Exhibit 10.2
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of August 11, 2020 by and
between ENERGY FOCUS, INC., a Delaware corporation (with tax identification
#94-3021850), its successors, assigns, and subsidiaries, now owned and in the
future (individually or collectively, “Borrower” or “Borrowers”), and Crossroads
Financial Group, LLC, a North Carolina limited liability company (“Lender”).
RECITALS
Borrowers have requested that Lender provide financial accommodations to
Borrowers as more fully set forth herein and in the Loan Documents.
NOW, THEREFORE, in consideration of the premises, and intending to be legally
bound hereby, the Parties hereby agree as follows:
AGREEMENT
1.Certain Definitions and Index to Definitions.
1.1Accounting Terms. Unless otherwise specified herein, all accounting terms
used herein shall be interpreted, all accounting determinations hereunder shall
be made, and all financial statements required to be delivered hereunder shall
be prepared in accordance with GAAP consistently applied.
1.2Definitions. All other terms contained in this Agreement that are not
specifically defined herein shall have the meanings provided in the UCC to the
extent the same are used herein. All references herein to the singular or plural
shall also mean the plural or the singular, respectively. As used herein, the
following terms shall have the following meanings:
1.2.1“Acceptable Forum”- see Section 31 hereof.
1.2.3 “Additional Loan Fee”- see Section 3.6.6 hereof.
1.2.4“Assurances”- see Section 4.2 hereof.
1.2.5“Advances” - see Section 2.1.1 hereof. 
1.2.6“Agreement” - this Loan and Security Agreement, together with all exhibits
and schedules hereto, as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated, or replaced.
1.2.7“Allowable Amount” - the lesser of (i) the Borrowing Base less the
Availability Reserves and (ii) the Maximum Amount.
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1.2.8“Availability Reserves” - as of any date of determination, such amounts as
Lender may from time to time reasonably establish and revise reducing the amount
of Advances which would otherwise be available to Borrowers hereunder:
a.To reflect events, conditions, contingencies or risks which, as determined by
Lender, which may affect either (i) the Collateral or any other property which
is security for the Obligations or its value, (ii) the assets, business or
prospects of Borrowers or any Obligor, or (iii) the security interest and other
rights of Lender in the Collateral (including the enforceability, perfection and
priority thereof);
b.In the amount of any Third Party Claim, until such time as Lender has
determined in good faith that the Third Party Claim is unlikely to be asserted;
c.To reflect Lender's belief that any collateral report or financial information
furnished by or on behalf of Borrowers or any Obligor to Lender is or may have
been incomplete, inaccurate or misleading in any material respect; or
d.In respect of any state of facts that Lender determined constitutes an Event
of Default or may, with notice or passage of time or both, constitute an Event
of Default
1.2.9“Average Unused Portion of the Maximum Amount” - the Maximum Amount less:
(a) the average Advances outstanding during the immediately preceding month; and
(b) the Availability Reserves.
1.2.10“Avoidance Claim” - any claim that any payment received by Lender from or
for the account of Borrowers or on account of any Collateral is avoidable under
the United States Bankruptcy Code or any other state or federal debtor relief
statute.
1.2.11“Borrowers” - see Preamble hereof.
1.2.12“Borrowing Base” – the lower of the following, when applied to Eligible
Inventory plus Eligible In-Transit Inventory, by Category:
a.75% of Inventory Cost; or
b.85% of Net Orderly Liquidation Value.
1.2.13“Borrowing Base Certificate” - a request for an Advance, in a form
acceptable to Lender, which form may be electronic or hard copy.
1.2.14“Business Day” - any day which is not a Saturday, Sunday, or other day on
which national banks are authorized or required to be closed.
1.2.15“Calculation Date” means, with respect to each Calculation Period, the
Monday immediately following the end of such Calculation Period (or the next
Business Day if such Monday is not a Business Day)
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1.2.16“Calculation Period” means each 7-day period ending on the Friday of each
calendar week.
1.2.17 “Category” – The Inventory categories as defined by Lender on the
Borrowing Base Certificate, including Finished Goods, In-Transit Inventory, and
Ineligible Inventory, Work in Process, and any new Inventory category added by
Lender following a third party appraisal.
1.2.18“Change in Law” - Any change in federal, state, local, or foreign
applicable statutes, rules, regulations, and orders occurs that would reasonably
be expected to prevent the sale or other transfer of Borrowers’ Inventory within
any or all states of the United States.
1.2.19“Chosen State” – New York.
1.2.20“Clearance Days” – Two Business Days for wires and ACH receipts and Five
Business Days for check receipts.
1.2.21“Clearance Day Payments” - payments received by Lender, in whatever form
and from whatever source in reduction of the Obligations.
1.2.23“Collateral” - All Borrowers’ present and future Assets, Accounts, Chattel
Paper, Goods (including Inventory and Equipment), Instruments, Investment
Property, Documents, and General Intangibles, Letter of Credit Rights,
Commercial Tort Claims, Deposit Accounts, and the proceeds thereof.
1.2.23“Collateral Computer Fee” - $200 per month of the Loan Account balance to
compensate Lender for the cost of monitoring the Collateral.
1.2.24“Complete Termination” - Complete Termination occurs upon satisfaction of
the following conditions:
a.Payment in full of all Obligations;
b.If Lender has issued or caused to be issued guarantees, commitments to third
parties or letters of credit on behalf of Borrowers, acknowledgement from any
beneficiaries thereof that Lender or any other issuer has no outstanding direct
or contingent liability therein.
c.Borrowers has executed and delivered to Lender a payoff letter, in form and
substance acceptable to Lender.
1.2.25“Contractual Termination Date” - The end of the Initial Term or any
Renewal Term, as the case may be.
1.2.26 “Credit Accommodation” - any Advance or other extension of credit by
Lender to or on behalf of Borrowers hereunder.
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1.2.27 “Default Interest Rate Spread” - 1% per month.
1.2.28“Default Rate”- the Interest Rate plus the Default Interest Rate Spread.
1.2.29“Default Waiver Fee” - $250.00
1.2.30“Depository Account” - see Section 3.4.2 hereof
1.2.31“Early Termination Date” - the date on which an Early Termination Event
occurs.
1.2.32“Early Termination Event” - the occurrence of any of the following:
a.The effective date of termination of this Agreement by Borrowers set forth in
the notice of termination;
b.Borrowers becomes a debtor in a case filed under the United States Bankruptcy
Code or any similar state proceeding;
c.Borrowers is required to repay the Obligations in full (whether by
acceleration or otherwise) prior to the next Contractual Termination Date as a
result of Lender’s exercise of remedies pursuant to Section 13.1.
1.2.33“Early Termination Fee” – In the event of an Early Termination Event,
Borrower shall pay Lender, if this Agreement is terminated (i) prior to the
first annual anniversary of the date hereof, an Early Termination Fee in an
amount equal to four percent (4%) of the Maximum Amount, (ii) on or after the
first annual anniversary of the date hereof, but prior to the second annual
anniversary of the date hereof, an Early Termination Fee in an amount equal to
two and a half percent (2.5%) of the Maximum Amount, and (iii) on after the
second annual anniversary of the date hereof, no Early Termination Fee shall be
payable. The Early Termination Fee shall be in addition to any other fees due to
Lender hereunder. Notwithstanding the foregoing, if the Borrower pays, in full,
all Obligations from the proceeds received by Borrower from financing provided
by a nationally recognized bank (or, an asset based lending company that is an
affiliate of any nationally charted bank), the foregoing Early Termination Fee
shall be waived.
1.2.34“Eligible In-Transit Inventory” – as of any date of determination thereof,
without duplication of any Eligible Inventory, In Transit-Inventory:
a.Subject to Lender’s first priority, perfected security interest;
b.For which the purchase order is in the name of Borrowers and title has passed
to Borrowers;
c.Which has been delivered to a carrier in a foreign port or foreign airport for
receipt by Borrowers in the United States or which has been delivered to a
carrier in
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the United States for receipt by Borrowers in the United States within 5
Business Days of the date of release by U.S. Customs, but which has not yet been
received by Borrowers;
d.Which has been in transit for 60 days or less from the date of shipment of
such Inventory;
e.Which is insured in accordance with the provisions of this Agreement,
including cargo insurance; and
f.Which is otherwise acceptable to Lender in its Permitted Discretion;
provided that the Lender may, in its Permitted Discretion, exclude any
particular Inventory from the definition of “Eligible In-Transit Inventory” in
the event the Lender determines that such Inventory is subject to any Person’s
right or claim which is (or is capable of being) senior to, or pari passu with,
the lien of the Lender (such as, without limitation, a right of stoppage in
transit) or may otherwise adversely impact the ability of the Lender to realize
upon such Inventory.
1.2.35“Eligible Inventory” - Inventory (including (i) raw material used or
consumed by Borrowers in the ordinary course of business in the manufacture or
production of other Inventory, (ii) Work in Process, and Finished Goods) of
Borrowers which is:
a.Subject to Lender’s first priority, perfected security interest;
b.In Borrowers’ possession and control and situated at a location in compliance
with this Agreement;
c.Valued at the lower of cost or market, and
d.Otherwise acceptable to Lender in its Permitted Discretion.
1.2.36“Event of Default” - see Section 12 hereof.
1.2.37“Finished Goods” – Inventory that is ready for shipment to Borrowers’
customers.
1.2.38“GAAP” - means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and pronouncements of the Financial
Accounting Standards Board (or any successor authority) that are applicable as
of the date of determination.
1.2.39“Gross Margin Percent” - The gross margin of Borrowers’ Inventory, as
reported by Borrowers on a Borrowing Base Certificate and determined in
accordance with GAAP.
1.2.40“In-Transit Inventory” –Inventory owned by Borrowers that is in transit to
Borrowers or an agent or contractor of or for Borrowers.
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1.2.41“Ineligible Inventory” – Inventory of Borrowers that is not Eligible
