Continuing Security Agreement


    
      	
               

            	
               

               

              Continuing
                Security Agreement

            


    

    


    Name
      of Debtor:    Advanced
      Materials, Inc. 

    Taxpayer
      I.D. No.:    330527905

    State
      Organization No.: 0009349506

    Debtor's
      Address: 3303
      Lee Parkway, Suite 105, Dallas Texas 75219

    


    Dated
      as
      of March 1, 2007

    


    Grant
      of Security Interest. Advanced
      Materials, Inc. (whether one or more, the "Debtor", individually and
      collectively if more than one) grants to JPMorgan Chase Bank, N.A., whose
      address is 1717 Main Street, Dallas, TX 75201 (together with its successors
      and
      assigns, the "Bank") a continuing security interest in, pledges and assigns
      to
      the Bank all of the "Collateral" (as hereinafter defined) owned by the Debtor,
      all of the collateral in which the Debtor has rights or power to transfer rights
      and all Collateral in which the Debtor later acquires ownership, other rights
      or
      rights or power to transfer rights to secure the payment and performance of
      the
      Liabilities.

    


    Borrower.
      "Borrower" means each and all of Advanced Materials, Inc.

    


    Liabilities.
      "Liabilities" means all obligations, indebtedness and liabilities
      of the Borrower whether individual, joint and several,
      absolute or contingent, direct or indirect, liquidated or unliquidated, now
      or
      hereafter existing in favor of the
      Bank,
      including without limitation, all liabilities, all interest, costs and fees
      arising under or from any note, open account, overdraft, letter of credit
      application, endorsement, surety agreement, guaranty, credit card, lease, Rate
      Management Transaction, acceptance, foreign exchange contract or depository
      service contract, whether payable to the Bank or to a third party and
      subsequently acquired by the Bank, any monetary obligations (including interest)
      incurred or accrued during the pendency of any bankruptcy, insolvency,
      receivership or other similar proceedings, regardless of whether allowed or
      allowable in such proceeding, and all renewals, extensions, modifications,
      consolidations, rearrangements, restatements, replacements or substitutions
      of
      any of the foregoing. "Rate
      Management Transaction" means any transaction (including an agreement with
      respect thereto) that is a rate swap, basis swap, forward rate transaction,
      commodity swap, commodity option, equity or equity index swap, equity or equity
      index option, bond option, interest rate option, foreign exchange transaction,
      cap transaction, floor transaction, collar transaction, forward transaction,
      currency swap transaction, cross-currency rate swap transaction, currency
      option, derivative transaction or any other similar transaction (including
      any
      option with respect to any of these transactions) or any combination thereof,
      whether linked to one or more interest rates, foreign currencies, commodity
      prices, equity prices or other financial measures. The Debtor and the Bank
      specifically contemplate that Liabilities include indebtedness hereafter
      incurred by the Borrower to the Bank.

    


    Collateral.
      Accounts; Chattel Paper; Deposit Accounts and other payment obligations of
      a
      financial institution (including the Bank); Documents; Equipment; General
      Intangibles; Instruments; Inventory; Investment Property; and Letter of Credit
      Rights. 

    


    Description
      of Collateral.
      As used
      in this agreement, the term "Collateral" means all of the Debtor's property
      whether owned individually or jointly with others of the types indicated above
      and defined below, whether now owned or hereafter acquired, whether now existing
      or hereafter arising, and wherever located, including but not limited to any
      items listed on any schedule or list attached hereto. In addition, the term
      "Collateral" includes all "proceeds," "products" and "supporting obligations"
      (as such terms are defined in the "UCC," meaning the Uniform Commercial Code
      of
      Texas, as in effect from time to time) of the Collateral indicated above,
      including but not limited to all stock rights, subscription rights, dividends,
      stock dividends, stock splits, or liquidating dividends, and all cash, accounts,
      chattel paper, "instruments," "investment property," "financial assets," and
      "general intangibles" (as such terms are defined in the UCC) arising from the
      sale, rent, lease, casualty loss or other disposition of the Collateral, and
      any
      Collateral returned to, repossessed by or stopped in transit by the Debtor,
      and
      all insurance claims relating to any of the Collateral (defined above). The
      term
      "Collateral" further includes all of the Debtor's right, title and interest
      in
      and to all books, records and data relating to the Collateral identified above,
      regardless of the form of media containing such information or data, and all
      software necessary or desirable to use any of the Collateral identified above
      or
      to access, retrieve, or process any of such information or data. Where the
      Collateral is in the possession of the Bank or the Bank's agent, the Debtor
      agrees to deliver to the Bank any property that represents an increase in the
      Collateral or profits or proceeds of the Collateral.

    


    
      	1.  	
              "Accounts"
                means all of the Debtor's "accounts" as defined in Article 9 of the
                UCC.

