Document:

Exhibit 10.2

Exhibit 10.2

REVOLVING CREDIT PROMISSORY NOTE

  	

$10,000,000.00

      	
      March
6, 2006

FOR VALUE RECEIVED, Home Solutions of America, Inc., a
Delaware corporation (whether one or more, "Borrower"), having
an address at 1500 Dragon Street, Suite B, Dallas, Texas 75207, hereby promises
to pay to the order of TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, a national
banking association (together with its successors and assigns and any
subsequent holders of this Promissory Note, the "Lender"), as
hereinafter provided, the principal sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00)
or so much thereof as may be advanced by Lender from time to time hereunder to
or for the benefit or account of Borrower, together with interest thereon at
the Note Rate (as hereinafter defined), and otherwise in strict accordance with
the terms and provisions hereof.

ARTICLE I

DEFINITIONS

Section 1.1             
Definitions. 
As used in this Revolving Credit Promissory Note, the following terms shall
have the following meanings:

Applicable Margin:  0.25 percentage points.

Applicable Rate:  The Base Rate minus the
Applicable Margin.

Base Rate:  For any day, a rate of interest equal
to the higher of (i) the Prime Rate for such day or (ii) the sum of the Federal
Funds Rate for such day plus one half of one percent (1/2 of 1%).

Borrower:  As identified in the introductory
paragraph of this Note.

Business Day: A weekday, Monday through Friday,
except a legal holiday or a day on which banking institutions in Dallas, Texas
are authorized or required by law to be closed. Unless otherwise provided, the term
"days" when used herein shall mean calendar days.

Change:  (i) any change after the date of this
Note in the risk‐based capital guidelines applicable to Lender or (ii)
any adoption of or change in any other law, governmental or quasi‐governmental
rule, regulation, policy, guideline, interpretation, or directive (whether or
not having the force of law) after the date of this Note that affects capital
adequacy or the amount of capital required or expected to be maintained by
Lender or any entity controlling Lender.

Charges:  All fees, charges and/or any other
things of value, if any, contracted for, charged, taken, received or reserved
by Lender in connection with the transactions relating to this Note and the
other Loan Documents, which are treated as interest under applicable law.

Debtor Relief Laws:  Title 11 of the United
States Code, as now or hereafter in effect, or any other applicable law,
domestic or foreign, as now or hereafter in effect, relating to bankruptcy,
insolvency, liquidation, receivership, reorganization, arrangement or
composition, extension or adjustment of debts, or similar laws affecting the
rights of creditors.

PROMISSORY NOTE ‐
Page 1

 

Default Interest Rate: A rate per annum equal to
the Note Rate plus five percent (5%), but in no event in excess of the Maximum
Lawful Rate.

Event of Default: Any event or occurrence
described under Section 3.1 hereof.

Federal Funds Rate:  For any day an interest rate
per annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal
Reserve Bank of New York, or if such rate is not so published for any day that
is a Business Day, the average of the quotations at approximately 10:00 a.m.
(Dallas, Texas time) on such day on such transactions received by Lender from
three Federal funds brokers of recognized standing selected by Lender in its
sole discretion.

Lender: As identified in the introductory
paragraph of this Note.

Loan Agreement:  The Loan Agreement of even date
herewith executed by Lender and Borrower, as such Loan Agreement may be
amended, modified, restated, renewed, replaced, extended, waived, supplemented,
replaced, consolidated, substituted, or otherwise changed from time to time in
accordance with its respective terms.

Maturity Date:  September 1, 2007.

Maximum Lawful Rate:  The maximum lawful rate of
interest which may be contracted for, charged, taken, received or reserved by
Lender in accordance with the applicable laws of the State of Texas (or
applicable United States federal law to the extent that such law permits Lender
to contract for, charge, take, receive or reserve a greater amount of interest
than under Texas law), taking into account all Charges made in connection with
the transaction evidenced by this Note and the other Loan Documents.

Note:  This Revolving Credit Promissory Note.

Note Rate:  The rate equal to the lesser of (a)
the Maximum Lawful Rate or (b) the Applicable Rate.

Payment Date:  The first day of each and every
calendar month during the term of this Note.

Prime Rate:  The rate of interest announced from
time to time by Lender as its  "base" or "prime" rate of
interest, which Borrower hereby acknowledges and agrees may not be the lowest
interest rate charged by Lender and is set by Lender in its sole discretion,
changing when and as said prime rate changes.

PROMISSORY NOTE ‐
Page 2

Related Indebtedness:  Any and all indebtedness
paid or payable by Borrower to Lender pursuant to the Loan Documents or any
other communication or writing by or between Borrower and Lender related to the
transaction or transactions that are the subject matter of the Loan Documents,
except such indebtedness which has been paid or is payable by Borrower to
Lender under this Note.

Any capitalized term used in this Note and not otherwise
defined herein shall have the meaning ascribed to each such term in the Loan
Agreement.  All terms used herein, whether or not defined in Section 1.1
hereof, and whether used in singular or plural form, shall be deemed to refer
to the object of such term whether such is singular or plural in nature, as the
context may suggest or require.

ARTICLE II

PAYMENT TERMS

Section 2.1             
Payment
of Principal and Interest; Revolving Nature.  All accrued but unpaid interest in the principal balance of
this Note outstanding from time to time shall be payable on each Payment Date. 
The then outstanding principal balance of this Note and all accrued but unpaid
interest thereon shall be due and payable on the Maturity Date.  Borrower may
from time to time during the terms of this Note borrow, partially or wholly
repay its outstanding borrowings, and reborrow, subject to all of the
limitations, terms and conditions of this Note and of the Loan Documents;
provided however, that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount stated above.  The unpaid principal
balance of this Note at any time shall be the total amount advanced hereunder
by Lender less the amount of principal payments made hereon by or for Borrower,
which balance may be endorsed hereon from time to time by Lender or otherwise
noted in Lender's records, which notations shall be, absent manifest error,
conclusive evidence of the amounts owing hereunder from time to time.

Section 2.2             
Application. 
Except as expressly provided herein to the contrary, all payments on this Note
shall be applied in the following order of priority: (i) the payment or
reimbursement of any expenses, costs or obligations (other than the outstanding
principal balance hereof and interest hereon) for which either Borrower shall
be obligated or Lender shall be entitled pursuant to the provisions of this
Note or the other Loan Documents, (ii) the payment of accrued but unpaid
interest hereon, and (iii) the payment of all or any portion of the
principal balance hereof then outstanding hereunder, in the direct order of
maturity. If an Event of Default exists under this Note or under any of the
other Loan Documents, then Lender may, at the sole option of Lender, apply any
such payments, at any time and from time to time, to any of the items specified
in clauses (i), (ii) or (iii) above without regard to the order of
priority otherwise specified in this Section 2.2 and
any application to the outstanding principal balance hereof may be made in
either direct or inverse order of maturity.

Section 2.3             
Payments. 
All payments under this Note made to Lender shall be made in immediately
available funds at 5910 Central Expressway, Dallas, Texas 75206 (or at
such other place as Lender, in Lender's sole discretion, may have established
by delivery of written notice thereof to Borrower from time to time), without
offset, in lawful money of the United States of America, which shall at the
time of payment be legal tender in payment of all debts and dues, public and
private.  Payments by check or draft shall not constitute payment in
immediately available funds until the required amount is actually received by
Lender in full. Payments in immediately available funds received by Lender in
the place designated for payment on a Business Day prior to 11:00 a.m. Dallas,
Texas time at said place of payment shall be credited prior to the close of
business on the Business Day received, while payments received by Lender on a
day other than a Business Day or after 11:00 a.m. Dallas, Texas time on a
Business Day shall not be credited until the next succeeding Business Day.  If
any payment of principal or interest on this Note shall become due and payable on
a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.  Any such extension of time for payment shall be
included in computing interest which has accrued and shall be payable in
connection with such payment.

PROMISSORY NOTE ‐
Page 3

 

Section 2.4             
Computation
Period.  Interest on the indebtedness evidenced by this Note shall
be computed on the basis of a three hundred sixty (360) day year and shall
accrue on the actual number of days elapsed for any whole or partial month in
which interest is being calculated.  In computing the number of days during
which interest accrues, the day on which funds are initially advanced shall be
included regardless of the time of day such advance is made, and the day on
which funds are repaid shall be included unless repayment is credited prior to
the close of business on the Business Day received as provided in Section 2.3
hereof.

Section 2.5             
Prepayment. 
Borrower shall prepay this Note as and when required under the Loan Agreement
without penalty or premium.

Section 2.6             
Unconditional
Payment.  Borrower is and shall be obligated to pay all principal,
interest and any and all other amounts which become payable under this Note or
under any of the other Loan Documents absolutely and unconditionally and
without any abatement, postponement, diminution or deduction whatsoever and
without any reduction for counterclaim or setoff whatsoever.  If at any time
any payment received by Lender hereunder shall be deemed by a court of
competent jurisdiction to have been a voidable preference or fraudulent conveyance
under any Debtor Relief Law, then the obligation to make such payment shall
survive any cancellation or satisfaction of this Note or return thereof to
Borrower and shall not be discharged or satisfied with any prior payment
thereof or cancellation of this Note, but shall remain a valid and binding
obligation enforceable in accordance with the terms and provisions hereof, and
such payment shall be immediately due and payable upon demand.

Section 2.7             
Partial
or Incomplete Payments.  Remittances in payment of any part of this
Note other than in the required amount in immediately available funds at the
place where this Note is payable shall not, regardless of any receipt or credit
issued therefor, constitute payment until the required amount is actually
received by Lender in full in accordance herewith and shall be made and
accepted subject to the condition that any check or draft may be handled for
collection in accordance with the practice of the collecting bank or banks. 
Acceptance by Lender of any payment in an amount less than the full amount then
due shall be deemed an acceptance on account only, and the failure to pay the
entire amount then due shall be and continue to be an Event of Default in the
payment of this Note.

 

PROMISSORY NOTE ‐
Page 4

Section 2.8             
Default
Interest Rate, etc.  While any Event of Default continues under this
Note or under any of the other Loan Documents, regardless of whether or not
there has been an acceleration of the indebtedness evidenced by this Note, and
at all times after the maturity of the indebtedness evidenced by this Note
(whether by acceleration or otherwise), and in addition to all other rights and
remedies of Lender hereunder, interest shall accrue on the outstanding
principal balance hereof at the Default Interest Rate, and such accrued
interest shall be immediately due and payable.  Borrower acknowledges that it
would be extremely difficult or impracticable to determine Lender's actual
damages resulting from any late payment or Event of Default, and such late
charges and accrued interest are reasonable estimates of those damages and do
not constitute a penalty.  If Lender determines that the amount of capital
required or expected to be maintained by Lender or any entity controlling
Lender, is increased as a result of a Change, then, within fifteen (15) days of
demand by Lender, Borrower shall pay to Lender the amount necessary to
compensate for any shortfall in the rate of return on the portion of such
increased capital that Lender determines is attributable to this Note or the
principal amount outstanding hereunder (after taking into account Lender's
policies as to capital adequacy).

