Credit Agreement


    
      	
               

            	
              Credit
                Agreement

            


    

     

    This
      agreement dated as of March 1, 2007 between JPMorgan Chase Bank, N.A. (together
      with its successors and assigns, the "Bank"), whose address is 1717 Main Street,
      Dallas, TX 75201, and Advanced Materials, Inc. (whether one or more, and if
      more
      than one, individually and collectively, the "Borrower"), whose address is
      3303
      Lee
      Parkway, Suite 105, Dallas Texas 75219.

    


    
      	1.  	
              Credit
                Facilities.

            


    

    


    
      	1.1  	
              Scope.
                This agreement governs Facility A, and, unless otherwise agreed to
                in
                writing by the Bank and the Borrower or prohibited by applicable
                law,
                governs the Credit Facilities as defined below. Advances under the
                Credit
                Facilities shall be subject to the procedures established from time
                to
                time by the Bank. Any procedures agreed to by the Bank with respect
                to
                obtaining advances including automatic loan sweeps shall not vary
                the
                terms or conditions of this agreement or the Related Documents regarding
                the Credit Facilities.

            


    

    


    
      	1.2  	
              Facility
                A (Line of Credit).
                The Bank has approved a credit facility to the Borrower in the principal
                sum not to exceed $2,000,000.00 in the aggregate at any one time
                outstanding ("Facility A"). Credit under Facility A shall be repayable
                as
                set forth in a Line of Credit Note executed concurrently with this
                agreement, and any renewals, modifications, extensions, rearrangements,
                restatements thereof and replacements or substitutions
                therefor.

            


    

    


    
      	1.3  	
              Borrowing
                Base.
                The aggregate principal amount of advances outstanding at any one
                time
                under Facility A (the "Aggregate Outstanding Amount") shall not exceed
                the
                Borrowing Base or the maximum principal amount then available under
                the
                Line of Credit Note (and any and all renewals, modifications, extensions,
                rearrangements, restatements thereof and replacements or substitutions
                therefor) evidencing Facility A, whichever is less (the "Maximum
                Available
                Amount"). If at any time the Aggregate Outstanding Amount exceeds
                the
                Maximum Available Amount, the Borrower shall immediately pay the
                Bank an
                amount equal to such excess. "Borrowing Base" means the aggregate
                of:

            


    

     

    A.  80%
      of
      the book value of all Eligible Accounts; plus

    


    B.  50%
      of
      the lower of cost (determined using the first-in, first-out method of inventory
      accounting) or wholesale market value, as determined by the Bank in its sole
      discretion, of all Eligible Inventory; the amount provided for in this
      subsection B (inventory component) being limited in all events to no more than
      100% of the amount provided for in subsection A above (accounts
      component).

     

    
      	2.  	
              Definitions.
                As
                used in this agreement, the following terms have the following respective
                meanings:

            


    

    


    
      	2.1  	
              "Credit
                Facilities" means all extensions of credit from the Bank to the Borrower,
                whether now existing or hereafter arising, including but not limited
                to
                those described in Section 1 if any, and those extended contemporaneously
                with this agreement.

            


    

    


    
      	2.2  	
              "Liabilities"
                means all debts, obligations, indebtedness and liabilities of every
                kind
                and character of the Borrower whether individual, joint and several,
                contingent or otherwise, now or hereafter existing in favor of the
                Bank,
                including, without limitation, all liabilities, interest, costs and
                fees,
                arising under or from any note, open account, overdraft, credit card,
                lease, Rate Management Transaction, letter of credit application,
                endorsement, surety agreement, guaranty, 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.
                The
                term "Rate Management Transaction" in this agreement 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.

            


    

    


    
      	2.3  	
              "Notes"
                means
                all promissory notes, instruments and/or contracts evidencing the
                terms
                and conditions of any of the Credit Facilities.

            


    

    


    
      	2.4  	
              "Account"
                means a trade account, account receivable, other receivable, or other
                right to payment for goods sold or leased or services rendered owing
                to
                the Borrower (or to a third party grantor acceptable to the
                Bank).

            


    

    


    
      	2.5  	
              "Account
                Debtor" means the person or entity obligated upon an
                Account.

            


    

    


    
      	2.6  	
              "Affiliate"
                means any person, corporation or other entity directly or indirectly
                controlling, controlled by or under common control with the Borrower
                and
                any director or officer of the Borrower or any Subsidiary of the
                Borrower.

            


    

    


