greater than the highest rate permitted by applicable law, in which
case interest shall be computed on a per annum basis of a year of 365 days or
366 days in a leap year, as the case may be.

1. Payment Terms. Interest only on amounts outstanding hereunder shall be due
and payable monthly as it accrues, on the 2nd day of each and every calendar
month, beginning May 2, 2007, and continuing regularly and monthly thereafter
until April 2, 2009, when the entire amount hereof, principal and interest then
remaining unpaid, shall be then due and payable; interest being calculated on
the unpaid principal each day principal is outstanding and all payments made
credited to any collection costs and late charges, to the discharge of the
interest accrued and to the reduction of the principal, in such order as Lender
shall determine.

2. Late Charge. If a payment is made 10 days or more late, Borrower will be
charged, in addition to interest, a delinquency charge of (i) 5% of the unpaid
portion of the regularly scheduled payment, or (ii) $250.00, whichever is less.
Additionally, upon maturity of this Note, if the outstanding principal balance
(plus all accrued but unpaid interest) is not paid within 10 days of the
maturity date, Borrower will be charged a delinquency charge of (i) 5% of the
sum of the outstanding principal balance (plus all accrued but unpaid interest),
or (ii) $250.00, whichever is less. Borrower agrees with Lender that the charges
set forth herein are reasonable compensation to Lender for the handling of such
late payments.

3. Interest Rate. Interest on the outstanding and unpaid principal balance
hereof shall be computed at a per annum rate equal to the lesser of (a) a rate
equal to the Wall Street Journal London Interbank Offered Rate (as defined
below) plus two percent (2%) per annum, with said rate to be adjusted to reflect
any change in The Wall Street Journal London Interbank Offered Rate at the time
of any such change or (b) the highest rate permitted by applicable law, but in
no event shall interest contracted for, charged or received hereunder plus any
other charges in connection herewith which constitute interest exceed the
maximum interest permitted by applicable law. As used herein, for any date, the
“Wall Street Journal London Interbank Offered

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Rate” shall mean the London Interbank Offered Rate (LIBOR) for three (3) months
quoted in the most recently published issue of The Wall Street Journal (Central
Edition) in the “Money Rates” column. If the Wall Street Journal London
Interbank Offered Rate ceases to be made available by the publisher, or any
successor to the publisher of The Wall Street Journal, (Central Edition) the
interest rate will be determined by using a comparable index. If more than one
Wall Street Journal London Interbank Offered Rate for three (3) months is
quoted, the higher rate shall apply. The Wall Street Journal London Interbank
Offered Rate is a reference rate and does not necessarily represent the lowest
or best rate actually charged to any customer.

4. Default Rate. Matured unpaid principal and interest shall bear interest from
date of maturity until paid at the highest rate permitted by applicable law, or
if no such maximum rate is established by applicable law, at the rate stated
above plus five percent (5%) per annum.

5. Revolving Line of Credit. Under the Loan Agreement, Borrower may request
advances and make payments hereunder from time to time; provided that it is
understood and agreed that the aggregate principal amount outstanding from time
to time hereunder shall not at any time exceed $6,000,000. The unpaid balance of
this Note shall increase and decrease with each new advance or payment
hereunder, as the case may be. This Note shall not be deemed terminated or
canceled prior to the date of its maturity, although the entire principal
balance hereof may from time to time be paid in full. Borrower may borrow, repay
and re-borrow hereunder. All payments and prepayments of principal of or
interest on this Note shall be made in lawful money of the United States of
America in immediately available funds, at the address of Lender indicated
above, or such other place as the holder of this Note shall designate in writing
to Borrower. If any payment of principal of or interest on this Note shall
become due on a day which is not a Business Day (as hereinafter defined), such
payment shall be made on the next succeeding Business Day and any such extension
of time shall be included in computing interest in connection with such payment.
As used herein, the term “Business Day” shall mean any day other than a
Saturday, Sunday or any other day on which national banking associations are
authorized to be closed. The books and records of Lender shall be prima facie
evidence of all outstanding principal of and accrued and unpaid interest on this
Note.

6. Prepayment. Borrower reserves the right to prepay, prior to maturity, all or
any part of the principal of this Note without penalty. Any prepayments shall be
applied first to accrued interest and then to principal. Borrower will provide
written notice to the holder of this Note of any such prepayment of all or any
part of the principal at the time thereof. All payments and prepayments of
principal or interest on this Note shall be made in lawful money of the United
States of America in immediately available funds, at the address of Lender
indicated above, or such other place as the holder of this Note shall designate
in writing to Borrower. All partial prepayments of principal shall be applied to
the last installments payable in their inverse order of maturity.

7. Default. It is expressly provided that upon default in the punctual payment
of this Note or any part hereof, principal or interest, within five (5) days of
the date the same shall become due and payable, or upon the occurrence of an
event of default specified in any of the other Loan Documents (as defined
below), the holder of this Note may, at its option, without further notice or
demand, (i) declare the outstanding principal balance of and accrued but unpaid

 

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interest on this Note at once due and payable, (ii) refuse to advance any
additional amounts under this Note, (iii) foreclose all liens securing payment
hereof, (iv) pursue any and all other rights, remedies and recourses available
to the holder hereof, including but not limited to any such rights, remedies or
recourses under the Loan Documents, at law or in equity, or (v) pursue any
combination of the foregoing; and in the event default is made in the prompt
payment of this Note when due or declared due, and the same is placed in the
hands of an attorney for collection, or suit is brought on same, or the same is
collected through probate, bankruptcy or other judicial proceedings, then the
Borrower agrees and promises to pay all costs of collection, including
reasonable attorney’s fees.