Inventory or Eligible In-Transit Inventory.
1.2.42“Initial Term” - 2 years from the date hereof.
1.2.43“Intercreditor Agreement” – means, collectively, (a) that certain
Intercreditor Agreement, dated August 11, 2020, by and among Lender, Borrower
and Receivables Lender and (b) in the event any entity other than Factors
Southwest, L.L.C. is the Receivables Lender, an agreement executed by Lender,
such other entity and Borrower , with terms and conditions substantially similar
to, and no less favorable to Lender than, those set forth in such intercreditor
agreement with Factors Southwest, L.L.C.
1.2.44“Interest Rate” – a per annum rate equal to the greater of (i) the Three
(3) Month Libor rate plus 4% or (ii) 5.75%.
1.2.45“Inventory Cost” - As determined by Lender, the lesser of (a) cost of
Eligible Inventory or Eligible In-Transit Inventory, as applicable, computed in
accordance with GAAP, or (b) the market value of Eligible Inventory or Eligible
In-Transit Inventory, as applicable, as established by a third party valuation
firm acceptable to Lender.
1.2.46“Inventory Reserve” – has the meaning ascribed to such term in the
Intercreditor Agreement. The Inventory Reserve shall be determined in accordance
with, and subject to the terms and conditions of, the Intercreditor Agreement.
1.2.47“Key Employees” – Tod Andrew Nestor and James Tu.
1.2.48“Late Fee”- means 5% of the amount of any scheduled payment of principal,
fees, interest or any other amount due hereunder.
1.2.49“Loan Account” - that portion of the Obligations which accrue interest
hereunder, including the sum of the unpaid balances of:
a.Advances;
b.Other payments made by Lender arising hereunder for which Borrowers is liable
to Lender;
c.Unpaid fees, interest or expenses due hereunder.
1.2.50 “Loan Documents” - this Agreement, together with any documents,
instruments and agreements, executed and/or delivered in connection herewith, as
the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.2.51“Loan Fee” - The Loan Fee Percent multiplied by the Maximum Amount at the
time this fee is earned.
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1.2.52“Loan Fee Percent”- 2% annually.
1.2.53“Maturity Fee” - means 5% of the amount of Obligations which remain unpaid
and outstanding after the Termination Date.
1.2.54“Maximum Amount” - $3,000,000
1.2.55“Merchant Processor” - any entity contracted by Borrower to process credit
card sales, debit cards sales or other electronic payment of Borrower.
1.2.56 “Minimum Advance Amount” - $10,000. 
1.2.57“Minimum Monthly Fee” –$18,490.
1.2.58“Net Orderly Liquidation Value” - The value of Eligible Inventory or
Eligible In-Transit Inventory, as applicable, as determined by Lender in the
exercise of its reasonable sole discretion, which could be obtained upon
liquidation under distress conditions.
1.2.59“Obligor” - the Borrower.
1.2.60“Obligations” - all present and future obligations owing by Borrowers to
Lender whether arising hereunder or otherwise and whether arising before, during
or after the commencement of any bankruptcy case in which Borrowers is a Debtor.
1.2.61“Over Advance Fee” - a fee of 0.25% of the amount by which the Obligations
exceed the Allowable Amount for each day that the Obligations exceed the
Allowable Amount, with a minimum Over Advance Fee of $25.00 per day.
1.2.62“Parties” - Borrowers and Lender.
1.2.63“Permitted Discretion” – A determination made in good faith and in the
exercise of what the Lender believes is reasonable business judgment from the
perspective of an asset based lender.
1.2.64“Receivables Lender” – Factors Southwest, L.L.C. and any successor entity
that agrees, pursuant to a factoring agreement or otherwise, to purchase the
Accounts of Borrowers or lend against Borrower’s Accounts, in each case, so long
as such successor entity executes and delivers to Lender an Intercreditor
Agreement.
1.2.65“Receivables Loan Documents” - All accounts receivable financing
agreements and related documents executed by Borrower and Receivables Lender.
1.2.66“Renewal Term” - one year
1.2.67“Service Fee” – 1% per month of the average daily Loan Account balance of
outstanding Advances.
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1.2.68 “Subordinating Creditor” - any creditor of the Borrowers which has
executed a Subordination Agreement.
1.2.69“Subordination Agreement” - a subordination agreement in form and
substance acceptable to Lender whereby a Subordinating Creditor subordinates, in
favor of Lender, obligations owed to it by Borrowers.
1.2.70“Termination Date” - the earlier of (i) the Contractual Termination Date
or (ii) the date on which the Loan Account is to be paid in full pursuant to the
terms of Section 3.2 herein, or (iii) the Early Termination Date.
1.2.71“Third Party Claim” - claims asserted against Lender by any person or
entity relating in any way to the Lender’s relationship with Borrowers.
1.2.72“Three (3) Month Libor” – the daily three (3) month LIBOR rate in effect
as of the last business day of the immediately preceding month.
1.2.73“UCC” - The Uniform Commercial Code in effect in the Chosen State at the
date on which a determination thereunder is to be made.
1.2.74“Unused Line Fee” - one percent per annum of the Average Unused Portion of
the Maximum Amount.
1.2.75“Work In Process” – Borrowers’ partially finished Inventory.
2.Credit Facilities.
2.1Advances. Subject to the terms and conditions of this Agreement, from the
date on which this Agreement becomes effective until the Termination Date:
2.1.1Lender, may, from time to time in its Permitted Discretion, make advances
(“Advances”) to Borrower, at Borrower’s request, so long as, before and after
such Advance, the Obligations do not exceed the Allowable Amount. The fact that
the Borrower is bound to various covenants herein, the breach of which may allow
Lender to accelerate the due date of Borrower's Obligations hereunder, shall not
be construed to constitute a commitment by Lender to make any Advances
hereunder, all of which are in the Permitted Discretion of Lender; provided that
if Lender makes a demand for repayment of the Obligations, the Lender will
continue to advance Loans (absent an Event of Default and so long as the
Obligations do not exceed the Allowable Amount) for the ninety (90) calendar
period until the Obligations become due. Notwithstanding anything to the
contrary contained herein, Lender will not make any Advance to Borrower in an
amount less than the Minimum Advance Amount.
2.1.2Lender may, in its Permitted Discretion, from time to time, upon not less
than five days prior notice to Borrowers, reduce the amount available under the
Borrowing Base to the extent that Lender determines that the number of days of
the turnover of the Inventory for any period has changed in any material
respect, or the nature and quality of the Inventory has deteriorated.
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2.2General Provisions.
2.2.1Borrowing Base Certificate. Each request from Borrowers for a Credit
Accommodation, but no less than once per week, shall be accompanied by a
Borrowing Base Certificate, completed and signed by Borrowers. Such Borrowing
Base Certificate may be in either electronic or hard copy form, as acceptable to
Lender. The Borrowing Base Certificate shall at all times be a bona fide and
accurate representation of the Collateral and Advances and comply with the
representations and warranties herein.
2.2.2Crediting Borrowers’ Account. All Credit Accommodations by Lender may be
made by deposits or transfers to any demand deposit account of Borrowers.
2.2.3Authorization for Credit Accommodations. Subject to the terms and
conditions of this Agreement, Lender is authorized to make Credit
Accommodations:
a.Upon telephonic, facsimile, electronic or other instructions received from
anyone purporting to be an officer, employee or representative of Borrowers; or
b.At the sole discretion of Lender, and notwithstanding any other provision in
this Agreement, if necessary to meet any Obligations, including but not limited
to any interest not paid when due.
3.Payments by Borrowers.
3.1In General
3.1.1Place of Payments. All payments hereunder shall be made by Borrowers to
Lender at Lender’s address set forth herein or at such other place as Lender may
designate in writing.
3.1.2ACH Debits. In order to satisfy any of the Obligations, Lender is hereby
authorized by Borrowers to initiate electronic debit entries through the ACH or
other electronic payment system to any account maintained by Borrowers. Upon
Lender's request at any time, Borrowers shall execute and deliver to Lender an
authorization agreement for ACH debits.
3.1.3Borrowers irrevocably waives the right to direct the application of any and
all payments received at any time by Lender from or on behalf of Borrowers and
specifically waives any right to designate application of payments. However,
Borrowers irrevocably agrees that Lender shall have the exclusive right to
determine the order and method of the application of payments against the then
due and payable Obligations of Borrowers in Lender's sole discretion and to
revise such application prospectively or retroactively in Lender's sole
discretion.
3.2Demand Obligation. Notwithstanding anything to the contrary contained herein,
and notwithstanding that this Agreement contains covenants, conditions and
Events of Default, Borrowers shall pay to Lender, within ninety (90) calendar
days of demand, the Loan Account balance. It is understood and agreed that such
ninety (90) calendar day period shall not apply to demand or acceleration by
reason of an Event of Default.
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3.3Maximum Interest Rate. Notwithstanding anything to the contrary contained in
any Loan Document, the interest paid or agreed to be paid under the Loan
Documents shall not exceed the maximum rate permitted by applicable law
(“Maximum Rate”). If Lender shall receive interest in an amount that exceeds the
Maximum Rate, the excess interest shall be applied to the principal of the loans
hereunder or, if it exceeds such unpaid principal, refunded to Borrowers. In
determining whether the interest contracted for, charged, or received by Lender
exceeds the Maximum Rate, Lender may, to the extent permitted by applicable law,
(a) characterize any payment that is not principal as an expense, fee, or
premium rather than interest, (b) exclude voluntary prepayments and the effects
thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal
parts the total amount of interest throughout the contemplated term of the
Obligations hereunder.
3.4Merchant Processors; Inventory Reserve.
3.4.1The Borrower shall not engage a Merchant Processor without the prior
written consent of Lender and any such Merchant Processor must be subject to a
tri-party agreement acceptable to Lender.
3.4.2On each Calculation Date, the Lender shall determine whether there is an
Inventory Reserve for the Calculation Period (provided that if Friday is not a
Business Day then the Calculation Period shall be determined from an Inventory
