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Exhibit 10.1
 
 
LOAN AGREEMENT

LOAN AGREEMENT, dated as of February 14, 2014 between ECO BUILDING PRODUCTS,
INC., a Colorado corporation (the "Borrower"), and REDWOOD MANAGEMENT LLC, a
Delaware limited liability corporation (the "Lender").

RECITALS

The Borrower has requested that the Lender extend credit to the Borrower
consisting of a term loan in an aggregate principal amount not to exceed
$500,000.  The proceeds of the term loan will be used by the Borrower to assist
in financing the production of goods to be sold to Home Depot Inc. (“Home
Depot”) pursuant to existing purchase orders in an amount in excess of $545,000
(the “Purchase Orders”).

In consideration of the premises and the covenants and agreements contained
herein, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS; CERTAIN TERMS

SECTION 1.01.  Definitions.  As used in this Agreement, the following terms
shall have the respective meanings indicated below, such meanings to be
applicable equally to both the singular and plural forms of such terms:
 
"Agreement" means this Loan Agreement, including all amendments, modifications
and supplements and any exhibit or schedule to any of the foregoing, and shall
refer to the Agreement as the same may be in effect at the time such reference
becomes operative.

"Security Agreement" means the Security Agreement, dated as of the date hereof,
made by the Borrower in favor of the Lender, substantially in the form of
Exhibit A annexed hereto, as amended or otherwise modified from time to time.

"Board" means the Board of Governors of the Federal Reserve System of the United
States.

"Borrower" has the meaning specified therefor in the preamble hereto.

"Borrower's Account" means an account designated by the Borrower to the Lender
reasonably satisfactory to the Lender.

"Business Day" means any day other than a Saturday, Sunday or legal holiday on
which the Lender is open for business in Encinitas, California.

"Collateral" means the Collateral described in the Security Agreement.
 
 
 
 

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"Commitment" means the commitment by the Lender to make the Loans to the
Borrower in the principal amount not to exceed $500,000.

"Default" means any event or condition which upon notice, lapse of time or both
would constitute an Event of Default.

"Default Rate" means the rate per 7-calendar day period (or portion thereof)
equal to 1.00%.

"Effective Date" has the meaning specified therefor in Section 3.01 hereof.

"Event of Default" means any of the events set forth in Section 6.01 hereof.

"Financing Statement" has the meaning specified therefor in Section 3.01 hereof.

"Governmental Authority" means any nation or government, any federal, state,
city, town, municipality, county, local or other political subdivision thereof
or thereto and any department, commission, board, bureau, instrumentality,
agency or other entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government.

"Indebtedness" means, with respect to any Person, at any time, without
duplication, (a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (c) all obligations of such Person upon which interest
charges are customarily paid (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices), (d) all obligations of such Person under conditional sale or other
title retention agreements relating to property purchased by such Person, (e) 
all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien or security interest on property owned or acquired by such Person,
whether or not the obligations secured thereby have been assumed, and (f) all
obligations, contingent or otherwise, of any Person guaranteeing or having the
economic effect of guaranteeing any Indebtedness or monetary obligation of any
other Person in any manner, whether directly or indirectly.

"Income Tax Basis" means the income tax basis (modified cash basis) of
accounting in effect from time to time in the United States, applied on a
consistent basis for federal income tax purposes in accordance with the Internal
Revenue Code of 1986, as amended.

"Lender" has the meaning specified therefor in the preamble hereto.

"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having
 
 
 
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substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).

"Loan" means the loan made by the Lender to the Borrower pursuant to this
Agreement.

"Loan Documents" means this Agreement, the Security Agreement, the Promissory
Note, and all other agreements, instruments or other documents executed and
delivered by or on behalf of the Borrower pursuant to or in connection with this
Agreement.

"Material Adverse Effect" means a material adverse effect on any of (a) the
assets, properties or financial condition of the Borrower or (b) the legality,
validity or enforceability of this Agreement or any of the other Loan Documents
or (c) the aggregate rights and remedies of the Lender under this Agreement or
any of the other Loan Documents.

"Maturity Date" means the earliest of (a) May 14, 2014, and (b) such earlier
date on which the Loan is due and payable (whether at stated maturity, by
acceleration or otherwise) in accordance with the terms of this Agreement.

"Obligations" means (a) the obligation of the Borrower to pay, as and when due
and payable (by scheduled maturity or otherwise), all amounts from time to time
owing by the Borrower in respect of any Loan Document, whether for principal,
interest (including, without limitation, all interest that accrues after the
commencement of any case, proceeding or other action relating to the bankruptcy
or insolvency of the Borrower), fees, indemnification payments, expense
reimbursements or otherwise and (b) the obligation of the Borrower to perform or
observe all of the Borrower's other obligations from time to time existing under
any Loan Document.

"Person" means an individual, corporation, partnership, limited liability
company or partnership, association, joint-stock company, trust, unincorporated
organization, joint venture or governmental authority or other regulatory body.

