**Exhibit 10.16**

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**AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT**

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**THISAMENDED AND RESTATED LOAN AND SECURITY AGREEMENT** is made asof the 31st day of December, 2004 (“**Effective Date**”)by and between **FLEET CAPITAL CORPORATION** (**“Lender”**), a Rhode Island corporation with an office at 200Glastonbury Boulevard, Glastonbury, Connecticut 06033; **IWT TESORO CORPORATION,**a Nevadacorporation with its chief executive office and principal place of business atSuite 10, 191 Post Road West, Westport, Connecticut 06880; and **INTERNATIONAL WHOLESALE TILE, INC.**, aFlorida corporation with its chief executive office and principal place ofbusiness at 3500 S.W. 42nd Avenue, Palm City, Florida 34990 (collectively the **“Borrower”**), Capitalized terms used in this Agreement havethe meanings assigned to them in **Appendix A**,General Definitions. Accounting terms not otherwise specifically defined hereinshall be construed in accordance with GAAPconsistently applied.

 

WHEREAS,Lender and Borrower entered into a Loan and Security Agreement, dated September10, 2003, as amended by that certain First Amendment to Loan and SecurityAgreement dated February 19, 2004, as further amended by that certain SecondAmendment to Loan and Security Agreement dated March 22, 2004, and as furtheramended by that certain Third Amendment to Loan and Security Agreement datedOctober 7, 2004 (collectively the “Loan Agreement”); and

 

WHEREAS,Lender and Borrower desire to further amend the Loan Agreement, to, among otherthings, increase the Total Credit Facility;

 

NOW,THEREFORE, for good and valuable consideration, the receipt and sufficiency ofwhich is hereby acknowledged, Lender and Borrower agree to amend and restatethe Loan Agreement as follows:

 

**SECTION 1.****                                                                           ****CREDIT FACILITY**

 

Subject to the terms andconditions of, and in reliance upon the representations and warranties made in,this Agreement and the other Loan Documents, Lender agrees to make a TotalCredit Facility of up to $25,000,000 available upon Borrower’s requesttherefor, as follows:

 

**1.1****                               RevolvingCredit Loans**.

 

**1.1.1****                     Loansand Reserves.**  Lender agrees, forso long as no Default or Event of Default exists, to make Revolving CreditLoans to Borrower from time to time, as requested by Borrower in the manner setforth in **subsection 3.1.1** hereof, up to amaximum principal amount at any time outstanding equal to the Borrowing Base atsuch time minus the LC Amount and reserves, if any.  Lender shall have the right to establishreserves in such amounts, and with respect to such matters, as Lender shall deemnecessary or appropriate, against the amount of Revolving Credit Loans whichBorrower may otherwise request under this **subsection 1.1.1**,including, without limitation, with respect to **(i)**price adjustments, damages, unearned discounts, returned products or othermatters for which credit memoranda are issued in the ordinary course ofBorrower’s business; **(ii)** shrinkage,spoilage and obsolescence of Inventory; **(iii)** slowmoving Inventory; **(iv)** other sumschargeable against Borrower’s Loan Account as Revolving Credit Loans under anysection of this Agreement; (**v)** amountsowing by Borrower to any Person to the extent secured by a Lien on, or trustover, any Property of Borrower; and **(vi)** such othermatters, events, conditions or contingencies as to which Lender, in itsreasonable credit judgment, determines reserves should be established from timeto time hereunder. The Revolving Credit Loans shall be further evidenced by theRevolving Credit Note and shall be secured by all of the Collateral.

 

**1.1.2****                     Useof Proceeds.**  The RevolvingCredit Loans shall be used solely for the satisfaction of existing Indebtednessof Borrower to Congress Financial Corporation and for Borrower’s generalworking capital needs in a manner consistent with the provisions of this Agreementand all applicable laws.

 

**1.1.3**                     **Joint Facility.**  Borrower acknowledges and agrees that thecredit facility made pursuant to this Agreement is a joint credit facilityextended by Lender for the joint needs of IWT Tesoro Corporation andInternational Wholesale Tile, Inc. Each of IWT TesoroCorporation and International Wholesale Tile, Inc.

 

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acknowledgeand agree that their liability under this Agreement, the Revolving Credit Noteand the other Loan Documents in respect of the Obligations is joint and several.  IWT Tesoro Corporation and InternationalWholesale Tile, Inc. each acknowledge and agree that each of them receives abenefit from the extension of credit to the other as contemplated in thisAgreement and that in making Revolving Credit Loans under this Agreement,Lender has relied upon the agreements of IWT Tesoro Corporation andInternational Wholesale Tile, Inc. contained herein, including withoutlimitation their agreements to be jointly and severally liable for therepayment of the Obligations.

 

**1.2****                               Lettersof Credit; LC Guaranties**.  Lenderagrees, for so long as no Default or Event of Default exists and if requestedby Borrower, to **(i)** issue its, or cause to beissued its Affiliate’s, Letters of Credit for the account of Borrower or **(ii)** execute LC Guaranties by which Lender or its Affiliateshall guaranty the payment or performance by Borrower of its reimbursementobligations with respect to Letters of Credit and letters of credit issued forBorrower’s account by other Persons in support of Borrower’s obligations (otherthan obligations for the repayment of Money Borrowed), provided that theLC Amount at any time shall not exceed $8,000,000. No Letter of Credit or LCGuarantee may have an expiration date that is later than thirty (30) days priorto the last day of the Original Term or the then applicable Original Term. Any amounts paid byLender under any LC Guaranty or in connection with any Letter of Credit shallbe treated as Revolving Credit Loans, shall be secured by all of the Collateraland shall bear interest and be payable at the same rate and in the same manneras Revolving Credit Loans.

 

**1.3****                               OveradvanceFacility**.  Notwithstandingthe provisions of Section 1.1.1.  hereof,Borrower may from time to time request Revolving Credit Loans which exceed theavailable Borrowing Base, but which, in addition to all Revolving Loans andObligations does not exceed the Total Credit Facility.  Lender agrees, for so long as no Default orEvent of Default exists and if requested by Borrower until the earlier of thedate of receipt by Borrower of the Equity Injection or June 30, 2005, to permitan Overadvance of not more than $500,000 (“Overadvance Limit”).  Borrower agrees that, notwithstanding theexistence of any Availability, the first $500,000 extended to Borrower abovethe outstanding balance after the Effective Date will be deemed an Overadvance.

 

**SECTION 2.****                                                                            INTEREST,  FEES AND CHARGES**

 

**2.1****                               Interest**.

 

**2.1.1****                     Ratesof Interest.**  Interest shallaccrue on the Revolving Credit Loans in accordance with the terms of theRevolving Credit Note. Interest shall accrue on the principal amount of theBase Rate Advances outstanding at the end of each day at a fluctuating rate perannum equal to 0.50% plus the Base Rate. Interest shall accrue on theprincipal amount of each of the LIBOR Advances outstanding at the end of eachday at a fixed rate per annum equal to 3.00% plus the LIBOR for the applicableInterest Period. The rate of interest applicable to Base Rate Advances shallincrease or decrease by an amount equal to any increase or decrease in the BaseRate, effective as of the opening of business on the day that any such changein the Base Rate occurs.  Interest shallaccrue on the principal amount of the Base Rate Overadvance outstanding at theend of each day at a fluctuating rate per annum equal to 2.00% plus theBase Rate. Interest shall accrue on the principal amount of each of the LIBOROveradvance outstanding at the end of each day at a fixed rate per annum equalto 4.50% plus the LIBOR for the applicable Interest Period.

 

**2.1.2****                     DefaultRate of Interest.**  Upon and afterthe occurrence of an Event of Default, and during the continuation thereof, theprincipal amount of all Loans shall bear interest at a rate per annum equal to5% above the interest rate otherwise applicable thereto (the **“Default Rate”**).

 

**2.1.3****                     MaximumInterest.**  In no event whatsoevershall the aggregate of all amounts deemed interest under the Revolving CreditNote and charged or collected pursuant to the terms of this Agreement exceedthe highest rate permissible under any law which a court of competentjurisdiction shall, in a final determination, deem applicable hereto. If anyprovisions of this Agreement are in contravention of any such law, suchprovisions shall be deemed amended to conform thereto.

 

**2.2**                               **Computation of Interest and Fees**.  Interest, Letter of Credit and LC Guarantyfees and unused line fees and collection charges hereunder shall be calculateddaily and shall be computed on the actual number of

 

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days elapsed over a year of 360days. For the purpose of computing interest hereunder, all items of paymentreceived by Lender shall be deemed applied by Lender on account of theObligations (subject to final payment of such items) on the second Business Dayafter receipt by Lender of such items in Lender’s account located in Hartford,Connecticut.

 

**2.3****                               Closing Fee. Borrower has paid to Lender a closing fee of $85,000.00, which was fullyearned and nonrefundable**on the Closing Date.  Borrower shall pay an additional closing feeof $25,000.00 which shall be fully earned and nonrefundable on the EffectiveDate.

 

**2.4****                               Letterof Credit and LC Guaranty Fees**. Borrower shall pay to Lender:

 

**(i)**                                    for standby Lettersof Credit and LC Guaranties of standby Letters of Credit, 3% per annum of theaggregate face amount of such Letters of Credit and LC Guaranties outstandingfrom time to time during the term of this Agreement, plus all normal andcustomary charges associated with the issuance thereof, which fees and chargesshall be deemed fully earned upon issuance of each such Letter of Credit or LCGuaranty, shall be due and payable on the first Business Day of each month andshall not be subject to rebate or proration upon the termination of thisAgreement for any reason; and

 

**(ii)**                                for documentary Lettersof Credit and LC Guaranties of documentary Letters of Credit, a fee equal to..5% per annum of the face amount of each such Letter of Credit or LC Guaranty,payable upon the issuance of such Letter of Credit or execution of such LCGuaranty and an additional fee equal to .5% per annum of the face amount ofsuch Letter of Credit or LC Guaranty payable upon each renewal thereof and eachextension thereof plus the normal and customary charges associated withthe issuance and administration of each such Letter of Credit or LC Guaranty(which fees and charges shall be fully earned upon issuance, renewal orextension (as the case may be) of each such Letter of Credit or LC Guaranty,shall be due and payable on the first Business Day of each month, and shall notbe subject to rebate or proration upon the termination of this Agreement forany reason).

 

**2.5****                               UnusedLine Fee**.  Borrower shall pay toLender a fee equal to 0.375% per annum of the average monthly amount of theunused portion of the Total Credit Facility. The unused line fee shall bepayable monthly in arrears on the first day of each calendar month hereafter.

 

**2.6****                               CollectionCharges**.  If items of payment arereceived by Lender at a time when there are no Revolving Credit Loansoutstanding, such items of payment shall be subject to a collection chargeequal to any and all out-of-pocket costs incurred by Lender, which collectioncharges shall be payable on the first Business Day of each month.

 

**2.7**                               **Audit and Appraisal Fees**.  Borrower shall pay to Lender audit andappraisal fees in accordance with Lender’s current schedule of fees in effectfrom time to time in connection with audits and appraisals of Borrower’s booksand records and such other matters as Lender shall deem appropriate, plus allout-of-pocket expenses incurred by Lender in connection with such audits andappraisals; provided, that Borrower shall not be obligated to pay anysuch audit fees in excess of $850.00 per day, per person conducting such auditor appraisal, plus any and all related expenses, during any fiscal year inwhich no Default or Event of Default shall have occurred. Audit fees shall bepayable on the first day of the month following the date of issuance by Lenderof a request for payment thereof to Borrower.

 

**2.8****                               Reimbursementof Expenses**.  If, at any time ortimes regardless of whether or not an Event of Default then exists, Lender orany Participating Lender incurs legal or accounting expenses or any other costsor out-of-pocket expenses in connection with **(i)**the negotiation and preparation of this Agreement or any of the other LoanDocuments, any amendment of or modification of this Agreement or any of theother Loan Documents, or any sale or attempted sale of any interest herein to aParticipating Lender; **(ii)** theadministration of this Agreement or any of the other Loan Documents and thetransactions contemplated hereby and thereby; **(iii)**any litigation, contest, dispute, suit, proceeding or action (whetherinstituted by Lender, Borrower or any other Person) in any way relating to theCollateral, this Agreement or any of the other Loan Documents or Borrower’saffairs; **(iv)** any attempt to

 

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enforce any rights of Lender or any Participating Lender againstBorrower or any other Person which may be obligated to Lender by virtue of thisAgreement or any of the other Loan Documents, including, without limitation,the Account Debtors; or **(v)** any attemptto inspect, verify, protect, preserve, restore, collect, sell, liquidate orotherwise dispose of or realize upon the Collateral; then all such legal andaccounting expenses, other costs and out of pocket expenses of Lender shall becharged to Borrower. All amounts chargeable to Borrower under this **Section 2.8** shall be Obligations secured by all of theCollateral, shall be payable on demand to Lender or to such ParticipatingLender, as the case may be, and shall bear interest from the date such demandis made until paid in full at the rate applicable to Base Rate Advances fromtime to time. Borrower shall also reimburse Lender for expenses incurred byLender in its administration of the Collateral to the extent and in the mannerprovided in **Section 6** hereof.

 

**2.9****                               BankCharges**.  Borrower shall pay toLender, on demand, any and all fees, costs or expenses which Lender or anyParticipating Lender pays to a bank or other similar institution (including,without limitation, any fees paid by Lender to any Participating Lender)arising out of or in connection with **(i)** theforwarding to Borrower or any other Person on behalf of Borrower, by Lender orany Participating Lender, of proceeds of loans made by Lender to Borrowerpursuant to this Agreement and **(ii)** thedepositing for collection, by Lender or any Participating Lender, of any checkor item of payment received or delivered to Lender or any Participating Lenderon account of the Obligations.

 

**SECTION 3.****                                                                            LOANADMINISTRATION**

 

**3.1****                               Mannerof Borrowing Revolving Credit Loans**. Borrowings under the credit facility established pursuant to **Section 1** hereof shall be as follows:

 

**3.1.1****                     LoanRequests.**  A request for aRevolving Credit Loan shall be made, or shall be deemed to be made, in thefollowing manner: **(i)** Borrowermay give Lender notice of its intention to borrow, in which notice Borrowershall specify the amount of the proposed borrowing and the proposed borrowingdate, no later than 11:00 a.m. Connecticut time on the proposed borrowing date,provided, however, that no such request may be made at a time when thereexists a Default or an Event of Default; and **(ii)**the becoming due of any amount required to be paid under this Agreement,whether as interest or for any other Obligation, shall be deemed irrevocably tobe a request for a Revolving Credit Loan on the due date in the amount requiredto pay such interest or other Obligation. As an accommodation to Borrower,Lender may permit facsimile or electronic requests for loans and electronictransmittal of instructions, authorizations, agreements or reports to Lender byBorrower. Unless Borrower specifically directs Lender in writing not to acceptor act upon facsimile or electronic communications from Borrower, Lender shallhave no liability to Borrower for any loss or damage suffered by Borrower as aresult of Lender’s honoring of any requests, execution of any instructions,authorizations or agreements or reliance on any reports communicated to it byfacsimile or electronically and purporting to have been sent to Lender byBorrower and Lender shall have no duty to verify the origin of any suchcommunication or the authority of the person sending it.

 

**3.1.2****                     Disbursement.**  Borrower hereby irrevocably authorizes Lenderto disburse the proceeds of each Revolving Credit Loan requested, or deemed tobe requested, pursuant to this **subsection 3.1.2**as follows: **(i)** the proceeds of each RevolvingCredit Loan requested under **subsection 3.1.1(i)**shall be disbursed by Lender in lawful money of the United States of America inimmediately available funds, in the case of the initial borrowing, inaccordance with the terms of the written disbursement letter from Borrower, andin the case of each subsequent borrowing, by wire transfer to such bank accountas may be agreed upon by Borrower and Lender from time to time or elsewhere ifpursuant to a written direction from Borrower; and **(ii)**the proceeds of each Revolving Credit Loan requested under **subsection3.1.1(ii)** shall be disbursed by Lender by way of direct payment ofthe relevant interest or other Obligation.

 

**3.1.3****                     Authorization.**  Borrower hereby irrevocably authorizesLender, in Lender’s sole discretion, to advance to Borrower, and to charge toBorrower’s Loan Account hereunder as a Base Rate Advance, a sum sufficient topay all interest accrued on the Obligations during the immediately precedingmonth and to pay all costs, fees and expenses at any time owed by Borrower toLender hereunder.

 

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**3.1.4****                     LIBORAdvances. **Notwithstanding theprovisions of subsection 3.1.1, in the event Borrower desires to obtain a LIBORAdvance or LIBOR Overadvance, Borrower shall give Lender prior, written,irrevocable notice no later than 11:00 A.M. Hartford, Connecticut Time on the2nd Business Day prior to the requested borrowing date specifying (i) Borrower’selection to obtain a LIBOR Advance or LIBOR Overadvance, (ii) the date of theproposed borrowing (which shall be a Business Day) and (iii) the amount to beborrowed, which amount shall be in a minimum principal amount of $1,000,000 andmay increase in integral multiples of $250,000. In no event shall Borrower bepermitted to have outstanding at any one time LIBOR Advances or LIBOROveradvances with more than three (3) different Interest Periods.

 

**3.1.5**                     **Conversion of Base Rate Advances.**  Provided that no Default has occurred whichis then continuing, Borrower may, on any Business Day, convert any Base RateAdvance or Base Rate Overadvance into a LIBOR Advance or LIBOR Overadvance,respectively. If Borrower desires to convert a Base Rate Advance or Base RateOveradvance, Borrower shall give Lender not less than two (2) Business Days’prior written notice (prior to 11:00 A.M. Hartford, Connecticut Time on suchBusiness Day), specifying the date of such conversion and the amount to be converted.Each conversion into or conversion of a LIBOR Advance or LIBOR Overadvanceshall be in a minimum principal amount of $1,000,000 and may increase inintegral multiples of $250,000 in excess thereof. After giving effect to anyconversion of Base Rate Advances to LIBOR Advances or Base Rate Overadvances toLIBOR Overadvances, Borrower shall not be permitted to have outstanding at anyone time LIBOR Advances and LIBOR Overadvances with more than three (3)different Interest Periods.

 

**3.1.6****                     Continuationof LIBOR Advances.**  Borrowershall have the right on two (2) Business Days’ prior irrevocable written noticegiven to Lender by Borrower (prior to 11:00 A.M. Hartford, Connecticut Time onsuch Business Day), subject to the provisions hereof, to continue any LIBORAdvance into a subsequent Interest Period of the same or a different permittedduration, in each case subject to the satisfaction of the following conditions:

 

**(i)**                                    inthe case of a continuation of less than all LIBOR Advances, the LIBOR Advancescontinued shall each be in a minimum principal amount of $1,000,000 and mayincrease in integral multiples of $250,000; and

 

**(ii)**                                no LIBOR Advance (or portion thereof) may be continued as aLIBOR Advance if a Default has occurred which is then continuing or if, aftergiving effect to such continuation, Borrower shall have outstanding more thanthree (3) separate LIBOR Advances in the aggregate.