    
      	2.7  	
              "Eligible
                Accounts" means, at any time, all of the Borrower's Accounts in
                which the Bank has a first priority perfected continuing security
                interest
                and which are earned and invoiced within thirty
                (30) days of being earned and which contain selling terms and conditions
                acceptable to the Bank, are payable on ordinary trade terms, and
                are not
                evidenced by a promissory note, other instrument or chattel paper.
                The net
                amount of any Eligible Account against which the Borrower may borrow
                shall
                exclude all returns, discounts, credits, and offsets of any nature.
                Unless
                otherwise agreed to by the Bank in writing, Eligible Accounts do
                not
                include Accounts: (1) which are not owned by the Borrower free and
                clear
                of all security interests, liens, encumbrances, constructive trust,
                statutory priorities not in favor of the Bank, and claims of third
                parties, except the Bank; (2) with respect to which the Account Debtor
                is
                an Affiliate, an employee or agent of the Borrower; (3) with respect
                to
                which the Account Debtor is an Affiliate or otherwise affiliated
                with or
                related to the Borrower; (4) with respect to which goods are placed
                on
                consignment, guaranteed sale, bill-and-hold, sale-and-return, sale
                on
                approval, cash-on-delivery or other terms by reason of which the
                payment
                by the Account Debtor may be conditional; (5) with respect to which
                the
                Account Debtor is not a resident of the United States, except to
                the
                extent such Accounts are otherwise Eligible Accounts and are supported
                by
                insurance, bonds or other assurances satisfactory to the Bank; (6)
                subject
                to the U.S. Office of Foreign Asset Control Special Designated Nationals
                and Blocked Person's List, or with respect to which the Account Debtor
                is
                otherwise a person or entity with whom the Borrower or the Bank is
                prohibited from doing business by any applicable law, regulation,
                executive order or other legal directive; (7) which are not payable
                in
                U.S. Dollars; (8) with respect to which the Borrower is or may become
                liable to the Account Debtor for goods sold or services rendered
                by the
                Account Debtor to the Borrower; (9) which are subject to dispute,
                counterclaim, deduction, withholding, defense, or setoff; (10) with
                respect to which the goods have not been shipped or delivered, or
                the
                services have not been rendered, to the Account Debtor, or which
                otherwise
                constitute pre-billed Accounts; (11) which constitute retainage,
                or are
                bonded Accounts; (12) with respect to which the Bank, in its sole
                discretion, deems the creditworthiness, financial or business condition
                of
                the Account Debtor to be unsatisfactory; (13) of any Account Debtor
                who
                has filed or has had filed against it a petition in bankruptcy or
                an
                application for relief under any provision of any state or federal
                bankruptcy, insolvency, or debtor-in-relief acts, or who has had
                appointed
                a trustee, custodian, or receiver for the assets of such Account
                Debtor,
                or who has made an assignment for the benefit of creditors or has
                become
                insolvent or fails generally to pay its debts (including its payrolls)
                as
                such debts become due; (14) with respect to which the Account Debtor
                is
                the United States government or any department or agency of the United
                States; and any other Accounts deemed ineligible by the Bank in its
                sole
                discretion; (15) which have not been paid in full within 90 days
                from the
                invoice date, and all Accounts of Biolucent,
                Inc. not
                been paid in full within 45
                days from invoice date;
                (16) all of the Accounts of any Account Debtor which has more than
                20% of
                its total amount outstanding on all Accounts owing more than 90 days
                from
                invoice date, or in the case of Biolucent,
                Inc. owing more than 45 days from invoice date; (17)
                Accounts due from any one Account Debtor to the extent exceeding
                15% of
                all Eligible Accounts, or in the case of Biolucent,
                Inc., exceeding
                20% of all Eligible Accounts, or in the case of Andrew Corporation,
                exceeding 30% of all Eligible
                Accounts.

            


    

    


    
      	2.8  	
              "Eligible
                Inventory" means, at any time, all of the Borrower's Inventory in
                which
                the Bank has a first priority perfected continuing security interest
                except Inventory which is: (1) not owned by the Borrower free and
                clear of
                all security interests, liens, encumbrances, and claims of third
                parties,
                except the Bank; (2) slow moving, obsolete, unsalable, damaged, defective,
                perishable, or unfit for further processing; (3) work in process;
                (4)
                subject to consignment or otherwise in the possession of a third
                party,
                unless otherwise agreed to by the Bank in writing; (5) in transit
                or
                located outside of the United States; (6) identified to be purchased
                under
                a contract under which the Borrower has received, or is entitled
                to
                receive, an advance payment; (7) determined by the Bank in its sole
                discretion to be ineligible due to licensing, intellectual property,
                or
                legal or regulatory issues which exist making it difficult to resell
                such
                Inventory; (8) comprised of samples, returns, rejected items, re-work
                items, non-standard items, odd-lots, or repossessed goods; (9) produced
                in
                violation of applicable law including the Fair Labor Standards Act
                and the
                regulations and order of the Department of Labor; or (10) otherwise
                deemed
                ineligible by the Bank in its sole discretion; and (11) Work in process
                inventory; obsolete/slow moving inventory; consigned or unowned inventory
                and damaged/returned inventory; provided, however, that transportation
                and
                storage charges shall be excluded from amounts otherwise included
                in
                Eligible Inventory.

            


    

    


    
      	2.9  	
              "Inventory"
                means all of the Borrower's raw materials, work in process, finished
                goods, merchandise, parts and supplies, of every kind and description,
                and
                goods held for sale or lease or furnished under contracts of service
                in
                which the Borrower now has or hereafter acquires any right, whether
                held
                by the Borrower or others, and all documents of title, warehouse
                receipts,
                bills of lading, and all other documents of every type covering all
                or any
                part of the foregoing. Inventory includes inventory temporarily out
                of the
                Borrower's custody or possession and all returns on
                Accounts.