Borrowing Base as of the preceding Business Day) and, if so, provide notice to
the Receivables Lender (with a copy to the Borrower) to pay the Inventory
Reserve in accordance with the Intercreditor Agreement.
3.5Interest.
3.5.1Subject to Section 3.5.2 hereof, interest on the Loan Account balance shall
be payable monthly, in arrears, shall be computed at the Interest Rate computed
on the basis of a 360 day year, and shall be due and payable on the first day of
each month following the prior calendar month.
3.5.2Default Interest. Immediately upon the occurrence of an Event of Default,
the interest rates otherwise applicable shall be increased to the Default Rate.
3.6Fees.
3.6.1Field Exam Fee. Borrowers shall immediately pay to Lender, Lender’s
reasonable out-of-pocket expenses in connection with each audit Lender performs
or causes to be performed hereunder.
3.6.2Collateral Oversight Fee. [Intentionally deleted.]
3.6.3Default Waiver Fee. Borrowers shall pay the Default Waiver Fee to Lender,
immediately upon the waiver by Lender of any Event of Default hereunder and when
the Borrower is not being cooperative with the Lender.
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3.6.4Early Termination Fee. Borrowers shall pay to Lender the Early Termination
Fee immediately upon the occurrence of an Early Termination Event. In addition,
in the event that payment of the Obligations shall be accelerated for any reason
whatsoever by Lender, the Early Termination Fee in effect as of the date of such
acceleration shall be charged to Borrower on such date and such Early
Termination Fee shall also be added to the outstanding balance of the
Obligations in determining the payoff amount or the debt for the purposes of
any judgment of foreclosure of any loan documents given to secure the
Obligations.
3.6.5Loan Fee. On the date hereof and upon each annual anniversary of the date
hereof until Complete Termination has occurred, Borrower shall pay to Lender the
Loan Fee. Each such Loan Fee shall be fully earned when due in accordance with
the preceding sentence and shall be nonrefundable. All Loan Fees otherwise
payable for the Initial Term shall be accelerated and immediately due and
payable upon the occurrence of an Event of Default or upon termination of this
Agreement by Borrower.
3.6.6Additional Loan Fee. Immediately upon any increase in the Maximum Amount,
Borrowers shall pay to Lender a fee computed as the product of the Loan Fee
Percent and the amount of the increase in the Maximum Amount.
3.6.7Minimum Monthly Fee. Borrowers shall pay to Lender any amount by which the
sum of the interest and Service Fee earned in any month (prorated for partial
months) is less than the Minimum Monthly Fee, on the first day of the following
month.
3.6.8Attorneys’ Fees. Borrowers shall pay to Lender all reasonable attorneys’
fees and costs incurred in preparation of this Agreement and related documents.
All such legal fees shall be based upon the usual and customary rates for
services actually rendered and not upon any fixed percentage of the outstanding
balance hereunder.
3.6.9Standard Fees. Borrowers shall pay to Lender wire fees, search fees, and
any other out of pocket direct expenses including but not limited to legal fees,
appraisals, and other reasonable costs and expenses paid to preserve collateral.
Lender shall have the right to charge all or any of such fees upon ten days’
notice to Borrower.
3.6.10Late Fee. Borrowers shall pay to Lender the Late Fee for each payment of
principal, fees or interest or any other amount due hereunder which is not paid
within five days of its due date (or any check that does not clear), to cover
the extra expense involved in handling delinquent payments, provided that
collection of said Late Fee shall not be deemed a waiver by Lender of any of its
other rights under this Agreement or any other instrument given to secure this
indebtedness. The Borrowers and Lender hereby agree that said fee is a fair and
reasonable charge for the late payment and shall not be deemed a penalty.
Additionally, Lender may exercise any and all other rights and remedies Lender
has as outlined herein or in the other loan documents that secure the loan
described herein.
3.6.11Maturity Fee. Borrowers shall pay to Lender the Maturity Fee on the first
day of each month in the event that any Obligations remain outstanding after the
Termination
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Date, to cover the extra expense involved in handling a matured loan, provided
that collection of said Maturity Fee shall not be deemed a waiver by Lender of
any of its other rights under this Agreement or any other instrument given to
secure this indebtedness. The Borrowers and Lender hereby agree that said fee is
a fair and reasonable charge for the failure to repay the Obligations on the
Termination Date and shall not be deemed a penalty. Additionally, Lender may
exercise any and all other rights and remedies Lender has as outlined herein or
in the other loan documents that secure the loan described herein. The Maturity
Fee shall be in addition to all other fees due to the Lender.
3.6.12Over Advance Fee. In the event that the Borrowers intentionally request a
loan in excess of the then applicable Borrowing Base, Borrowers shall pay to
Lender the Over Advance Fee for each day that the Obligations exceed the
Allowable Amount.
3.6.13[Intentionally Deleted.].
3.6.14Application of Collections. Lender shall, for the purpose of the
computation of interest and the Service Fee due hereunder, add the Clearance
Days to any Clearance Day Payments, which is acknowledged by the Parties to
constitute an integral aspect of the pricing of Lender's facility to Borrowers,
and shall apply irrespective of the characterization of whether receipts are
owned by Borrowers or Lender. Should any check or item of payment not be honored
when presented for payment, then Borrowers shall be deemed not to have made such
payment, and interest shall be recalculated accordingly.
3.6.15 Unused Line Fee. Borrower shall pay the Unused Line Fee to Lender on the
first day of each month during the term of this Agreement, based upon the prior
month.
3.6.16 Service Fee. Borrower shall pay the Service Fee to Lender monthly,
prorated for partial months, in arrears, on the first day of each month
following the accrual thereof.
3.6.17 Loan Account Fee. Lender is authorized to debit the Loan Account for
interest, fees, and other chargers due Lender hereunder as and when due.
4.Indemnification Protection.
4.1Notwithstanding payment in full of the Obligations and termination of this
Agreement, in the event that (i) a Third Party Claim has been asserted against
Lender, or (ii) Lender reasonably believes in good faith that a Third Party
Claim may be asserted against Lender, Lender may retain its security interest or
any funds of Borrowers in the amount of the Third Party Claim together with
Lender’s good faith estimate of its costs to be incurred in the defense thereof,
until such time as the Third Party Claim is withdrawn or satisfied, unless
Lender receives Assurances (as defined below) regarding its exposure to the
Third Party Claim.
4.2For the purposes hereof, “Assurances” shall mean additional collateral, a
guaranty, an indemnity or a letter of credit from an entity so that Lender
reasonably believes in good faith that the likelihood of loss resulting from the
Third Party Claim is remote.
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5.Grant of Security Interest.
5.1To secure the performance of the Obligations, Borrowers grants to the Lender
a security interest in the Collateral, and all proceeds and products thereof.
6.Authorization to File Financing Statements.
6.1The Borrowers irrevocably authorizes the Lender to file in any Uniform
Commercial Code jurisdiction any initial financing statements and amendments
thereto that:
6.1.1Indicate the Collateral as all assets of the Borrowers or words of similar
effect, regardless of whether any particular asset comprised in the Collateral
falls within the scope of Article 9 of the UCC, or as being of an equal or
lesser scope or with greater detail;
6.1.2Contain any other information required by part 5 of Article 9 of the UCC
for the sufficiency or filing office acceptance of any financing statement or
amendment, including (i) whether the Borrowers is an organization, the type of
organization, and any organization identification number issued to the Borrowers
and, (ii) in the case of a financing statement filed as a fixture filing or
indicating Collateral to be as-extracted collateral or timber to be cut, a
sufficient description of real property to which the Collateral relates;
6.1.3Contain a notification that the Borrowers have granted a negative pledge to
the Lender, and that any subsequent lien holder may be tortuously interfering
with Lender’s rights;
6.1.4 Advises third parties that any notification of Borrowers’ Account Debtors
will interfere with Lender’s collection rights.
6.2The Borrower agrees to furnish any of the foregoing information to the Lender
promptly upon request;
6.2.1The Borrower ratifies its authorization for the Lender to have filed any
like initial financing statements or amendments thereto if filed prior to the
date hereof; and
6.2.2The Lender may add any supplemental language to any such financing
statement as Lender may determine to be necessary or helpful in acquiring or
preserving rights against third parties.
7.Representations and Warranties by Borrowers.
7.1There are no actions or proceedings pending by or against Borrower or its
officers and Guarantors before any court or administrative or regulatory agency
and Borrower does not have knowledge or belief of any pending, threatened, or
imminent litigation, governmental investigations, or claims, complaints,
actions, or prosecutions involving Borrower, officer or any Guarantor of the
Obligations, except for ongoing collection matters in which Borrower is the
plaintiff.
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7.2All financial statements relating to Borrower that have been delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
Borrower’s financial condition as of the date thereof and Borrower’s results of
operations for the period then ended. There has not been a material adverse
change in the financial condition of Borrower since the date of the latest
financial statements submitted to Lender.
7.3Borrower agrees to maintain accurate books and records and its records
pertaining to the Collateral in accordance with GAAP subject to year-end
footnotes and adjustments as required by Borrower’s independent accountants.
7.4Borrower certifies that, to the best of Borrower’s knowledge, Borrower has
not been designated, and is not owned or controlled, by a “suspected terrorist”
as defined in Executive Order 13224. Borrower hereby acknowledges that Lender
seeks to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, Borrower hereby represents,
warrants and agrees that: (i) none of the cash or property that Borrower will
pay or will contribute to Lender has been or shall be derived from, or related