            


    

    


    
      	2.  	
              "Chattel
                Paper" means all of the Debtor's "chattel paper" as defined in Article
                9
                of the UCC.

            


    

    


    
      	3.  	
              "Deposit
                Accounts" means all of the Debtor's "deposit accounts" as defined
                in
                Article 9 of the UCC and other payment obligations of a financial
                institution (including the Bank) to the
                Debtor.

            


    

    


    
      	4.  	
              "Documents"
                means all of the Debtor's "documents" as defined in Article 9 of
                the
                UCC.

            


    

    


    "Equipment"
      means all of the Debtor's "equipment" as defined in Article 9 of the UCC. In
      addition, "Equipment" includes any "documents" (as defined in Article 9 of
      the
      UCC) issued with respect to any of the Debtor's "equipment" (as defined in
      Article 9 of the UCC) and certificates of title relating to the foregoing.
      Without limiting the security interest granted, the Debtor represents and
      warrants that the Debtor's Equipment is presently located at 3303
      Lee
      Parkway, Suite 105, Dallas Texas 75219.

    


    
      	5.  	
              "General
                Intangibles" means all of the Debtor's "general intangibles" as defined
                in
                Article 9 of the UCC. In addition, "General Intangibles" further
                includes
                any right to a refund of taxes paid at any time to any governmental
                entity.

            


    

    


    
      	6.  	
              "Instruments"
                means all of the Debtor's "instruments" as defined in Article 9 of
                the
                UCC.

            


    

    


    "Inventory"
      means all of the Debtor's "inventory" as defined in Article 9 of the UCC. In
      addition, "Inventory" includes any "documents" and certificates of title issued
      with respect to any of the Debtor's "inventory" (as defined in Article 9 of
      the
      UCC). Without limiting the security interest granted, the Debtor represents
      and
      warrants that the Debtor's Inventory is presently located at 3303
      Lee
      Parkway, Suite 105, Dallas Texas 75219.

    


    
      	7.  	
              "Investment
                Property" means all of the Debtor's "investment property" as defined
                in
                Article 9 of the UCC and all of the Debtor's "financial assets,"
                as
                defined in Article 8 of the UCC.

            


    

    


    
      	8.  	
              "Letter
                of Credit Rights" means all of the Debtor's "letter of credit rights"
                as
                defined in Article 9 of the UCC.

            


    

    


    


    Representations,
      Warranties and Covenants. The
      Debtor represents and warrants to, and covenants and agrees with the Bank that
      each of the following is true and will remain true until termination of this
      agreement and full and final payment of all Liabilities:

    
      	1.  	
              Its
                principal residence or chief executive office is at the address shown
                above;

            


    

    
      	2.  	
              The
                Debtor's name as it appears in this agreement is its exact name as
                it
                appears in the Debtor's organizational documents, as amended, including
                any trust documents;

            


    

    
      	3.  	
              It
                is or will become the owner of the Collateral free from any liens,
                encumbrances or security interests, except for this security interest
                and
                existing liens disclosed to and accepted by the Bank in writing,
                and it
                will defend the Collateral against all claims and demands of all
                persons
                at any time claiming any interest in the
                Collateral;

            


    

    
      	4.  	
              It
                will keep the Collateral free of liens, encumbrances and other security
                interests, except for this security interest, maintain the Collateral
                in
                good repair, not use it illegally and exhibit the Collateral to the
                Bank
                on demand;

            


    

    
      	5.  	
              At
                its own expense, the Debtor will maintain comprehensive casualty
                insurance
                on the Collateral against such risks, in such amounts, with such
                deductibles and with such companies as may be satisfactory to the
                Bank.
                Each insurance policy shall contain a lender's loss payable endorsement
                in
                form and substance satisfactory to the Bank and a prohibition against
                cancellation or amendment of the policy or removal of the Bank as
                loss
                payee without at least thirty (30) days'
                prior written notice to the Bank. In all events, the amounts of such
                insurance coverages shall conform to prudent business practices and
                shall
                be in such minimum amounts that the Debtor will not be deemed a
                co-insurer. The policies and certificates evidencing them, shall,
                if the
                Bank so requests, be deposited with the Bank. The Debtor authorizes
                the
                Bank to endorse on the Debtor's behalf and to negotiate drafts reflecting
                proceeds of insurance of the Collateral, provided that the Bank shall
                remit to the Debtor such surplus, if any, as remains after the proceeds
                have been applied, at the Bank's option, to the satisfaction of all
                of the
                Liabilities (in such order of application as the Bank may elect)
                or to the
                establishment of a cash collateral account for the
                Liabilities;

            


    

    
      	6.  	
              It
                will not sell, lease, license or offer to sell, lease, license or
                otherwise transfer the Collateral or any rights in or to the Collateral,
                without the written consent of the Bank, except in the ordinary course
                of
                business;

