Exhibit 10.5

 

 

CREDIT AGREEMENT

 

BETWEEN

 

AQUA METALS, INC.
(“Borrower”)

 

AND

 

INTERSTATE EMERGING INVESTMENTS, LLC
(“Lender”)

 

May 18, 2016

 

 

 

 

 

TABLE OF CONTENTS

 

    Page       1. Definitions and Shared Provisions 1           1.1 Definitions
1   1.2 Shared Provisions 14         2. Amount and Terms of Loan 15          
2.1 Commitments to Lend; Convertible Term Note 15   2.2 Use of Proceeds 15   2.3
Interest and Fees Payable to Lender 15               2.3.1 Interest Rates 15    
2.3.2 Maximum Rate 15           2.4 Optional Prepayments by Borrower 16   2.5
Optional Conversion by Lender 16   2.6 Limitations on Conversions 17   2.7
Adjustment of Conversion Price 18   2.8 Fundamental Transactions 18   2.9
Reservation of Shares 19   2.10 Legends 19   2.11 Noncircumvention 21   2.12
Investor Rights Agreement 21   2.13 Payment in Full Required on the Maturity
Date 21         3. Payments to Lender 22           3.1 General Procedures 22  
3.2 Taxes 22             3.2.1 Payments Free of Taxes 22     3.2.2 Payments of
Other Taxes by Borrower 23     3.2.3 Indemnification by Borrower 23     3.2.4
Evidence of Payments 23     3.2.5 Survival 23         4. Conditions Precedent 23
          4.1 Initial Loan 23             4.1.1 Delivery of Documents 23    
4.1.2 No Other Encumbrances 23     4.1.3 Closing Certificate 23     4.1.4 Truth
of All Representations and Warranties 23

 

 

 

 

    4.1.5 No Default 24     4.1.6 No Material Adverse Change 24     4.1.7
Governmental Requirements 24           4.2 Advances Do Not Constitute a Waiver
25         5. Representations and Warranties by Borrower 25           5.1
Concerning Credit Parties and the Loan Documents 25             5.1.1 Entity
Status 25     5.1.2 Authority 25     5.1.3 Solvency 25     5.1.4 Financial
Matters 25     5.1.5 Pending Legal Proceedings 25     5.1.6 No Default or
Violation 26     5.1.7 Enforceability 26     5.1.8 Approvals 26     5.1.9
Payment of Taxes 26     5.1.10 Principal Office 26     5.1.11 ERISA 27    
5.1.12 Subsidiaries 27     5.1.13 Indebtedness 27     5.1.14 Status Under
Certain Federal Statutes 27     5.1.15 Environmental Matters 27     5.1.16 Laws
28           5.2 Accuracy of Other Statements Made to Lender 28   5.3 Full
Disclosure 28   5.4 Title to Properties; Licenses 28         6. Affirmative
Covenants 28           6.1 Financial Statements and Reports 28             6.1.1
Fiscal Year End Statements 28     6.1.2 Monthly Statements 29     6.1.3
Quarterly Statements 29     6.1.4 Officer’s Certificates 29     6.1.5 Other
Reports 29     6.1.6 Other Information 29           6.2 Taxes and Other Liens 29
  6.3 Maintenance 30   6.4 Guaranties of Borrower’s Subsidiaries 30   6.5
Further Assurances 30   6.6 Reimbursement of Expenses 30   6.7 Insurance 31

 

ii

 

 

    6.7.1 Property Insurance 31     6.7.2 Other Insurance 31     6.7.3 Other
Requirements 31     6.7.4 Failure of Borrower to Obtain Insurance 32          
6.8 Accounts and Records 32   6.9 Other Information and Inspections 32   6.10
Notice of Default and Certain Other Events 32   6.11 Compliance with Loan
Documents 32   6.12 Operations and Properties 33   6.13 Environmental Matters 33
            6.13.1 Compliance With Environmental Laws 33     6.13.2 Notice of
Environmental Problem 33           6.14 Reno Plant Permits 33         7.
Negative Covenants 33           7.1 Indebtedness 33   7.2 Liens 34   7.3
Contingent Liabilities 34   7.4 Limitation on Mergers 34   7.5 Limitation on
Sales of Property 35   7.6 Limitation on Distributions and Redemptions 35   7.7
Limitation on Investments and New Businesses 35   7.8 Limitation on Extensions
of Credit 35   7.9 Transactions with Affiliates 35   7.10 Other Agreements 35  
7.11 Fiscal Year, Method of Accounting 35   7.12 ERISA Plans 36   7.13 Change of
Principal Office 36   7.14 Hedging Contracts 36         8. Events of Default 36
          8.1 Nature of Event 36             8.1.1 Monetary Default 36     8.1.2
Breach of Covenants in Article 7 36     8.1.3 Breach of Other Provisions of This
Agreement 36     8.1.4 Breach of Other Loan Documents 36     8.1.5 Material
Misrepresentation 36     8.1.6 Institution of Certain Legal Proceedings 37    
8.1.7 Cross Default to Other Indebtedness 37     8.1.8 Impairment of Loan
Documents 38     8.1.9 Change of Control 38     8.1.10 Impairment of Liens 38

 

iii

 

 

  8.2 Acceleration 38   8.3 Remedies 38         9. Indemnity 39           9.1
Agreement to Indemnify 39             9.1.1 Agreement to Indemnify 39     9.1.2
Due Date for Indemnity Payments 40           9.2 Exceptions and Qualifications
to Indemnity 40         10. Provision to Satisfy Express Negligence Rule 40    
    11. Miscellaneous 40           11.1 Section 346 of the Texas Finance Code 40
  11.2 Limitation on Interest 40   11.3 Bank Accounts, Offset 41   11.4
Assignments, Participations 41             11.4.1 Assignments 41     11.4.2
Participations 42     11.4.3 Distribution of Information 42           11.5
Assignment by Borrower 42   11.6 Confidentiality 42   11.7 Termination, Limited
Survival 43   11.8 Rights of Third Parties 43   11.9 Evidence of Satisfaction of
Conditions 43   11.10 Conflict with the Term Sheet 43   11.11 Payments and
Notices 43   11.12 Other Terms and References 45   11.13 Severability 46   11.14
Paragraph Headings 46   11.15 Time is of the Essence 46   11.16 Negotiated
Documents 46   11.17 No Fiduciary Relationship, Etc. 46   11.18 Cumulative
Rights and Remedies 46   11.19 No Implied Waiver 46   11.20 Entire and Only
Agreement; No Oral Amendments 47   11.21 Binding Effect Upon Successors and
Assigns 47   11.22 Governing Law 47   11.23 Agreement to Jurisdiction and
Methods of Service of Process 47   11.24 Execution in Counterparts; Delivery by
Fax 48   11.25 Waiver of Rights to Trial by Jury 48   11.26 Waiver of
Consequential Damages, Etc. 48

 

iv

 

 

Exhibits and Schedules

 

Exhibit A Form of Convertible Term Note     Exhibit B Form of Compliance
Certificate

 

Disclosure Schedule

 

Security Schedule

 

v

 

 

CREDIT AGREEMENT

 

This CREDIT AGREEMENT (this “Agreement”), dated as of May 18, 2016 (the
“Effective Date”), is made by and between INTERSTATE EMERGING INVESTMENTS, LLC
(“Lender”), a Delaware limited liability company, and AQUA METALS, INC.
(“Borrower”), a Delaware corporation. In consideration of the mutual promises
contained in this Agreement and of other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Lender agree as
follows:

 

1.             Definitions and Shared Provisions.

 

1.1           Definitions. As used in this Agreement, each of the following
terms has the meaning given to such term in this Section 1.1 or in the section,
subsection or other parts of this Agreement referred to below:

 

“Affiliate” means, with respect to any Person, any other Person that directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control with, the Person in question. As used herein, the term
“control” means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.

 

“AMR” means Aqua Metals Reno, Inc., a Delaware corporation.

 

“Attorneys’ Fees” means the expenses and reasonable fees of counsel to the
parties incurring the same, excluding costs or expenses of in-house counsel
(whether or not accounted for as general overhead or administrative expenses),
but otherwise including printing, photostating, duplicating and other expenses,
air freight charges, and fees billed for paralegals. Such term shall also
include all such fees and expenses incurred with respect to appeals,
arbitrations and bankruptcy proceedings, and whether or not any manner of
proceeding is brought with respect to the matter for which such fees and
expenses were incurred.

 

“Authorized Officer” means with respect to the execution and delivery of any
document or any other action, any of the officers set forth in an officers’
certificate delivered to Lender which are designated therein as being authorized
for such document or action.

 

“Bankruptcy Code” means the United States Bankruptcy Code, Title 11 U.S.C., as
amended.

 

“Borrower” shall have the meaning assigned to such term in the preamble hereof.

 

“Borrowing” means a borrowing of new Loans.

 

“Business Day” means a day, other than a Saturday or Sunday, on which commercial
banks are open for business with the public in Dallas, Texas.

 

 

 

 

“Cash Equivalents” means Investments in:

 

(a)          marketable obligations, maturing within 12 months after acquisition
thereof, issued or unconditionally guaranteed by the United States of America or
an instrumentality or agency thereof and entitled to the full faith and credit
of the United States of America.

 

(b)          demand deposits, and time deposits (including certificates of
deposit) maturing within 12 months from the date of deposit thereof, with any
office of Lender or with a domestic office of any national or state bank or
trust company which is organized under the Laws of the United States of America
or any state therein, which has capital, surplus and undivided profits of at
least $500,000,000, and whose long term certificates of deposit have an
investment grade rating.

 

(c)          repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (a) above entered into
with any commercial bank meeting the specifications of clause (b) above.

 

(d)          open market commercial paper, maturing within 270 days after
acquisition thereof, which has an investment grade rating.

 

(e)          Investments in money market or other mutual funds substantially all
of whose assets comprise securities of the types described in clauses (a)
through (d) above.

 

“Change of Control” means any of the following shall occur:

 

(a)          the direct or indirect sale, transfer, conveyance or other
disposition, in one or a series of related transactions, of the voting stock in
Borrower, the result of which is that a Person becomes the beneficial owner,
directly or indirectly, of more than 40% of the voting stock of Borrower,
measured by voting power rather than number of shares,

 

(b)          the shares of Borrower cease to be publicly traded,

 

(c)          at any time after the Effective Date, individuals who were either
directors of Borrower on Effective Date or directors approved (by
recommendation, nomination, election or otherwise) by a majority of the
directors cease to constitute a majority of the members of the board of
directors of Borrower, or

 

(d)          a “change of control” or “change of ownership” (or any term
substantially equivalent to any of the foregoing phrases in this clause (d)) (in
each case, as such term or phrase is defined in any indenture or other agreement
evidencing or relating to any Indebtedness) occurs.

 

“Closing Date” means the later of (a) the “Closing Date” as defined in the Stock
Purchase Agreement by and between Borrower and Lender dated as of the date
hereof or (b) the date which all of the conditions in Section 4.1 have been
satisfied.

 

Credit Agreement – Page 2

 

 

“Collateral” means all property of any kind which is subject to a Lien in favor
of Lender or which, under the terms of any Security Document, is purported to be
subject to such a Lien.

 

“Common Stock” means (i) Borrower’s shares of Common Stock, $0.001 par value per
share, and (ii) any share capital into which such Common Stock shall have been
changed or any share capital resulting from a reclassification of such Common
Stock.

 

“Consolidated” refers to the consolidation of any Person, in accordance with
GAAP, with its properly consolidated subsidiaries. References herein to a
Person’s Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated subsidiaries.

 

“Conversion Obligations” has the meaning given to such term in Section 2.5 of
this Agreement.

 

“Convertible Security” means any stock, equity securities, debt securities or
similar instruments that are convertible (directly or indirectly) into or
exchangeable for Common Stock.

 

“Convertible Term Note” means the convertible promissory note delivered by
Borrower to Lender pursuant to Section 2.1 of this Agreement and all renewals,
replacements, amendments, modifications and extensions thereof.

 

“Credit Agreement” or “this Agreement” means this Credit Agreement, as from time
to time supplemented, amended or restated.

 

“Credit Party” means any of Borrower and each Subsidiary of Borrower.

 

“Debtor Laws” means the Bankruptcy Code, and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, receivership, insolvency,
reorganization or similar Laws from time to time in effect affecting the rights
of creditors generally.

 

“Default” means any Event of Default and any default, event or condition which
would, with the giving of any requisite notices and the passage of any requisite
periods of time, constitute an Event of Default.

 

“Default Rate” means, at the time in question with respect to any amount
(including any Loan) owed to Lender under this Agreement or other Loan
Documents, the rate per annum equal to three percent (3%) above the Fixed
Interest Rate then in effect; provided, in each case that the Default Rate shall
never exceed the Maximum Rate.

 

“Disclosure Schedule” means the Disclosure Schedule attached to this Agreement.

 

“Distribution” means (a) any dividend or other distribution made by a Credit
Party on or in respect of Equity in such Credit Party or any other Credit Party
(including any option or warrant to buy such Equity), or (b) any payment made by
a Credit Party to purchase, redeem, acquire or retire any Equity in such Credit
Party or any other Credit Party (including any such option or warrant).

 

Credit Agreement – Page 3

 

 

“Eligible Market” means The New York Stock Exchange, Inc., the NYSE MKT, The
Nasdaq Stock Market, the NASDAQ Global Select Market or the Nasdaq Capital
Market.

 

“Environmental Laws” means any and all Laws relating to (a) the protection of
the environment, (b) emissions, discharges or releases of pollutants,
contaminants, chemicals or hazardous or toxic substances or wastes into the
environment including ambient air, surface water, ground water or land, or (c)
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes or the clean-up or other remediation
thereof.

 

“Equity” in any Person means any share of capital stock issued by such Person,
any general or limited partnership interest, profits interest, capital interest,
membership interest, or other equity interest in such Person, any option,
warrant or any other right to acquire any share of capital stock or any
partnership, profits, capital, membership or other equity interest in such
Person, and any other voting security issued by such Person.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, together with the regulations from time to time promulgated
with respect thereto.

 

“ERISA Affiliate” means any Person who for purposes of Title IV of ERISA is a
member of Borrower’s controlled group, or under common control with Borrower,
within the meaning of Section 414 of the Tax Code, and the regulations
promulgated and rulings issued thereunder.

 

“ERISA Plan” means any Plan or MultiEmployer Plan.

 

“ERISA Plan Funding Rules” means the rules in the Tax Code and ERISA (and
related regulations and other guidance) regarding minimum funding standards and
minimum required contributions to ERISA Plans as set forth in Sections 412, 430
and 436 of the Tax Code and Sections 302 and 303 of ERISA (and as set forth in
Section 412 of the Tax Code and Section 302 of ERISA for periods prior to the
effective date of the Pension Protection Act of 2006).

 

“ERISA Termination Event” means (a) the occurrence with respect to any ERISA
Plan of (1) a reportable event described in Sections 4043(c) (5) or (6) of ERISA
or (2) any other reportable event described in Section 4043(c) of ERISA other
than a reportable event not subject to the provision for thirty-day notice to
the PBGC pursuant to a waiver by the PBGC under Section 4043(a) of ERISA, or (b)
the withdrawal of Borrower or any ERISA Affiliate from an ERISA Plan during a
plan year in which it was a “substantial employer” as defined in
Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such
a withdrawal under Section 4062(e) of ERISA, or (c) the filing of a notice of
intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment
as a termination under Section 4041 of ERISA, or (d) the institution of
proceedings to terminate any ERISA Plan by the PBGC under Section 4042 of ERISA,
or (e) any other event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any ERISA Plan, or (f) any failure by any ERISA Plan to satisfy the
ERISA Plan Funding Rules, whether or not waived, or (g) the filing pursuant to
Section 412(c) of Tax Code or Section 302(c) of ERISA of an application for a
waiver of the minimum funding standard with respect to any ERISA Plan, the
failure to make by its due date a required installment under Section 430(j) of
the Tax Code with respect to any ERISA Plan, or (h) a determination that any
ERISA Plan is, or is expected to be, an at-risk plan (as defined in Section 430
of the Tax Code or Section 303 of ERISA) and the funding target attainment
percentage (as defined in Section 430 of the Tax Code or Section 303 of ERISA)
for such plan is, or is expected to be, less than 60 percent, or (i) the
imposition of any liability under Title IV of ERISA, other than for PBGC
premiums due but not delinquent, upon any ERISA Affiliate.

 

Credit Agreement – Page 4

 

 

“Established Misconduct” means the gross negligence and willful misconduct of an
Indemnified Party as determined by a court competent jurisdiction by final and
nonappeable judgment.

 

“Event of Default” means any of the events specified in Section 8.1 hereof,
provided that any requirement in connection with such event for the giving of
notice or the lapse of time, or the happening of any further condition, event or
act has been satisfied.

 

“Excluded Taxes” means any of the following Taxes imposed on or with respect to
Lender or required to be withheld or deducted from a payment to Lender, (a)
Taxes imposed on or measured by net income (however denominated), franchise
Taxes, and branch profits Taxes, in each case, (i) imposed as a result of Lender
being organized under the laws of, or having its principal office located in,
the jurisdiction imposing such Tax (or any political subdivision thereof) or
(ii) that are Other Connection Taxes, (b) United States federal withholding
Taxes imposed on amounts payable to or for the account of Lender with respect to
a Loan pursuant to a Law in effect on the date hereof, and (c) any United States
federal withholding Taxes imposed under FATCA.