to, any activity that is deemed criminal under United States law; and (ii) no
contribution or payment by Borrower to Lender, to the extent that they are
within Borrower’s control shall cause Lender to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. Borrower shall promptly
notify Lender if any of these representations ceases to be true and accurate.
Borrower shall provide Lender any additional information regarding Borrower that
Lender deem necessary or convenient to ensure compliance with all applicable
laws concerning money laundering and similar activities. Borrower understands
and agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering similar activities, Lender may undertake
appropriate actions to ensure compliance with applicable law or regulation,
including but not limited to segregation and/or redemption of Lender’s
investment in Borrower. Borrower further understands that Lender may release
confidential information about Borrower and, if applicable, any underlying
beneficial owners, to proper authorities if Lender, in its sole discretion,
determines that it is in the best interests of Lender in light of relevant rules
and regulations under the laws set forth in subsection (ii) above.
7.5Borrower is a corporation, validly formed, existing in the State of Delaware,
and is in good standing under the laws of the State of Delaware and is properly
licensed and authorized to operate its business in any other jurisdiction in
which it conducts business except where the failure to so register or be
licensed shall not be likely to cause a material adverse change to the Borrower.
Borrower’s organizational identification number assigned by the above state is
4290895. Borrower’s taxpayer identification number for Federal Income Tax
purposes is 94-3021850. The undersigned signatory on behalf of Borrower
represents that he or she has full power and authority to execute this Agreement
and bind Borrower hereto. The execution, delivery, and performance by Borrowers
of this Agreement and all agreements and documents described herein does not
constitute a violation of any law, regulation, judgment, order, contract,
charter, by-laws, or other instrument to which Borrowers is a party or is
otherwise bound or subject.
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7.6The execution, delivery and performance by Borrower of this Agreement and all
agreements and documents described herein does not constitute a violation of any
law, regulation, judgment, order, contract, charter, by-laws, or other
instrument to which Borrower is a party or is otherwise bound or subject.
7.7Borrower is not in default under any loan agreement, mortgage, lease, trust
deed, or similar agreement relating to the borrowing of money to which Borrower
is a party or is otherwise bound.
7.8Borrower and Guarantor(s) are neither party to any lawsuit, administrative
proceedings, arbitration proceeding, or other adversarial proceeding, nor are
they involved in any way in any pending or threatened investigations or
proceedings.
7.9To the best of Borrower’s knowledge, each customer of Borrower is solvent and
Borrower has provided to Lender all documents and information available to
Borrower concerning the business and creditworthiness of each such customer.
7.10Borrower has entered into the Receivables Loan Documents, a copy of which
has been provided to Lender. The Receivables Loan Documents are in full force
and effect and no default exists or is threatened with respect thereto. All
payments due to Borrower under the Receivables Loan Documents have been duly and
validly assigned by Borrower to Lender subject to the Intercreditor Agreement.
7.11Each and every document, statement, record, book, account, and invoice, and
all information, whether financial or otherwise, provided to Lender by Borrower,
whether heretofore or hereinafter, shall be true, accurate and correct in all
material respects.
7.12Borrower has not transferred, pledged or granted a security interest in its
assets, or any of them, which Borrower has not fully disclosed in writing to
Lender, prior to the date hereof, except as set forth on Exhibit 7.12.
7.13Borrower shall notify Lender immediately upon becoming aware of any issue
that may materially affect the value or condition of its Inventory.
7.14Borrower’s Inventory is:
7.14.1owned by the Borrower free and clear of all encumbrances, except for
encumbrances listed on Exhibit 7.12 attached hereto and is subject to either a
subordination or another intercreditor agreement acceptable to Lender;
7.14.2except with respect to In-Transit Inventory, at all times at a location
under the control of the Borrower and such location(s) shall have been disclosed
to the Lender in writing prior to the date hereof;
7.14.3reported to Lender at the lower of cost or market value including reserves
for obsolescence or slow moving Inventory as would otherwise be required under
GAAP;
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7.14.4in salable condition as is and ready for shipment; and
7.14.5not subject to any license agreement except as disclosed to Lender in
writing.
8.Authorization to Lender.
8.1The Borrower irrevocably authorizes Lender to take any and all appropriate
action and to execute any and all documents and instruments, in the name of
Borrower, that may be necessary or desirable to accomplish the purposes of this
Agreement including the filing on behalf of Borrower:
a.With such governmental authorities as are appropriate such documents
(including, without limitation, applications, certificates, and tax returns) as
may be required for purposes of having Borrower qualified to transact business
in a particular state or geographic location.
b.Any Correction Statement under Section 9-518 of the Uniform Commercial Code
that Lender reasonably deems necessary to preserve its rights hereunder.
c.With any third party whose premises is used to store Client Inventory.
8.2Lender may notify Borrower’s customers that the underlying Account has been
assigned to Lender and that payment thereof is to be made to the order of Lender
and sent directly to Lender. Such notification may be in the form that is
annexed hereto as Exhibit 8.2.
8.3Borrower authorizes Lender to accept, endorse and deposit on behalf of
Borrower any checks tendered by an account debtor “in full payment” of its
obligation to Borrower. Borrower shall not assert against Lender any claim
arising therefrom, irrespective of whether such action by Lender effects an
accord and satisfaction of Borrowers’ claims, under §3-311 of the UCC, or
otherwise.
9.Power of Attorney.
9.1Borrower irrevocably appoints Lender, or any person(s) designated by Lender,
as its attorney-in-fact, which appointment is coupled with an interest and shall
remain in full force and effect until all Obligations of Borrower to Lender have
been fully satisfied and discharged, with full power, at Borrowers’ sole
expense, to exercise at any time in Lender’s discretion all or any of the
following powers:
9.1.1Subject to the Intercreditor Agreement, receive, take, endorse, assign,
deliver, accept and deposit, in the name of Lender or Borrower, any and all
cash, checks, commercial paper, drafts, remittances and other instruments and
documents relating to the Collateral or the proceeds thereof in the ordinary
course of business (or, upon the occurrence of an Event of Default, in
connection with the exercise of Lender’s rights and remedies);
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9.1.2Subject to the Intercreditor Agreement, change Borrower’s address on all
invoices and statements of Account mailed or to be mailed to Borrower’s
customers and to substitute thereon the designated address;
9.1.3Upon the occurrence of an Event of Default, and subject to the
Intercreditor Agreement, receive and open all mail addressed to Borrower, or to
Borrower’s trade name at Lender’s address, or any other designated address;
9.1.4 Upon the occurrence of an Event of Default, take or bring, in the name of
Lender or Borrower, all steps, actions, suits, or proceedings deemed by Lender
necessary or desirable to effect collection of other realization upon the
Collateral as permitted by the Intercreditor Agreement;
9.1.5Upon the occurrence of an Event of Default, and subject to the
Intercreditor Agreement, create a “doing business as” entity (a “d/b/a”) with a
name similar to Borrower and open any deposit accounts under such name;
9.1.6Execute on behalf of Borrower any UCC-l and/or UCC-3 Financing Statement(s)
and/or any notices or other documents necessary or desirable to carry out the
purpose and intent of this Agreement, and to do any and all things reasonably
necessary and proper to carry out the purpose and intent of this Agreement;
9.1.7Upon the occurrence of an Event of Default, and subject to the
Intercreditor Agreement, change the address for delivery of Borrower’s mail to
Lender and to receive and open mail addressed to Borrower:
9.1.8Upon the occurrence of an Event of Default, endorse and take any action
with respect to bills of lading covering any Inventory;
9.1.9Upon the occurrence of an Event of Default, and subject to the
Intercreditor Agreement, prepare and deliver invoices to Borrower’s customers,
in the name of Lender or Borrower;
9.1.10Execute, file and serve, in its own name or in the name of Borrower,
mechanics lien or similar notices, or claims under any payment or performance
bond for the benefit of Borrower; and
9.1.11Upon the occurrence of an Event of Default or if Borrower fails to do so
within three (3) days from demand by Lender therefor, pay any sums necessary to
discharge any lien or encumbrance which is senior to Lender’s security interest
in the Collateral, which sums shall be included as Obligations hereunder, and
which sums shall accrue interest at the Default Rate until paid in full.
9.2Release. Borrower hereby release and exculpate Lender, its officers,
employees, agents, designees, attorneys, and accountants from any liability from
any acts under this Agreement or in furtherance thereof, whether of omission or
commission, and whether based
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upon any error of judgment or mistake of law or fact, except for gross
negligence or willful misconduct. In no event shall Lender have any liability to
Borrowers for lost profits or other special or consequential damages.
10.Affirmative Covenants.
10.1Until full payment of the Obligations and termination of this Agreement,
Borrower shall:
10.1.1At such times as Lender may request and in the manner specified by Lender,
Borrower shall deliver to Lender original invoices, agreements, proof of
rendition of services and delivery of goods and other documents evidencing or
relating to the transactions which gave rise to any of the Collateral, together
with customer statements, schedules describing the Collateral and confirmatory
assignments to Lender thereof, in form and substance satisfactory to Lender, and
duly executed by Borrower.
10.1.2Borrower shall be obligated to (a) maintain its factoring relationship
with Receivables Lender at all times during the term this Agreement, (b) submit
