Document:

Exhibit 10.21

 

FUNDS
ESCROW AGREEMENT

 

This Agreement is dated
as of the 25th day of August, 2005 among each of the parties listed on Schedule A hereto (each a “Company”, and collectively the “Companies”),
Laurus Master Fund, Ltd. (the “Purchaser”),
and Loeb & Loeb LLP (the “Escrow Agent”):

 

W
I  T  N  E  S  S  E  T  H:

 

WHEREAS, the Purchaser
has advised the Escrow Agent that (a) the Companies and the Purchaser have
entered into a Security Agreement (the “Security Agreement”)
for the issuance by the Companies to the Purchaser of a secured convertible
minimum borrowing note (the “Minimum Borrowing Note”)
and a secured revolving note (the “Revolving Note”),
(b) IWT Tesoro Corporation (“IWT”) has
issued to the Purchaser a common stock purchase warrant (the “MBN/Revolving Note Warrant”) in connection with the issuance
of the Minimum Borrowing Note and the Revolving Note, and (c) IWT and the
Purchaser have entered into a Registration Rights Agreement covering the
registration of the IWT’s common stock underlying the Minimum Borrowing Note
and the MBN/Revolving Note Warrant (the “MBN/Revolving Note
Registration Rights Agreement”);

 

WHEREAS, the Companies
and the Purchaser wish the Purchaser to deliver to the Escrow Agent copies of
the Documents (as hereafter defined) and the Escrowed Payment (as hereafter
defined) to be held and released by the Escrow Agent in accordance with the
terms and conditions of this Agreement; and

 

WHEREAS, the Escrow Agent
is willing to serve as escrow agent pursuant to the terms and conditions of
this Agreement;

 

NOW THEREFORE, the
parties agree as follows:

 

ARTICLE I

 

INTERPRETATION

 

1.1.                              Definitions.  Whenever used in this Agreement, the
following terms shall have the meanings set forth below.

 

(a)                                  “Agreement” means this Agreement, as amended, modified and/or
supplemented from time to time by written agreement among the parties hereto.

 

(b)                                 “Closing Payment” means the closing payment to be paid to Laurus
Capital Management, L.L.C., the fund manager, as set forth on Schedule B hereto.

 

(c)                                  “Disbursement Letter” means that certain letter delivered to
the Escrow Agent by each of the Purchaser and the Companies setting forth wire
instructions and amounts to be funded at the Closing.

 

 

(d)                                 “Documents” means copies of [the Disbursement Letter,] the Security
Agreement, the Minimum Borrowing Note, the Revolving Note, the MBN/Revolving
Note Warrant, the MBN/Revolving Note Registration Rights Agreement, the Master
Security Agreement and the Subsidiary Guaranty.

 

(e)                                  “Escrowed Payment” means $                  .

 

(f)                                    “Master Security Agreement” means the Master Security
Agreement, dated as of the date hereof, among the Companies, IWT Tesoro International Ltd., IWT Tesoro Transport, Inc.,
The Tile Club, Inc., Import Flooring Group, Inc. and the Purchaser.

 

(g)                                 “Subsidiary Guaranty” means the Subsidiary Guaranty, dated as
of the date hereof, made by IWT Tesoro
International Ltd., IWT Tesoro Transport, Inc., The Tile Club, Inc.
and Import Flooring Group, Inc. in favor of the Purchaser.

 

1.2.                              Entire
Agreement.  This Agreement
constitutes the entire agreement among the parties hereto with respect to the
matters contained herein and supersedes all prior agreements, understandings,
negotiations and discussions of the parties, whether oral or written.  There are no warranties, representations and
other agreements made by the parties in connection with the subject matter
hereof except as specifically set forth in this Agreement.

 

1.3.                              Extended
Meanings.  In this Agreement words
importing the singular number include the plural and vice versa; words
importing the masculine gender include the feminine and neuter genders.  The word “person” includes an individual,
body corporate, partnership, trustee or trust or unincorporated association,
executor, administrator or legal representative.

 

1.4.                              Waivers
and Amendments.  This Agreement may
be amended, modified, superseded, cancelled, renewed or extended, and the terms
and conditions hereof may be waived, in each case only by a written instrument
signed by all parties hereto, or, in the case of a waiver, by the party waiving
compliance.  Except as expressly stated
herein, no delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege hereunder preclude any
other or future exercise of any other right, power or privilege hereunder.

 

1.5.                              Headings.  The division of this Agreement into articles,
sections, subsections and paragraphs and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.