 

“FATCA” means Sections 1471 through 1474 of the Tax Code, as of the date of this
Agreement (or any amended or successor version that is substantively comparable
and not materially more onerous to comply with), any current or future
regulations or official interpretations thereof and any agreements entered into
pursuant to Section 1471(b)(1) of the Tax Code.

 

“Financing Lease” means (i)any lease of Property if the then present value of
the minimum rental commitment thereunder should, in accordance with GAAP, be
capitalized on a balance sheet of the lessee, and (ii)any other lease
obligations which are capitalized on a balance sheet of the lessee.

 

“Fiscal Quarter” means each period of 3 calendar months ending March 31, June
30, September 30 and December 31 of each year.

 

“Fiscal Year” means each period of twelve calendar months ending December 31 of
each year.

 

“Fixed Interest Rate” means, as of any date, 11.00%, per annum, compounded on
the first day of each month.

 

Credit Agreement – Page 5

 

 

“Fundamental Transaction” means that, after the Issuance Date, Borrower shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into another Person, (ii) sell, assign, transfer, convey or
otherwise dispose of all or substantially all of the properties or assets of
Borrower to another Person, (iii) allow another Person to make a purchase,
tender or exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
(iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than 50% of the outstanding shares of Common Stock (not including any
shares of Common Stock held by the other Person or other Persons making or party
to, or associated or affiliated with the other Persons making or party to, such
stock purchase agreement or other business combination immediately prior to such
stock purchase or business combination), (v) reorganize, recapitalize or
reclassify its Common Stock, or (vi) any “person” or “group” (as these terms are
used for purposes of Sections 13(d) and 14(d) of the Exchange Act), other than
Lender and its Affiliates or any Related Party thereof, is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 50% of the aggregate ordinary voting power represented by
issued and outstanding Common Stock (excluding any debt securities convertible
into equity) normally entitled to vote in the election of directors (“Voting
Stock”) of Borrower (or its successor by merger, consolidation or purchase of
all or substantially all of its assets) (for purposes of this clause, such
person or group shall be deemed to beneficially own any Voting Stock held by a
Parent Entity) or 50% of the aggregate economic interests in Borrower (or its
successor by merger, consolidation or purchase of all or substantially all of
its assets).

 

“GAAP” means those generally accepted accounting principles and practices which
are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of Borrower and its
Consolidated subsidiaries, are applied for all periods after the date hereof in
a manner consistent with the manner in which such principles and practices were
applied to the Initial Financial Statements. If any change in any accounting
principle or practice is required by the Financial Accounting Standards Board
(or any such successor) in order for such principle or practice to continue as a
generally accepted accounting principle or practice, all reports and financial
statements required hereunder with respect to Borrower may be prepared in
accordance with such change, but all calculations and determinations to be made
hereunder may be made in accordance with such change only after notice of such
change is given to Lender and Lender agrees to such change insofar as it affects
the accounting of Borrower.

 

“Governmental Authority” means any nation or government, any agency, department,
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

 

“Governmental Requirement” means any Law, statute, code, ordinance, order, rule,
regulation, judgment, decree, injunction, franchise, permit, certificate,
license, authorization or other direction or requirement (including, without
limitation, any of the foregoing which relate to environmental standards or
controls, energy regulations and occupational, safety and health standards or
controls) of any arbitrator, court or other Governmental Authority, which
exercises jurisdiction over any Credit Party or any of its Property.

 

Credit Agreement – Page 6

 

 

“Guarantors” collectively, means AQUA METALS RENO, INC., a Delaware corporation,
AQUA METALS OPERATIONS, INC., a Delaware corporation, and any Subsidiary of
Borrower that now or hereafter executes and delivers a guaranty to Lender
pursuant to Section 6.4, and each a “Guarantor”.

 

“Guaranty” means the Guaranty of even date herewith made by each Guarantor
unconditionally guaranteeing the payment of the Convertible Term Note and the
performance by Borrower of its obligations under this Agreement and the other
Loan Documents.

 

“Guaranty Obligation” of any Person means any agreement or understanding of such
Person pursuant to which such Person guarantees, or in effect guarantees, any
Indebtedness, lease, dividends or other obligations (the “Primary Obligations”)
of any other Person (the “Primary Obligor”) in any manner, whether directly or
indirectly, contingently or absolutely, in whole or in part, including without
limitation this Agreement:

 

(a)          to purchase such Primary Obligation or any Property constituting
direct or indirect security therefor;

 

(b)          to advance or supply funds (a)for the purchase or payment of any
such Primary Obligation, or (b)to maintain working capital or other balance
sheet conditions of the Primary Obligor or otherwise to maintain the net worth
or solvency of the Primary Obligor;

 

(c)          to purchase property, securities or services primarily for the
purpose of assuring the owner of any such Primary Obligation of the ability of
the Primary Obligor to make payment of such Primary Obligation; or

 

(d)          otherwise to assure or hold harmless the owner of any such Primary
Obligation against loss in respect thereof;

 

provided, that “Guaranty Obligation” shall not include endorsements that are
made in the ordinary course of business of negotiable instruments or documents
for deposit or collection. The amount of any Guaranty Obligation shall be deemed
to be the maximum amount for which the guarantor may be liable pursuant to the
agreement that governs such Guaranty Obligation, unless such maximum amount is
not stated or determinable, in which case the amount of such obligation shall be
the maximum reasonably anticipated liability thereon, as determined by such
guarantor in good faith.

 

“Hedging Contract” means (a) any agreement providing for options, swaps, floors,
caps, collars, forward sales or forward purchases involving interest rates,
commodities or commodity prices, equities, currencies, bonds, or indexes based
on any of the foregoing, (b) any option, futures or forward contract traded on
an exchange, and (c) any other derivative agreement or other similar agreement
or arrangement.

 

Credit Agreement – Page 7

 

 

“Indebtedness” of any Person at a particular date means the sum (without
duplication) at such date of (a) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services or which is
evidenced by a note, bond, debenture, or similar instrument, (b) all obligations
of such Person under any Financing Lease, (c) all obligations of such Person in
respect of letters of credit, acceptances, or similar obligations issued or
created for the account of such Person, (d) all Guaranty Obligations of such
Person in respect of any Indebtedness of any other Person, (e) all liabilities
secured by any Lien on any Property owned by such Person, whether or not such
Person has assumed or otherwise become liable for the payment thereof, and (f)
any liability of such Person in respect of unfunded vested benefits under a Plan
or MultiEmployer Plan.

 

“Indemnified Parties” means Lender, its Affiliates and the directors, offices,
employees, agents and advisors of Lender and its Affiliates.

 

“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or
with respect to any payment made by or on account of any obligation of Borrower
under any Loan Document and (b) to the extent not otherwise described in (a),
Other Taxes.

 

“Initial Financial Statements” means (a) the annual audited Consolidated and
consolidating balance sheet of Borrower dated as of December 31, 2015, which is
the end of Borrower’s most recent complete Fiscal Year, and the related
statements of income, stockholders’ equity and cash flows for the Fiscal Year
ending ended such date, and (b) the unaudited Consolidated and consolidating
quarterly balance sheet of Borrower for Borrower’s most recent Fiscal Quarter.

 

“Insolvent” means with respect to any Person, that such Person (a) is insolvent
(as such term is defined in the United States Bankruptcy Code, Title 11 U.S.C.,
as amended (the “Code”), and with all terms used in this Section that are
defined in the Code having the meanings ascribed to those terms in the text and
interpretive case law applicable to the Code), or (b) the sum of such Person’s
debts, including absolute and contingent liabilities, the Obligations or
guarantees thereof, exceeds the value of such Person’s assets, at a fair
valuation, and (c) such Person’s capital is unreasonably small for the business
in which such Person is engaged and intends to be engaged. Such Person has
incurred (whether under the Loan Documents or otherwise), or intends to incur
debts which will be beyond its ability to pay as such debts mature. In
determining whether a Person is “Insolvent” all rights of contribution of each
Credit Party against other Credit Parties under the Guaranty, at Law, in equity
or otherwise shall be taken into account.

 

“Interstate Group Members” means Interstate Battery System International, Inc.
and its Subsidiaries.

 

“Investment” means any investment, made directly or indirectly, in any Person or
any property, whether by purchase, acquisition of shares of capital stock,
indebtedness or other obligations or securities or by loan, advance, capital
contribution or otherwise and whether made in cash, by the transfer of property,
or by any other means.

 

Credit Agreement – Page 8

 

 

“Issuance Date” means the earlier to occur of the date that (i) shares of Common
Stock are issued by Borrower to Lender pursuant to the Stock Purchase Agreement
or (ii) the Warrants are issued by Borrower to Lender hereunder.

 

“Law” means any statute, law, regulation, ordinance, rule, treaty, judgment,
order, decree, permit, concession, franchise, license, this Agreement or other
governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof. Any reference to a Law includes any
amendment or modification to such Law, and all regulations, rulings, and other
Laws promulgated under such Law.

 

“Lender” means INTERSTATE EMERGING INVESTMENTS, LLC, a Delaware limited
liability company.

 

“Liabilities” means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.

 

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (whether statutory or otherwise), or preference,
priority or other security, Credit Agreement or preferential arrangement of any
kind or nature whatsoever (including, without limitation, any conditional sale
or other title retention, any Financing Lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the UCC or comparable Law of any jurisdiction in respect of any
of the foregoing) that secures an obligation owed to, or a claim by, a Person
other than the owner of the Property.

 

“Loans” has the meaning given to such term in Section 2.1.

 

“Loan Documents” means the Convertible Term Note, this Agreement, the Security
Documents, and any and all other agreements or instruments now or hereafter
executed by any Credit Party and accepted by Lender to evidence or secure the
payment or performance of any or all of the Obligations, as renewed, amended or
supplemented from time to time.

 

“Losses” means the following: any and all losses, liabilities, damages (whether
actual, consequential, punitive or otherwise denominated), demands, claims,
administrative or legal proceedings, actions, judgments, causes of action,
assessments, fines, penalties, costs and expenses (including Attorneys’ Fees and
the fees of outside accountants and environmental consultants), of any and every
kind or character, foreseeable and unforeseeable, liquidated and contingent,
proximate and remote.

 

“Material Adverse Change” means a material adverse change from the state of
affairs presented in the Initial Financial Statements, or as represented or
warranted to Lender in any Loan Document or other document, to (a) Borrower’s
Consolidated financial condition, (b) the ability of Lender to enforce any of
the Loan Documents, (c) the ability of the Credit Parties (taken as a whole) to
fulfill in a timely manner their obligations under the Loan Documents to which
they are a party, (d) the business, operations or Properties (taken as a whole),
or (e) the ability of Lender to realize on all or a material portion of the
Collateral (other than as a result of an action taken or not taken that is
solely in the control of Lender).

 

Credit Agreement – Page 9

 

 

“Material Adverse Effect” means any material adverse effect upon (a) Borrower’s
Consolidated financial condition, (b) the ability of Lender to enforce any of
the Loan Documents, (c) the ability of the Credit Parties (taken as a whole) to
fulfill in a timely manner their obligations under the Loan Documents to which
they are a party, (d) the business, operations or Properties (taken as a whole),
or (e) the ability of Lender to realize on all or a material portion of the
Collateral (other than as a result of an action taken or not taken that is
solely in the control of Lender).

 

“Maturity Date” means the third anniversary of the Closing Date.

 

“Maximum Rate” means the maximum nonusurious rate of interest that Lender is
permitted under applicable Law to contract for, take, charge, or receive with
respect to the Loans.

 

“Multiemployer Plan” means any plan described in Section 4001(a)(3) of ERISA.

 

“Obligations” means all present and future Indebtedness, obligations and
liabilities of any Credit Party to Lender, and all renewals and extensions
thereof, or any part thereof, evidenced by or arising pursuant to this Agreement
or any other Loan Document, regardless of whether such Indebtedness, obligations
and liabilities are direct, indirect, fixed, contingent, joint, several or joint
and several.

 

“Optional Prepayment” has the meaning given to such term in Section 2.4 of this
Agreement.

 

“Options” means any rights or options to subscribe for or purchase Common Stock
or Convertible Securities.

 

“Organizational Documents” of any entity means the organizational documents
pursuant to which such entity was created and is governed, such as articles of
incorporation, bylaws, articles of organization, regulations or partnership. In
the case of any trustee, Organizational Documents means the trust, this
Agreement or other documents which govern actions of the trustee in his or her
capacity as trustee.

 

“Other Connection Taxes” means, with respect Lender, Taxes imposed as a result
of a present or former connection between Lender and the jurisdiction imposing
such Tax (other than connections arising from Lender having executed, delivered,
become a party to, performed its obligations under, received payments under,
received or perfected a security interest under, engaged in any other
transaction pursuant to or enforced any Loan Document, or sold or assigned an
interest in any Loan or Loan Document).

 

“Other Taxes” means all present or future stamp, court or documentary,
intangible, recording, filing or similar Taxes that arise from any payment made
under, from the execution, delivery, performance, enforcement or registration
of, from the receipt or perfection of a security interest under, or otherwise
with respect to, any Loan Document, except any such Taxes that are Other
Connection Taxes imposed with respect to an assignment.

 

Credit Agreement – Page 10

 

 

“Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity
security is quoted or listed on an Eligible Market, or, if there is more than
one such Person or Parent Entity, the Person or Parent Entity with the largest
public market capitalization as of the date of consummation of the Fundamental
Transaction.

 

“PBGC” means the Pension Benefit Guaranty Corporation and any entity succeeding
to any or all of its functions under ERISA.

 

“Permitted Investments” means (a) Cash Equivalents, (b) property used in the
ordinary course of business of the Credit Parties, (c) current assets arising
from the sale or lease of goods and services in the ordinary course of business
by the Credit Parties or from sales permitted under Section 7.5 of this
Agreement, (d) Investments by Borrower in any of its Subsidiaries which are
Guarantors, (e) loans and advances to employees and officers of any Credit Party
in the ordinary course of business for any business purpose in an aggregate
amount not to exceed the Threshold Amount, and (f) acquisitions of or capital
contributions to or other Investments in a Person or property that has been
consented to by Lender (such consent shall not be unreasonably withheld).

 

“Permitted Liens” means:

 

(a)          statutory Liens for taxes, assessments or other governmental
charges or levies which are not yet delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP;

 

(b)          Liens imposed by law, such as landlords’, carriers',
warehousemen's, materialmen’s and mechanics’ liens;

 

(c)          Liens arising out of judgments or awards against any Credit Party
not giving rise to an Event of Default;

 

(d)          Liens arising from deposits made in connection with obtaining
worker’s compensation or other unemployment insurance;

 

(e)          purported Liens evidenced by the filing of precautionary UCC
financing statements relating solely to operating leases of personal property
entered into in the ordinary course of business;

 

(f)          Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods in the ordinary course of business;

 

(g)          Liens on cash deposits to secure the performance of tenders,
statutory obligations, surety, stay, customs and appeals bonds, bids, insurance,
leases, government contracts, trade contracts, performance and return of money
bonds, letters of credit and other similar obligations (exclusive of obligations
for the payment of borrowed money) entered into in the ordinary course of
business;

 

Credit Agreement – Page 11

 

 

(h)          security deposits to public utilities or to any municipalities or
governmental authority or other public authorities when required by such
utility, municipality, governmental authority or other public authority in
connection with the supply of services or utilities entered into in the ordinary
course of business;

 

(i)          statutory or common law rights of setoff of depository banks with
respect to funds of any Credit Party at such banks to secure fees and charges in
connection with returned items or the standard fees and charges of such banks in
connection with deposit accounts maintained by any Credit Party at such banks
(but not any other debt or other obligations);

 

(j)          purchase money Liens or the interests of lessors under Financing
Leases so long as (i) such Lien attaches only to the asset purchased or acquired
and the proceeds thereof, and (ii) such Lien only secures the Indebtedness that
was incurred to acquire the asset purchased or acquired.

 

(k)          Liens in favor Green Bank, N.A. to secured obligations under the
Loan Agreement between Green Bank, N.A. and AMR dated November 3, 2015, as
amended, supplemented, restated or otherwise modified from time to time,
provided that such Liens on the four kettles for use in lead recycling purchased
with the Loans shall be subordinate to Lender’s Liens on such four kettles; and

 

(l)          Liens under the Security Documents.

 

“Person” means any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated organization, Governmental Authority, or any other form of
entity.

 

“Plan” means any employee benefit or other plan established or maintained, or to
which contributions have been made, by Borrower or any ERISA Affiliate of
Borrower during the preceding six years and which is covered by Title IV of
ERISA or Section 412 of the Tax Code, other than a Multiemployer Plan.

 

“Prepayment Premium” has the meaning given to such term in Section 2.4 of this
Agreement.

 

“Principal Market” means the Nasdaq Capital Market; provided, however, that in
the event that Borrower’s Common Stock is ever listed or traded on the Nasdaq
Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the
NYSE Amex, or the OTC Bulletin Board (it being understood that as used herein
“OTC Bulletin Board” shall also mean any successor or comparable market
quotation system or exchange to the OTC Bulletin Board such as the OTCQB
operated by the OTC Markets Group, Inc.), then the “Principal Market” shall mean
such other market or exchange on which Borrower’s Common Stock is then listed or
traded.

 

Credit Agreement – Page 12

 

 

“Property” means any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.