            


    

    
      	7.  	
              It
                will not change the location of the Collateral from the locations
                of the
                Collateral described in this agreement, without providing at least
                ten
                (10) days'
                prior written notice to the Bank;

            


    

    
      	8.  	
              It
                will pay promptly when due all taxes and assessments upon the Collateral,
                or for the use or operation of the
                Collateral;

            


    

    
      	9.  	
              No
                financing statement covering all or any part of the Collateral or
                any
                proceeds is on file in any public office, unless the Bank has approved
                that filing. From time to time at the Bank's request, the Debtor
                will
                execute one or more financing statements or similar record and a
                control
                agreement with respect to the proceeds in form satisfactory to the
                Bank
                and will pay the cost of filing them in all public offices where
                filing is
                deemed by the Bank to be necessary or desirable. In addition, the
                Debtor
                shall execute and deliver, or cause to be executed and delivered,
                such
                other documents as the Bank may from time to time request to perfect
                or to
                further evidence the security interest created in the Collateral
                by this
                agreement including, without limitation: (a) any certificate or
                certificates of title to the Collateral with the security interest
                of the
                Bank noted thereon or executed applications for such certificates
                of title
                in form satisfactory to the Bank; (b) any assignments of claims under
                government contracts which are included as part of the Collateral,
                together with any notices and related documents as the Bank may from
                time
                to time request; (c) any assignment of any specific account receivable
                as
                the Bank may from time to time request; (d) a notice of and acknowledgment
                of the Bank's security interest and a control agreement with respect
                to
                any Collateral, all in form and substance satisfactory to the Bank;
                (e) a
                notice to and acknowledgment from any person holding or in possession
                of
                any Collateral that such persons holds the Collateral as a bailee
                for the
                Bank's benefit, all in form and substance satisfactory to the Bank;
                and
                (f) any consent to the assignment of proceeds of any letter of credit,
                all
                in form and substance satisfactory to the Bank;


            


    

    
      	10.  	
              It
                will not, without the Bank's prior written consent, change the Debtor's
                name, the Debtor's business organization, the jurisdiction under
                which the
                Debtor's business organization is formed or organized, or the Debtor's
                chief executive office, or of any additional places of the Debtor's
                business;

            


    

    
      	11.  	
              It
                will provide any information that the Bank may reasonably request
                and will
                permit the Bank or the Bank's agents to inspect and copy its books,
                records, data and the Collateral at any time during normal business
                hours;

            


    

    
      	12.  	
              The
                Bank shall have the right now, and at any time in the future in its
                sole
                and absolute discretion, without notice to the Debtor, to (a) prepare,
                file and sign the Debtor's name on any proof of claim in bankruptcy
                or
                similar document against any owner of the Collateral and (b) prepare,
                file
                and sign the Debtor's name on any financing statement, notice of
                lien,
                assignment or satisfaction of lien or similar document in connection
                with
                the Collateral. The Debtor hereby authorizes the Bank to file financing
                statements covering Collateral or such lesser amount of assets as
                the Bank
                may determine, or the Bank may, at its option, file financing statements
                or similar records containing any collateral description which reasonably
                describes the Collateral in which a security interest is granted
                under
                this agreement;

            


    

    
      	13.  	
              Immediately
                upon the Debtor's receipt of any Collateral evidenced by an agreement,
                "instrument," "chattel paper," certificated "security" or "document"
                (as
                such terms are defined in the UCC) (collectively, "Special Collateral"),
                the Debtor shall mark the Special Collateral to show that it is subject
                to
                the Bank's security interest and shall deliver the original to the
                Bank
                together with appropriate endorsements and other specific evidence
                of
                assignment or transfer in form and substance satisfactory to the
                Bank;

            


    

    
      	14.  	
              The
                Debtor shall keep all tangible Collateral in good order and repair
                and
                shall not waste or destroy any of the Collateral, nor use any of
                the
                Collateral in violation of any applicable law or any policy of insurance
                thereon. To the extent that the Collateral consists of "farm products"
                (as
                defined in the UCC), the Debtor shall attend to and care for the
                crops and
                livestock in accordance with the best practices of good husbandry,
                and do,
                or cause to be done, any and all acts that may at any time be appropriate
                or necessary to grow, raise, harvest, care for, preserve and protect
                the
                farm products;

            


    

    
      	15.  	
              Except
                as may be otherwise disclosed in writing by the Debtor to the Bank,
                none
                of the Collateral is attached to real estate so as to constitute
                a
                "fixture" (as defined in the UCC) and none of the Collateral shall
                at any
                time hereafter be attached to real estate so as to constitute a fixture.
                If any of the Collateral is now or at any time hereafter becomes
                so
                attached to real estate so as to constitute a fixture, the Debtor
                shall,
                at any time upon the Bank's request, furnish the Bank with a disclaimer
                of
                interest in the Collateral executed by each person or entity having
                an
                interest in such real estate.