8. No Usury Intended; Usury Savings Clause. In no event shall interest
contracted for, charged or received hereunder, plus any other charges in
connection herewith which constitute interest, exceed the maximum interest
permitted by applicable law. The amounts of such interest or other charges
previously paid to the holder of the Note in excess of the amounts permitted by
applicable law shall be applied by the holder of the Note to reduce the
principal of the indebtedness evidenced by the Note, or, at the option of the
holder of the Note, be refunded. To the extent permitted by applicable law,
determination of the legal maximum amount of interest shall at all times be made
by amortizing, prorating, allocating and spreading in equal parts during the
period of the full stated term of the loan and indebtedness, all interest at any
time contracted for, charged or received from the Borrower hereof in connection
with the loan and indebtedness evidenced hereby, so that the actual rate of
interest on account of such indebtedness is uniform throughout the term hereof.

9. Security. This Note has been executed and delivered pursuant the Loan
Agreement, and is secured by, inter alia, the following:

(a) a First Amended and Restated Security Agreement dated as of February 9,
2006, to be effective as of February 10, 2006 (as amended or modified from time
to time), by and between Borrower and Lender, covering certain collateral as
more particularly described therein;

(b) First Amended and Restated Security Agreements dated as of February 9, 2006,
to be effective as of February 10, 2006 (as amended or modified from time to
time), by and between each Guarantor (as defined in the Loan Agreement) and
Lender, covering certain collateral as more particularly described therein;

(c) an Indemnity Deed of Trust, Security Agreement – Assignment of Rents dated
as of February 9, 2006, to be effective as of February 10, 2006, by U.S.
Remodelers, Inc. in favor of Lender, covering certain real property situated in
Charles City County, Virginia, as more particularly described therein.

This Note, the Loan Agreement and all other documents evidencing, securing,
governing, guaranteeing and/or pertaining to this Note, including but not
limited to those documents described above, are hereinafter collectively
referred to as the “Loan Documents”. The holder of this Note is entitled to the
benefits and security provided in the Loan Documents.

 

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10. Joint and Several Liability; Waiver. Each maker, signer, surety and endorser
hereof, as well as all heirs, successors and legal representatives of said
parties, shall be directly and primarily, jointly and severally, liable for the
payment of all indebtedness hereunder. Lender may release or modify the
obligations of any of the foregoing persons or entities, or guarantors hereof,
in connection with this loan without affecting the obligations of the others.
All such persons or entities expressly waive presentment and demand for payment,
notice of default, notice of intent to accelerate maturity, notice of
acceleration of maturity, protest, notice of protest, notice of dishonor, and
all other notices and demands for which waiver is not prohibited by law, and
diligence in the collection hereof; and agree to all renewals, extensions,
indulgences, partial payments, releases or exchanges of collateral, or taking of
additional collateral, with or without notice, before or after maturity. No
delay or omission of Lender in exercising any right hereunder shall be a waiver
of such right or any other right under this Note.

11. Texas Finance Code. In no event shall Chapter 346 of the Texas Finance Code
(which regulates certain revolving loan accounts and revolving tri-party
accounts) apply to this Note. To the extent that Chapter 303 of the Texas
Finance Code are applicable to this Note, the “weekly ceiling” specified in such
article is the applicable ceiling; provided that, if any applicable law permits
greater interest, the law permitting the greatest interest shall apply.

12. Governing Law, Venue. This Note is being executed and delivered, and is
intended to be performed in the State of Texas. Except to the extent that the
laws of the United States may apply to the terms hereof, the substantive laws of
the State of Texas shall govern the validity, construction, enforcement and
interpretation of this Note. In the event of a dispute involving this Note or
any other instruments executed in connection herewith, the undersigned
irrevocably agrees that venue for such dispute shall lie in any court of
competent jurisdiction in Bexar County, Texas.

13. Purpose of Loan. Borrower agrees that no advances under this Note shall be
used for personal, family or household purposes, and that all advances hereunder
shall be used solely for business, commercial, investment, or other similar
purposes.

14. Captions. The captions in this Note are inserted for convenience only and
are not to be used to limit the terms herein.

15. Financial Information. Borrower agrees to promptly furnish such financial
information and statements, including financial statements in a format
acceptable to Lender, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower’s financial condition and business operations
as Lender may request from time to time. This provision shall not alter the
obligation of Borrower to deliver to Lender any other financial statements or
reports pursuant to the terms of any other loan documents executed in connection
with this Note.

16. Renewal, Extension and Increase. This Note is given in renewal and extension
but not extinguishment, of all amounts left owing and unpaid on (i) that certain
Revolving Promissory Note dated February 9, 2006, to be effective for all
purposes as of February 10, 2006, executed and delivered by Borrower and payable
to the order of Lender in the original principal amount of $4,000,000, as
modified by that certain Modification Agreement dated as of January

 

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1, 2007, which note was given in renewal, extension and increase, but not
extinguishment of certain indebtedness described therein, and (ii) that certain
Revolving Promissory Note dated February 9, 2006, to be effective for all
purposes as of February 10, 2006, executed and delivered by Borrower and payable
to the order of Lender in the original principal amount of $3,000,000, as
modified by that certain Modification Agreement dated as of January 1, 2007,
which note was given in renewal, extension and increase, but not in
extinguishment of certain indebtedness described therein.

 

BORROWER:

U.S. HOME SYSTEMS, INC.

By:

 

/s/ Robert A. DeFronzo

Name:

  Robert A. DeFronzo

Title:

  CFO

 

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