ARTICLE III

EVENT OF DEFAULT AND REMEDIES

Section 3.1             
Event of
Default.  The occurrence or happening, at any time and from time to
time, of any one or more of the following shall immediately constitute an
"Event of Default" under this Note:

(a)               
Subject to the limited grace period provided in Section 10.1(a) of the
Loan Agreement, Borrower shall fail, refuse or neglect to pay and satisfy, in
full and in the applicable method and manner required, any required payment of
principal or interest or any other portion of the indebtedness evidenced by
this Note as and when the same shall become due and payable, whether at the
stipulated due date thereof, at a date fixed for payment, or at maturity, by
acceleration or otherwise; or

(b)              
The occurrence of any other default, breach or event of default as
defined in or under this Note, the Loan Agreement or any other Loan Document
that remains uncured under and pursuant to the provisions of this Note, the
Loan Agreement or any other Loan Document.

Section 3.2             
Remedies. 
Upon the occurrence and during the continuance of an Event of Default, Lender
shall have the immediate right, at the sole discretion of Lender and without
notice, demand, presentment, notice of nonpayment or nonperformance, protest,
notice of protest, notice of intent to accelerate, notice of acceleration, or
any other notice or any other action (ALL OF WHICH BORROWER HEREBY EXPRESSLY
WAIVES AND RELINQUISHES) (i) to declare the entire unpaid balance of the
indebtedness evidenced by this Note (including, without limitation, the
outstanding principal balance hereof, including all sums advanced or accrued
hereunder or under any other Loan Document, and all accrued but unpaid interest
thereon) at once immediately due and payable (and upon such declaration, the
same shall be at once immediately due and payable) and may be collected
forthwith, whether or not there has been a prior demand for payment and
regardless of the stipulated date of maturity, (ii) to foreclose any liens and
security interests securing payment hereof or thereof (including, without
limitation, any liens and security interests), and (iii) to exercise any of
Lender's other rights, powers, recourses and remedies under this Note, under
any other Loan Document, or at law or in equity, and the same (w) shall be
cumulative and concurrent, (x) may be pursued separately, singly,
successively, or concurrently against Borrower or others obligated for the
repayment of this Note or any part hereof, or against any one or more of them,
at the sole discretion of Lender, (y) may be exercised as often as
occasion therefor shall arise, it being agreed by Borrower that the exercise,
discontinuance of the exercise of or failure to exercise any of the same shall
in no event be construed as a waiver or release thereof or of any other right,
remedy, or recourse, and (z) are intended to be, and shall be,
nonexclusive.  All rights and remedies of Lender hereunder and under the other
Loan Documents shall extend to any period after the initiation of foreclosure
proceedings, judicial or otherwise.  Without limiting the provisions of Section 4.18
hereof, if this Note, or any part hereof, is collected by or through an
attorney‐at‐law, Borrower agrees to pay all reasonable costs and
expenses of collection, including, but not limited to, Lender's reasonable attorneys'
fees, whether or not any legal action shall be instituted to enforce this
Note.  This Note is also subject to acceleration as provided in the Loan
Agreement.

PROMISSORY NOTE ‐
Page 5

 

ARTICLE IV

GENERAL PROVISIONS

Section 4.1             
No
Waiver; Amendment.  No failure to accelerate the indebtedness
evidenced by this Note by reason of an Event of Default hereunder, acceptance
of a partial or past due payment, or indulgences granted from time to time
shall be construed (i) as a novation of this Note or as a reinstatement of the
indebtedness evidenced by this Note or as a waiver of such right of
acceleration or of the right of Lender thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted under this Note, under any of
the other Loan Documents or by any applicable laws.  Borrower hereby expressly
waives and relinquishes the benefit of any statute or rule of law or equity now
provided, or which may hereafter be provided, which would produce a result
contrary to or in conflict with the foregoing.  The failure to exercise any
remedy available to Lender shall not be deemed to be a waiver of any rights or
remedies of Lender under this Note or under any of the other Loan Documents, or
at law or in equity.  No extension of the time for the payment of this Note or
any installment due hereunder, made by agreement with any person now or
hereafter liable for the payment of this Note, shall operate to release, discharge,
modify, change or affect the original liability of Borrower under this Note,
either in whole or in part, unless Lender specifically, unequivocally and
expressly agrees otherwise in writing.  This Note may not be changed orally,
but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, or modification is sought.

Section 4.2             
Waivers. 
EXCEPT AS SPECIFICALLY PROVIDED IN THE LOAN DOCUMENTS TO THE CONTRARY, BORROWER
AND ANY ENDORSERS OR GUARANTORS HEREOF SEVERALLY WAIVE AND RELINQUISH
PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF NONPAYMENT OR NONPERFORMANCE,
PROTEST, NOTICE OF PROTEST, NOTICE OF INTENT TO ACCELERATE, NOTICE OF
ACCELERATION OR ANY OTHER NOTICES OR ANY OTHER ACTION.  BORROWER AND ANY
ENDORSERS OR GUARANTORS HEREOF SEVERALLY WAIVE AND RELINQUISH, TO THE FULLEST
EXTENT PERMITTED BY LAW, ALL RIGHTS TO THE BENEFITS OF ANY MORATORIUM,
REINSTATEMENT, MARSHALING, FORBEARANCE, VALUATION, STAY, EXTENSION, REDEMPTION,
APPRAISEMENT, EXEMPTION AND HOMESTEAD NOW OR HEREAFTER PROVIDED BY THE
CONSTITUTION AND LAWS OF THE UNITED STATES OF AMERICA AND OF EACH STATE
THEREOF, BOTH AS TO ITSELF AND IN AND TO ALL OF ITS PROPERTY, REAL AND
PERSONAL, AGAINST THE ENFORCEMENT AND COLLECTION OF THE OBLIGATIONS EVIDENCED
BY THIS NOTE OR BY THE OTHER LOAN DOCUMENTS.

PROMISSORY NOTE ‐
Page 6

 

Section 4.3             
Interest
Provisions. 

(a)               
Savings Clause.  It is expressly stipulated and agreed to be the
intent of Borrower and Lender at all times to comply strictly with the
applicable Texas law governing the maximum rate or amount of interest payable
on the indebtedness evidenced by this Note and the Related Indebtedness (or
applicable United States federal law to the extent that it permits Lender to
contract for, charge, take, reserve or receive a greater amount of interest
than under Texas law).  If the applicable law is ever judicially interpreted so
as to render usurious any amount (i) contracted for, charged, taken,
reserved or received pursuant to this Note, any of the other Loan Documents or
any other communication or writing by or between Borrower and Lender related to
the transaction or transactions that are the subject matter of the Loan
Documents, (ii) contracted for, charged, taken, reserved or received by
reason of Lender's exercise of the option to accelerate the maturity of this Note
and/or the Related Indebtedness, or (iii) Borrower will have paid or
Lender will have received by reason of any voluntary prepayment by Borrower of
this Note and/or the Related Indebtedness, then it is Borrower's and Lender's
express intent that all amounts charged in excess of the Maximum Lawful Rate
shall be automatically canceled, ab initio, and all amounts in excess of the
Maximum Lawful Rate theretofore collected by Lender shall be credited on the
principal balance of this Note and/or the Related Indebtedness (or, if this
Note and all Related Indebtedness have been or would thereby be paid in full,
refunded to Borrower), and the provisions of this Note and the other Loan
Documents shall immediately be deemed reformed and the amounts thereafter collectible
hereunder and thereunder reduced, without the necessity of the execution of any
new document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder and thereunder;
provided, however, if this Note has been paid in full before the end of the
stated term of this Note, then Borrower and Lender agree that Lender shall,
with reasonable promptness after Lender discovers or is advised by Borrower
that interest was received in an amount in excess of the Maximum Lawful Rate,
either refund such excess interest to Borrower and/or credit such excess
interest against this Note and/or any Related Indebtedness then owing by
Borrower to Lender. Borrower hereby agrees that as a condition precedent to any
claim seeking usury penalties against Lender, Borrower will provide written
notice to Lender, advising Lender in reasonable detail of the nature and amount
of the violation, and Lender shall have sixty (60) days after receipt of such
notice in which to correct such usury violation, if any, by either refunding
such excess interest to Borrower or crediting such excess interest against this
Note and/or the Related Indebtedness then owing by Borrower to Lender.  All
sums contracted for, charged, taken, reserved or received by Lender for the
use, forbearance or detention of any debt evidenced by this Note and/or the
Related Indebtedness shall, to the extent permitted by applicable law, be
amortized or spread, using the actuarial method, throughout the stated term of
this Note and/or the Related Indebtedness (including any and all renewal and
extension periods) until payment in full so that the rate or amount of interest
on account of this Note and/or the Related Indebtedness does not exceed the
Maximum Lawful Rate from time to time in effect and applicable to this Note
and/or the Related Indebtedness for so long as debt is outstanding.  In no
event shall the provisions of Chapter 346 of the Texas Finance Code (which
regulates certain revolving credit loan accounts and revolving triparty
accounts) apply to this Note and/or any of the Related Indebtedness. 
Notwithstanding anything to the contrary contained herein or in any of the
other Loan Documents, it is not the intention of Lender to accelerate the maturity
of any interest that has not accrued at the time of such acceleration or to
collect unearned interest at the time of such acceleration.

PROMISSORY NOTE ‐
Page 7

(b)              
Ceiling Election.  To the extent that Lender is relying on
Chapter 303 of the Texas Finance Code to determine the Maximum Lawful Rate
payable on the Note and/or any other portion of the Indebtedness, Lender will
utilize the weekly ceiling from time to time in effect as provided in such
Chapter 303, as amended.  To the extent United States federal law permits
Lender to contract for, charge, take, receive or reserve a greater amount of
interest than under Texas law, Lender will rely on United States federal law
instead of such Chapter 303 for the purpose of determining the Maximum
Lawful Rate.  Additionally, to the extent permitted by applicable law now or
hereafter in effect, Lender may, at its option and from time to time, utilize
any other method of establishing the Maximum Lawful Rate under such
Chapter 303 or under other applicable law by giving notice, if required,
to Borrower as provided by applicable law now or hereafter in effect.

Section 4.4             
Use of
Funds.  Borrower hereby warrants, represents and covenants that (i)
the loan evidenced by this Note is made to Borrower solely for the purpose of
acquiring or carrying on a business or commercial enterprise, (ii) all proceeds
of this Note shall be used only for business and commercial purposes, and (iii)
no funds disbursed hereunder shall be used for personal, family, agricultural
or household purposes.