"Post-Maturity Rate" means the rate per 7-calendar day period (or portion
thereof) equal to 1.00%.

SECTION 1.02.  Terms Generally; Computation of Time Periods.  Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms.  The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation".  All
references herein to Articles, Sections, Exhibits and Schedules shall be deemed
references to Articles and Sections of, and Exhibits and Schedules to, this
Agreement unless the context shall otherwise require.  Unless otherwise
indicated herein, all references to time of day refer to Eastern standard time
or Eastern daylight savings time, in effect in New York on such day.  In the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding", provided, however, that with
 
 
 
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respect to a computation of fees or interest payable to the Lender, such period
shall in any event consist of at least one full day.  Except as otherwise
expressly provided herein, any reference in this Agreement to any Loan Document
shall mean such document as amended, restated, supplemented or otherwise
modified from time to time.

SECTION 1.03.  Accounting and Other Terms.  Unless otherwise expressly stated
herein, all accounting terms used in this Agreement which are not otherwise
defined herein shall be construed in accordance with the Income Tax Basis
applied on a basis consistent with that used in preparing the financial
statements referred to in Section 4.01(f) hereof.  All terms used in this
Agreement which are defined in Article 9 of the Uniform Commercial Code in
effect in the State of California on the date hereof and which are not otherwise
defined herein shall have the same meanings herein as set forth therein.
 
ARTICLE II
THE LOAN

SECTION 2.01.  Making the Loan.  Subject to the terms and conditions and relying
upon the representations and warranties herein set forth, the Lender agrees to
make the Loan to the Borrower on the Effective Date in the principal amount
equal to the Commitment. Pursuant to this Agreement, and Borrower shall issue a
Promissory Note (“Promissory Note”), in the form attached hereto as Exhibit B,
in connection with the Loan. In the event of any inconsistency or conflict
between this Agreement and the Promissory Note, the terms, conditions and
provisions of this Agreement shall govern and control.

SECTION 2.02.  Interest.

(a)           Interest.  After receipt of the Loan contemplated by Section 2.01,
the outstanding principal of, and all accrued and unpaid interest on, the Loan,
shall bear interest, equal at all times to a daily rate of one-tenth of one
percent (0.1%), assuming a 30 day month, and be payable in arrears on the
Maturity Date or the date such outstanding amount is paid.   Notwithstanding the
repayment of the Loan at any time earlier than the Maturity Date, the Loan shall
bear minimum interest in the amount of $45,000 in the aggregate.

(b)           Default Interest.  Upon the occurrence and during the continuance
of an Event of Default, the principal of, and all accrued and unpaid interest
on, the Loan, and all fees, indemnities or any other Obligations of the Borrower
under this Agreement and the other Loan Documents, shall (i) bear interest, from
the date such Event of Default occurs until the date such Event of Default is
cured or waived in writing in accordance herewith, equal at all times to the
Default Rate, and (ii) be payable in arrears on the first day of each 7-day
calendar period after the date such Event of Default occurs until the date such
Event of Default is cured or waived in writing in accordance herewith.

(c)           Post-Maturity Interest.  Any principal of, and all accrued and
unpaid interest on, the Loan, and all fees, indemnities or any other Obligations
of the Borrower under this Agreement and the other Loan Documents that remains
outstanding after the Maturity Date shall (i) bear interest from the Maturity
Date until the date such outstanding amount is paid in full, equal at all times
to the Post-Maturity Rate, and (ii) be payable in arrears on the first day of
each 7-day calendar period after the Maturity Date until the date such
outstanding amount is paid in full.
 
 
 
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SECTION 2.03.  Repayment.  The entire principal amount of the term loan shall be
due and payable on the Maturity Date.   Specifically, the Borrower shall repay
to the Lender any unpaid principal of, and all accrued and unpaid interest on,
the Loan, and all fees, indemnities or any other Obligations of the Borrower
under this Agreement and the other Loan Documents on the Maturity Date.  In the
event the Loan is not repaid upon the Maturity Date, at the sole option of the
Lender, the Promissory Note may be exchanged for the convertible promissory note
attached hereto as Exhibit C.  Upon the election of the Lender to exchange for
the convertible promissory note, the Borrower shall deliver to the Lender within
two (2) business days a manually executed convertible promissory note
representing all amounts then due to the Lender.  The Lender shall not be
required to return the original Promissory Note to the Borrower, which shall be
deemed to be null and void upon delivery of the convertible promissory note.

SECTION 2.04.  Mandatory Prepayment of Loan.  Notwithstanding the Maturity Date,
the Borrower hereby agrees to direct Home Depot to make payment of all amounts
due under the Purchase Orders directly to the account of the Lender set forth on
the signature page hereof.