all invoices issued for sales of Inventory to the Receivables Lender within
three (3) days of creation, and (c) remit the proceeds of all Accounts as well
as all other proceeds from the sale of Inventory to Receivables Lender, in each
case, subject to the Intercreditor Agreement. Borrower shall not in any way
interfere with the notification instructions provided by Receivables Lender to
its customers, and shall at all times be in full compliance with the terms of
the Receivables Loan Documents.
10.1.3Immediately advise Lender, in writing, of the assertion of any Third Party
Claim.
10.1.4Furnish to Lender, in form and substance reasonably satisfactory to
Lender:
a.Weekly, a report summarizing all Inventory, including a detailed synopsis and
description of the Inventory warehoused by Borrower at the time the report is
generated.
b.Weekly, a perpetual Inventory report summarizing all Inventory by location (if
more than one location is applicable), including a detailed synopsis and
description of the Inventory warehoused by Borrower at the time the report was
generated.
c.Upon request and delivered by email, copies of any reports provided by
Borrower to Receivables Lender or Receivables Lender to Borrower under the
Receivables Loan Documents and such other reporting regarding Accounts, as
Lender may request from time to time.
d.Upon request by Lender, a slow moving Inventory report or Inventory aging.
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e.Upon request by Lender, Inventory reports by SKU that show prior period
quantity and dollar value sales, selling price, and other information as may
reasonably be requested by Lender;
f.The earlier of 120 days or as soon as possible after the end of each fiscal
year of Borrower:
i. A complete copy of Borrower’s financial statements issued by a licensed
certified public accountant in good standing (or internally prepared), including
but not limited to (a) the management letter, if any, (b) the balance sheet as
of the close of the fiscal year, and (c) the income statement for such year,
together with a statement of cash flows, prepared by a Borrower;
ii.Upon request by Lender, a statement certified by the chief financial officer
of Borrower that Borrower is in material compliance with all the terms,
conditions, covenants and warranties of this Agreement;
iii.A physical count of all of Borrower’s Inventory taken by Borrower or other
third party acceptable to Lender.
g.Tax Returns. Copies of each Borrower’s
i.Federal income tax returns, and any amendments thereto, within ten days of the
filing thereof with the Internal Revenue Service;
ii.Federal payroll tax returns immediately upon request of Lender, together with
proof, satisfactory to Lender, that all taxes have been paid; and
iii.State sales tax report showing taxes due and paid for each state in which
Borrower conducts business, upon request of Lender, in a monthly spreadsheet
form that shows all amounts owing by Borrower.
h.Intentionally Deleted;
i.As soon as available but not later than 30 days before the end of each fiscal
year of Borrower, an annual operating budget (including monthly balance sheet,
statement of income and retained earnings, and statement of cash flows), for the
following fiscal year, along with a comparison to the prior year;
j.No later than 30 days after the close of each month (an “Accounting Period”):
i. Borrower’s balance sheet as of the close of such Accounting Period and its
income statement for such Accounting Period and year to date, in each case
setting forth in comparable form, as applicable, the figures for the
corresponding Accounting Period for the previous fiscal year, certified by
Borrower’s chief financial officer as being complete, correct, and fairly
representing its financial condition and results of operations.
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k.Inventory Reports. A listing of all Borrower's Inventory, based upon a
physical count taken by Borrower every three months or whenever requested by
Lender and a slow moving Inventory report or Inventory aging upon request by
Lender.
10.2Inspections.
10.2.1During usual business hours, permit Lender, without notice to Borrower,
after the occurrence of an Event of Default, and with five business days’ prior
notice absent an Event of Default, to periodically:
a.Have access to all premises where Collateral is located for the purposes of
inspecting (and removing, if after the occurrence of an Event of Default) any of
the Collateral,
b.To inspect, examine, audit, make copies of, and make extracts from Borrower’s
records as Lender may reasonably request,
c.To have a third party selected by Lender examine and inspect the Collateral,
at the sole cost of Borrower based upon prevailing market rates.
d.Without expense to Lender, Lender may use any of Borrower’s personnel,
equipment, including computer equipment, programs, printed output and computer
readable media, supplies and premises for the collection of accounts (so long as
there are no Receivables Lenders) and realization on other Collateral as Lender,
in its sole discretion, deems appropriate.
10.2.2Indemnification. Indemnify and save Lender harmless from any and all
liability with respect to any Third Party Claim, including the reasonable costs
incurred in the defense thereof.
10.2.3Enforcement of Judgments. Reimburse Lender for all costs and expenses,
including reasonable attorneys' fees, which Lender incurs in enforcing any
judgment rendered in connection with this Agreement. All such legal fees shall
be based upon the usual and customary rates for services actually rendered and
not upon any fixed percentage of the outstanding balance hereunder. This
provision is severable from all other provisions hereof and shall survive, and
not be deemed merged into, such judgment.
10.2.4Taxes and Expenses Regarding Borrower’s Assets.
10.2.5Make timely payment when due without extension of all taxes, assessments
or contributions required of Borrower. If Borrower fails to make any such
payment or deposit or furnish proof of such payment immediately upon Lender's
request, Lender may, in its sole discretion and without notice to Borrower:
a.Make payment of the same or any part thereof; or
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b.Set up such reserves against the Obligations as Lender deems necessary to
satisfy the liability therefore, or both.
10.2.6Lender may conclusively rely on statements of the amount owing or other
official statements issued by the appropriate governmental agency. Any payment
made by Lender shall constitute neither:
a.An agreement by Lender to make similar payments in the future; nor
b.A waiver by Lender of any default under the Loan Documents. Lender need not
inquire into, nor contest the validity of, any expense, tax, security interest,
encumbrance or lien, and the receipt of the usual official notice requiring the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
c. Give Lender written notice immediately upon forming an intention to change
its name, state of organization or form of business organization.
10.3Maintenance of Insurance.
10.3.1The Borrower will maintain with financially sound and reputable insurers,
insurance reasonably acceptable to Lender with respect to its properties and
business against such casualties and contingencies as shall be in accordance
with general practices of businesses engaged in similar activities in similar
geographic areas. Such insurance shall be in such minimum amounts, but no case
less than the Advances made by Lender, that the Borrowers will not be deemed a
co-insurer under applicable insurance laws, regulations, and policies and
otherwise shall be in such amounts, contain such terms, be in such forms and be
for such periods as may be reasonably satisfactory to the Lender. In addition,
all such insurance shall be payable to the Lender under a Lender Loss Payable
Endorsement. Without limiting the foregoing, the Borrowers will:
10.3.2Keep all of its physical property insured with casualty or physical hazard
insurance on an “all risks” basis, with broad form flood coverage and earthquake
coverage and electronic data processing coverage, with a full replacement cost
endorsement and an “agreed amount” clause in an amount equal to 100% of the full
replacement cost of such property;
10.3.3Maintain all such workers' compensation or similar insurance as may be
required by law; and
10.3.4Maintain, in amounts and with deductibles equal to those generally
maintained by businesses engaged in similar activities in similar geographic
areas, general public liability insurance against claims of bodily injury,
death, or property damage occurring, on, in or about the properties of the
Borrower; and product liability insurance.
10.3.5In the event that Borrower fails to maintain such insurance, Lender may
obtain such insurance at Borrower’s expense, and, after an Event of Default, to
adjust or settle
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any claim or other matter under or arising pursuant to such insurance or to
amend or cancel such insurance.
10.3.6So long as permitted by the Receivables Lender and does not adversely
affect Borrower’s access, Borrower hereby permits Lender at any time to access
electronically information concerning any accounts maintained by Borrower with
any bank or other financial institution so long as such access is in furtherance
of, or to monitor compliance with, the terms of this Agreement, and Borrower
shall provide Lender with all necessary access codes, passwords and the like to
carry out the provisions hereof.
10.3.7Borrower waives any claim it may now have against Lender arising out of
any unauthorized filing of any Financing Statement by Lender.
10.3.8In the event any payments that are the proceeds of Collateral come into
Borrower’s possession, Borrower will hold the same in trust and safekeeping, as
the property of Receivables Lender or Lender, and immediately turn over such
payment to Receivables Lender or Lender in kind when possible, or by wire
transfer.  
10.4Borrower shall ensure that Lender at all times has a list of all Borrower’s
deposit accounts.
11.Negative Covenants. Borrower will not:
11.1Negative Pledge. Hereafter grant any liens upon the Collateral, except in
favor of Lender or Receivables Lender.
11.2Mergers, etc. Enter into any acquisition or sale, merger, consolidation,
reorganization, or recapitalization, or reclassify its capital stock, or
liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its business, property, or assets, whether now owned or hereafter acquired, or
acquire by purchase or otherwise all or substantially all of the properties,
assets, stock, or other evidence of beneficial ownership of any entity.
11.3Transfer of Assets. Except for sales, abandonment, or other dispositions of
equipment that is substantially worn, damaged, obsolete or no longer useful in
the ordinary course of business, enter into any transaction not in the ordinary
and usual course of Borrowers’ business, including the sale, lease, or other
disposition of, moving, relocation, or transfer, whether by sale or otherwise,
