EXHIBIT 10.18

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**LOAN AND SECURITYAGREEMENT**

 

Borrower:     NETLOJIXCOMMUNICATIONS, INC.                   a Delaware corporation

                   REMOTE LOJIX/PCSI, INC.,                   a New York corporation

                   NETLOJIX TELECOM, INC.,                   a Delaware corporation

                   WESTNET COMMUNICATIONS, INC.,                   a California corporation

                   CW ELECTRONIC ENTERPRISES, INC.,                   an Illinois corporation

                   SMITH TECHNOLOGY SOLUTIONS, INC.,                   a California corporation

Address:        501Bath Street                      Santa Barbara, California 93101

Date:             January31, 2002

**        WHEREAS,** Remote Lojix/PCSI, Inc. ("Remote"), NetLojix Telecom, Inc. ("Telecom"),Westnet Communications, Inc. ("Westnet"), CW Electronic Enterprises,Inc. ("CWE") and Smith Technology Solutions, Inc. ("STS")are all wholly-owned subsidiaries of NetLojix Communications, Inc. ("NetLojix");and

 **   **     **WHEREAS,**  NetLojix, Remote, Telecom,Westnet, CWE and STS, on the one hand, and DTL One, LLC,  a Nevada limited liability company ("Lender"),on the other, desire to enter into a borrower/lender relationship on the termsand conditions set forth herein;

 **   **     **NOW THEREFORE,**NetLojix, Remote, Telecom, Westnet, CWE andSTS, whose chief executive offices are located at the address referenced above("Borrower's Address") hereby jointly and severally enter into thisLoan and Security Agreement, dated as of January 31, 2002, with Lender, whoseaddress is 6500 Beltline Road, Suite 170, Irving, Texas 75063, on the terms containedherein. The Schedule to this Agreement (the "Schedule") shall for allpurposes be deemed to be a part of this Agreement, and the same is an integralpart of this Agreement.  (Definitions ofcertain terms used in this Agreement are set forth in Section 1 below.)

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***1******.       DEFINITIONS***.  Asused in this Agreement, the following terms have the following meanings:

         "Account Debtor" means the obligor on a Receivable orGeneral Intangible.

         "Affiliate" means, with respect to any Person, arelative, partner, shareholder, director, officer, or employee of such Person,or any parent or subsidiary of such Person, or any Person controlling,controlled by or under common control with such Person.

         "Audit" means to inspect, audit and copyBorrower's books and records and the Collateral.

         "Availability" means the amount of EligibleReceivables multiplied by the advance percentages described in the Schedule netof Borrower's outstanding Obligations.

         "Billed Receivable Loans" means the Loans described in Section2.1(a) of the Schedule.

         "Billed Receivables" means Receivables that have beeninvoiced and sent to an Account Debtor for payment, by Borrower, by a localexchange carrier (including, Bell Atlantic, SBC Communications, Ameritech andUS West), or by a third party billing company (including, OAN and GTEChoicebilling).

         "Borrower" means, jointly and severally,NetLojix, Remote, Telecom, Westnet, CWE and STS.

         "Borrower's Address" has the meaning set forth in theintroduction to this Agreement.

         "Borrower Information" has the meaning set forth in Section11.18.

         "Business Day" means a day on which commercial banksare open for business in the State of California.

         "Change of Control" with respect to NetLojix shall bedeemed to have occurred at such time as either Anthony E. Papa ceases to beChief Executive Officer of NetLojix or James P. Pisani ceases to be Presidentand Chief Operating Officer of NetLojix. A "Change of Control" with respect to Remote, Telecom,Westnet, CWE or STS shall be deemed to have occurred at such time as NetLojixowns less than all of the issued and outstanding capital stock of Remote,Telecom, Westnet, CWE or STS, as the case may be.

         "Closing Date" means the date of this Agreementindicated on page 1 hereof.

         "Code" means the Uniform Commercial Code asadopted and in effect in the State of Texas from time to time.

 

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        "Collateral" has the meaning set forth in Section4 hereof.

         "Credit Limit" means the maximum amount of Loansthat Lender may make to Borrower pursuant to the amounts and percentages shownon the Schedule.

         "CWE" means CWE Electronic Enterprises, Inc., an Illinois corporation.

         "Default" means any event which with notice orpassage of time or both, would constitute an Event of Default.

         "Deposit Account" has the meaning set forth in Section9105 of the Code.

         "Dollars or $" means United States dollars.

         "Eligible Receivables" means Billed Receivables and UnbilledReceivables arising in the ordinary course of Borrower's business from the saleof goods or rendition of services in which Lender has a perfected, firstpriority security interest.  EligibleReceivables shall not include the following:

         (a)       Billed Receivables that the AccountDebtor has failed to pay within 150 days of invoice date;

         (b)       Unbilled Receivables that have not beeninvoiced and sent to an Account Debtor for payment within 45 days of AccountDebtor's incurring of the obligation to be invoiced;

         (c)       Receivables that are not payable inDollars or with respect to which the Account Debtor: (i) does not maintain itschief executive office in the United States, or (ii) is the government of anyforeign country or sovereign state, or of any state, province, municipality, orother political subdivision thereof, or of any department, agency, publiccorporation, or other instrumentality thereof;

         (d)       Receivables with respect to which theAccount Debtor is either (i) the United States or any department, agency, orinstrumentality of the United States (exclusive, however, of Accounts withrespect to which Borrower has complied, to the satisfaction of Lender, with theAssignment of Claims Act, 31 U.S.C. ' 3727), or (ii) any State of the UnitedStates (exclusive, however, of Receivables owed by any State that does not havea statutory counterpart to the Assignment of Claims Act);

         (e)       Receivables with respect to which theAccount Debtor is a creditor of Borrower: (1) who has a right of setoff or who has asserted a right ofsetoff, but only to the extent of the setoff, or (2) who has disputed itsliability, or has made any claim with respect to the Receivables, provided,however, that Lender, shall limit this provision to the extent of theobligations in dispute;

 

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        (f)       Receivables with respect to which theAccount Debtor is subject to any reorganization, bankruptcy, insolvency, arrangement,readjustment of debt, dissolution or liquidation proceeding, or becomesinsolvent, or goes out of business.

         (g)    The amount of all discounts, allowances,rebates, credits and adjustments to such Receivables.

         (h)    any accounts from Account Debtors withrespect to which Borrower has furnished a payment and/or performance bond andthat portion of any Receivable for or representing a retainage authorized bystatute.

         "Equipment" means all of Borrower's present andhereafter acquired machinery, molds, machine tools, motors, furniture,equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts,dies, jigs, goods and other goods (other than Inventory) of every kind anddescription used in Borrower's operations or owned by Borrower and any interestin any of the foregoing, and all attachments, accessories, accessions,replacements, substitutions, additions or improvements to any of the foregoing,wherever located.

         "Event of Default" means any of the events set forth inSection 10.1 of this Agreement.

         "GAAP" means generally accepted accountingprinciples as in effect from time to time in the United States, consistentlyapplied.

        "General Intangibles" means all general intangibles ofBorrower, whether now owned or hereafter created or acquired by Borrower,including, without limitation, all choses in action, causes of action,corporate or other business records, Deposit Accounts, investment property,inventions, designs, drawings, blueprints, patents, patent applications,trademarks and the goodwill of the business symbolized thereby, names, tradenames, trade secrets, goodwill, copyrights, registrations, licenses,franchises, customer lists, security and other deposits, rights in all litigation presently or hereafterpending for any cause or claim (whether in contract, tort or otherwise), andall judgments now or hereafter arising therefrom, all claims of Borroweragainst Lender, rights to purchase or sell real or personal property, rights asa licensor or licensee of any kind, royalties, telephone numbers, proprietaryinformation, purchase orders, and all insurance policies and claims (includingwithout limitation life insurance, key man insurance, credit insurance,liability insurance, property insurance and other insurance), tax refunds andclaims, computer programs, discs, tapes and tape files, claims underguaranties, security interests or other security held by or granted toBorrower, all rights to indemnification and all other intangible property ofevery kind and nature (other than Receivables).

         "Inventory" means all of Borrower's now owned andhereafter acquired goods, merchandise or other personal property, whereverlocated, to be furnished under any contract of service or held for sale orlease (including without limitation all raw materials, work in process,finished goods and goods in transit, and including without limitation all farmproducts), and all materials and supplies of every kind, nature and descriptionwhich are or might be used or consumed in Borrower's business or used inconnection with the manufacture, packing, shipping, advertising, selling or finishingof such goods, merchandise or other personal property, and all warehousereceipts, documents of title and other documents representing any of theforegoing.

 

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        "Investment Property" has the meaning set forth in Section9115 of the Code as in effect as of the date hereof.

         "Lender" has the meaning set forth in theintroduction to this Agreement.

         "Loan Documents" means this Agreement, the agreementsand documents listed on Section 5 of the Schedule, and any other agreement,instrument or document executed in connection herewith or therewith.

         "Loans" has the meaning set forth in Section2.1 hereof.

         "Material Adverse Effect" means a material adverse effect on(i) the business, assets, financial condition or results of operations ofBorrower or any subsidiary of Borrower or any guarantor of any of theObligations, (ii) the ability of Borrower or any guarantor of any of theObligations to perform its obligations under this Agreement (including, withoutlimitation, repayment of the Obligations as they come due) or (iii) thevalidity or enforceability of this Agreement or any other agreement or documententered into by any party in connection herewith, or the rights or remedies ofLender hereunder or thereunder.

         "Maturity Date" means the date that this Agreementshall cease to be effective, as set forth on the Schedule, subject to theprovisions of Section 9.1 and 9.2 hereof.

         "Maximum Dollar Amount" has the meaning set forth in Section2 of the Schedule.

         "Minimum Availability" shall mean the amount set forth inSection 5.2 of the Schedule.

         "NetLojix" means NetLojix Communications, Inc.,a Delaware corporation.

         "Obligations" means all present and future Loans,advances, debts, liabilities, obligations, guaranties, covenants, duties andindebtedness at any time owing by Borrower to Lender, whether evidenced by thisAgreement or any note or other instrument or document, whether arising from anextension of credit, opening of a letter of credit, banker's acceptance, loan,guaranty, indemnification or otherwise, whether direct or indirect (including,without limitation, those acquired by assignment and any participation byLender in Borrower's debts owing to others), absolute or contingent, due or tobecome due, including, without limitation, all interest, charges, expenses, fees,attorneys' fees (including attorneys' fees and expenses incurred inbankruptcy), audit fees and any other sums chargeable to Borrower under thisAgreement or under any other present or future instrument or agreement betweenBorrower and Lender.