Section 4.5             
Further
Assurances and Corrections.  From time to time, at the reasonable request
of Lender, Borrower will (i) promptly correct any defect, error or
omission which may be discovered in the contents of this Note or in any other
Loan Document or in the execution or acknowledgment thereof; (ii) execute,
acknowledge, deliver, record and/or file (or cause to be executed,
acknowledged, delivered, recorded and/or filed) such further documents and
instruments (including, without limitation, further deeds of trust, security
agreements, financing statements, continuation statements and assignments of
rents) and perform such further acts and provide such further assurances as may
be necessary, desirable, or proper, in Lender's reasonable opinion, (A) to
carry out more effectively the purposes of this Note and the Loan Documents and
the transactions contemplated hereunder and thereunder, (B) to confirm the
rights created under this Note and the other Loan Documents, (C) to protect and
further the validity, priority and enforceability of this Note and the other
Loan Documents and the liens and security interests created thereby, and (D) to
subject to the Loan Documents any property of Borrower intended by the terms of
any one or more of the Loan Documents to be encumbered by the Loan Documents;
and (iii) pay all costs in connection with any of the foregoing.

 

PROMISSORY NOTE ‐
Page 8

Section 4.6             
Waiver
of Jury Trial. BORROWER, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY KNOWINGLY, INTENTIONALLY, IRREVOCABLY, UNCONDITIONALLY
AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES,
RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THIS NOTE OR
ANY CONDUCT, ACT OR OMISSION OF LENDER OR BORROWER, OR ANY OF THEIR DIRECTORS,
OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER
PERSONS AFFILIATED WITH LENDER OR BORROWER, IN EACH OF THE FOREGOING CASES,
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.

Section 4.7             
Governing
Law; Submission to Jurisdiction.  This Note is executed and
delivered as an incident to a lending transaction negotiated and consummated in
Dallas County, Texas, and shall be governed by and construed in accordance with
the laws of the State of Texas.  Borrower, for itself and its successors and
assigns, hereby irrevocably (i) submits to the nonexclusive jurisdiction
of the state and federal courts in Texas, (ii) waives, to the fullest
extent permitted by law, any objection that it may now or in the future have to
the laying of venue of any litigation arising out of or in connection with this
Note or any Loan Document brought in the District Court of Dallas County,
Texas, or in the United States District Court for the Northern District of
Texas, (iii) waives any objection it may now or hereafter have as to the
venue of any such action or proceeding brought in such court or that such court
is an inconvenient forum, and (iv) agrees that any legal proceeding
against any party to any of the Loan Documents arising out of or in connection
with any of the Loan Documents may be brought in one of the foregoing courts.
Borrower hereby agrees that service of process upon Borrower may be made by
certified or registered mail, return receipt requested, at its address
specified herein.  Nothing herein shall affect the right of Lender to serve
process in any other manner permitted by law or shall limit the right of Lender
to bring any action or proceeding against Borrower or with respect to any of
Borrower's property in courts in other jurisdictions.  The scope of each of the
foregoing waivers is intended to be all encompassing of any and all disputes
that may be filed in any court and that relate to the subject matter of this
transaction, including, without limitation, contract claims, tort claims,
breach of duty claims, and all other common law and statutory claims.  Borrower
acknowledges that these waivers are a material inducement to Lender's agreement
to enter into the agreements and obligations evidenced by the Loan Documents,
that Lender has already relied on these waivers and will continue to rely on
each of these waivers in related future dealings.  The waivers in this Section 4.7
are irrevocable, meaning that they may not be modified either orally or in
writing, and these waivers apply to any future renewals, extensions,
amendments, modifications, or replacements in respect of any and all of the
applicable Loan Documents.  In connection with any litigation, this Note may be
filed as a written consent to a trial by the court.

Section 4.8             
Counting
of Days.  If any time period referenced hereunder ends on a day
other than a Business Day, such time period shall be deemed to end on the next
succeeding Business Day.

Section 4.9             
Relationship
of the Parties.  Notwithstanding any prior business or personal
relationship between Borrower and Lender, or any officer, director or employee
of Lender, that may exist or have existed, the relationship between Borrower
and Lender is solely that of debtor and creditor, Lender has no fiduciary or
other special relationship with Borrower, Borrower and Lender are not partners
or joint venturers, and no term or condition of any of the Loan Documents shall
be construed so as to deem the relationship between Borrower and Lender to be
other than that of debtor and creditor.

PROMISSORY NOTE ‐
Page 9

 

Section 4.10         
Successors
and Assigns.  The terms and provisions hereof shall be binding upon
and inure to the benefit of Borrower and Lender and their respective heirs,
executors, legal representatives, successors, successors‐in‐title
and assigns, whether by voluntary action of the parties, by operation of law or
otherwise, and all other persons claiming by, through or under them.  The terms
"Borrower" and "Lender" as used hereunder
shall be deemed to include their respective heirs, executors, legal
representatives, successors, successors‐in‐title and assigns,
whether by voluntary action of the parties, by operation of law or otherwise,
and all other persons claiming by, through or under them.

Section 4.11         
Joint
and Several Liability.  If Borrower consists of more than one person
or entity, each shall be jointly and severally liable to perform the
obligations of Borrower under this Note.

Section 4.12         
Time is
of the Essence.  Time is of the essence with respect to all
provisions of this Note and the other Loan Documents.

Section 4.13         
Headings. 
The Article, Section, and Subsection entitlements hereof are inserted for
convenience of reference only and shall in no way alter, modify, define, limit,
amplify or be used in construing the text, scope or intent of such Articles,
Sections, or Subsections or any provisions hereof.

Section 4.14         
Controlling
Agreement.  In the event of any conflict between the provisions of
this Note and the Loan Agreement, it is the intent of the parties hereto that
the provisions of the Loan Agreement  shall control.  In the event of any
conflict between the provisions of this Note and any of the other Loan
Documents (other than the Loan Agreement), it is the intent of the parties
hereto that the provisions of this Note shall control.  The parties hereto
acknowledge that they were represented by competent counsel in connection with
the negotiation, drafting and execution of this Note and the other Loan
Documents and that this Note and the other Loan Documents shall not be subject
to the principle of construing their meaning against the party which drafted
same.

Section 4.15         
Notices. 
All notices or other communications required or permitted to be given pursuant
to this Note shall be in writing and shall be considered as properly given if
(i) mailed by first class United States mail, postage prepaid, registered
or certified with return receipt requested, (ii) by delivering same in
person to the intended addressee, (iii) by delivery to a reputable
independent third party commercial delivery service for same day or next day
delivery and providing for evidence of receipt at the office of the intended
addressee, or (iv) by prepaid telegram, telex, telecopier or telefacsimile
transmission to the addressee.  Notice so mailed shall be effective upon its
deposit with the United States Postal Service or any successor thereto; notice
sent by such a commercial delivery service shall be effective upon delivery to
such commercial delivery service; notice given by personal delivery shall be
effective only if and when received by the addressee; and notice given by other
means shall be effective only if and when received at the office or designated
place or machine of the intended addressee.  For purposes of notice, the
address of the Borrower shall be as set forth herein and the address of the
Lender shall be the address for notices provided for in the Loan Agreement;
provided, however, that either party shall have the right to change its address
for notice hereunder to any other location within the continental United States
by the giving of thirty (30) days' prior notice to the other party in the
manner set forth herein.

PROMISSORY NOTE ‐
Page 10

 

Section 4.16         
Severability. 
If any provision of this Note or the application thereof to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, then neither the remainder of this Note nor the application of
such provision to other persons or circumstances nor the other instruments
referred to herein shall be affected thereby, but rather shall be enforced to
the greatest extent permitted by applicable law.

Section 4.17         
Right of
Setoff.  In addition to all liens upon and rights of setoff against
the money, securities, or other property of Borrower given to Lender that may
exist under applicable law, if any Event of Default shall occur and be
continuing, Lender shall have and Borrower hereby grants to Lender a lien upon
and a right of setoff against all money, securities, and other property of
Borrower, now or hereafter in possession of or on deposit with Lender, whether
held in a general or special account or deposit, for safe-keeping or otherwise,
and every such lien and right of setoff may be exercised without demand upon or
notice to Borrower.  No lien or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender, or by any neglect to
exercise such right of setoff or to enforce such lien, or by any delay in so
doing, and every right of setoff and lien shall continue in full force and
effect until such right of setoff or lien is specifically waived or released by
an instrument in writing executed by Lender.

Section 4.18         
Costs of
Collection.  If any holder of this Note retains an attorney‐at‐law
in connection with any Event of Default or at maturity or to collect, enforce,
or defend this Note or any part hereof, or any other Loan Document in any
lawsuit or in any probate, reorganization, bankruptcy or other proceeding, or
if Borrower sues any holder in connection with this Note or any other Loan
Document and does not prevail, then Borrower agrees to pay to each such holder,
in addition to the principal balance hereof and all interest hereon, all costs
and expenses of collection or incurred by such holder or in any such suit or
proceeding, including, but not limited to, reasonable attorneys' fees.

Section 4.19         
Gender. 
All personal pronouns used herein, whether used in the masculine, feminine or
neuter gender, shall include all other genders; the singular shall include the
plural and vice versa.

Section 4.20         
Statement
of Unpaid Balance.  At any time and from time to time, Borrower will
furnish promptly, upon the request of Lender, a written statement or affidavit,
in form reasonably satisfactory to Lender, stating the unpaid balance of the
indebtedness evidenced by this Note and the Related Indebtedness and that there
are no offsets or defenses against full payment of the indebtedness evidenced
by this Note and the Related Indebtedness and the terms hereof, or if there are
any such offsets or defenses, specifying them.

PROMISSORY NOTE ‐
Page 11

Section 4.21         
Entire
Agreement.  THIS NOTE AND THE OTHER LOAN DOCUMENTS CONTAIN THE
FINAL, ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF AND ALL PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL,
RELATIVE HERETO AND THERETO WHICH ARE NOT CONTAINED HEREIN OR THEREIN ARE
SUPERSEDED AND TERMINATED HEREBY, AND THIS NOTE AND THE OTHER LOAN DOCUMENTS
MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.

 

 

[Remainder of This Page Intentionally Left Blank.]

 

 

 

 

PROMISSORY NOTE ‐
Page 12

IN WITNESS WHEREOF, Borrower, intending to be legally
bound hereby, has duly executed this Note as of the day and year first written
above.

BORROWER:

HOME SOLUTIONS OF AMERICA, INC.,

a Delaware corporation

By:                                                                               

            Jeff Mattich

            Chief Financial Officer

 

 

 

 

 

 

 

 

PROMISSORY NOTE ‐
Page 13Exhibit 10.3

Exhibit 10.3

PLEDGE AND SECURITY AGREEMENT

THIS PLEDGE AND SECURITY AGREEMENT is entered
into as of March 6, 2006 by and among Home Solutions of America, Inc., a
Delaware corporation (the "Borrower"), each of the Debtors set
forth on the signature pages hereof (each a "Debtor", and collectively with the
Borrower, the "Debtors"), and
Texas Capital Bank, National Association, a national banking association
("Lender") on behalf of itself and its Affiliates (the "Secured
Party").