            


    

    


    Accounts;
      Chattel Paper; General Intangibles and Instruments. If
      the
      Collateral includes the Debtor's "Accounts, Chattel Paper, General Intangibles
      and Instruments" and until the Bank gives notice to the Debtor to the contrary,
      the Debtor will, in the usual course of its business and at its own expense,
      on
      the Bank's behalf but not as the Bank's agent, demand and receive and use its
      best efforts to collect all moneys due or to become due with respect to the
      Collateral. Until the Bank gives notice to the Debtor to the contrary or until
      the Debtor is in default, it may use the funds collected in its business. Upon
      notice from the Bank or upon default, the Debtor agrees that all sums of money
      it receives on account of or in payment or settlement of the Accounts, Chattel
      Paper, General Intangibles and Instruments shall be held by it as trustee for
      the Bank without commingling with any of the Debtor's other funds, and shall
      immediately be delivered to the Bank with endorsement to the Bank's order of
      any
      check or similar instrument. It is agreed that, at any time the Bank so elects,
      the Bank shall be entitled, in its own name or in the name of the Debtor or
      otherwise, but at the expense and cost of the Debtor, to collect, demand,
      receive, sue for or compromise any and all Accounts, Chattel Paper, General
      Intangibles, and Instruments, and to give good and sufficient releases, to
      endorse any checks, drafts or other orders for the payment of money payable
      to
      the Debtor and, in the Bank's discretion, to file any claims or take any action
      or proceeding which the Bank may deem necessary or advisable. It is expressly
      understood and agreed, however, that the Bank shall not be required or obligated
      in any manner to make any demand or to make any inquiry as to the nature or
      sufficiency of any payment received by it or to present or file any claim or
      take any other action to collect or enforce the payment of any amounts which
      may
      have been assigned to the Bank or to which the Bank may be entitled at any
      time
      or times. All notices required in this paragraph will be immediately effective
      when sent. Such notices need not be given prior to the Bank's taking action.
      The
      Debtor appoints the Bank or the Bank's designee as the Debtor's attorney-in-fact
      to do all things with reference to the Collateral as provided for in this
      section including without limitation (1) to notify the post office authorities
      to change the Debtor's mailing address to one designated by the Bank, (2) to
      receive, open and dispose of mail addressed to the Debtor, (3) to sign the
      Debtor's name on any invoice or bill of lading relating to any Collateral,
      on
      assignments and verifications of account and on notices to the Debtor's
      customers, and (4) to do all things necessary to carry out this agreement or
      to
      perform any of the obligations of the Debtor under this agreement. The Debtor
      ratifies and approves all acts of the Bank as attorney-in-fact. The Bank shall
      not be liable for any act or omission, nor any error of judgment or mistake
      of
      fact or law, but only for its gross negligence or willful misconduct. This
      power
      being coupled with an interest is irrevocable until all of the Liabilities
      have
      been fully satisfied and shall survive the death or disability of the
      Debtor.

    


    


    Pledge.
      If the
      Debtor is not liable for all or any part of the Liabilities, then the Debtor
      agrees that:

    


    
      	1.  	
              If
                any moneys become available from any source other than the Collateral
                that
                the Bank can apply to the Liabilities, the Bank may apply them in
                any
                manner it chooses, including but not limited to applying them against
                obligations, indebtedness or liabilities which are not secured by
                this
                agreement.

            


    

    
      	2.  	
              The
                Bank may take any action against the Borrower, the Collateral or
                any other
                collateral for the Liabilities, or any other person or entity liable
                for
                any of the Liabilities.

            


    

    
      	3.  	
              The
                Bank may release the Borrower or anyone else from the Liabilities,
                either
                in whole or in part, or release the Collateral in whole or in part
                or any
                other collateral for the Liabilities, and need not perfect a security
                interest in the Collateral or any other collateral for the
                Liabilities.

            


    

    
      	4.  	
              The
                Bank does not have to exercise any rights that it has against the
                Borrower
                or anyone else, or make any effort to realize on the Collateral or
                any
                other collateral for the Liabilities, or exercise any right of
                setoff.