         "Permitted Liens" means the following:

 

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        (1)       purchase money security interests inspecific items of Equipment, provided that such security interest is timelyperfected under the Uniform Commercial Code applicable to the creation thereof;

         (2)       leases of specific items of Equipment;

         (3)    liens for taxes not yet payable;

         (4)       additional security interests and liensconsented to in writing by Lender, in Lender's sole discretion;

         (5)       security interests being terminatedsubstantially concurrently with this Agreement;

         (6)       inchoate liens of materialmen, mechanics,warehousemen, carriers, or other similar liens arising in the ordinary courseof business and securing obligations which are not delinquent;

         (7)    liens incurred in connection with theextension, renewal or refinancing of the indebtedness secured by liens of thetype described above in clauses (1) or (2) above, provided that any extension,renewal or replacement lien is limited to the property encumbered by theexisting lien and the then-unpaid principal amount of the indebtedness beingextended, renewed or refinanced does not increase; or

         (8)       inchoate liens in favor of customs andrevenue authorities which secure payment of customs duties in connection withthe importation of goods.

         Lender will have the right to require, as acondition to its consent under subparagraph (4) above, that the holder of theadditional security interest or lien sign an intercreditor agreement on Lender'sform, acknowledge that the security interest is subordinate to the securityinterest in favor of Lender, and agree not to take any action to enforce itssubordinate security interest so long as any Obligations remain outstanding,and that Borrower agree that any uncured default in any obligation secured bythe subordinate security interest, subject to any applicable notice and cureperiod applicable thereto, shall also constitute an Event of Default under thisAgreement.

         "Person" means any individual, soleproprietorship, general partnership, limited partnership, limited liabilitypartnership, limited liability company, joint venture, trust, unincorporatedorganization, association, corporation, government, or any agency or politicaldivision thereof, or any other entity.

         "Prime Rate" means the actual "Reference Rate"or the substitute therefor of the Bank of America NT & SA, or itssuccessor, whether or not that rate is the lowest interest rate charged by saidbank.  If the Prime Rate, as defined, isunavailable, "Prime Rate" shall mean the highest of the prime ratespublished in the Wall Street Journal on the first business day of theapplicable month, as the base rate on corporate loans at large U.S. moneycenter commercial banks.

 

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        "Receivables" means all of Borrower's now owned andhereafter acquired accounts (whether or not earned by performance), letters ofcredit, contract rights, chattel paper, instruments, securities, documents,securities accounts, security entitlements, commodity contracts, commodityaccounts, investment property and all other forms of obligations at any timeowing to Borrower, all guaranties and other security therefor, all merchandisereturned to or repossessed by Borrower, and all rights of stoppage in transitand all other rights or remedies of an unpaid vendor, lienor or secured party.

         "Remote" means Remote Lojix/PCSI, Inc., aNew York corporation.

         "Renewal Date" shall mean the Maturity Date if thisAgreement is renewed pursuant to Section 9.1 hereof, and each anniversarythereafter that this Agreement is renewed pursuant to Section 9.1 hereof.

        "Solvent" means, with respect to any Person ona particular date, that on such date (a) at fair valuations, all of theproperties and assets of such Person are greater than the sum of the debts,including contingent liabilities, of such Person, (b) the present fairsalable value of the properties and assets of such Person is not less than theamount that will be required to pay the probable liability of such Person onits debts as they become absolute and matured, (c) such Person is able torealize upon its properties and assets and pay its debts and other liabilities,contingent obligations and other commitments as they mature in the normalcourse of business, (d) such Person does not intend to, and does notbelieve that it will, incur debts beyond such Person's ability to pay as suchdebts mature, and (e) such Person is not engaged in business or atransaction, and is not about to engage in business or a transaction, for whichsuch Person's properties and assets would constitute unreasonably small capitalafter giving due consideration to the prevailing practices in the industry inwhich such Person is engaged.  Incomputing the amount of contingent liabilities at any time, it is intended thatsuch liabilities will be computed at the amount that, in light of all the factsand circumstances existing at such time, represents the amount that reasonablycan be expected to become an actual or matured liability.

         "STS" means Smith Technology Solutions, Inc., a California corporation.

         "Telecom" means NetLojix Telecom, Inc., aDelaware corporation.

         "Triparty Account" means an account maintained by Borrowerat Bank of America NT&SA in Santa Barbara, California, during the term ofthis Agreement.

         "Unbilled Receivables" means Receivables where the serviceshave already been provided and performed but have not yet been invoiced andsent to an Account Debtor for payment.

         "Unbilled Receivable Loans" means the Loans described in Section2.1(b) of the Schedule.

         "Westnet" means Westnet Communications, Inc., an Illinois corporation.

         "Year or Yearly" shall mean a calendar year unless asotherwise set forth.

 

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        "Other Terms." All accounting terms used in this Agreement, unless otherwise indicated,shall have the meanings given to such terms in accordance with GAAP.  All other terms contained in this Agreement,unless otherwise indicated, shall have the meanings provided by the Code, tothe extent such terms are defined therein.

 ***2******.    CREDITFACILITIES.***

 ***   ***     ***2******.******1******       Loans******.***  Lender will make loans toBorrower (the "Loans") up to the Credit Limit, provided no Default orEvent of Default has occurred and is continuing.  In addition, Lender may create reserves against or reduce itsadvance rates based upon Eligible Receivables without declaring a Default or anEvent of Default if it determines that there has occurred a Material AdverseEffect.

 ***   ***     ***2******.******2******       TripartyAccount******.***  Advances and repayments ofLoans and interest  hereunder shall bemade through the Triparty Account. Lender shall have a first priority security interest in the TripartyAccount and the proceeds thereof, in addition to a power of attorney to applyfunds in the Triparty Account to repayment of Obligations under certaincircumstances (as set forth in the triparty account agreement referenced inSection 5.12), regardless of the identity of the Borrower whose funds may be ondeposit in the Triparty Account from time to time.

 ***   ***     ***2******.******3******       Requestsfor Loan******.***  Provided no Event of Defaultshall exist or be continuing, Borrower may request Loans from time to time, andLender shall make such Loans, pursuant to a Request for Loan in the form setforth in Exhibit A hereto.  Lender shallmake such Loan by depositing the amount thereof into the Triparty Account inimmediately available funds and permitting Borrower to withdraw such amountfrom the Triparty Account.  Providedthat Borrower delivers the Request for Loan prior to 1:00 p.m. Dallas time on aBusiness Day, Lender will make such deposit on the following Business Day. 

***        2******.******4******       Note******.***  All Loans made by a Lender tothe Borrower shall be evidenced by a revolving credit note, duly executed onbehalf of the Borrower, dated the Closing Date, in substantially the form ofExhibit B annexed hereto, delivered and payable to such Lender in a principalamount equal to the Maximum Dollar Amount of its credit commitment in respectof the Borrower on such date.  TheLender shall and is hereby authorized by the Borrower to, endorse on theschedule attached to the revolving credit note an appropriate notationevidencing the date and amount of each Loan to Borrower, as well as the dateand amount of each payment and prepayment with respect thereto.  

***3******.       INTEREST,FEES AND EXPENSES******.***

 ***   ***     ***3******.******1******.       Interest******.***  All Loans and all othermonetary Obligations shall bear interest at the rate shown on the Schedule,except where expressly set forth to the contrary in this Agreement.  Interest shall be payable monthly, on thelast day of the month.  Interest may, inLender's discretion, be charged to Borrower's loan account, and the same shallthereafter bear interest at the same rate as the other Loans. 

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***        3******.******2******       Fees******.***  Borrower shall pay Lender thefee(s) shown on the Schedule, which are in addition to all interest and othersums payable to Lender under the Loan Documents and are deemed fully earned andare nonrefundable.

 ***   ***     ***3******.******3******       Expenses******.***  Borrower shall pay or reimburseLender for all costs and expenses, including attorneys' fees, incurred byLender in connection with (a) the preparation and negotiation of the LoanDocuments, and (b) all other amounts incurred by Lender for which Borrower isobligated to reimburse Lender in accordance with the Loan Documents..

 ***   ***     ***3******.******4******       Compliancewith Usury Laws.***  Borrower and Lender intend tocomply with all applicable usury laws. In fulfilling this intention, allagreements between Borrower and Lender are expressly limited so that the amountof interest paid or agreed to be paid to Lender for the use, forbearance, ordetention of money under this Agreement shall not exceed the maximum amountpermissible under applicable law. If for any reason payment of any amountrequired under this Agreement shall be prohibited by law, the obligation shallbe reduced to the maximum allowed by law. If for any reason Lender receives asinterest an amount that would exceed the highest lawful rate, the amount thatwould be excessive interest shall be applied to the reduction of the principalowed under this Agreement and not to the payment of interest. If any conflictarises between this provision and any provision of any other agreement betweenBorrower and Lender, this provision shall control.

 ***4******.       SECURITYINTEREST******.***

         To secure the payment and performance of allof the Obligations when due, Borrower (except for CWE) hereby grants to Lendera security interest in all of Borrower's interest in the following, whether nowowned or hereafter acquired, and wherever located:  All Receivables, Inventory, Equipment, Investment Property, andGeneral Intangibles, including, without limitation, all of Borrower's DepositAccounts, and all money, and all property now or at any time in the future inLender's possession (including claims and credit balances), and all proceeds ofany of the foregoing (including proceeds of any insurance policies, proceeds ofproceeds, and claims against third parties), all products of any of theforegoing, and all books and records related to any of the foregoing (all ofthe foregoing, together with all other property in which Lender may now or inthe future be granted a lien or security interest, is referred to herein,collectively, as the "Collateral"). At such time as it has repaid all amounts owing under that certainBusiness Ready Credit Agreement dated as of January 16, 1998, in favor ofCitibank, F.S.B., CWE will grant to Lender a security interest in all of CWE'sinterest in the types of property listed in the definition of Collateral above.

 To the extent permitted by applicable law,Borrower hereby authorizes Lender to file one or more financing or continuationstatements, and amendments thereto, relative to all or any part of theCollateral without the signature of Borrower. Borrower agrees that a carbon, photographic or other reproduction ofthis Loan Agreement or of a financing statement signed by Borrower shall besufficient as a financing statement and may be filed as a financing statementin any and all jurisdictions.