PRELIMINARY STATEMENT

Borrower and Lender are entering into a Loan
Agreement dated as of March 6, 2006 (as it may be amended, restated or
modified from time to time, the "Loan Agreement").  Borrower
and Debtors are entering into this Pledge and Security Agreement (as it may be
amended, restated or modified from time to time, the "Security
Agreement") in order to, among other things, induce Lender to enter
into and extend credit to Borrower under the Loan Agreement.

ACCORDINGLY, Borrower, Debtors and Secured
Party hereby agree as follows:

ARTICLE
I

DEFINITIONS

1.1             
Terms Defined in Loan Agreement.  All capitalized terms used
herein and not otherwise defined shall have the meanings assigned to such terms
in the Loan Agreement.

1.2             
Terms Defined in Texas Uniform Commercial Code.  Terms defined in
the Texas Uniform Commercial Code which are not otherwise defined in this
Security Agreement are used herein as defined in the Texas Uniform Commercial
Code as in effect on the date hereof.

1.3             
Definitions of Certain Terms Used Herein.  As used in this
Security Agreement, in addition to the terms defined in the Preliminary
Statement, the following terms shall have the following meanings:

"Accounts" mean any
"account," as such term is defined in Section 9.102(a)(2) of the
UCC, now owned or hereafter acquired by any Debtor, and, in any event, shall
include, without limitation, each of the following, whether now owned or
hereafter acquired by such Debtor:  (a) all rights of such Debtor to
payment for goods sold or leased or services rendered or the license of
Intellectual Property, whether or not earned by performance, (b) all accounts
receivable (including Health Care Insurance Receivables) of such Debtor, (c)
all rights of such Debtor to receive any payment of money or other form of
consideration, (d) all security pledged, assigned, or granted to or held by
such Debtor to secure any of the foregoing, (e) all guaranties of, or
indemnifications with respect to, any of the foregoing, (f) all Chattel Paper,
(g) all Instruments, and (h) all rights of such Debtor as unpaid sellers of
goods or services, including, but not limited to, all rights of stoppage in
transit, replevin, reclamation, and resale.

"Account Debtor" means any
Person who is or who may become obligated to any Debtor under, with respect to,
or on account of an Account.

"Article" means a numbered
article of this Security Agreement, unless another document is specifically
referenced.

"Chattel Paper" means any
"chattel paper", as such term is defined in Section 9.102(a)(11)
of the UCC, now owned or hereafter acquired by any Debtor and, in any event,
shall include, without limitation, all Electronic Chattel Paper, Tangible
Chattel Paper and all records that evidence both a monetary obligation and a
security interest in specific goods, a security interest in specific goods and
software used in the goods, or a lease of specific goods, now owned or
hereafter acquired by such Debtor.

"Collateral" means all
Accounts, Chattel Paper, Documents, Equipment, General Intangibles, Financial
Assets, Letter of Credit Rights, Commercial Tort Claims, Fixtures, Investment
Property, Instruments, Inventory, Pledged Securities, Health Care Insurance
Receivables, Intellectual Property, Deposit Accounts, including all funds,
certificates, checks, drafts, wire transfer receipts, and other earnings,
profits, or other proceeds from time to time representing, evidencing,
deposited into, or held in Deposit Accounts, Stock Rights and Other Collateral,
wherever located, in which any Debtor now has or hereafter acquires any right
or interest, and the Proceeds, insurance proceeds and products thereof,
together with all books and records, customer lists, credit files, computer
files, programs, printouts and other computer materials and records related
thereto.  

"Commercial Tort Claims" means
any "commercial tort claim", as such term is defined in
Section 9.102(a)(13) of the UCC, now owned or hereafter acquired by any
Debtor and in any event, shall include, without limitation, any claim now owned
or hereafter acquired by such Debtor, arising in tort with respect to which: 
(a) the claimant is an organization; or (b) the claimant is an individual and
the claim (i) arose in the course of the claimant's business or profession and
(ii) does not include damages arising out of personal injury to or the death of
an individual.

"Control" shall have the
meaning set forth in Section 9.314 of the UCC.

"Debtors" shall mean,
collectively, the Borrower, the Debtors, and their respective successors and
assigns.

"Deposit Accounts" means any
"deposit account", as such term is defined in Section 9.102(a)(29)
of the UCC, now owned or hereafter acquired by any Debtor and in any event,
shall include, without limitation, any and all deposit accounts or other bank
accounts now owned or hereafter acquired or opened by such Debtor, and any account
which is a replacement or substitute for any of such accounts, including,
without limitation, those deposit accounts identified on Exhibit A.

"Documents" means any
"document", as such term is defined in Section 9.102(a)(30) of
the UCC, now owned or hereafter acquired by any Debtor, including without
limitation all bills of lading, dock warrants, dock receipts, warehouse
receipts and orders for the delivery of goods, and also any other document
which in the regular course of business or financing is treated as adequately
evidencing that the person in possession of it is entitled to receive, hold and
dispose of the document and the goods it covers.

Page 2

"Electronic Chattel Paper"
means any "electronic chattel paper", as such term is defined in
Section 9.102(a)(31) of the UCC, now owned or hereafter acquired by any
Debtor.

"Equipment" means any
"equipment", as such term is defined in Section 9.102(a)(33) of
the UCC, now owned or hereafter acquired by any Debtor and, in any event, shall
include, without limitation, all machinery, equipment, furnishings, Fixtures
and vehicles now owned or hereafter acquired by such Debtor and any and all
additions, substitutions, and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment, and
accessories installed thereon or affixed thereto.

"Exhibit" refers to a specific
exhibit to this Security Agreement, unless another document is specifically
referenced.

"Financial Assets" means any
"financial asset", as such term is defined in
Section 8.102(a)(9) of the UCC, now owned or hereafter acquired by any
Debtor.

"Fixtures" means all goods
which become so related to particular real estate that an interest in such
goods arises under any real estate law applicable thereto, including, without
limitation, all trade fixtures.

"General Intangibles" means
any "general intangibles", as such term is defined in
Section 9.102(a)(42) of the UCC, now owned or hereafter acquired by any
Debtor and, in any event, shall include, without limitation, each of the
following, whether now owned or hereafter acquired by such Debtor:  (a) all of
such Debtor's trade secrets, Intellectual Property, registrations, renewal
rights, goodwill franchises, licenses, permits, proprietary information,
customer lists, designs, and inventions, (b) all of such Debtor's books,
records, data, plans, manuals, computer software, and computer programs, (c)
all of such Debtor's contract rights, partnership interests, joint venture
interests, securities, deposit accounts, investment accounts, certificates of
deposit, and investment property, (d) all rights of such Debtor to payment
under letters of credit and similar agreements, (e) all tax refunds and tax
refund claims of such Debtor, (f) all choses in action and causes of action of
such Debtor (whether arising in contract, tort, or otherwise and whether or not
currently in litigation) and all judgments in favor of such Debtor, (g) all
rights and claims of such Debtor under warranties and indemnities, and (h) all
rights of such Debtor under any insurance, surety, or similar contract or
arrangement.  General intangibles includes payment intangibles.

"Health Care Insurance Receivable"
means any "health care insurance receivable", as such term is defined
in Section 9.102(a)(46) of the UCC, now owned or hereafter acquired by any
Debtor and, in any event, shall include, without limitation, any interest in or
claim under a policy of insurance that is a right to payment of a monetary
obligation for health care goods or services provided, whether now owned or
hereafter acquired by such Debtor.

"Instrument" means any
"instrument", as such term is defined in Section 9.102(a)(47) of
the UCC, now owned or hereafter acquired by any Debtor, other than stock and
other securities, and in any event, shall include, without limitation, all
promissory notes, drafts, bills of exchange and trade acceptances of such
Debtor, whether now owned or hereafter acquired.

Page 3

"Intellectual Property" means
the copyrights, copyright licenses, patents, patent licenses, trademarks, and
trademark licenses now owned or hereafter acquired by any Debtor.

"Inventory" means any
"inventory", as such term is defined in Section 9.102(a)(48) of
the UCC, now owned or hereafter acquired by any Debtor, and, in any event,
shall include, without limitation, each of the following, whether now owned or
hereafter acquired by such Debtor:  (a) all goods and other personal property
of such Debtor that are held for sale or lease or to be furnished under any
contract of service, (b) all raw materials, work-in-process, finished goods,
inventory, supplies, and materials of such Debtor, (c) all wrapping, packaging,
advertising, and shipping materials of such Debtor, (d) all goods that have
been returned to, repossessed by, or stopped in transit by such Debtor, and (e)
all Documents evidencing any of the foregoing.

"Investment Property" means
any "investment property", as such term is defined in
Section 9.102(a)(49) of the UCC, now owned or hereafter acquired by any
Debtor, and, in any event, shall include, without limitation, each of the
following, whether now owned or hereafter acquired by such Debtor:  (a) any
security, whether certificated or uncertificated; (b) any security entitlement;
(c) any securities account (including, without limitation, those described on Exhibit B); (d) any commodity contract;
and (e) any commodity account (including, without limitation, those identified
on Exhibit B).

"Letter-of-Credit Right" means
any "letter-of-credit right", as such term is defined in
Section 9.102(a)(51) of the UCC, now owned or hereafter acquired by any
Debtor, and in any event, shall include, without limitation, any right to
payment or performance under a letter of credit, whether or not the beneficiary
has demanded or is at the time entitled to demand payment or performance (but
shall not include any right of a beneficiary to demand payment or performance
under a letter of credit), now owned or hereafter acquired by such Debtor.

"Obligations" means:

(a)        each Debtor's obligations and indebtedness
under the Loan Agreement, each Loan Document and this Security Agreement;

(b)        all future advances by Lender or its Affiliates
to any Debtor;

(c)        all costs and expenses, including, without
limitation, all reasonable attorneys' fees and legal expenses, incurred by Lender
or its Affiliates to preserve and maintain the Collateral, collect the
obligations herein described, and enforce this Security Agreement;

(d)        all other obligations, indebtedness, and
liabilities of each Debtor to Lender or its Affiliates, now existing or
hereafter arising, regardless of whether such obligations, indebtedness, and
liabilities are similar, dissimilar, related, unrelated, direct, indirect,
fixed, contingent, primary, secondary, joint, several, or joint and several;

(e)        all amounts owed under any extension, renewal,
or modification of any of the foregoing; and

Page 4

(f)         any of the foregoing that arises after the
filing of a petition by or against any Debtor under the Bankruptcy Code, even
if the obligations due do not accrue because of the automatic stay under
Bankruptcy Code § 362 or otherwise.

"Other Collateral" means any
property of any Debtor, other than real estate, not included within the defined
terms Accounts, Chattel Paper, Documents, Equipment, General Intangibles,
Financial Assets Instruments, Letter-of-Credit Rights, Commercial Tort Claims,
Inventory, Investment Property, Pledged Securities, Deposit Accounts, including
all funds, certificates, checks, drafts, wire transfer receipts, and other
earnings, profits, or other proceeds from time to time representing,
evidencing, deposited into, or held in Deposit Accounts, and Stock Rights,
including, without limitation, all cash on hand and all deposit accounts or
other deposits (general or special, time or demand, provisional or final) with
any bank or other financial institution, it being intended that the Collateral
include all property of any Debtor other than real estate.