of any of Borrowers’ properties, assets (other than sales of Inventory to buyers
in the ordinary course of business, as defined in the UCC; provided, however,
that a sale of Inventory shall not be considered a sale to a buyer in the
ordinary course of business in the event that the Borrowers is indebted to the
buyer).
11.4Suspension of Business. Suspend or go out of a substantial portion of its
business.
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11.5Debt. Incur debt or contingent obligations, other than debt incurred
hereunder, or guaranty the debt of any other entity or individual, except as set
forth on Schedule 11.5.
11.6No Dividends or Distributions. Borrowers will not make any distribution or
declare or pay any dividends (in cash or in stock) on, or purchase, acquire,
redeem or retire any of its common stock, membership or partnership interests,
of any class, whether now or hereafter outstanding without prior written consent
of Lender. Absent an Event of Default, Borrower may, upon prior written consent
from Lender, make distributions to its shareholders or members in the ordinary
and usual course of Borrower’s business to satisfy such shareholder’s or
member’s tax liability on income of Borrower which is allocated to such
shareholder or member.
11.7Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction (either individually or in the aggregate) with
any affiliate of Borrower, except for transactions that are in the ordinary
course of Borrower’s business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm’s length transaction with
a non-affiliated entity or individual.
11.8Leased Locations or Warehouses. The Borrower will not store or locate any
Inventory or other Collateral in any leased premises or third party warehouse
unless the landlord or warehouseman, as the case may be, of such leased premises
or warehouse, as the case may be, enter into a Landlord Waiver or Warehouseman’s
Waiver, as the case may be, in favor of and in form acceptable to Lender, or
Lender has established a cash reserve for such location.
11.9Sales Below Cost. The Borrower shall not sell Inventory to any customer
below the Borrower’s cost outside the normal course of dealing without the prior
written consent of Lender.
11.10Sale of Inventory to Non-Credit Approved Customers. The Borrower agrees
that all Accounts, whether credit approved or not, shall be assigned to the
Receivables Lender. In the event Accounts are not funded by the Receivables
Lender, Borrower agrees to immediately remit to Lender upon Lender’s demand, any
sums needed to eliminate any deficit in the Borrowing Base Certificate. Lender
may, but is not obligated to, grant the same amount of credit as granted by
Receivables Lender to each customer which credit approvals are subject to change
without notice at Lender’s sole discretion.
11.11 Deposit Accounts. Borrower will not maintain any deposit accounts, other
than deposit accounts existing as of the date hereof and disclosed to Lender in
writing, without the prior consent of Lender.
12.Events of Default. Each of the following events or conditions shall
constitute an “Event of Default”:
12.1Borrower defaults in the performance of any payment obligation due
hereunder, or under any representation, covenant or warranty hereunder;
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12.2Borrower defaults under any other agreement including but not limited to the
Receivables Loan Documents or the Receivables Loan Documents are terminated in
accordance with the terms thereof.
12.3The Borrower enters into any credit card processing agreement with any party
without Lender’s prior written consent.
12.4Any entity shall have or acquire right in the Collateral which are superior
to Lender’s rights, other than as a result of Lender’s intentional acts or to
the extent subject an intercreditor or similar agreement acceptable to Lender;
12.5 Borrower fails to cure the breach of any Obligation other than a payment
obligation within three days after notice thereof is sent by Lender to Borrower;
12.6Borrowers are in default with respect to any present or future agreement
with Lender;
12.7The Obligations at any time exceed the Allowable Amount, and such default is
not cured within 2 Business Days after the Calculation Date or, if determined on
a day other than the Calculation Date, the Borrowers becoming aware of its
occurrence;
12.8An order for relief is entered against any Obligor by any United States
Bankruptcy Court; or any Obligor does not generally pay its debts as they become
due (within the meaning of 11 U.S.C. 303(h) as at any time amended, or any
successor statute thereto); or any Obligor makes an assignment for the benefit
of creditors; or any Obligor applies for or consents to the appointment of a
custodian, receiver, trustee, or similar officer for it or for all or any
substantial part of its assets, or such custodian, receiver, trustee, or similar
officer is appointed without the application or consent of any Obligor; or any
Obligor institutes (by petition, application, answer, consent, or otherwise) any
bankruptcy, insolvency, reorganization, moratorium, arrangement, readjustment of
debt, dissolution, liquidation or similar proceeding relating to it under the
laws of any jurisdiction; or any such proceeding shall be instituted (by
petition, application, or otherwise) against any Obligor; or any judgment, writ,
warrant of attachment, execution, or similar process shall be issued or levied
against a substantial portion of the property of any Obligor;
12.9An adverse change occurs with respect to the financial condition or
operations of Borrower which results in a material impairment of the prospect of
repayment of the Obligations;
12.10If any Change in Law occurs which results in a material impairment of the
prospect of repayment of the Obligations;
12.11A sale, hypothecation or other disposition is made of 50% percent or more
of the beneficial interest in any class of voting stock of Borrower;
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12.12Any Guarantor defaults in the performance of its obligations to Lender or
shall notify Lender of its intention to rescind, modify, terminate or revoke the
its guaranty or it shall cease to be in full force and effect for any reason
whatsoever;
12.13Any provision of this Agreement or any of the Loan Documents ceases, for
any reason, to be valid and binding on Borrower.
12.14A default by the Borrower, the Borrower’s landlord or the Borrower’s
warehouseman under their respective leases or mortgages.
12.15A default in the payment of any Federal, State, or local government tax
including payroll taxes and sales taxes
12.16Borrower fails to immediately remit to Lender any payments that are the
proceeds of Collateral that come into Borrower’s possession, in kind or by wire
transfer.
12.19 Any of the Key Employees fails to devote 100% percent of their efforts in
furtherance of the business affairs of Borrower for any one month, or ceases to
be employed by Borrower in the capacity that such employee held as of the date
of this Agreement.
13.Remedies.
13.1Upon the occurrence of any Event of Default all Obligations shall accrue
interest at the Default Rate and Lender may:
a.Declare this Agreement terminated;
b.Without notice or demand, stop advancing money or extending credit for
Borrowers’ benefit under this Agreement or under any other agreement between
Borrower and Lender;
c.Declare all Obligations to be immediately due and payable, without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by Borrower; provided that, upon the occurrence of an Event of
Default under Section 12.8, all Obligations shall be immediately due and payable
without further action.
d.Take or bring, in the name of Lender or Borrower, all steps, actions, suits or
proceedings deemed by Lender necessary or desirable to effect collection of or
other realization upon any Collateral;
e.Change the address for delivery of Borrower’s mail to Lender and to receive
and open mail addressed to Borrower;
f.Execute, file and serve, in its own name or in the name of Borrower, mechanics
lien or similar notices, or claims under any payment or performance bond for the
benefit of Borrower.
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g.Engage a consulting, turnaround or similar firm to (a) conduct an operational
assessment of Borrower, and/or (b) take day-to-day operational and
administrative control of the business of the Borrower. Borrower shall (a) bear
all fees, costs and other expenses associated with such services and (b)
cooperate with such firm in carrying out such services.
13.2BORROWER WAIVES ANY REQUIREMENT THAT LENDER INFORM BORROWERS BY AFFIRMATIVE
ACT OR OTHERWISE OF ANY ACCELERATION OF BORROWERS' OBLIGATIONS HEREUNDER.
FURTHER, LENDER'S FAILURE TO CHARGE OR ACCRUE INTEREST OR FEES AT ANY “DEFAULT”
OR “PAST DUE” RATE SHALL NOT BE DEEMED A WAIVER BY LENDER OF ITS CLAIM THERETO.
14.Standards for Exercising Remedies. To the extent that applicable law imposes
duties on the Lender to exercise remedies in a commercially reasonable manner,
the Borrower acknowledges and agrees that it is not commercially unreasonable
for the Lender:
14.1To not incur expenses to prepare Collateral for disposition or otherwise to
complete raw material or Work in Process into Finished Goods or other finished
products for disposition;
14.2To fail to obtain third party consents for access to Collateral to be
disposed of, or to obtain or, if not required by other law, to fail to obtain
governmental or third party consents for the collection or disposition of
Collateral to be collected or disposed of;
14.3To fail to exercise collection remedies against any persons obligated on
Collateral or to remove liens or encumbrances on or any adverse claims against
Collateral;
14.4To exercise collection remedies against any persons obligated on Collateral
directly or through the use of collection agencies and other collection
specialists;
14.5To advertise dispositions of Collateral through publications or media of
general circulation, whether or not the Collateral is of a specialized nature;
14.6To hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the collateral is of a specialized nature;
14.7To dispose of Collateral by using Internet sites that provide for the
auction of assets of the types included in the Collateral or that have the
reasonable capability of doing so, or that match buyers and sellers of assets;
14.8To dispose of assets in wholesale rather than retail markets;
14.9To disclaim all disposition warranties; or
14.10To purchase insurance or credit enhancements to insure the Lender against
risks of loss, collection or disposition of Collateral or to provide to the
Lender a guaranteed return from the collection or disposition of Collateral.
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14.11Borrower acknowledges that the purpose of this Section 14 is to provide
non-exhaustive indications of what actions or omissions by the Lender would not
be commercially unreasonable in the Lender’s exercise of remedies against the