            


    

    
      	5.  	
              Without
                notice or demand and without affecting the Debtor's obligations hereunder,
                from time to time, the Bank is authorized to: (a) renew, modify,
                compromise, rearrange, restate, consolidate, extend, accelerate or
                otherwise change the time for payment of, or otherwise change the
                terms of
                the Liabilities or any part thereof, including increasing or decreasing
                the rate of interest thereon; (b) release, substitute or add any
                one or
                more sureties, endorsers, or guarantors; (c) take and hold other
                collateral for the payment of the Liabilities, and enforce, exchange,
                substitute, subordinate, impair, waive or release any such collateral;
                (d)
                proceed against the Collateral or any other collateral for the Liabilities
                and direct the order or manner of sale as the Bank in its discretion
                may
                determine; and (e) apply any and all payments received by the Bank
                in
                connection with the Liabilities, or recoveries from the Collateral
                or any
                other collateral for the Liabilities, in such order or manner as
                the Bank
                in its discretion may determine.

            


    

    
      	6.  	
              The
                Debtor's obligations hereunder shall not be released, diminished
                or
                affected by (a) any act or omission of the Bank, (b) the voluntary
                or
                involuntary liquidation, sale or other disposition of all or substantially
                all of the assets of the Borrower, or any receivership, insolvency,
                bankruptcy, reorganization, or other similar proceedings affecting
                the
                Borrower or any of its assets or any other obligor on the Liabilities
                or
                that obligor's assets, (c) any change in the composition or structure
                of
                the Borrower or any other obligor on the Liabilities, including a
                merger
                or consolidation with any other person or entity, or (d) any payments
                made
                upon the Liabilities.

            


    

    
      	7.  	
              The
                Debtor expressly consents to any impairment of any other collateral
                for
                the Liabilities, including, but not limited to, failure to perfect
                a
                security interest and release of any other collateral for the Liabilities
                and any such impairment or release shall not affect the Debtor's
                obligations hereunder.

            


    

    
      	8.  	
              The
                Debtor waives and agrees not to enforce any rights of subrogation,
                contribution or indemnification that it may have against the Borrower,
                any
                person or entity liable on the Liabilities, or the Collateral, until
                the
                Borrower and the Debtor have fully performed all their obligations
                to the
                Bank, even if those obligations are not covered by this
                agreement.

            


    

    
      	9.  	
              The
                Debtor waives (a) to the extent not prohibited by applicable law,
                all
                rights and benefits under any laws or statutes regarding sureties,
                as may
                be amended, (b) any right the Debtor may have to receive notice of
                the
                following matters before the Bank enforces any of its rights: (i)
                the
                Bank's acceptance of this agreement, (ii) incurrence or acquisition
                of any
                Liabilities, any credit that the Bank extends to the Borrower, (iii)
                the
                Borrower's default, (iv) any demand, intent to accelerate, diligence,
                presentment, dishonor and protest, or (v) any action that the Bank
                takes
                regarding the Borrower, anyone else, any other collateral for the
                Liabilities, or any of the Liabilities, which it might be entitled
                to by
                law or under any other agreement, (c) any right it may have to require
                the
                Bank to proceed against the Borrower, any guarantor or other obligor
                on
                the Liabilities, the Collateral or any other collateral for the
                Liabilities, or pursue any remedy in the Bank's power to pursue,
                (d) any
                defense based on any claim that the Debtor's obligations exceed or
                are
                more burdensome than those of the Borrower, (e) the benefit of any
                statute
                of limitations affecting the Debtor's obligations hereunder or the
                enforcement hereof, (f) any defense arising by reason of any disability
                or
                other defense of the Borrower or by reason of the cessation from
                any cause
                whatsoever (other than payment in full) of the obligation of the
                Borrower
                for the Liabilities, and (g) any defense based on or arising out
                of any
                defense that the Borrower may have to the payment or performance
                of the
                Liabilities or any portion thereof. The Bank may waive or delay enforcing
                any of its rights without losing them. Any waiver affects only the
                specific terms and time period stated in the
                waiver.

            


    

    
      	10.  	
              The
                Debtor agrees that to the extent any payment or transfer is received
                by
                the Bank in connection with the Liabilities, and all or any part
                of such
                payment or transfer is subsequently invalidated, declared to be fraudulent
                or preferential, set aside or required to be transferred or repaid
                by the
                Bank or paid over to a trustee, receiver or any other person or entity,
                whether under any bankruptcy act or otherwise (any of those payments
                or
                transfers is hereinafter referred to as a "Preferential Payment"),
                then
                this agreement shall continue to be effective or shall be reinstated,
                as
                the case may be, even if all Liabilities have been paid in full,
                and
                whether or not the Bank is in possession of this agreement or whether
                this
                agreement has been marked paid, cancelled, released or returned to
                the
                Debtor, and, to the extent of the payment or repayment or other transfer
                by the Bank, the Liabilities or part intended to be satisfied by
                the
                Preferential Payment shall be revived and continued in full force
                and
                effect as if the Preferential Payment had not been made. If this
                agreement
                must be reinstated, the Debtor agrees to execute and deliver to the
                Bank
                any new security agreements and financing statements, if necessary
                or if
                requested by the Bank, in form and substance acceptable to the Bank,
                covering the Collateral.