SECTION 2.05.  Prepayments.  The Borrower may prepay the Loan, in whole or in
part, upon one (1) Business Day's irrevocable notice to the Lender, specifying
(a) the date of prepayment and (b) the principal amount to be prepaid, provided
that any such prepayments shall be in an amount of not less than $25,000.  If
any such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with accrued interest to such
date on the amount prepaid.

SECTION 2.06.  Intentionally omitted.

SECTION 2.07.  Payments and Computations.  The Borrower will make each payment
under the Loan Documents not later than 11:00 A.M. (prevailing Eastern Time) on
the day when due, in lawful money of the United States of America and in
immediately available funds, to the Lender at the Lender's address referred to
in Section 7.01 hereof.  All payments shall be made by the Borrower without
defense, set-off or counterclaim to the Lender.  The Borrower hereby authorizes
the Lender to, and the Lender may, charge from time to time against the
Borrower's Account any amount due under any Loan Document to which the Borrower
is a party.  Whenever any payment to be made under any such Loan Document shall
be stated to be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day and such extension of time shall in
such case be included in the computation of interest or fees, as the case may
be.  All computations of interest under this Agreement and any other Loan
Document and all fees shall be made by the Lender on the basis of a year of 360
days for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest is payable.  Each
determination by the Lender of an interest rate or fee hereunder shall be
conclusive and binding for all purposes, absent demonstrable error.
 
 
 
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ARTICLE III
CONDITIONS OF LENDING

SECTION 3.01.  Conditions Precedent to Effectiveness.  This Agreement and the
Lender's obligation to make the Loan to the Borrower hereunder shall become
effective as of the Business Day when each of the following conditions precedent
shall have been satisfied in a manner satisfactory to the Lender (the "Effective
Date"):

(a)           Payment of Fees, Etc.  The Borrower shall have paid or caused to
be paid all fees, costs, expenses and taxes payable on the Effective Date by the
Borrower pursuant to Section 7.04 hereof.

(b)           Representations and Warranties; No Default.  The following
statements shall be true and correct:  (i) the representations and warranties of
the Borrower contained in Section 4.01 hereof and in each other Loan Document
and certificate or other writing delivered to the Lender on or before the
Effective Date are true and correct on and as of the Effective Date; and (ii) on
the Effective Date, no Default or Event of Default has occurred and is
continuing under this Agreement.

(c)           Legality.  The obligations of the Lender under this Agreement
shall not contravene any law, rule or regulation applicable to the Lender.

(d)           Delivery of Documents.  The Lender shall have received on or
before the Effective Date the following, each in form and substance satisfactory
to the Lender:

(i)             the financing statement on Form UCC-1 by the Borrower to be
filed  in such office or offices as may be necessary or, in the opinion of the
Lender, desirable to perfect the security interests purported to be created by
the Assignment Agreement (the "Financing Statement");
 
(ii)            such other agreements, instruments, approvals, opinions and
other documents as the Lender may reasonably request.

(e)           Proceedings; Receipt of Documents.  All proceedings in connection
with the transactions contemplated by this Agreement, and all documents
incidental thereto, shall be reasonably satisfactory to the Lender, and the
Lender shall have received all such information and such counterpart originals
or certified or other copies of such documents as the Lender may reasonably
request.

(f)            Material Adverse Effect.  The Lender shall have determined that
no Material Adverse Effect shall have occurred relating to the Borrower since
September 30, 2013.
 
 
 
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES

SECTION 4.01.  Representations and Warranties of the Borrower.  The Borrower
represents and warrants as follows:

(a)           Capacity.  The Borrower has the legal capacity to execute, deliver
and perform this Agreement and each other Loan Document to which the Borrower is
a party.

(b)           No Violation.  The execution, delivery and performance by the
Borrower of each Loan Document to which the Borrower is a party (i) do not and
will not contravene any law or any contractual restriction binding on or
otherwise affecting the Borrower, or any of the properties of the Borrower, and
(ii) do not and will not result in or require the creation of any lien, security
interest or other charge or encumbrance upon or with respect to any of the
properties of the Borrower, other than the security interests created by the
Loan Documents.

(c)           Approvals; Compliance with Law.  No authorization or approval or
other action by, and no notice to or filing with, any Governmental Authority or
other regulatory body, and no consent of any other Person, is required for the
due execution, delivery and performance by the Borrower of any Loan Document to
which the Borrower is or will be a party.

(d)           Enforceability of Loan Documents.  Each Loan Document to which the
Borrower is a party constitutes, and each Loan Document to which the Borrower
will be a party, when delivered hereunder, will constitute, a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its respective terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other laws
affecting creditors' rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at law.

(e)           Litigation.  There is no pending or, to the knowledge of the
Borrower, threatened action, suit or proceeding affecting the Borrower before
any court or other Governmental Authority or any arbitrator, which (i) is
reasonably likely to have a Material Adverse Effect or (ii) purports to affect
the legality, validity or enforceability of any Loan Document or the
consummation of any transaction contemplated hereby.