"Pledged Securities" means
100% (50% in the case of Southern Stone Cabinets, Inc., a Florida corporation)
of all capital stock (or other equity interests) now or in the future issued by
each present and future Debtors (other than the Borrower) and each present and
future Subsidiary.

"Proceeds" means any
"proceeds," as such term is defined in Section 9.102(a)(65) of
the UCC and, in any event, shall include, but not be limited to, (a) any and
all proceeds of any insurance, indemnity, warranty, or guaranty payable to any
Debtor from time to time with respect to any of the Collateral, (b) any and all
payments (in any form whatsoever) made or due and payable to any Debtor from
time to time in connection with any requisition, confiscation, condemnation,
seizure, or forfeiture of all or any part of the Collateral by any Governmental
Authority (or any person acting under color of Governmental Authority), and (c)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.

"Receivables" means the
Accounts, Chattel Paper, Documents, Investment Property, Instruments, or
Commercial Tort Claims, and any other rights or claims to receive money which
are General Intangibles or which are otherwise included as Collateral.

"Section" means a numbered
Section of this Security Agreement, unless another document is
specifically referenced.

"Secured Obligations" means
the Obligations, including without limitation any such Obligations incurred or
accrued during the pendency of any bankruptcy, insolvency, receivership or
other similar proceeding, whether or not allowed or allowable in such
proceeding.

"Security" has the meaning set
forth in 8.102(a)(15) of the UCC.

"Stock Rights" means any
securities, dividends or other distributions and any other right or property
which any Debtor shall receive or shall become entitled to receive for any
reason whatsoever with respect to, in substitution for or in exchange for any
securities or other ownership interests in a corporation, partnership, joint
venture or limited liability company constituting Collateral and any
securities, any right to receive securities and any right to receive earnings,
in which any Debtor now has or hereafter acquires any right, issued by an
issuer of such securities.

Page 5

 

"Tangible Chattel Paper" means
any "tangible chattel paper", as such term is defined in
Section 9.102(a)(79) of the UCC, now owned or hereafter acquired by any
Debtor.

"UCC" means the Uniform
Commercial Code as in effect in the State of Texas, as the same has been or may
be amended or revised from time to time, or, if so required with respect to any
particular Collateral by mandatory provisions of applicable law, as in effect
in the jurisdiction in which such Collateral is located.

The foregoing definitions shall be equally
applicable to both the singular and plural forms of the defined terms.

ARTICLE
II

GRANT OF SECURITY INTEREST

2.1             
Security Interest.  Each Debtor hereby pledges, assigns and
grants to Secured Party (including their Affiliates), a security interest in
all of such Debtor's right, title and interest in and to the Collateral to
secure the prompt and complete payment and performance of the Secured
Obligations.  If the security interest granted hereby in any rights of any
Debtor under any contract included in the Collateral is expressly prohibited by
such contract, then the security interest hereby granted therein nonetheless remains
effective to the extent allowed by Article or Chapter 9 of the UCC or
other applicable law but is otherwise limited by that prohibition.  Secured
Party acknowledges that the attachment of its security interest in any
Commercial Tort Claim as Collateral is subject to each Debtor's compliance with
Section 4.15.

2.2             
Debtors Remain Liable.  Notwithstanding anything to the contrary
contained herein, (a) each Debtor shall remain liable under the contracts
and agreements included in the Collateral to the extent set forth therein to
perform all of its respective duties and obligations thereunder to the same
extent as if this Security Agreement had not been executed, (b) the
exercise by Secured Party of any of its rights hereunder shall not release any
Debtor from any of its duties or obligations under the contracts and agreements
included in the Collateral, and (c) Secured Party shall not have any
obligation or liability under any of the contracts and agreements included in
the Collateral by reason of this Security Agreement, nor shall Secured Party be
obligated to perform any of the obligations or duties of any Debtor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.

2.3             
Authorization to File Financing Statements.  Each Debtor hereby
irrevocably authorizes Secured Party at any time and from time to time to file
in any UCC jurisdiction any initial financing statements and amendments thereto
that (a) indicate the Collateral (i) as all assets of such Debtor or
words of similar effect, regardless of whether any particular asset comprised
in the Collateral falls within the scope of Article or Chapter 9 of the
UCC, or (ii) as being of an equal or lesser scope or with greater detail,
and (b) contain any other information required by subchapter E of
Chapter 9 of the UCC for the sufficiency or filing office acceptance of
any financing statement or amendment, including (A) whether such Debtor is
an organization, the type of organization and any organization identification
number issued to such Debtor and (B) in the case of a financing statement
filed as a fixture filing or indicating Collateral as as‐extracted
collateral or timber to be cut, a sufficient description of real property to
which the Collateral relates.  Each Debtor agrees to furnish any such
information to Secured Party promptly upon request.

Page 6

 

ARTICLE
III

REPRESENTATIONS AND WARRANTIES

Each Debtor represents and warrants to Secured
Party that:

3.1             
Title, Authorization, Validity and Enforceability.  Each Debtor
has good and valid rights in and title to the Collateral with respect to which
it has purported to grant a security interest hereunder, and has full power and
authority to grant to Secured Party the security interest in such Collateral
pursuant hereto.  The execution and delivery by each Debtor of this Security
Agreement has been duly authorized by proper corporate proceedings, and this
Security Agreement constitutes a legal, valid and binding obligation of such
Debtor and creates a security interest which is enforceable against such Debtor
in all now owned and hereafter acquired Collateral.  When financing statements
have been filed in the appropriate offices against each Debtor in the locations
listed on Exhibit C, Secured Party
will have a fully perfected first priority security interest in that Collateral
in which a security interest may be perfected by filing.

3.2             
Conflicting Laws and Contracts.  Neither the execution and
delivery by any Debtor of this Security Agreement, the creation and perfection
of the security interest in the Collateral granted hereunder, nor compliance
with the terms and provisions hereof will be a material violation of any law,
rule, regulation, order, writ, judgment, injunction, decree or award binding on
such Debtor or such Debtor's articles or certificate of incorporation, bylaws,
articles of organization or operating agreement or other charter documents, as
the case may be, the provisions of any indenture, instrument or agreement to
which such Debtor is a party or is subject, or by which it, or its property, is
bound, or conflict with or constitute a material default thereunder, or result
in the creation or imposition of any Lien pursuant to the terms of any such
indenture, instrument or agreement (other than any Lien of Secured Party).

3.3             
Principal Location.  Each Debtor's mailing address, and the
location of its chief executive office and of the books and records relating to
the Receivables, are disclosed in Exhibit D; no Debtor has any
other places of business except those set forth in Exhibit D.

3.4             
Property Locations.  The Inventory, Equipment and Fixtures are
located solely at the locations described in Exhibit D.  All of
said locations are owned by a Debtor except for locations (i) which are leased
by a Debtor as lessee and designated in Part B of Exhibit D
and (ii) at which Inventory is held in a public warehouse or is otherwise
held by a bailee or on consignment as designated in Part C of Exhibit D,
with respect to which Inventory such Debtor has delivered bailment agreements,
warehouse receipts, financing statements or other documents satisfactory to the
Banks to protect the Secured Party's security interest in such Inventory.

Page 7

3.5             
Deposit, Commodity, and Securities Account.  Exhibit A
correctly identifies all deposit, commodity, and securities accounts owned by
each Debtor and the institutions holding such accounts.  No Person other than a
Debtor has control over any Investment Property.

3.6             
Litigation.  To each Debtor's knowledge after due inquiry, there
is no litigation investigation or governmental proceeding threatened against
any Debtor or any of its properties which if adversely determined would have a
material adverse effect on the Collateral or the financial condition,
operations, or business of such Debtor.

3.7             
No Other Names.  No Debtor has conducted business under any name
except the name in which it has executed this Security Agreement.

3.8             
No Event of Default.  No Event of Default exists.

3.9             
Accounts and Chattel Paper.  The names of the obligors, amounts
owing, due dates and other information with respect to the Accounts and Chattel
Paper are and will be correctly stated in all records of each Debtor relating
thereto and in all invoices and reports with respect thereto furnished to
Secured Party by each Debtor from time to time.  As of the time when each
Account or each item of Chattel Paper arises, each Debtor shall be deemed to
have represented and warranted that such Account or Chattel Paper, as the case
may be, and all records relating thereto, are genuine and in all material respects
what they purport to be.

3.10         
No Financing Statements.  No financing statement describing all
or any portion of the Collateral which has not lapsed or been terminated naming
any Debtor as debtor has been filed in any jurisdiction except financing
statements naming the Secured Party as the secured party.

3.11         
Federal Employer Identification Number.  Each Debtor's Federal
employer identification number is as listed on Exhibit E.

3.12         
Pledged Securities and Other Investment Property.  Exhibit B sets forth a complete and
accurate list of the Instruments, Securities and other Investment Property
owned by each Debtor.  Each Debtor is the direct and beneficial owner of each
Instrument, Security and other type of Investment Property listed on Exhibit B as being owned by it, free and
clear of any Liens, except for the security interest granted to Secured Party
hereunder.  Each Debtor further represents and warrants that (i) all such
Instruments, Securities or other types of Investment Property which are shares
of stock in a corporation or ownership interests in a partnership or limited
liability company have been (to the extent such concepts are relevant with
respect to such Instrument, Security or other type of Investment Property) duly
and validly issued, are fully paid and non‐assessable and (ii) with
respect to any certificates delivered to the Secured Party representing an
ownership interest in a partnership or limited liability company, either such
certificates are Securities as defined in Article 8 of the UCC of the
applicable jurisdiction as a result of actions by the issuer or otherwise, or,
if such certificates are not Securities, such Debtor has so informed Secured
Party so that Secured Party may take steps to perfect its security interest
therein as a General Intangible.  With respect to ownership interests in its
Subsidiaries, Borrower represents and warrants that the Pledged Securities
constitute 100% of the issued and outstanding capital stock (or other equity
interests) in all of the Debtors.

Page 8

ARTICLE
IV

COVENANTS

From the date of this Security Agreement, and
thereafter until this Security Agreement is terminated:

4.1             
General.

4.1.1       
Reserved.

4.1.2       
Reserved.

4.1.3       
Reserved.

4.1.4       
Financing Statements and Other Actions; Defense of Title.  Each
Debtor will execute and deliver to Secured Party all financing statements and
other documents and take such other actions as may from time to time be
requested by Secured Party in order to maintain a first perfected security
interest in and, in the case of Investment Property, Deposit Accounts,
Letter-of-Credit-Rights, and Electronic Chattel Paper, Control of, the
Collateral.  Each Debtor will take any and all actions necessary to defend
title to the Collateral against all persons and to defend the security interest
of the Secured Party in the Collateral and the priority thereof against any
Lien not expressly permitted hereunder.