            


    

    
      	11.  	
              The
                Debtor agrees
                to fully cooperate with the Bank and not to delay, impede or otherwise
                interfere with the efforts of the Bank to secure payment from the
                assets
                which secure the Liabilities including actions, proceedings, motions,
                orders, agreements or other matters relating to relief from automatic
                stay, abandonment of property, use of cash collateral and sale of
                the
                Bank's collateral free and clear of all
                liens.

            


    

    
      	12.  	
              The
                Debtor
                has (a)
                without reliance on the Bank or any information received from the
                Debtor
                and based upon the records and information the Debtor deems appropriate,
                made an independent investigation of the Borrower, the Borrower's
                business, assets, operations, prospects and condition, financial
                or
                otherwise, and any circumstances that may bear upon those transactions,
                the Borrower or the obligations, liabilities and risks undertaken
                pursuant
                to this agreement; (b) adequate means to obtain from the Borrower
                on a
                continuing basis information concerning the Borrower and the Bank
                has no
                duty to provide any information concerning the Borrower or other
                obligor
                on the Liabilities to the Debtor; (c) full and complete access to
                the
                Borrower and any and all records relating to any Liabilities now
                or in the
                future owing by the Borrower; (d) not relied and will not rely upon
                any
                representations or warranties of the Debtor not embodied in this
                agreement
                or any acts taken by the Debtor prior to or after the execution or
                other
                authentication and delivery of this agreement (including but not
                limited
                to any review by the Debtor of the business, assets, operations,
                prospects
                and condition, financial or otherwise, of the Borrower); and (e)
                determined that the Debtor will receive benefit, directly or indirectly,
                and has or will receive fair and reasonably equivalent value, for
                the
                execution and delivery of this agreement and the rights provided
                to the
                Bank. By entering into this agreement, the Debtor does not intend:
                (i) to
                incur or believe that the Debtor will incur debts that would be beyond
                the
                Debtor's ability to pay as those debts mature; or (ii) to hinder,
                delay or
                defraud any creditor of the Debtor. The Debtor is neither engaged
                in nor
                about to engage in any business or transaction for which the remaining
                assets of the Debtor are unreasonably small in relation to the business
                or
                transaction, and any property remaining with the Debtor after the
                execution or other authentication of this agreement is not unreasonably
                small capital.

            


    

    
      	13.  	
              Without
                limiting any foregoing waiver, consent or agreement, the Debtor further
                waives all rights, if any, of the Debtor under Rule 31, Texas Rules
                of
                Civil Procedure, or Chapter 34 of the Texas Business and Commerce
                Code, or
                Section 17.001 of the Texas Civil Practice and Remedies Code; and
                (i) to
                the extent the Debtor is subject to the Texas Revised Partnership
                Act
                ("TRPA") or Section 152.306 of the Texas Business Organizations Code
                ("BOC"), compliance by the Debtor with Section 3.05(d) of TRPA and
                Section
                152.306(b) of BOC.

            


    

    


    Default;
      Remedies.
      If any
      of the Liabilities are not paid at maturity, whether by acceleration or
      otherwise, or if a default by anyone occurs under the terms of any agreement
      related to any of the Liabilities, then the Bank shall have the rights and
      remedies provided by law or this agreement, including but not limited to the
      right to require the Debtor to assemble the Collateral and make it available
      to
      the Bank at a place to be designated by the Bank which is reasonably convenient
      to both parties, the right to take possession of the Collateral with or without
      demand and with or without process of law, and the right to sell and dispose
      of
      it and distribute the proceeds according to law. Should a default occur, the
      Debtor will pay to the Bank all costs reasonably incurred by the Bank for the
      purpose of enforcing its rights hereunder, to the extent not prohibited by
      law,
      including, without limitation: costs of foreclosure; costs of obtaining money
      damages; and a reasonable fee for the services of internal and outside attorneys
      employed or engaged by the Bank or its affiliates for any purpose related to
      this agreement, including, without limitation, consultation, drafting documents,
      sending notices or instituting, prosecuting or defending litigation or any
      proceeding. The Debtor agrees that upon default the Bank may dispose of any
      of
      the Collateral in its then present condition, that the Bank has no duty to
      repair or clean the Collateral prior to sale, and that the disposal of the
      Collateral in its present condition or without repair or clean-up shall not
      affect the commercial reasonableness of such sale or disposition. The Bank's
      compliance with any applicable state or federal law requirements in connection
      with the disposition of the Collateral will not adversely affect the commercial
      reasonableness of any sale of the Collateral. The Bank may disclaim warranties
      of title, possession, quiet enjoyment, and the like, and the Debtor agrees
      that
      any such action shall not affect the commercial reasonableness of the sale.
      In
      connection with the right of the Bank to take possession of the Collateral,
      the
      Bank may take possession of any other items of property in or on the Collateral
      at the time of taking possession, and hold them for the Debtor without liability
      on the part of the Bank. The Debtor expressly agrees that the Bank may enter
      upon the premises where the Collateral is believed to be located without any
      obligation of payment to the Debtor, and that the Bank may, without cost, use
      any and all of the Debtor's "equipment" (as defined in the UCC) in the
      manufacturing or processing of any "inventory" (as defined in the UCC) or in
      growing, raising, cultivating, caring for, harvesting, loading and transporting
      of any of the Collateral that constitutes "farm products" (as defined in the
      UCC). If there is any statutory requirement for notice, that requirement shall
      be met if the Bank sends notice to the Debtor at least ten (10) days prior
      to
      the date of sale, disposition or other event giving rise to the required notice,
      and such notice shall be deemed commercially reasonable. The Debtor is liable
      for any deficiency remaining after disposition of the Collateral.