            


    

    


    
      	2.10  	
              "Intangible
                Assets" means the aggregate amount of: (1) all
                assets classified as intangible assets under generally accepted accounting
                principles, including, without limitation, goodwill, trademarks,
                patents,
                copyrights, organization expenses, franchises, licenses, trade names,
                brand names, mailing lists, catalogs, excess of cost over book value
                of
                assets acquired, and bond discount and underwriting expenses;
                and (2) loans or advances to, investments in, or receivables from
                (i)
                Affiliates, officers, directors, employees or shareholders of the
                Borrower
                or (ii) any person or entity if such loan, advance, investment or
                receivable is outside the Borrower's normal course of
                business.

            


    

    


    
      	2.11  	
              "Subsidiary"
                means, as to a particular person, any entity of which fifty (50%)
                or more
                of the indicia of equity rights is at the time of determination directly
                or indirectly owned by the person or by one or more persons controlled
                by,
                controlling or under common control with the
                person.

            


    

    


    
      	2.12  	
              "Tangible
                Net Worth" means total assets less the sum of Intangible Assets and
                total
                liabilities.

            


    

    


    
      	2.13  	
              "Related
                Documents" means the Notes, all loan agreements, credit agreements,
                reimbursement agreements, security agreements, mortgages, deeds of
                trust,
                pledge agreements, assignments, guaranties, and any other instrument
                or
                document executed in connection with this agreement or in connection
                with
                any of the Liabilities.

            


    

    


    
      	3.  	
              Conditions
                Precedent to Extensions of
                Credit.

            


    

    


    
      	3.1  	
              Conditions
                Precedent to Initial Extension of Credit under each of the Credit
                Facilities.
                Before the first extension of credit governed by this agreement,
                whether
                by disbursement of a loan, issuance of a letter of credit, or otherwise,
                the Borrower shall deliver to the Bank, in form and substance satisfactory
                to the Bank:

            


    

    


    A.  Loan
      Documents.
      The
      Notes, and as applicable, the letter of credit applications, reimbursement
      agreements, the security agreements, the pledge agreements, financing
      statements, mortgages or deeds of trust, the guaranties, the subordination
      agreements, and any other documents which the Bank may reasonably require to
      give effect to the transactions described in this agreement or the other Related
      Documents;

    


    B.  Evidence
      of Due Organization and Good Standing.
      Evidence, satisfactory to the Bank, of the due organization, valid existence
      and
      good standing of the Borrower and every other business entity that is a party
      to
      this agreement or any other Related Document; and

    


    C.  Evidence
      of Authority to Enter into Loan Documents.
      Evidence
      that (i) each party to this agreement and any other document required by this
      agreement is authorized to enter into the transactions described in this
      agreement and the other Related Documents, and (ii) the person signing on behalf
      of each party is authorized to do so.

    


    
      	3.2  	
              Conditions
                Precedent to Each Extension of Credit.
                Before any extension of credit governed by this agreement, whether
                by
                disbursement of a loan, issuance of a letter of credit or otherwise,
                the
                following conditions must be
                satisfied:

            


    

    


    A.  Representations.
      The
      representations of the Borrower are true on and as of the date of the request
      for and funding of the extension of credit;

    


    B.  No
      Event of Default.
      No
      default has occurred in any provision of this agreement, the Notes or any other
      Related Documents and is continuing or would result from the extension of
      credit, and no event has occurred which would constitute the occurrence of
      any
      default but for the lapse of time until the end of any grace or cure
      period;

    


    C.  Additional
      Approvals, Opinions, and Documents.
      The Bank
      has received any other approvals, opinions and documents as it may reasonably
      request; and

    


    D.  No
      Prohibition or Onerous Conditions.
      The
      making of the extension of credit is not prohibited by or subjects the Bank
      to
      any penalty or onerous condition under any law, ordinance, decree, requirement,
      order, judgment, rule, regulation (or interpretation of any of the foregoing),
      foreign governmental authority, the United States of America, any state thereof
      and any political subdivision of any of the foregoing and any agency,
      department, commission, board, bureau, court or other tribunal having
      jurisdiction over the Bank or the Borrower, or any Subsidiary of the Borrower
      or
      their respective properties.

    


    
      	4.  	
              Affirmative
                Covenants. The
                Borrower agrees to do, and cause each of its Subsidiaries to do,
                each of
                the following:

            


    

    


    
      	4.1  	
              Insurance.
                Maintain insurance with financially sound and reputable insurers,
                with
                such insurance and insurers to be acceptable to the Bank, covering
                its
                properties and business against those casualties and contingencies
                and in
                the types and amounts as are in accordance with sound business and
                industry practices.

            


    

    


    
      	4.2  	
              Existence.
                Maintain its existence and business operations as presently in effect
                in
                accordance with all applicable laws and regulations, pay its debts
                and
                obligations when due under normal terms, and pay on or before their
                due
                date, all taxes, assessments, fees and other governmental monetary
                obligations, except as they may be contested in good faith if they
                have
                been properly reflected on its books and, at the Bank's request,
                adequate
                funds or security has been pledged to insure
                payment.

            


    

    


    
      	4.3  	
              Financial
                Records.
                Maintain proper books and records of account, in accordance with
                generally
                accepted accounting principles, and consistent with financial statements
                previously submitted to the Bank.