 

“Regulation U” means Regulation U issued by the Board of Governors of the
Federal Reserve System as in effect from time to time.

 

“Regulatory Change” means either: (1) the introduction of or any change after
the date of this Agreement (including any change by way of imposition or
increase of reserve requirements included in the calculation of the interest
rate used to calculate interest accruing under the Convertible Term Note) in any
Law applicable to Lender or its Affiliates, or in the generally accepted
interpretation by the institutional lending community of any such Law, or in the
interpretation of any such Law asserted by any regulator, court or other
Governmental Authority; or (2) the compliance by Lender or its affiliates with
any new guideline, request or directive after such date from any central bank or
other Governmental Authority (whether or not having the force of Law); provided
that notwithstanding anything herein to the contrary, (a) the Dodd-Frank Wall
Street Reform and Consumer Protection Act and all requests, rules, guidelines or
directives thereunder or issued in connection therewith and (b) all requests,
rules, guidelines or directives promulgated by the Bank for International
Settlements, the Basel Committee on Banking Supervision (or any successor or
similar authority) or the United States or foreign regulatory authorities, in
each case pursuant to Basel III, shall in each case be deemed to be a
“Regulatory Change”, regardless of the date enacted, adopted or issued.

 

“Related Party” means, with respect to any specified Person, such Person’s
affiliates and the respective directors, officers, employees, agents and
advisors of such Person and such Person’s affiliates.

 

“Reno Plant” means AMR’s lead recycling plant located or to be constructed on
real property with an address of 2500 Peru Drive, Reno, Nevada that has been
pledged as Collateral pursuant to the Security Documents.

 

“Security Documents” means the instruments listed in the Security Schedule and
all other security agreements, deeds of trust, mortgages, chattel mortgages,
pledges, guaranties, subordination agreements, intercreditor agreements,
financing statements, continuation statements, extension agreements and other
agreements or instruments now, heretofore, or hereafter delivered by any Credit
Party to Lender in connection with agreement or any transaction contemplated
hereby to secure or guarantee the payment of any part of the Obligations or the
performance of any Credit Party’s other duties and obligations under the Loan
Documents.

 

“Security Schedule” means the Security Schedule attached to this Agreement.

 

“Share Issue Price” means $7.12.

 

“Stock Purchase Agreement” means that certain Stock Purchase Agreement, dated
May 18, 2016, by and between Borrower and Lender.

 

“Subsidiary” means, with respect to any Person, any corporation, association,
partnership, joint venture, or other business or corporate entity, enterprise or
organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty 50% or more by such Person.

 

Credit Agreement – Page 13

 

 

“Successor Entity” means the Person formed by, resulting from or surviving any
Fundamental Transaction or the Person with which such Fundamental Transaction
shall have been entered into.

 

“Tax Code” means the Internal Revenue Code of 1986, as amended.

 

“Taxes” means all present or future taxes, levies, imposts, duties, deductions,
withholdings (including backup withholding), assessments, fees or other charges
imposed by any Governmental Authority, including any interest, additions to tax
or penalties applicable thereto.

 

“Term Commitment Amount” means $5,000,000.

 

“Threshold Amount” means $250,000.

 

“Trading Day” means any day on which the Common Stock is traded on the Principal
Market, or, if the Principal Market is not the principal trading market for the
Common Stock, then on the principal securities exchange or securities market on
which the Common Stock is then traded including any day on which the Principal
Market is open for trading for a period of time less than the customary time.

 

“UCC” means the Texas Uniform Commercial Code, as the same may hereafter be
amended.

 

“Unfunded Benefit Liabilities” means, with respect to any ERISA Plan, the amount
(if any) by which the present value of all benefit liabilities (within the
meaning of Section 4001(a)(16) of ERISA) under the ERISA Plan exceeds the market
value of all assets of the ERISA Plan available to pay such benefit liabilities,
as determined on the most recent valuation date of the ERISA Plan and in
accordance with the provisions of ERISA for calculating the potential liability
of Borrower or any ERISA Affiliate of Borrower under Title IV of ERISA.

 

“Warrant Owner” means INTERSTATE EMERGING INVESTMENTS, LLC and its permitted
assigns.

 

“Warrants” means the warrants to purchase shares of Common Stock that are issued
by Borrower to Warrant Owner hereunder, substantially in the form of Exhibits
C-1 and C-2, and all warrants issued upon transfer, exchange or in replacement
of any of the foregoing.

 

“Warrant Shares” means shares of Common Stock issuable to the Warrant Owner upon
exercise of all or any portion of either of the Warrants.

 

1.2           Shared Provisions. Lender and Borrower intend that this Agreement
and other Loan Documents share consistent notice requirements and other
important provisions. Those shared provisions comprise Section 11.11 through
11.26, which will apply to and govern both this Agreement and other Loan
Documents.

 

Credit Agreement – Page 14

 

 

2.             Amount and Terms of Loan.

 

2.1           Commitments to Lend; Convertible Term Note; Warrants. Subject to
the terms and conditions hereof, including the issuance of the Warrants by
Borrower to Lender, Lender agrees to make a single advance to Borrower (herein
called “Loans”) in an amount equal to the Term Commitment Amount on the Closing
Date.

 

2.1.1           The obligation of Borrower to repay to Lender the aggregate
amount of all Loans made by Lender, together with interest accruing in
connection therewith, will be evidenced by a single convertible promissory note
(herein called the “Convertible Term Note”) in the form attached as Exhibit A
with appropriate insertions. The amount of principal owing on the Convertible
Term Note at any given time shall be the aggregate amount of all Loans
theretofore made by Lender minus all payments of principal theretofore received
by Lender on such Convertible Term Note and minus all principal amounts on such
Convertible Term Note converted into shares of Common Stock. No portion of any
Loan which has been repaid or converted may be reborrowed.

 

2.2           Use of Proceeds. Borrower shall use all Loans to purchase four
kettles for use in lead recycling and for start up costs, expansion costs and
working capital for the Reno Plant. In no event will the funds from any Loan be
used directly or indirectly by any Person for personal, family, household or
agricultural purposes or for the purpose, whether immediate, incidental or
ultimate, of purchasing, acquiring or carrying any “margin stock” (as such term
is defined in Regulation U promulgated by the Board of Governors of the Federal
Reserve System) or to extend credit to others directly or indirectly for the
purpose of purchasing or carrying any such margin stock. Borrower represents and
warrants that Borrower is not engaged principally, or as one of Borrower’s
important activities, in the business of extending credit to others for the
purpose of purchasing or carrying such margin stock.

 

2.3           Interest and Fees Payable to Lender.

 

2.3.1           Interest Rates. Subject to the limitations set forth in
Section 11.2, (1) each Loan will bear interest on each day outstanding at the
Fixed Interest Rate in effect on such day, and (2) notwithstanding the
foregoing, after maturity and when any Event of Default has occurred and is
continuing, at Lender’s election by written notice to the Borrower, all Loans
will bear interest on each day outstanding at the applicable Default Rate, and
all past due payments of principal, interest and fees then due and payable to
Lender will also bear interest at the Default Rate.

 

2.3.2           Maximum Rate. Notwithstanding the foregoing: (1) the Obligations
will never bear interest in excess of the Maximum Rate, and (2) if at any time
the rate at which interest payable on the Convertible Term Note is limited to
the Maximum Rate (by reason of the preceding clause (1), Section 11.2 or the
references to the Maximum Rate in the definitions set forth in Section 1.1), the
Convertible Term Note will bear interest at the Maximum Rate and will continue
to bear interest at the Maximum Rate until such time as the total amount of
interest accrued on the Convertible Term Note equals the total interest that
would have accrued on the Convertible Term Note had the interest not been
limited to the Maximum Rate.

 

Credit Agreement – Page 15

 

 

2.4           Optional Prepayments by Borrower. Upon at least five (5) Business
Days’ notice to Lender, on or after the one year anniversary of the Closing
Date, Borrower may (subject to Lender’s conversion right), prepay the
Convertible Term Note, in whole or in part, so long as the aggregate amounts of
all partial prepayments of principal on the Convertible Term Note equals $25,000
or any higher integral multiple of $1,000, and each prepayment of principal
under this section must be accompanied by all interest then accrued and unpaid
on the principal so prepaid and the Prepayment Premium (such payment of
principal, interest and Prepayment Premium, the “Optional Prepayment”). Any
payment or conversion in respect of the principal of the Loans, due to the
request of Borrower, made on or prior to eighteen (18) months after the Closing
Date shall be accompanied by a prepayment or conversion premium equal to ten
percent (10%) of the principal of the Loans prepaid or converted (“Prepayment
Premium”). In lieu of accepting the Optional Prepayment, Lender shall have the
rights, in its sole and absolute discretion, upon at least one (1) Business
Day’s notice to Borrower before the Optional Prepayment, to convert the Optional
Prepayment into that number of common shares of Borrower (as appropriately
adjusted in the event of any equity dividend, equity split, combination,
reorganization, recapitalization, reclassification or other similar event since
the Closing Date) equal to the quotient obtained by dividing (i) the amount of
the Optional Prepayment by (ii) the Share Issue Price. No fractional common
shares shall be issued and the value of any fractional shares shall be paid by
Borrower to Lender in cash concurrently with any conversion. As promptly as
practicable after the conversion of the Optional Prepayment and the issuance of
shares of Common Stock for such conversion, Borrower (at its expense) will issue
to Lender and credit such shares of Common Stock to book-entry accounts
maintained by Borrower’s transfer agent for the Common Stock (the “Transfer
Agent”). Any principal or interest prepaid or converted pursuant to this section
will be in addition to, and not in lieu of, all payments otherwise required to
be paid under the Loan Documents at the time of such prepayment or conversion.

 

2.5           Optional Conversion by Lender. Upon at least one (1) Business
Day’s notice to Borrower, Lender shall have the right, in its sole and absolute
discretion, at any time to convert any outstanding principal of any Loan (such
Obligations to be converted, the “Conversion Obligations”) into that number of
common shares of Borrower (as appropriately adjusted in the event of any equity
dividend, equity split, combination, reorganization, recapitalization,
reclassification or other similar event since the Closing Date) equal to the
quotient obtained by dividing (i) the amount of the Conversion Obligations by
(ii) the Share Issue Price (such price as may be adjusted from time to time, the
“Conversion Price”). No fractional common shares shall be issued and the value
of any fractional shares shall be paid by Borrower to Lender in cash
concurrently with any conversion. As promptly as practicable after the
conversion of the Conversion Obligations and the issuance of shares of Common
Stock for such conversion, Borrower (at its expense) will issue to Lender and
credit such shares of Common Stock to book-entry accounts maintained by the
Transfer Agent.

 

Credit Agreement – Page 16

 

 

2.6           Limitations on Conversions. Notwithstanding anything contained
elsewhere in this Agreement to the contrary, Borrower shall not effect any
conversion of Conversion Obligations, and Lender shall not have the right to
convert any Conversion Obligations, to the extent that after giving effect to
such issuance after conversion, Lender (together with Lender’s Affiliates, and
any other persons acting as a group together with Lender or any of Lender’s
Affiliates), would beneficially own in excess of 19.99% of the outstanding
shares of Common Stock (the maximum amount of shares of Common Stock issuable in
compliance with the foregoing limitation, the “Beneficial Ownership Cap”). For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by Lender and its Affiliates shall include the number of
shares of Common Stock issuable upon conversion of the Conversion Obligations
with respect to which such determination is being made, but shall exclude the
number of shares of Common Stock that would be issuable upon (i) exercise of the
remaining, nonexercised portion of each of the Warrants beneficially owned by
Lender or any of its Affiliates and (ii) exercise or conversion of the
unexercised or nonconverted portion of any other securities of Borrower
(including, without limitation, any other securities of Borrower or its
subsidiaries which would entitle the holder thereof to acquire at any time
shares of Common Stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by Lender or any
of its Affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 2.6, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and the rules and regulations promulgated thereunder. In addition, for
purposes of this Section 2.6, “group” has the meaning set forth in Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder.
Notwithstanding anything contained elsewhere in this Agreement to the contrary,
Borrower shall not effect any conversion of Conversion Obligations, and Lender
shall not have the right to convert and Conversion Obligations, to the extent
that after giving effect to such issuance after conversion, the cumulative
aggregate of all exercises or conversions as a whole under the Convertible Term
Note and each of the Warrants, as the case may be, together with the issuance of
702,247 shares of Common Stock pursuant to the Stock Purchase Agreement, would
result in the issuance of shares of Common Stock (including, for the avoidance
of doubt, any Warrant Shares issued under either of the Warrants and shares of
Common Stock under this Agreement) that (i) have, or will have upon issuance,
voting power in excess of 19.99% of the voting power of the Common Stock
outstanding immediately before the Issuance Date or (ii) represent, or will
represent upon issuance, in excess of 19.99% of the number of shares of Common
Stock outstanding immediately before the Issuance Date (the maximum amount of
shares of Common Stock issuable in compliance with the foregoing limitations (i)
and (ii), the “Total Issuance Cap”). The term “Cap” as used herein refers to
either the Beneficial Ownership Cap or the Total Issuance Cap, whichever may be
applicable. To the extent that any limitation contained in this Section 2.6
applies, the determination of whether the Conversion Obligations are convertible
(in relation to other securities owned by Lender together with any Affiliates)
and of which portion of the Conversion Obligations is convertible shall be in
the sole discretion of Lender, and the conversion of Conversion Obligations
shall be deemed to be Lender’s determination of whether Conversion Obligations
are convertible (in relation to other securities owned by Lender together with
any Affiliates) and of which portion of Conversion Obligations is convertible.
For purposes of this Section 2.6, in determining the number of outstanding
shares of Common Stock, Lender may rely on the number of outstanding shares of
Common Stock as reflected in (i) Borrower’s most recent Form 10-K, Form 10-Q,
Current Report on Form 8-K or other public filing with the United States
Securities and Exchange Commission, as the case may be, (ii) a more recent
public announcement by Borrower or (iii) a more recent notice by Borrower or
Borrower’s Transfer Agent to Lender setting forth the number of shares of Common
Stock then outstanding. Upon the request of Lender, Borrower shall promptly, and
in any event within one Trading Day of such request, confirm to Lender the
number shares of Common Stock then outstanding.

 

Credit Agreement – Page 17

 

 

2.7           Adjustment of Conversion Price.

 

The Conversion Price shall be adjusted from time to time as follows:

 

2.7.1           Adjustment upon Subdivision or Combination of Shares of Common
Stock. If Borrower at any time on or after the Issuance Date subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If Borrower at any time on or after the Issuance Date
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased. Any adjustment under this Section 2.7.1 shall become
effective at the close of business on the date the subdivision or combination
becomes effective.

 

2.7.2           Par Value. Notwithstanding anything to the contrary in this
Agreement, in no event shall the Conversion Price be reduced below the par value
of Borrower’s Common Stock.

 

2.8           Fundamental Transactions.

 

2.8.1           If, at any time while Conversion Obligations are outstanding,
there occurs any Fundamental Transaction (including, without limitation, one
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock), then the Holder shall have the right thereafter to receive, upon
conversion of the Conversion Obligations, in lieu of the shares of the Common
Stock (or other securities, cash, assets or other property purchasable upon the
conversion of the Conversion Obligations prior to such Fundamental Transaction),
the same amount and kind of shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights), if any, that Lender would have been entitled to receive upon the
consummation of such Fundamental Transaction had the Conversion Obligations been
converted immediately prior to the record date for such Fundamental Transaction,
as adjusted in accordance with the provisions of this Agreement. Upon the
occurrence of any Fundamental Transaction, the Successor Entity, if any, shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Agreement and the Convertible
Term Note referring to the “Borrower” shall refer instead to the Successor
Entity), and may exercise every right and power of Borrower and shall assume all
of the obligations of Borrower under this Agreement and the Convertible Term
Note with the same effect as if such Successor Entity had been named as Borrower
herein. The provisions of this Section shall apply similarly and equally to
successive Fundamental Transactions and any adjustment under this Section 2.8
shall be without duplication for any adjustment or distribution made under
Section 2.7.

 

Credit Agreement – Page 18

 

 

2.8.2           In the event that Borrower at any time grants, issues or sells
any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
shares of Common Stock (the “Purchase Rights”) Lender will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which Lender could have acquired if Lender had held the number
of shares of Common Stock acquirable upon complete conversion of the Conversion
Obligations (without regard to any limitations on the conversion of Conversion
Obligations), immediately before the record date for the grant, issuance or sale
of such Purchase Rights, or, if no such record date is established, the date as
of which the record holders of shares of Common Stock are determined for the
grant, issuance or sale of such Purchase Rights.