 

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Borrower hereby authorizes Lender to file arecord or records (as defined in Article 9 of the Texas UCC), including,without limitation, financing statements, in all jurisdictions and with allfiling offices as Lender may determine, in its sole discretion, are necessaryor advisable to perfect the security interest granted to Lender herein and ineach case without the signature of Borrower. Such financing statements may describe the Collateral in the same manneras described herein or may contain an indication or description of collateralthat describes such property in any other manner as Lender may determine, inits sole discretion, is necessary, advisable or prudent to ensure theperfection of the security interest in the Collateral granted to Lender herein.

 ***5******.       CONDITIONSPRECEDENT******.***

         The obligation of Lender to make the Loans issubject to the satisfaction, in the sole discretion of Lender, at or prior tothe first advance of funds hereunder, of each, every and all of the followingconditions:

         ***5******.******1******       Statusof Accounts at Closing***. Not more than $100,000 in accounts payable shall be due and unpaidninety (90) days past their respective due dates except for such accountspayable being contested in good faith in appropriate proceedings and for whichadequate reserves have been provided.

         ***5******.******2******       MinimumAvailability***. Borrower shall have Minimum Availability immediately following theinitial funding in the amount set forth on the Schedule.

         ***5******.******3******       ExecutedAgreement***. Lender shall have received this Agreement duly executed and in form andsubstance satisfactory to Lender in its sole and absolute discretion.

         ***5******.******4******       Priorityof Lender's Liens***. Lender shall have received the current results of "of record"searches satisfactory to Lender in its sole and absolute discretion, reflectingits Uniform Commercial Code filings against Borrower indicating that Lender hasa perfected, first priority lien in and upon all of the Collateral, subjectonly to Permitted Liens.

         ***5******.******5******       Insurance***. Lender shall have received copies of the insurance binders orcertificates evidencing Borrower's compliance with Section 8.2 hereof,including lender's loss payee endorsements.

         ***5******.******6******       Borrower'sExistence***. Lender shall have received copies of Borrower's articles or certificateof incorporation and all amendments thereto, and a Certificate of GoodStanding, each certified by the Secretary of State of the state of Borrower'sorganization, and dated a recent date prior to the Closing Date, and Lendershall have received Certificates of Foreign Qualification for Borrower from theSecretary of State of each state wherein the failure to be so qualified couldhave a Material Adverse Effect.

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         ***5******.******7******       OrganizationalDocuments***. Lender shall have received copies of Borrower's By-laws and allamendments thereto, and Lender shall have received copies of the resolutions ofthe board of directors of Borrower, authorizing the execution and delivery ofthis Agreement and the other documents contemplated hereby, and authorizing thetransactions contemplated hereunder and thereunder, and authorizing specificofficers of Borrower to execute the same on behalf of Borrower, in each casecertified by the Secretary or other acceptable officer of Borrower as of theClosing Date.

         ***5******.******8******       Taxes***. Lender shall have received evidence from Borrower that Borrower hascomplied with all tax withholding and Internal Revenue Service regulations andthat Borrower has paid and is current on all taxes, whether federal, state orother applicable taxing body, in form and substance satisfactory to Lender inits sole and absolute discretion.

         ***5******.******9******    DueDiligence***. Lender shall have completed its due diligence with respect to Borrower,the results of which shall be satisfactory to Lender.

         ***5******.******10******       TripartyAccount Agreement***. Lender and Borrower shall have entered into a triparty account agreementin form and substance acceptable to Lender with respect to the Triparty Account. 

***        5******.******11******       OtherDocuments and Agreements***. Lender shall have received such other agreements, instruments anddocuments as Lender may require in connection with the transactionscontemplated hereby, all in form and substance satisfactory to Lender in Lender'ssole and absolute discretion, and in form for filing in the appropriate filingoffice, including, but not limited to, those documents listed in Section 5 ofthe Schedule.  

***        5******.******12******       Paymentof Fees and Expenses***. Borrower shall have paid Lender all fees and expenses described inSection 3.2 and 3.3 then owing.  

***6******.         REPRESENTATIONS,WARRANTIES AND COVENANTS OF THE BORROWER.***

         In order to induce Lender to enter into thisAgreement and to make Loans, Borrower represents and warrants to Lender asfollows, and Borrower covenants that the following representations willcontinue to be true in all material respects during the term hereof, and thatBorrower will at all times during the term hereof comply in all materialrespects with all of the following covenants:

         ***6******.******1******       Existenceand Authority***. Borrower is and will continue to be, duly organized, validly existing andin good standing under the laws of the jurisdiction of its organization.  Borrower is and will continue to bequalified and licensed to do business in all jurisdictions in which any failureto do so would have a Material Adverse Effect. The execution, delivery and performance by Borrower of this Agreement,and all other documents contemplated hereby (a) have been duly and validlyauthorized, (b) are enforceable against Borrower in accordance with their terms(except as enforcement may be limited by equitable principles and bybankruptcy, insolvency, reorganization, moratorium or similar laws relating tocreditors' rights generally), and (c) do not violate Borrower's articlesor certificate of incorporation or Borrower's by-laws, or any law or anymaterial agreement or instrument which is binding upon Borrower or itsproperty, (d) do not constitute grounds for acceleration of any materialindebtedness or obligation under any material agreement or instrument which isbinding upon Borrower or its property, and (e) do not require the consent ofany third party, except consents contemplated by this Agreement or which havebeen obtained.

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         ***6******.******2******       Name;Trade Names and Styles***. The name of Borrower set forth in the heading to this Agreement is itscorrect name.  Listed on the Scheduleare all prior names of Borrower and all of Borrower's present and prior tradenames.  Borrower has not used any of theprior names set forth on the Schedule since 1999. Borrower shall give Lenderthirty (30) days' prior written notice before changing its name or doingbusiness under any other name.  Borrowerhas complied, and will in the future comply, in all material respects with alllaws relating to the conduct of business under a fictitious business name.

         ***6******.******3******       Placeof Business; Location of Collateral***. The address set forth in the heading tothis Agreement is Borrower's chief executive office.  In addition, Borrower has places of business and Collateral islocated only at the locations set forth on the Schedule.  Borrower will give Lender at least thirty(30) days' prior written notice before opening any additional place ofbusiness, changing its chief executive office, or moving any of the Collateralto a location other than Borrower's Address or one of the locations set forthon the Schedule.

         ***6******.******4******       Titleto Collateral; Permitted Liens***. Borrower is now, and will at all times in the future be, the sole ownerof all the Collateral, except for items of Equipment which are leased byBorrower.  The Collateral now is andwill remain free and clear of any and all liens, charges, security interests,encumbrances and adverse claims, except for Permitted Liens.  Lender now has, and will continue to have, afirst-priority perfected and enforceable security interest in all of theCollateral, subject only to the Permitted Liens, and Borrower will at all timesdefend Lender and the Collateral against all claims of others.  None of the Collateral now is or will beaffixed to any real property in such a manner, or with such intent, as tobecome a fixture.  Borrower is not andwill not become a lessee under any real property lease pursuant to which thelessor may obtain any rights in any of the Collateral and no such lease nowprohibits, restrains, impairs or will prohibit, restrain or impair Borrower'sright to remove any Collateral from the leased premises.  Borrower will keep in full force and effect,and will comply with all the terms of, any lease of real property where any ofthe Collateral now or in the future may be located.  Lender agrees that its default rights resulting from Borrower'snoncompliance with this paragraph are subject to the existence of a MaterialAdverse Effect.

         ***6******.******5******       Maintenanceof Collateral***. Borrower will maintain the Inventory and Equipment in good workingcondition, and Borrower will not use the Collateral for any unlawfulpurpose.  Borrower will immediately adviseLender in writing of any material loss or damage to the Collateral.

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         ***6******.******6******       Booksand Records***. Borrower has maintained and will maintain at Borrower's Address completeand accurate books and records, comprising an accounting system in accordancewith GAAP.

         ***6******.******7******      FinancialCondition, Statements and Reports***. All financial statements now or in the future delivered to Lender havebeen, and will be, prepared in conformity with GAAP (except, in the case ofunaudited financial statements, for the absence of footnotes and subject tonormal year-end adjustments) and now and in the future will fairly reflect thefinancial condition of Borrower in all material respects, at the times and forthe periods therein stated.  Between thelast date covered by any such statement provided to Lender and the date hereof,there has been no Material Adverse Effect. Borrower is now and will continue to be Solvent.  Borrower shall promptly inform Lender of theoccurrence of any event or circumstance which has resulted in a MaterialAdverse Effect

         ***6******.******8******    TaxReturns and Payments; Pension Contributions***. Borrower has timely filed, and will timely file, all tax returns andreports required by foreign, federal, state and local law, and Borrower hastimely paid, and will timely pay, all foreign, federal, state and local taxes,assessments, deposits and contributions now or in the future owed byBorrower.  Borrower may, however, deferpayment of any contested taxes, provided that Borrower (i) in good faithcontests Borrower's obligation to pay the taxes by appropriate proceedingspromptly and diligently instituted and conducted, (ii) notifies Lender inwriting of the commencement of, and any material development in, the proceedings,and (iii) posts bonds or takes any other steps required to keep the contestedtaxes from becoming a lien upon any of the Collateral.  As of the date hereof, Borrower is unawareof any claims or adjustments proposed for any of Borrower's prior tax yearswhich could result in additional taxes becoming due and payable byBorrower.  Borrower has paid, and shallcontinue to pay all amounts necessary to fund all present and future pension,profit sharing and deferred compensation plans in accordance with their terms,and Borrower has not and will not withdraw from participation in, permitpartial or complete termination of, or permit the occurrence of any other eventwith respect to, any such plan which could result in any liability of Borrower,including any liability to the Pension Benefit Guaranty Corporation or itssuccessors or any other governmental agency. Borrower shall, at all times, utilize the services of an outside payrollservice providing for the automatic deposit of all payroll taxes payable byBorrower.

         ***6******.******9******       Compliancewith Law***. Borrower has complied, and will comply, in all material respects, withall provisions of all foreign, federal, state and local laws and regulationsrelating to Borrower, including, but not limited to, the Fair Labor StandardsAct, and those relating to Borrower's ownership of real or personal property,the conduct and licensing of Borrower's business, and environmental matters.

         ***6******.******10******       Litigation***. Except as disclosed in the Schedule, there is no claim, suit,litigation, proceeding or investigation pending or (to best of Borrower'sknowledge) threatened by or against or affecting Borrower in any court orbefore any governmental agency (or any basis therefor known to Borrower) whichmay result, either separately or in the aggregate, in a Material AdverseEffect.  Borrower will promptly inform Lenderin writing, upon discovery by Borrower, of any claim, proceeding, litigation orinvestigation in the future threatened or instituted by or against Borrowerinvolving an amount set forth on the Schedule.