            


    

    


    
      	4.4  	
              Inspection.
                Permit the Bank to inspect and copy the Borrower’s business records at
                such times and at such intervals as the Bank may reasonably require,
                and
                to discuss the Borrower’s business, operations, and financial condition
                with the Borrower's officers and accountants.


            


    

    


    
      	4.5  	
              Financial
                Reports.
                Furnish to the Bank whatever information, books and records the Bank
                may
                from time to time reasonably request, including at a minimum: 

            


    

    


    A.  A
      borrowing base certificate, in form and detail satisfactory to the Bank, with
      (1) a list of accounts receivable, aged from date of invoice, (2) a list of
      inventory, valued at the lower of cost (determined using the first-in, first-out
      method of inventory accounting) or wholesale market value, and (3) and such
      other supporting documentation as the Bank may request, at the following times:
      (A) within 30 days after and as of the end of each calendar month in which
      there
      was an outstanding advance of principal under Facility A on the last day of
      such
      calendar month, and (B) if no borrowing base certificate has been provided
      or is
      otherwise due as of the end of the immediately preceding calendar month, with
      any request of an advance under the Credit Facilities. 

    


    B.  For
      Advanced Materials Group, Inc., a Nevada corporation: via either the EDGAR
      System or its Home Page, within ninety (90) days after the filing of its Annual
      Report on Form 10-K for the fiscal year then ended with the Securities and
      Exchange Commission, but no event later than ninety (90) days after the end
      of
      such fiscal year, the financial statements for such fiscal year as contained
      in
      such Annual Report on Form 10-K and, as soon as it shall become available,
      the
      annual report to shareholders of the Borrower for the fiscal year then
      ended.

    


    C.  For
      Advanced Materials Group, Inc., a Nevada corporation: via either the EDGAR
      System or its Home Page, within forty-five (45) days after the filing of its
      Quarterly Report on Form 10-Q for the fiscal quarter then ended with the
      Securities and Exchange Commission, but no event later than forty-five (45)
      days
      after the end of such fiscal quarter, copies of the financial statements for
      such fiscal quarter as contained in such Quarterly Report on Form 10-Q, and,
      as
      soon as it shall become available, a quarterly report to shareholders of the
      Borrower for the fiscal quarter then ended.

    


    D.  For
      Advanced Materials Group, Inc., a Nevada corporation: via either the EDGAR
      System or its Home Page, promptly after the same become publicly available,
      copies of all periodic and other reports, proxy statements and other materials
      filed by the Borrower or any Subsidiary with the Securities and Exchange
      Commission or any governmental authority succeeding to any or all of the
      functions of said Commission.

    


    If
      for
      any reason the EDGAR System and/or its Home Page are not available to the
      Borrower as is required for making available the financial statements or reports
      referred to above, the Borrower shall then furnish a copy of such financial
      statements or reports to the Bank.

    


    For
      the
      purposes of this section, "EDGAR System" means the Electronic Data Gathering
      Analysis and Retrieval System owned and operated by the United States Securities
      and Exchange Commission or any replacement system, and "Home Page" means the
      Borrower's corporate home page on the World Wide Web accessible through the
      Internet via the universal resource locator (URL) identified as "www.ami4.com"
      or such
      other universal resource locator that the Borrower shall designate in writing
      to
      the Bank as its corporate home page on the World Wide Web.

    


    
      	4.6  	
              Notices
                of Claims, Litigation, Defaults, etc.
                Promptly inform the Bank in writing of (1) all existing and all threatened
                litigation, claims, investigations, administrative proceedings and
                similar
                actions affecting the Borrower which could materially affect its
                business, assets, affairs, prospects or
                financial condition of the Borrower or its Subsidiaries; (2) the
                occurrence of any event which gives rise to the Bank's option to
                terminate
                the Credit Facilities; (3) the institution of steps by the Borrower
                to
                withdraw from, or the institution of any steps to terminate, any
                employee
                benefit plan as to which the Borrower may have liability; (4) any
                reportable event or any prohibited transaction in connection with
                any
                employee benefit plan; (5) any additions to or changes in the locations
                of
                the Borrower's or any of the Borrower's or Subsidiary's businesses;
                and
                (6) any alleged breach of any provision of this agreement or of any
                other
                agreement related to the Credit Facilities by the
                Bank.

            


    

    


    
      	4.7  	
              Additional
                Information.
                Furnish such additional information and statements, as the Bank may
                request, from time to time.

            


    

    


    
      	4.8  	
              Insurance
                Reports.
                Furnish to the Bank, upon request of the Bank, reports on each existing
                insurance policy showing such information as the Bank may reasonably
                request.

            


    

    


    
      	4.9  	
              Other
                Agreements.
                Comply with all terms and conditions of all other agreements, whether
                now
                or hereafter existing, between the Borrower and any other
                party.

            


    

    


    
      	4.10  	
              Title
                to Assets and Property.
                Maintain good and marketable title to all of the Borrower's assets
                and
                properties.

            


    

    


    
      	4.11  	
              Additional
                Assurances.
                Promptly make, execute and deliver any and all agreements, documents,
                instruments and other records that the Bank may request to evidence
                any of
                the Credit Facilities, cure any defect in the execution and delivery
                of
                any of the Related Documents, perfect any lien, comply with legal
                requirements applicable to the Bank or the Credit Facilities or more
                fully
                to describe particular aspects of the agreements set forth or intended
                to
                be set forth in any of the Related
                Documents.