(f)           SEC Reports; Financial Statements. The Borrower has filed all
reports, schedules, forms, statements and other documents required to be filed
by the Borrower under the Securities Act of 1933 (“Securities Act”) and the
Securities Exchange Act of 1934 (“Exchange Act”), including pursuant to Section
13(a) or 15(d) thereof, for the two years preceding the date hereof (or such
shorter period as the Borrower was required by law or regulation to file such
material) (the foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to herein as the
“SEC Reports”) on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any such
extension.  As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to
 
 
 
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make the statements therein, in the light of the circumstances under which they
were made, not misleading.  The financial statements of the Borrower included in
the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing.  Such financial statements have been
prepared in accordance with GAAP, except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present in
all material respects the financial position of the Borrower and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.
 
(g)           Material Changes.  Since the date of the latest financial
statements included in the SEC Reports: (i) there has been no event, occurrence
or development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Borrower has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Borrower’s financial
statements pursuant to GAAP or disclosed in filings made with the Commission,
(iii) the Borrower has not altered its method of accounting, (iv) the Borrower
has not declared or made any dividend or distribution of cash or other property
to its stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Borrower has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Borrower equity incentive plans. The Borrower does not have pending
before the Commission any request for confidential treatment of
information.  Except for the issuance of the Securities contemplated by this
Agreement, no event, liability or development has occurred or exists with
respect to the Borrower or its Subsidiaries or their respective business,
properties, operations or financial condition, that would be required to be
disclosed by the Borrower under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed at
least one Trading Day prior to the date that this representation is made.

(g)           Compliance with Law, Etc.  The Borrower is not in violation of any
law or any term of any material agreement or instrument binding on or otherwise
affecting the Borrower or any of the properties of the Borrower, the violation
of which could reasonably be expected to have a Material Adverse Effect.

(h)           Taxes, Etc.  All Federal, state and local tax returns and other
reports required by applicable law to be filed by the Borrower have been filed,
and all taxes and assessments imposed upon the Borrower or any property of the
Borrower and which have become due and payable on or prior to the date hereof
have been paid, except to the extent contested in good faith by proper
proceedings which stay the imposition of any penalty or fine or stay the
foreclosure of any Lien resulting from the non-payment thereof and with respect
to which adequate reserves have been set aside for the payment thereof.

(i)            Regulation T, U or X.  No proceeds of the Loan will be used,
directly or indirectly, and whether immediately, incidentally or ultimately, for
any purpose that entails a violation of, or is inconsistent with, the provisions
of any of the regulations of the Board, including Regulation T, U or X.
 
 
 
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(j)            Title.  Borrower has good and marketable title to the Purchase
Orders, free and clear of all mortgages, pledges, security interests, charges,
liens, restrictions and encumbrances of any kind (collectively, “Liens”)
whatsoever.

(k)           Home Depot.  Borrower’s relations Home Depot are good and there
are not pending or, to Borrower’s knowledge, threatened claims or controversies
with Home Depot that, independently or collectively, could have a Material
Adverse Effect on the business of the Borrower.
 
(l)            Sarbanes-Oxley; Internal Accounting Controls.  Except as set
forth in the SEC Reports, the Borrower is in material compliance with all
provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of
the Closing Date.  The Borrower and its subsidiaries maintain a system of
internal accounting controls 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 conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (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. The
Borrower has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Borrower and designed such
disclosure controls and procedures to ensure that information required to be
disclosed by the Borrower in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms.  The Borrower’s certifying
officers have evaluated the effectiveness of the Borrower’s disclosure controls
and procedures as of the end of the period covered by the Borrower’s most
recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”).  The Borrower presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date.  Since the Evaluation Date, there have
been no changes in the Borrower’s internal control over financial reporting (as
such term is defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Borrower’s internal control over
financial reporting.
 
(m)     No Disagreements with Accountants and Lawyers; Outstanding SEC
Comments.  There are no disagreements of any kind presently existing, or
reasonably anticipated by the Borrower to arise, between the Borrower and the
accountants and lawyers formerly or presently employed by the Borrower and the
Borrower is or immediately after the Closing Date will be current with respect
to any fees owed to its accountants which could affect the Borrower’s ability to
perform any of its obligations hereunder.  There are no unresolved comments or
inquiries of any kind or nature received by the Borrower from the Securities and
Exchange Commission which remain unresolved as of the date hereof.
 
(n)           Bad Actor Disqualification.
 