 

If Borrower shall fail togive timely notice of its election to continue any LIBOR Advance or portionthereof as provided above, or if such continuation shall not be permitted, suchLIBOR Advance or portion thereof, unless such LIBOR Advance shall be repaid,shall automatically be converted into a Base Rate Advance at the end of theInterest Period then in effect with respect to such LIBOR Advance.

 

**3.1.7****                     Inabilityto Make LIBOR Advances.** Notwithstanding any other provision hereof, if any applicable law,treaty, regulation or directive, or any change therein or in the interpretationor application thereof, shall make it unlawful for Lender (for purposes of this**subsection 3.1.7**, the term **“Lender”** shall include the office or branch where Lender orany corporation or bank then controlling any Lender makes or maintains anyLIBOR Advances) to make or maintain its LIBOR Advances or LIBOR Overadvances,or if with respect to any Interest Period, Lender is unable to determine theLIBOR relating thereto, or adverse or unusual conditions in, or changes inapplicable law relating to, the London interbank market make it, in the reasonablejudgment of Lender, impracticable to fund therein any of the LIBOR Advances, ormake the projected LIBOR unreflective of the actual costs of funds therefor toLender, the obligation of Lender to make LIBOR Advances or LIBOR Overadvanceshereunder shall forthwith be suspended during the pendency of suchcircumstances and Borrower shall, if any affected LIBOR Advances or LIBOROveradvances are then outstanding, promptly upon request from Lender, convertsuch affected LIBOR Advances or LIBOR Overadvances into Base Rate Advances.

 

**3.2****                               Payments**.  Except where evidenced by notes or otherinstruments issued or made by Borrower to Lender specifically containingpayment provisions which are in conflict with this **Section 3.2**(in which event the

 

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conflicting provisions of saidnotes or other instruments shall govern and control), the Obligations shall bepayable as follows:

 

**3.2.1****                     Principal.**  Principal payable on account of RevolvingCredit Loans shall be payable by Borrower to Lender immediately upon theearliest of **(i)** the receipt by Lender orBorrower of any proceeds of any of the Collateral to the extent of saidproceeds, **(ii)** the occurrence of an Event ofDefault in consequence of which Lender elects to accelerate the maturity andpayment of the Obligations, or **(iii)**termination of this Agreement pursuant to **Section 4**hereof; provided, however, that if an Overadvance shall exist atany time, Borrower shall, on demand, repay the Overadvance. Each payment (includingprincipal prepayment) by Borrower on account of principal of the RevolvingCredit Loans shall be applied first to Base Rate Advances, then to LIBORAdvances.

 

**3.2.2****                     Interest.**  Interest accrued on the Revolving CreditLoans shall be due on the earliest of **(i)** the firstcalendar day of each month (for the immediately preceding month), computedthrough the last calendar day of the preceding month, **(ii)**the occurrence of an Event of Default in consequence of which Lender elects toaccelerate the maturity and payment of the Obligations or **(iii)**termination of this Agreement pursuant to **Section 4**hereof.

 

**3.2.3**                     **Costs, Fees and Charges.**  Costs, fees and charges payable pursuant tothis Agreement shall be payable by Borrower as and when provided in **Section 2** hereof, to Lender or to any other Persondesignated by Lender in writing.

 

**3.2.4**                     **Other Obligations.**  The balance of the Obligations requiring thepayment of money, if any, shall be payable by Borrower to Lender as and whenprovided in this Agreement, the Other Agreements or the Security Documents, oron demand, whichever is later.

 

**3.2.5**                     **Prepayment of LIBOR Advances.**  Borrower may prepay a LIBOR Advance only uponat least three (3) Business Days prior written notice to Lender (which noticeshall be irrevocable), and any such prepayment shall occur only on the last dayof the Interest Period for such LIBOR Advance. Borrower shall pay to Lender,upon request of Lender, such amount or amounts as shall be sufficient (in thereasonable opinion of Lender) to compensate Lender for any loss, cost, orexpense incurred as a result of:  **(i)** any payment of a LIBOR Advance on a date other than thelast day of the Interest Period for such Loan; **(ii)**any failure by Borrower to borrow a LIBOR Advance on the date specified by Borrower’swritten notice; or (iii) any failure by Borrower to pay a LIBOR Advance on thedate for payment specified in Borrower’s written notice. Without limiting theforegoing, Borrower shall pay to Lender a “yield maintenance fee” in an amountcomputed as follows:  the current ratefor United States Treasury securities (bills on a discounted basis shall beconverted to a bond equivalent) with a maturity date closest to the InterestPeriod chosen pursuant to the LIBOR Advance as to which the prepayment is made,shall be subtracted from the LIBOR in effect at the time of prepayment. If theresult is zero or a negative number, there shall be no yield maintenance fee.If the result is a positive number, then the resulting percentage shall bemultiplied by the amount of the principal balance being prepaid. The resultingamount shall be divided by 360 and multiplied by the number of days remainingin the Interest Period chosen pursuant to the LIBOR Advance as to which theprepayment is made. Said amount shall be reduced to present value calculated byusing the above referenced United States Treasury securities rate and thenumber of days remaining in the term chosen pursuant to the LIBOR Advance as towhich prepayment is made. The resulting amount shall be the yield maintenancefee due to Lender upon the prepayment of a LIBOR Advance. If by reason of anEvent of Default, Lender elects to declare the Obligations to be immediatelydue and payable, then any yield maintenance fee with respect to a LIBOR Advanceshall become due and payable in the same manner as though the Borrower hadexercised such right of prepayment.

 

**3.3****                               MandatoryPrepayments**.

 

**3.3.1****                     Proceedsof Sale, Loss, Destruction or Condemnation of Collateral**.  Except as provided in **subsection6.4.2**hereof, if Borrower sells any Collateral or, if any of theCollateral is lost or destroyed or taken by condemnation, Borrower shall pay toLender, unless otherwise agreed by Lender, as and when

 

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received by Borrower and as a mandatory prepayment of the RevolvingLoan, a sum equal to the proceeds (including insurance payments) received byBorrower from such sale, loss, destruction or condemnation.

 

**3.4****                               Applicationof Payments and Collections**.  Allitems of payment received by Lender by 12:00 noon, Connecticut time, on anyBusiness Day shall be deemed received on that Business Day. All items ofpayment received after 12:00 noon, Connecticut time, on any Business Day shallbe deemed received on the following Business Day. Borrower irrevocably waivesthe right to direct the application of any and all payments and collections atany time or times hereafter received by Lender from or on behalf of Borrower,and Borrower does hereby irrevocably agree that Lender shall have thecontinuing exclusive right to apply and reapply any and all such payments andcollections received at any time or times hereafter by Lender or its agentagainst the Obligations, in such manner as Lender may deem advisable,notwithstanding any entry by Lender upon any of its books and records. If asthe result of collections of Accounts as authorized by **subsection6.2.6** hereof a credit balance exists in the Loan Account, suchcredit balance shall not accrue interest in favor of Borrower, but shall beavailable to Borrower at any time or times for so long as no Default or Eventof Default exists.

 

**3.5****                               AllLoans to Constitute One Obligation**. The Loans and LC Guaranties shall constitute one general Obligation ofBorrower, and shall be secured by Lender’s Lien upon all of the Collateral.

 

**3.6****                               LoanAccount**.  Lender shall enter allLoans as debits to the Loan Account and shall also record in the Loan Accountall payments made by Borrower on any Obligations and all proceeds of Collateralwhich are finally paid to Lender, and may record therein, in accordance withcustomary accounting practice, other debits and credits, including interest andall charges and expenses properly chargeable to Borrower.

 

**3.7****                               Statementsof Account**.  Lender will accountto Borrower monthly with a statement of Loans, charges and payments madepursuant to this Agreement, and such account rendered by Lender shall be deemedfinal, binding and conclusive upon Borrower unless Lender is notified byBorrower in writing to the contrary within thirty (30) days of the date eachaccounting is mailed to Borrower. Such notice shall only be deemed an objectionto those items specifically objected to therein.

 

**3.8****                               IncreasedCosts**.  If any law or anygovernmental or quasi-governmental rule, regulation, policy, guideline ordirective (whether or not having the force of law) adopted after the date ofthis Agreement and having general applicability to all banks within thejurisdiction in which Lender operates (excluding, for the avoidance of doubt,the effect of and phasing in of capital requirements or other regulations orguidelines passed prior to the date of this Agreement), or any interpretationor application thereof by any governmental authority charged with theinterpretation or application thereof, or the compliance of Lender therewith,shall:

 

**(i)**                                    **(1)**                                 subjectLender to any tax with respect to this Agreement (other than any tax based onor measured by net income or otherwise in the nature of a net income tax), or **(2)** change the basis of taxation of payments to Lender ofprincipal, fees, interest or any other amount payable hereunder or under anyLoan Documents (other than in respect of any tax based on or measured by netincome or otherwise in the nature of a net income tax;

 

**(ii)**                                impose,modify or hold applicable any reserve (except any reserve taken into account inthe determination of the applicable LIBOR), special deposit, assessment orsimilar requirement against assets held by, or deposits in or for the accountof, advances or loans by, or other credit extended by, any office of Lender,including (without limitation) pursuant to Regulation D of the Board ofGovernors of the Federal Reserve System; or

 

**(iii)**                            impose on Lender or the London interbank market any othercondition with respect to any Loan Document;

 

and the result of any ofthe foregoing is to increase the cost to Lender of making, renewing ormaintaining Loans hereunder by an amount that Lender deems to be material or toreduce the amount of any payment (whether of principal, interest or otherwise)in respect of any of the Loans by an amount that Lender deems to be material,then, in any such case, Borrower shall pay Lender, upon demand andcertification not later than sixty (60) days following

 

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its receipt of notice ofthe imposition of such increased costs, such additional amount as willcompensate Lender for such additional cost or such reduction, as the case maybe, to the extent Lender has not otherwise been compensated, with respect to aparticular Loan, for such increased cost as a result of an increase in the BaseRate or the LIBOR. An officer of Lender shall determine the amount of suchadditional cost or reduced amount using reasonable averaging and attributionmethods and shall certify the amount of such additional cost or reduced amountto Borrower, which certification shall include a written explanation of suchadditional cost or reduction to Borrower. Such certification shall be conclusive absent manifest error. If Lenderclaims any additional cost or reduced amount pursuant to this **Section 3.8**, then Lender shall use reasonable efforts(consistent with legal and regulatory restrictions) to designate a differentlending office or to file any certificate or document reasonably requested byBorrower if the making of such designation or filing would avoid the need for,or reduce the amount of, any such additional cost or reduced amount and wouldnot, in the sole discretion of Lender, be otherwise disadvantageous to Lender.

 

**3.9****                               Basisfor Determining Interest Rate Inadequate or Unfair**.  In the event that Lender shall havedetermined that:

 

**(i)**                                    reasonable means do not exist for ascertaining the LIBOR forany Interest Period; or

 

**(ii)**                                Dollardeposits in the relevant amount and for the relevant maturity are not availablein the London interbank market with respect to a proposed LIBOR Advance, or aproposed conversion of a Base Rate Advance into a LIBOR Advance; then

 

Lender shall giveBorrower prompt written, telephonic or electronic notice of the determinationof such effect. If such notice is given, (i) any such requested LIBOR Advanceshall be made as a Base Rate Advance, unless Borrower shall notify Lender nolater than 10:00 A.M. (Hartford, Connecticut Time) two (2) Business Days prior tothe date of such proposed borrowing that the request for such borrowing shallbe canceled or made as an unaffected type of LIBOR Advance, and (ii) any BaseRate Advance which was to have been converted to an affected type of LIBORAdvance shall be continued as or converted into a Base Rate Advance, or, ifBorrower shall notify Lender, no later than 10:00 A.M. (Hartford, ConnecticutTime) two (2) Business Days prior to the proposed conversion, shall bemaintained as an unaffected type of LIBOR Advance.

 

**SECTION 4.****                                                                            TERMAND TERMINATION**

 

**4.1****                               Termof Agreement**.  Subject to Lender’sright to cease making Loans to Borrower upon or after the occurrence of anyDefault or Event of Default, this Agreement shall be in effect for a period ofthree (3) years from the Closing Date, through and including September 10, 2006(the **“Term”**)**.**

 

**4.2****                               Termination**.

 

**4.2.1****                     Terminationby Lender.**  Lender may terminatethis Agreement, without notice, upon or after the occurrence of an Event ofDefault.

 

**4.2.2****                     Terminationby Borrower.**  Upon at leastninety (90) days prior written notice to Lender, Borrower may, at its option,terminate this Agreement; provided, however, no such terminationshall be effective until Borrower has paid all of the Obligations inimmediately available funds and all Letters of Credit and LC Guaranties haveexpired or have been cash collateralized to Lender’s satisfaction. Any noticeof termination given by Borrower shall be irrevocable unless Lender otherwiseagrees in writing, and Lender shall have no obligation to make any Loans orissue or procure any Letters of Credit or LC Guaranties on or after thetermination date stated in such notice. Borrower may elect to terminate thisAgreement in its entirety only. No section of this Agreement or type of Loanavailable hereunder may be terminated singly.

 

**4.2.3****                     TerminationCharges.**  At the effective dateof termination of this Agreement for any reason, Borrower shall pay to Lender(in addition to the then outstanding principal, accrued interest and othercharges owing under the terms of this Agreement and any of the other LoanDocuments) as liquidated damages for

 

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the loss of the bargain and not as a penalty, an amount equal to 2% ofthe Total Credit Facility if termination occurs during the first twelve-monthperiod of the Term (September 10, 2003 through September 10, 2004); 1% of theTotal Credit Facility if termination occurs during the second 12-month periodof the Term (September 11, 2004 through September 10, 2005). If terminationoccurs after September 10, 2005, no termination charge shall be payable.

 

**4.2.4****                     Effectof Termination.**  All of theObligations shall be immediately due and payable upon the termination datestated in any notice of termination of this Agreement. All undertakings,agreements, covenants, warranties and representations of Borrower contained inthe Loan Documents shall survive any such termination and Lender shall retainits Liens in the Collateral and all of its rights and remedies under the LoanDocuments notwithstanding such termination until Borrower has paid theObligations to Lender, in full, in immediately available funds, together withthe applicable termination charge, if any. Notwithstanding the payment in fullof the Obligations, Lender shall not be required to terminate its securityinterests in the Collateral unless, with respect to any loss or damage Lendermay incur as a result of dishonored checks or other items of payment receivedby Lender from Borrower or any Account Debtor and applied to the Obligations,Lender shall, at its option, **(i)** havereceived a written agreement, executed by Borrower and by any Person whoseloans or other advances to Borrower are used in whole or in part to satisfy theObligations, indemnifying Lender from any such loss or damage; or **(ii)** have retained such monetary reserves and Liens on theCollateral for such period of time as Lender, in its reasonable discretion, maydeem necessary to protect Lender from any such loss or damage.

 

**SECTION 5.****                                                                            SECURITYINTERESTS**

 

**5.1****                               SecurityInterest in Collateral**.  Tosecure the prompt payment and performance to Lender of the Obligations,Borrower hereby grants to Lender a continuing Lien upon all of Borrower’sassets, including all of the following Property and interests in Property ofBorrower, whether now owned or existing or hereafter created, acquired orarising and wheresoever located:

 

**(i)**                                    Accounts;

 

**(ii)**                                CertificatedSecurities, excluding the stock of International Wholesale Tile, Inc. and theGuarantors;

 

**(iii)**                            ChattelPaper;

 

**(iv)**                               ComputerHardware and Software and all rights with respect thereto, including, any andall licenses, options, warranties, service contracts, program services, testrights, maintenance rights, support rights, improvement rights, renewal rightsand indemnifications, and any substitutions, replacements, additions or modelconversions of any of the foregoing;

 

**(v)**                                   ContractRights;

 

**(vi)**                               Deposit Accounts;

 

**(vii)**                           Documents;

 

**(viii)**                       Equipment;

 

**(ix)**                              FinancialAssets;

 

**(x)****                                 **Fixtures;

 

**(xi)****                             **GeneralIntangibles, including Payment Intangibles and Software;

 

**(xii)**                          Goods(including all of its Equipment and Fixtures), and all accessions, additions,attachments, improvements, substitutions and replacements thereto and therefor;

 

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**(xiii)**                      Health-Care-InsuranceReceivables;

 

**(xiv)**                         Instruments;

 

**(xv)**                             IntellectualProperty;

 

**(xvi)**                         Inventory;

 

**(xvii)**                     InvestmentProperty;

 

**(xviii)**                 money (of every jurisdiction whatsoever);

 

**(xix)**                        Letter-of-CreditRights;

 

**(xx)**                            PaymentIntangibles;

 

**(xxi)**                        SecurityEntitlements;

 

**(xxii)**                    SupportingObligations;

 

**(xxiii)**                UncertificatedSecurities; and

 

**(xxiv)**                   to the extent not included in the foregoing, all otherpersonal property of any kind or description;

 

together with all books, records,writings, data bases, information and other property relating to, used oruseful in connection with, or evidencing, embodying, incorporating or referringto any of the foregoing, and all Proceeds, products, offspring, rents, issues,profits and returns of and from any of the foregoing; provided that to theextent that the provisions of any lease or license of Computer Hardware andSoftware or Intellectual Property expressly prohibit (which prohibition isenforceable under applicable law) any assignment thereof, and the grant of asecurity interest therein, Lender will not enforce its security interest inBorrower’s rights under such lease or license (other than in respect of theProceeds thereof) for so long as such prohibition continues, it being understoodthat upon request of Lender, Borrower will in good faith use reasonable effortsto obtain consent for the creation of a security interest in favor of Lender(and to Lender’s enforcement of such security interest) in such Lender’s rightsunder such lease or license.

 

**5.2****                               OtherCollateral**.

 

**5.2.1**                     **Commercial Tort Claims**.  Borrower shall promptly notify Lender inwriting upon incurring or otherwise obtaining a Commercial Tort Claim after theClosing Date against any third party and, upon request of Lender, promptlyenter into an amendment to this Agreement and do such other acts or thingsdeemed appropriate by Lender to give Lender a security interest in any suchCommercial Tort Claim.

 

**5.2.2****                     OtherCollateral**.  Borrower shallpromptly notify Lender in writing upon acquiring or otherwise obtaining anyCollateral after the date hereof consisting of Deposit Accounts, InvestmentProperty, Letter-of-Credit Rights or Electronic Chattel Paper and, upon therequest of Lender, promptly execute such other documents, and do such otheracts or things deemed appropriate by Lender to deliver to Lender control withrespect to such Collateral; promptly notify Lender in writing upon acquiring orotherwise obtaining any Collateral after the date hereof consisting of Documentsor Instruments and, upon the request of Lender, will promptly execute suchother documents, and do such other acts or things deemed appropriate by Lenderto deliver to Lender possession of such Documents which are negotiable andInstruments, and, with respect to nonnegotiable Documents, to have suchnonnegotiable Documents issued in the name of Lender; and with respect toCollateral in the possession of a third

 

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party,other than Certificated Securities and Goods covered by a Document and obtainan acknowledgement from the third party that it is holding the Collateral forthe benefit of Lender.