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         ***6******.******11******  Useof Proceeds***. All proceeds of all Loans shall be used solely for lawful businesspurposes.  Borrower is not purchasing orcarrying any "margin stock" (as defined in Regulation U of the Boardof Governors of the Federal Reserve System) and no part of the proceeds of anyLoan will be used to purchase or carry any "margin stock" or toextend credit to others for the purpose of purchasing or carrying any "marginstock."

 ***7******.       RECEIVABLES.***

         ***7******.******1******       RepresentationsRelating to Receivables***. Borrower represents and warrants to Lenderas follows: Each Receivable with respect to which Loans are requested byBorrower shall, on the date each Loan is requested and made, represent anundisputed bona fide existing unconditional obligation of the Account Debtorcreated by the sale, delivery and acceptance of goods or the rendition ofservices in the ordinary course of Borrower's business.

         ***7******.******2******       RepresentationsRelating to Documents and Legal Compliance***. Borrower represents and warrants to Lender as follows:  All statements made and all unpaid balancesappearing in all invoices, instruments and other documents evidencing theReceivables are and shall be true and correct and all such invoices,instruments and other documents and all of Borrower's books and records are andshall be genuine and in all respects what they purport to be.  All sales and other transactions underlyingor giving rise to each Receivable shall fully comply with all applicable lawsand governmental rules and regulations. All signatures and endorsements on all documents, instruments, andagreements relating to all Receivables are and shall be genuine, and all suchdocuments, instruments and agreements are and shall be legally enforceable inaccordance with their terms (except as enforcement may be limited by equitableprinciples and by bankruptcy, insolvency, reorganization, moratorium or similarlaws relating to creditors' rights generally).

         ***7******.******3******       Schedulesand Documents relating to Receivables***. Borrower shall deliver to Lender via facsimile, unless otherwisedirected by Lender, at such locations and at such intervals as Lender mayrequest, transaction reports and loan requests, schedules of Receivables, andschedules of collections, all on Lender's forms; provided, however,that Borrower's failure to execute and deliver the same shall not affect or limitLender's security interest and other rights in all of Borrower's Receivables,nor shall Lender's failure to advance or lend against a specific Receivableaffect or limit Lender's security interest and other rights therein.  Loan requests received after 1:00 p.m.Dallas, Texas time, will not be considered by Lender until the next BusinessDay.  Together with each such schedule,or later if requested by Lender, Borrower shall furnish Lender with copies (or,at Lender's request, originals) of all contracts, orders, invoices, and othersimilar documents, and all original shipping instructions, delivery receipts,bills of lading, and other evidence of delivery, for any goods the sale ordisposition of which gave rise to such Receivables, and Borrower warrants thegenuineness of all of the foregoing. Borrower shall also furnish to Lender an aged accounts receivable trialbalance in such form and at such intervals as Lender shall request.  In addition, Borrower shall deliver toLender the originals, as and when requested by Lender, of all instruments,chattel paper, security agreements, guarantees and other documents and propertyevidencing or securing any Receivables, upon receipt thereof and in the sameform as received, with all necessary endorsements, all of which shall be withrecourse.  Borrower shall also provideLender with copies of all credit memos as and when requested by Lender.

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         ***7******.******4******       Collectionof Receivables***. Borrower shall have the right to collect all Receivables, unless anduntil an Event of Default has occurred. Borrower shall have a fiduciary relationship to Lender and shall holdall payments on, and proceeds of, Receivables in trust for Lender, and Borrowershall deposit all such payments and proceeds to the Triparty Account within one(1) Business Day after receipt by Borrower, to be applied to the Obligations insuch order as Lender shall determine. Lender or its designee may, upon any Event of Default, notify AccountDebtors that Lender has been granted a security interest in the Receivables andtake such action as Lender deems appropriate to collect all Receivables as setforth in Section 10.2 below.

         ***7******.******5******       Disputes***. Borrower shall notify Lender promptly of all disputes or claims relatingto Receivables.  Borrower shall notforgive (completely or partially), compromise or settle any Receivable for lessthan payment in full, or agree to do any of the foregoing, except that Borrowermay do so, provided that: (a) Borrower does so in good faith, in a commerciallyreasonable manner, in the ordinary course of business, and in arm's lengthtransactions, which are reported to Lender on the reports provided to Lender;(b) no Default or Event of Default has occurred and is continuing; and (c)taking into account all such discounts settlements and forgiveness, the totaloutstanding Loans will not exceed the Credit Limit.  Lender may, at any time after the occurrence of an Event ofDefault, settle or adjust disputes or claims directly with Account Debtors foramounts and upon terms which Lender considers advisable in its reasonablecredit judgment and, in all cases, Lender shall credit Borrower's Loan accountwith only the net amounts received by Lender in payment of any Receivables.

         ***7******.******6******       Returns***. Provided no Event of Default has occurred and is continuing, if anyAccount Debtor returns any Inventory to Borrower in the ordinary course of itsbusiness, Borrower shall promptly determine the reason for such return andpromptly issue a credit memorandum to the Account Debtor in the appropriateamount.  In the event any attemptedreturn occurs after the occurrence of any Event of Default, Borrower shall(a) hold the returned Inventory in trust for Lender, (b) segregateall returned Inventory from all of Borrower's other property,(c) conspicuously label the returned Inventory as subject to Lender'ssecurity interest, and (d) immediately notify Lender of the return of anyInventory, specifying the reason for such return, the location and condition ofthe returned Inventory, and on Lender's request deliver such returned Inventoryto Lender.

         ***7******.******7******       Verification***. Lender may, from time to time, verify directly with the respectiveAccount Debtors the validity, amount and other matters relating to theReceivables, by means of mail, telephone or otherwise, either in the name ofBorrower or Lender or such other name as Lender may choose.

         ***7******.******8******    NoLiability***. Lender shall not under any circumstances be responsible or liable forany shortage or discrepancy in, damage to, or loss or destruction of, anygoods, the sale or other disposition of which gives rise to a Receivable, orfor any error, act, omission or delay of any kind occurring in the settlement,failure to settle, collection or failure to collect any Receivable, or forsettling any Receivable in good faith for less than the full amount thereof,nor shall Lender be deemed to be responsible for any of Borrower's obligationsunder any contract or agreement giving rise to a Receivable.  Nothing herein shall, however, relieveLender from liability for the gross negligence or willful misconduct of Lender,or its directors, officers, employees, agents or contractors.

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 ***8******.       ADDITIONALDUTIES OF THE BORROWER******.***

         ***8******.******1******       Financialand Other Covenants***. Borrower shall at all times comply with the financial and othercovenants set forth in the Schedule.

         ***8******.******2******       Insurance***. Borrower shall, at all times insure all of the tangible personalproperty Collateral and carry such other business insurance, with insurersreasonably acceptable to Lender, in such form and amounts as Lender mayreasonably require, and Borrower shall provide evidence of such insurance toLender, so that Lender is satisfied that such insurance is, at all times, infull force and effect.  All liabilityinsurance policies of Borrower shall name Lender as an additional insured, andall property casualty and related insurance policies of Borrower shall nameLender as a loss payee thereon and Borrower shall cause a lender's loss payeeendorsement in form reasonably acceptable to Lender.  Upon receipt of the proceeds of any such insurance, Lender shallapply such proceeds in reduction of the Obligations as Lender shall determinein its sole discretion, except that, provided no Default or Event of Defaulthas occurred and is continuing, Lender shall release to Borrower insuranceproceeds with respect to Equipment totaling less than the amount set forth in Section8 of the Schedule, which shall be utilized by Borrower for the replacement ofthe Equipment with respect to which the insurance proceeds were paid.  Lender may require reasonable assurance thatthe insurance proceeds so released will be so used.  If Borrower fails to provide or pay for any insurance, Lendermay, but is not obligated to, obtain the same at Borrower's expense.  Borrower shall promptly deliver to Lendercopies of all reports made to insurance companies.

         ***8******.******3******       Reports***. Borrower, at its expense, shall provide Lender with the written reportsset forth in Section 8 of the Schedule, and such other written reports withrespect to Borrower (including budgets, sales projections, operating plans andother financial documentation), as Lender shall from time to time reasonablyspecify.

         ***8******.******4******       Accessto Collateral, Books and Records***.  Atreasonable times but not less frequently than quarterly and on one (1) BusinessDay's notice, Lender, or its agents, shall have the right to performAudits.  Lender shall take reasonablesteps to keep confidential all confidential information obtained in any Audit,but Lender shall have the right to disclose any such information to itsauditors, regulatory agencies, and attorneys, and pursuant to any subpoena orother legal process.  Borrower shallreimburse Lender for its reasonable out-of-pocket expenses incurredin connection with an Audit, including travel expenses to Borrower'sAddress.  Borrower will not enter intoany agreement with any accounting firm, service bureau or third party to storeBorrower's books or records at any location other than Borrower's Address,without first notifying Lender of the same and obtaining the written agreementfrom such accounting firm, service bureau or other third party to give Lenderthe same rights with respect to access to books and records and related rightsas Lender has under this Loan Agreement.

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         ***8******.******5******       NegativeCovenants of NetLojix***. NetLojix shall not, without Lender's prior written consent, merge orconsolidate with another entity, except in a transaction in which (i) theowners of NetLojix hold at least seventy-five percent (75%) of the ownershipinterest in the surviving entity immediately after such merger or consolidation,and (ii) NetLojix is the surviving entity.

         ***8******.******6******       NegativeCovenants of Each Borrower***. Borrower shall not, without Lender's prior written consent, do any ofthe following:

         (a       permit any Change of Control to occur.

         (b       acquire any assets, except (i) in theordinary course of business, or (ii) in a transaction or a series oftransactions not involving the payment of an aggregate amount in excess of theamount set forth in Section 8 of the Schedule;

         (c       enter into any other material transactionoutside the ordinary course of business;

         (d       sell or transfer any Collateral, exceptfor the sale of finished Inventory in the ordinary course of Borrower'sbusiness, and except for the sale of obsolete or unneeded Equipment in theordinary course of business;

         (e       store any Inventory or other Collateralwith any warehouseman or other third party;

         (f       sell any Inventory on a sale-or-return,guaranteed sale, consignment, or other contingent basis;

         (g       make any loans of any money or otherassets, except (i) reasonable advances to customers or suppliers in theordinary course of business, and (ii) reasonable travel advances toemployees;

         (h       incur any debts, outside the ordinarycourse of business, which would have a Material Adverse Effect;

         (i       guarantee or otherwise become liable withrespect to the obligations of another party or entity;

         (j       pay or declare any dividends ordistributions on the ownership interests in Borrower (except for dividends ordistributions payable solely in stock form of ownership interests in Borrower);

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         (k       make any change in Borrower's capitalstructure which would have a Material Adverse Effect;

         (l       transfer or sidestream any funds to anyAffiliate other than transfers between Borrowers and the repayment toAffiliates of any amounts advanced by such Affiliate to Borrower as of the dateof this Agreement (but then only in an amount not to exceed the amounts soadvanced); or

         (m       change the nature of Borrower's business;or

         (n       dissolve or elect to dissolve.