 
 
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(i)             No Disqualification Events. With respect to securities to be
offered and sold hereunder in reliance on Rule 506 under the Securities Act
("Regulation D Securities"), none of the Borrower, any of its predecessors, any
affiliated issuer, any director, executive officer, other officer of the
Borrower participating in the offering, any beneficial owner of 20% or more of
the Borrower's outstanding voting equity securities, calculated on the basis of
voting power, nor any promoter (as that term is defined in Rule 405 under the
Securities Act) connected with the Borrower in any capacity at the time of sale
(each, an "Issuer Covered Person" and, together, "Issuer Covered Persons") is
subject to any of the "Bad Actor" disqualifications described in Rule
506(d)(1)(i) to (viii) under the Securities Act (a "Disqualification Event"),
except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The
Borrower has exercised reasonable care to determine whether any Issuer Covered
Person is subject to a Disqualification Event. The Borrower has complied, to the
extent applicable, with its disclosure obligations under Rule 506(e), and has
furnished to the Lender a copy of any disclosures provided thereunder.
 
(o)           Full Disclosure.  No Loan Document or schedule or exhibit thereto,
and no certificate, report, statement or other document or information furnished
to the Lender by the Borrower in connection herewith or with the consummation of
the transactions contemplated hereby, contains any material misstatement of fact
or omits to state a material fact or any fact necessary to make the statements
contained herein or therein not misleading in any material respect in light of
the circumstances under which they were made.  There is no fact known to the
Borrower that materially adversely affects the financial condition of the
Borrower or the value of the Collateral, or that otherwise is reasonably likely
to have a Material Adverse Effect, that has not been disclosed to the Lender in
writing prior to the Effective Date.

ARTICLE V
COVENANTS OF THE BORROWER

SECTION 5.01.  Affirmative Covenants.  So long as any principal of or interest
on the Loan or any other Obligations (whether or not due) shall remain unpaid or
the Lender shall have any Commitment hereunder, the Borrower will, unless the
Lender shall otherwise consent in writing:

(a)           Reporting Requirements.  Furnish to the Lender:

(i)             promptly after the commencement thereof but in any event not
later than 5 Business Days after service of process with respect thereto on, or
the obtaining of knowledge thereof by, the Borrower, notice of each action, suit
or proceeding at law, in equity, in arbitration or before any other Governmental
Authority or other regulatory body or arbitrator that could reasonably be
expected to have a Material Adverse Effect;

(ii)            promptly but in any event not more than 5 days after the
occurrence thereof, notice of the occurrence of either any Default or Event of
Default under this Agreement, which notice shall contain a brief description of
the nature of such Default or Event of Default and any action with respect
thereto taken or contemplated to be taken by the Borrower;
 
 
 
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(iii)           promptly but in any event not more than 5 days after the
occurrence thereof, notice of the occurrence of either any default or event of
default under any agreement, which notice shall contain a brief description of
the nature of such default or event of default and any action with respect
thereto taken or contemplated to be taken by the Borrower; and

(iv)           promptly upon request, such other information concerning the
financial condition of the Borrower or information concerning any of the
Collateral, in each case, as the Lender from time to time may reasonably
request.

(b)           Compliance with Laws, Etc.  Comply in all respects with all
applicable laws, rules, regulations and orders, such compliance to include,
without limitation, (i) paying before the same become delinquent all taxes,
assessments and governmental charges or levies imposed upon the Borrower or upon
the Borrower's income or profits or upon any of the Borrower's properties and
(ii) paying all lawful claims which if unpaid might become a Lien or charge upon
any of the Borrower's properties, except in each case to the extent contested in
good faith by proper proceedings which stay the imposition of any penalty or
fine or stay the foreclosure of any Lien resulting from the non-payment thereof
and with respect to which adequate reserves have been set aside for the payment
thereof, unless the failure to so comply could not reasonably be expected to
have a Material Adverse Effect.

(c)           Further Assurances.  Do, execute, acknowledge and deliver, at the
sole cost and expense of the Borrower, all such further acts and assurances as
the Lender may reasonably require from time to time in order to better assure,
convey, grant, assign, transfer and confirm unto the Lender the rights now or
hereafter intended to be granted to the Lender under this Agreement, any Loan
Document or any other instrument under which any Borrower may be or may
hereafter become bound to effect the intention or facilitate the performance of
the terms of this Agreement.

(d)           Federal Regulations.  If requested by the Lender at any time and
from time to time, furnish to the Lender a statement, in conformity with the
requirements of Federal Reserve Form U-1, to the effect that neither the making
of the Loan under this Agreement, nor the use of proceeds thereof, nor any other
transactions contemplated hereby or by the other Loan Documents will violate or
be inconsistent with the provisions of Regulation T, U or X.

(e)           Collateral.  Take or cause to be taken all steps necessary or
reasonably requested by the Lender to grant to the Lender a perfected, security
interest in the Collateral and to enable the Lender to realize upon and transfer
or otherwise dispose of the Collateral, in compliance with all applicable laws.

SECTION 5.02.  Negative Covenants.  So long as any principal of or interest on
the Loan or any other Obligations (whether or not due) shall remain unpaid or
the Lender shall have any Commitment hereunder, the Borrower will not, without
the prior written consent of the Lender:
 
 
 
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(a)           Liens, Pledges, Etc.  Create or suffer to exist any Lien or pledge
(other than Liens and pledges in favor of the Lender), or other type of
preferential arrangement upon or with respect to any of the Collateral.