 

**5.3****                               LienPerfection; Further Assurances**. Borrower shall execute such UCC-1 financing statements as are requiredby the UCC and such other instruments, assignments or documents as arenecessary to perfect Lender’s Lien upon any of the Collateral and shall takesuch other action as may be required to perfect or to continue the perfectionof Lender’s Lien upon the Collateral. Unless prohibited by applicable law,Borrower hereby irrevocably authorizes Lender to execute and file any suchfinancing statements, including, without limitation, financing statements thatindicate the Collateral **(i)** as allassets of Borrower or words of similar effect, or **(ii)**as being of an equal or lesser scope, or with greater or lesser detail, than asset forth in **Section 5.1**, on Borrower’sbehalf.  Borrower also hereby ratifiesits authorization for Lender to have filed in any jurisdiction any likefinancing statements or amendments thereto if filed prior to the date hereof.The parties agree that a photographic or other reproduction of this Agreementshall be sufficient as a financing statement and may be filed in anyappropriate office in lieu thereof. At Lender’s request, Borrower shall alsopromptly execute or cause to be executed and shall deliver to Lender any andall documents, instruments and agreements deemed necessary by Lender to giveeffect to or carry out the terms or intent of the Loan Documents.

 

**SECTION 6.****                                                                            COLLATERALADMINISTRATION**

 

**6.1****                               General**

 

**6.1.1****                     Locationof Collateral.**  All Collateral,other than Inventory in transit and motor vehicles, will at all times be keptby Borrower and its Subsidiaries at one or more of the business locations setforth in **Exhibit C** hereto and shall not, withoutthe prior written approval of Lender, be moved therefrom except, prior to anEvent of Default and Lender’s acceleration of the maturity of the Obligationsin consequence thereof, for **(i)** sales ofInventory in the ordinary course of business; and **(ii)**removals in connection with dispositions of Equipment that are authorized by **subsection 6.4.2** hereof.

 

**6.1.2****                     Insuranceof Collateral.**  Borrower shallmaintain and pay for credit insurance upon Eligible Extended Term Accounts andinsurance upon all Collateral wherever located and with respect to Borrower’sbusiness, covering casualty, hazard, public liability and such other risks insuch amounts and with such insurance companies as are reasonably satisfactoryto Lender. Borrower shall deliver the originals of such policies to Lender withsatisfactory lender’s loss payable endorsements, naming Lender as sole losspayee, assignee or additional insured, as appropriate. Each policy of insuranceor endorsement shall contain a clause requiring the insurer to give not lessthan thirty (30) days prior written notice to Lender in the event ofcancellation of the policy for any reason whatsoever and a clause specifyingthat the interest of Lender shall not be impaired or invalidated by any act orneglect of Borrower or the owner of the Property or by the occupation of thepremises for purposes more hazardous than are permitted by said policy. If Borrower fails to provide and pay for such insurance (including,without limitation, the credit insurance), Lender may, at its option, but shallnot be required to, procure the same and charge Borrower therefor.Borrower agrees to deliver to Lender, promptly as rendered, true copies of allreports made in any reporting forms to insurance companies.

 

**6.1.3****                     Protectionof Collateral.**  All expenses ofprotecting, storing, warehousing, insuring, handling, maintaining and shippingthe Collateral, any and all excise, property, sales, and use taxes imposed byany state, federal, or local authority on any of the Collateral or in respectof the sale thereof shall be borne and paid by Borrower. If Borrower fails topromptly pay any portion thereof when due, Lender may, at its option, but shallnot be required to, pay the same and charge Borrower therefor. Lender shall notbe liable or responsible in any way for the safekeeping of any of theCollateral or for any loss or damage thereto (except for reasonable care in thecustody thereof while any Collateral is in Lender’s actual possession) or forany diminution in the value thereof, or for any act or default of anywarehouseman, carrier, forwarding agency, or other person whomsoever, but thesame shall be at Borrower’s sole risk.

 

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**6.2****                               Administrationof Accounts**.

 

**6.2.1****                     Records,Schedules and Assignments of Accounts.** Borrower shall keep accurate and complete records of its Accounts andall payments and collections thereon and shall submit to Lender on suchperiodic basis as Lender shall request a sales and collections report for thepreceding period, in form satisfactory to Lender. In addition, if Accounts inan aggregate face amount in excess of $100,000.00 become ineligible becausethey fall within one of the specified categories of ineligibility set forth inthe definition of Eligible Accounts or otherwise established by Lender,Borrower shall notify Lender of such occurrence on the first Business Dayfollowing such occurrence and the Borrowing Base shall thereupon be adjusted toreflect such occurrence. If requested by Lender, Borrower shall execute anddeliver to Lender formal written assignments of all of its Accounts weekly ordaily, which shall include all Accounts that have been created since the dateof the last assignment, together with copies of invoices or invoice registersrelated thereto.

 

**6.2.2****                     Discounts,Allowances, Disputes.**  IfBorrower grants any discounts, allowances or credits that are not shown on theface of the invoice for the Account involved, Borrower shall report suchdiscounts, allowances or credits, as the case may be, to Lender as part of thenext required Schedule of Accounts. If any amounts due and owing in excess of$100,000.00 are in dispute between Borrower and any Account Debtor, Borrowershall provide Lender with written notice thereof at the time of submission ofthe next Schedule of Accounts, explaining in detail the reason for the dispute,all claims related thereto and the amount in controversy.  Upon and after the occurrence of an Event ofDefault, Lender shall have the right to settle or adjust all disputes andclaims directly with the Account Debtor and to compromise the amount or extendthe time for payment of the Accounts upon such terms and conditions as Lendermay deem advisable, and to charge the deficiencies, costs and expenses thereof,including attorney’s fees, to Borrower.

 

**6.2.3****                     Taxes.**  If an Account includes a charge for any taxpayable to any governmental taxing authority, Lender is authorized, in its solediscretion, to pay the amount thereof to the proper taxing authority for theaccount of Borrower and to charge Borrower therefor, provided, however thatLender shall not be liable for any taxes to any governmental taxing authoritythat may be due by Borrower.

 

**6.2.4****                     AccountVerification.**  Whether or not aDefault or an Event of Default has occurred, any of Lender’s officers,employees or agents shall have the right, at any time or times hereafter, inthe name of Lender, any designee of Lender, or Borrower, to verify thevalidity, amount or any other matter relating to any Accounts by mail,telephone, electronic communication or otherwise.  Borrower shall cooperate fully with Lender inan effort to facilitate and promptly conclude any such verification process.

 

**6.2.5****                     Maintenanceof Dominion Account.**  Borrowershall maintain a Dominion Account acceptable to Lender with such banks as maybe selected by Borrower and be acceptable to Lender.  Borrower shall issue to any such banks anirrevocable letter of instruction directing such banks to transfer on a dailybasis all amounts standing credit in such Dominion Account to the FleetConcentration Account for application on account of the Obligations. All fundsdeposited in the Dominion Account shall immediately become the property ofLender and Borrower shall obtain the agreement by such banks in favor of Lenderto waive any recoupment, setoff rights, and any security interest in, oragainst the funds so deposited. Lender agrees with Borrower that Lender shallnot give any such instructions or withhold any withdrawal rights from Borrowerwith respect to the Fleet Concentration Account unless a Default,or an Event of Default has occurred and is continuing.

 

**6.2.6****                     Collectionof Accounts, Proceeds of Collateral.**  To expedite collection, Borrower shallendeavor in the first instance to make collection of its Accounts for Lender.All remittances received by Borrower on account of Accounts, together with theproceeds of any other Collateral, shall be held as Lender’s property byBorrower as trustee of an express trust for Lender’s benefit and Borrower shallimmediately deposit same in kind in the Dominion Account.  Lender retains the right at all times afterthe occurrence of a Default or an Event of Default to notify Account Debtorsthat Accounts have been assigned to Lender and to collect Accounts directly inits own name, or in the name of Lender’s agent, and to charge the collectioncosts and expenses, including attorneys’ fees to Borrower.

 

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**6.3****                               Administrationof Inventory**.

 

**6.3.1****                     Recordsand Reports of Inventory.** Borrower shall keep accurate and complete records of its Inventory.Borrower shall to furnish Lender Inventory reports in form and detailsatisfactory to Lender at such times as Lender may request, but at least onceeach month, not later than the twentieth (20th) day of such month. Borrowershall conduct a physical inventory no less frequently than annually and shallprovide to Lender a report based on each such physical inventory promptlythereafter, together with such supporting information as Lender shall request.

 

**6.3.2****                     Returnsof Inventory.**  If at any time ortimes hereafter any Account Debtor returns any Inventory to Borrower theshipment of which generated an Account on which such Account Debtor isobligated in excess of $100,000.00, Borrower shall immediately notify Lender ofthe same, specifying the reason for such return and the location, condition andintended disposition of the returned Inventory.

 

**6.4****                               Administrationof Equipment**.

 

**6.4.1****                     Recordsand Schedules of Equipment.** Borrower shall keep accurate records itemizing and describing the kind,type, quality, quantity and value of its Equipment and all dispositions made inaccordance with **subsection 6.4.2** hereof, and shallfurnish Lender with a current schedule containing the foregoing information onat least an annual basis and more often if requested by Lender. Immediately on request therefor by Lender, Borrower shall deliverto Lender any and all evidence of ownership, if any, of any of the Equipment.

 

**6.4.2****                     Dispositionsof Equipment.**  Borrower will notsell, lease or otherwise dispose of or transfer any of the Equipment or anypart thereof without the prior written consent of Lender; provided, however,that the foregoing restriction shall not apply, for so long as no Default orEvent of Default exists, to **(i)**dispositions of Equipment which, in the aggregate during any consecutive twelve-monthperiod, has a fair market value or book value, whichever is less, of $100,000or less, provided that all proceeds thereof are remitted to Lender forapplication to the Loans, or **(ii)**replacements of Equipment that is substantially worn, damaged or obsolete withEquipment of like kind, function and value, provided that the replacementEquipment shall be acquired prior to or concurrently with any disposition ofthe Equipment that is to be replaced, the replacement Equipment shall be freeand clear of Liens other than Permitted Liens that are not Purchase MoneyLiens, and Borrower shall have given Lender at least five (5) days priorwritten notice of such disposition.

 

**6.5****                               Paymentof Charges**.  All amountschargeable to Borrower under **Section 6**hereof shall be Obligations secured by all of the Collateral, shall be payableon demand and shall bear interest from the date such advance was made untilpaid in full at the rate applicable to Base Rate Advances from time to time.

 

**SECTION 7.**                                                                            **REPRESENTATIONS AND WARRANTIES**

 

**7.1****                               GeneralRepresentations and Warranties**. To induce Lender to enter into this Agreement and to make advanceshereunder, Borrower warrants, represents and covenants to Lender that:

 

**7.1.1****                     Organizationand Qualification.**  Each ofBorrower and its Subsidiaries is a corporation duly organized, validly existingand in good standing under the laws of the jurisdiction of its incorporation.Each of Borrower and its Subsidiaries is duly qualified and is authorized to dobusiness and is in good standing as a foreign corporation in each state orjurisdiction listed on **Exhibit D**hereto and in all other states and jurisdictions where the character of itsProperties or the nature of its activities make such qualification necessary inwhich the failure of Borrower or any of its Subsidiaries to be so qualifiedwould have a material adverse effect on the financial condition, business orProperties of Borrower or any of its Subsidiaries.

 

**7.1.2****                     CorporatePower and Authority**.  Each ofBorrower and its Subsidiaries is duly authorized and empowered to enter into,execute, deliver and perform this Agreement and each of the other LoanDocuments to which it is a party. The execution, delivery and performance ofthis Agreement and each of the other Loan Documents have been duly authorizedby all necessary corporate action and do not and will not **(i)**require any consent or approval of the shareholders (or members, in the case ofa limited liability company) of Borrower or any of its Subsidiaries; **(ii)** contravene Borrower’s or any of its Subsidiaries’charter, articles or

 

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certificate ofincorporation or by-laws; **(iii)** violate,or cause Borrower or any of its Subsidiaries to be in default under, anyprovision of any law, rule, regulation, order, writ, judgment, injunction,decree, determination or award in effect having applicability to Borrower orany of its Subsidiaries; **(iv)** result ina breach of or constitute a default under any indenture or loan or creditagreement or any other agreement, lease or instrument to which Borrower or anyof its Subsidiaries is a party or by which it or its Properties may be bound oraffected; or **(v)** result in, or require, thecreation or imposition of any Lien (other than Permitted Liens) upon or withrespect to any of the Properties now owned or hereafter acquired by Borrower orany of its Subsidiaries.

 

**7.1.3****                     LegallyEnforceable Agreement.**  ThisAgreement is, and each of the other Loan Documents when delivered under thisAgreement will be, a legal, valid and binding obligation of each of Borrowerand its Subsidiaries enforceable against it in accordance with its respectiveterms.

 

**7.1.4****                     CapitalStructure.**  **Exhibit E**hereto states **(i)** the correct name of each ofthe Subsidiaries of Borrower, its jurisdiction of incorporation and thepercentage of its Voting Stock owned by Borrower, **(ii)**the name of each of Borrower’s corporate or joint venture Affiliates and thenature of the affiliation, **(iii)** thenumber, nature and holder of all outstanding Securities of Borrower and eachSubsidiary of Borrower and **(iv)** the numberof authorized, issued and treasury shares of Borrower and each Subsidiary ofBorrower. Borrower has good title to all of the shares it purports to own ofthe stock of each of its Subsidiaries, free and clear in each case of any Lienother than Permitted Liens. All such shares have been duly issued and are fullypaid and non-assessable. As of June 17, 2003, there are no outstanding optionsto purchase, or any rights or warrants to subscribe for, or any commitments oragreements to issue or sell, or any Securities or obligations convertible into,or any powers of attorney relating to, shares of the capital stock of Borroweror any of its Subsidiaries, except as set forth on the Borrower’s registrationstatement Form SB-2 effective June 17, 2003. There are no outstanding agreements or instruments binding upon any ofBorrower’s shareholders (or members, in the case of a limited liabilitycompany) relating to the ownership of its shares of capital stock (or memberinterests, in the case of a limited liability company).

 

**7.1.5****                     CorporateNames, etc.**  Neither Borrower norany of its Subsidiaries has been known as or used any corporate, fictitious ortrade names except those listed on **Exhibit F**hereto. Except as set forth on **Exhibit F**,neither Borrower nor any of its Subsidiaries has been the surviving corporationof a merger or consolidation or acquired all or substantially all of the assetsof any Person.  Each of Borrower’s andits Subsidiaries’ state(s) of incorporation or organization, Type ofOrganization and Organizational I.D. Number is set forth on **Exhibit F**. The exact legal name of Borrower and each of itsSubsidiaries is set forth on **Exhibit****F**.

 

**7.1.6****                     BusinessLocations; Agent for Process.** Each of Borrower’s and its Subsidiaries’ chief executive office andother places of business are as listed on **Exhibit C**hereto. During the preceding one-year period, neither Borrower nor any of itsSubsidiaries has had an office, place of business or agent for service ofprocess other than as listed on **Exhibit C**.Except as shown on **Exhibit C**, noInventory is stored with a bailee, warehouseman or similar party, nor is anyInventory consigned to any Person.

 

**7.1.7****                     Titleto Properties; Priority of Liens.** Each of Borrower and its Subsidiaries has good, indefeasible andmarketable title to and fee simple ownership of, or valid and subsistingleasehold interests in, all of its real Property, and good title to all of theCollateral and all of its other Property, in each case, free and clear of allLiens except Permitted Liens. Borrower has paid or discharged all lawful claimswhich, if unpaid, might become a Lien against any of Borrower’s Properties thatis not a Permitted Lien. The Liens granted to Lender under **Section 5**hereof are first-priority Liens, subject only to Permitted Liens.

 

**7.1.8****                     Accounts.**  Lender may rely, in determining whichAccounts are Eligible Accounts, on all statements and representations made byBorrower with respect to any Account or Accounts. Unless otherwise indicated inwriting to Lender, with respect to each Account:

 

**(i)**                                    It is genuine andin all respects what it purports to be, and it is not evidenced by a judgment;

 

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**(ii)**                                It arises out of acompleted, bonafide sale and delivery of goods or rendition ofservices by Borrower in the ordinary course of its business and in accordancewith the terms and conditions of all purchase orders, contracts or otherdocuments relating thereto and forming a part of the contract between Borrowerand the Account Debtor;

 

**(iii)**                            It is for a liquidatedamount maturing as stated in the duplicate invoice covering such sale orrendition of services, a copy of which has been furnished or is available toLender;

 

**(iv)**                               Such Account, and Lender’ssecurity interest therein, is not, and will not (by voluntary act or omissionof Borrower) be in the future, subject to any offset, Lien, deduction,recoupment, defense, dispute, counterclaim or any other adverse conditionexcept for disputes resulting in returned goods where the amount in controversyis deemed by Lender to be immaterial, and each such Account is absolutely owingto Borrower and is not contingent in any respect or for any reason;

 

**(v)**                                   Borrower has made noagreement with any Account Debtor thereunder for any extension, compromise,settlement or modification of any such Account or any deduction therefrom,except discounts or allowances which are granted by Borrower in the ordinarycourse of its business for prompt payment and which are reflected in thecalculation of the net amount of each respective invoice related thereto andare reflected in the Schedules of Accounts submitted to Lender pursuant to **subsection 6.2.1** hereof;

 

**(vi)**                               There are no facts,events or occurrences which in any way impair the validity or enforceability ofany Accounts or tend to reduce the amount payable thereunder from the faceamount of the invoice and statements delivered to Lender with respect thereto;

 

**(vii)**                           To the best of Borrower’sknowledge, the Account Debtor thereunder **(1)** had thecapacity to contract at the time any contract or other document giving rise tothe Account was executed and **(2)** suchAccount Debtor is Solvent; and

 

**(viii)**                       To the best of Borrower’sknowledge, there are no proceedings or actions which are threatened or pendingagainst any Account Debtor thereunder which might result in any materialadverse change in such Account Debtor’s financial condition or thecollectibility of such Account.