         Transactions permitted by the foregoingprovisions of this Section are only permitted in the ordinary course ofbusiness as indicated and if no Default or Event of Default is continuing orwould occur as a result of such transaction. Nothing in this Agreement shall prevent (i) Borrower from completing itsplanning subsidiary restructuring, including the possible merger or dissolutionof Remote, Telecom, Westnet, CWE and/or STS, (ii) NetLojix from completing itspotential name change to NetLojix Technology Solutions, Inc. or (iii) Borrowerfrom negotiating the terms of, but not executing or consummating, any agreementwith respect to any Change of Control or sale of all, or substantially all, ofits assets.

         ***8******.******7******       Remittanceof Proceeds***. All proceeds of any Collateral shall be deposited to the TripartyAccount within one (1) Business Day after receipt by Borrower.  Borrower agrees that it will not commingleproceeds of Collateral with any of Borrower's other funds or property, but willhold such proceeds separate and apart from such other funds and property and inan express trust for Lender.  Nothing inthis Section limits the restrictions on disposition of Collateral set forthelsewhere in this Agreement.

         ***8******.******8******       LitigationCooperation***. Should any third-party suit or proceeding be instituted by or againstLender with respect to any Collateral or relating to Borrower, Borrower shall,without expense to Lender, make available Borrower and its officers, employeesand agents and Borrower's books and records, to the extent that Lender may deemthem reasonably necessary in order to prosecute or defend any such suit orproceeding.

         ***8******.******9******       FurtherAssurances***. Borrower agrees, at its expense, on request by Lender, to execute alldocuments and take all actions, as Lender, may deem reasonably necessary oruseful in order to perfect and maintain Lender's perfected security interest inthe Collateral, and in order to fully consummate the transactions contemplatedby this Agreement.

** *9******.    TERM.***

         ***9******.******1******       MaturityDate***. This Agreement shall continue in effect until the Maturity Date;provided that the Maturity Date shall automatically be extended, and thisAgreement shall automatically and continuously renew, for successive additionalterms of one year each, unless one party gives written notice to the other, notless than one hundred twenty (120) days prior to the Maturity Date or the nextRenewal Date, that such party elects to terminate this Agreement effective onthe Maturity Date or such next Renewal Date. 

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***        9******.******2******       EarlyTermination***. This Agreement may be terminated prior to the Maturity Date asfollows:  (a) by Borrower, effective onthe last Business Day of the first full month following the calendar month inwhich written notice of termination is given to Lender; or (b) by Lender at anytime, without notice, effective immediately, after the occurrence of an Eventof Default.  At any time after the firstanniversary of the date hereof, Lender may terminate this Agreement without causeby giving Borrower six (6) months prior written notice of suchtermination.  The advance percentagedescribed in the Schedule shall be reduced by one-third (1/3) during each ofthe last three (3) months of such six-month notice period.  The foregoing sentence notwithstanding,Lender may not terminate this Agreement without cause if NetLojix has enteredinto an agreement with a third party that will result in a Change of Control ofNetLojix and is proceeding in good faith to consummate such Change ofControl.  

***        9******.******3******       Paymentof Obligations***.  Onthe Maturity Date or on any earlier effective date of termination, Borrowershall pay and perform in full all Obligations, whether evidenced by notes orotherwise, and whether or not all or any part of such Obligations are otherwisethen due and payable.   Notwithstandingany termination of this Agreement, all of Lender's security interests in all ofthe Collateral and all of the terms and provisions of this Agreement shallcontinue in full force and effect until all Obligations have been paid andperformed in full.  No termination shallin any way affect or impair any right or remedy of Lender, nor shall any suchtermination relieve Borrower of any Obligation to Lender, until all of theObligations have been paid and performed in full.  Upon payment and performance in full of all the Obligations andtermination of this Agreement, Lender shall promptly deliver to Borrower terminationstatements, requests for reconveyances and such other documents as may berequired to fully terminate Lender's security interests.

 ***10******.  EVENTSOF DEFAULT AND REMEDIES******.***

         ***10******.******1******       Eventsof Default***. The  occurrence of any of thefollowing events shall constitute an "Event of Default" under thisAgreement, and Borrower shall give Lender immediate written notice thereof:

         (a       any warranty, representation, statement,report or certificate made or delivered to Lender by Borrower or any ofBorrower's officers, employees or agents, now or in the future, shall be untrueor misleading and results in a Material Adverse Effect; or

         (b       Borrower shall fail to pay when due anyLoan or any interest thereon or any other monetary Obligation; or

         (c       the total Loans and other Obligationsoutstanding at any time shall exceed the Credit Limit; or

 

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         (d       Borrower shall fail to timely deliver theproceeds of Collateral to Lender as provided in Sections 7.4 and 8.7above, or shall fail to give Lender prompt access to its books and records orCollateral as provided in Section 8.4 above, or shall breach any negativecovenant set forth in Section 8.5 or 8.6 above; or

         (e       Borrower shall fail to comply with thefinancial covenants (if any) set forth in the Schedule or shall fail to performany other non-monetary Obligation which by its nature cannot be cured; or

         (f       Borrower shall fail to perform any othernon-monetary Obligation, which failure is not cured within ten (10) days afterthe date due; or

         (g       any levy, assessment, attachment,seizure, lien or encumbrance (other than a Permitted Lien) is made on all orany part of the Collateral which is not cured by release thereof within ten(10) days after the occurrence of the same; or

         (h       any default or event of default occursunder any obligation secured by a Permitted Lien that results in a MaterialAdverse Effect, which is not cured within any applicable cure period or waivedin writing by the holder of the Permitted Lien; or

         (i       Borrower breaches any material contractor obligation, which has or may reasonably be expected to have a MaterialAdverse Effect; or

         (j       dissolution, termination of existence,insolvency or business failure of Borrower or any guarantor of any of theObligations; or appointment of a receiver, trustee or custodian, for all or anypart of the property of, assignment for the benefit of creditors by, or thecommencement of any proceeding by Borrower or any guarantor of any of theObligations under any reorganization, bankruptcy, insolvency, arrangement,readjustment of debt, dissolution or liquidation law or statute of anyjurisdiction, now or in the future in effect; or

         (k       the commencement of any proceedingagainst Borrower or any guarantor of any of the Obligations under anyreorganization, bankruptcy, insolvency, arrangement, readjustment of debt,dissolution or liquidation law or statute of any jurisdiction, now or in thefuture in effect, which is (i) not timely controverted, or (ii) not cured by thedismissal thereof within thirty (30) days after the date commenced; or

         (l       revocation or termination of, orlimitation or denial of liability upon, any guaranty of the Obligations or anyattempt to do any of the foregoing, or commencement of proceedings by anyguarantor of any of the Obligations under any bankruptcy or insolvency law; or

         (m       revocation or termination of, or limitationor denial of liability upon, any pledge of any certificate of deposit,securities or other property or asset of any kind pledged by any third party tosecure any or all of the Obligations, or any attempt to do any of theforegoing, or commencement of proceedings by or against any such third partyunder any bankruptcy or insolvency law; or

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         (n       Borrower or any guarantor of any of theObligations makes any payment on account of any indebtedness or obligationwhich has been subordinated to the Obligations, other than as permitted in theapplicable subordination agreement, or if any Person who has subordinated suchindebtedness or obligations terminates or in any way limits his subordinationagreement; or

         (o      exceptas permitted under Section 8.5 or 8.6, Borrower shall suffer or experienceany Change of Control without Lender's prior written consent, which consentshall be in the discretion of Lender in the exercise of its reasonable businessjudgment; or

         (p       Borrower shall generally not pay itsdebts as they become due, or Borrower shall conceal, remove or transfer any partof its property, with intent to hinder, delay or defraud its creditors, or makeor suffer any transfer of any of its property which may be fraudulent under anybankruptcy, fraudulent conveyance or similar law; or

         (q       any event or occurrence that results in aMaterial Adverse Effect.

         Lender may cease making any Loans orextending any credit hereunder during any of the above cure periods.

         ***10******.******2******       Remedies***. Upon the occurrence, and during the continuance, of any Event ofDefault, Lender, at its option, and without notice or demand of any kind (allof which are hereby expressly waived by Borrower), may do any one or more ofthe following:

         (a       Cease making Loans or otherwise extendingcredit to Borrower under this Agreement or any other document or agreement;

         (b       Accelerate and declare all or any part ofthe Obligations to be immediately due, payable and performable, notwithstandingany deferred or installment payments allowed by any instrument evidencing orrelating to any Obligation;

         (c       Take possession of any or all of theCollateral (including, without limitation, all funds held in the TripartyAccount) wherever it may be found, and for that purpose Borrower herebyauthorizes Lender without judicial process to enter onto any of Borrower'spremises without interference to search for, take possession of, keep, store orremove any of the Collateral, and remain on the premises or cause a custodianto remain on the premises in exclusive control thereof, without charge for solong as Lender deems it reasonably necessary in order to complete theenforcement of its rights under this Agreement or any other agreement; provided,however, that should Lender seek to take possession of any of theCollateral by Court process, Borrower hereby irrevocably waives:

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> 
             (i)     any bond and any surety or securityrelating thereto required by any statute, court rule or otherwise as anincident to such possession;

             (ii)     any demand for possession prior to thecommencement of any suit or action to recover possession thereof; and

             (iii)    any requirement that Lender retainpossession of, and not dispose of, any such Collateral until after trial orfinal judgment;

         (d       Require Borrower to assemble any or allof the Collateral and make it available to Lender at places designated byLender which are reasonably convenient to Lender and Borrower, and to removethe Collateral to such locations as Lender may reasonably deem advisable;