    


    Miscellaneous.

    
      	1.  	
              Where
                the Collateral is located at, used in or attached to a facility leased
                by
                the Debtor, the Debtor will obtain from the lessor a consent to the
                granting of this security interest and a release or subordination
                of the
                lessor's interest in any of the Collateral, in form and substance
                satisfactory to the Bank.

            


    

    
      	2.  	
              At
                its option the Bank may, but shall be under no duty or obligation
                to,
                discharge taxes, liens, security interests or other encumbrances
                at any
                time levied or placed on the Collateral, pay for insurance on the
                Collateral, and pay for the maintenance and preservation of the
                Collateral, and the Debtor agrees to reimburse the Bank on demand
                for any
                payment made or expense incurred by the Bank, with interest at the
                highest
                rate at which interest may accrue under any of the instruments or
                documents evidencing the
                Liabilities.

            


    

    
      	3.  	
              No
                delay on the part of the Bank in the exercise of any right or remedy
                waives that right or remedy, no single or partial exercise by the
                Bank of
                any right or remedy precludes any other exercise of it or the exercise
                of
                any other right or remedy, and no waiver or indulgence by the Bank
                of any
                default is effective unless it is in writing and signed by the Bank,
                nor
                does a waiver on one occasion waive that right on any future
                occasion.

            


    

    
      	4.  	
              If
                any provision of this agreement is invalid, it shall be ineffective
                only
                to the extent of its invalidity, and the remaining provisions shall
                be
                valid and effective.

            


    

    
      	5.  	
              Except
                as provided in the Accounts; Chattel Paper; General Intangibles;
                and
                Instruments paragraph above, any notices and demands under or related
                to
                this document shall be in writing and delivered to the intended party
                at
                its address stated herein, and if to the Bank, at its main office
                if no
                other address of the Bank is specified herein, by one of the following
                means: (a) by hand, (b) by a nationally recognized overnight courier
                service, or (c) by certified mail, postage prepaid, with return receipt
                requested. Notice shall be deemed given: (a) upon receipt if delivered
                by
                hand, (b) on the Delivery Day after the day of deposit with a nationally
                recognized courier service, or (c) on the third Delivery Day after
                the
                notice is deposited in the mail. "Delivery Day" means a day other
                than a
                Saturday, a Sunday, or any other day on which national banking
                associations are authorized to be closed. Any party may change its
                address
                for purposes of the receipt of notices and demands by giving notice
                of
                such change in the manner provided in this
                provision.

            


    

    
      	6.  	
              All
                rights of the Bank benefit the Bank's successors and assigns; and
                all
                obligations of the Debtor bind the Debtor's heirs, executors,
                administrators, successors and assigns. If more than one person or
                entity
                signs as the Debtor, their obligations are joint and several and
                each
                agreement, representation, warranty and covenant shall be individual,
                joint and several and the "Collateral" includes any property that
                is owned
                by any Debtor individually or jointly with any
                other.

            


    

    
      	7.  	
              A
                carbon, photographic or other reproduction of this agreement is sufficient
                as, and can be filed as, a financing statement. The Bank is irrevocably
                appointed the Debtor's attorney-in-fact to execute any financing
                statement
                on the Debtor's behalf covering the Collateral. The Debtor authorizes
                the
                Bank to file one or more financing statements or similar records
                related
                to the security interests created by this agreement, and further
                authorizes the Bank, as secured party herein, instead of the Debtor,
                to
                sign such financing statements and other similar
                records.