 

**7.1.9****                     Equipment. **The Equipment is in good operatingcondition and repair, and all necessary replacements of and repairs **thereto** shall be made so that the value andoperating efficiency of the Equipment shall be maintained and preserved,reasonable wear and tear excepted. Borrower will notpermit any of the Equipment to become affixed to any real Property leased toBorrower so that an interest arises therein under the real estate laws of theapplicable jurisdiction unless the landlord of such real Property has executeda landlord waiver or leasehold mortgage in favor of and in form acceptable toLender, and Borrower will not permit any of the Equipment to become anaccession to any personal Property other than Equipment that is subject tofirst-priority (except for Permitted Liens) Liens in favor of Lender.

 

**7.1.10****              FinancialStatements; Fiscal Year.**** **The Consolidated and consolidatingbalance sheets of Borrower and such other Persons described therein (includingthe accounts of all Subsidiaries of Borrower for the respective periods duringwhich a Subsidiary relationship existed) as of December 31, 2002, and therelated statements of income, changes in stockholder’s equity, and changes infinancial position for the periods ended on such dates, have been prepared inaccordance with GAAP, and present fairly the financial positions of Borrowerand such Persons at such dates and the results of Borrower’s and such Persons’operations for such periods. Since June 30, 2003, there has been no materialchange in the condition, financial or otherwise, of Borrower and such otherPersons as shown on the Consolidated balance sheet as of such date and nomaterial change in the aggregate value of Equipment and real Property owned byBorrower or such other Persons, except changes in the ordinary course ofbusiness, none of which individually or in the aggregate has been materiallyadverse. The fiscal year of Borrower and each of its Subsidiaries ends onDecember 31 of each year.

 

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**7.1.11****              Full Disclosure.****       **The financialstatements referred to in **subsection 7.1.10**hereof do not, nor does this Agreement or any other written statement ofBorrower to Lender, contain any untrue statement of a material fact or omit amaterial fact necessary to make the statements contained therein or herein notmisleading. There is no fact which Borrower has failed to disclose to Lender inwriting which materially affects adversely or, so far as Borrower can nowforesee, will materially affect adversely the Properties, business, prospects,profits or condition (financial or otherwise) of Borrower or any of its Subsidiariesor the ability of Borrower or its Subsidiaries to perform this Agreement or theother Loan Documents.

 

**7.1.12****              Solvent FinancialCondition.**  Each ofBorrower and its Subsidiaries is now and, after giving effect to the Loans tobe made and the Letters of Credit and LC Guaranties to be issued hereunder, atall times will be, Solvent.

 

**7.1.13****              SuretyObligations.****  **Except asset forth on **Exhibit P**, neither Borrowernor any of its Subsidiaries is obligated as surety or indemnitor under anysurety or similar bond or other contract, or has issued or entered into anyagreement to assure payment, performance or completion of performance of anyundertaking or obligation of any Person.

 

**7.1.14****              Taxes.**** **Borrower’s federaltax identification number is 912048019. The federal tax identification numberof each of Borrower’s Subsidiaries is shown on **Exhibit G**hereto. Borrower and each of its Subsidiaries has filed all federal, state andlocal tax returns and other reports it is required by law to file and has paid,or made provision for the payment of, all taxes, assessments, fees, levies andother governmental charges upon it, its income and Properties as and when suchtaxes, assessments, fees, levies and charges are due and payable, unless and tothe extent any thereof are being actively contested in good faith and byappropriate proceedings and Borrower maintains reasonable reserves on its bookstherefor. The provision for taxes on the books of Borrower and its Subsidiariesare adequate for all years not closed by applicable statutes, and for itscurrent fiscal year.

 

**7.1.15****              Brokers.**  There are no claimsfor brokerage commissions, finder’s fees or investment banking fees inconnection with the transactions contemplated by this Agreement.

 

**7.1.16****              Patents,Trademarks, Copyrights and Licenses.** Each of Borrower and itsSubsidiaries owns or possesses all the patents, trademarks, service marks, tradenames, copyrights and licenses necessaryfor the present and planned future conduct of its business without any knownconflict with the rights of others. All such patents, trademarks, servicemarks, tradenames, copyrights, licenses and other similar rights are listed on **Exhibit H** hereto.

 

**7.1.17****              GovernmentalConsents.****          **Eachof Borrower and its Subsidiaries has, and is in good standing with respect to,all material governmental consents, approvals, licenses, authorizations,permits, certificates, inspections and franchises necessary to continue toconduct its business as heretofore or proposed to be conducted by it and to ownor lease and operate its Properties as now owned or leased by it.

 

**7.1.18****              Compliance withLaws.** Each of Borrower andits Subsidiaries has duly complied with, and its Properties, businessoperations and leaseholds are in compliance in all material respects with, theprovisions of all federal, state and local laws, rules and regulationsapplicable to Borrower or such Subsidiary, as applicable, its Properties or theconduct of its business and there have been no citations, notices or orders ofnoncompliance issued to Borrower or any of its Subsidiaries under any such law,rule or regulation. Each of Borrower and its Subsidiaries has established andmaintains an adequate monitoring system to insure that it remains in materialcompliance with all federal, state and local laws, rules and regulationsapplicable to it. No Inventory has been produced in violation of the Fair LaborStandards Act (29 U.S.C. §201 etseq.), as amended.

 

**7.1.19****              Restrictions.**  Neither Borrower nor any of its Subsidiariesis a party or subject to any contract, agreement, or charter or other corporaterestriction, which materially and adversely affects its business or the use orownership of any of its Properties. Neither Borrower nor any of itsSubsidiaries is a party or subject to any contract or agreement which restrictsits right or ability to incur Indebtedness, other than as set forth

 

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on**Exhibit I** hereto, none of which prohibit the execution of orcompliance with this Agreement or the other Loan Documents by Borrower or anyof its Subsidiaries, as applicable.

 

**7.1.20****              Litigation.**  Except as set forth on **Exhibit J**hereto, there are no actions, suits, proceedings or investigations pending, orto the best knowledge of Borrower, threatened, against or affecting Borrower orany of its Subsidiaries, or the business, operations, Properties, prospects,profits or condition of Borrower or any of its Subsidiaries. Neither Borrowernor any of its Subsidiaries is in default with respect to any order, writ, injunction,judgment, decree or rule of any court, governmental authority or arbitrationboard or tribunal.

 

**7.1.21****              No Defaults.**  No event has occurred and no condition existswhich would, upon or after the execution and delivery of this Agreement orBorrower’s performance hereunder, constitute a Default or an Event of Default.Neither Borrower nor any of its Subsidiaries is in default, and no event hasoccurred and no condition exists which constitutes, orwhich with the passage of time or the giving of notice or both wouldconstitute, a default in the payment of any Indebtedness to any Person forMoney Borrowed.

 

**7.1.22****              Leases.**  **Exhibit K**hereto is a complete listing of all capitalized leases of Borrower and itsSubsidiaries and **Exhibit L** hereto is a complete listingof all operating leases of Borrower and its Subsidiaries. Each of Borrower andits Subsidiaries is in full compliance with all of the terms of each of itsrespective capitalized and operating leases.

 

**7.1.23****              PensionPlans.**  Except as disclosed on **Exhibit M** hereto, neither Borrower nor any of itsSubsidiaries has any Plan. Borrower and each of its Subsidiaries is in full compliance with the requirements of ERISA and theregulations promulgated thereunder with respect to each Plan. No fact orsituation that could result in a material adverse change in the financialcondition of Borrower or any of its Subsidiaries exists in connection with anyPlan. Neither Borrower nor any of its Subsidiaries has any withdrawal liabilityin connection with a Multi-employer Plan.

 

**7.1.24****              Trade Relations.**  There exists no actual or, to the bestknowledge of Borrower, threatened termination, cancellation or limitation of,or any modification or change in, the business relationship between Borrower orany of its Subsidiaries and any customer or any group of customers whosepurchases individually or in the aggregate are material to the business ofBorrower or any of its Subsidiaries, or with any material supplier, and thereexists no present condition or state of facts or circumstances which wouldmaterially affect adversely Borrower or any of its Subsidiaries or preventBorrower or any of its Subsidiaries from conducting such business after theconsummation of the transaction contemplated by this Agreement in substantiallythe same manner in which it has heretofore been conducted.

 

**7.1.25****              Labor Relations.**  Except as described on **Exhibit N**hereto, neither Borrower nor any of its Subsidiaries is a party to anycollective bargaining agreement. There are no material grievances, disputes orcontroversies with any union or any other organization of Borrower’s or any ofits Subsidiaries’ employees, or threats of strikes, work stoppages or anyasserted pending demands for collective bargaining by any union ororganization.

 

**7.2****                               ContinuousNature of Representations and Warranties**.  Each representation and warranty contained inthis Agreement and the other Loan Documents shall be continuous in nature andshall remain materially accurate, complete and not misleading at all timesduring the term of this Agreement, except for changes in the nature of Borrower’sor its Subsidiaries’ business or operations that would render the informationin any exhibit attached hereto either inaccurate, incomplete or misleading, solong as Lender has consented to such changes or such changes are expresslypermitted by this Agreement. Without limiting the generality of the foregoing,each loan request made pursuant to **subsection 3.1.1**hereof shall constitute Borrower’s reaffirmation, as of the date of each such loanrequest, of each representation, warranty or other statement made or furnishedto Lender by or on behalf of Borrower, any Subsidiary of Borrower, or Guarantorin this Agreement, any of the other Loan Documents, or any instrument,certificate or financial statement furnished in compliance with or in referencethereto.

 

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**7.3****                               Survivalof Representations and Warranties**. All representations and warranties of Borrower contained in thisAgreement or any of the other Loan Documents shall survive the execution,delivery and acceptance thereof by Lender and the parties thereto and theclosing of the transactions described therein or related thereto.

 

**SECTION 8.**                                                                            **COVENANTS AND CONTINUING AGREEMENTS**

 

**8.1****                               AffirmativeCovenants**.  During the term ofthis Agreement, and thereafter for so long as there are any Obligations toLender, Borrower covenants that, unless otherwise consented to by Lender inwriting, it shall:

 

**8.1.1****                     Visitsand Inspections.**  Permitrepresentatives of Lender, on at least three occasions during the first year ofthe Loan, at least two occasions during each subsequent year of the Loan, andfrom time to time, as often as may be reasonably requested, but only duringnormal business hours, to visit and inspect the Properties of Borrower and eachof its Subsidiaries, inspect, audit and make extracts from its books andrecords, and discuss with its officers, its employees and its independentaccountants, Borrower’s and each of its Subsidiaries’ business, assets,liabilities, financial condition, business prospects and results of operations.

 

**8.1.2****                     Notices.**  Promptly notify Lender in writing of theoccurrence of any event or the existence of any fact which renders anyrepresentation or warranty in this Agreement or any of the other Loan Documentsinaccurate, incomplete or misleading.

 

**8.1.3****                     FinancialStatements.**  Keep, and cause eachSubsidiary to keep, adequate records and books of account with respect to itsbusiness activities in which proper entries are made in accordance with GAAPreflecting all its financial transactions; and cause to be prepared andfurnished to Lender the following (all to be prepared in accordance with GAAPapplied on a consistent basis, unless Borrower’s certified public accountants concurin any change therein and such change is disclosed to Lender and is consistentwith GAAP):

 

**(i)**                                    not later than onehundred twenty (120) days after the close of each fiscal year of Borrower,unqualified, audited financial statements of Borrower and its Subsidiaries asof the end of such year, on a Consolidated and consolidating basis, certifiedby a firm of independent certified public accountants of recognized standingselected by Borrower but acceptable to Lender (except for a qualification for achange in accounting principles with which the accountant concurs);

 

**(ii)**                                not later than thirty(30) days after the end of each month hereafter, including the last month ofBorrower’s fiscal year, unaudited, interim financial statements of Borrower andits Subsidiaries as of the end of such month and of the portion of Borrower’sfinancial year then elapsed, on a Consolidated and consolidating basisfollowing December 31, 2003, certified by the principal financial officer ofBorrower as prepared in accordance with GAAP and fairly presenting theConsolidated financial position and results of operations of Borrower and itsSubsidiaries for such month and period subject only to changes from audit andyear-end adjustments and except that such statements need not contain notes;

 

**(iii)**                            promptly upon Lender’srequest, but in any event, on the second full Business Day for the previousweek, a Borrowing Base Certificate, which includes a weekly report of sales,credits and collections of the Borrower;

 

**(iv)****                              **not later twenty (20) days after the end ofeach month (a) a reconciliation of Accounts, (b) an aging of accountsreceivable, and accounts payable, and (c) inventory reporting set forth inSection 6.3.1;

 

**(v)**                                   promptlyafter the sending or filing thereof, as the case may be, copies of any proxystatements, financial statements or reports which Borrower has made availableto its shareholders (or members, in the case of a limited liability company)and copies of any regular, periodic and special reports or registration statementswhich Borrower files with the Securities and Exchange Commission or anygovernmental authority which may be substituted therefor, or any nationalsecurities exchange;

 

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**(vi)**                               promptly after the filing thereof, copies of any annualreport to be filed with ERISA in connection with each Plan;

 

**(vii)**                           suchother data and information (financial and otherwise) as Lender, from time totime, may reasonably request, bearing upon or related to the Collateral orBorrower’s and each of its Subsidiaries’ financial condition or results ofoperations; and

 

**(viii)**                       not later than fifteen (15) days after theclose of each fiscal quarter of Borrower, the policy date review sheets withrespect to the life insurance policies taken as collateral by the Lender, whichpolicy date review sheets shall contain such information as required by Lender.

 

Concurrently with thedelivery of the financial statements described in clause (i) of this subsection 8.1.3, Borrower shall forward to Lender a copy of theaccountants’ letter to Borrower’s management that is prepared in connectionwith such financial statements and also shall cause to be prepared and shallfurnish to Lender a certificate of the aforesaid certified public accountants certifyingto Lender that, based upon their examination of the financial statements ofBorrower and its Subsidiaries performed in connection with their examination ofsaid financial statements, they are not aware of any Default or Event ofDefault, or, if they are aware of such Default or Event of Default, specifyingthe nature thereof, and acknowledging, in a manner satisfactory to Lender, thatthey are aware that Lender is relying on such financial statements in makingits decisions with respect to the Loans. Concurrently with the delivery of thefinancial statements described in clauses (i) and (ii) of this subsection 8.1.3, or more frequently ifrequested by Lender, Borrower shall cause to be prepared and furnished toLender a Compliance Certificate in the form of **Exhibit O**hereto executed by the Chief Financial Officer of Borrower.

 

**8.1.4****                     Landlordand Storage Agreements.**  ProvideLender with copies of all agreements between Borrower orany of its Subsidiaries and any landlord or warehouseman which owns anypremises at which any Inventory may, from time to time, be kept.

 

**8.1.5****                     [IntentionallyOmitted.]**

 

**8.1.6****                     Projections.**  No later than thirty (30) days prior to theend of each fiscal year of Borrower, deliver to Lender Projections of Borrowerfor the forthcoming fiscal year, month by month.

 

**8.1.7****                     Depositand Brokerage Accounts.**  For eachdeposit account or brokerage account that Borrower at any time opens ormaintains, Borrower shall, at Lender’s request and option, pursuant to anagreement in form and substance satisfactory to Lender, cause the depositorybank or securities intermediary, as applicable, to agree to comply at any timewith instructions from Lender to such depository bank or securitiesintermediary, as applicable, directing the disposition of funds from time totime credited to such deposit or brokerage account, without further consent ofBorrower.

 

**8.2****                               NegativeCovenants**.  During the term ofthis Agreement, and thereafter for so long as there are any Obligations toLender, Borrower covenants that, unless Lender has first consented thereto inwriting, it will not:

 

**8.2.1****                     Mergers;Consolidations; Acquisitions; Structural Changes.**  Merge or consolidate, or permit anySubsidiary of Borrower to merge or consolidate, with any Person; nor acquire, norpermit any of its Subsidiaries to acquire, all or any substantial part of theProperties of any Person; nor change its or any of its Subsidiaries’ state ofincorporation or organization or Type of Organization; nor change its or any ofits Subsidiaries’ legal names.

 

**8.2.2****                     Loans.**  Make, or permit any Subsidiary of Borrower tomake, any loans or other advances of money (other than for salary, traveladvances, advances against commissions and other similar advances in theordinary course of business) to any Person.

 

**8.2.3****                     TotalIndebtedness.**  Create, incur,assume, or suffer to exist, or permit any Subsidiary of Borrower to create,incur or suffer to exist, any Indebtedness, except:

 

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**(i)**                                    Obligations owing toLender;

 

**(ii)**                                Subordinated Debtexisting on the date of this Agreement;

 

**(iii)**                            Indebtedness of anySubsidiary of Borrower to Borrower;

 

**(iv)**                               accounts payable totrade creditors and current operating expenses (other than for Money Borrowedand current trade creditors in the ordinary course of business) which are notaged more than one hundred twenty (120) days from billing date or more thansixty (60) days from the due date, in each case incurred in the ordinary courseof business and paid within such time period, unless the same are beingactively contested in good faith and by appropriate and lawful proceedings; andBorrower or such Subsidiary shall have set aside such reserves, if any, withrespect thereto as are required by GAAP and deemed adequate by Borrower or suchSubsidiary and its independent accountants;

 

**(v)**                                   [Omitted.];

 

**(vi)**                               Permitted Purchase MoneyIndebtedness;

 

**(vii)**                           contingentliabilities arising out of endorsements of checks and other negotiableinstruments for deposit or collection in the ordinary course of business; and

 

**(viii)**                       Indebtedness not included inparagraphs **(i)** through **(vii)**above which does not exceed at any time, in the aggregate, the sum of$25,000.00.

 

**8.2.4****                     AffiliateTransactions.**  Enter into, or bea party to, or permit any Subsidiary of Borrower to enter into or be a partyto, any transaction with any Affiliate of **Borrower** orstockholder, except in the ordinary course of and pursuant to the reasonablerequirements of Borrower’s or such Subsidiary’s business and upon fair andreasonable terms which are fully disclosed to Lender and are no less favorableto Borrower than would obtain in a comparable arm’s length transaction with aPerson not an Affiliate or stockholder of Borrower or such Subsidiary.

 

**8.2.5****                     Limitationon Liens.**  **Create**or suffer to exist, or permit any Subsidiary of Borrower to create or suffer toexist, any Lien upon any of its Property, income or profits, whether now ownedor hereafter acquired, except:

 

**(i)**                                    Liens at any timegranted in favor of Lender;

 

**(ii)**                                Liens for taxes(excluding any Lien imposed pursuant to any of the provisions of ERISA) not yetdue, or being contested in the manner described in **subsection7.1.14** hereto, but only if in Lender’s judgment such Lien does notadversely affect Lender’s rights or the priority of Lender’s Lien in theCollateral;

 

**(iii)**                            Liens arising in theordinary course of Borrower’s business by operation of law or regulation, butonly if payment in respect of any such Lien is not at the time required andsuch Liens do not, in the aggregate, materially detract from the value of theProperty of Borrower or materially impair the use thereof in the operation ofBorrower’s business;

 

**(iv)**                               PurchaseMoney Liens securing Permitted Purchase Money Indebtedness;

 

**(v)**                                   Liens securing Indebtednessof one of Borrower’s Subsidiaries to Borrower or another such Subsidiary;

 

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**(vi)**                               suchother Liens as appear on **Exhibit P**hereto; and

 

**(vii)**                           suchother Liens as Lender may hereafter approve in writing.

 

**8.2.6****                     SubordinatedDebt.**  Make, or permit anySubsidiary of Borrower to make, any payment of any part or all of anySubordinated Debt or take any other action or omit to take any other action inrespect of any Subordinated Debt, except in accordance with the SubordinationAgreement relative thereto.