         (e       Complete the processing,manufacturingor repair of any Collateral prior to a disposition thereof and, for suchpurpose and for the purpose of removal, Lender shall have the right to useBorrower's premises, vehicles, hoists, lifts, cranes, equipment and all otherproperty without charge.  Lender ishereby granted a license or other right to use, without charge, Borrower'slabels, patents, copyrights, rights of use of any name, trade secrets, tradenames, trademarks, service marks, and advertising matter, or any property of asimilar nature, as it pertains to the Collateral, in completing production of,advertising for sale, and selling any Collateral and Borrower's rights underall licenses and all franchise agreements shall inure to Lender's benefit;

         (f       Sell, lease or otherwise dispose of anyof the Collateral, in its condition at the time Lender obtains possession of itor after further manufacturing, processing or repair, at one or more publicand/or private sales, in lots or in bulk, for cash, exchange or other property,or on credit, and to adjourn any such sale from time to time without noticeother than oral announcement at the time scheduled for sale.  Lender shall have the right to conduct suchdisposition on Borrower's premises without charge, for such time or times asLender deems reasonable, or on Lender's premises, or elsewhere and theCollateral need not be located at the place of disposition.  Lender may directly or through anyaffiliated company purchase or lease any Collateral at any such public disposition,and if permissible under applicable law, at any private disposition.  Any sale or other disposition of Collateralshall not relieve Borrower of any liability Borrower may have if any Collateralis defective as to title or physical condition or otherwise at the time ofsale;

         (g       Demand payment of, and collect anyReceivables and General Intangibles comprising Collateral and, in connectiontherewith, Borrower irrevocably authorizes and empowers Lender to endorse orsign Borrower's name on all collections, receipts, instruments and otherdocuments, to take possession of and open mail addressed to Borrower and removetherefrom payments made with respect to any item of the Collateral or proceedsthereof, and, in Lender's reasonable discretion, to grant extensions of time topay, compromise claims and settle Receivables and the like for less than facevalue; and

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         (h       Demand and receive possession of any ofBorrower's federal and state income tax returns and the books and recordsutilized in the preparation thereof or referring thereto.

         All attorneys' fees, expenses, costs,liabilities and obligations incurred by Lender (including attorneys' fees andexpenses incurred in connection with bankruptcy) with respect to the foregoingshall be due from the Borrower to Lender on demand. Lender may charge the sameto Borrower's loan account, and the same shall thereafter bear interest at thesame rate as is applicable to the Loans. Without limiting any of Lender's rights and remedies, from and after theoccurrence of any Event of Default, the interest rate applicable to theObligations shall be increased by an additional three percent per annum.

         ***10******.******3******       Standardsfor Determining Commercial Reasonableness***. Borrower and Lender agree that a sale or other disposition (collectively,"sale") of any Collateral which complies with the following standardswill conclusively be deemed to be commercially reasonable:

         (a       Notice of the sale is given to Borrowerat least seven (7) days prior to the sale, and, in the case of a public sale,notice of the sale is published at least seven (7) days before the sale in anewspaper of general circulation in the county where the sale is to beconducted;

         (b       Notice of the sale describes thecollateral in general, non-specific terms;

         (c       The sale is conducted at a placedesignated by Lender, with or without the Collateral being present;

         (d       The sale commences at any time between8:00 a.m. and 6:00 p.m. local time at the location where the Collateral is tobe sold;

         (e       Payment of the purchase price in cash orby cashier's check or wire transfer is required; and

         (f       With respect to any sale of any of theCollateral, Lender may (but is not obligated to) direct any prospectivepurchaser to ascertain directly from Borrower any and all informationconcerning the same.

         Lender shall be free to employ other methodsof noticing and selling the Collateral, in its discretion, if they arecommercially reasonable.

         ***10******.******4******       Powerof Attorney***. Borrower hereby grants to Lender an irrevocable power of attorneycoupled with an interest, authorizing and permitting Lender (acting through anyof its employees, attorneys or agents) at any time, at its option, but withoutobligation, with or without notice to Borrower, and at Borrower's expense, todo any or all of the following, in Borrower's name or otherwise, but Lenderagrees to exercise the following powers in a commercially reasonable manner:

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         (a       Execute on behalf of Borrower anydocuments that Lender may, in its sole discretion, deem advisable in order toperfect and maintain Lender's security interest in the Collateral, or in orderto exercise a right of Borrower or Lender, or in order to fully consummate allthe transactions contemplated under this Agreement, and all other present and futureagreements relating to the Obligations;

         (b       After the occurrence of an Event ofDefault, execute on behalf of Borrower any document exercising, transferring orassigning any option to purchase, sell or otherwise dispose of or to lease (aslessor or lessee) any real or personal property which is part of Lender'sCollateral or in which Lender has an interest;

         (c       After the occurrence of an Event ofDefault, execute on behalf of Borrower, any invoices relating to anyReceivable, any draft against any Account Debtor and any notice to any AccountDebtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic's,materialman's or other lien, or assignment or satisfaction of mechanic's,materialman's or other lien;

         (d       Take control in any manner of any cash ornon-cash items of payment or proceeds of Collateral; endorse the name ofBorrower upon any instruments, or documents, evidence of payment or Collateralthat may come into Lender's possession;

         (e       Endorse all checks and other forms ofremittances received by Lender;

         (f       After the occurrence of an Event ofDefault, pay, contest or settle any lien, charge, encumbrance, securityinterest and adverse claim in or to any of the Collateral, or any judgmentbased thereon, or otherwise take any action to terminate or discharge the same;

         (g       After the occurrence of an Event ofDefault, grant extensions of time to pay, compromise claims and settleReceivables and General Intangibles for less than face value and execute allreleases and other documents in connection therewith;

         (h       After the occurrence of an Event ofDefault, pay any sums required on account of Borrower's taxes or to secure therelease of any liens therefor, or both;

        (i       After the occurrence of an Event ofDefault, settle and adjust, and give releases of, any insurance claim thatrelates to any of the Collateral and obtain payment therefor;

         (j       Instruct any third party having custodyor control of any books or records belonging to, or relating to, Borrower togive Lender the same rights of access and other rights with respect thereto asLender has under this Agreement; and

         (k       After the occurrence of an Event of Default,take any action or pay any sum required of Borrower pursuant to this Agreementand any other present or future agreements.

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         Any and all sums paid and any and all costs,expenses, liabilities, obligations and attorneys' fees incurred by Lender(including attorneys' fees and expenses incurred pursuant to bankruptcy) withrespect to the foregoing shall be added to and become part of the Obligations,and shall be payable on demand.  Lendermay charge the foregoing to Borrower's loan account and the foregoing shallthereafter bear interest at the same rate applicable to the Loans.  In no event shall Lender's rights under theforegoing power of attorney or any of Lender's other rights under thisAgreement be deemed to indicate that Lender is in control of the business,management or properties of Borrower. Borrower shall pay, indemnify, defend, and hold Lender and each of itsofficers, directors, employees, counsel, agents, and attorneys-in-fact (each,an "Indemnified Person") harmless (to the fullest extent permitted bylaw) from and against any and all claims, demands, suits, actions,investigations, proceedings, and damages, and all attorneys fees anddisbursements and other costs and expenses actually incurred in connectiontherewith (as and when they are incurred and irrespective of whether suit isbrought), at any time asserted against, imposed upon, or incurred by any ofthem in connection with or as a result of or related to the execution,delivery, enforcement, performance, and administration of this Agreement andany other Loan Documents or the transactions contemplated herein, and withrespect to any investigation, litigation, or proceeding related to thisAgreement, any other Loan Document, or the use of the proceeds of the creditprovided hereunder (irrespective of whether any Indemnified Person is a partythereto), or any act, omission, event or circumstance in any manner relatedthereto (all the foregoing, collectively, the "Indemnified Liabilities").  Borrower shall have no obligation to anyIndemnified Person hereunder with respect to any Indemnified Liabilityresulting from the gross negligence or willful misconduct of any IndemnifiedPerson or any contractor of any Indemnified Person.  This provision shall survive the termination of this Agreementand the repayment of the Obligations.

         ***10******.******5******       Applicationof Proceeds***. All proceeds realized as the result of any sale of the Collateral shallbe applied by Lender first to the costs, expenses, liabilities, obligations andattorneys' fees incurred by Lender in the exercise of its rights under thisAgreement, second to the interest due upon any of the Obligations, and third tothe principal of the Obligations, in such order as Lender shall determine inits sole discretion.  Any surplus shallbe paid to Borrower or other persons legally entitled thereto; Borrower shallremain liable to Lender for any deficiency. If, Lender, in its sole discretion, directly or indirectly enters into adeferred payment or other credit transaction with any purchaser at any sale ofCollateral, Lender shall have the option, exercisable at any time, in its solediscretion, of either reducing the Obligations by the principal amount ofpurchase price or deferring the reduction of the Obligations until the actualreceipt by Lender of the cash therefor.

         ***10******.******6******       RemediesCumulative***.  Inaddition to the rights and remedies set forth in this Agreement, Lender shallhave all the other rights and remedies accorded a secured party in equity,under the Code, and under all other applicable laws, and under any otherinstrument or agreement now or in the future entered into between Lender andBorrower, and all of such rights and remedies are cumulative and none isexclusive.  Exercise or partial exerciseby Lender of one or more of its rights or remedies shall not be deemed anelection, nor bar Lender from subsequent exercise or partial exercise of anyother rights or remedies.  The failureor delay of Lender to exercise any rights or remedies shall not operate as awaiver thereof, but all rights and remedies shall continue in full force andeffect until all of the Obligations have been indefeasibly paid and performed.

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 ***11******.       GENERALPROVISIONS******.***

         ***11******.******1******       InterestComputation***.  Incomputing interest on the Obligations, all checks, wire transfers and otheritems of payment deposited by Borrower to the Triparty Account (includingproceeds of Receivables and payment of the Obligations in full) shall be deemedapplied by Lender on account of the Obligations two (2) Business Days aftersuch deposit by Borrower of immediately available funds, and, for purposes ofthe foregoing, any such funds received after 1:00 p.m. Dallas, Texas time, onany day shall be deemed received on the next Business Day. 

***        11******.******2******       Applicationof Payments***. Subject to Section 10.5 hereof, all payments with respect to theObligations may be applied, and in Lender's sole discretion reversed andre-applied, to the Obligations, in such order and manner as Lender shalldetermine in its sole discretion.

         ***11******.******3******       Chargesto Accounts***. Lender may, in its discretion, require that Borrower pay monetaryObligations in cash to Lender, or charge them to Borrower's Loan account, inwhich event they will bear interest from the date due to the date paid at thesame rate applicable to the Loans.