 

1.6.                              Law
Governing this Agreement; Consent to Jurisdiction.  This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard
to principles of conflicts of laws.  With
respect to any suit, action or proceeding relating to this Agreement or to the
transactions contemplated hereby (“Proceedings”), each party hereto irrevocably
submits to the exclusive jurisdiction of the courts of the County of New York, State
of New York and the United States District court located in the County of New
York in the State of New York.  Each
party hereto hereby irrevocably and unconditionally (a) waives trial by
jury in any Proceeding relating to this Agreement and for any related counterclaim
and (b) waives any objection which it may have at any time to the laying
of venue of any Proceeding brought in 

 

2

 

any such court, waives any claim that such Proceedings
have been brought in an inconvenient forum and further waives the right to
object, with respect to such Proceedings, that such court does not have
jurisdiction over such party.  As between
the Companies and the Purchaser, the prevailing party shall be entitled to
recover from the other party its reasonable attorneys’ fees and costs.  In the event that any provision of this Agreement
is determined by a court of competent jurisdiction to be invalid or
unenforceable, then the remainder of this Agreement shall not be affected and
shall remain in full force and effect.

 

1.7.                              Construction.  Each party acknowledges that its legal
counsel participated in the preparation of this Agreement and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against
the drafting party shall not be applied in the interpretation of this Agreement
to favor any party against the other.

 

ARTICLE II

 

APPOINTMENT OF AND DELIVERIES TO THE ESCROW AGENT

 

2.1.                              Appointment.  The Companies and the Purchaser hereby
irrevocably designate and appoint the Escrow Agent as their escrow agent for
the purposes set forth herein, and the Escrow Agent by its execution and
delivery of this Agreement hereby accepts such appointment under the terms and
conditions set forth herein.

 

2.2.                              Copies
of Documents to Escrow Agent.  On or
about the date hereof, the Purchaser shall deliver to the Escrow Agent copies
of the Documents executed by each Company to the extent it is a party thereto.

 

2.3.                              Delivery
of Escrowed Payment to Escrow Agent. 
On or about the date hereof, the Purchaser shall deliver to the Escrow
Agent the Escrowed Payment.

 

2.4.                              Intention
to Create Escrow Over the Escrowed Payment. 
The Purchaser and the Companies intend that the Escrowed Payment shall
be held in escrow by the Escrow Agent and released from escrow by the Escrow
Agent only in accordance with the terms and conditions of this Agreement.

 

ARTICLE III

 

RELEASE OF ESCROW

 

3.1.                              Release
of Escrow.  Subject to the provisions
of Section 4.2, the Escrow Agent shall release the Escrowed Payment from
escrow as follows:

 

(a)                                  Promptly
following receipt by the Escrow Agent of (i) copies of the fully executed Documents
and this Agreement, (ii) the Escrowed Payment in immediately available
funds, (iii) joint written instructions (“Joint
Instructions”) executed by the Companies and the Purchaser setting
forth the payment direction instructions with respect to the Escrowed Payment
and (iv) Escrow Agent’s verbal instructions from David Grin and/or Eugene
Grin (each of whom is a director of the Purchaser) indicating that all closing
conditions relating to the Documents 

 

3

 

have been satisfied and directing that the Escrowed
Payment be disbursed by the Escrow Agent in accordance with the Joint
Instructions, then the Escrowed Payment shall be deemed released from escrow
and shall be promptly disbursed in accordance with the Joint Instructions.  The Joint Instructions shall include, without
limitation, Escrow Agent’s authorization to retain from the Escrowed Payment
Escrow Agent’s fee for acting as Escrow Agent hereunder and the Closing Payment
for delivery to Laurus Capital Management, L.L.C. in accordance with the Joint Instructions.

 

(b)                                 Upon
receipt by the Escrow Agent of a final and non-appealable judgment, order,
decree or award of a court of competent jurisdiction (a “Court Order”)
relating to the Escrowed Payment, the Escrow Agent shall remit the Escrowed
Payment in accordance with the Court Order. 
Any Court Order shall be accompanied by an opinion of counsel for the
party presenting the Court Order to the Escrow Agent (which opinion shall be
satisfactory to the Escrow Agent) to the effect that the court issuing the
Court Order is a court of competent jurisdiction and that the Court Order is
final and non-appealable.

 

3.2.                              Acknowledgement
of Companies and Purchaser; Disputes. 
The Companies and the Purchaser acknowledge that the only terms and
conditions upon which the Escrowed Payment are to be released from escrow are as
set forth in Sections 3 and 4 of this Agreement.  The Companies and the Purchaser reaffirm
their agreement to abide by the terms and conditions of this Agreement with
respect to the release of the Escrowed Payment. 
Any dispute with respect to the release of the Escrowed Payment shall be
resolved pursuant to Section 4.2 or by written agreement among the
Companies and Purchaser.