 

**8.2.7****                     Distributions.**  Declare or make, or permit any Subsidiary ofBorrower to declare or make, any Distributions.

 

**8.2.8****                     UnfundedCapital Expenditures.**  MakeUnfunded Capital Expenditures which, in the aggregate, as to Borrower and itsSubsidiaries, exceed $1,500,000 during any fiscal year of Borrower, provided,however, that if during the period from the Effective Date to June 30, 2005Unfunded Capital Expenditures exceeds $1,500,000, the excess may be offset bythe Equity Injection during such period.

 

**8.2.9****                     Dispositionof Assets.**  Sell, lease orotherwise dispose of any of, or permit any Subsidiary of Borrower to sell,lease or otherwise dispose of any of, its Properties, including any dispositionof Property as part of a sale and leaseback transaction, to or in favor of anyPerson, except **(i)** sales of Inventory in theordinary course of business for so long as no Event of Default existshereunder, **(ii)** a transfer of Property toBorrower by a Subsidiary of Borrower or **(iii)**dispositions expressly authorized by this Agreement.

 

**8.2.10****              Stock ofSubsidiaries.**  Permit anyof its Subsidiaries to issue any additional shares of its capital stock exceptdirector’s qualifying shares.

 

**8.2.11****              Bill-and-HoldSales, Etc.**  Make a saleto any customer on a bill-and-hold, guaranteed sale, sale and return, sale onapproval or consignment basis, or any sale on a repurchase or return basis.

 

**8.2.12****              RestrictedInvestment.**  Make or have, orpermit any Subsidiary of Borrower to make or have, any Restricted Investment.

 

**8.2.13****              [IntentionallyOmitted.]**

 

**8.2.14****              Tax Consolidation.**  File or consent to the filing of anyconsolidated income tax return with any Person other than a Subsidiary ofBorrower.

 

**8.3****                               SpecificFinancial Covenants**.  During theterm of this Agreement, and thereafter for so long as there are any Obligationsto Lender, Borrower covenants that, unless otherwise consented to by Lender inwriting, it shall:

 

**8.3.1****                     Leverage. **Maintain a ratio of Total Debt toTangible Capital Base not greater than the following ratios at the end of eachof the following fiscal quarters:

 
| **Ratio**  | ** ** | **Fiscal Quarter Ending**                          |
|------------|------------|----------------------------------------------------|
| 6.5 : 1.0  |       | September 30, 2003                                 |
| 4.2 : 1.0  |       | December 31, 2003 and  March 31, 2004              |
| 3.0  : 1.0 |       | June  30, 2004                                     |
| 5.5  : 1.0 |       | September  30, 2004                                |
| 6.0  : 1.0 |       | December  31, 2004 and March 31, 2005              |
| 3.5  : 1.0 |       | June  30, 2005 and each fiscal quarter thereafter. |

 

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**8.3.2****                     InventoryTurnover.**

 

**(i)           **As of the fiscalquarter ending September 30, 2003 to September 30, 2004, maintain, (a) a ratioof Inventory to COGS annualized of not less than 1.75 to 1.0 for each fiscalquarter (based only on such ninety day period) if the Fixed Charge CoverageRatio determined pursuant to Section 8.3.3 hereof is equal to or greater than1.5 to 1.0 but less than 1.75 to 1.0, or (b) a ratio of Inventory to COGSannualized of not less than 1.5 to 1.0 for each fiscal quarter (based only onsuch ninety day period) if the Fixed Charge Coverage Ratio (determined pursuantto Section 8.3.3 hereof) is equal to or greater than 1.75 to 1.0.

 

**(ii)          **As of the fiscalquarter ending December 31, 2004 and each fiscal quarter thereafter maintain aratio of Inventory to COGS annualized of not less than 1.25 to 1.0 for eachfiscal quarter (based only on such ninety day period).

 

**(iii)        **For purposes of thecalculation of the Inventory Turnover covenant at the fiscal quarter endingDecember 31 of each year, COGS shall be determined by reference to the priorsix (6) months being tested multiplied by two (2).  For purposes of all other fiscal quarters(ending March 31, June 30 and September 30 of each year), COGS shall bedetermined by reference to the fiscal quarter being tested multiplied by four(4).  This covenant shall be tested onSeptember 30, 2003 and on the last day of each fiscal quarter for the previousfiscal quarter thereafter.

 

**8.3.3****                     MinimumFixed Charge Coverage Ratio.** Maintain a ratio of EBITDA less (1)Unfunded Capital Expenditures and less (2) taxes to Principal Paid (not includingthe Loan) plus (i) Interest Expenses and (ii) Distributions of not lessthan the following ratios for each of the following fiscal quarters:

 
| **Ratio**  | ** ** | **Fiscal Quarter Ending**                               |
|------------|------------|---------------------------------------------------------|
| 2.0 : 1.0  |       | September 30, 2003,                                     |
| 1.4 : 1.0  |       | December 31, 2003 and  September 30, 2004               |
| 1.2 : 1.0  |       | December 31, 2004                                       |
| 1.2 : 1.0  |       | March 31, 2005                                          |
| 1.5 : 1.0  |       | June 30, 2005                                           |
| 1.75 : 1.0 |       | September 30, 2005 and  each fiscal quarter thereafter. |

 

For the purpose ofcalculating this covenant, any excess Unfunded Capital Expenditures in 2003 maybe rolled over in 2004 only. This covenant shall be tested on September 30,2003 and December 31, 2003 on a year to date basis and thereafter on the lastday of each fiscal quarter on a rolling basis by reference to the fiscalquarter then ending and the three immediately preceding fiscal quarters. Forpurposes of testing this covenant on September 30, 2003 only, Unfunded CapitalExpenditures shall not be included. For purposes of testing this covenantduring the period from the Effective Date to June 30, 2005 only, if theUnfunded Capital Expenditures exceed $1,500,000, the excess may be offset bythe Equity Injection during such period.

 

**SECTION 9.****                                                                                                         CONDITIONSPRECEDENT**

 

Notwithstanding any otherprovision of this Agreement or any of the other Loan Documents, and withoutaffecting in any manner the rights of Lender under the other sections of thisAgreement, Lender shall not be required to make any Loan under this Agreementunless and until each of the following conditions has been and continues to be satisfied:

 

**9.1****                               Documentation**.  Lender shall have received, in form andsubstance satisfactory to Lender, a duly executed copy of this Agreement andthe other Loan Documents, together with such additional documents, instrumentsand certificates as Lender shall require in connection therewith from time totime, all in form and substance satisfactory to Lender, including but notlimited to:

 

**(i)**                                    A certificate of the Secretary of eachBorrower certifying as to (a) the resolutions of the Borrower approvingthe execution and delivery of this Agreement, (b) the fact that the Articles ofIncorporation and Bylaws of the Borrower, which were certified and delivered tothe Lender as of September 10, 2003 continue in full force and effect and havenot been amended or otherwise modified except as set forth in the Certificateto be

 

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delivered,and (c) certifying that the officers and agents of the Borrower who have beencertified to the Lender, as being authorized to sign and to act on behalf ofthe Borrower, continue to be so authorized and setting forth the samplesignatures of each of the officers and agents of the Borrower authorized toexecute and deliver this Agreement and all other documents, agreements andcertificates on behalf of the Borrower.

 

**(ii)**                                A certificate of the Secretary of eachBorrower on the Effective Date certifying that (a) there shall exist no Eventof Default or Default, (b) all representations and warranties contained hereinand in the other Loan Documents executed by the Borrower shall be true andcorrect in all material respects with the same effect as though suchrepresentations and warranties had been made on and as of such date, except tothe extent such representations and warranties relate to an earlier date, inwhich case such representations and warranties shall be true and correct in allmaterial respects as of such earlier date.

 

**9.2****                               NoDefault**.  No Default or Event ofDefault shall exist.

 

**9.3****                               OtherLoan Documents**.  Each of theconditions precedent set forth in the other Loan Documents shall have beensatisfied.

 

**9.4****                               Availability**.  Lender shall have determined that immediatelyafter Lender has made the initial Loans and issued the initial Letters ofCredit and LC Guaranties contemplated hereby, and paid all closing costsincurred in connection with the transactions contemplated hereby, Availabilityas of the Closing Date shall not be less than $750,000.00.  Availability on a daily basis as of fiscal quartersending September 30, 2003 and December 31, 2003 shall not be less than$300,000.00 and thereafter Availability on a daily basis as of the end of eachfiscal quarter shall not be less than $500,000.00.  This covenant shall be tested daily.

 

Notwithstandinganything contained in this Section 9.4 to the contrary, the minimumAvailability required by this Section 9.4 shall be waived until the earlier tooccur of: (i) the date Borrower receives any of the Equity Injection, or(ii) June 30, 2005.

 

**9.5**                               **No Litigation**.  No action, proceeding, investigation,regulation or legislation shall have been instituted, or, to the best ofBorrower’s knowledge, threatened or proposed before any court, governmentalagency or legislative body to enjoin, restrain or prohibit, or to obtaindamages in respect of, or which is related to or arises out of this Agreementor the consummation of the transactions contemplated hereby.

 

**SECTION 10.****                                                                     EVENTSOF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT**

 

**10.1****                        Eventsof Default**.  The occurrence ofone or more of the following events shall constitute an **“Event ofDefault**”:

 

**10.1.1****              Paymentof Note.**  Borrower shall fail topay any installment of principal, interest or premium, if any, owing on theRevolving Credit Note on or within ten (10) days after the due date of suchinstallment.

 

**10.1.2****              Paymentof Other Obligations.**  Borrowershall fail to pay any of the Obligations that are not evidenced by theRevolving Credit Note on the due date thereof (whether due at stated maturity,on demand, upon acceleration or otherwise).

 

**10.1.3****              Misrepresentations.** Any representation, warranty orother statement made or furnished to Lender by or on behalf of Borrower, anySubsidiary of Borrower, or Guarantor in this Agreement, any of the other LoanDocuments or any instrument, certificate or financial statement furnished incompliance with or in reference thereto proves to have been false or misleadingin any material respect when made or furnished or when reaffirmed pursuant to **Section 7.2** hereof.

 

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**10.1.4****              Breachof Specific Covenants.**  Borrowershall fail or neglect to perform, keep or observe any covenant contained in **Sections 5.2, 5.3, 6.1.1, 6.1.2, 6.2.5, 6.2.6, 8.1, 8.2**or**8.3** hereof on the date that Borrower is required toperform, keep or observe such covenant.

 

**10.1.5****              Breachof Other Covenants.**  Borrowershall fail or neglect to perform, keep or observe any covenant contained inthis Agreement (other than a covenant which is dealt with specificallyelsewhere in **Section 10.1** hereof) and the breachof such other covenant is not cured to Lender’s satisfaction within fifteen(15) days after the sooner to occur of Borrower’s receipt of notice of suchbreach from Lender or the date on which such failure or neglect first becomesknown to any officer of Borrower.

 

**10.1.6****              DefaultUnder Security Documents/Other Agreements.**  Any event of default shall occur under, orBorrower shall default in the performance or observance of any term, covenant,condition or agreement contained in, any of the Security Documents; or theOther Agreements and such default shall continue beyond any applicable graceperiod.

 

**10.1.7****              OtherDefaults.**  There shall occur anydefault or event of default on the part of Borrower under any agreement,document or instrument to which Borrower is a party or by which Borrower or anyof its Property is bound, creating or relating to any Indebtedness (other thanthe Obligations) if the payment or maturity of such Indebtedness is acceleratedin consequence of such event of default or demand for payment of suchIndebtedness is made.

 

**10.1.8****              UninsuredLosses.**  Any material loss,theft, damage or destruction of any of the Collateral not fully covered(subject to such deductibles as Lender shall have permitted) by insurance.

 

**10.1.9****              AdverseChanges.**  There shall occur anymaterial adverse change in the financial condition or business prospects ofBorrower or any Guarantor.

 

**10.1.10****       Insolvencyand Related Proceedings.** Borrower or any Guarantor shall cease to be Solvent or shall suffer theappointment of a receiver, trustee, custodian or similar fiduciary, or shallmake an assignment for the benefit of creditors, or any petition for an orderfor relief shall be filed by or against Borrower or any Guarantor under theBankruptcy Code (if against Borrower or any Guarantor, the continuation of suchproceeding for more than thirty (30) days), or Borrower or any Guarantor shallmake any offer of settlement, extension or composition to their respectiveunsecured creditors generally.

 

**10.1.11****       BusinessDisruption; Condemnation.**  Thereshall occur a cessation of a substantial part of the business of Borrower, anySubsidiary of Borrower or any Guarantor for a period which significantlyaffects Borrower’s or such Guarantor’s capacity to continue its business, on aprofitable basis; or Borrower, any Subsidiary of Borrower or any Guarantorshall suffer the loss or revocation of any license or permit now held orhereafter acquired by Borrower or such Guarantor which is necessary to thecontinued or lawful operation of its business; or Borrower or any Guarantorshall be enjoined, restrained or in any way prevented by court, governmental oradministrative order from conducting all or any material part of its businessaffairs; or any material lease or agreement pursuant to which Borrower or anyGuarantor leases, uses or occupies any Property shall be canceled or terminatedprior to the expiration of its stated term; or any part of the Collateral shallbe taken through condemnation or the value of such Property shall be impairedthrough condemnation.

 

**10.1.12****       Changeof Ownership.**  Paul Boucher,Forest Jordan and Grey Perna shall cease to own and control, beneficially andof record, fifty-one (51%) percent of the issued and outstanding capital stockof Borrower.

 

**10.1.13****       ERISA.**  A Reportable Event shall occur which Lender,in its sole discretion, shall determine in good faith constitutes grounds forthe termination by the Pension Benefit Guaranty Corporation of any Plan or forthe appointment by the appropriate United States district court of a trusteefor any Plan, or if any Plan shall be terminated or any such trustee shall berequested or appointed, or if Borrower, any Subsidiary of Borrower or anyGuarantor is in “default” (as defined in Section 4219(c)(5) of ERISA) withrespect to payments to a

 

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Multi-employer Planresulting from Borrower’s, such Subsidiary’s or such Guarantor’s complete orpartial withdrawal from such Plan.

 

**10.1.14****       Challengeto Agreement.**  Borrower, any Subsidiaryof Borrower or any Guarantor, or any Affiliate of any of them, shall challengeor contest in any action, suit or proceeding the validity or enforceability ofthis Agreement, or any of the other Loan Documents, the legality orenforceability of any of the Obligations or the perfection or priority of anyLien granted to Lender.

 

**10.1.15****       Repudiationof or Default Under Guaranty Agreement.** Any Guarantor shall revoke or attempt to revoke the Guaranty Agreementsigned by such Guarantor, or shall repudiate such Guarantor’s liabilitythereunder or shall be in default under the terms thereof.

 

**10.1.16****       CriminalForfeiture.**  Borrower, anySubsidiary of Borrower or any Guarantor shall be criminally indicted orconvicted under any law that could lead to a forfeiture of any Property ofBorrower, any Subsidiary of Borrower or any Guarantor.

 

**10.1.17****       Judgments.**  Any money judgment, writ of attachment orsimilar process is filed against Borrower, any Subsidiary of Borrower or anyGuarantor, or any of their respective Property.

 

**10.2****                        Accelerationof the Obligations**.  Without inany way limiting the right of Lender to demand payment of any portion of theObligations payable on demand in accordance with **Section 3.2**hereof, upon or at any time after the occurrence of an Event of Default, all orany portion of the Obligations shall, at the option of Lender and withoutpresentment, demand, protest or further notice by Lender, become at once dueand payable and Borrower shall forthwith pay to Lender, the full amount of suchObligations, provided, that upon the occurrence of an Event of Defaultspecified in **subsection 10.1.10**hereof, all ofthe Obligations shall become automatically due and payable without declaration,notice or demand by Lender.

 

**10.3****                        OtherRemedies**.  Upon and after theoccurrence of an Event of Default, Lender shall have and may exercise from timeto time the following other rights and remedies:

 

**10.3.1**              All of the rights and remedies of asecured party under the UCC or under other applicable law, and all other legaland equitable rights to which Lender may be entitled, all of which rights andremedies shall be cumulative and shall be in addition to any other rights orremedies contained in this Agreement or any of the other Loan Documents, andnone of which shall be exclusive.

 

**10.3.2****             **Theright to take immediate possession of the Collateral, and to **(i)** require Borrower to assemble the Collateral, at Borrower’sexpense, and make it available to Lender at a place designated by Lender whichis reasonably convenient to both parties, and **(ii)**enter any premises where any of the Collateral shall be located and to keep andstore the Collateral on said premises until sold (and if said premises be theProperty of Borrower, Borrower agrees not to charge Lender for storagethereof).

 

**10.3.3****             **Theright to sell or otherwise dispose of all or any Collateral in its thencondition, or after any further manufacturing or processing thereof, at publicor private sale or sales, with such notice as may be required by law, in lotsor in bulk, for cash or on credit, all as Lender, in its sole discretion, maydeem advisable. Seller may, at Seller’s option, disclaim any and all warrantiesregarding the Collateral in connection with any such sale. Borrower agrees thatten (10) days written notice to Borrower of any public or private sale or otherdisposition of Collateral shall be reasonable notice thereof, and such saleshall be at such locations as Lender may designate in said notice. Lender shallhave the right to conduct such sales on Borrower’s premises, without chargetherefor, and such sales may be adjourned from time to time in accordance withapplicable law.  Lender shall have theright to sell, lease or otherwise dispose of the Collateral, or any partthereof, for cash, credit or any combination thereof, and Lender may purchaseall or any part of the Collateral at public or, if permitted by law, privatesale and, in lieu of actual payment of such purchase price, may set off theamount of such price against the Obligations. The proceeds realized from thesale of any Collateral may be applied, after allowing two (2) Business Days forcollection, first to the costs, expenses and attorneys’ fees incurred by Lenderin collecting the Obligations, in enforcing the

 

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rights of Lender underthe Loan Documents and in collecting, retaking, completing, protecting,removing, storing, advertising for sale, selling and delivering any Collateral;second to the interest due upon any of the Obligations; and third, to theprincipal of the Obligations. If any deficiency shall arise, Borrower and eachGuarantor (subject to the Guaranty Agreement) shall remain jointly andseverally liable to Lender therefor.