4.1.5       
Proceeds of Collateral.  While an Event of Default exists, the
Debtor will deposit all proceeds of Inventory and Accounts into Deposit
Accounts under the Secured Party's Control.

4.1.6       
Reserved.

4.1.7       
Change in Location, Jurisdiction of Organization or Name.  No
Debtor will (i) have any Inventory, Equipment or Fixtures or proceeds or
products thereof (other than Inventory and proceeds thereof disposed of as
permitted by Section 4.1.5) at a location other than a location
specified in Exhibit D, (ii) maintain records relating to the
Receivables at a location other than at the location specified on Exhibit D,
(iii) maintain a place of business at a location other than a location
specified on Exhibit D, (iv) change its name or taxpayer
identification number, (v) change its mailing address, or (vi) change
its jurisdiction of organization, unless such Debtor shall have given Secured
Party not less than 30 days' prior written notice thereof, and the Secured
Party shall have determined in its reasonable discretion that such change will
not adversely affect the validity, perfection or priority of Secured Party's
security interest in the Collateral.

4.1.8       
Other Financing Statements.  No Debtor will sign or authorize the
signing on its behalf of any financing statement naming it as debtor covering
all or any portion of the Collateral, except as permitted by Section 4.1.6.

Page 9

4.2             
Receivables.  

4.2.1       
Certain Agreements on Receivables.  No Debtor will make or agree
to make any discount, credit, rebate or other reduction in the original amount
owing on a Receivable or accept in satisfaction of a Receivable less than the
original amount thereof, except that, prior to the occurrence of an Event of
Default, such Debtor may reduce the amount of Accounts arising from the sale of
Inventory in accordance with its present policies and in the ordinary course of
business.

4.2.2       
Collection of Receivables.  Except as otherwise provided in this
Security Agreement, each Debtor will collect and enforce, at such Debtor's sole
expense, all amounts due or hereafter due to such Debtor under the Receivables.

4.2.3       
Delivery of Invoices.  Each Debtor will deliver to Secured Party
immediately upon its request after the occurrence of an Event of Default
duplicate invoices with respect to each Account bearing such language of
assignment as Secured Party shall specify.

4.2.4       
Disclosure of Counterclaims on Receivables.  If (i) any
discount, credit or agreement to make a rebate or to otherwise reduce the
amount owing on a Receivable exists or (ii) if, to the knowledge of any
Debtor, any dispute, setoff, claim, counterclaim or defense exists or has been
asserted or threatened with respect to a Receivable, each Debtor will disclose
such fact to Secured Party in writing in connection with the inspection by the Secured
Party of any record of such Debtor relating to such Receivable and in
connection with any invoice or report furnished by such Debtor to Secured Party
relating to such Receivable.

4.3             
Inventory and Equipment.

4.3.1       
Maintenance of Goods.  Each Debtor will do all things reasonably
necessary and consistent with its present policies and practices to maintain,
preserve, protect and keep the Inventory and the Equipment in good repair and
working and saleable condition.

4.3.2       
Insurance.  Each Debtor will (i) maintain fire and extended
coverage insurance on the Inventory and Equipment containing a lender's loss
payable clause in favor of Secured Party, and providing that said insurance
will not be terminated except after at least 30 days' written notice from the
insurance company to Secured Party, (ii) maintain such other insurance on
the Collateral for the benefit of Secured Party as Secured Party shall from
time to time request, (iii) furnish to Secured Party upon the request of
Secured Party from time to time the originals of all policies of insurance on
the Collateral and certificates with respect to such insurance and
(iv) maintain general liability insurance naming Secured Party as an
additional insured.

4.3.3       
Safekeeping of Inventory; Inventory Covenants.  Secured Party
shall not be responsible for (i) the safekeeping of the Inventory;
(ii) any loss or damage thereto or destruction thereof occurring or
arising in any manner or fashion from any cause; (iii) any diminution in
the value of Inventory or (iv) any act or default of any carrier,
warehouseman, bailee or forwarding agency or any other Person in any way
dealing with or handling the Inventory, except to the extent that any Debtor
incurs any loss, cost, claim or damage from any of the foregoing as a result of
the gross negligence or willful misconduct of Secured Party.  All risk of loss,
damage, distribution or diminution in value of the Inventory shall, except as
noted in the previous sentence, be borne by the Debtors.

Page 10

 

4.3.4       
Records and Schedules of Inventory.  Each Debtor shall keep
correct and accurate daily records on a first-in, first-out basis, itemizing
and describing the kind, type, quality and quantity of Inventory, such Debtor's
cost therefor and selling price thereof, and the daily withdrawals therefrom
and additions thereto and Inventory then on consignment, and shall, at the reasonable
request of the Secured Party, furnish to the Secured Party, daily copies of the
working papers related thereto.  A physical count of the Inventory shall be
conducted no less often than annually and a report based on such count of
Inventory shall promptly thereafter be provided to Secured Party together with
such supporting information including, without limitation invoices relating to
such Debtor's purchase of goods listed in said report, as Secured Party shall reasonably
request.

4.3.5       
Returned and Repossessed Inventory.  If at any time prior to the
occurrence of an Event of Default, any Account Debtor returns any Inventory to
any Debtor with a value in excess of $50,000, such Debtor shall promptly
determine the reason for such return and, if such Debtor accepts such return,
issue a credit memorandum (with a copy to be sent to the Secured Party if the
Secured Party has so requested) in the appropriate amount to such Account
Debtor.  After the occurrence of and during the continuance of an Event of
Default, each Debtor shall hold all returned Inventory in trust for Secured
Party, shall segregate all returned Inventory from all other property of such
Debtor or in its possession and shall conspicuously label said returned
Inventory as the property of Secured Party.  Each Debtor shall, in all cases,
immediately notify Secured Party of the return of any Inventory with a value in
excess of $50,000, specifying the reason for such return and the location and
condition of the returned Inventory.

4.4             
Instruments, Securities, Chattel Paper, and Documents.  Each
Debtor will (i) deliver to Secured Party immediately upon execution of
this Security Agreement the originals of all Chattel Paper, Securities and
Instruments (if any then exist), (ii) hold in trust for Secured Party upon
receipt and immediately thereafter deliver to Secured Party any Chattel Paper,
Securities and Instruments constituting Collateral, and (iii) upon Secured
Party's request, deliver to Secured Party (and thereafter hold in trust for
Secured Party upon receipt and immediately deliver to Secured Party) any
Document evidencing or constituting Collateral.

4.5             
Uncertificated Securities and Certain Other Investment Property. 
Each Debtor will permit Secured Party from time to time to cause the
appropriate issuers (and, if held with a securities intermediary, such
securities intermediary) of uncertificated securities or other types of
Investment Property not represented by certificates which are Collateral to
mark their books and records with the numbers and face amounts of all such
uncertificated securities or other types of Investment Property not represented
by certificates and all rollovers and replacements therefor to reflect the Lien
of Secured Party granted pursuant to this Security Agreement.  Each Debtor will
make commercially reasonable to cause (i) the issuers of uncertificated
securities which are Collateral and which are Securities and (ii) any
financial intermediary which is the holder of any Investment Property, to cause
Secured Party to have and retain Control over such Securities or other
Investment Property.  Without limiting the foregoing, each Debtor will, with
respect to Investment Property held with a financial intermediary, take
commercially reasonable efforts to cause such financial intermediary to enter
into a control agreement with the Secured Party in form and substance
satisfactory to Secured Party.

Page 11

 

4.6             
Stock and Other Ownership Interests.

4.6.1       
Changes in Capital Structure of Issuers.  No Debtor will
(i) permit or suffer any issuer of privately held corporate securities or
other ownership interests in a corporation, partnership, joint venture or
limited liability company constituting Collateral to dissolve, liquidate,
retire any of its capital stock or other Instruments or Securities evidencing
ownership, reduce its capital or merge or consolidate with any other entity, or
(ii) vote any of the Instruments, Securities or other Investment Property
in favor of any of the foregoing.

4.6.2       
Issuance of Additional Securities.  No Debtor will permit or
suffer the issuer of privately held corporate securities or other ownership
interests in a corporation, partnership, joint venture or limited liability
company constituting Collateral to issue any such securities or other ownership
interests, any right to receive the same or any right to receive earnings,
except to such Debtor.

4.6.3       
Registration of Pledged Securities and other Investment Property.  
Each Debtor will permit any registerable Collateral to be registered in the
name of Secured Party or its nominee at any time.

4.6.4       
Exercise of Rights in Pledged Securities and other Investment
Property.  Each Debtor will permit Secured Party or its nominee at any time
after the occurrence of and during the continuance of an Event of Default,
without notice, to exercise all voting and corporate rights relating to the
Collateral, including, without limitation, exchange, subscription or any other
rights, privileges, or options pertaining to any corporate securities or other
ownership interests or Investment Property in or of a corporation, partnership,
joint venture or limited liability company constituting Collateral and the
Stock Rights as if it were the absolute owner thereof.

4.6.5       
Issuance of Securities.  Debtors shall not permit any limited
partnership interests or ownership interests in a limited liability company
which are included within the Collateral to at any time constitute a Security
or consent to the issuer of any such interests taking any action to have such
interests treated as a Security unless (i) all certificates or other
documents constituting such Security have been delivered to Secured Party and
such Security is properly defined as such under Article 8 of the UCC of
the applicable jurisdiction, whether as a result of actions by the issuer thereof
or otherwise, or (ii) Secured Party has entered into a control agreement
with the issuer of such Security or with a securities intermediary relating to
such Security and such Security is defined as such under Article 8 of the
UCC of the applicable jurisdiction, whether as a result of actions by the
issuer thereof or otherwise.

Page 12

 

4.7             
Accounts.

4.7.1       
Verification of Accounts.  Secured Party shall have the right, at
any time or times hereafter, in its name or in the name of a nominee of Secured
Party, to verify the validity, amount or any other matter relating to any
Accounts, by mail, telephone, telegraph or otherwise.

4.7.2       
Appointment of the Agent as Attorney‐in‐Fact.  Each
Debtor hereby irrevocably designates, makes, constitutes and appoints Secured
Party (and all persons designated by Secured Party), exercisable after the
occurrence of and during the continuance of an Event of Default, as its true
and lawful attorney‐in‐fact, and authorizes Secured Party, in such
Debtor's or Secured Party's name, to: (i) demand payment of Accounts;
(ii) enforce payment of Accounts by legal proceedings or otherwise;
(iii) exercise all of such Debtor's rights and remedies with respect to
proceedings brought to collect an Account; (iv) sell or assign any Account
upon such terms, for such amount and at such time or times as Secured Party
deems advisable; (v) settle, adjust, compromise, extend or renew an
Account; (vi) discharge and release any Account; (vii) take control
in any manner of any item of payment or proceeds thereof; (viii) prepare,
file and sign such Debtor's name on any proof of claim in bankruptcy or other
similar document against any Account Debtor; (ix) endorse such Debtor's
name upon any items of payment or proceeds thereof and deposit the same in
Secured Party's account on account of the Obligations; (x) endorse such
Debtor's name upon any chattel paper, document, instrument, invoice, or similar
document or agreement relating to any Account or any goods pertaining thereto;
(xi) sign such Debtor's name on any verification of Accounts and notices
thereof to Account Debtor; (xii) notify the post office authorities to change
the address for delivery of such Debtor's  mail to an address designated by
Secured Party, have access to any lock box or postal box into which any of such
Debtor's mail is deposited, and open and dispose of all mail addressed such
Debtor, and (xiii) do all acts and things which are necessary, in Secured
Party's sole discretion, to fulfill such Debtor's obligations under this
Security Agreement.