(b)           Indebtedness.  Create, incur or suffer to exist any Indebtedness,
other than:
 
(i)             Indebtedness owing to the Lender;
 
(ii)            Indebtedness of the Borrower existing on the date hereof, and
any extension of maturity, refinancing or other modification of the terms of any
such Indebtedness, provided, however, that such extension, refinancing or
modification (A) does not accelerate the amortization or maturity of such
Indebtedness and (B) after giving effect to the extension, refinancing or
modification of such Indebtedness, the amount of such Indebtedness outstanding
is not greater than the amount of such Indebtedness outstanding immediately
prior to such extension, refinancing or modification;
 
(iii)           Indebtedness permitted by paragraph (c) of this Section 5.02;
and
 
(iv)           unsecured  Indebtedness in an aggregate principal amount not to
exceed at any one time outstanding $50,000 without the  Lender's prior written
consent.

(c)           Guaranties, Etc.  Assume, guarantee, indorse or otherwise become
directly or contingently liable for Indebtedness of any other Person, other
than:
 
(i)             guaranties by endorsement of negotiable instruments for deposit
or collection in the ordinary course of business;
 
(ii)           guaranties existing on the date hereof; and
 
(iii)           guaranties in favor of the Lender.

(d)           Federal Reserve Regulations.  Permit the Loan or the proceeds of
the Loan to be used for any purpose that violates or is inconsistent with the
provisions of Regulation T, U or X of the Board.
 
(e)           Changes to Agreements.  Agree or consent to any amendment,
modification, supplement or waiver of any provision of any agreement if such
amendment, modification, supplement or waiver could reasonably be expected to
have a Material Adverse Effect.  Enter into any agreement that in any way
restricts or imposes conditions or fees on the sale, assignment, pledge or other
disposition of the Collateral.
 
 
 
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ARTICLE VI
EVENTS OF DEFAULT

SECTION 6.01.  Events of Default.  If any of the following Events of Default
shall occur and be continuing:

(a)           the Borrower shall fail to pay (i) any principal of the Loan when
due (whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) or (ii) any interest on the Loan, any fee or any other amount payable
hereunder or any other Indebtedness of the Borrower to the Lender within three
(3) Business Days after the date such interest, fee, other amount or other
Indebtedness is due; or

(b)           any representation or warranty made by the Borrower in any Loan
Document or in any report, certificate or other document delivered to the Lender
pursuant to any Loan Document shall have been incorrect in any material respect
when made; or

(c)           the Borrower shall fail to perform or observe any term, covenant
or agreement contained in Section 5.01 or Section 5.02 of this Agreement or any
term, covenant or agreement contained in the Assignment Agreement; or

(d)           the Borrower shall fail to perform or observe any term, covenant
or agreement contained in any Loan Document to be performed or observed by the
Borrower and, except as set forth in subsections (a), (b) and (c) of this
Section 6.01, such failure, if capable of being remedied, shall remain
unremedied for 10 days after written notice thereof shall have been given to the
Borrower by the Lender; or

(e)           the Borrower shall fail to pay any Indebtedness (excluding
Indebtedness evidenced by this Agreement) the principal amount of which equals
or exceeds $25,000, or any interest or premium thereon, when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) and
such failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Indebtedness; or any other
default under any agreement or instrument relating to any such Indebtedness, or
any other event, shall occur and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect of such
default or event is to accelerate, or to permit the acceleration of, the
maturity of such Indebtedness; or any such Indebtedness shall be declared to be
due and payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof; or

(f)           the Borrower shall be generally not paying his debts as they
become due, or shall admit in writing his inability to pay such debts generally,
or shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against the Borrower, seeking to adjudicate
the Borrower bankrupt or insolvent, or seeking dissolution, liquidation, winding
up, reorganization, arrangement, adjustment, protection, relief or composition
of the Borrower or the debts of the Borrower under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for the Borrower or for any substantial part
of the property of the Borrower, and, in the case of any such proceeding
instituted against the Borrower, the petition commencing such proceeding is not
dismissed within 60 calendar days of the date of the filing thereof; or the
Borrower shall take any action to authorize or effect any of the actions set
forth above in this subsection (f); or
 
 
 
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(g)           any provision of any Loan Document shall at any time for any
reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by the Borrower, or a proceeding shall be commenced
by the Borrower or any Governmental Authority or other regulatory body having
jurisdiction over the Borrower, seeking to establish the invalidity or
unenforceability thereof, or the Borrower shall deny that such Person has any
liability or obligation purported to be created under any Loan Document to which
such Person is a party; or
 
(h)           the Financing Statement after release pursuant to Section 3.01
hereof, or any other security document after delivery, shall for any reason,
fail or cease to create a valid and perfected lien on and security interest in
the Collateral purported to be covered thereby; or

(i)            one or more judgments or orders for the payment of money
exceeding any applicable insurance coverage by more than $25,000 in the
aggregate, shall be rendered against the Borrower, and either (i) enforcement
proceedings shall have been commenced by any creditor upon any such judgment or
order or (ii) there shall be any period of 30 consecutive days during which a
stay of enforcement of any such judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect.
 