 

**10.3.4****             **Lenderis hereby granted a license or other right to use, without charge, Borrower’slabels, patents, copyrights, rights of use of any name, trade secrets,tradenames, trademarks and advertising matter, or any Property of a similarnature, as it pertains to the Collateral, in advertising for sale and sellingany Collateral and Borrower’s rights under all licenses and all franchiseagreements shall inure to Lender’s benefit.

 

**10.3.5****             **Lendermay, at its option, require Borrower to deposit with Lender funds equal to theLC Amount and, if Borrower fails to promptly make such deposit, Lender mayadvance such amount as a Base Rate Advance (whether or not an Overadvance iscreated thereby). Any such deposit or advance shall be held by Lender as areserve to fund future payments on such LC Guaranties and future drawingsagainst such Letters of Credit. At such time as all LC Guaranties have beenpaid or terminated and all Letters of Credit have been drawn upon or expired,any amounts remaining in such reserve shall be applied against any outstandingObligations, or, if all Obligations have been indefeasibly paid in full,returned to Borrower.

 

**10.4****                        RemediesCumulative; No Waiver**.  Allcovenants, conditions, provisions, warranties, guaranties, indemnities, andother undertakings of Borrower contained in this Agreement and the other LoanDocuments, or in any document referred to herein or contained in any agreementsupplementary hereto or in any schedule or in any Guaranty Agreement given toLender or contained in any other agreement between Lender and Borrower,heretofore, concurrently, or hereafter entered into, shall be deemed cumulativeto and not in derogation or substitution of any of the terms, covenants,conditions, or agreements of Borrower herein contained. The failure or delay ofLender to require strict performance by Borrower of any provision of thisAgreement or to exercise or enforce any rights, Liens, powers, or remedieshereunder or under any of the aforesaid agreements or other documents orsecurity or Collateral shall not operate as a waiver of such performance,Liens, rights, powers and remedies, but all such requirements, Liens, rights,powers, and remedies shall continue in full force and effect until all Loansand all other Obligations owing or to become owing from Borrower to Lendershall have been fully satisfied. None of the undertakings, agreements,warranties, covenants and representations of Borrower contained in thisAgreement or any of the other Loan Documents and no Default or Event of Defaultby Borrower under this Agreement or any other Loan Documents shall be deemed tohave been suspended or waived by Lender, unless such suspension or waiver is byan instrument in writing specifying such suspension or waiver and is signed bya duly authorized representative of Lender and directed to Borrower.

 

**SECTION 11.****                     MISCELLANEOUS**

 

**11.1****                        Powerof Attorney**.  Borrower herebyirrevocably designates, makes, constitutes and appoints Lender (and all Personsdesignated by Lender) as Borrower’s true and lawful attorney (and agent-in-fact)and Lender, or Lender’s agent, may, without notice to Borrower and in eitherBorrower’s or Lender’s name, but at the cost and expense of Borrower:

 

**11.1.1    **Atsuch time or times upon or after the occurrence of a Default or an Event ofDefault as Lender or said agent, in its sole discretion, may determine, endorseBorrower’s name on any checks, notes, acceptances, drafts, money orders or anyother evidence of payment or proceeds of the Collateral which come into thepossession of Lender or under Lender’s control.

 

**11.1.2    **Atsuch time or times upon or after the occurrence of an Event of Default asLender or its agent in its sole discretion may determine: **(i)**demand payment of the Accounts from the Account Debtors, enforce payment of theAccounts by legal proceedings or otherwise, and generally exercise all ofBorrower’s rights and remedies with respect to the collection of the Accounts; **(ii)** settle, adjust, compromise, discharge or release any ofthe Accounts or other Collateral or any legal proceedings brought to collectany of the Accounts or other Collateral; **(iii)** sell orassign any of the Accounts and other Collateral upon such terms, for suchamounts and at such time or times as Lender deems advisable and, at Lender’soption, with all warranties regarding

 

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the Collateraldisclaimed; **(iv)** take control, in any manner,of any item of payment or proceeds relating to any Collateral; **(v)** prepare, file and sign Borrower’s name to a proof ofclaim in bankruptcy or similar document against any Account Debtor or to anynotice of lien, assignment or satisfaction of lien or similar document inconnection with any of the Collateral; **(vi)** receive,open and dispose of all mail addressed to Borrower and to notify postalauthorities to change the address for delivery thereof to such address asLender may designate; **(vii)** endorsethe name of Borrower upon any of the items of payment or proceeds relating toany Collateral and deposit the same to the account of Lender on account of theObligations; **(viii)** endorse the name ofBorrower upon any chattel paper, document, instrument, invoice, freight bill,bill of lading or similar document or agreement relating to the Accounts,Inventory and any other Collateral; **(ix)** useBorrower’s stationery and sign the name of Borrower to verifications of theAccounts and notices thereof to Account Debtors; **(x)**use the information recorded on or contained in any data processing equipmentand computer hardware and software relating to the Accounts, Inventory, Equipmentand any other Collateral; **(xi)** make andadjust claims under policies of insurance; and **(xii)**do all other acts and things necessary, in Lender’s determination, to fulfillBorrower’s obligations under this Agreement.

 

**11.2****                        Indemnity**.  Borrower hereby agrees to indemnify Lenderand hold Lender harmless from and against any liability, loss, damage, suit,action or proceeding ever suffered or incurred by Lender (including reasonableattorneys fees and legal expenses) as the result of Borrower’s failure toobserve, perform or discharge Borrower’s duties hereunder. In addition,Borrower shall defend Lender against and save it harmless from all claims ofany Person with respect to the Collateral. Without limiting the generality ofthe foregoing, these indemnities shall extend to any claims asserted againstLender by any Person under any Environmental Laws or similar laws by reason ofBorrower’s or any other Person’s failure to comply with laws applicable tosolid or hazardous waste materials or other toxic substances. Notwithstandingany contrary provision in this Agreement, the obligation of Borrower under this**Section 11.2** shall survive the paymentin full of the Obligations and the termination of this Agreement.

 

**11.3****                        Modificationof Agreement; Sale of Interest**. This Agreement may not be modified, altered or amended, except by anagreement in writing signed by Borrower and Lender. Borrower may not sell,assign or transfer any interest in this Agreement, any of the other LoanDocuments, or any of the Obligations, or any portion thereof, including,without limitation, Borrower’s rights, title, interests, remedies, powers, andduties hereunder or thereunder. Borrower hereby consents to Lender’sparticipation, sale, assignment, transfer or other disposition, at any time ortimes hereafter, of this Agreement and any of the other Loan Documents, or ofany portion hereof or thereof, including, without limitation, Lender’s rights,title, interests, remedies, powers, and duties hereunder or thereunder. In thecase of an assignment, the assignee shall have, to the extent of suchassignment, the same rights, benefits and obligations as it would if it were “Lender”hereunder and Lender shall be relieved of all obligations hereunder upon anysuch assignments.  Borrower agrees thatit will use its best efforts to assist and cooperate with Lender in any mannerreasonably requested by Lender to effect the sale of participations in orassignments of any of the Loan Documents or any portion thereof or interesttherein, including, without limitation, assisting in the preparation ofappropriate disclosure documents. Borrower further agrees that Lender maydisclose credit information regarding Borrower, its Subsidiaries and anyGuarantor to any potential participant or assignee.

 

**11.4****                        Severability**.  Wherever possible, each provision of thisAgreement shall be interpreted in such manner as to be effective and validunder applicable law, but if any provision of this Agreement shall beprohibited by or invalid under applicable law, such provision shall beineffective only to the extent of such prohibition or invalidity, withoutinvalidating the remainder of such provision or the remaining provisions ofthis Agreement.

 

**11.5****                        Successorsand Assigns**.  This Agreement, theOther Agreements and the Security Documents shall be binding upon and inure tothe benefit of the successors and assigns of Borrower and Lender permittedunder **Section 11.3** hereof.

 

**11.6****                        CumulativeEffect; Conflict of Terms**.  Theprovisions of the Other Agreements and the Security Documents are hereby madecumulative with the provisions of this Agreement. Except as otherwise providedin **Section 3.2** hereof and except asotherwise provided in any of the other Loan Documents by specific reference tothe applicable provision of this Agreement, if any provision contained in thisAgreement is in direct conflict with, or inconsistent with, any provision inany of the other Loan Documents, the provision contained in this Agreementshall govern and control.

 

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**11.7****                        Executionin Counterparts**.  This Agreementmay be executed in any number of counterparts and by different parties heretoin separate counterparts, each of which when so executed and delivered shall bedeemed to be an original and all of which counterparts taken together shallconstitute but one and the same instrument.

 

**11.8****                        Notice**.  Except as otherwise provided herein, allnotices, requests and demands to or upon a party hereto, to be effective, shallbe in writing and shall be sent by certified or registered mail, return receiptrequested, by personal delivery against receipt, by overnight courier or byfacsimile and, unless otherwise expressly provided herein, shall be deemed tohave been validly served, given or delivered immediately when delivered againstreceipt, one Business Day after deposit in the mail, postage prepaid, or withan overnight courier or, in the case of facsimile notice, when sent, addressedas follows:

 
| If  to Lender:   | Fleet  Capital Corporation          |
|------------------|-------------------------------------|
|             |                                | One Landmark Square |
|             |                                | 2nd Floor |
|             |                                | CT 2-522-0201 |
|             |                                | Stamford, CT 06901 |
|             |                                | Attention: Deirdre Z.  Sikora |
|             |                                | Facsimile No.: (203)  964-9038 |
|             |                                |   |
| With a copy to:  | Updike, Kelly &  Spellacy, P.C. |
|             |                                | One State Street |
|             |                                | Hartford, CT 06103 |
|             |                                | Attention: Robert J.  Martino, Esq. |
|             |                                | Facsimile No.: (860)  548-2680 |
|             |                                |   |
| If  to Borrower: | IWT  Tesoro Corporation             |
|             |                                | Suite 10, 191 Post Road  West |
|             |                                | Westport, CT 06880 |
|             |                                | Attention: Henry J.  Boucher, Jr. |
|             |                                | Facsimile No.: (203)  221-2797 |
|             |                                |   |
|             |                                | International  Wholesale Tile, Inc. |
|             |                                | 3500 S.W. 42nd Avenue |
|             |                                | Palm City, Florida  34990 |
|             |                                | Attention: Paul F.  Boucher |
|             |                                | Facsimile No.: (772)  223-0837 |
|             |                                |   |
| With  a copy to: | Rader  and Coleman                  |
|             |                                | 2101 North West Boca  Raton |
|             |                                | Boulevard, Suite 1 |
|             |                                | Boca Raton, Florida  33431 |
|             |                                | Attention: Gayle  Coleman |
|             |                                | Facsimile No.: (561)  367-1725 |

 

or to such other addressas each party may designate for itself by notice given in accordance with this **Section 11.8**; provided, however, that anynotice, request or demand to or upon Lender pursuant to **subsection3.1.1**or**4.2.2** hereofshall not be effective until received by Lender.

 

**11.9****                        Lender’sConsent**.  Whenever Lender’sconsent is required to be obtained under this Agreement, any of the OtherAgreements or any of the Security Documents as a condition to any action, inaction,condition or event, Lender shall be authorized to give or withhold such consentin its sole and reasonable discretion and to condition its consent upon thegiving of additional collateral security for the Obligations, the payment ofmoney or any other matter.

 

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**11.10****                 CreditInquiries**.  Borrower herebyauthorizes and permits Lender to respond to usual and customary creditinquiries from third parties concerning Borrower or any of its Subsidiaries orany Guarantor.

 

**11.11****                 Time ofEssence**.  Time is of the essenceof this Agreement, the Other Agreements and the Security Documents.

 

**11.12****                 EntireAgreement**.  This Agreement andthe other Loan Documents, together with all other instruments, agreements andcertificates executed by the parties in connection therewith or with referencethereto, embody the entire understanding and agreement between the partieshereto and thereto with respect to the subject matter hereof and thereof andsupersede all prior agreements, understandings and inducements, whether expressor implied, oral or written.

 

**11.13****                 Interpretation**.  No provision of this Agreement or any of theother Loan Documents shall be construed against or interpreted to thedisadvantage of any party hereto by any court or other governmental or judicialauthority by reason of such party having or being deemed to have structured ordictated such provision.

 

**11.14**                 **GOVERNING LAW; CONSENT TO FORUM. THISAGREEMENT HAS BEEN NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TOHAVE BEEN MADE IN STAMFORD, CONNECTICUT.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUEDIN ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT; PROVIDED, HOWEVER,THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN CONNECTICUT,THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FORFORECLOSURE OF LENDER’S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER’SOTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCHJURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF CONNECTICUT.  AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED,AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESSOF BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR COURTOF HARTFORD, CONNECTICUT, OR, AT LENDER’S OPTION, THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF CONNECTICUT, HARTFORD DIVISION, SHALL HAVE EXCLUSIVE JURISDICTIONTO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAININGTO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS INADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACKOF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUMNONCONVENIENSAND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMEDAPPROPRIATE BY SUCH COURT.  BORROWER HEREBYWAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANYSUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHERPROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THEADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETEDUPON THE EARLIER OF BORROWER’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSITIN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHTOF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDETHE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THETAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATEFORUM OR JURISDICTION.**

 

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**11.15****                 WAIVERS BYBORROWER.  BORROWER WAIVES (i)  THE RIGHT TO TRIAL BY JURY (WHICH LENDERHEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KINDARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THECOLLATERAL; (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT,PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT,EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS,DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDERON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMSWHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO TAKING POSSESSIONOR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BYANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER’S REMEDIES; (iv)THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; (v) NOTICE OFACCEPTANCE HEREOF; AND (VI) EXCEPT AS PROHIBITED BY LAW, ANY RIGHT TO CLAIM ORRECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANYDAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. BORROWER ACKNOWLEDGES THATTHE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER’S ENTERING INTO THISAGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTUREDEALINGS WITH BORROWER.  BORROWERWARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITSLEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTSFOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THISAGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.**

 

[signature page follows]

 

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**INWITNESS WHEREOF,**  thisAgreement has been duly executed on the day and year specified at the beginningof this Agreement.

 
|       | BORROWER:                                                                                                       |
|------------|-----------------------------------------------------------------------------------------------------------------|
|       |                                                                                                            |
| ATTEST:    | **IWT  TESORO CORPORATION**                                                                                     |
|       |                                                                                                            |
|       |                                                                                                            |
|       |                                                                                                            | By |   |   |
|       |                                                                                                            | Henry J. Boucher, Jr. |   |
|       |                                                                                                            | Its President |   |
|       |                                                                                                            |   | Duly Authorized |   |
|       |                                                                                                            |
|       |                                                                                                            |
| ATTEST:    | **INTERNATIONAL  WHOLESALE TILE, INC.**                                                                         |
|       |                                                                                                            |
|       |                                                                                                            |
|       |                                                                                                            | By |   |   |
|       |                                                                                                            | Paul F. Boucher |
|       |                                                                                                            | Its President |
|       |                                                                                                            |   | Duly Authorized |
|       |                                                                                                            |
|       |                                                                                                            |
|       | LENDER:                                                                                                         |
|       |                                                                                                            |
|       | Accepted in               ,  Connecticut: |
|       |                                                                                                            |
| ** ** | **FLEET  CAPITAL CORPORATION**                                                                                  |
| ** ** | ** **                                                                                                      |
| ** ** | ** **                                                                                                      |
|       | By                                                                                                              |   |   |
|       |                                                                                                            | Name: Deirdre Z. Sikora |
|       |                                                                                                            | Title: Vice President |
|       |                                                                                                            | Duly Authorized |
|            |                                                                                                                 |  |  |  |  |  |

 

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STATE OF                                            )

                ) ss                            

 

COUNTY OF                                         )

 

On this           day of                   ,200  , before me the undersigned officer, personally appeared                            ,who acknowledged himself to be the                            of IWT Tesoro Corporation, a Nevada corporation, and that he, as suchPresident, being authorized so to do, executed the foregoing instrument for thepurposes therein contained as his free act and deed and the free act and deedof the corporation.

 

In Witness Whereof Ihereunto set my hand.

 
|   |                                 |   |
|--------|--------------------------------------|--------|
|   | Commissioner of the  Superior Court/ |
|   | Notary Public                        |
|   | My Commission Expires:               |   |   |
|        |                                      |        |  |  |

 

STATE OF                                            )

                ) ss                            

 

COUNTY OF                                         )

 

On this          day of                       ,200  , before me the undersigned officer, personally appeared Paul F.Boucher, who acknowledge himself to be the President of International WholesaleTile, Inc., a Florida corporation, and that he, as such President, beingauthorized so to do, executed the foregoing instrument for the purposes thereincontained as their free act and deed and the free act and deed of thecorporation.

 

In Witness Whereof Ihereunto set my hand.

 
|   |                                 |   |
|--------|--------------------------------------|--------|
|   | Commissioner of the  Superior Court/ |
|   | Notary Public                        |
|   | My Commission Expires:               |   |   |
|        |                                      |        |  |  |

 

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**APPENDIXA**

 

## **GENERAL DEFINITIONS**

##  

When used in the Amendedand Restated Loan and Security Agreement dated as of                       ,200   , by and between Fleet Capital Corporation, IWT TesoroCorporation and International Wholesale Tile, Inc., **(a)**the terms **Account, Certificated Security,Chattel Paper, Deposit Account, Document, Equipment,Financial Asset, Fixture, General Intangibles, Goods,Instrument, Inventory, Investment Property, Security,Proceeds, Security Entitlement** and **UncertificatedSecurity** have the respective meanings assigned thereto under theUCC (as defined below); **(b)** the terms **Commercial Tort Claims, ElectronicChattel Paper, Health-Care-Insurance Receivables, Letter-of-CreditRights, Payment Intangibles, Software, SupportingObligations** and **Tangible Chattel Paper**have the respective meanings assigned thereto in the UCC Revisions (as definedbelow); **(c)** all terms indicating Collateralhaving the meanings assigned thereto under the UCC or the UCC Revisions shallbe deemed to mean such Property, whether now owned or hereafter created oracquired by Borrower or in which Borrower now has or hereafter acquires anyinterest; **(d)** capitalized terms which are nototherwise defined have the respective meanings assigned thereto in said Loanand Security Agreement; and **(e)**thefollowing terms shall have the following meanings (terms defined in thesingular to have the same meaning when used in the plural and vice versa):

 

**Account Debtor** - any Personwho is or may become obligated on or under or on account of any Account,Contract Right, Chattel Paper or General Intangible.