            


    

    


    
      	4.12  	
              Employee
                Benefit Plans.
                Maintain each employee benefit plan as to which the Borrower may
                have any
                liability, in compliance with all applicable requirements of law
                and
                regulations.

            


    

    


    
      	4.13  	
              Banking
                Relationship.
                Establish and maintain its primary banking depository and disbursement
                relationship with the Bank. 

            


    

    


    
      	4.14  	
              Compliance
                Certificates.
                Provide the Bank, within forty-five (45) days after the end of each
                fiscal
                quarter, with a certificate executed by the Borrower's chief financial
                officer, or other officer or a person acceptable to the Bank, certifying
                that, as of the date of the certificate, no default exists under
                any
                provision of this agreement.

            


    

    


    
      	5.  	
              Negative
                Covenants.

            


    

    


    
      	5.1  	
              Unless
                otherwise noted, the financial requirements set forth in this section
                will
                be computed in accordance with generally accepted accounting principles
                applied on a basis consistent with financial statements previously
                submitted by the Borrower to the
                Bank.

            


    

    


    
      	5.2  	
              Without
                the written consent of the Bank, the Borrower will
                not:

            


    

    


    A.  Dividends.
      Acquire
      or retire any of its shares of capital stock, or, other than dividends in its
      capital stock, declare or pay dividends or make any other distributions upon
      any
      of its shares of capital stock; provided, however, that following any fiscal
      year with respect to which the Borrower maintained status as an "S" corporation
      under the Internal Revenue Code, if there is no existing default under this
      agreement or any agreement related to the Liabilities and to do so will not
      cause a default under any of such agreements, the Borrower may pay dividends
      to
      its shareholders sufficient in amount to pay their income tax obligation
      attributable to the Borrower's taxable income.

    


    B.  Sale
      of Shares.
      Issue,
      sell or otherwise dispose of any shares of its capital stock or other
      securities, or rights, warrants or options to purchase or acquire those shares
      or securities.

    


    C.  Debt.
      Incur,
      contract for, assume, or permit to remain outstanding, indebtedness for borrowed
      money, installment obligations, or obligations under capital leases or operating
      leases, other than (1) unsecured trade debt incurred in the ordinary course
      of
      business, (2) indebtedness owing to the Bank, (3) indebtedness reflected in
      the
      latest financial statement of the Borrower furnished to the Bank prior to
      execution of this agreement and that is not to be paid with proceeds of
      borrowings under the Credit Facilities, (4) indebtedness outstanding as of
      the
      date hereof that has been disclosed to the Bank in writing and that is not
      to be
      paid with proceeds of borrowings under the Credit Facilities, and (5) other
      indebtedness not to exceed an aggregate principal amount of $150,000.00
      outstanding at any one time, for capital expenditures for Borrower’s regular
      business operations.

    


    D.  Guaranties.
      Guarantee or otherwise become or remain secondarily liable on the undertaking
      of
      another, except for endorsement of drafts for deposit and collection in the
      ordinary course of business.

    


    E.  Liens.
      Create
      or permit to exist any lien on any of its property, real or personal, except:
      existing liens known to the Bank; liens to the Bank; liens incurred in the
      ordinary course of business securing current non-delinquent liabilities for
      taxes, worker’s compensation, unemployment insurance, social security and
      pension liabilities.

    


    F.  Use
      of Proceeds.
      Use, or
      permit any proceeds of the Credit Facilities to be used, directly or indirectly,
      for the purpose of "purchasing or carrying any margin stock" within the meaning
      of Federal Reserve Board Regulation U. At the Bank's request, the Borrower
      will
      furnish a completed Federal Reserve Board Form U-1.

    


    G.  Continuity
      of Operations.
      (1)
      Engage in any business activities substantially different from those in which
      the Borrower is presently engaged; (2) cease operations, liquidate, merge,
      transfer, acquire or consolidate with any other entity, change its name,
      dissolve, or sell any assets out of the ordinary course of business; or (3)
      enter into any arrangement with any person providing for the leasing by the
      Borrower or any Subsidiary of real or personal property which has been sold
      or
      transferred by the Borrower or Subsidiary to such person.

    


    H.  Limitation
      on Negative Pledge Clauses.
      Enter
      into any agreement with any person other than the Bank which prohibits or limits
      the ability of the Borrower or any of its subsidiaries to create or permit
      to
      exist any lien on any of its property, assets or revenues, whether now owned
      or
      hereafter acquired.

    


    I.  Conflicting
      Agreements.
      Enter
      into any agreement containing any provision which would be violated or breached
      by the performance of the Borrower's obligations under this agreement or any
      of
      the other Related Documents.

    


    J.  Transfer
      of Ownership.
      Permit
      any pledge of any ownership interest in the Borrower, or any sale or other
      transfer of any ownership interest in the Borrower.

    


    K.  Loans,
      Advances to and Investments in Others and Receivables from
      Others.
      Make any
      loans or advances to, investments in, or incur any receivables from any person,
      except (A) loans, advances, investments or receivables, made or incurred in
      the
      ordinary course of business, to, in or from any person that is not (i) an
      Affiliate, (ii) an employee of the Borrower, or (iii) an equity holder of the
      Borrower, and (B) loans, advances, investments and receivables existing as
      of
      the date of this agreement that have been disclosed to the Bank in writing
      and
      that are not to be paid with proceeds of borrowings under the Credit
      Facilities.