            


    

    


    Indemnification. The
      Debtor agrees to indemnify, defend and hold the Bank, its parent companies,
      subsidiaries, affiliates, their respective successors and assigns and each
      of
      their respective shareholders, directors, officers, employees and agents
      (collectively the "Indemnified Persons") harmless from and against any and
      all
      loss, liability, obligation, damage, penalty, judgment, claim, deficiency,
      expense, interest, penalties, attorneys’ fees (including the fees and expenses
      of attorneys engaged by the Indemnified Person at the Indemnified Person’s
      reasonable discretion) and amounts paid in settlement ("Claims") to which any
      Indemnified Person may become subject arising out of or relating to this
      agreement or the Collateral, including
      any Claims resulting from any Indemnified Person’s own
      negligence,
      except
      to the limited extent that the Claims are proximately caused by the Indemnified
      Person’s gross
      negligence or willful misconduct.
      The
      indemnification provided for in this paragraph shall survive the termination
      of
      this agreement and shall not be affected by the presence, absence or amount
      of
      or the payment or nonpayment of any claim under, any insurance.

    


    Governing
      Law and Venue.
      This
      agreement shall be governed by and construed in accordance with the laws of
      the
      State of Texas (without giving effect to its laws of conflicts), and to the
      extent applicable, federal law, except to the extent that the laws regarding
      the
      perfection and priority of security interests of the state(s) in which either
      the Debtor or any property securing the Liabilities is located, are applicable.
      The Debtor agrees that any legal action or proceeding with respect to any of
      its
      obligations under this agreement may be brought by the Bank in any state or
      federal court located in the State of Texas, as the Bank in its sole discretion
      may elect. By the execution and delivery of this agreement, the Debtor submits
      to and accepts, for itself and in respect of its property, generally and
      unconditionally, the non-exclusive jurisdiction of those courts. The Debtor
      waives any claim that the State of Texas is not a convenient forum or the proper
      venue for any such suit, action or proceeding. 

    


    Additional
      Representations, Warranties and Covenants. The
      Debtor represents, warrants and covenants to the Bank that each of the following
      is true and will remain true until termination of this agreement and payment
      in
      full of all Liabilities: (a) the execution and delivery of this agreement and
      the performance of the obligations it imposes do not violate any law, do not
      conflict with any agreement by which it is bound, and do not require the consent
      or approval of any governmental authority or any third party; (b) this agreement
      is a valid and binding agreement, enforceable according to its terms; and (c)
      all balance sheets, profit and loss statements, and other financial statements
      furnished to the Bank in connection with the Liabilities are accurate and fairly
      reflect the financial condition of the organizations and persons to which they
      apply on their effective dates, including contingent liabilities of every type,
      which financial condition has not changed materially and adversely since those
      dates. The Debtor, other than a natural person, further represents that: (a)
      it
      is duly organized, validly existing and in good standing under the laws of
      the
      state where it is organized and in good standing in each state where it is
      doing
      business; and (b) the execution and delivery of this agreement and the
      performance of the obligations it imposes (i) are within its powers and have
      been duly authorized by all necessary action of its governing body; and (ii)
      do
      not contravene the terms of its articles of incorporation or organization,
      its
      by-laws, or any agreement or document governing its affairs.

    


    WAIVER
      OF SPECIAL DAMAGES.
      THE
      DEBTOR WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT THE
      UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM THE BANK IN ANY LEGAL ACTION
      OR
      PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.


    


    JURY
      WAIVER.
      THE
      DEBTOR AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY,
      IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE
      IN
      RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) BETWEEN
      OR
      AMONG THE DEBTOR AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TO THIS
      DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE
      FINANCING DESCRIBED HEREIN. 

    


    THIS
      AGREEMENT REPRESENTS THE FINAL AGREEMENT OF THE PARTIES AND MAY NOT BE
      CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
      AGREEMENTS OF THE PARTIES.

    THERE
      ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

    


    


    
      	 	
              Debtor:

            


    

    


    
      	 	 	 	
               

              Advanced
                Materials, Inc.

            
	 	 	 	
               

              By:
                /s/ William G Mortensen

            	 
	 	
               

              William
                G
                Mortensen                               
                 President and CFO

            	 	 
	 	    Printed
              Name                 
          Title
	 	
               

              Date
                Signed: February 26, 2007

            	 


    

     

    


    The
      Bank
      is executing this agreement for the purpose of acknowledging and agreeing to
      the
      foregoing Jury Waiver, the notice given under §26.02 of the Texas Business and
      Commerce Code and to comply with the waiver requirements of TRPA and BOC, and
      the Bank's failure to execute or authenticate this agreement will not invalidate
      this agreement.

    
      
         

      

    

    
      	 	
              Bank:

            


    

    
      	 	 	 	
               

              JPMorgan
                Chase Bank, N.A.

            
	 	 	 	
               

              By:
                /s/ James H Cunningham

            	 
	 	
               

              James
                H Cunningham                    SVP               

            	 	 
	 	    Printed
              Name                 
          Title
	 	
               

              Date
                Signed: March 1, 2007