Collateral and that other actions or omissions by the Lender shall not be deemed
commercially unreasonable solely on account of not being indicated in this
Section. Without limitation upon the foregoing, nothing contained herein shall
be construed to grant any rights to the Borrower or to impose any duties on the
Lender that would not have been granted or imposed by this Agreement or by
applicable law in the absence of this Section 14.
15.Intellectual Property.
15.1Concurrently herewith, Borrower and Lender are entering into an Intellectual
Property Security Agreement (the “IP Agreement”). Notwithstanding anything
contained in this Agreement or the IP Agreement to the contrary, Lender shall
not take any action to enforce its security interest in the Intellectual
Property Collateral (as defined in the IP Agreement), until Lender has disposed
of or abandoned (collectively, “Liquidated”) Borrower’s Accounts, Inventory and
Equipment (the “Primary Collateral”) in a commercially reasonable manner.
15.2Solely for purposes of this Section 15, which shall not be deemed a
modification of Section 14, Lender shall be deemed to have Liquidated the
Primary Collateral in a commercially reasonable manner if Lender provides
Borrower with commercially reasonable notice of any sale and:
a.Lender has collected at least 50% of the face amount of Accounts actually
owing to the Debtor, net of the claims of parties holding interests therein
which is senior to Lender on the date on which Lender has notified Borrower of
an Event of Default (the “Default Date”); provided, that nothing contained in
the foregoing shall be deemed to create a duty for Lender to notify Borrower of
an Event of Default;
b.Lender has received on or after the Default Date at least 25% of the
liquidation value, as reasonably determined by Lender, from the sale by the
Borrower or by Lender of the Borrower’s Inventory and Equipment, net of the
claims of parties holding interests therein which is senior to ours.
c.Lender has reasonably determined that the cost of holding and disposing of an
item of Inventory or Equipment in which Lender holds a perfected security
interest exceeds the value to be realized by us upon sale or other disposition.
15.3The above is not intended to be an exclusive list of the standards of a
commercially reasonable disposition of Primary Collateral, but rather merely
examples of such dispositions.
15.4In the event that Lender breaches this provision, Lender’s liability shall
be limited to Borrower’s actual damages incurred as a direct result of the
breach.
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15.5Borrower grants Lender a non-exclusive, royalty-free license or other right
to use, without charge, the Intellectual Property Collateral, or any similar
property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with
Lender’s exercise of its rights under this Agreement, Borrower’s rights under
all licenses and all franchise agreements inure to Lender’s benefit.
16.Proceeds and Expenses of Dispositions.
16.1Borrower shall pay to the Lender on demand any and all expenses, including
reasonable attorneys' fees and disbursements, incurred or paid by the Lender in
protecting, preserving, defending priority or enforcing the Lender's rights
under or in respect of any of the Obligations or any of the Collateral. All such
legal fees shall be based upon the usual and customary rates for services
actually rendered and not upon any fixed percentage of the outstanding balance
hereunder. After deducting all of said expenses, the residue of any proceeds of
collection or sale of the Obligation or Collateral shall, to the extent actually
received in cash, be applied to the payment of the Obligations in such order or
preference as the Lender may determine, notwithstanding contrary instructions
received by Lender from the Borrower or any other third party.
17.Liquidation Success Premium.
17.1If Borrower shall substantially cease operating as a going concern, and the
proceeds of Collateral created after the occurrence of an Event of Default
(“Default”) are in excess of the Obligations at the time of Default, Borrower
shall pay to Lender a liquidation success premium of ten percent of the amount
of such excess.
18.Fees and Expenses. Borrower agrees to reimburse Lender on demand for:
18.1The actual amount of all costs and expenses, including reasonable attorneys'
fees, which Lender has incurred or may incur in:
18.1.1Negotiating, administering and preparing this Agreement and any documents
prepared in connection herewith;
18.1.2Any way arising out of or in connection with this Agreement, including
based on tort, and whether or not arising out of a dispute which does not
involve Lender;
18.1.3Protecting, preserving or enforcing any lien, security interest or other
right granted by Borrowers to Lender or arising under applicable law, whether or
not suit is brought, including but not limited to the defense of any Avoidance
Claims;
18.2The actual costs, including photocopying (which, if performed by Lender’s
employees, shall be at the rate of $.10/page), travel, and reasonable attorneys'
fees and expenses incurred in complying with any subpoena or other legal process
attendant to any litigation in which Borrower is a party; or
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18.3The actual amount of all costs and expenses, including reasonable attorneys'
fees, which Lender may incur in enforcing this Agreement and any documents
prepared in connection herewith, or in connection with any federal or state
insolvency proceeding commenced by or against Borrower, including those (i)
arising out the automatic stay, (ii) seeking dismissal or conversion of the
bankruptcy proceeding or (iii) opposing confirmation of Borrowers’ plan
thereunder.
18.4In the event that any Party finds it necessary to retain counsel in
connection with a:
18.4.1. Contract claim relating to the interpretation, defense, or enforcement
of this agreement, the prevailing Party shall recover its reasonable attorney’s
fees and expenses from the unsuccessful Party.
18.4.2 Claim other than a contract claim, then Lender shall recover its
attorney’s fees and expenses from Borrowers, irrespective of the outcome of the
dispute.
18.5 In the event that Borrowers assert a claim against Lender, Borrowers shall
do so in writing prior to and as a condition of the commencement of any
litigation by Borrowers, setting forth the specific amount of Borrowers’ claim
against Lender (the “Damage Claim”). If any dispute resolution process results
in a judgment against Lender of less than the Damage Claim, the court shall find
that Lender was the prevailing Party for the purposes of this Section.
18.6 It shall be presumed (subject to rebuttal only by the introduction of
competent evidence to the contrary) that the amount recoverable is the amount
billed to the prevailing Party by its counsel and that such amount will be
reasonable if based on the billing rates charged to the prevailing Party by its
counsel in similar matters.
19. Termination.
19.1 This Agreement shall become effective upon the execution and delivery
hereof by Borrower and Lender and shall continue in full force and effect until
the end of the Initial Term.
19.2 This Agreement shall be automatically extended for successive Renewal Terms
unless Borrower or Lender has given the other party at least sixty days’ and no
more than ninety days prior written notice before the end of the Contractual
Termination Date.
19.3 Upon the Termination Date, the unpaid balance of the Obligations shall be
due and payable without demand or notice.
20. Revocation of Borrowers’ Right to Sell Inventory Free and Clear of Lender's
Security Interest.
20.1 Lender may, upon the occurrence of an Event of Default, revoke Borrower’s
right to sell Inventory free and clear of Lender's security interest therein.
21. No Lien Termination without Release
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21.1 In recognition of the Lender's right to attorneys' fees and other expenses
incurred in connection with this Agreement secured by the Collateral,
notwithstanding payment in full of all Obligations by Borrower, Lender shall not
be required to record any terminations or satisfactions of any of Lender's liens
on the Collateral unless and until Complete Termination has occurred. Borrower
understands that this provision constitutes a waiver of its rights under §9-513
of the UCC.
22. Account Stated.
22.1 Lender shall render to Borrower a statement setting forth the transactions
arising hereunder either electronically or by mail. Each statement shall be
considered correct and binding upon Borrower, absent manifest error, as an
account stated, except to the extent that Lender receives, within thirty days of
such statement, written notice from Borrower of any specific exceptions by
Borrower to that statement.
23. Retention of Records.
23.1 Lender shall retain any documents, schedules, invoices or other papers
delivered by Borrower only for such period as Lender, at its sole discretion,
may determine necessary, after which time Lender may destroy such records
without notice to or consent from Borrower.
24.Notices to Third Parties.
24.1Lender shall have the right at any time to give any Guarantor or
Subordinating Creditor notice of any fact or event relating to this Agreement,
as Lender may deem necessary or desirable in Lender's sole discretion,
including, without limitation, Borrowers’ financial condition. Borrower shall
provide to each Guarantor and Subordinating Creditor a copy of each notice,
statement or report required to be given to Lender hereunder.
25.Information to Participants.
25.1Lender may furnish any financial or other information concerning Borrower,
or any of its subsidiaries, heretofore or hereafter provided by Borrower to
Lender, pursuant to this Agreement or otherwise, to any prospective or actual
purchaser of any participation or other interest in any loans made by Lender to
Borrower (whether under this Agreement or otherwise), to regulators,
accountants, and other third parties or to any prospective purchaser of any
securities issued or to be issued by Lender.
26.Entire Agreement.
26.1No promises of any kind have been made by Lender or any third party to
induce Borrower to execute this Agreement. No course of dealing, course of
performance or trade usage, and no parole evidence of any nature, shall be used
to supplement or modify any terms of this Agreement.
27.Notice.
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27.1All notices shall be effective upon: (a) the sending of an email to one of
the email addresses below or (b) delivery to a recognized overnight delivery
service of a properly addressed notice, delivery prepaid, with instructions to
make delivery on the next business day. For purposes hereof, the addresses of
the Parties are as set forth below or as may otherwise be specified from time to
time in a writing sent by one Party to the other in accordance with the
provisions hereof. All notices to Lender shall be deemed given upon actual
receipt by a responsible officer of Lender.