    


    L.  Tangible
      Net Worth.
      Permit
      as of any fiscal quarter end, its Tangible Net Worth to be less than
      $1,500,000.00. 

    


    M.  Government
      Regulation.
      (1) Be
      or become subject at any time to any law, regulation, or list of any government
      agency (including, without limitation, the U.S. Office of Foreign Asset Control
      list) that prohibits or limits Bank from making any advance or extension of
      credit to Borrower or from otherwise conducting business with Borrower, or
      (2)
      fail to provide documentary and other evidence of Borrower's identity as may
      be
      requested by Bank at any time to enable Bank to verify Borrower's identity
      or to
      comply with any applicable law or regulation, including, without limitation,
      Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318.

    


    N.  Subsidiaries.
      Form,
      create or acquire any Subsidiary without prior consent of the Bank.

    


    
      	6.  	
              Representations.

            


    

    


    
      	6.1  	
              Representations
                and Warranties by the Borrower.
                To
                induce the Bank to enter into this agreement and to extend credit
                or other
                financial accommodations under the Credit Facilities,
                the Borrower represents and warrants as of the date of this agreement
                and
                as of the date of each request for credit under the Credit Facilities
                that each of the following statements is and shall remain true and
                correct
                throughout the term of this agreement and until all Credit Facilities
                and
                all amounts owing under the Notes and other Related Documents are
                paid in
                full. The Borrower represents that: (a) the execution and delivery
                of this
                agreement and the Notes, and the performance of the obligations they
                impose, do not violate any law, conflict with any agreement by which
                it is
                bound, or require the consent or approval of any governmental authority
                or
                other third party, (b) this agreement and the Notes are valid and
                binding
                agreements, enforceable according to their terms, (c) all balance
                sheets,
                profit and loss statements, and other financial statements and other
                information 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, (d) no litigation,
                claim, investigation, administrative proceeding or similar action
                (including those for unpaid taxes) against the Borrower is pending
                or
                threatened, and no other event has occurred which may in any one
                case or
                in the aggregate materially adversely affect the Borrower's financial
                condition and properties, other than litigation, claims, or other
                events,
                if any, that have been disclosed to and acknowledged by the Bank
                in
                writing, (e) all of the Borrower's tax returns and reports that are
                or
                were required to be filed, have been filed, and all taxes, assessments
                and
                other governmental charges have been paid in full, except those presently
                being contested by the Borrower in good faith and for which adequate
                reserves have been provided, (f) the Borrower is not an "investment
                company" or a company "controlled" by an "investment company", within
                the
                meaning of the Investment Company Act of 1940, as amended, (g) the
                Borrower is not a "holding company", or a "subsidiary company" of
                a
                "holding company" or an "affiliate" of a "holding company" or of
                a
                "subsidiary company" of a "holding company" within the meaning of
                the
                Public Utility Holding Company Act of 1935, as amended, (h) there
                are no
                defenses or counterclaims, offsets or adverse claims, demands or
                actions
                of any kind, personal or otherwise, that the Borrower could assert
                with
                respect to this agreement or the Credit Facilities, (i) the Borrower
                owns,
                or is licensed to use, all trademarks, trade names, copyrights,
                technology, know-how and processes necessary for the conduct of its
                business as currently conducted, and (j) no part of the proceeds
                of the
                Credit Facilities will be used for "purchasing" or "carrying" any
                "margin
                stock" within the respective meanings of each of the quoted terms
                under
                Regulation U of the Board of Governors of the Federal Reserve System
                of
                the United States (the "Board") as now and from time to time hereafter
                in
                effect or for any purpose which violates the provisions of any regulations
                of the Board. The Borrower, other than a natural person, further
                represents that: (a) it is duly organized and validly existing under
                the
                laws of the state where it is organized and is in good standing in
                its
                state of organization and each state where it is doing business,
                and (b)
                the execution and delivery of this agreement and the Notes and the
                performance of the obligations they impose (i) are within its powers,
                (ii)
                have been duly authorized by all necessary action of its governing
                body,
                and (iii) do not contravene the terms of its articles of incorporation
                or
                organization, its by-laws, or any partnership, operating or other
                agreement governing its affairs.

            


    

    