4.7.3       
Notice to Account Debtor.  Secured Party may, in its sole
discretion, at any time or times after an Event of Default has occurred and is
continuing, and without prior notice to any Debtor, notify any or all Account
Debtors that the Accounts have been assigned to Secured Party and that Secured
Party has a security interest therein.  Secured Party may direct any or all
Account Debtors to make all payments upon the Accounts directly to Secured
Party.  Secured Party shall furnish the Debtors with a copy of such notice.  If
requested by Secured Party while an Event of Default exists, Debtor shall
require all Account Debtors to direct payments to a lockbox designated by the
Secured Party and maintained under the Secured Party's dominion and control. 
Proceeds of such lockbox will be deposited into a cash collateral account at
Secured Party.

4.8             
Deposit Accounts.  Each Debtor will (i) upon Secured Party's
request, notify each bank or other financial institution in which it maintains
a Deposit Account or other deposit (general or special, time or demand,
provisional or final) of the security interest granted to Secured Party
hereunder and take all steps necessary to cause each such bank or other
financial institution to acknowledge such notification in writing and
(ii) cause each such bank or other financial institution to enter into a
control agreement, in form and substance acceptable to the Secured Party,
transferring dominion and control over each such account to Secured Party.

 

Page 13

 

4.9             
Federal, State or Municipal Claims.  Each Debtor will notify
Secured Party of any Collateral which constitutes a claim against a governmental
authority, or any instrumentality or agency thereof, the assignment of which
claim is restricted by federal, state or municipal law.

4.10         
Warehouse Receipts Non‐Negotiable.  Each Debtor agrees that
if any warehouse receipt or receipt in the nature of a warehouse receipt is
issued with respect to any of its inventory, such warehouse receipt or receipt
in the nature thereof shall not be "negotiable" (as such term is used
in Section 7‐104 of the UCC).

4.11         
Mortgagee's and Landlord Waivers.  Each Debtor shall cause each
mortgagee of real property owned by such Debtor (upon request by Secured Party)
and each landlord of real property leased by such Debtor to execute and deliver
instruments satisfactory in form and substance to Secured Party by which such
mortgagee or landlord waives their rights, if any, in the Collateral.

4.12         
Reserved.

4.13         
Reserved.

4.14         
Commercial Tort Claims.  If any Debtor at any time holds or
acquires a Commercial Tort Claim, such Debtor shall immediately notify Secured
Party in writing of the details thereof and grant to Secured Party in writing a
security interest therein or lien thereon and in the Proceeds thereof, in form
and substance reasonably satisfactory to Secured Party.

4.15         
Letters‐of‐Credit Rights.  If any Debtor is at any
time a beneficiary under a letter of credit now or hereafter issued in favor of
any Debtor, such Debtor shall promptly notify Secured Party thereof in writing
and, at Secured Party's request, such Debtor shall, pursuant to an agreement in
form and substance reasonably satisfactory to Secured Party, either
(a) arrange for the issuer or any confirmer of such letter of credit to
consent to an assignment to Secured Party of the proceeds of any drawing under
the letter of credit or (b) arrange for Secured Party to become the
transferee beneficiary of the letter of credit, with Secured Party agreeing, in
each case, that the proceeds of any drawing under the letter of credit are to
be applied as provided in the Loan Agreement.

4.16         
Further Assurances; Additional Debtors.  At any time and from
time to time, upon the request of Secured Party, and at the sole expense of the
Debtors, each Debtor shall promptly execute and deliver all such further
instruments and documents and take such further action as Secured Party may reasonably
deem necessary or desirable to preserve and perfect its security interest in
the Collateral and carry out the provisions and purposes of this Security
Agreement, including, without limitation, (a) the execution and filing of
such financing statements as Secured Party may require and (b) the deposit
of all certificates of title issuable with respect to any of the Collateral and
noting thereon the security interest hereunder.  A carbon, photographic, or
other reproduction of this Security Agreement or of any financing statement
covering the Collateral or any part thereof shall be sufficient as a financing
statement and may be filed as a financing statement.  Each Debtor shall
promptly endorse and deliver to Secured Party all documents, instruments, and
chattel paper that it now owns or may hereafter acquire.  Upon the execution
and delivery by any Person of a security agreement supplement in substantially
the form of Exhibit F attached hereto (each a "Security
Agreement Supplement"), (a) such Person shall be and become a Debtor
hereunder and each reference in this Agreement and the other Loan Documents to
"Debtor" shall also mean and be a reference to such Person, and (b)
the supplemental exhibits A, B, C, D and E attached to each Security Agreement
Supplement shall be incorporated into and become a part of and supplement Exhibits
A, B, C, D and E, respectively, hereto, and
Secured Party may attach such supplemental exhibits to such Exhibits; and each
reference to such Exhibits shall mean and be a reference to such Exhibits as
supplemented pursuant to each Security Agreement Supplement.

Page 14

 

ARTICLE
V

DEFAULT

5.1             
Acceleration and Remedies.  Upon the occurrence of and during the
continuance of an Event of Default under the Loan Agreement or any other Loan
Document, Secured Party may exercise any or all of the following rights and
remedies:

5.1.1       
Those rights and remedies provided in this Security Agreement, the Loan
Agreement, or any other Loan Document, provided that this Section 5.1.1
shall not be understood to limit any rights or remedies available to Secured
Party prior to an Event of Default.

5.1.2       
Those rights and remedies available to a secured party under the UCC
(whether or not the UCC applies to the affected Collateral) or under any other
applicable law (including, without limitation, any law governing the exercise
of a bank's right of setoff or bankers' lien) when a debtor is in default under
a security agreement.

5.1.3       
Without notice except as specifically provided in Section 8.1
or elsewhere herein, sell, lease, assign, grant an option or options to
purchase or otherwise dispose of the Collateral or any part thereof in one or
more parcels at public or private sale, for cash, on credit or for future
delivery, and upon such other terms as Secured Party may deem commercially
reasonable.

5.2             
Debtors' Obligations Upon Event of Default.  Upon the request of
Secured Party after the occurrence of and during the continuance of an Event of
Default, each Debtor will:

5.2.1       
Assembly of Collateral.  Assemble and make available to Secured
Party the Collateral and all records relating thereto at any place or places
specified by Secured Party.

5.2.2       
Secured Party Access.  Permit Secured Party, by Secured Party's
representatives and agents, to enter any premises where all or any part of the
Collateral, or the books and records relating thereto, or both, are located, to
take possession of all or any part of the Collateral and to remove all or any
part of the Collateral.

Page 15

 

5.3             
License.  Secured Party is hereby granted a license or other
right to use, following the occurrence and during the continuance of an Event
of Default, without charge, each Debtor's labels, patents, copyrights, rights
of use of any name, trade secrets, trade names, trademarks, service marks,
customer lists and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, for the limited purpose of completing production
of, advertising for sale, and selling any Collateral, and, following the
occurrence and during the continuance of an Event of Default, each Debtor's
rights under all licenses and all franchise agreements shall inure to Secured
Party's benefit.  In addition, each Debtor hereby irrevocably agrees that
Secured Party may, following the occurrence and during the continuance of an
Event of Default, sell any of such Debtor's Inventory directly to any Person,
including without limitation Persons who have previously purchased such
Debtor's Inventory from such Debtor and in connection with any such sale or
other enforcement of Secured Party's rights under this Security Agreement, may
sell Inventory which bears any trademark owned by or licensed to such Debtor
and any Inventory that is covered by any copyright owned by or licensed to such
Debtor and Secured Party may finish any work in process and affix any trademark
owned by or licensed to such Debtor and sell such Inventory as provided herein.

ARTICLE
VI

WAIVERS, AMENDMENTS AND REMEDIES

No delay or omission of Secured Party to
exercise any right or remedy granted under this Security Agreement shall impair
such right or remedy or be construed to be a waiver of any Event of Default, or
an acquiescence therein, and any single or partial exercise of any such right
or remedy shall not preclude any other or further exercise thereof or the exercise
of any other right or remedy.  No waiver, amendment or other variation of the
terms, conditions or provisions of this Security Agreement whatsoever shall be
valid unless in writing signed by Secured Party and then only to the extent in
such writing specifically set forth.  All rights and remedies contained in this
Security Agreement or by law afforded shall be cumulative and all shall be
available to Secured Party until the Secured Obligations have been paid in
full.

ARTICLE
VII

PROCEEDS; COLLECTION OF RECEIVABLES

7.1             
Lockboxes.  During the continuance of an Event of Default, upon
request of Secured Party, each Debtor shall execute and deliver to Secured
Party irrevocable lockbox agreements in the form provided by or otherwise
acceptable to Secured Party, which agreements shall be accompanied by an
acknowledgment by the bank where the lockbox is located of the Lien of Secured
Party granted hereunder and of irrevocable instructions to wire all amounts
collected therein to a special collateral account at Secured Party.

 

Page 16

7.2             
Collection of Receivables.  Upon the occurrence and continuation
of a an Event of Default, Secured Party may at any time in its sole discretion,
by giving the Debtors written notice, elect to require that the Receivables be
paid directly to Secured Party.  In such event, each Debtor shall, and shall
permit Secured Party to, promptly notify the Account Debtors or obligors under
the Receivables of the Banks' interest therein and direct such Account Debtors
or obligors to make payment of all amounts then or thereafter due under the
Receivables directly to Secured Party.  Upon receipt of any such notice from
Secured Party, each Debtor shall thereafter hold in trust for Secured Party,
all amounts and proceeds received by it with respect to the Receivables and
Other Collateral and immediately and at all times thereafter deliver to Secured
Party all such amounts and proceeds in the same form as so received, whether by
cash, check, draft or otherwise, with any necessary endorsements.  Secured
Party shall hold and apply funds so received as provided by the terms of Sections
7.3 and 7.4.

7.3             
Post Default Application.  If any Event of Default has occurred
and is continuing, Secured Party may, from time to time, apply the collected
balances in said cash collateral account to the payment of the Secured
Obligations whether or not the Secured Obligations shall then be due.

7.4             
Application of Proceeds.  After the occurrence and during the
continuation of an Event of Default, the proceeds of the Collateral shall be
applied by Secured Party to payment of the Secured Obligations in such manner
and order as Secured Party may elect in its sole discretion.