 

**Adjusted Tangible Assets** - all assetsexcept:  (i) any surplus resulting fromany write-up of assets subsequent to December 31, 2002; (ii) deferred assets,other than prepaid insurance and prepaid taxes; (iii) patents, copyrights,trademarks, trade names, non-compete agreements, franchises and other similarintangibles; (iv) goodwill, including any amounts, however designated on aConsolidated balance sheet of a Person or its Subsidiaries, representing theexcess of the purchase price paid for assets or stock over the value assignedthereto on the books of such Person; (v) Restricted Investments; (vi)unamortized debt discount and expense; (vii) assets located and notes andreceivables due from obligors outside of the United States of America; and(viii) Accounts, notes and other receivables due from Affiliates or employees.

 

**Adjusted Tangible Net Worth** - at anydate means a sum equal to:

 

(i)                                     thenet book value (after deducting related depreciation, obsolescence,amortization, valuation, and other proper reserves) at which the AdjustedTangible Assets of a Person would be shown on a balance sheet at such date inaccordance with GAAP, minus

 

(ii)                                  theamount at which such Person’s liabilities (other than capital stock andsurplus) would be shown on such balance sheet in accordance with GAAP, andincluding as liabilities all reserves for contingencies and other potentialliabilities.

 

**Affiliate**- a Person (otherthan a Subsidiary):  **(i)**which directly or indirectly through one or more intermediaries controls, or iscontrolled by, or is under common control with, a Person; **(ii)**which beneficially owns or holds 5% or more of any class of the Voting Stock ofa Person; or **(iii)** 5% or more of the VotingStock (or in the case of a Person which is not a corporation, 5% or more of theequity interest) of which is beneficially owned or held by a Person or aSubsidiary of a Person.

 

**Agreement** - the Loan andSecurity Agreement referred to in the first sentence of this Appendix A, allExhibits thereto and this **Appendix A**.

 

**Availability** - the amount ofmoney which Borrower is entitled to borrow from time to time as RevolvingCredit Loans, such amount being the difference derived when the sum of theprincipal amount of Revolving Credit Loans then outstanding (including anyamounts which Lender may have paid for the account of Borrower pursuant to anyof the Loan Documents and which have not been reimbursed by

 

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Borrower) and the LCAmount is subtracted from the Borrowing Base. If the amount outstanding is equal to or greater than the BorrowingBase, Availability is zero (0).

 

**Bank** - Fleet National Bank,or its successors or assigns.

 

**Base Rate** - the rate ofinterest announced or quoted by Bank from time to time as its prime rate forcommercial loans, whether or not such rate is the lowest rate charged by Bankto its most preferred borrowers; and, if such prime rate for commercial loansis discontinued by Bank as a standard, a comparable reference rate designatedby Bank as a substitute therefor shall be the Base Rate.

 

**Base Rate Advances** – anyLoan bearing interest computed by reference to the Base Rate.

 

**Base Rate Overadvance** –any Overadvance bearing interest computed by reference to the Base Rate.

 

**Borrowing Base** - as at anydate of determination thereof, an amount equal to the lesser of:

 

**(i)**                                         $25,000,000.00at such date; or

 

**(ii)**                                     anamount equal to the sum of :

 

**(a)**                                  85%of the net amount of Eligible Accounts outstanding at such date; plus

 

**(b)**                                  the lesser of (1) $3,500,000.00 or (2) (i)90% of the insured net amount of Eligible Extended Term Accounts at such date plus the lesser of (x)$1,250,000 or (y) Accounts meeting the requirements of Eligible Extended TermAccounts except for the requirement of Credit Insurance; plus

 

**(c)**                                  the sum of (1) 65% of the value of EligibleInventory consisting of floor tile, wall tile, marble and decorative tile(provided however the 65% measurement contained in this subsection (1) shall beincreased to 70% on the Effective Date and continue until the earlier to occurof (i) the date upon which Borrower receives any of the Equity Injection, or(ii) June 30, 2005), plus (2) 50% of the value of Eligible Inventoryconsisting of trim; plus (3) 40% of Listello; plus (4) 10% ofIntransit Inventory at such date, each calculated on the **basis** of the lowerof cost or market with the cost of raw materials and finished goods calculatedon a first-in, first-out basis; provided, however, such sum shallnot exceed 65% of the value of the Borrowing Base (provided however the 65%measurement of the Borrowing Base shall be increased to 70% on the EffectiveDate and continue until the earlier to occur of (i) the date upon which theBorrowers receive any of the Equity Injection, or (ii) June 30, 2005); minus

 

**(d)**                                  the Exchange Exposure, plus

 

**(iii)**                                 90% of the then current cash surrender valueof all life insurance policies taken as collateral by the Lender and in whichthe Lender has a first perfected lien.

 

Forpurposes hereof, the net amount of Eligible Accounts and Eligible Extended TermAccounts at any time shall be the face amount of such Eligible Accounts andEligible Extended Term Accounts less any and all returns, rebates, discounts(which may, at Lender’s option, be calculated on shortest terms), credits,allowances or excise taxes of any nature at any time issued, owing, claimed byAccount Debtors, granted, outstanding or payable in connection with suchAccounts at such time.

 

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**Borrowing Base Certificate** –a certificate by a responsible officer of Borrower, substantially in the formof **Exhibit Q** (or another form acceptableto Lender) setting forth the calculation of the Borrowing Base, including acalculation of each component thereof, all in such detail as shall besatisfactoryto Lender.  All calculations of theBorrowing Base in connection with the preparation of any Borrowing BaseCertificate shall originally be made by Borrower and certified to Lender;provided, that Lender shall have the right to review and adjust, in theexercise of its reasonable credit judgment, any such calculation after givingnotice thereof to the Borrower, **(1)** to reflectits reasonable estimate of declines in value of any of the Collateral describedtherein, and **(2)** to the extent that suchcalculation is notin accordance with this Agreement.

 

**Business Day** - any dayexcluding Saturday, Sunday and any day which is a legal holiday under the lawsof the State of Connecticut or is a day on which banking institutions locatedin such state are closed.

 

**Capitalized Lease Obligation**- any Indebtedness represented by obligations under a lease that is required tobe capitalized for financial reporting purposes in accordance with GAAP.

 

**Closing Date** - the date onwhich all of the conditions precedent in **Section 9** ofthe Agreement were satisfied and the initial Loan was made or the initialLetter of Credit or LC Guaranty was issued under the Agreement, September 10,2003.

 

**COGS** – cost of Inventory of Borrowersold to any Person (other than Guarantor, any Subsidiary or any other thirdparty related to Borrower) in the ordinary course of Borrower’s business.

 

**Collateral** - all of theProperty and interests in Property described in **Section 5**of the Agreement, and all other Property and interests in Property that now orhereafter secure the payment and performance of any of the Obligations.

 

**Computer Hardware and Software**– all of Borrower’s rights (including rights as licensee and lessee) with respectto **(i)** computer and other electronic dataprocessing hardware, including all integrated computer systems, centralprocessing units, memory units, display terminals, printers, computer elements,card readers, tape drives, hard and soft disk drives, cables, electrical supplyhardware, generators, power equalizers, accessories, peripheral devices andother related computer hardware; **(ii)** allSoftware and all software programs designed for use on the computers andelectronic data processing hardware described in **clause (i)**above, including all operating system software, utilities and applicationprograms in any form (source code and object code in magnetic tape, disk orhard copy format or any other listings whatsoever); **(iii)**any firmware associated with any of the foregoing; and **(iv)**any documentation for hardware, Software and firmware described in **clauses (i)**,**(ii)** and **(iii)** above, including flow charts, logic diagrams, manuals,specifications, training materials, charts and pseudo codes.

 

**Consolidated** - theconsolidation in accordance with GAAP of the accounts or other items as towhich such term applies.

 

**Contract Right** – any rightof Borrower to payment under a contract for the sale or lease of goods or therendering of services, which right is at the time not yet earned byperformance.

 

**Credit Insurance -**at anydate means a policy of credit insurance obtained by the Borrower issued by areputable insurance carrier acceptable to Lender in its sole discretion andwith respect to which Lender has approved any deductible insured percentage,credit limit or policy limit of liability, country limit of liability,non-qualifying loss amount or other limitation on claims and which CreditInsurance has been assigned to the Lender as additional collateral for theLoans.

 

**Current Assets** - at any datemeans the amount at which all of the current assets of a Person would beproperly classified as current assets shown on a balance sheet at such date inaccordance with GAAP.

 

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**Current Liabilities** – at anydate means the amount at which all of the current liabilities of a Person wouldbe properly classified as current liabilities on a balance sheet at such datein accordance with GAAP [excluding the Loans and current maturities of anylong-term Indebtedness].

 

**Default** - an event orcondition the occurrence of which would, with the lapse of time or the givingof notice, or both, become an Event of Default.

 

**Default Rate** - as defined in**subsection 2.1.2** of the Agreement.

 

**Distribution** - in respect ofany corporation means and includes:  **(i)** the payment of any dividends or other distributions oncapital stock of the corporation (except distributions in such stock) and **(ii)** the redemption or acquisition of Securities unless madecontemporaneously from the net proceeds of the sale of Securities.

 

**Dominion Account** - a specialaccount established by Borrower pursuant to the Agreement at a bank selected byBorrower, but acceptable to Lender in its reasonable discretion, which willprovide that the balances in such account shall on a daily basis automaticallybe deposited into the Fleet Concentration Account and which Lender shall havesole and exclusive access and control for withdrawal purposes.

 

**EBITDA** - with respect to anyfiscal period, the sum of Borrower’s Consolidated net earnings (or loss) beforeinterest expense, taxes, depreciation and amortization for said period asdetermined in accordance with GAAP, excluding extraordinary gains and non-cashadjustments made under the Financial Accounting Standards Board Statement No.133.

 

**Effective Date** – has themeaning set forth in the recitals of the Agreement.

 

**Eligible Account** - anAccount arising in the ordinary course of Borrower’s business from the sale ofgoods or rendition of services which Lender, in its reasonable credit judgment,deems to be an Eligible Account.  Withoutlimiting the generality of the foregoing, no Account shall be an EligibleAccount if:

 

**(i)**                                    itarises out of a sale made by Borrower to a Subsidiary or an Affiliate ofBorrower or to a Person controlled by an Affiliate of Borrower; or

 

**(ii)**                                itis unpaid for more than sixty (60) days after the original due date shown onthe invoice; or

 

**(iii)**                            it isdue or unpaid more than ninety (90) days after the original invoice date; or

 

**(iv)**                               50%or more of the Accounts from the Account Debtor are not deemed EligibleAccounts hereunder; or

 

**(v)****                                  **thetotal unpaid Accounts of the Account Debtor exceed 20% of the net amount of allEligible Accounts, to the extent of such excess; or

 

**(vi)**                               anycovenant, representation or warranty contained in the Agreement with respect tosuch Account has been breached; or

 

**(vii)**                           theAccount Debtor is also Borrower’s creditor or supplier, or the Account Debtorhas disputed liability with respect to such Account, or the Account Debtor hasmade any claim with respect to any other Account due from such Account Debtorto Borrower, or the Account otherwise is or may become subject to any right ofsetoff by the Account Debtor; or

 

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**(viii)**                       the AccountDebtor has commenced a voluntary case under the federal bankruptcy laws, as nowconstituted or hereafter amended, or made an assignment for the benefit ofcreditors, or a decree or order for relief has been entered by a court havingjurisdiction in the premises in respect of the Account Debtor in an involuntarycase under the federal bankruptcy laws, as now constituted or hereafteramended, or any other petition or other application for relief under the federalbankruptcy laws has been filed against the Account Debtor, or if the AccountDebtor has failed, suspended business, ceased to be Solvent, or consented to orsuffered a receiver, trustee, liquidator or custodian to be appointed for it orfor all or a significant portion of its assets or affairs; or

 

**(ix)**                              itarises from a sale to an Account Debtor outside the United States or Canada,unless the sale is on letter of credit, guaranty or acceptance terms, in eachcase acceptable to Lender in its sole discretion; or

 

**(x)**                                  itarises from a sale to the Account Debtor on a bill-and-hold, guaranteed sale,sale-or-return, sale-on-approval, consignment or any other repurchase or returnbasis; or

 

**(xi)**                              theAccount Debtor is the United States of America or any department, agency orinstrumentality thereof, unless Borrower assigns its right to payment of suchAccount to Lender, in a manner satisfactory to Lender, so as to comply with theAssignment of Claims Act of 1940 (31 U.S.C. §203 etseq., asamended); or

 

**(xii)**                          the Accountis subject to a Lien other than a Permitted Lien; or

 

**(xiii)**                      the goodsgiving rise to such Account have not been delivered to and accepted by theAccount Debtor (excluding 10% of goods in transit which shall be deemedeligible hereunder) or the services giving rise to such Account have not beenperformed by Borrower and accepted by the Account Debtor or the Accountotherwise does not represent a final sale; or

 

**(xiv)**                         theAccount is evidenced by chattel paper or an instrument of any kind, or has beenreduced to judgment; or

 

**(xv)**                             Borrowerhas made any agreement with the Account Debtor for any deduction therefrom,except for discounts or allowances which are made in the ordinary course ofbusiness for prompt payment and which discounts or allowances are reflected inthe calculation of the face value of each invoice related to such Account; or

 

**(xvi)****                        **Borrowerhas made an agreement with the Account Debtor to extend the time of paymentthereof.

 

**Eligible Extended Term Account**- an Account arising in the ordinary course of Borrower’s business from thesale of goods or rendition of services which Lender, in its reasonable creditjudgment, deems to be an Eligible Extended Term Account.  Without limiting the generality of theforegoing, no Account shall be an Eligible Extended Term Account if:

 

**(i)**                                    itarises out of a sale made by Borrower to a Subsidiary or an Affiliate ofBorrower or to a Person controlled by an Affiliate of Borrower; or

 

**(ii)**                                itis unpaid for more than sixty (60) days after the original due date shown onthe invoice; or

 

**(iii)**                            it isdue or unpaid more than one hundred eighty (180) days after the originalinvoice date; or

 

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**(iv)**                               50%or more of the Accounts from the Account Debtor are not deemed EligibleExtended Term Accounts hereunder or

 

**(v)****                                  **thetotal unpaid Accounts of the Account Debtor exceed 50% through December 31, 2003 and 20% thereafter of the netamount of all Eligible Extended Term Accounts, to the extent of such excess; or

 

**(vi)**                               anycovenant, representation or warranty contained in the Agreement with respect tosuch Account has been breached; or

 

**(vii)**                           theAccount Debtor is also Borrower’s creditor or supplier, or the Account Debtorhas disputed liability with respect to such Account, or the Account Debtor hasmade any claim with respect to any other Account due from such Account Debtorto Borrower, or the Account otherwise is or may become subject to any right ofsetoff by the Account Debtor; or

 

**(viii)**                       the AccountDebtor has commenced a voluntary case under the federal bankruptcy laws, as nowconstituted or hereafter amended, or made an assignment for the benefit ofcreditors, or a decree or order for relief has been entered by a court havingjurisdiction in the premises in respect of the Account Debtor in an involuntarycase under the federal bankruptcy laws, as now constituted or hereafteramended, or any other petition or other application for relief under thefederal bankruptcy laws has been filed against the Account Debtor, or if the AccountDebtor has failed, suspended business, ceased to be Solvent, or consented to orsuffered a receiver, trustee, liquidator or custodian to be appointed for it orfor all or a significant portion of its assets or affairs; or

 

**(ix)****                             **itarises from a sale to an Account Debtor outside the United States or Canada,unless the sale is on letter of credit, guaranty or acceptance terms, in eachcase acceptable to Lender in its sole discretion; or

 

**(x)****                                 **itarises from a sale to the Account Debtor on a bill-and-hold, guaranteed sale,sale-or-return, sale-on-approval, consignment or any other repurchase or returnbasis; or

 

**(xi)**                              theAccount Debtor is the United States of America or any department, agency orinstrumentality thereof, unless Borrower assigns its right to payment of suchAccount to Lender, in a manner satisfactory to Lender, so as to comply with theAssignment of Claims Act of 1940 (31 U.S.C. §203 etseq., asamended); or

 

**(xii)**                          theAccount is subject to a Lien other than a Permitted Lien; or

 

**(xiii)**                      the goodsgiving rise to such Account have not been delivered to and accepted by theAccount Debtor (excluding 10% of goods in transit which shall be deemedeligible hereunder) as evidenced by Borrower’s receipt of a proof of deliveryor the services giving rise to such Account have not been performed by Borrowerand accepted by the Account Debtor or the Account otherwise does not representa final sale; or

 

**(xiv)**                         theAccount is evidenced by chattel paper or an instrument of any kind, or has beenreduced to judgment; or

 

**(xv)**                             Borrowerhas made any agreement with the Account Debtor for any deduction therefrom,except for discounts or allowances which are made in the ordinary course ofbusiness for prompt payment and which discounts or allowances are reflected inthe calculation of the face value of each invoice related to such Account; or

 

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**(xvi)****                        **Borrowerhas made an agreement with the Account Debtor to extend the time of paymentbeyond one hundred twenty (120) days of the due date thereof; or

 

**(xvii)****                    **AnAccount which is not subject to Credit Insurance; or

 

**(xviii)****                **An Accountwhich is subject to Credit Insurance and with respect to which (a) Borrower hasfailed to comply with the terms, covenants, limitations and conditions of theCredit Insurance, or (b) the insured has failed to make or honor a claimpresent under the Credit Insurance within sixty (60) days of the submissionthereof or has earlier denied coverage with respect thereto.

 

**Eligible Inventory** - such Inventoryof Borrower (other than packaging materials and supplies) which Lender, in itsreasonable credit judgment, deems to be Eligible Inventory.  Without limiting the generality of theforegoing, no Inventory shall be Eligible Inventory if:

 

**(i)**                                    itis not raw materials or finished goods, or work-in-process that is, in Lender’sopinion, readily marketable in its current form; or

 

**(ii)**                                itis not in good, new and saleable condition; or

 

**(iii)**                            it isslow-moving (which mean all items (a)purchased more than two (2) years from the date of testing, and (b) which haveturnover of less than one-half times per year), obsolete orunmerchantable; or

 

**(iv)**                               itdoes not meet all standards imposed by any governmental agency or authority; or

 

**(v)**                                   itdoes not conform in all respects to the warranties and representations setforth in the Agreement; or

 

**(vi)**                               itis not at all times subject to Lender’s duly perfected, first-priority securityinterest and no other Lien except a Permitted Lien; or

 

**(vii)**                           it isnot situated at a location in compliance with the Agreement or is in transit.

 

**Environmental Laws** - allfederal, state and local laws, rules, regulations, ordinances, programs,permits, guidances, orders and consent decrees relating to health, safety andenvironmental matters.

 

**Equity Injection** – means proceeds paid to Borrower from theissuance of securities of Borrower whether or not made pursuant to aregistration statement under the federal securities laws, which proceeds shallbe sufficient such that Borrower shall be in compliance with all financialcovenants set forth in Section 8.3 ofthis Agreement.

 

**ERISA** - the EmployeeRetirement Income Security Act of 1974, as amended, and all rules andregulations from time to time promulgated thereunder.