    
      	6.2  	
              Representations
                and Warranties Regarding Assets.
                To
                induce the Bank to enter into this agreement and to extend credit
                or other
                financial accommodations under the Credit Facilities,
                the Borrower represents and warrants as of the date of this agreement
                and
                as of the date of each request for credit under the Credit Facilities
                that each of the following statements is and shall remain true and
                correct
                throughout the term of this agreement and until all Credit Facilities
                and
                all amounts owing under the Notes and other Related Documents are
                paid in
                full. With respect to any asset of the Borrower utilized in the
                calculation of the Borrowing Base set forth in this agreement, the
                Borrower represents and warrants to the Bank: (1) each asset represented
                by the Borrower to be eligible for Borrowing Base purposes of this
                agreement conforms to the eligibility definitions set forth in this
                agreement (2) all asset values delivered to the Bank will be true
                and
                correct, subject to immaterial variance; and be determined on a consistent
                accounting basis; (3) except as agreed to the contrary by the Bank
                in
                writing, each asset is now and at all times hereafter will be in
                the
                Borrower's physical possession and shall not be held by others on
                consignment, sale or approval, or sale or return; (4) except as reflected
                in schedules delivered to the Bank, each asset is now and at all
                times
                hereafter will be of good and merchantable quality, free from defects;
                (5)
                each asset is not now and will not at any time hereafter be stored
                with a
                bailee, warehouseman, or similar party without the Bank's prior written
                consent, and in such event, the Borrower will concurrently at the
                time of
                bailment cause any such bailee, warehouseman, or similar party to
                issue
                and deliver to the Bank, warehouseman receipts in the Bank's name
                evidencing the storage of the assets; and (6) the Bank, its assigns,
                or
                agents shall have the right at any time and at the Borrower's expense
                to
                inspect, examine and audit the Borrower's records, and if Accounts
                are
                included in the calculation of Borrowing Base, confirm with Account
                Debtors the accuracy of such Accounts, and inspect and examine the
                assets
                and to check and test the same as to quality, quantity, value, and
                condition.

            


    

    


    
      	7.  	
              Default/Remedies.
                If
                any of the Credit Facilities are not paid at maturity, whether by
                acceleration or otherwise, or if a default by anyone occurs under
                the
                terms of this agreement, the Notes or any other Related Documents,
                then
                the Bank shall have all of the rights and remedies provided by any
                law,
                equity
                or
                agreement. 

            


    

    


    
      	8.  	
              Miscellaneous.

            


    

    


    
      	8.1  	
              Notice.
                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.

            


    

    


    
      	8.2  	
              No
                Waiver.
                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 future exercise of it or
                the
                exercise of any other right or remedy. No waiver or indulgence by
                the Bank
                of any default is effective unless it is in writing and signed by
                the
                Bank, nor shall a waiver on one occasion bar or waive that right
                on any
                future occasion.

            


    

    


    
      	8.3  	
              Integration.
                This agreement, the Notes, and the
                other Related Documents
                to
                the Credit Facilities embody the entire agreement and understanding
                between the Borrower and the Bank and supersede all prior agreements
                and
                understandings relating to their subject matter. If any one or more
                of the
                obligations of the Borrower under this agreement or the Notes is
                invalid,
                illegal or unenforceable in any jurisdiction, the validity, legality
                and
                enforceability of the remaining obligations of the Borrower shall
                not in
                any way be affected or impaired, and the invalidity, illegality or
                unenforceability in one jurisdiction shall not affect the validity,
                legality or enforceability of the obligations of the Borrower under
                this agreement, the Notes and the other Related Documents
                in
                any other jurisdiction.

            


    

    


    
      	8.4  	
              Joint
                and Several Liability.
                Each party executing this agreement as the Borrower is individually,
                jointly and severally liable under this agreement.
                

            


    

    


    
      	8.5  	
              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). The Borrower 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 Borrower submits to and accepts, for itself
                and in
                respect of its property, generally and unconditionally, the non-exclusive
                jurisdiction of those courts. The Borrower waives any claim that
                the State
                of Texas is not a convenient forum or the proper venue for any such
                suit,
                action or proceeding. 

            


    

    


    
      	8.6  	
              Captions.
                Section headings are for convenience of reference only and do not
                affect
                the interpretation of this
                agreement.

            


    

    


    
      	8.7  	
              Survival
                of Representations and Warranties.
                The Borrower understands and agrees that in extending the Credit
                Facilities, the Bank is relying on all representations, warranties,
                and
                covenants made by the Borrower in this agreement or in any certificate
                or
                other instrument delivered by the Borrower to the Bank under this
                agreement. The Borrower further agrees that regardless of any
                investigation made by the Bank, all such representations, warranties
                and
                covenants will survive the making of the Credit Facilities and delivery
                to
                the Bank of this agreement, shall be continuing in nature, and shall
                remain in full force and effect until such time as the Borrower's
                indebtedness to the Bank shall be paid in
                full.

            


    

    


    
      	8.8  	
              Non-Liability
                of the Bank.
                The relationship between the Borrower and the Bank created by this
                agreement is strictly a debtor and creditor relationship and not
                fiduciary
                in nature, nor is the relationship to be construed as creating any
                partnership or joint venture between the Bank and the Borrower. The
                Borrower is exercising the Borrower's own judgement with respect
                to the
                Borrower's business. All information supplied to the Bank is for
                the
                Bank's protection only and no other party is entitled to rely on
                such
                information. There is no duty for Bank to review, inspect, supervise
                or
                inform the Borrower of any matter with respect to the Borrower's
                business.
                The Bank and the Borrower intend that the Bank may reasonably rely
                on all
                information supplied by the Borrower to the Bank, together with all
                representations and warranties given by the Borrower to the Bank,
                without
                investigation or confirmation by the Bank and that any investigation
                or
                failure to investigate will not diminish the Bank's right to so rely.
                

            


    

    


    
      	8.9  	
              Indemnification
                of the Bank.
                The Borrower 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 any 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.