 

2.9           Reservation of Shares. Borrower covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue shares of Common Stock upon conversion of the Conversion
Obligations as herein provided, the number of shares of Common Stock which are
then issuable and deliverable upon the conversion of all Conversion Obligations,
free from preemptive or any other contingent purchase rights of Persons other
than Lender (taking into account the adjustments and restrictions in Section 2.7
and 2.8). Such reservation shall comply with the provisions of Section 2.4 and
2.5. Borrower covenants that all shares of Common Stock so issuable and
deliverable shall, upon issuance in accordance with the terms hereof, be duly
and validly authorized, issued and fully paid and nonassessable. Borrower will
take all such actions as may be necessary to assure that such shares of Common
Stock may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of any securities exchange or automated
quotation system upon which the Common Stock may be listed. If, notwithstanding
the foregoing, and not in limitation thereof, at any time while the Convertible
Term Note remains outstanding Borrower does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon Conversion of the Conversion Obligations at least a
number of shares of Common Stock equal to the maximum number of shares of Common
Stock as shall from time to time be necessary to effect the conversion of all
Conversion Obligations (without regard to any limitations on conversion
contained herein) (the “Required Reserve Amount”) (an “Authorized Share
Failure”), then Borrower shall immediately take all action necessary to increase
Borrower’s authorized shares of Common Stock to an amount sufficient to allow
Borrower to reserve the Required Reserve Amount for all Conversion Obligations.
Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure, but
in no event later than sixty (60) days after the occurrence of such Authorized
Share Failure, Borrower shall hold a meeting of its stockholders for the
approval of an increase in the number of authorized shares of Common Stock. In
connection with such meeting, Borrower shall provide each stockholder with a
proxy statement and shall use its best efforts to solicit its stockholders’
approval of such increase in authorized shares of Common Stock and to cause its
board of directors to recommend to the stockholders that they approve such
proposal.

 

2.10         Legends. Lender understands that the Convertible Term Note and the
shares of Common Stock issuable and deliverable upon conversion of the
Conversion Obligations have not been registered pursuant to the provisions of
the Securities Act of 1933, as amended (the “Securities Act”), and the
Convertible Term Note and shares of Common Stock issuable and deliverable upon
conversion of the Conversion Obligations will bear the following restrictive
legend (in addition to any legend required under applicable state securities
laws):

 

Credit Agreement – Page 19

 

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS. THE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE OFFERED,
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT AS PERMITTED UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES OR BLUE SKY LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THE COMPANY MAY REQUIRE AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT ANY PROPOSED TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND
ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.

 

Borrower, at its sole cost, shall remove the legend described in Section 2.10
(or instruct the Transfer Agent to so remove such legend) from the certificates
evidencing the Convertible Term Note and shares of Common Stock issuable and
deliverable upon conversion of the Conversion Obligations, as applicable, if (A)
such shares of Common Stock issuable and deliverable upon conversion of the
Conversion Obligations are sold pursuant to an effective registration statement
under the Securities Act, (B) such Convertible Term Note or shares of Common
Stock issuable and deliverable upon conversion of the Conversion Obligations, as
applicable, are sold or transferred pursuant to Rule 144 (if the transferor is
not an Affiliate of Borrower), or (C) such Convertible Term Note or shares of
Common Stock issuable and deliverable upon conversion of the Conversion
Obligations, as applicable, are eligible for sale under Rule 144, without the
requirement for Borrower to be in compliance with the current public information
required under Rule 144(c)(1) (or Rule 144(i)(2), if applicable) as to such
securities and without volume or manner of sale restrictions. In connection with
a sale of the Convertible Term Note or shares of Common Stock issuable and
deliverable upon conversion of the Conversion Obligations, as applicable, by
Lender in reliance on Rule 144, Lender or its broker shall deliver to the
Transfer Agent and Borrower a customary broker representation letter providing
to the Transfer Agent and Borrower any information Borrower deems reasonably
necessary to determine that the sale of the Convertible Term Note or shares of
Common Stock issuable and deliverable upon conversion of the Conversion
Obligations, as applicable, is made in compliance with Rule 144, including,
where and as may be appropriate, a certification that Lender is not an Affiliate
of Borrower and regarding the length of time the Convertible Term Note or shares
of Common Stock issuable and deliverable upon conversion of the Conversion
Obligations, as applicable, have been held. Upon receipt of such representation
letter, Borrower shall promptly remove the legend refereed to in this Section
2.10 from the Convertible Term Note or direct its Transfer Agent to remove the
legend referred to in this Section 2.10 from the shares of Common Stock issuable
and deliverable upon conversion of the Conversion Obligations from the
appropriate book-entry accounts maintained by the Transfer Agent, in each case
within two (2) Business Days, and Borrower shall bear all costs associated
therewith. If Lender is not an Affiliate of Borrower and has held the
Convertible Term Note or shares of Common Stock issuable and deliverable upon
conversion of the Conversion Obligations, as applicable, for at least one year,
if the book-entry account of such shares of Common Stock issuable and
deliverable upon conversion of the Conversion Obligations or certificate for the
Convertible Term Note still bears the legend referred to in this Section 2.10,
Borrower agrees, upon request of Lender, to take all steps necessary to effect
the removal of the legend described in this Section 2.10 within two (2) Business
Days from the appropriate book-entry accounts maintained by the Transfer Agent
or the Convertible Term Note, and Borrower shall bear all costs associated
therewith, regardless of whether the request is made in connection with a sale
or otherwise, so long Lender provides to Borrower any information Borrower deems
reasonably necessary to determine that the legend is no longer required under
the Securities Act or applicable state laws, including (if there is no such
registration statement), where and as may be appropriate, a certification that
such holder is not an Affiliate of Borrower and regarding the length of time the
Convertible Term Note or shares of Common Stock issuable and deliverable upon
conversion of the Conversion Obligations, as applicable, have been held.

 

Credit Agreement – Page 20

 

 

2.11         Noncircumvention. Borrower hereby covenants and agrees that
Borrower will not, by amendment of its Certificate of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Agreement, and will at all times in good faith carry out all the
provisions of this Agreement and take all action as may be required to protect
the rights of Lender.  Without limiting the generality of the foregoing,
Borrower (i) shall not increase the par value of any shares of Common Stock
receivable upon the conversion of the Conversion Obligations above the
Conversion Price then in effect, (ii) shall use all reasonable efforts to take
all such actions as may be necessary or appropriate in order that Borrower may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the conversion of the Conversion Obligations and (iii) shall, so long as
any of Conversion Obligations are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the Conversion
Obligations, the Required Reserve Amount. If Borrower is restricted by the
Principal Market from issuing and delivering the lesser of the (i) Beneficial
Ownership Cap or (ii) Total Issuance Cap, then Borrower shall use its best
efforts to obtain the approval of the requisite holders of the issued and
outstanding voting capital stock of Borrower required by the listing
requirements of the Principal Market.

 

2.12         Investor Rights Agreement. The shares of Common Stock issuable upon
conversion of the Conversion Obligations shall be subject to the terms and
conditions of that certain Investor Rights Agreement and Lender shall be
entitled to all of the rights and subject to all of the obligations under such
Investor Rights Agreement. The shares of Common Stock issuable upon conversion
of the Conversion Obligations shall be deemed “Registrable Securities” as
defined in such Investor Rights Agreement.

 

2.13         Payment in Full Required on the Maturity Date. Any accrued, unpaid
interest, all outstanding principal of any Loan, and all other outstanding
Obligations will be finally due and payable on the Maturity Date.

 

Credit Agreement – Page 21

 

 

3.             Payments to Lender.

 

3.1           General Procedures. Borrower must make each payment owed by it to
Lender under the Loans or Loan Documents in lawful money of the United States of
America without set-off, deduction or counterclaim and in immediately available
funds. Each such payment must be received by Lender not later than 5:00 p.m.,
Dallas, Texas time, on the date such payment first becomes due. Any payment
received by Lender after such time will be deemed to have been made on the next
following Business Day. Should any such payment become due and payable on a day
other than a Business Day, the maturity of such payment will be extended to the
next succeeding Business Day, and, in the case of a payment of principal or past
due interest, interest will accrue and be payable thereon for the period of such
extension. Each payment under the Loans or a Loan Document will be payable at
the place provided therein and, if no specific place of payment is provided,
will be payable at the place of payment of the Convertible Term Note. Lender
will apply money or common stock of Borrower received by Lender on account of
the Obligations as follows, except as may otherwise be expressly authorized by
other Loan Documents:

 

3.1.1           first, for the payment of all Obligations which are then due
(and if such money is insufficient to pay all such Obligations, first to any
reimbursements due Lender under other provisions of this Agreement including
Section 9.1 and then to the partial payment of all other Obligations then due in
proportion to the amounts thereof);

 

3.1.2           then for the payment of accrued interest or other amounts owing
under the Loan Documents (other than principal on the Convertible Term Note), in
such order as Lender deems appropriate; and

 

3.1.3           last for the prepayment of principal on the Convertible Term
Note, applied against the outstanding Loans in such order as Lender deems
appropriate.

 

Without limiting the foregoing, all payments or common stock conversions applied
to principal or interest on the Convertible Term Note shall be applied first to
any interest then due and payable, then to principal then due and payable, then
to prepay principal of Loans in such order as Lender deems appropriate.

 

3.2           Taxes. For the purposes of this Section 3.2, the term “applicable
Law” includes FATCA.

 

3.2.1           Payments Free of Taxes. Any and all payments by or on account of
any obligation of Borrower hereunder or under any other Loan Document shall be
made free and clear of and without reduction or withholding for any Taxes,
except as required by applicable Law. If any applicable Law (as determined in
the good faith discretion of Borrower) requires the deduction or withholding of
any Tax from any such payment by Borrower, then (i) Borrower shall be entitled
to make such deduction or withholding and shall timely pay the full amount
deducted or withheld to the relevant Governmental Authority in accordance with
applicable Law and, (ii) if such Tax is an Indemnified Tax, then the sum payable
by Borrower shall be increased as necessary so that after such deduction or
withholding has been made (including such deductions and withholdings applicable
to additional sums payable under this Section) Lender receives an amount equal
to the sum it would have received had no such deduction or withholding been
made.

 

Credit Agreement – Page 22

 

 

3.2.2           Payments of Other Taxes by Borrower. Without limiting the
provisions of subsection 3.2.1 above, Borrower shall timely pay to the relevant
Governmental Authority in accordance with applicable Law, or at the option of
Lender timely reimburse it for the payment of, any Other Taxes.

 

3.2.3           Indemnification by Borrower. Borrower shall indemnify Lender
within 10 days after demand therefor, for the full amount of any Indemnified
Taxes (including Indemnified Taxes imposed or asserted on or attributable to
amounts payable under this Section) payable or paid by Lender or required to be
withheld or deducted from a payment to Lender and any reasonable expenses
arising therefrom or with respect thereto, whether or not such Indemnified Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability delivered
to Borrower by Lender shall be conclusive absent manifest error.

 

3.2.4           Evidence of Payments. As soon as practicable after any payment
of Taxes by Borrower to a Governmental Authority pursuant to this Section 3.2,
Borrower shall deliver to Lender the original or a certified copy of a receipt
issued by such Governmental Authority evidencing such payment, a copy of the
return reporting such payment or other evidence of such payment reasonably
satisfactory to Lender.

 

3.2.5           Survival. Each party’s obligations under this Section 3.2 shall
survive any assignment of rights by Lender and the repayment, satisfaction or
discharge of all obligations under any Loan Document.

 

4.            Conditions Precedent.

 

4.1           Initial Loan. The obligation of Lender to fund the Loan hereunder
will be subject to the following requirements and conditions:

 

4.1.1           Delivery of Documents. Borrower shall have delivered to Lender
the following documents (each after having been duly executed and delivered in
form and substance satisfactory to Lender and, with the exception of the
Convertible Term Note, all instruments evidencing the Warrants, and the
Organizational Documents, each in a sufficient number of originals counterparts
that Lender and its counsel may have a fully executed original of each
document):

 

4.1.1.1           this Agreement;

 

4.1.1.2           the Convertible Term Note;

 

4.1.1.3           all instruments evidencing the Warrants;

 

4.1.1.4           the Security Documents;

 

Credit Agreement – Page 23

 

 

4.1.1.5           copies of Organizational Documents of each Credit Party and
such resolutions, consents, certificates, legal opinions and other evidence as
Lender shall request (including certificates, consents and opinions described in
any pre-closing document list previously provided to Borrower by Lender or
Lender’s counsel) to confirm that the Loan Documents have all been duly executed
and constitute valid, binding documents, enforceable against each Credit Party
in accordance with their respective terms;

 

4.1.1.6           a certificate of the Secretary or Assistant Secretary or other
Authorized Officer of each Credit Party setting forth (i) resolutions of its
board of directors or managers authorizing the execution, delivery, and
performance of the Loan Documents to which it is a party and identifying the
officers authorized to sign such instruments, (ii) specimen signatures of the
officers so authorized, and (iii) formation documents of such Credit Party
certified by the appropriate Secretary of State as of a recent date, and
(iv) other organizational documents of such Credit Party, certified as being
accurate and complete;

 

4.1.1.7           the Initial Financial Statements; and

 

4.1.1.8           a certificate executed by the president, chief executive
officer, chief operating officer, treasurer or chief financial officer of
Borrower certifying that true, correct and complete copies of the Initial
Financial Statements have been delivered to Lender.

 

4.1.2           No Other Encumbrances. No Person holds any Lien or other charge
or encumbrance in, against or to any of the Collateral other than Permitted
Liens.

 

4.1.3           Closing Certificate. Borrower has delivered a certificate of an
Authorized Officer of Borrower certifying that all the applicable conditions set
forth in Sections 4.1 are satisfied.

 

4.1.4           Truth of All Representations and Warranties. The representations
and warranties of each Credit Party contained in this Agreement or any Security
Document are true and correct on and as of the date of the funding the Loans
(other than those representations and warranties which are by their express
terms limited to the date of the agreement in which they are initially made).

 

4.1.5           No Default. No Default shall exist on the date of the funding
the Loans; nor will any Default result from the Loans or from the applications
of the proceeds thereof.

 

4.1.6           No Material Adverse Change. No Material Adverse Change shall
have occurred.

 

4.1.7           Governmental Requirements. The making of the Loans shall not be
prohibited by any Governmental Requirement.

 

Credit Agreement – Page 24

 

 

4.2           Advances Do Not Constitute a Waiver. No disbursement of Loan
proceeds by Lender, when Borrower has failed to satisfy any of the conditions in
Section 4.1, will preclude Lender from thereafter declaring the failure to be a
Default.

 

5.            Representations and Warranties by Borrower.

 

Without limiting other representations and warranties made to Lender by Borrower
or other Credit Parties, Borrower represents and warrants to Lender as follows,
in each case with the understanding that all representations and warranties made
to Lender herein or in the other Loan Documents will survive delivery of this
Agreement, the Convertible Term Note and the funding of the Loans and that any
investigation at any time made by or on behalf of Lender will not diminish the
right of Lender to rely upon the following representations and warranties:

 

5.1           Concerning Credit Parties and the Loan Documents.

 

5.1.1           Entity Status. Each Credit Party is a corporation, limited
liability company or limited partnership duly organized, validly existing and,
as applicable, in good standing under the laws of the state in which it is
organized.

 

5.1.2           Authority. The Organizational Documents of each Credit Party
permit the execution, delivery and performance of the Loan Documents by such
Credit Party, and all actions and approvals necessary to bind Borrower under the
Loan Documents have been taken and obtained. Without limiting the foregoing,
each of the Loan Documents will be binding upon Borrower when signed on behalf
of Borrower by an Authorized Officer. Borrower has all requisite power and all
governmental certificates of authority, licenses, permits and qualifications to
carry on its business as now conducted and contemplated to be conducted and to
engage in the transactions contemplated by the Loan Documents.

 

5.1.3           Solvency. Each Credit Party is not “Insolvent” on the Closing
Date.

 

5.1.4           Financial Matters. Credit Parties has heretofore delivered to
Lender true, correct and complete copies of the Initial Financial Statements.
The Initial Financial Statements fairly present Borrower’s Consolidated
financial position at the respective date or dates thereof and the Consolidated
results of Borrower’s operations for the respective period or periods thereof.
Since the date of the annual Initial Financial Statements no Material Adverse
Change has occurred, except as reflected in Section 5.1.4 of the Disclosure
Schedule. All Initial Financial Statements were prepared in accordance with
GAAP. No Credit Party has any outstanding Liabilities of any kind (including
contingent obligations, tax assessments, and unusual forward or long-term
commitments) which are, in the aggregate, material to Borrower or material with
respect to Borrower’s Consolidated financial condition and not shown in the
Initial Financial Statements or disclosed in Section 5.1.4 of the Disclosure
Schedule.

 

5.1.5           Pending Legal Proceedings. Except as disclosed in the Initial
Financial Reports or in Section 5.1.5 of the Disclosure Schedule, there are no
judicial or administrative investigations, actions, suits or proceedings
pending, or to the knowledge of Borrower threatened, against or affecting any
Credit Party, the adverse determination of which could constitute a Material
Adverse Effect, or involving the validity or enforceability or priority of any
of the Loan Documents, by or before any court or other Governmental Authority;
and no Credit Party is in default with respect to any order, writ, injunction,
decree or demand of any court or other Governmental Authority that could have a
Material Adverse Effect.

 

Credit Agreement – Page 25

 

 

5.1.6           No Default or Violation. The execution and performance of the
Loan Documents by the Credit Parties does not and will not contravene or result
in a breach of or default under any other agreement to which any of the Credit
Parties is a party or by which any Property of the Credit Parties is bound. Such
execution and performance by the Credit Parties do not contravene any law,
order, decree, rule or regulation to which any of the Credit Parties is subject.
Further, such execution and performance by the Credit Parties will not result in
the creation or imposition of (or the obligation to create or impose) any lien,
charge or encumbrance on, or security interest in, the Credit Parties’ Property
pursuant to the provisions of any such other agreement.