 

**Event of Default** - as definedin **Section 10.1** of the Agreement.

 

**Exchange Exposure******means, at any time, ten percent (10%) of theaggregate amount of Borrower’s outstanding foreign currencies exposure pursuantto any and all agreements entered into by the Borrower, either directly orthrough Bank, with foreign exchange services pursuant to the terms andconditions set forth in a foreign exchange contract to be executed between Bankand Borrower, so as to permit the Borrower to obtain, purchase, sell orotherwise deal in specified foreign currencies pursuant to foreign exchangecontracts to be executed from time to time between Bank and Borrower.

 

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**Fleet Concentration Account –**anaccount in the name of the Lender at Bank, which Lender shall have sole andexclusive access and control for withdrawal purposes.

 

**GAAP** - generally acceptedaccount principles in the United States of America in effect from time to time.

 

**Guarantors** – meansindividually and collectively IWT Tesoro International, Ltd, a Bermuda exemptcompany with a chief executive office located at Suite 10, 191 Post Road West,Westport, Connecticut 06880, IWT Tesoro Transport, Inc., a Florida corporationwith a chief executive office located at Suite 10, Post Road West, Westport,Connecticut 06880, and any other Person who may hereafter guarantee payment orperformance of the whole or any part of the Obligations.

 

**Guaranty Agreements** - theContinuing Guaranty Agreements which areto be executed by each Guarantor in form and substance satisfactory to Lender.

 

**Indebtedness** - as applied toa Person means, without duplication

 

**(i)**                                    allitems which in accordance with GAAP would be included in determining totalliabilities as shown on the liability side of a balance sheet of such Person asat the date as of which Indebtedness is to be determined, including, withoutlimitation, Capitalized Lease Obligations,

 

**(ii)**                                allobligations of other Persons which such Person has guaranteed,

 

**(iii)**                            allreimbursement obligations in connection with letters of credit or letter ofcredit guaranties issued for the account of such Person, and

 

**(iv)****                              **inthe case of Borrower (without duplication), the Obligations.

 

**Intellectual Property** – allpast, present and future:  trade secrets,know-how and other proprietary information; trademarks, internet domain names,service marks, trade dress, trade names, trademarks, business names, tradestyles, designs, logos, slogans (and all translations, adaptations, derivationsand combinations of the foregoing) indicia and other source and/or businessidentifiers, and the goodwill of the business relating thereto and allregistrations or applications for registrations which have heretofore been ormay hereafter be issued thereon throughout the world, all renewals thereof; copyrights(including copyrights for computer programs) and copyright registrations orapplications for registrations which have heretofore been or may hereafter beissued throughout the world and all tangible property embodying the copyrights,unpatented inventions (whether or not patentable); patent applications andpatents, all reissues and extensions thereof, and all proceeds thereof,including the goodwill of the business connected with the use of and symbolizedby the same; industrial design applications and registered industrial designs;license agreements, whether oral or written, related to any of the foregoingand income therefrom; books, records, writings, computer tapes or disks, flowdiagrams, specification sheets, computer software, source codes, object codes,executable code, data, databases and other physical manifestations, embodimentsor incorporations of any of the foregoing; the right to sue for all past,present and future infringements of any of the foregoing; all otherintellectual property; any and all proceeds of any of the foregoing; and allcommon law and other rights throughout the world in and to all of theforegoing.

 

**Interest Expenses**– meanswith respect to any applicable period, scheduled interest payments required tobe made for such period in respect of Indebtedness.

 

**Interest Period** – asapplicable to any LIBOR Advance, a period commencing on the date a LIBORAdvance is made, and ending on the date which is one (1) month, two (2) months,three (3) months, or six (6) months later, as may then be requested byBorrower; provided that **(i)** anyInterest Period which would otherwise end on a day which is not a Business Dayshall end in the next preceding or succeeding

 

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Business Day as is Lender’scustom in the market to which such LIBOR Advance relates; **(ii)**there remains a minimum of one (1) month, two (2) months, three (3) months orsix (6) months (depending upon which Interest Period Borrower selects) in theTerm; and **(iii)** all Interest Periods of the sameduration which commence on the same date shall end on the same date.

 

**Intransit Inventory** – means Inventorymeeting the requirements of Eligible Inventory, except that it is in-transitfrom a supplier’s location to Borrower’s location.

 

**LC Amount** - at any time, theaggregate undrawn face amount of all Letters of Credit and LC Guaranties thenoutstanding.

 

**LC Guaranty** - any guarantypursuant to which Lender or any Affiliate of Lender shall guaranty the paymentor performance by Borrower of its reimbursement obligation under any letter ofcredit.

 

**Letter of Credit** - anyletter of credit issued by Lender or any of Lender’s Affiliates for the accountof Borrower.

 

**LIBOR** – as applicable to anyLIBOR Advance, the rate per annum (rounded upward, if necessary, to the nearest1/32 of one percent) as determined on the basis of the offered rates fordeposits in U.S. dollars, for a period of time comparable to such LIBOR Advancewhich appears on the Telerate page 3750 as of 11:00 a.m. (London time) on theday that is two (2) London Banking Days preceding the first day of such LIBORAdvance; provided, however, if the rate described above does not appear on theTelerate System on any applicable interest determination date, the LIBOR rateshall be the rate (rounded upwards as described above, if necessary) fordeposits in U.S. dollars for a period substantially equal to the interestperiod on the Reuters Page “LIBO” (or such other page as may replace the LIBOPage on that service for the purpose of displaying such rates), as of 11:00a.m. (London Time), on the day that is two (2) London Banking Days prior to thebeginning of such interest period.  Ifboth the Telerate and Reuters systems are unavailable, then the rate for thatdate will be determined on the basis of the offered rates for deposits in U.S.dollars for a period of time comparable to such LIBOR Advance which are offeredby four (4) major banks in the London interbank market at approximately 11:00a.m. (London time), on the day that is two (2) London Banking Days precedingthe first day of such LIBOR Advance as selected by Lender.  The principal London office of each of themajor London Banks so selected will be requested to provide a quotation of itsU.S. dollar deposit offered rate.  If atleast two (2) such quotations are provided, the rate for that date will be thearithmetic mean of the quotations.  Iffewer than two quotations are provided as requested, the rate for that datewill be determined on the basis of the rates quoted for loans in U.S. dollarsto leading European banks for a period of time comparable to such LIBOR Advanceoffered by major banks in Hartford, Connecticut at approximately 11:00 a.m.(Hartford, Connecticut time), on the day that is two (2) London Banking Dayspreceding the first day of such LIBOR Advance. In the event that Lender is unable to obtain any such quotation asprovided above, it will be determined that LIBOR pursuant to a LIBOR Advancecannot be determined.  In the event thatthe Board of Governors of the Federal Reserve System shall impose a ReservePercentage with respect to LIBOR deposits of Bank then for any period duringwhich such Reserve Percentage shall apply, LIBOR shall be equal to the amountdetermined above divided by an amount equal to 1 minus the Reserve Percentage.

 

**LIBOR Advance** – any Loanbearing interest computed by reference to the LIBOR.

 

**LIBOR Overadvance** – anyOveradvance bearing interest computed by reference to the LIBOR.

 

**Lien** - any interest inProperty securing an obligation owed to, or a claim by, a Person other than theowner of the Property, whether such interest is based on common law, statute orcontract.  The term “Lien” shall alsoinclude reservations, exceptions, encroachments, easements, rights-of-way,covenants, conditions, restrictions, leases and other title exceptions andencumbrances affecting Property.  For thepurpose of the Agreement, Borrower shall be deemed to be the owner of anyProperty which it has acquired or holds subject to a conditional sale agreementor other arrangement pursuant to which title to the Property has been retainedby or vested in some other Person for security purposes.

 

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**Loan Account** - the loanaccount established on the books of Lender pursuant to **Section 3.6**of the Agreement.

 

**Loan Documents** - theAgreement, the Other Agreements and the Security Documents.

 

**Loans** - all loans andadvances of any kind made by Lender, and/or by any affiliate of Lender,pursuant to the Agreement.

 

**London Banking Day** – anydate on which commercial banks are open for business in London, England.

 

**Money Borrowed** - means **(i)** Indebtedness arising from the lending of money by anyPerson to Borrower; **(ii)**Indebtedness, whether or not in any such case arising from the lending by anyPerson of money to Borrower, **(A)** which isrepresented by notes payable or drafts accepted that evidence extensions ofcredit, **(B)** which constitutes obligationsevidenced by bonds, debentures, notes or similar instruments, or **(C)** upon which interest charges are customarily paid (otherthan accounts payable) or that was issued or assumed as full or partial paymentfor Property; **(iii)** Indebtedness thatconstitutes a Capitalized Lease Obligation; **(iv)**reimbursement obligations with respect to letters of credit or guaranties ofletters of credit and **(v)**Indebtedness of Borrower under any guaranty of obligations that wouldconstitute Indebtedness for Money Borrowed under clauses **(i)**through **(iii)** hereof, if owed directly byBorrower.

 

**Multiemployer Plan** - has themeaning set forth in Section 4001(a)(3) of ERISA.

 

**Obligations** - all Loans andall other advances, debts, liabilities, obligations, covenants and duties,together with all interest, fees and other charges thereon, owing, arising, dueor payable from Borrower to Lender, and/or to any affiliate of Lender,  of any kind or nature, present or future,whether or not evidenced by any note, guaranty or other instrument, whetherarising under the Agreement or any of the other Loan Documents or otherwisewhether direct or indirect (including those acquired by assignment), absoluteor contingent, primary or secondary, due or to become due, now existing orhereafter arising and however acquired.

 

**Organizational I.D. Number** –with respect to Borrower, the organizational identification number assigned toBorrower by the applicable governmental unit or agency of the jurisdiction oforganization of Borrower.

 

**Other Agreements** - any andall agreements, instruments and documents (other than the Agreement and theSecurity Documents), heretofore, now or hereafter executed by Borrower, anySubsidiary of Borrower or any other third party and delivered to Lender inrespect of the transactions contemplated by the Agreement.

 

**Overadvance** - the amount, ifany, by which the outstanding principal amount of Revolving Credit Loans plusthe LC Amount exceeds the Borrowing Base.

 

**Overadvance Limit** – has themeaning set forth in Section 1.3 of the Agreement.

 

**Participating Lender** - eachPerson who shall be granted the right by Lender to participate in any of theLoans described in the Agreement and who shall have entered into aparticipation agreement in form and substance satisfactory to Lender.

 

**Permitted Liens** - any Lienof a kind specified in **subsection 8.2.5**of the Agreement.

 

**Permitted Purchase Money Indebtedness**- Purchase Money Indebtedness of Borrower incurred after the date hereof whichis secured by a Purchase Money Lien and which, when aggregated with the

 

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principal amount of allother such Indebtedness and Capitalized Lease Obligations of Borrower at thetime outstanding, does not exceed $25,000. For the purposes of this definition, the principal amount of anyPurchase Money Indebtedness consisting of capitalized leases shall be computedas a Capitalized Lease Obligation.

 

**Person** - an individual,partnership, corporation, limited liability company, joint stock company, landtrust, business trust, or unincorporated organization, or a government oragency or political subdivision thereof.

 

**Plan** - an employee benefitplan now or hereafter maintained for employees of Borrower that is covered byTitle IV of ERISA.

 

**Principal Paid**-****means as of any date as to which the amount thereof shallbe determined, all principal amounts scheduled to be paid during the applicableperiod.

 

**Projections** - Borrower’sforecasted Consolidated and consolidating **(a)** balancesheets, **(b)** profit and loss statements, **(c)** cash flow statements, and **(d)**revolving collateral to loan statements, all prepared on a consistent basiswith Borrower’s historical financial statements, together with appropriatesupporting details and a statement of underlying assumptions.

 

**Property** - any interest inany kind of property or asset, whether real, personal or mixed, or tangible orintangible.

 

**Purchase Money Indebtedness** -means and includes **(i)**Indebtedness (other than the Obligations) for the payment of all or any part ofthe purchase price of any fixed assets, **(ii)** anyIndebtedness (other than the Obligations) incurred at the time of or within ten(10) days prior to or after the acquisition of any fixed assets for the purposeof financing all or any part of the purchase price thereof, and **(iii)** any renewals, extensions or refinancings thereof, butnot any increases in the principal amounts thereof outstanding at the time.

 

**Purchase Money Lien** - a Lienupon fixed assets which secures Purchase Money Indebtedness, but only if suchLien shall at all times be confined solely to the fixed assets the purchaseprice of which was financed through the incurrence of the Purchase MoneyIndebtedness secured by such Lien.

 

**Reportable Event** - any ofthe events set forth in Section 4043(b) of ERISA.

 

**Reserve Percentage –**themaximum aggregate reserve requirement (including all basic, supplemental,marginal and other reserves) which is imposed on member banks of the FederalReserve System against “Euro-currency Liabilities” as defined in Regulation D.

 

**Restricted Investment** - anyinvestment made in cash or by delivery of Property to any Person, whether byacquisition of stock, Indebtedness or other obligation or Security, or by loan,advance or capital contribution, or otherwise, or in any Property except thefollowing:

 

**(i)**                                    investmentsin one or more Subsidiaries of Borrower to the extent existing on the ClosingDate;

 

**(ii)**                                Propertyto be used in the ordinary course of business;

 

**(iii)**                            CurrentAssets arising from the sale of goods and services in the ordinary course ofbusiness of Borrower and its Subsidiaries;

 

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**(iv)**                               investmentsin direct obligations of the United States of America, or any agency thereof orobligations guaranteed by the United States of America, provided that suchobligations mature within one (1) year from the date of acquisition thereof;

 

**(v)**                                   investmentsin certificates of deposit maturing within one (1) year from the date ofacquisition issued by a bank or trust company organized under the laws of theUnited States or any state thereof having capital surplus and undivided profitsaggregating at least $100,000,000; and

 

**(vi)**                               investmentsin commercial paper given the highest rating by a national credit rating agencyand maturing not more than 270 days from the date of creation thereof.

 

**Revolving Credit Loan** - aLoan made by Lender as provided in **Section 1.1** ofthe Agreement and to the extent permitted under this Agreement, **Section 1.3** hereof.

 

**Revolving Credit Note** – theAmended and Restated Revolving Credit Note to be executed by Borrower on orabout the Effective Date in favor of Lender to evidence the Revolving CreditLoan, which shall be in the form of **Exhibit A** tothe Agreement.

 

**Schedule of Accounts** - asdefined in **subsection 6.2.1** of the Agreement.

 

**Security** - shall have thesame meaning as in **Section 2(1)** ofthe Securities Act of 1933, as amended.

 

**Security Documents** - theGuaranty Agreement and all other instruments and agreements now or at any timehereafter securing the whole or any part of the Obligations.

 

**Solvent** – as to any Person,that such Person **(i)** owns Property whose fairsaleable value is greater than the amount required to pay all of such Person’sIndebtedness (including contingent debts), **(ii)** is able topay all of its Indebtedness as such Indebtedness matures and **(iii)** has capital sufficient to carry on its business andtransactions and all business and transactions in which it is about to engage.

 

**Subordinated Debt** -Indebtedness of Borrower that is subordinated to the Obligations in a mannersatisfactory to Lender.

 

**Subordination Agreement** -the Subordination Agreements to be dated on or about the Closing Date amongBorrower, Lender and Paul F. Boucher, Forrest Jordan and Grey Perna,respectively.

 

**Subsidiary** - any corporationof which a Person owns, directly or indirectly through one or moreintermediaries, more than 50% of the Voting Stock at the time of determination.

 

**Tangible Capital Base –**AdjustedTangible Net Worth of Borrower plus Subordinated Debt.

 

**Term** - as defined in **Section 4.1** of the Agreement.

 

**Total Credit Facility** -$25,000,000.00.

 

**Total Debt** – means as of any date as towhich the amount thereof shall be determined, all Indebtedness of Borrower,including the Obligations less Subordinated Debt.

 

**Type of Organization** – withrespect to Borrower, the kind or type of entity by which Borrower is organized,such as a corporation or limited liability company.

 

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**UCC** – the Uniform CommercialCode as in effect in the State of Connecticut on the date of this Agreement, asthe UCC may be amended or otherwise modified, including by the UCC Revisions.

 

**UCC Revisions** – therevisions to Article 9 and other Articles of the Uniform Commercial Code, asadopted by the State of Connecticut, effective October 1, 2001.

 

**Unfunded Capital Expenditures**- expenditures made or liabilities incurred for the acquisition of any fixedassets or improvements, replacements, substitutions or additions thereto whichhave a useful life of more than one year, including the total principal portionof Capitalized Lease Obligations, financed with operating earnings.

 

**Voting Stock** - Securities ofany class or classes of a corporation the holders of which are ordinarily, inthe absence of contingencies, entitled to elect a majority of the corporatedirectors (or Persons performing similar functions).

 

**Other Terms**.  All other terms contained in the Agreementshall have, when the context so indicates, the meanings provided for by the UCCto the extent the same are used or defined therein.

 

**Certain Matters of Construction**.  The terms **“herein,”****“hereof”** and **“hereunder”**and other words of similar import refer to the Agreement as a whole and not toany particular section, paragraph or subdivision.  Any pronoun used shall be deemed to cover allgenders.  The section titles, table ofcontents and list of exhibits appear as a matter of convenience only and shallnot affect the interpretation of the Agreement. All references to statutes and related regulations shall include anyamendments of same and any successor statutes and regulations.  All references to any of the Loan Documentsshall include any and all modifications thereto and any and all extensions orrenewals thereof.

 

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###### **LIST OF EXHIBITS**

###### ** **

| Exhibit A |   | Form of Amended and  Restated Revolving Credit Note                               |
|-----------|--------|-----------------------------------------------------------------------------------|
| Exhibit B |   | Intentionally Omitted                                                             |
| Exhibit C |   | Borrower’s and each  Subsidiary’s Business Locations                    |
| Exhibit D |   | Jurisdictions in which  Borrower and each Subsidiary is Authorized to do Business |
|      |   |                                                                              |
| Exhibit E |   | Capital Structure of  Borrower                                                    |
| Exhibit F |   | Corporate Names                                                                   |
| Exhibit G |   | Tax Identification  Numbers of Subsidiaries                                       |
| Exhibit H |   | Patents, Trademarks,  Copyrights and Licenses                                     |
| Exhibit I |   | Contracts Restricting  Borrower’s Right to Incur Debts                       |
| Exhibit J |   | Litigation                                                                        |
| Exhibit K |   | Capitalized Leases                                                                |
| Exhibit L |   | [Intentionally Omitted]                                                           |
| Exhibit M |   | Pension Plans                                                                     |
| Exhibit N |   | Labor Contracts                                                                   |
| Exhibit O |   | Compliance Certificate                                                            |
| Exhibit P |   | Permitted Liens                                                                   |
| Exhibit Q |   | Borrowing Base  Certificate                                                       |

 

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