         ***11******.******4******       MonthlyAccountings***. Borrower shall provide Lender monthly with an account of advances,charges, expenses and payments made pursuant to this Agreement.  Such account shall be deemed correct,accurate and binding on Borrower and an account stated (except for reverses andreapplications of payments made and corrections of errors discovered byLender), unless Borrower notifies Lender in writing to the contrary withinthirty (30) days after each account is rendered, describing the nature of anyalleged errors or omissions.

         ***11******.******5******       Notices***. All notices to be given under this Agreement shall be in writing andshall be given either personally or by reputable private delivery service or byregular first-class mail, facsimile or certified mail return receipt requested,addressed to Lender or Borrower at the addresses shown in the heading to thisAgreement, or at any other address designated in writing by one party to theother party.  All notices shall bedeemed to have been given upon delivery in the case of notices personallydelivered, faxed (at time of confirmation of transmission), or at theexpiration of one (1) Business Day following delivery to the private deliveryservice, or two (2) Business Days following the deposit thereof in the UnitedStates mail, with postage prepaid.

         ***11******.******6******       Severability***. Should any provision of this Agreement be held by any court of competentjurisdiction to be void or unenforceable, such defect shall not affect theremainder of this Agreement, which shall continue in full force and effect.

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         ***11******.******7******       Integration***. This Agreement and such other written agreements, documents andinstruments as may be executed in connection herewith are the final, entire andcomplete agreement between Borrower and Lender and supersede all prior andcontemporaneous negotiations and oral representations and agreements, all ofwhich are merged and integrated in this Agreement.  There are no oral understandings, representations oragreements between the parties which are not set forth in this Agreement or inother written agreements signed by the parties in connection herewith.

         ***11******.******8******       Waivers***. The failure of Lender at any time or times to require Borrower tostrictly comply with any of the provisions of this Agreement or any otherpresent or future agreement between Borrower and Lender shall not waive ordiminish any right of Lender later to demand and receive strict compliancetherewith.  Any waiver of any Defaultshall not waive or affect any other Default, whether prior or subsequent, andwhether or not similar.  None of theprovisions of this Agreement or any other agreement now or in the futureexecuted by Borrower and delivered to Lender shall be deemed to have beenwaived by any act or knowledge of Lender or its agents or employees, but onlyby a specific written waiver signed by an authorized officer of Lender and deliveredto Borrower.  Borrower waives demand,protest, notice of protest and notice of default or dishonor, notice of paymentand nonpayment, release, compromise, settlement, extension or renewal of anycommercial paper, instrument, account, General Intangible, document or guarantyat any time held by Lender on which Borrower is or may in any way be liable,and notice of any action taken by Lender, unless expressly required by thisAgreement.

         ***11******.******9******  NoLiability for Ordinary Negligence***. Neither Lender, nor any of its directors, officers, employees, agents,attorneys or any other Person affiliated with or representing Lender shall beliable for any claims, demands, losses or damages, of any kind whatsoever,made, claimed, incurred or suffered by Borrower or any other party through theordinary negligence of Lender, or any of its directors, officers, employees,agents, attorneys or any other Person affiliated with or representing Lender,but nothing herein shall relieve Lender from liability for the gross negligenceor willful misconduct of Lender or its directors, officers, employees, agentsor contractors.

         ***11******.******10******       Amendment***. The terms and provisions of this Agreement may not be waived or amended,except in a writing executed by a duly authorized officer of Borrower and aduly authorized officer of Lender.

         ***11******.******11******       Timeof Essence***. Time is of the essence in the performance by Borrower of each and everyobligation under this Agreement.

         ***11******.******12******       AttorneysFees, Costs and Charges***. Borrower shall reimburse Lender for all attorneys' fees (includingattorneys' fees and expenses incurred pursuant to bankruptcy) and all filing,recording, search, title insurance, appraisal, audit, and other costs incurredby Lender, pursuant to, or in connection with, or relating to this Agreement(whether or not a lawsuit is filed), including, but not limited to, anyattorneys' fees and costs (including attorneys' fees and expenses incurredpursuant to bankruptcy) Lender incurs in order to do the following: obtainlegal advice in connection with this Agreement or Borrower; enforce, or seek toenforce, any of its rights; prosecute actions against, or defend actions by,Account Debtors; commence, intervene in, or defend any action or proceeding;initiate any complaint to be relieved of the automatic stay in bankruptcy; fileor prosecute any probate claim, bankruptcy claim, third-party claim, or otherclaim; examine, audit, copy, and inspect any of the Collateral or any ofBorrower's books and records; protect, obtain possession of, lease, dispose of,or otherwise enforce Lender's security interest in, the Collateral; andotherwise represent Lender in any litigation relating to Borrower.  If either Lender or Borrower files anylawsuit against the other predicated on a breach of this Agreement, theprevailing party in such action shall be entitled to recover its costs andattorneys' fees (including attorneys' fees and expenses incurred pursuant tobankruptcy), including (but not limited to) attorneys' fees and costs incurredin the enforcement of, execution upon or defense of any order, decree, award orjudgment.  All attorneys' fees, costsand charges (including attorneys' fees and expenses incurred pursuant tobankruptcy) and other fees, costs and charges to which Lender may be entitledpursuant to this Agreement may be charged by Lender to Borrower's loan accountand shall thereafter bear interest at the same rate as the Loans.

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         ***11******.******13******       Benefitof Agreement***. The provisions of this Agreement shall be binding upon and inure to thebenefit of the respective successors, assigns, heirs, beneficiaries andrepresentatives of Borrower and Lender; provided, however, that neither partymay assign or transfer any of its rights under this Agreement without the priorwritten consent of the other party, and any prohibited assignment shall bevoid.  No consent by Lender to anyassignment shall release Borrower from its liability for the Obligations.   Lender reserves the right to syndicate allor a portion of the transaction created herein or sell, assign, transfer,negotiate, or grant participations in all or any part of, or any interest inLender's rights and benefits hereunder, subject to Borrower's approval, whichshall not be withheld unreasonably.  Inconnection with any such syndication, assignment or participation, Lender may,subject to the confidentiality provisions of Section 11.18 disclose alldocuments and information which Lender now or hereafter may have relating toBorrower or Borrower's business. 

***        11******.******14******       Publicity***. Lender is hereby authorized, at its expense, to issue appropriate pressreleases and to cause a tombstone to be published announcing the consummationof this transaction and the aggregate amount thereof.

         ***11******.******15******       ParagraphHeadings; Construction***. Paragraph headings are only used in this Agreement for convenience.  Borrower and Lender acknowledge that theheadings may not describe completely the subject matter of the applicableparagraph, and the headings shall not be used in any manner to construe, limit,define or interpret any term or provision of this Agreement.  The term "including", wheneverused in this Agreement, shall mean "including (but not limited to)".  This Agreement has been fully reviewed andnegotiated between the parties and no uncertainty or ambiguity in any term orprovision of this Agreement shall be construed strictly against Lender orBorrower under any rule of construction or otherwise.

         ***11******.******16******       GoverningLaw; Jurisdiction; Venue***. THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED, DELIVERED AND ACCEPTED BYTHE PARTIES IN THE STATE OF TEXAS, SHALL BE DEEMED TO HAVE BEEN MADE IN DALLASCOUNTY, TEXAS, AND SHALL BE ENFORCED UNDER AND CONSTRUED IN ACCORDANCE WITH THELAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS TO BE ENTERED INTO AND FULLYPERFORMED IN THE STATE OF TEXAS, WITHOUT REGARD TO ANY CHOICE-OF-LAWPROVISIONS, STATUTES, REGULATIONS OR PRINCIPLES THAT WOULD APPLY THE LAWS OFANY OTHER JURISDICTION. THE PARTIES HEREBY ACKNOWLEDGE AND AGREE THAT EACH ANDALL OF THE RIGHTS, OBLIGATIONS AND TRANSACTIONS CONTEMPLATED UNDER THISAGREEMENT CONSTITUTE A "QUALIFIED TRANSACTION" UNDER SECTION 35.51 OFTHE TEXAS BUSINESS AND COMMERCE CODE, THAT THE PARTIES AND THEIR RESPECTIVECOUNSEL HAVE EXPRESSLY NEGOTIATED THIS PROVISION REGARDING GOVERNING LAW, AND, NOTWITHSTANDINGANY CHOICE OF LAW OR VENUE PROVISION FOUND IN ANY OTHER AGREEMENT RELATED TOTHIS AGREEMENT, THAT THIS PROVISION IS AN ESSENTIAL PART OF THE PARTIES'BARGAIN.

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 EACH OF THE PARTIES HERETO ABSOLUTELY ANDIRREVOCABLY CONSENTS AND SUBMITS TO THE EXCLUSIVE JURISDICTION 0F THE COURTS OFTHE STATE OF TEXAS AND OF ANY FEDERAL COURT LOCATED IN DALLAS, TEXAS INCONNECTION WITH ANY ACTION OR PROCEEDING TO ENFORCE, CHALLENGE, TERMINATE ORCONSTRUE THIS AGREEMENT OR ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT,HOWSOEVER DENOMINATED, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY,INCLUDING ANY CLAIM OF BREACH OF REPRESENTATION OR WARRANTY OR COVENANT OR OFNONPERFORMANCE, AND HEREBY IRREVOCABLY AGREES THAT SUCH COURTS SHALL HAVE SOLEAND EXCLUSIVE JURISDICTION OVER ALL CLAIMS IN RESPECT OF ANY SUCH ACTION ORPROCEEDING, AND THAT SERVICE OF PROCESS, SUMMONS OR NOTICE BY U.S. REGISTEREDMAIL TO SUCH PARTY'S ADDRESS SET FORTH ON THE SIGNATURE PAGES HEREOF SHALLBEEFFECTIVE SERVICE OF PROCESS OF ANY ACTION OR PROCEEDING AGAINST SUCH PARTYIN ANY SUCH COURT. EACH OF THE PARTIES HERETO HEREBY WAIVES AND AGREES NOT TOASSERT IN ANY SUCH ACTION OR PROCEEDING IN EACH CASE, ANY CLAIM THAT (A) IT ISNOT SUBJECT TO THE JURISDICTION OF ANY SUCH COURT OR THAT VENUE IN SUCH COURTIS NOT PROPER, (B) IT IS IMMUNE FROM ANY LEGAL PROCESS, OR (C) ANY SUCH SUIT,ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THE PARTIES HEREBYACKNOWLEDGE AND AGREE THAT EACH AND ALL OF THE TRANSACTIONS CONTEMPLATED UNDERTHIS AGREEMENT CONSTITUTE A "MAJOR TRANSACTION" UNDER SECTION 15.020OF THE TEXAS CIVIL PRACTICE AND REMEDIES CODE, THAT THE PARTIES HAVE EXPRESSLYNEGOTIATED THIS PROVISION REGARDING JURISDICTION AND VENUE, AND THAT THISPROVISION IS AN ESSENTIAL PART OF THE PARTIES' BARGAIN.