 

5.1.7           Enforceability. The Loan Documents constitute the legal, valid
and binding obligations of the Credit Parties enforceable in accordance with
their terms, subject to the effect of bankruptcy, insolvency, reorganization,
receivership and other similar laws affecting the rights of creditors generally
and subject to general principles of equity, regardless of whether considered in
a proceeding in equity or at Law.

 

5.1.8           Approvals. Without limiting the generality of the foregoing,
other than consents and approvals previously obtained and actions previously
taken, neither the execution and delivery of the Loan Documents by the Credit
Parties, nor the consummation by the Credit Parties of any of the transactions
contemplated hereby or thereby, requires the consent or approval of, the giving
of notice to, or the registration, recording or filing of any document with, or
the taking of any other action in respect of, any Governmental Authority which
has jurisdiction over the Credit Parties or any of their Property, except for
(a) the filing of the UCC financing statements, mortgages and other similar
filings to perfect the interest of Lender in the Collateral, and (b) such other
consents, approvals, notices, registrations, filings or action as may be
required in the ordinary course of the business of the Credit Parties in
connection with its performance of its obligations under the Loan Documents.

 

5.1.9           Payment of Taxes. All Tax returns required to be filed by the
Credit Parties in any jurisdiction have been filed (or currently effective
extensions of time for filing have been obtained) and all material Taxes imposed
upon the Credit Parties or upon any of their properties, income or franchises
have been paid prior to the time that such Taxes could give rise to a Lien
thereon, unless protested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been established on the
books of the Credit Parties.

 

5.1.10         Principal Office. The principal office, chief executive office
and principal place of business of Borrower is at the notice address set forth
for Borrower in Section 11.11.

 

Credit Agreement – Page 26

 

 

5.1.11         ERISA. Neither Borrower nor any ERISA Affiliate currently
maintains, contributes to, is required to contribute to or has any liability,
whether absolute or contingent, with respect to any ERISA Plan. With respect to
all other employee benefit plans maintained or contributed to by Borrower or any
ERISA Affiliate, Borrower or the applicable ERISA Affiliate is in compliance
with ERISA, the Tax Code and other applicable Laws with respect to such employee
benefit plans. There are no pending or, to the best knowledge of Borrower,
threatened claims, actions or lawsuits with respect to any employee benefit plan
of any Credit Party that could reasonably be expected to have a Material Adverse
Change, and there has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any employee benefit plan of any
Credit Party that has resulted or could reasonably be expected to result in a
Material Adverse Change. Neither Borrower nor any other ERISA Affiliate is
obligated to provide benefits to any retired employees (or their dependents)
under any employee welfare benefits plan (as defined in Section 3(1) of ERISA)
other than as required by applicable Law. Neither Borrower nor any other ERISA
Affiliate has engaged in a transaction that could be subject to Section 4069 or
Section 4212(c) of ERISA.

 

5.1.12         Subsidiaries. Borrower does not presently have any Subsidiary or
own any stock in any other corporation or association except those (if any)
listed in Section 5.1.12 of the Disclosure Schedule. Further, neither Borrower
nor any other Credit Party is a member of any general or limited partnership,
limited liability company, joint venture or association of any type whatsoever
except those (if any) listed in Section 5.1.12 of the Disclosure Schedule. As to
any Subsidiaries of Borrower listed in the Disclosure Schedule, Borrower owns,
directly or indirectly, the Equity in those Subsidiaries that are indicated in
Section 5.1.12 of the Disclosure Schedule.

 

5.1.13         Indebtedness. Neither Borrower nor any other Credit Party has any
indebtedness outstanding other than the Indebtedness permitted by Section 7.1.

 

5.1.14         Status Under Certain Federal Statutes. Borrower is not (a) an
“investment company,” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as amended or (b)
subject to federal or state regulation as a utility.

 

5.1.15         Environmental Matters. In the ordinary course of the Credit
Parties’ business, the Credit Parties carefully consider the effect of
Environmental Laws and identify and evaluate potential risks presented to the
Credit Parties and their Property because of Environmental Laws. No Credit Party
has received any written notice to the effect that its Property or operations
fail to comply in any material way with Environmental Laws or are the subject of
any federal or state investigation evaluating whether any remedial action is
needed to respond to a release of any toxic or hazardous waste or substance into
the environment, which failure to comply or remedial action could reasonably be
expected to have a Material Adverse Effect on the business or financial
condition of the Credit Parties, taken as a whole, or on the ability of Borrower
to perform the Obligations.

 

Credit Agreement – Page 27

 

 

5.1.16         Laws. Credit Parties are conducting their businesses in material
compliance with all applicable Laws, and have, and are in material compliance
with, all licenses and permits required under any such Laws.

 

5.2           Accuracy of Other Statements Made to Lender. No statement made to
Lender in the other Loan Documents or in any certificates, consents or legal
opinions delivered to Lender by or at the direction or request of Borrower or
other Credit Parties in connection with the transactions contemplated in this
Agreement or the other Loan Documents (including certificates, consents and
opinions described in any pre-closing document list previously provided to
Borrower by Lender or Lender’s counsel) contains an untrue statement of a
material fact or omits a material fact necessary to make the statements
contained herein and therein (when taken in their entireties) not misleading.

 

5.3           Full Disclosure. There is no material fact that Borrower has not
disclosed to Lender which could materially adversely affect the properties,
business, or financial condition of the Credit Parties (taken as a whole), or
which could materially adversely affect the Lender’s ability to realize on all
or a material portion of the Collateral.

 

5.4           Title to Properties; Licenses. Each Credit Party has good and
defensible title to all of the Collateral owned by it and to all of its other
material Properties, free and clear of all Liens, encumbrances, or adverse
claims other than Permitted Liens and free and clear of all material impediments
to the use of such properties and assets in such Credit Party’s business. Each
Credit Party possesses all licenses, permits, franchises, patents, copyrights,
trademarks and trade names, and other intellectual property (or otherwise
possesses the right to use such intellectual property without violation of the
rights of any other Person) which are necessary to carry out its business as
presently conducted and as presently proposed to be conducted hereafter, and no
Credit Party is in violation in any material respect of the terms under which it
possesses such intellectual property or the right to use such intellectual
property.

 

6.             Affirmative Covenants.

 

Borrower must, and will cause other Credit Parties to, comply with the covenants
contained in this Article 6 at all times from the date hereof and for so long as
any part of the Obligations is outstanding, except to the extent (if any) such
compliance is expressly and specifically waived by Lender from time to time in
writing.

 

6.1           Financial Statements and Reports. Borrower shall furnish to Lender
the following, all in form and detail reasonably satisfactory to Lender:

 

6.1.1           Fiscal Year End Statements. Promptly after becoming available,
and in any event within 120 days after the close of each Fiscal Year, Borrower’s
Consolidated balance sheet as of the end of such Fiscal Year, and the related
Consolidated statements of income, stockholders’ equity and cash flows of
Borrower for such Fiscal Year, setting forth in each case in comparative form
the corresponding figures for the preceding Fiscal Year, accompanied by the
related unqualified report of independent certified public accountants
reasonably acceptable to Lender to the effect that such statements have been
prepared in accordance with GAAP applied on a basis consistent with prior
periods except for such changes in such principles with which the independent
public accountants shall have concurred;

 

Credit Agreement – Page 28

 

 

6.1.2           Monthly Statements. For each calendar month, commencing with the
calendar month ending May 31, 2016 until the calendar month ending April 30,
2017, promptly after becoming available, and in any event within 45 days after
the end of each such calendar month, including the last calendar month in each
Fiscal Year, a Consolidated balance sheet of Borrower as of the end of such
calendar month and the related Consolidated statements of income and cash flows
of Borrower for such calendar month and the period from the first day of the
then current Fiscal Year through the end of such calendar month, certified by
the treasurer, chief financial officer or other executive officer of Borrower or
of manager of Borrower to have been prepared in accordance with GAAP applied on
a basis consistent with prior periods;

 

6.1.3           Quarterly Statements. For each Fiscal Quarter, commencing with
the Fiscal Quarter ending June 30, 2017 and for all Fiscal Quarters thereafter,
promptly after becoming available, and in any event within 45 days after the end
of each such Fiscal Quarter, including the last Fiscal Quarter in each Fiscal
Year, a Consolidated balance sheet of Borrower as of the end of such Fiscal
Quarter and the related Consolidated statements of income and cash flows of
Borrower for such Fiscal Quarter and the period from the first day of the then
current Fiscal Year through the end of such Fiscal Quarter, certified by the
treasurer, chief financial officer or other executive officer of Borrower or of
manager of Borrower to have been prepared in accordance with GAAP applied on a
basis consistent with prior periods;

 

6.1.4           Officer’s Certificates. Together with each set of monthly
statements described in Section 6.1.2, with each set of quarterly statements
described in Section 6.1.3 and with each set of annual statements described in
Section 6.1.1, a completed Compliance Certificate in the form of Exhibit B
hereto, executed by the president, chief executive officer, treasurer, or chief
financial officer of Borrower;

 

6.1.5           Other Reports. Promptly upon receipt thereof, a copy of each
other report submitted to Borrower by independent accountants in connection with
any annual, interim or special audit of the books of Borrower; and

 

6.1.6           Other Information. Promptly after receipt of a request from
Lender, such other information concerning the business, properties, production,
operations or financial condition of any Credit Party as Lender may reasonably
request.

 

6.2           Taxes and Other Liens. Each Credit Party shall pay and discharge
promptly all Taxes imposed upon it or upon its income or upon any of its
Property as well as all claims of any kind (including claims for labor,
materials, supplies and rent); provided, however, each Credit Party shall not be
required to pay any such Tax or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
diligently conducted by or on behalf of such Credit Party and if such Credit
Party shall have set up reserves therefor adequate under GAAP.

 

Credit Agreement – Page 29

 

 

6.3           Maintenance. Each Credit Party shall (a) maintain its corporate
existence, rights and franchises; (b) observe and comply in all material
respects with all Governmental Requirements (including without limitation ERISA,
the Tax Code, and other applicable Laws with respect to employee benefit plans);
and (c) maintain its Properties (and any Properties leased by or consigned to it
or held under title retention or conditional sales contracts) material to the
conduct of its business in good working condition, ordinary wear and tear
excepted.

 

6.4           Guaranties of Borrower’s Subsidiaries. Each Subsidiary of Borrower
now existing or created, acquired or coming into existence after the date hereof
shall, promptly and in any event within 30 days after it has become a Subsidiary
of Borrower, execute and deliver to Lender an absolute and unconditional
guaranty of the timely repayment of the Obligations and the due and punctual
performance of the obligations of Borrower hereunder, which guaranty shall be
satisfactory to Lender in form and substance. Each Subsidiary of Borrower
existing on the date hereof shall duly execute and deliver such a guaranty prior
to the making of any Loan hereunder. Borrower will cause each of its
Subsidiaries to deliver to Lender, simultaneously with its delivery of such a
guaranty, written evidence satisfactory to Lender and its counsel that such
Subsidiary has taken all company action necessary to duly approve and authorize
its execution, delivery and performance of such guaranty and any other documents
that it is required to execute.

 

6.5           Further Assurances. Borrower shall, within 10 Business Days after
the request of Lender, cure any defects in the execution and delivery of the
Convertible Term Note, this Agreement or any of the other Loan Documents and
each Credit Party shall, at its expense, promptly execute and deliver to Lender
such other and further documents, agreements and instruments in compliance with
or accomplishment of the covenants and agreements of each Credit Party in this
Agreement and in the other Loan Documents or to further evidence and more fully
describe the collateral intended as security for the Convertible Term Note, as
Lender may reasonably request.

 

6.6           Reimbursement of Expenses. Borrower shall pay (a) all reasonable
legal fees incurred by Lender or Warrant Owner in connection with the
preparation, negotiation, syndication, execution and delivery of this Agreement,
the Convertible Term Note, the Warrants and the other Loan Documents and any
amendments, consents or waivers executed in connection therewith, (b) all fees,
charges or taxes for the recording or filing of the Security Documents, all
reasonable out-of-pocket expenses of Lender or Warrant Owner in connection with
the administration of this Agreement, the Convertible Term Note, the Warrants
and the other Loan Documents, including reasonable fees for inspections and
audits and courier expenses incurred in connection with the Collateral, (c) all
amounts expended, advanced or incurred by Lender or Warrant Owner to satisfy any
obligation of Borrower under this Agreement or any of the other Loan Documents
or to collect the Convertible Term Note or to enforce performance of the
Warrants, or to protect, preserve, exercise or enforce the rights of Lender
under this Agreement or any of the other Loan Documents or to collect the
Convertible Term Note or to enforce performance of the Warrants, or to protect,
preserve, exercise or enforce the rights of Lender or Warrant Owner under this
Agreement or any of the other Loan Documents, (d) all reasonable out-of-pocket
costs and expenses (including reasonable fees and disbursements of attorneys and
other experts employed or retained by such Person) incurred in connection with,
arising out of, or in any way related to (i) consulting during a Default with
respect to (A) the protection, preservation, exercise or enforcement of any of
its rights in, under or related to the Collateral or the Loan Documents or (B)
the performance of any of its obligations under or related to the Loan
Documents, or (ii) protecting, preserving, exercising or enforcing during a
Default any of its rights in, under or related to the Collateral or the Loan
Documents, each of (a) through (d) shall include all collateral liquidation
costs, court costs, reasonable attorneys’ fees (including, without limitation,
for trial, appeal or other proceedings), reasonable fees of auditors and
accountants, and investigation expenses reasonably incurred by Lender or Warrant
Owner in connection with any such matters, together with interest at the
post-maturity rate specified in the Convertible Term Note on each item specified
in clause (a) through (d) from 30 days after the date of written demand or
request for reimbursement until the date of reimbursement.

 

Credit Agreement – Page 30

 

 

6.7           Insurance.

 

6.7.1           Property Insurance. Each Credit Party will keep or cause to be
kept (at its own expense) insured by financially sound and reputable insurers
its Properties (including Collateral) in such amounts, against such risks, in
such form and with such financially sound and reputable insurers as shall be
reasonably satisfactory to Lender from time to time. Borrower will cause the
insurance policies covering any Collateral to be modified or endorsed as
necessary to (a) name the appropriate Credit Party and Lender as insured parties
thereunder (without any representation or warranty by or obligation upon Lender)
as their interests may appear with regard to liability policies, (b) provide for
payments of losses to Lender as its interests may appear notwithstanding any
action, inaction or breach of representation or warranty by any Credit Party,
(c) prevent any expiration, cancellation or significant reduction of the
coverage provided by such policies without at least 30 days prior notice to
Lender, (d) satisfy any other insurance requirements specified in any applicable
Security Document, and (e) provide for coverage against “all risks” including
fire, casualty and any other hazards normally insured against, in the amount of
the full replacement value (less a reasonably deductible not to exceed amounts
customary in the industry for similarly situated businesses and properties) of
the Collateral insured.

 

6.7.2           Other Insurance. Each Credit Party shall at all times maintain
insurance against its liability for injury to persons or property as shall be
reasonably satisfactory to Lender from time to time, which insurance shall be by
financially sound and reputable insurers.

 

6.7.3           Other Requirements. Each Credit Party will, if so requested by
Lender, deliver to Lender original or duplicate policies of the insurance
required by this Agreement and, as often as Lender may reasonably request, a
report of a reputable insurance broker attesting to the satisfaction of these
insurance requirements. Upon and during the continuance of an Event of Default,
Lender is hereby authorized to enforce payment under all such insurance policies
maintained by any Credit Party with respect to the Collateral and to compromise
and settle any claims thereunder, in its own name or in the name of one or more
Credit Parties.

 

Credit Agreement – Page 31

 

 

6.7.4           Failure of Borrower to Obtain Insurance. If Borrower fails to
obtain any insurance or to provide confirmation of the insurance as required by
this Agreement or the other Loan Documents, Lender will be entitled, but not
required, to obtain the insurance and, without limiting Lender’s other remedies
under the circumstances, Lender may require Borrower to reimburse Lender for any
cost of the insurance and to pay interest on the cost computed at the Default
Rate from the date the cost was paid by Lender until the date it is reimbursed
by Borrower.

 

6.8           Accounts and Records. Each Credit Party shall keep books of record
and account in which full, true and correct entries will be made of all dealings
or transactions in relation to its business and activities, in accordance with
GAAP. Each Credit Party shall maintain and implement administrative and
operating procedures and keep and maintain all documents, books, records,
computer tapes and other information reasonably necessary or advisable for the
performance by each Credit Party of its obligations under this Agreement.

 

6.9           Other Information and Inspections. Borrower will furnish to Lender
any information which Lender may from time to time reasonably request in writing
concerning any covenant, provision or condition of the Loan Documents, any
Collateral or any matter in connection with the businesses and operations of
Borrower or each Credit Party. Each Credit Party will permit representatives
appointed by Lender (including independent accountants, auditors, agents,
attorneys, appraisers and any other Persons) to visit and inspect during normal
business hours upon reasonable prior notice, any of its property, including its
books of account, other books and records, and any facilities or other business
assets, and to make extra copies therefrom and photocopies and photographs
thereof, and to write down and record any information such representatives
obtain, and will permit Lender or its representatives to investigate and verify
the accuracy of the information furnished to Lender in connection with the Loan
Documents and to discuss all such matters with its officers, employees and
representatives to the extent Lender reasonably deems necessary in relation to
the Collateral and this Agreement; provided, however, that while no Event of
Default exists, no more than four such visits or inspections shall be conducted
during any Fiscal Year.