27.2The addresses of the Parties are as set forth below or as may otherwise be
specified from time to time in a writing sent by one Party to the other in
accordance with the provisions hereof:
BORROWER

ENERGY FOCUS, INC.

Address: 32000 Aurora Road, Suite B, Solon, Ohio 44139Attention: Tod Andrew
Nestor
Phone Number: 440-715-1276
Email: tanestor@energyfocus.com

LENDER
Crossroads Financing, LLC

Address:
6001 Broken Sound Parkway NW, Suite 620
Boca Raton, FL 33487
Attention:Portfolio DepartmentPhone Number:561-988-7098Fax
Number:561-994-5558Email:
lhaskin@crossroadsfinancial.com

28.Counterparts.
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28.1This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if all signatures were upon the
same instrument. Delivery of an executed counterpart of the signature page to
this Agreement by facsimile shall be effective as delivery of a manually
executed counterpart of this Agreement, and any Party delivering such an
executed counterpart of the signature page to this Agreement by facsimile to any
other Party shall thereafter also promptly deliver a manually executed
counterpart of this Agreement to such other Party, provided that the failure to
deliver such manually executed counterpart shall not affect the validity,
enforceability, or binding effect of this Agreement.
29.Amendment and Waiver.
29.1Only a writing signed by all Parties hereto may amend this Agreement. No
failure or delay in exercising any right hereunder shall impair any such right
that Lender may have, nor shall any waiver by Lender hereunder be deemed a
waiver of any default or breach subsequently occurring. Lender’s rights and
remedies herein are cumulative and not exclusive of each other or of any rights
or remedies that Lender would otherwise have. In case any provision (or any part
of any provision) contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
enforceability shall not affect any other provision (or remaining part of the
affected provision) of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision (or part thereof) had never
been contained herein, but only to the extent it is invalid, illegal or
unenforceable.
30.Governing Law.
30.1This Agreement and all transactions contemplated hereunder and/or evidenced
hereby shall be governed by, construed under, and enforced in accordance with
the internal laws of the Chosen State.
31.Venue.
31.1Any suit, action or proceeding arising hereunder, or the interpretation,
performance or breach hereof, shall, if Lender so elects, be instituted in any
court sitting in the Chosen State, in the city in which Lender’s chief executive
office is located, or if none, any court sitting in the Chosen State
(“Acceptable Forums”). Borrower agrees that the Acceptable Forums are convenient
to it, and submits to the jurisdiction of the Acceptable Forums and waives any
and all objections to jurisdiction or venue. Should such proceeding be initiated
in any other forum, Borrower waives any right to oppose any motion or
application made by Lender to transfer such proceeding to an Acceptable Forum.
32.WAIVER OF JURY TRIAL.
TO THE EXTENT PERMITTED BY LAW, THE PARTIES HERETO MUTUALLY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER DOCUMENTS CONTEMPLATED TO BE EXECUTED IN
6117653.2 Page 32 of 39

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CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS,
WHETHER VERBAL OR WRITTEN, OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT
LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF
LENDER RELATING TO THE ADMINISTRATION OF THE TRANSACTION CONTEMPLATED HEREBY OR
ENFORCEMENT OF THE DOCUMENTS EXECUTED IN CONNECTION HEREWITH, AND AGREE THAT
NEITHER PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN
WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY
LAW, THE BORROWERS HEREBY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO CLAIM OR
RECOVER ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES
OR ANY DAMAGES OTHER THAN OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWERS
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF LENDER HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT
FOR LENDER TO ENTER INTO THIS AGREEMENT AND ENTER INTO THE TRANSACTION
CONTEMPLATED HEREBY.
33. ARBITRATION.
Notwithstanding anything to the contrary contained herein, any dispute arising
out of or in connection with this Agreement shall, at Lender’s discretion, be
settled exclusively and finally by arbitration conducted in the City of New
York, New York, under the commercial arbitration rules of the American
Arbitration Association (the “AAA”), such arbitration to apply the laws of the
State of New York (without giving effect to conflicts of law principles). The
arbitration shall be conducted by three neutral arbitrators, each Party
selecting one arbitrator within thirty days after the date either Party receives
a written demand for arbitration from the other; the two arbitrators shall then
agree upon and appoint a third neutral arbitrator within thirty days. Should a
Party fail to appoint an arbitrator within the initial thirty day period, the
arbitration shall be conducted by the sole arbitrator appointed; should both
arbitrators fail to appoint the third arbitrator in the second thirty day
period, such arbitrator shall be appointed by the AAA. Nothing in this
arbitration provision shall be deemed to (i) limit the applicability of any
otherwise applicable statutes of limitation or repose and any waivers contained
in this instrument, agreement or document; or (ii) be a waiver by the Lender of
the protection afforded to it by 12 U.S.C. sec. 91 or any substantially
equivalent state law; or (iii) limit the right of the Lender hereto (a) to
exercise self-help remedies such as (but not limited to) setoff, or (b) to
foreclose against any real or personal property collateral, or (c) to obtain
from a court provisional or ancillary remedies such as (but not limited to)
injunctive relief, writ of possession or the appointment of a receiver. The
Lender may exercise such self-help rights, foreclose upon such property, or
obtain such provisional or ancillary remedies before, during or after the
pendency of any arbitration proceeding brought pursuant to this instrument,
agreement or document. Neither this exercise of self-help remedies nor the
institution or maintenance of an action for foreclosure or provisional or
ancillary remedies shall constitute a waiver of the right of any Party,
including
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the claimant in any such action, to arbitrate the merits of the controversy or
claim occasioning resort to such remedies.
34.Service Of Process.
34.1Borrower agrees that Lender may effect service of process upon Borrower by
regular mail at the address set forth herein or at such other address as may be
reflected in the records of Lender, or at the option of Lender by service upon
Borrower’s agent for the service of process.
35.Assignment.
35.1Lender may assign its rights and delegate its duties hereunder. Upon such
assignment, Borrower shall be deemed to have agreed to such assignee and shall
owe the same obligations to such assignee and shall accept performance hereunder
by such assignee as if such assignee were Lender.
36.Time of the Essence
36.1It is agreed that time is of the essence in all matters herein.

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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.

BORROWERS:ENERGY FOCUS, INC. , a Delaware corporation

By: 
Name: Tod Andrew Nestor
Title: President and CFO

LENDER:Crossroads Financial Group, LLC, a North Carolina limited liability
company

By: 
Name: Lee Haskin
Title: CEO

EXHIBIT 7.12
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EXHIBIT 8.2

(PLEASE TYPE ON YOUR COMPANY LETTERHEAD – ONE FOR EACH OF YOUR CUSTOMERS)

To the customers of ENERGY FOCUS, INC. :

        In order to enhance and further the continued growth and expansion of
ENERGY FOCUS, INC. (the “Company”), the Company has entered into a financing
agreement with Crossroads Financial Group, LLC, a North Carolina limited
liability company (“Lender”), and the Company has assigned its present and
future accounts to Lender.

To the extent that you are now indebted or may in the future become indebted to
the Company on an account or a general intangible between you and the Company,
payment thereof is to be made payable to Lender and not to the Company or any
other entity. Payment in any other way will not discharge this obligation.

The payments should be mailed to Crossroads at the following address:

Crossroads Financial, LLC, servicing agent for Crossroads Financing, LLC
6001 Broken Sound Parkway NW, Suite 620
Boca Raton, FL 33487

        This notice may only be revoked in writing signed by an officer of
Crossroads Financial Group, LLC and only after verification by you to Crossroads
by email to us at lhaskin@crossroadsfinancial.com.

        Your cooperation in this matter is greatly appreciated and we thank you
for understanding.

Sincerely,

ENERGY FOCUS, INC.    Crossroads Financial Group, LLC

By: _____________________________   By: __________________________
Name: Tod Andrew Nestor      Name: Lee Haskin
Title: President and CFO    Title: CEO

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POWER OF ATTORNEY

THIS POWER OF ATTORNEY is dated this ___ day of August, 2020 from ENERGY FOCUS,
INC. , a Delaware corporation, with an address of Primary Business Address 32000
Aurora Road, Suite B, Solon, Ohio 44139 (“Borrower”), in favor of Crossroads
Financial Group, LLC, a North Carolina limited liability company (“Lender”).
Borrower irrevocably appoints Lender, or any person(s) designated by Lender, as
its attorney-in-fact, which appointment is coupled with an interest and shall
remain in full force and effect until all obligations of Borrower to Lender have
been fully satisfied and discharged, with full power, at Borrower’s sole
expense, to exercise at any time in Lender’s discretion all or any of the
following powers, which may be exercised by the Lender, or any person(s)
designated by Lender:
To endorse, receive, take, assign, deliver, accept and deposit, in the name of
Lender or Borrower, any and all cash, checks, commercial paper, drafts,
remittances and other instruments and documents relating to, inter alia, all
accounts receivable of the Borrower.
Borrower hereby instructs any bank or any other party receiving a copy of this
Power of Attorney to act in accordance with the instructions of Lender regarding
the above, without the necessity of contacting the Borrower, and the Borrower
does hereby indemnify all third parties receiving and acting on this Power of
Attorney for and against any claims or liabilities, including reasonable
attorneys' fees, arising out of or relating to your accepting this Power of
Attorney and allowing Lender to exercise the powers set forth herein. All such
legal fees shall be based upon the usual and customary rates for services
actually rendered and not upon any fixed percentage of the outstanding balance
hereunder.
This Power of Attorney is in addition to and not in substitution of any power of
attorney granted to Lender under its loan documents with Borrower.

ENERGY FOCUS, INC. :

By: 
Name: Tod Andrew Nestor
Title: President and CFO

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STATE OF ______________________ )
              ss:
COUNTY OF ___________________ )

On this the ___ day of August, 2020, before me, the undersigned officer,
_________________, personally appeared Tod Andrew Nestor, who acknowledged
himself to be the President and CFO of ENERGY FOCUS, INC., a Delaware
corporation, and that he as such President and CFO, being authorized so to do,
executed the foregoing instrument for the purposes therein contained as his/her
free act and deed and the free act and deed of the corporation/company by
signing the name of the corporation/company by himself as such President and
CFO.
IN WITNESS WHEREOF, I hereunto set my hand.

        
Notary Public

My Commission Expires:

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Schedule 11.5

[Borrower to provide]

6117653.2 Page 39 of 39