 

ARTICLE IV

 

CONCERNING THE ESCROW AGENT

 

4.1.                              Duties
and Responsibilities of the Escrow Agent. 
The Escrow Agent’s duties and responsibilities shall be subject to the
following terms and conditions:

 

(a)                                  The
Purchaser and the Companies acknowledge and agree that the Escrow Agent (i) shall
not be required to inquire into whether the Purchaser, the Companies or any
other party is entitled to receipt of any Document or all or any portion of the
Escrowed Payment; (ii) shall not be called upon to construe or review any
Document or any other document, instrument or agreement entered into in
connection therewith; (iii) shall be obligated only for the performance of
such duties as are specifically assumed by the Escrow Agent pursuant to this
Agreement; (iv) may rely on and shall be protected in acting or refraining
from acting upon any written notice, instruction, instrument, statement,
request or document furnished to it hereunder and believed by the Escrow Agent
in good faith to be genuine and to have been signed or presented by the proper
person or party, without being required to determine the authenticity or
correctness of any fact stated therein or the propriety or validity or the
service thereof; (v) may assume that any person purporting to give notice
or make any statement or execute any document in connection with the provisions
hereof has been duly authorized to do so; (vi) shall not be responsible
for the identity, authority or rights of any person, firm or company executing
or delivering or purporting to execute or deliver this Agreement or any Document
or any funds deposited hereunder or any endorsement thereon or assignment
thereof; (vii) shall not be under 

 

4

 

any duty to give the property held by Escrow Agent
hereunder any greater degree of care than Escrow Agent gives its own similar
property; and (viii) may consult counsel satisfactory to Escrow Agent
(including, without limitation, Loeb & Loeb, LLP or such other counsel
of Escrow Agent’s choosing), the opinion of such counsel to be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by Escrow Agent hereunder in good faith and in accordance with the
opinion of such counsel.

 

(b)                                 The
Purchaser and the Companies acknowledge that the Escrow Agent is acting solely
as a stakeholder at their request and that the Escrow Agent shall not be liable
for any action taken by Escrow Agent in good faith and believed by Escrow Agent
to be authorized or within the rights or powers conferred upon Escrow Agent by
this Agreement.  The Purchaser and the
Companies hereby, jointly and severally, indemnify and hold harmless the Escrow
Agent and any of Escrow Agent’s partners, employees, agents and representatives
from and against any and all actions taken or omitted to be taken by Escrow
Agent or any of them hereunder and any and all claims, losses, liabilities,
costs, damages and expenses suffered and/or incurred by the Escrow Agent
arising in any manner whatsoever out of the transactions contemplated by this
Agreement and/or any transaction related in any way hereto, including the fees
of outside counsel and other costs and expenses of defending itself against any
claims, losses, liabilities, costs, damages and expenses arising in any manner
whatsoever out the transactions contemplated by this Agreement and/or any
transaction related in any way hereto, except for such claims, losses, liabilities,
costs, damages and expenses incurred by reason of the Escrow Agent’s gross negligence
or willful misconduct.  The Escrow Agent
shall owe a duty only to the Purchaser and Companies under this Agreement and
to no other person.

 

(c)                                  The
Purchaser and the Companies shall jointly and severally reimburse the Escrow
Agent for its reasonable out-of-pocket expenses (including counsel fees (which
counsel may be Loeb & Loeb LLP or such other counsel of the Escrow
Agent’s choosing) incurred in connection with the performance of its duties and
responsibilities hereunder, which shall be (subject to Section 4.1(b)) $2,000.

 

(d)                                 The
Escrow Agent may at any time resign as Escrow Agent hereunder by giving five (5) business
days prior written notice of resignation to the Purchaser and the Companies.  Prior to the effective date of resignation as
specified in such notice, the Purchaser and Companies will issue to the Escrow
Agent a Joint Instruction authorizing delivery of the Documents and the Escrowed
Payment to a substitute Escrow Agent selected by the Purchaser and the Companies.  If no successor Escrow Agent is named by the
Purchaser and the Companies, the Escrow Agent may apply to a court of competent
jurisdiction in the State of New York for appointment of a successor Escrow Agent,
and deposit the Documents and the Escrowed Payment with the clerk of any such
court and/or otherwise commence an interpleader or similar action for a determination
of where to deposit the same.

 

(e)                                  The
Escrow Agent does not have and will not have any interest in the Documents and
the Escrowed Payment, but is serving only as escrow agent, having only
possession thereof.