 

6.10         Notice of Default and Certain Other Events. Borrower will promptly
notify Lender upon (a) the occurrence of any Default or Material Adverse Change;
(b) the commencement of or any determination made in any legal or regulatory
proceeding that involves a Credit Party and that, if concluded adversely to such
Credit Party or upheld, could have a Material Adverse Effect; or (c) receipt of
any written notice from, or the taking of any other action by, the holder of any
promissory note, debenture or other evidence of Indebtedness of any Credit Party
in excess of the Threshold Amount with respect to any claimed default or any
acceleration or threat of acceleration of such Indebtedness. Further, with each
such notice to Lender, Borrower will include a detailed statement by a
responsible officer of Borrower describing in reasonable detail, to the
knowledge of Borrower, the nature and reasons for the events or circumstances
that caused such notice to be required and what action Borrower is taking or
proposes to take with respect thereto.

 

6.11         Compliance with Loan Documents. Each Credit Party shall promptly
comply with any and all covenants and provisions of this Agreement, the
Convertible Term Note and the other Loan Documents to be complied with by such
Credit Party.

 

Credit Agreement – Page 32

 

 

6.12         Operations and Properties. Each Credit Party must comply with all
material Laws, regulations and guidelines applicable to it.

 

6.13         Environmental Matters.

 

6.13.1         Compliance With Environmental Laws. Each Credit Party will comply
in all material respects with all Environmental Laws now or hereafter applicable
to such Credit Party and shall obtain, at or prior to the time required by
applicable Environmental Laws, all environmental, health and safety permits,
licenses and other authorizations necessary for its operations and will maintain
such authorizations in full force and effect.

 

6.13.2         Notice of Environmental Problem. Borrower will promptly furnish
to Lender all written notices of violation, orders, claims, citations,
complaints, penalty assessments, suits or other proceedings received by
Borrower, or of which it has notice, pending or threatened in writing against
Borrower, by any Governmental Authority with respect to any alleged violation of
or non-compliance with any Environmental Laws or any permits, licenses or
authorizations in connection with its ownership or use of its properties or the
operation of its business.

 

6.14         Reno Plant Permits. By January 9, 2017, the Credit Parties shall
have obtained all governmental certificates of authority, licenses, permits and
qualifications necessary for the operation of the Reno Plant.

 

7.             Negative Covenants.

 

Borrower must, and will cause other Credit Parties to, comply with the covenants
contained in this Article 7 at all times from the date hereof and for so long as
any part of the Obligations is outstanding, except to the extent (if any) such
compliance is expressly and specifically waived by Lender from time to time in
writing.

 

7.1           Indebtedness. No Credit Party will in any manner owe or be liable
for Indebtedness except:

 

7.1.1           the Obligations;

 

7.1.2           obligations under arms-length operating leases entered into the
ordinary course of such Credit Party’s business with lessors who are not
Affiliates of Borrower or are Credit Parties;

 

7.1.3           trade payables and other short term liabilities incurred in the
ordinary course of such Credit Party’s business in arm’s length transactions
with other Credit Parties or with parties who are not Affiliates of Borrower,
which are not greater than ninety (90) days past the date of invoice or
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP;

 

Credit Agreement – Page 33

 

 

7.1.4           Indebtedness owed by such Credit Party to another Credit Party
which is subordinated to the Obligations upon terms and conditions satisfactory
to Lender in its sole and absolute discretion;

 

7.1.5           Indebtedness owed by Credit Parties to Green Bank, N.A. in
connection with the Loan Agreement between Green Bank, N.A. and Aqua Metals
Reno, Inc. dated November 3, 2015, provided that the principal amount of such
Indebtedness does not exceed $10,000,000;

 

7.1.6           Indebtedness outstanding on the date hereof and listed on
Section 7.1.6 of the Disclosure Schedule and any refinancings, refundings,
renewals or extensions thereof; provided that the amount of such Indebtedness is
not increased at the time of such refinancing, refunding, renewal or extension;

 

7.1.7           Indebtedness of such Credit Party with respect to surety,
appeal, indemnity, performance, or other similar bonds incurred in the ordinary
course of business;

 

7.1.8           Indebtedness owing to any Person providing property, casualty,
liability or other insurance to Credit Parties, so long as the amount of such
Indebtedness does not exceed the amount of the unpaid cost of, and shall be
incurred only to defer the cost of, such insurance for the year in which such
Indebtedness is incurred and such Indebtedness is outstanding only during such
year;

 

7.1.9           Indebtedness incurred in the ordinary course of business in
respect of credit cards, credit card processing services, debit cards, stored
value cards, or purchase cards (including so-called “procurement cards” or
“P-cards”);

 

7.1.10         Indebtedness arising from endorsement of instruments or other
payment items for deposit; and

 

7.1.11         other Indebtedness not described in the preceding Sections 7.1.1
through Section 7.1.10 which do not in the aggregate (taking into account all
such Indebtedness of all Credit Parties) exceed the Threshold at any one time
outstanding.

 

7.2           Liens. No Credit Party shall grant, create, incur, assume, permit
or suffer to exist any Lien upon any of the Collateral other than Permitted
Liens.

 

7.3           Contingent Liabilities. Each Credit Party will not directly or
indirectly make, create, incur, assume, permit to exist, increase, renew or
extend any Guaranty Obligation other than (a) any guaranty of Indebtedness owed
to Lender, (b) Guaranty Obligations of the permitted Indebtedness described in
Section 7.1, and (b) the continuation of any existing guaranties listed in
Section 7.3 of the Disclosure Schedule.

 

7.4           Limitation on Mergers. No Credit Party will merge or consolidate
with or into any other Person except (a) that any Subsidiary of Borrower may be
merged into or consolidated with another Subsidiary of Borrower, so long as the
surviving business entity assumes and remains bound by any guaranty of the
Obligations and Security Documents executed by either Subsidiary, or
(b) Borrower may merge with another Person so long as Borrower is the surviving
business entity.

 

Credit Agreement – Page 34

 

 

7.5           Limitation on Sales of Property. No Credit Party will sell,
transfer, lease, exchange, alienate or dispose of any of its material assets or
properties that are Collateral or any material interest therein, except, to the
extent not otherwise forbidden under the Security Documents:

 

7.5.1           equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value;

 

7.5.2           inventory which is sold in the ordinary course of business on
ordinary trade terms;

 

7.5.3           capital stock of any of Borrower’s Subsidiaries which is
transferred to Borrower or a wholly owned Subsidiary of Borrower; and

 

7.5.4           licenses of Borrower’s intellectual property and proprietary
rights.

 

7.6           Limitation on Distributions and Redemptions. Without the written
consent of Lender, no Credit Party will declare or make any Distribution.

 

7.7           Limitation on Investments and New Businesses. No Credit Party will
(a) engage directly or indirectly in any business or conduct any operations
except in connection with or incidental to its present businesses and operations
or (b) make any acquisitions of or capital contributions to or other Investments
in any Person or property, other than Permitted Investments.

 

7.8           Limitation on Extensions of Credit. Except for Permitted
Investments, no Credit Party will extend credit, make advances or make loans
other than normal and prudent extensions of credit to customers buying goods and
services in the ordinary course of business, which extensions shall not be for
longer periods than those extended by similar businesses operated in a normal
and prudent manner.

 

7.9           Transactions with Affiliates. Other than as disclosed in
Section 7.9 of the Disclosure Schedule, no Credit Party will engage in any
material transaction with any of its Affiliates on terms which are less
favorable to it than those which would have been obtainable at the time in
arm’s-length dealing with Persons other than such Affiliates, provided that such
restriction shall not apply to transactions involving only Borrower and its
wholly owned Subsidiaries.

 

7.10         Other Agreements. No Credit Party will enter into or otherwise
become bound by any agreement other than the Loan Documents that prohibits or
limits the amount of dividends, distributions, or loans that it may receive or
make or that prohibit it or any other Credit Party from granting Liens on any of
its assets to Lender.

 

7.11         Fiscal Year, Method of Accounting. No Credit Party shall change its
Fiscal Year or make any material change in its method of accounting.

 

Credit Agreement – Page 35

 

 

7.12         ERISA Plans. No Credit Party shall adopt or agree to maintain or
contribute to or participate in any ERISA Plan. No ERISA Affiliate will incur
any obligation to contribute to any Multiemployer Plan or any plan subject to
Section 4064 of ERISA. Borrower shall promptly notify Lender in writing in the
event any ERISA Affiliate adopts or elects to participate in an ERISA Plan.

 

7.13         Change of Principal Office. No Credit Party shall move its
principal office, executive office or principal place of business from the
address set forth in Section 11.11.2 without prior written notice to Lender.

 

7.14         Hedging Contracts. No Credit Party will be a party to or in any
manner be liable on any Hedging Contract except for Hedging Contracts that are
entered into by such Credit Party in the ordinary course of business for the
purpose of directly mitigating risks associated with liabilities, commitments,
investments, assets or property held or reasonably anticipated by such Credit
Party, and not for purposes of speculation or taking a “market view”.

 

8.             Events of Default.

 

8.1           Nature of Event. An Event of Default shall exist if any one or
more of the following occurs:

 

8.1.1           Monetary Default. Borrower fails to make any payment of
principal of or interest on the Convertible Term Note, or payment of any fee,
expense or other amount due hereunder, under the Convertible Term Note, or under
any other Loan Document, on or before the date such payment is due.

 

8.1.2           Breach of Covenants in Article 7. Default is made in the due
observance or performance by any Credit Party of any covenant set forth in
Article 7 of this Agreement.

 

8.1.3           Breach of Other Provisions of This Agreement. Default is made in
the due observance or performance by any Credit Party of any of the covenants or
agreements contained in this Agreement other than those described in
subsection 8.1.1 or subsection 8.1.2 and such default continues unremedied for a
period of 30 days after notice thereof is given by Lender to Borrower.

 

8.1.4           Breach of Other Loan Documents. Any Credit Party defaults in the
due observance or performance of any of the covenants or agreements contained in
any other Loan Document to which it is a party, and (unless such default
otherwise constitutes a Default pursuant to other provisions of this
Section 8.1) such default continues unremedied beyond the expiration of any
applicable grace period which may be expressly allowed under such other Loan
Document.

 

8.1.5           Material Misrepresentation. Any material statement, warranty or
representation by or on behalf of any Credit Party contained in this Agreement,
the Convertible Term Note or any other Loan Document to which it is a party, or
in any officer’s certificate or other writing furnished in connection with this
Agreement, proves to have been incorrect or misleading in any material respect
as of the date made or deemed made.

 

Credit Agreement – Page 36

 

 

8.1.6           Institution of Certain Legal Proceedings. Any Credit Party:

 

8.1.6.1           suffers the entry against it of a judgment, decree or order
for relief by a court of competent jurisdiction in an involuntary proceeding
commenced under any applicable bankruptcy, insolvency or other similar Law of
any jurisdiction now or hereafter in effect, including the federal Bankruptcy
Code, as from time to time amended, or has any such proceeding commenced against
it which remains undismissed for a period of 60 days; or

 

8.1.6.2           commences a voluntary case under any applicable bankruptcy,
insolvency or similar Law now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended; or applies for or consents to the
entry of an order for relief in an involuntary case under any such Law; or makes
a general assignment for the benefit of creditors; or fails generally to pay (or
admits in writing its inability to pay) its debts as such debts become due; or
takes corporate or other action to authorize any of the foregoing; or

 

8.1.6.3           suffers the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
all or a substantial part of its assets or of any part of the Collateral in a
proceeding brought against or initiated by it, and such appointment or taking
possession is neither made ineffective nor discharged within 60 days after the
making thereof, or such appointment or taking possession is at any time
consented to, requested by, or acquiesced to by it; or

 

8.1.6.4           suffers the entry against it of a final judgment for the
payment of money in excess of the Threshold Amount (not covered by insurance
satisfactory to Lender in its reasonable discretion), unless the same is
discharged within 30 days after the date of entry thereof or an appeal or
appropriate proceeding for review thereof is taken within such period and a stay
of execution pending such appeal is obtained; or

 

8.1.6.5           suffers a writ or warrant of attachment or any similar process
to be issued by any court against all or any substantial part of its assets or
any part of the Collateral.

 

8.1.7           Cross Default to Other Indebtedness. Any Credit Party fails to
make when due or within any applicable grace period any payment on any
Indebtedness (other than the Obligations) with an unpaid principal balance
greater than the Threshold Amount; or any event or condition occurs under any
provision contained in any agreement under which such Indebtedness is governed,
evidenced or secured (or any other material breach or default under such
obligation or agreement occurs) if the effect thereof is to cause or permit the
holder or trustee of such obligation to cause such obligation to become due
prior to its stated maturity; or any such obligation becomes due (other than by
regularly scheduled payments) prior to its stated maturity; or any of the
foregoing occurs with respect to any one or more items of Indebtedness of any
Credit Party with unpaid principal balances exceeding, in the aggregate, the
Threshold Amount.

 

Credit Agreement – Page 37

 

 

8.1.8           Impairment of Loan Documents. This Agreement, the Convertible
Term Note, or any other Loan Document shall for any reason cease to be in full
force and effect, or be declared null and void or unenforceable in whole or in
part as the result of any action initiated by any Person other than Lender; or
the validity or enforceability of any such document shall be challenged or
denied by any Credit Party other than by reason of illegality.

 

8.1.9           Change of Control. A Change of Control occurs.

 

8.1.10         Impairment of Liens. Any Lien granted pursuant to the Security
Documents shall for any reason cease to be in full force and effect, or be
declared null and void or unenforceable in whole or in part as the result of any
action initiated by any Person other than Lender; or the validity or
enforceability of any such Lien shall be challenged or denied by any Credit
Party other than by reason of illegality.

 

8.2           Acceleration. Upon the occurrence and during the continuance of an
Event of Default, Lender may declare the entire principal and all interest
accrued on the Convertible Term Note to be, and the Convertible Term Note,
together with all Obligations, shall thereupon become, forthwith due and
payable, without any presentment, demand, protest, notice of protest and
nonpayment, notice of acceleration or of intent to accelerate or other notice of
any kind, all of which hereby are expressly waived. Notwithstanding the
foregoing, if an Event of Default specified in subsections 8.1.6.1, 8.1.6.2 or
8.1.6.3 occurs with respect to Borrower, the Convertible Term Note and all other
Obligations shall become automatically and immediately due and payable, both as
to principal and interest, without any action by Lender and without presentment,
demand, protest, notice of protest and nonpayment, notice of acceleration or of
intent to accelerate, or any other notice of any kind, all of which are hereby
expressly waived, anything contained herein, in the Convertible Term Note to the
contrary notwithstanding.

 

8.3           Remedies. Upon the occurrence and during the continuance of any
Event of Default, Lender shall at its option be entitled to proceed to exercise
any of the following remedies:

 

8.3.1           Borrower agrees that the occurrence of such Event of Default
shall constitute a default and an event of default under each of the Loan
Documents, because of which Lender will be entitled (i) to exercise any of the
various remedies provided in the Loan Documents, including the acceleration of
the indebtedness evidenced by the Convertible Term Note and the foreclosure of
the lien and security interests granted and conveyed by the Security Documents,
and (ii) cumulatively to exercise all other rights, options and privileges
provided by Law.

 

Credit Agreement – Page 38

 

 

8.3.2           Without limiting the generality of the foregoing, upon the
occurrence and during the continuance of an Event of Default, if the Lender is
ever a financial institution, Lender shall have the right at any time and from
time to time, without notice to Borrower (any such notice being expressly
waived), to set-off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held, and any other Indebtedness at
any time owing by Lender to or for the credit or the account of Borrower,
against any and all of the Obligations of Borrower evidenced by the Convertible
Term Note, irrespective of whether or not Lender shall have made any demand
under this Agreement or the Convertible Term Note and although such Obligations
may be unmatured. Lender agrees to notify Borrower promptly after any such
set-off and application, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of Lender under
this subsection are in addition to any other rights and remedies (including
other rights of set-off) which Lender may have under other provisions of this
Agreement or the other Loan Documents or otherwise.

 

9.             Indemnity.

 

9.1           Agreement to Indemnify. Subject only to the exceptions and
qualifications listed in Section 9.2 below:

 

9.1.1           Agreement to Indemnify. Borrower shall pay, reimburse,
indemnify, defend, protect and hold harmless Lender and all other Indemnified
Parties from and against all Losses asserted against or incurred or suffered by
any of them at any time and from time to time by reason of, in connection with,
arising out of (directly or indirectly), or in any way related to any of the
following:

 

9.1.1.1           the Loan or any disbursement of the proceeds of the Loan;

 

9.1.1.2           the negotiation, administration or enforcement of any of the
Loan Documents or the exercise of rights or remedies thereunder;

 

9.1.1.3           any breach by any party other than Lender of any of the Loan
Documents or of any other certificates or agreements executed pursuant to or in
connection with the Loan Documents;

 

9.1.1.4           the Collateral;

 

9.1.1.5           any failure of the Collateral or Borrower itself to comply
with applicable Law; and

 

9.1.1.6           any actual or alleged presence or Release of Hazardous
Materials (as such terms are defined in the Stock Purchase Agreement) on or from
any property owned or operated by the Borrower or any of its Subsidiaries, or
any environmental liability related in any way to Borrower or any of its
Subsidiaries.

 

Borrower’s obligations under this Section 9.1 will survive any termination or
expiration of this Agreement, and this indemnity shall apply whether or not any
Indemnified Party shall also be indemnified as to the applicable Loss by any
other Person and whether or not the Loss arises or accrues prior to the
Effective Date.