         ***11******.******17******       MutualWaiver of Jury Trial***.  BORROWER AND LENDER EACH HEREBY WAIVE THERIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTUREINSTRUMENT OR AGREEMENT BETWEEN LENDER AND BORROWER, OR ANY CONDUCT, ACTS OROMISSIONS OF LENDER OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, INALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

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         ***11******.******18******       Confidentiality*****.**  Lender will maintain theconfidentiality of any non public information marked as confidential andrelating to the business, operations or methodology of Borrower or financialperformance of Borrower ("Borrower Information") provided to Lendersolely by the Borrower as required under the terms of this Agreement.  Lender will not trade in Borrower'ssecurities based on any such Borrower Information.  Lender will not disclose Borrower Information to any person,other than employees, agents, attorneys or accountants of Lender for whoseaction Lender shall be responsible to Borrower.  Lender will not disclose Borrower Information to any other partyunless, prior to such disclosure, Lender obtains an executed acknowledgmentbinding such party to maintain the confidentiality of the information,prohibiting its disclosure or use except for the purposes permitted under thisAgreement, and agreeing that the information may not be used in connection withthe purchase of Borrower's securities or to compete with the Borrower in anyway.  In the event Lender receives asubpoena or other process for any Borrower Information, it will immediatelygive notice in writing of the subpoena or other process, including a copy thereof,to Borrower.

 **BORROWER:**

 **NETLOJIX COMMUNICATIONS, INC.**a Delaware corporation

 

By                                               Chief Executive Officer

By                                                 Chief Accounting Officer

 

**REMOTE LOJIX/PCSI, INC.,**a New York corporation

By                                                 Chief Executive Officer

 By                                                Chief Accounting Officer

 

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**NETLOJIX TELECOM, INC.,**a Delaware corporation

 

By      Anthony E.Papa                         Chief Executive Officer

 By      Gregory J.Wilson                     Chief Accounting Officer

 

**WESTNET COMMUNICATIONS, INC.,**a California corporation

 

By      Anthony E.Papa                         Chief Executive Officer

By      Gregory J.Wilson                     Chief Accounting Officer

 

**CW ELECTRONIC ENTERPRISES, INC.,**an Illinois corporation

 

By      Anthony E.Papa                         Chief Executive Officer

By      Gregory J.Wilson                     Chief Accounting Officer

 

**SMITH TECHNOLOGY SOLUTIONS, INC.,**a California corporation

 

By      Anthony E.Papa                         Chief Executive Officer

 By      Gregory J.Wilson                     Chief Accounting Officer

 

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**LENDER:**

**DTL ONE, LLC,**a Nevada limited liability company

 

By         JeffreyJ.Jensen              Title:     Member                           

 

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Schedule toLoan and SecurityAgreement

 

**Borrower:            NETLOJIXCOMMUNICATIONS, INC.**                            **a Delawarecorporation**

**                              REMOTE LOJIX/PCSI, INC.,**                             **a New Yorkcorporation**

**                              NETLOJIX TELECOM, INC.,**                             **a Delawarecorporation**

** **                            **WESTNETCOMMUNICATIONS, INC.,**                              **a Californiacorporation**

** **                            **CW ELECTRONICENTERPRISES, INC.,**                             **an Illinoiscorporation**

** **                            **SMITH TECHNOLOGYSOLUTIONS, INC.,**                             **a Californiacorporation**

** Address:        501Bath Street**                       **Santa Barbara,California  93101**

** Date:             January31, 2002**

         This Schedule forms an integral part of theLoan and Security Agreement between DTL One, LLC a Nevada limited liabilitycompany ("Lender") and the above-borrowers of even date.

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**SECTION 2 - CREDIT FACILITIES**

**        Section 2.1 - Credit Limit: **Loans ina total amount at any time outstanding not to exceed the lesser of a total ofTwo Million Dollars ($2,000,000) (the "Maximum Dollar Amount"), orthe sum of (a) and (b) below:

> 
 (a)  Billed Receivable Loans in an amount not toexceed the total of the following percentages of the amount of Borrower'sEligible Receivables consisting of Billed Receivables (as defined in Section 1of the Agreement) outstanding for the given time period:

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> 
(i)   80% of Billed Receivables outstanding for 90days or less;(ii) 40% of BilledReceivables outstanding for more than 90 days, but not more than 120 days; and(iii)  20% of BilledReceivables outstanding for more than 120 days, but not more than 150 days.

 (b)  Unbilled Receivable Loans in an amount not toexceed the lesser of:

 (i)  up to 80% of the amount of Borrower's EligibleReceivables consisting of Unbilled Receivables (as defined in Section 1 of theAgreement), and

 (ii)  Seven Hundred Fifty Thousand Dollars($750,000).

 

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**SECTION 3 - INTEREST AND FEES**

**         Section 3.1 - Interest Rate: **A rate equal to the Prime Rate plus 2% perannum, calculated on the basis of a 360-day year for the actual number of dayselapsed.  The interest rate applicableto all Loans shall be adjusted monthly as of the first day of each month, andthe interest to be charged for each month shall be based on the highest PrimeRate in effect during the prior month, provided that the rate of interestcharged on any Loans in any month shall not be less than 10% per annum.  In no event will the interest rateapplicable to any Loan (including amortization of any fees set forth in Section3.2 hereof) exceed the highest rate permitted by applicable law on the date ofthe Agreement.

 

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**        Section 3.2 - Loan Fee: **One halfof one percent (0.5%) of the Maximum Dollar Amount, such amount being fullyearned and payable on the Closing Date. 

 **   **     **Section 3.2 - Facility Fee: **$1,000, per quarter, payable on the ClosingDate (prorated for any partial quarter at the beginning of the term of thisAgreement).

 

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**SECTION 5 - CONDITIONS PRECEDENT**

         **Section 5.2 -   Minimum                                 Availability:**                      $250,000

         **Section 5.11 -  Other Documents**                                 **and Agreements:    **1.  Revolving credit note;

                                                                   2.  UCC-1 financing statements and terminationstatements;

                                                                   3.  Tri-party account agreement.

 

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**SECTION 6 - REPRESENTATIONS, WARRANTIES ANDCOVENANTS**

 **   **     **Section 6.2 -  Prior Names of   **                             **Borrower:                 **Avtel Communications, Inc.                                                                   Hi, Tiger International, Inc.

 

**   **     **Section 6.2-    Prior Trade Names   **                             **of Borrower:**             AvTel                                                                   AvTel Communications                                                                   Hi, Tiger

 

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**        Section 6.2 -  Existing Trade Names   **                            **of Borrower:            **         NetLojix                                                                           NetLojix Communications                                                                           NetLojix Telecom                                                                           Remote                                                                           Remote Lojix                                                                           Remote Lojix/PCSI                                                                           Westnet                                                                           Silicon Beach                                                                           Silicon Beach Communications                                                                           CWE2                                                                           STS

 **   **     **Section 6.3 -    Other Locations****and   **                                **Addresses:       **                Schedule 6.3 (attached hereto)

 **   **     **Section 6.10 -   Material Adverse   **                                **Litigation:**                        Schedule 6.10 (attached hereto)

 **   **     **Section 6.10 -    Future Claims and   **                                **Litigation:**

> 
Borrower will promptly inform Lender inwriting of any claim, proceeding, litigation or investigation in the futurethreatened or instituted by or against Borrower involving any single claim ofFifty Thousand Dollars ($50,000) or more, or involving One Hundred ThousandDollars ($100,000) or more in the aggregate.

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**SECTION 8 - ADDITIONAL DUTIES OF BORROWER**

 **   **     **Section 8.2 - Insurance: **Subject to the limitations set forth inSection 8.2 of the Agreement, Lender shall release to Borrower insuranceproceeds with respect to Equipment totaling less than One Hundred ThousandDollars ($100,000) in a single transaction subject to a yearly limitation ofTwo Hundred and Fifty Thousand Dollars ($250,000).

**        Section 8.3 - Reporting: **Without in any manner limiting or modifying anyother reports or notices required of Borrower under other provisions of theAgreement, Borrower shall provide Lender with the following:

 

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> 
1.  Monthly Receivable agings, aged by invoicedate, within twenty (20) days after the end of each month.

 2.  Monthly accounts payable agings, aged byinvoice date, and outstanding or held check registers within ten (10) daysafter the end of each month.

 3.  Monthly internally prepared financialstatements, on a consolidating to consolidated basis, as soon as available, andin any event within thirty (30) days after the end of each month.

 

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4.  Quarterly internally prepared financialstatements, as soon as available, and in any event within forty-five (45) daysafter the end of each fiscal quarter of Borrower.

 5.  Quarterly customer lists, including customername, address, and phone number.

 6.  Annual financial statements, as soon asavailable, and in any event within ninety (90) days following the end ofBorrower's fiscal year, containing the opinion of, and certified by anindependent certified public accountant acceptable to Lender.  Lender hereby agrees that Farber & HassLLP is acceptable to Lender.

 7.  Monthly collateral/reserves roll forward withGeneral Ledger reconciliation, in form and substance satisfactory to Lender,within ten (10) days after the end of each month.

 8.  Reports for Unbilled Receivables as frequentlyas Lender shall require, in form and substance satisfactory to Lender.

 9.  Annual projections, on a month-to-month basis,in form and substance satisfactory to Lender, are to be provided to Lenderbefore each anniversary date of the effective date of this Agreement.

 10.  Weekly Borrowing Base reporting which includessales, collections and credits, in form and substance satisfactory to Lender,within three (3) business days after the end of each week.  A month-end Borrowing Base reportingconsolidating for each calendar month the current month-end status of theWeekly Borrowing Base reports for such month, within five (5) business daysafter the end of each calendar month.

 

11.  Regularreports, no less frequently than monthly, to the extent applicable, asdescribed in Section 7.5.

 **   **     **Section 8.6 -   Negative Covenants   **                            **(Acquired Assets):**

One HundredThousand Dollars ($100,000) in the aggregate for all acquisitions during acalendar year, or a proportionate amount for a partial year.

 

**SECTION 9 - TERM**

**    **     **Section 9.1 -Maturity Date: **January 31, 2004, subject to automatic renewalas provided in Section 9.1 of the Agreement, and early termination asprovided in Section 9.2 of the Agreement.