ARTICLE VII
MISCELLANEOUS

SECTION 7.01.  Notices, Etc.  Unless otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing and
shall be mailed, telecopied, emailed or delivered to the Borrower and the Lender
at the addresses set forth below, or at such other addresses as shall be
designated by the Borrower or the Lender in a written notice to the other party
complying as to delivery with the terms of this Section 7.01.

Borrower
Lender
Eco Building Products, Inc.
909 West Vista Way
Vista, CA  92083
Attn: Steven Conboy
Telephone: (909) 519-5470
e-mail: sconboy@ecob.net
Redwood Management, LLC
16850 Collins Avenue Suite 112-341
Sunny Isles Beach, FL 33160
Attn:  Gary Rogers
Telephone: (305) 466-1577
e-mail: grogers167@aol.com
 

 
All such notices and other communications shall be effective (a) if mailed,
three (3) days after the mailing date, (b) if telecopied or emailed, upon
receipt or (c) if delivered, upon delivery.
 
 
 
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SECTION 7.02.  Amendments, Etc.  No amendment of any provision of this Agreement
shall be effective unless it is in writing and signed by the Borrower and the
Lender, and no waiver of any provision of this Agreement, nor consent to any
departure by the Borrower therefrom, shall be effective unless it is in writing
and signed by the Lender, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.

SECTION 7.03.  No Waiver; Remedies, Etc.  No failure on the part of the Lender
to exercise, and no delay in exercising, any right hereunder or under any other
Loan Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any Loan Document preclude any other or further
exercise thereof or the exercise of any other right.  The rights and remedies of
the Lender provided herein and in the other Loan Documents are cumulative and
are in addition to, and not exclusive of, any rights or remedies provided by
law.  The rights and remedies of the Lender under any Loan Document against any
party thereto are not conditional or contingent on any attempt by the Lender to
exercise any of its rights and remedies under any other Loan Document against
such party or against any other Person.

SECTION 7.04.  Fees, Costs, Expenses and Taxes.  The Borrower shall pay or cause
to be paid on demand (a) legal fees, costs and expenses in connection with (i)
the execution and delivery of this Agreement and any other Loan Document in the
amount of $10,000, and (ii) the amendment, waiver and administration of this
Agreement and any other Loan Document and the other documents to be delivered
pursuant to the Loan Documents, and (b) all reasonable costs and expenses, if
any (including, without limitation, reasonable counsel fees, expenses and other
client charges), in connection with the enforcement of (or any "work-out" or
restructure with respect to) the Loan Documents and the other documents to be
delivered pursuant to the Loan Documents.  In addition, the Borrower will pay
any and all stamp and other taxes and fees payable or determined to be payable
in connection with the execution, delivery, filing and recording of the Loan
Documents and the other documents to be delivered pursuant to the Loan
Documents, and will save the Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes and fees.

SECTION 7.05.  Indemnification.  The Borrower hereby agrees to indemnify, defend
and hold the Lender harmless from and against any and all claims, charges,
actions, suits, proceedings, lawsuits, obligations, liabilities, fines,
penalties, costs and expenses (including, without limitation, reasonable
attorney's fees, expenses and other client charges) which the Lender shall incur
or which shall be claimed against the Lender by any Person in any way relating
to or arising out of (a) the execution or delivery of this Agreement or any
other Loan Document or any agreement or instrument contemplated hereby or
thereby, the performance by the parties hereto or thereto of their respective
obligations hereunder or thereunder or the consummation of the transactions
contemplated hereby or thereby or (b) the use of the proceeds of the Loan
including any and all reasonable expenses set forth in Section 7.04 hereof which
arise as a result of any claims, charges, actions, suits, proceedings or
lawsuits described in this Section 7.05.  The Borrower shall not have any
obligation to the Lender under this Section 7.05 with respect to any claims,
charges, suits, proceedings, lawsuits, obligations, liabilities, fines,
penalties, costs and expenses that a court of competent jurisdiction finally
determines to have resulted from the gross negligence or willful misconduct of
the Lender as finally determined by a court of competent jurisdiction.  The
obligations and provisions of this paragraph shall continue and remain in full
force and effect after the Obligations of the Borrower under this Agreement and
the other Loan Documents have been paid and discharged in full and this
Agreement and such other Loan Documents are otherwise terminated.
 