 

Credit Agreement – Page 39

 

 

9.1.2           Due Date for Indemnity Payments. Any amount to be paid by
Borrower under this Section 9.1 shall be due 10 days after a notice requesting
such payment is given to Borrower.

 

9.2           Exceptions and Qualifications to Indemnity. Lender acknowledges
and agrees that nothing in the preceding Section 9.1 shall require or be
construed to require Borrower to pay or reimburse any Losses incurred or
suffered by any Indemnified Party that result from or are proximately caused by
(and attributed by any applicable principles of comparative fault to) the
Established Misconduct of that Indemnified Party.

 

10.           Provision to Satisfy Express Negligence Rule.

 

EVERY INDEMNITY AND RELEASE PROVIDED IN THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS FOR THE BENEFIT OF LENDER OR OTHER INDEMNIFIED PARTIES, INCLUDING THE
INDEMNITY SET FORTH IN THE ARTICLE 9, SHALL APPLY EVEN IF AND WHEN THE SUBJECT
MATTER OF THE INDEMNITY OR RELEASE ARISES OUT OF OR RESULTS FROM THE ORDINARY
NEGLIGENCE OR STRICT LIABILITY, BUT NOT GROSS NEGLIGENCE, OF LENDER OR ANOTHER
INDEMNIFIED PARTY.

 

11.           Miscellaneous.

 

Without limiting the covenants of Borrower in the other Loan Documents, Borrower
covenants with Lender as follows:

 

11.1         Section 346 of the Texas Finance Code. Section 346 of the Texas
Finance Code (which regulates certain revolving loan accounts and revolving
tri-party accounts) shall not apply to this Agreement or the other Loan
Documents.

 

11.2         Limitation on Interest. Lender, each Credit Party and any other
parties to the Loan Documents intend to contract in strict compliance with
applicable usury Law from time to time in effect. In furtherance thereof such
Persons stipulate and agree that none of the terms and provisions contained in
the Loan Documents shall ever be construed to create a contract to pay, for the
use, forbearance or detention of money, interest in excess of the maximum amount
of interest permitted to be charged by applicable Law from time to time in
effect. Neither each Credit Party nor any present or future guarantors,
endorsers, or other Persons hereafter becoming liable for payment of any
Obligation shall ever be liable for unearned interest thereon or shall ever be
required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable Law from time to time in effect, and the
provisions of this section shall control over all other provisions of the Loan
Documents which may be in conflict or apparent conflict herewith. Lender
expressly disavows any intention to charge or collect excessive unearned
interest or finance charges in the event the maturity of any Obligation is
accelerated. If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or (c)
Lender or any other holder of any or all of the Obligations shall otherwise
collect moneys which are determined to constitute interest which would otherwise
increase the interest on any or all of the Obligations to an amount in excess of
that permitted to be charged by applicable Law then in effect, then all such
sums determined to constitute interest in excess of such legal limit shall,
without penalty, be promptly applied to reduce the then outstanding principal of
the related Obligations or, at Lender’s or such holder’s option, promptly
returned to each Credit Party or the other payor thereof upon such
determination. In determining whether or not the interest paid or payable, under
any specific circumstance, exceeds the maximum amount permitted under applicable
Law, Lender and each Credit Party (and any other payors thereof) shall to the
greatest extent permitted under applicable Law, (i) characterize any
non-principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate, and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Obligations in accordance
with the amounts outstanding from time to time thereunder and the maximum legal
rate of interest from time to time in effect under applicable Law in order to
lawfully charge the maximum amount of interest permitted under applicable Law.
In the event applicable Law provides for an interest ceiling under Section 303
of the Texas Finance Code, that ceiling shall be the weekly ceiling.

 

Credit Agreement – Page 40

 

 

11.3         Bank Accounts, Offset. To secure the repayment of the Obligations
each Credit Party hereby grants to Lender and to each financial institution
which hereafter acquires a participation or other interest in the Loan or the
Convertible Term Note (in this section called a “Participant”) a security
interest, a lien, and a right of offset, each of which shall be in addition to
all other interests, liens, and rights of Lender or any Participant at common
law, under the Loan Documents, or otherwise, and each of which shall be upon and
against (a) any and all moneys, securities or other Property (and the proceeds
therefrom) of any Credit Party now or hereafter held or received by or in
transit to such financial institution Participant from or for the account any
Credit Party, whether for safekeeping, custody pledge, transmission, collection
or otherwise, (b) any and all deposits (general or special, time or demand,
provisional or final) of any Credit Party with such financial institution
Participant, and (c) any other credits and claims of any Credit Party at any
time existing against such financial institution Participant, including claims
under certificates of deposit. Upon the occurrence of any Event of Default, each
financial institution Participant is hereby authorized to offset, appropriate,
and apply, at any time and from time to time, without prior notice to Borrower,
any and all items hereinabove referred to against the Obligations then due and
payable.

 

11.4         Assignments, Participations.

 

11.4.1           Assignments. Lender shall have the right to sell, assign or
transfer all or any part of the Convertible Term Note, Loan and rights and the
associated rights and Obligations under all Loan Documents to one or more
financial institutions or Interstate Group Members, and the assignee, transferee
or recipient shall have, to the extent of such sale, assignment, or transfer,
the same rights, benefits and obligations of Lender. Within 5 Business Days
after any such assignment, the assignee shall notify Borrower of the outstanding
principal balance of the Convertible Term Note payable to assignee and Borrower
shall execute and deliver to assignee a new Convertible Term Note evidencing
such assignee’s assigned Loan and, if the assignor Lender has retained a portion
of its Loan, replacement Convertible Term Note in the principal amount of the
Loan retained by the assignor Lender (such replacement Convertible Term Note to
be in exchange for, but not in payment of, the original Convertible Term Note
held by such Lender).

 

Credit Agreement – Page 41

 

 

11.4.2           Participations. Lender shall have the right to grant
participations in all or any part of the Convertible Term Note, Loan and the
associated rights and obligations under all Loan Documents to one or more
financial institutions or Interstate Group Members.

 

11.4.3           Distribution of Information. It is understood and agreed that
Lender may provide to assignees and participants and prospective assignees and
participants financial information and reports and data concerning Borrower’s
properties and operations which was provided to Lender pursuant to this
Agreement, provided that such assignees and participants agree in writing to
keep such information, reports and data confidential in accordance with the same
terms as stated in Section 11.6 hereof or such other terms as Borrower may
approve in writing in its sole and absolute discretion.

 

11.5         Assignment by Borrower. Notwithstanding anything to the contrary in
this Agreement, Borrower shall have no right to assign its rights under this
Agreement or the other Loan Documents or its rights to the proceeds of the Loan
without the written consent of Lender, in its sole and absolute discretion, in
each case, and any such assignment or purported assignment without consent
shall, at Lender’s option, relieve Lender from all further obligations hereunder
and shall constitute an Event of Default under this Agreement.

 

11.6         Confidentiality. Lender agrees to keep confidential any information
furnished or made available to it by any Credit Party pursuant to any Loan
Document, except that nothing herein or in any of the other Loan Documents shall
prevent Lender from disclosing such information or any other information (a) to
any officer, director, employee, agent, or advisor of Lender or Affiliate of
Lender, (b) to any other Person if reasonably incidental to the administration
of the credit facility provided herein, (c) as required by any Law; provided
that (x) prior to any disclosure under this clause (c), the disclosing party
agrees to provide Borrower with prior notice thereof, to the extent that the
disclosing party is permitted to provide such prior notice to Borrower pursuant
to the terms of the applicable Law and (y) any disclosure under this clause (c)
shall be limited to the portion of the confidential information as may be
required by such Law, (d) upon the order of any administrative agency so long as
such administrative agency is informed of the confidential nature of such
information, (e) upon the request or demand of any court or tribunal pursuant to
any subpoena or other legal process, provided, that, (x) prior to any disclosure
under this clause (e) the disclosing party agrees to provide Borrower with prior
written notice thereof, to the extent that the disclosing party is permitted to
provide such prior written notice to Borrower pursuant to the terms of the
subpoena or other legal process and (y) any disclosure under this clause (e)
shall be limited to the portion of the confidential information as may be
required by such court or tribunal pursuant to such subpoena or other legal
process, (f) that is or becomes available to the public other than as a result
of a disclosure by Lender or any Indemnified Party prohibited by this Agreement,
(g) in connection with any litigation to which such Lender or any of its
Affiliates may be a party involving parties hereto which such litigation
involves claims related to the rights or duties of such parties under this
Agreement or the other Loan Documents; provided, that, prior to any disclosure
to any Person (other than any Credit Party, Lender, any of their respective
Affiliates, or their respective counsel) under this clause (g) with respect to
litigation involving any Person (other than Borrower, Lender, any of their
respective Affiliates, or their respective counsel), the disclosing party agrees
to provide Borrower with prior written notice thereof, (h) if (and only to the
extent) necessary in connection with the exercise of any secured creditor remedy
under this Agreement or any other Loan Document, (i) subject to provisions
substantially similar to those contained in this section, to any actual or
proposed participant or assignee that is a financial institution or an
Interstate Group Member or that has been approved in writing by Borrower, and
(j) if the disclosure is authorized by other express provisions of this
Agreement or any other Loan Document.

 

Credit Agreement – Page 42

 

 

11.7         Termination, Limited Survival. In its sole and absolute discretion
Borrower may at any time that no Obligations are owing elect in a notice
delivered to Lender to terminate this Agreement. Upon receipt by Lender of such
a notice, if no Obligations are then owing, this Agreement and all other Loan
Documents shall thereupon be terminated and the parties thereto released from
all prospective obligations thereunder. Notwithstanding the foregoing or
anything herein to the contrary, any waivers or admissions made by any Person in
any Loan Documents, any Obligations, and any obligations which any Person may
have to indemnify or compensate Lender shall survive any termination of this
Agreement or any other Loan Document. At the request and expense of Borrower,
Lender shall prepare and execute all necessary instruments to reflect and effect
such termination of such Loan Documents.

 

11.8         Rights of Third Parties. All conditions to the obligations of
Lender under this Agreement, including the obligation to disburse proceeds of
Loan, are imposed solely and exclusively for the benefit of Lender and its
successors and permitted assigns and no other person shall have standing to
require satisfaction of such conditions or be entitled to assume that Lender
will make disbursements or refuse to make disbursements in the absence of strict
compliance with any or all of such condition. Further, no other person shall,
under any circumstances, be deemed to be a beneficiary of such conditions, any
and all of which may be freely waived in whole or in part by Lender at any time
if in its sole discretion it deems it desirable to do so.

 

11.9         Evidence of Satisfaction of Conditions. Any condition of this
Agreement which requires the submission of evidence of the existence or
nonexistence of a specified fact or facts implies as a condition the existence
or nonexistence, as the case may be, of such fact or facts, and Lender shall, at
all times, be able to establish to its satisfaction and in its reasonable
discretion such existence or nonexistence.

 

11.10         Conflict with the Term Sheet. This Agreement and the other Loan
Documents are intended to supersede the Term Sheet, except to the extent (if
any) that other provisions of this Agreement expressly incorporate terms or
conditions of the Term Sheet by reference.

 

11.11         Payments and Notices. Any provision of the Loan Documents or of
applicable Law with reference to the sending, mailing or delivery of any notice
or demand under this Agreement or with reference to the making of any payment
required under the Loan Documents, shall be deemed to be complied with when and
if the following steps are taken:

 

11.11.1         Manner of Payment. All payments on the Convertible Term Note and
other amounts required to be paid by Borrower to Lender shall be paid to Lender
in immediately available funds by wire transfer to the account designated by
Lender.

 

Credit Agreement – Page 43

 

 

11.11.2         Notice Requirements. Except in the case of notices and other
communications expressly permitted to be given by telephone (and except as
provided in subsection 11.11.3 below), all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
facsimile as follows and all notices and other communications expressly
permitted hereunder to be given by telephone shall be made to the applicable
telephone number, as follows:

 

  Address of Lender:       INTERSTATE EMERGING INVESTMENTS, LLC   12770 Merit
Drive, Suite 1000   Dallas, Texas 75251   Attention: Kelvin F. Sellers   Fax:
(972) 455-6051   Email: kelvin.sellers@ibsa.com       Address of Borrower:      
AQUA METALS, INC.   1010 Atlantic Avenue   Alameda, California 94501  
Attention: Stephen R. Clarke   Email: Steve.Clarke@aquametals.com

 

Notices sent by hand or overnight courier service, or mailed by certified or
registered mail, shall be deemed to have been given when received; notices sent
by facsimile shall be deemed to have been given when sent (except that, if not
given during normal business hours for the recipient, shall be deemed to have
been given at the opening of business on the next business day for the
recipient). Notices delivered through electronic communications, to the extent
provided in subsection 11.11.3 below, shall be effective as provided in said
subsection 11.11.3. Any party hereto may change its address or facsimile number
for notices and other communications hereunder by notice to the other party
hereto

 

11.11.3         Electronic Communications. Notices and other communications to
Lender may be delivered or furnished by electronic communication (including
e-mail and Internet or intranet websites) pursuant to procedures approved by
Lender. Lender or Borrower or any other Credit Party may, in its discretion,
agree to accept notices and other communications to it hereunder by electronic
communications pursuant to procedures approved by it, provided that approval of
such procedures may be limited to particular notices or communications.

 

Credit Agreement – Page 44

 

 

Unless Lender otherwise prescribes, (i) notices and other communications sent to
an e-mail address shall be deemed received upon the sender’s receipt of an
acknowledgement from the intended recipient (such as by the “return receipt
requested” function, as available, return e-mail or other written
acknowledgement), and (ii) notices or communications posted to an Internet or
intranet website shall be deemed received upon the deemed receipt by the
intended recipient, at its e-mail address as described in the foregoing clause
(i), of notification that such notice or communication is available and
identifying the website address therefor; provided that, for both clauses (i)
and (ii) above, if such notice, email or other communication is not sent during
the normal business hours of the recipient, such notice or communication shall
be deemed to have been sent at the opening of business on the next business day
for the recipient.

 

11.12         Other Terms and References.

 

11.12.1         As used in any of the Loan Documents, a capitalized term that is
not defined in such document or in this Agreement, but that is defined in
another of the Loan Documents, shall have the meaning ascribed to it in such
other document, unless a contrary intent is clear from the context in which such
term is used.

 

11.12.2         Words of any gender used in the Loan Documents shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural and vice versa, unless the context otherwise
requires.

 

11.12.3         References in any of the Loan Documents to Paragraphs,
subparagraphs, Articles, Sections, subsections or other subdivisions shall refer
to the corresponding Paragraphs, subparagraphs, Articles, Sections, subsections
or subdivisions of such document, unless specific reference is made to another
document or instrument.

 

11.12.4         References in any of the Loan Documents to any Schedule or
Exhibit shall refer to the corresponding Schedule or Exhibit attached to such
document, which shall be made a part thereof by such reference.

 

11.12.5         All capitalized terms used in the Loan Documents which refer to
other documents shall be deemed to refer to such other documents as they may be
renewed, extended, supplemented, amended or otherwise modified from time to
time, provided such documents are not renewed, extended or modified in breach of
any provision contained in any of the Loan Documents.

 

11.12.6         All accounting terms used but not specifically defined in the
Loan Documents shall be construed in accordance with GAAP.

 

11.12.7         The words “this Agreement”, “herein”, “hereof”, “hereby”,
“hereunder” and words of similar import when used in any of the Loan Documents
refer to such document taken as a whole and not to any particular subdivision
thereof unless expressly so limited. The phrases “this Paragraph”, “this
subparagraph”, “this Section”, “this subsection” and similar phrases used in the
Loan Documents refer only to the Paragraph, subparagraph, Section, subsection or
other subdivision described in which the phrase occurs.

 

11.12.8         As used in the Loan Documents the word “or” is not exclusive.

 

Credit Agreement – Page 45

 

 

11.12.9         The word “express” will be construed as if followed by “and
unambiguous”, and the word “expressly” will be construed as if followed by “and
unambiguously”.

 

11.12.10         The words “include”, “including” and similar terms shall be
construed as if followed by “, without limitation to,” and the rule of ejusdem
generis shall not be applied to limit the generality of a term in any of the
Loan Documents when followed by specific examples.

 

11.13         Severability. If any term or provision of any of the Loan
Documents or the application of it shall to any extent be held by a court to be
invalid and unenforceable, the remainder of the Loan Documents, or the
application of such term or provision other than to the extent to which it is
invalid or unenforceable, shall not be affected.

 

11.14         Paragraph Headings. The paragraph and section headings contained
in the Loan Documents are for convenience only and shall in no way enlarge or
limit the scope or meaning of the various and several provisions hereof.

 

11.15         Time is of the Essence. Time is of the essence as to all
obligations created by and notices required or permitted by the Loan Documents.

 

11.16         Negotiated Documents. Lender or Borrower and their counsel have
reviewed and revised or requested revisions to the Loan Documents, and the usual
rule of construction that any ambiguities are to be resolved against the
drafting party shall not apply to the construction or interpretation of the Loan
Documents or any amendments to the Loan Documents.

 

11.17         No Fiduciary Relationship, Etc. Neither the execution of the Loan
Documents nor the administration hereof or of other documents referenced herein,
nor any other right, duty or obligation created under or pursuant to the Loan
Documents is intended to be or to create any fiduciary relationship between
Lender and Borrower.