ARTICLE
VIII

GENERAL PROVISIONS

8.1             
Notice of Disposition of Collateral.  Each Debtor hereby waives
notice of the time and place of any public sale or the time after which any
private sale or other disposition of all or any part of the Collateral may be
made.  To the extent such notice may not be waived under applicable law, any
notice made shall be deemed reasonable if sent to any Debtor, addressed as set
forth in Article IX, at least 10 days prior to (i) the date of
any such public sale or (ii) the time after which any such private sale or
other disposition may be made.

8.2             
Compromises and Collection of Collateral.  Each Debtor and
Secured Party recognize that setoffs, counterclaims, defenses and other claims
may be asserted by obligors with respect to certain of the Receivables, that
certain of the Receivables may be or become uncollectible in whole or in part
and that the expense and probability of success in litigating a disputed
Receivable may exceed the amount that reasonably may be expected to be
recovered with respect to a Receivable.  In view of the foregoing, each Debtor
agrees that Secured Party may at any time and from time to time, if an Event of
Default has occurred and is continuing, compromise with the obligor on any
Receivable, accept in full payment of any Receivable such amount as Secured
Party in its sole discretion shall determine or abandon any Receivable, and any
such action by Secured Party shall be commercially reasonable so long as
Secured Party acts in good faith based on information known to it at the time
it takes any such action.

8.3             
Secured Party Performance of Debtors' Obligations.  Without
having any obligation to do so, Secured Party may perform or pay any obligation
which any Debtor has agreed to perform or pay in this Security Agreement and
each Debtor shall, jointly and severally, reimburse Secured Party for any
amounts paid by Secured Party pursuant to this Section 8.3.  Each Debtor's
obligation to reimburse Secured Party pursuant to the preceding sentence shall
be a Secured Obligation payable on demand.

Page 17

 

8.4             
Authorization for Secured Party to Take Certain Action.  Each
Debtor irrevocably authorizes Secured Party at any time and from time to time
in the sole discretion of Secured Party and appoints Secured Party as its
attorney in fact (i) to execute on behalf of such Debtor as debtor and to
file financing statements necessary or desirable in the Secured Party's sole
discretion to perfect and to maintain the perfection and priority of Secured
Party's security interest in the Collateral, (ii) to, after the occurrence
and during the continuance of an Event of Default, indorse and collect any cash
proceeds of the Collateral, (iii) to file a carbon, photographic or other
reproduction of this Security Agreement or any financing statement with respect
to the Collateral as a financing statement in such offices as the Secured Party
in its sole discretion deems necessary or desirable to perfect and to maintain
the perfection and priority of Secured Party's security interest in the
Collateral, (iv) to contact and enter into one or more agreements with the
issuers of uncertificated securities which are Collateral and which are
Securities or with financial intermediaries holding other Investment Property
as may be necessary or advisable to give Secured Party Control over such
Securities or other Investment Property, (v) subject to the terms of Section 4.1.4,
to enforce payment of the Receivables in the name of Secured Party or such
Debtor, (vi) to, after the occurrence and during the continuance of an
Event of Default, apply the proceeds of any Collateral received by Secured
Party to the Secured Obligations as provided in Article VII and
(vii) to discharge past due taxes, assessments, charges, fees or Liens on
the Collateral (except for such Liens as are specifically permitted hereunder),
and such Debtor agrees to reimburse Secured Party on demand for any payment
made or any expense incurred by Secured Party in connection therewith, provided
that this authorization shall not relieve any Debtor of any of its obligations
under this Security Agreement or under the Loan Agreement.

8.5             
Specific Performance of Certain Covenants.  Each Debtor
acknowledges and agrees that a breach of any of the covenants contained in Sections 4.1.4,
4.4, 5.3, or 8.7 or in Article VII will cause irreparable
injury to Secured Party, that Secured Party has no adequate remedy at law in
respect of such breaches and therefore agrees, without limiting the right of
Secured Party to seek and obtain specific performance of other obligations of
such Debtor contained in this Security Agreement, that the covenants of such
Debtor contained in the Sections referred to in this Section 8.5
shall be specifically enforceable against such Debtor.

8.6             
Use and Possession of Certain Premises.  Upon the continuance of
an Event of Default, Secured Party shall be entitled to occupy and use any
premises owned or leased by any Debtor where any of the Collateral or any
records relating to the Collateral are located until the Secured Obligations
are paid or the Collateral is removed therefrom, whichever first occurs,
without any obligation to pay such Debtor for such use and occupancy.

8.7             
Dispositions Not Authorized.  No Debtor is authorized to sell or
otherwise dispose of the Collateral except as set forth in Section 4.1.5
and notwithstanding any course of dealing between any Debtor and the Secured
Party or other conduct of the Secured Party, no authorization to sell or otherwise
dispose of the Collateral (except as set forth in Section 4.1.5)
shall be binding upon Secured Party unless such authorization is in writing
signed by Secured Party.

Page 18

 

8.8             
Benefit of Agreement.  The terms and provisions of this Security
Agreement shall be binding upon and inure to the benefit of the Debtors,
Secured Party and their respective successors and assigns, except that no
Debtor shall have the right to assign its rights or delegate its obligations
under this Security Agreement or any interest herein, without the prior written
consent of Secured Party.

8.9             
Survival of Representations.  All representations and warranties
of each Debtor contained in this Security Agreement shall survive the execution
and delivery of this Security Agreement.

8.10         
Taxes and Expenses.  Any taxes (including income taxes) payable
or ruled payable by Federal or State authority in respect of this Security
Agreement shall be paid by each Debtor, together with interest and penalties,
if any.  Debtors shall jointly and severally reimburse Secured Party for any
and all out‐of‐pocket expenses and internal charges (including
reasonable attorneys', auditors' and accountants' fees and reasonable time
charges of attorneys, paralegals, auditors and accountants who may be employees
of Secured Party) paid or incurred by Secured Party in connection with the
preparation, execution, delivery, administration, collection and enforcement of
this Security Agreement and in the audit, analysis, administration, collection,
preservation or sale of the Collateral (including the expenses and charges
associated with any periodic or special audit of the Collateral).  Any and all
costs and expenses incurred by each Debtor in the performance of actions
required pursuant to the terms hereof shall be borne solely by such Debtor.

8.11         
Headings.  The title of and section headings in this Security
Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the terms and provisions of this Security Agreement.

8.12         
Termination.  This Security Agreement shall continue in effect
(notwithstanding the fact that from time to time there may be no Secured
Obligations outstanding) until (i) the Loan Agreement has terminated
pursuant to its express terms and (ii) all of the Secured Obligations have
been indefeasibly paid and performed in full and no commitments of Secured
Party which would give rise to any Secured Obligations are outstanding.  Upon
termination of this Security Agreement, Secured Party shall promptly authorize
the Debtor to file termination statements in the appropriate offices and
jurisdictions releasing all security interests and liens Secured Party has on
the Collateral, and shall otherwise perform all other actions reasonably
requested by Debtor to release such security interests and liens, but all such
actions shall be at Debtors' expense.

8.13         
Entire Agreement.  This Security Agreement embodies the entire
agreement and understanding between the Debtors and Secured Party relating to
the Collateral and supersedes all prior agreements and understandings between
the Debtors and Secured Party relating to the Collateral.

Page 19

8.14         
CHOICE OF LAW.  THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS)
OF THE STATE OF TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKS.

8.15         
INDEMNITY.  EACH DEBTOR HEREBY AGREES TO INDEMNIFY SECURED PARTY
AND ITS RESPECTIVE SUCCESSORS, ASSIGNS, AGENTS, ATTORNEYS, AND EMPLOYEES, FROM
AND AGAINST ANY AND ALL LIABILITIES, DAMAGES, PENALTIES, SUITS, COSTS, AND
EXPENSES OF ANY KIND AND NATURE  (INCLUDING, WITHOUT LIMITATION, ALL EXPENSES
OF LITIGATION OR PREPARATION THEREFOR WHETHER OR NOT SECURED PARTY IS A PARTY
THERETO) IMPOSED ON, INCURRED BY OR ASSERTED AGAINST SECURED PARTY OR THEIR
RESPECTIVE SUCCESSORS, ASSIGNS, AGENTS, ATTORNEYS, AND EMPLOYEES, IN ANY WAY
RELATING TO OR ARISING OUT OF THIS SECURITY AGREEMENT, OR THE MANUFACTURE,
PURCHASE, ACCEPTANCE, REJECTION, OWNERSHIP, DELIVERY, LEASE, POSSESSION, USE,
OPERATION, CONDITION, SALE, RETURN OR OTHER DISPOSITION OF ANY COLLATERAL
(INCLUDING, WITHOUT LIMITATION, LATENT AND OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE BY THE Secured Party
OR THE DEBTORS, AND ANY CLAIM FOR PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT). 
NOTWITHSTANDING THE FOREGOING, NO PERSON SHALL BE INDEMNIFIED HEREUNDER FOR
ACTS OR OMISSIONS ARISING OUT OF OR RESULTING FROM SUCH PERSON'S GROSS
NEGLIGENCE, WILLFUL MISCONDUCT OR FRAUD.

ARTICLE
IX

NOTICES

9.1             
Sending Notices.  Any notice required or permitted to be given
under this Security Agreement shall be sent (and deemed received) in the manner
and to the addresses set forth in the Loan Agreement.  All such notices to any Debtor
hereunder shall be given or made at the appropriate address or telecopier
number of Borrower in accordance with the Loan Agreement. 

9.2             
Change in Address for Notices.  Each of the Debtors and Secured
Party may change the address for service of notice upon it by a notice in
writing to the other parties.

 

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Blank] 

 

Page 20

 

IN WITNESS
WHEREOF, the Debtors and Secured Party have executed this Security Agreement as
of the date first above written.

BORROWER:

HOME SOLUTIONS OF AMERICA, INC.

By:                                                                               

            Jeff Mattich

            Chief Financial Officer

DEBTORS:

CORNERSTONE BUILDING AND REMODELING, INC.

By:                                                                               

            Name: 

            Title: 

FIBER-SEAL SYSTEMS, L.P.

By:       FSS Holding Corp., 

            its general partner

            

            By:                                                                   

                  Name:

                  Title:

            

HOME SOLUTIONS RESTORATION OF LOUISIANA, INC.

By:                                                                               

            Name:

            Title: 

 

Page 21

P.W. STEPHENS, INC.

By:                                                                               

            Name:

            Title:

SOUTHERN EXPOSURE UNLIMITED OF FLORIDA, INC.

By:                                                                               

            Name:

            Title:

SE TOPS OF FLORIDA, INC.

By:                                                                               

            Name:

            Title: 

FSS HOLDING CORP.

By:                                                                               

            Name:

            Title:

SOUTHERN EXPOSURE HOLDINGS, INC.

By:                                                                               

            Name:

            Title: 

 

Page 22

 

 

 

SECURED PARTY:

TEXAS CAPITAL BANK, NATIONAL ASSOCIATION

By:                                                                               

            Ronald K. Baker

            Executive Vice President

 

 

 

 

Page 23

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