 
 
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SECTION 7.06.  Right of Set-off.  Upon the occurrence and during the continuance
of any Event of Default the Lender may, and is hereby authorized to, at any time
and from time to time, without notice to the Borrower (any such notice being
expressly waived by the Borrower) and to the fullest extent permitted by law,
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by the Lender to or for the credit or the account of the Borrower against any
and all obligations of the Borrower now or hereafter existing under any Loan
Document, irrespective of whether or not the Lender shall have made any demand
hereunder or thereunder and although such obligations may be contingent or
unmatured.  The Lender agrees promptly to notify the Borrower after any such
set-off and application made by the Lender, provided that the failure to give
such notice shall not affect the validity of such set-off and application.  The
rights of the Lender under this Section 7.06 are in addition to the other rights
and remedies (including, without limitation, other rights of set-off) which the
Lender may have.

SECTION 7.07.  Severability.  Any provision of this Agreement, or of any other
Loan Document to which the Borrower is a party, which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.

SECTION 7.08.  Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the Borrower and the Lender and their respective
successors and assigns, and in the case of the Borrower, the heirs, executors
and legal representatives of the Borrower, except that the Borrower may not
assign the rights of the Borrower hereunder or any interest herein without the
prior written consent of the Lender and any such assignment without the Lender's
prior written consent shall be null and void.  The Lender may assign or grant a
participation with respect to all or a portion of its rights and obligations
under this Agreement and the Promissory Note (or the convertible promissory note
if so exchanged) without the consent of the Borrower or any other Person, and
the Lender may at any time create a security interest in all or any portion of
its rights under this Agreement (including, without limitation, Obligations
owing to it) in favor of any Federal Reserve Bank in accordance with Regulation
A of the Federal Reserve Board.

SECTION 7.09. Counterparts.  This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.  Delivery of an executed counterpart of
this Agreement by telefacsimile or electronic mail shall be equally as effective
as delivery of an original executed counterpart of this Agreement.

SECTION 7.10.  Headings.  Section headings herein are included for convenience
of reference only and shall not constitute a part of this Agreement for any
other purpose.
 
 
 
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SECTION 7.11.  Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF
LAW PRINCIPLES.

SECTION 7.12.  Consent to Jurisdiction, Etc.  ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORKOR OF THE UNITED STATES FOR THE CENTRAL DISTRICT
OF CALIFORNIA, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER
HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF THE PROPERTY OF THE BORROWER, GENERALLY
AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.  THE BORROWER
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER
AT THE ADDRESS OF THE BORROWER FOR NOTICES CONTAINED IN SECTION 7.01
HERETO.  NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION.  THE BORROWER
HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.  TO
THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO THE BORROWER OR THE PROPERTY OF THE BORROWER, THE
BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF THE OBLIGATIONS
OF THE BORROWER UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

SECTION 7.13.  Survival of Agreement.  All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lender and shall survive the making by the Lender
of the Loan, regardless of any investigation made by the Lender or on its
behalf, and shall continue in full force and effect so long as the principal of
or any accrued interest on the Loan or any fee or any other amount payable under
this Agreement or any other Loan Document is outstanding and unpaid or the
Commitment has not been terminated.  The provisions of Section 7.05 hereof shall
remain operative and in full force and effect regardless of the expiration of
the term of this Agreement or any other Loan Document, the consummation of the
transactions contemplated hereby, the repayment of the Loan, the expiration of
the Commitment, the invalidity or unenforceability of any term or provision of
this Agreement or any other Loan Document, or any investigation made by or on
behalf of the Lender.
 
 
 
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SECTION 7.14.  No Third Party Beneficiaries.  No Person, other than the parties
(and, in the case of the Lender, its successors and assigns hereunder) to this
Agreement, has been given or shall be deemed to have been given any rights as a
third party beneficiary hereunder or under any of the other Loan Documents or
other instruments and documents executed in connection herewith and therewith.

SECTION 7.15.  Integration.  This Agreement and the other Loan Documents
represent the entire agreement of the Borrower and the Lender with respect to
the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Lender relative to the subject matter
thereof not expressly set forth or referred to herein or in the other Loan
Documents.

SECTION 7.16.  Acknowledgments.  The Borrower hereby acknowledges that:

(a)           the Borrower has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents; and

(b)           no joint venture exists between the Lender and the Borrower.

SECTION 7.17.  Waiver of Trial by Jury.  THE BORROWER AND THE LENDER HEREBY
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT.

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

BORROWER:
 
ECO BUILDING PRODUCTS, INC.
 
 
By: /s/ Steve Conboy
Name: Steve Conboy
Title: President & CEO
LENDER:
 
REDWOOD MANAGEMENT, LLC
 
 
By: __________________________
Name:
Title:

 
 
 
 
Lender bank account information:
 
 
 
EXHIBITS
Exhibit A – Security Agreement
Exhibit B – Promissory Note
Exhibit C – Convertible Promissory Note
 
 
 
 
 
 
 
 
 
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