 

11.18         Cumulative Rights and Remedies. All rights and remedies of Lender
under any of the Loan Documents shall be separate, distinct and cumulative and
no single, partial or full exercise of any right or remedy shall exhaust the
same or preclude Lender from thereafter exercising in full or in part the same
right or remedy or from concurrently or thereafter exercising any other right or
remedy which Lender may have under any of the Loan Documents or at Law or in
equity, and each and every such right and remedy may be exercised at any time or
from time to time as Lender believes to be appropriate in its sole and absolute
discretion.

 

11.19         No Implied Waiver. The failure of Lender to insist at any time
upon the strict performance of any covenant or agreement or to exercise any
option, right, power or remedy contained in the Loan Documents shall not be
construed as a waiver or a relinquishment of such option, right, power or remedy
for the future. The waiver of or redress for any breach of the Loan Documents by
Borrower shall not prevent a similar subsequent act from constituting a breach.
Any express waiver by Lender of any provision of the Loan Documents shall affect
only the term or condition specified in such waiver and only for the time and in
the manner specifically stated in such waiver. No waiver by Lender of any
provision of the Loan Documents shall be effective unless expressed in writing
and signed by the Person to be bound by the waiver. A receipt by Lender of any
payment with knowledge of a breach by Borrower of any provision of the Loan
Documents shall not constitute a waiver of the breach.

 

Credit Agreement – Page 46

 

 

11.20         Entire and Only Agreement; No Oral Amendments. The Loan Documents
supersede any prior negotiations and agreements between Lender and Borrower
concerning the Property, and no amendment, release or termination of any of the
Loan Documents shall be binding or valid unless expressed in a writing executed
by all parties to be bound by such amendment, release or termination.

 

11.21         Binding Effect Upon Successors and Assigns. Whether or not so
expressed, whenever a party to any of the Agreement is named or referenced in
this Agreement, the successors and permitted assigns of such party shall be
included, and all covenants and agreements contained in this Agreement by or on
behalf of Borrower or Lender shall bind and inure to the benefit of their
respective successors and permitted assigns.

 

11.22         Governing Law. EXCEPT TO THE EXTENT THAT THE LAW OF ANOTHER
JURISDICTION IS EXPRESSLY ELECTED IN A LOAN DOCUMENT, ThIS Agreement, the
CONVERTIBLE TERM Note and the other Loan Documents shall be construed and
enforced in accordance with and governed by the laws of the State of Texas and
the federal laws of the United States applicable within such state, without
regard to conflict or choice of law rules that might require the application of
the laws of another jurisdiction.

 

11.23         Agreement to Jurisdiction and Methods of Service of Process.

 

11.23.1         Each of Lender and Borrower irrevocably submits to the
jurisdiction of any Texas or federal court sitting in Dallas County, Texas over
any suit or proceeding arising out of or relating to this Agreement or any of
the other Loan Documents, and both Lender and Borrower waives and agrees not to
assert, by way of motion, as a defense or otherwise, that any such suit or
proceeding brought in a court in Dallas County, Texas is brought in an
inconvenient forum or that the venue thereof is improper. Nothing herein or in
any other Loan Document shall affect any right that Lender may otherwise have to
bring any action or proceeding relating to this Agreement or any other Loan
Document against any Credit Party or its properties in the courts of any
jurisdiction.

 

11.23.2         Further, each of Lender and Borrower agrees and consents that
service of process may be made upon it in any legal proceeding relating to this
Agreement or any of the other Loan Documents by any means allowed under Texas or
federal Law. In addition to other permitted methods of service of process,
unless disallowed by Texas or federal Law, service of process upon Lender or
Borrower in any such proceeding may be made by certified or registered mail,
return receipt requested, directed to Lender or Borrower, as the case may be, at
the notice address specified in this Section, and service so made shall be
complete 5 days after the same shall have been so mailed.

 

Credit Agreement – Page 47

 

 

11.23.3         Nothing in this Section shall affect the right of Lender or
Borrower to serve legal process in any other manner permitted by Law or affect
the right of Lender or Borrower to bring any action or proceeding against the
other party or its property in the courts of any other jurisdiction or
jurisdictions.

 

11.24         Execution in Counterparts; Delivery by Fax. To facilitate
execution, each of the Loan Documents may be executed in multiple identical
counterparts. It shall not be necessary that the signature of, or on behalf of,
each party, or that the signature of all persons required to bind any party,
appear on each counterpart. All counterparts, taken together, shall collectively
constitute a single instrument. But it shall not be necessary in making proof of
any of the Loan Documents to produce or account for more than a single
counterpart containing the respective signatures of, or on behalf of, each of
the parties to such document. Any signature page may be detached from one
counterpart and then attached to a second counterpart with identical provisions
without impairing the legal effect of the signatures on the signature page.
Signing and sending a counterpart (or a signature page detached from the
counterpart) by facsimile or other electronic means to another party will have
the same legal effect as signing and delivering an original counterpart to the
other party. A copy (including a copy produced by facsimile or other electronic
means) of any signature page that has been signed by or on behalf of a party to
any of the Loan Documents shall be as effective as the original signature page
for the purpose of proving such party’s this Agreement to be bound.

 

11.25         Waiver of Rights to Trial by Jury. BY ITS EXECUTION OF THIS
AGREEMENT, EACH OF BORROWER AND LENDER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THE LOAN DOCUMENTS
OR ANY OF THEM OR ANY OTHER DOCUMENT OR DEALINGS BETWEEN THEM RELATING TO THE
LOAN OR THE PROPERTY. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including contract claims,
tort claims, breach of duty claims, and all other common law and statutory
claims. This waiver is a material inducement to each of Borrower and Lender as
they enter into a business relationship; each has already relied on the waiver
in entering into the Loan Documents; and each will continue to rely on the
waiver in their related future dealings. Borrower and Lender, each having
reviewed this waiver with its legal counsel, knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO EACH OF THE LOAN DOCUMENTS. In the event of litigation, this
Agreement may be filed as a written consent to a trial by before a judge sitting
without a jury.

 

11.26         Waiver of Consequential Damages, Etc. To the fullest extent
permitted by applicable Law, Borrower shall not assert, and hereby waives, any
claim against any Indemnified Party, on any theory of liability, for special,
indirect, consequential or punitive damages (as opposed to direct or actual
damages) arising out of, in connection with, or as a result of, this Agreement,
any other Loan Document or any agreement or instrument contemplated hereby, the
transactions contemplated hereby or thereby, any Loan, or the use of the
proceeds thereof. No Indemnified Party shall be liable for any damages arising
from the use by unintended recipients of any information or other materials
distributed by it through telecommunications, electronic or other information
transmission systems in connection with this Agreement or the other Loan
Documents or the transactions contemplated hereby or thereby.

 

[Signature pages follow.]

 

Credit Agreement – Page 48

 

 

IN WITNESS WHEREOF, this Agreement is executed to be effective as of the
Effective Date.

 

  INTERSTATE EMERGING INVESTMENTS,
LLC, as Lender       By: INTERSTATE BATTERIES, INC.,   its sole member        
By: /s/ William McDade     Name:  William McDade     Title:  CFO

 

Credit Agreement – Signature Page

 

 

  AQUA METALS, INC., as Borrower         By: /s/ Stephen R. Clarke     Name:
Stephen R. Clarke     Title:  CEO

 

Credit Agreement – Signature Page

 

 

Exhibit A

 

Form of Convertible Term Note

 

 

 

 

CONVERTIBLE TERM NOTE

 

$5,000,000.00 Dallas, Texas [____ __], 2016

 

FOR VALUE RECEIVED, the undersigned, AQUA METALS, INC., a Delaware corporation
(herein called “Borrower”), hereby promises to pay to INTERSTATE EMERGING
INVESTMENTS, LLC or its permitted assigns (herein called “Lender”), the
principal sum of FIVE MILLION AND 00/100 Dollars ($5,000,000.00), together with
interest on the unpaid principal balance thereof as hereinafter set forth, both
principal and interest payable as herein provided in lawful money of the United
States of America at the offices of Lender under the Credit Agreement, or at
such other place as from time to time may be designated by the holder of this
Convertible Term Note.

 

This Convertible Term Note (a) is issued and delivered under that certain Credit
Agreement dated as of May 18, 2016 among Borrower and Lender (herein, as from
time to time supplemented, amended or restated, called the “Credit Agreement”),
and is a “Convertible Term Note” as defined therein, (b) is subject to the terms
and provisions of the Credit Agreement, which contains provisions for payments
and prepayments hereunder, conversion of principal and interest hereunder into
common stock of Borrower, and acceleration of the maturity hereof upon the
happening of certain stated events, and (c) is secured by and entitled to the
benefits of certain Security Documents (as identified and defined in the Credit
Agreement). Payments on this Convertible Term Note shall be made and applied as
provided herein and in the Credit Agreement. Reference is hereby made to the
Credit Agreement for a description of certain rights, limitations of rights,
obligations and duties of the parties hereto and for the meanings assigned to
terms used and not defined herein and to the Security Documents for a
description of the nature and extent of the security thereby provided and the
rights of the parties thereto.

 

Unless earlier converted into common stock of Borrower, the principal amount of
this Convertible Term Note, together with all interest accrued hereon, shall be
due and payable in full on the Maturity Date and otherwise as provided in the
Credit Agreement. Interest on this Convertible Term Note shall be payable as
provided in the Credit Agreement.

 

Notwithstanding the foregoing paragraph and all other provisions of this
Convertible Term Note, in no event shall the interest payable hereon, whether
before or after maturity, exceed the maximum amount of interest which, under
applicable Law, may be contracted for, charged, or received on this Convertible
Term Note, and this Convertible Term Note is expressly made subject to the
provisions of the Credit Agreement which more fully set out the limitations on
how interest accrues hereon. In the event applicable Law provides for an
interest ceiling under Chapter 303 of the Texas Finance Code (the “Texas Finance
Code”) as amended, for that day, the ceiling shall be the “weekly ceiling” as
defined in the Texas Finance Code and shall be used in this Convertible Term
Note for calculating the Maximum Rate and for all other purposes. The term
“applicable law” as used in this Convertible Term Note shall mean the Laws of
the State of Texas or the Laws of the United States, whichever Laws allow the
greater interest, as such Laws now exist or may be changed or amended or come
into effect in the future.

 

 

 

 

If this Convertible Term Note is placed in the hands of an attorney for
collection after default, or if all or any part of the indebtedness represented
hereby is proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Convertible Term Note jointly and
severally agree to pay reasonable attorneys’ fees and collection costs to the
holder hereof in addition to the principal and interest payable hereunder.

 

Borrower and all endorsers, sureties and guarantors of this Convertible Term
Note hereby severally waive demand, presentment, notice of demand and of
dishonor and nonpayment of this Convertible Term Note, protest, notice of
protest, notice of intention to accelerate the maturity of this Convertible Term
Note, declaration or notice of acceleration of the maturity of this Convertible
Term Note, diligence in collecting, the bringing of any suit against any party
and any notice of or defense on account of any extensions, renewals, partial
payments or changes in any manner of or in this Convertible Term Note or in any
of its terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.

 

This Convertible Term Note and the rights and duties of the parties hereto shall
be governed by the Laws of the State of Texas (without regard to principles of
conflicts of law), except to the extent the same are governed by applicable
federal Law.

 

THIS Convertible Term Note IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT
CERTAIN INTERCREDITOR AGREEMENT BETWEEN LENDER AND GREEN BANK, N.A. DATED AS OF
THE DATE HEREOF.

 

  AQUA METALS, INC.         By:       Name:     Title:

 

 

 

 

Exhibit B

 

Form of Compliance Certificate

 

Exhibit B – Page 1

 

 

COMPLIANCE CERTIFICATE

 

Reference is made to that certain Credit Agreement dated as of May 18, 2016 (as
amended or supplemented, the “Credit Agreement”), by and between AQUA METALS,
INC. (“Borrower”), a Delaware corporation, and INTERSTATE EMERGING INVESTMENTS,
LLC (“Lender”), which Credit Agreement is in full force and effect on the date
hereof. Terms that are defined in the Credit Agreement are used herein with the
meanings given them in the Credit Agreement.

 

This Certificate is furnished pursuant to Section 6.1.4 of the Agreement.
Together herewith Borrower is furnishing to Lender, Borrower’s
*[audited/unaudited] financial statements (the “Financial Statements”) as at
____________ (the “Reporting Date”). Borrower hereby represents, warrants, and
acknowledges to Lender that:

 

(a)          the officer of Borrower signing this instrument is the duly
elected, qualified and acting ____________ of Borrower and as such is Borrower’s
[president/chief executive officer/ treasurer/chief financial officer];

 

(b)          the Financial Statements have been prepared in accordance with GAAP
and present fairly [subject to year-end adjustments and the absence of
footnotes] the financial position of Borrower on a Consolidated basis;

 

(c)          on the Reporting Date Borrower was, and on the date hereof Borrower
is, in full compliance with the disclosure requirements of Section 6.10 of the
Credit Agreement, and no Default otherwise existed on the Reporting Date or
otherwise exists on the date of this instrument *[except for Default(s) under
Section(s) ____________ of the Agreement, which *[is/are] more fully described
on a schedule attached hereto]; and

 

(d)          *[unless otherwise disclosed on a schedule attached hereto,] the
representations and warranties of the Credit Parties set forth in the Credit
Agreement and the other Loan Documents are true and correct in all material
respects (without duplication of any materiality qualifiers contained therein)
on and as of the date hereof, with the same effect as though such
representations and warranties had been made on and as of the date hereof,
except for any such representation or warranty that expressly applies to a
specified earlier date, in which case such representation or warranty shall have
been true and correct in all material respects (without duplication of any
materiality qualifiers contained therein) on and as of such earlier date.

 

The officer of Borrower signing this instrument hereby certifies that he has
reviewed the Loan Documents and the Financial Statements and has otherwise
undertaken such inquiry as is in his/her opinion necessary to enable him/her to
express an informed opinion with respect to the above representations,
warranties and acknowledgments of Borrower and, to the best of his/her
knowledge, such representations, warranties, and acknowledgments are true,
correct and complete.

 

Exhibit B – Page 2

 

 

IN WITNESS WHEREOF, this instrument is executed as of ____________, 20__.

 

  AQUA METALS, INC.         By:       Name:     Title:

 

Exhibit B – Page 3

 

 

DISCLOSURE SCHEDULE

 

These Disclosure Schedules are made and given pursuant to the Credit Agreement
dated as of May 18, 2016 (the “Agreement”), between Aqua Metals, Inc. (the
“Company”) and Interstate Battery System International, Inc. (“Lender”). All
capitalized terms used but not defined herein shall have the meanings given to
them in the Agreement. The section numbers below correspond to the section
numbers in the Agreement, and the disclosures in any section or subsection of
these Disclosure Schedules shall qualify other sections and subsections to the
extent such disclosure is apparent from a reading of the disclosure that such
disclosure is applicable to such other sections and subsections.

 

Nothing in these Disclosure Schedules is intended to broaden the scope of any
representation or warranty contained in the Agreement or to create any covenant.
Inclusion of any item in these Disclosure Schedules (1) does not represent a
determination that such item is material or establish a standard of materiality,
(2) does not represent a determination that such item did not arise in the
ordinary course of business, (3) does not represent a determination that the
transactions contemplated by the Agreement require the consent of third parties,
and (4) shall not constitute, or be deemed to be, an admission to any third
party concerning such item. These Disclosure Schedule include brief descriptions
or summaries of certain agreements and instruments, copies of all which have
been made available to Purchaser. Such descriptions do not purport to be
comprehensive, and are qualified in their entirety by reference to the text of
the documents described, true and complete copies of which have been made
available to Lender.

 

5.1.4       Financial Matters

 

The Company continues to make material capital expenditures in connection with
the development of its recycling facility in McCarran, Nevada and the
construction of its recycling modules.

 

The Company is negotiating a running change to the Contract for Construction
dated September 22, 2015 between Aqua Metals, Reno, Inc. and Miles Construction.

 

5.1.5       Pending Legal Proceedings

 

None.

 

5.1.12     Subsidiaries

 

The subsidiaries of the Company are Aqua Metals Operations, Inc., a Delaware
corporation, and Aqua Metals Reno, Inc., a Delaware corporation.

 

7.1.6       Indebtedness

 

Aqua Metals Reno, Inc. has entered into a Loan Agreement (“Green Bank Loan”)
with Green Bank, N.A. pursuant to which Green Bank provided Aqua Metals Reno,
Inc. with a loan in the amount of $10 million.

 

Disclosure Schedule

 

 

Various equipment leases with Thermal Fischer Scientific

 

7.3           Contingencies

 

The Green bank Loan has been guaranteed by Borrower and Aqua Metals Reno, Inc.

 

7.9           Transactions with Affiliates

 

None.

 

Disclosure Schedule

 

 

SECURITY SCHEDULE

 

1.          Guaranty by each Guarantor in favor of Lender dated as of the
Closing Date.

 

2.          Security Agreement by AMR in favor of Lender dated as of the Closing
Date.

 

3.          Deed of Trust, Security Agreement and Fixture Filing from AMR for
the benefit of Lender dated as of the Closing Date.

 

4.          Intercreditor Agreement between Lender and GREEN BANK, N.A. dated as
of the Closing Date.

 

Security Schedule – Page 1