            


    

    


    
      	8.10  	
              Counterparts.
                This agreement may be executed in multiple counterparts, each of
                which,
                when so executed, shall be deemed an original, but all such counterparts,
                taken together, shall constitute one and the same
                agreement.

            


    

    


    
      	8.11  	
              Sole
                Discretion of the Bank.
                Whenever the Bank's consent or approval is required under this agreement,
                the decision as to whether or not to consent or approve shall be
                in the
                sole and exclusive discretion of the Bank and the Bank's decision
                shall be
                final and conclusive.

            


    

    


    
      	8.12  	
              Advice
                of Counsel.
                The Borrower acknowledges that it has been advised by counsel, or
                had the
                opportunity to be advised by counsel, in the negotiation, execution
                and
                delivery of this agreement and any Related
                Documents.

            


    

    


    
      	8.13  	
              Recovery
                of Additional Costs. If
                the imposition of or any change in any law, rule, regulation, or
                guideline, or the interpretation or application of any thereof by
                any
                court or administrative or governmental authority (including any
                request
                or policy not having the force of law) shall impose, modify, or make
                applicable any taxes (except federal, state, or local income or franchise
                taxes imposed on the Bank), reserve requirements, capital adequacy
                requirements, or other obligations which would (A) increase the cost
                to
                the Bank for extending or maintaining the Credit Facilities, (B)
                reduce
                the amounts payable to the Bank under the Credit Facilities, or (C)
                reduce
                the rate of return on the Bank's capital as a consequence of the
                Bank's
                obligations with respect to the Credit Facilities, then the Borrower
                agrees to pay the Bank such additional amounts as will compensate
                the Bank
                therefor, within five (5) days after the Bank's written demand for
                such
                payment. The Bank's demand shall be accompanied by an explanation
                of such
                imposition or charge and a calculation in reasonable detail of the
                additional amounts payable by the Borrower, which explanation and
                calculations shall be conclusive in the absence of manifest
                error.

            


    

    


    
      	8.14  	
              Conflicting
                Terms.
                If
                this agreement is inconsistent with any provision in any other Related
                Documents, the Bank shall determine, in the Bank's sole and absolute
                discretion, which of the provisions shall control any such
                inconsistency.

            


    

    


    
      	8.15  	
              Expenses.
                The Borrower agrees to pay or reimburse the Bank for all its out-of-pocket
                costs and expenses and reasonable attorneys' fees incurred in connection
                with the development, preparation and execution of, and in connection
                with
                the enforcement or preservation of any rights under, this agreement,
                any
                amendment, supplement, or modification thereto, and any other documents
                prepared in connection herewith or therewith. These costs and expenses
                include without limitation any costs or expenses incurred by the
                Bank in
                any bankruptcy, reorganization, insolvency or other similar proceeding.
                

            


    

    


    
      	9.  	
              USA
                PATRIOT ACT NOTIFICATION.
                The following notification is provided to Borrower pursuant to Section
                326
                of the USA Patriot Act of 2001, 31 U.S.C. Section
                5318:

            


    

    


    IMPORTANT
      INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government
      fight the funding of terrorism and money laundering activities, Federal law
      requires all financial institutions to obtain, verify, and record information
      that identifies each person or entity that opens an account, including any
      deposit account, treasury management account, loan, other extension of credit,
      or other financial services product. What this means for Borrower: When Borrower
      opens an account, if Borrower is an individual Bank will ask for Borrower's
      name, taxpayer identification number, residential address, date of birth, and
      other information that will allow Bank to identify Borrower, and if Borrower
      is
      not an individual Bank will ask for Borrower's name, taxpayer identification
      number, business address, and other information that will allow Bank to identify
      Borrower. Bank may also ask, if Borrower is an individual to see Borrower's
      driver’s license or other identifying documents, and if Borrower is not an
      individual to see Borrower's legal organizational documents or other identifying
      documents.

     

    
      	10.  	
              WAIVER
                OF SPECIAL DAMAGES.
                THE BORROWER 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. 

            


    

    


    
      	11.  	
              JURY
                WAIVER.
                THE BORROWER AND THE BANK 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
                THE
                BORROWER 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 AND THE OTHER WRITTEN RELATED DOCUMENTS REPRESENT THE FINAL AGREEMENT
      BETWEEN 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.

    


    


    
      	
              Address(es)
                for Notices:                                Borrower:

            
	
              3303
                Lee Parkway, Suite 105

              Dallas
                Texas 75219

            	
              Advanced
                Materials, Inc.

               

            
	 	 	
              By:

            	/s/
              William G Mortensen
	 	 	 	 William
              G Mortensen          President and
              CFO
	 	 	 	
              Printed
                Name

            	
                  Title

            
	 	 	
              Date
                Signed:

            	February
              26, 2007


    

    


    
      	
               

              Address
                for Notices:

            	 	
               

              Bank:

            
	
              1717
                Main Street

              Dallas,
                TX 75201

            	 	
              JPMorgan
                Chase Bank, N.A.

            
	 	 	 	
              By:

            	 /s/James
              H Cunningham
	 	 	 	 	 James
              H Cunningham	
              SVP

            
	 	 	 	 	
              Printed
                Name

            	
              Title

            
	 	 	 	
              Date
                Signed:

            	 March
              1,
              2007