 

(f)                                    The
Escrow Agent shall not be liable for any action taken or omitted by it in good
faith and reasonably believed by it to be authorized hereby or within the
rights or powers 

 

5

 

conferred upon it hereunder, nor for action taken or
omitted by it in good faith, and in accordance with advice of counsel (which
counsel may be Loeb & Loeb, LLP or such other counsel of the Escrow
Agent’s choosing), and shall not be liable for any mistake of fact or error of
judgment or for any acts or omissions of any kind except to the extent any such
liability arose from its own willful misconduct or gross negligence.

 

(g)                                 This
Agreement sets forth exclusively the duties of the Escrow Agent with respect to
any and all matters pertinent thereto and no implied duties or obligations
shall be read into this Agreement.

 

(h)                                 The
Escrow Agent shall be permitted to act as counsel for the Purchaser or the
Companies, as the case may be, in any dispute as to the disposition of the
Documents and the Escrowed Payment, in any other dispute between the Purchaser
and the Companies, whether or not the Escrow Agent is then holding the Documents
and/or the Escrowed Payment and continues to act as the Escrow Agent hereunder.

 

(i)                                     The
provisions of this Section 4.1 shall survive the resignation of the Escrow
Agent or the termination of this Agreement.

 

4.2.                              Dispute
Resolution; Judgments.  Resolution of
disputes arising under this Agreement shall be subject to the following terms
and conditions:

 

(a)                                  If any dispute shall
arise with respect to the delivery, ownership, right of possession or disposition
of the Documents and/or the Escrowed Payment, or if the Escrow Agent shall in
good faith be uncertain as to its duties or rights hereunder, the Escrow Agent
shall be authorized, without liability to anyone, to (i) refrain from
taking any action other than to continue to hold the Documents and the Escrowed
Payment pending receipt of a Joint Instruction from the Purchaser and Companies,
(ii) commence an interpleader or similar action, suit or proceeding for
the resolution of any such dispute; and/or (iii) deposit the Documents and
the Escrowed Payment with any court of competent jurisdiction in the State of
New York, in which event the Escrow Agent shall give written notice thereof to
the Purchaser and the Companies and shall thereupon be relieved and discharged
from all further obligations pursuant to this Agreement.  The Escrow Agent may, but shall be under no
duty to, institute or defend any legal proceedings which relate to the
Documents and the Escrowed Payment.  The
Escrow Agent shall have the right to retain counsel if it becomes involved in
any disagreement, dispute or litigation on account of this Agreement or
otherwise determines that it is necessary to consult counsel which such counsel
may be Loeb & Loeb LLP or such
other counsel of the Escrow Agent’s choosing.

 

(b)                                 The
Escrow Agent is hereby expressly authorized to comply with and obey any Court
Order.  In case the Escrow Agent obeys or
complies with a Court Order, the Escrow Agent shall not be liable to the
Purchaser and the Companies or to any other person, firm, company or entity by
reason of such compliance.

 

6

 

ARTICLE V

 

GENERAL MATTERS

 

5.1.                              Termination.  This escrow shall terminate upon disbursement
of the Escrowed Payment in accordance with the terms of this Agreement or earlier
upon the agreement in writing of the Purchaser and the Companies or resignation
of the Escrow Agent in accordance with the terms hereof.

 

5.2.                              Notices.  All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given one (1) day after being sent by telecopy
(with copy delivered by overnight courier, regular or certified mail):

 

If to any Company, to:

 

IWT Tesoro Corporation

191 Post Road, Suite 10

Westport, Connecticut 06880

Attention:                       Henry J. Boucher, Jr.

Telephone:                  (203) 221-2770

Facsimile:                         (203) 221-2797

 

With a copy to:

 

Rader and Coleman, P.L.

2101 N.W. Boca Raton Boulevard, Suite 1

Boca Raton, Florida 33431

Attention:                       Gayle Coleman, Esq.

Telephone:                  (561) 368-0545/(561) 445-6531

Facsimile:                         (561) 367-1725

 

If to the Purchaser, to:

 

Laurus
Master Fund, Ltd.

c/o Laurus Capital Management, L.L.C.

825 Third Avenue, 14th Fl.

New York, New York 10022

Attention:                       John E. Tucker, Esq.

Telephone:                  (212) 541-4434

Facsimile:                         (212) 541-5800

 

7

 

If to the Escrow Agent,
to:

 

Loeb &
Loeb LLP

345 Park Avenue 

New York, New York 10154

Telephone:  (212) 407-4000

Facsimile:  (212) 407-4990

Attention:  Scott J. Giordano, Esq.

 

or to
such other address as any of them shall give to the others by notice made
pursuant to this Section 5.2.

 

5.3.                              Interest.  The Escrowed Payment shall not be held in an
interest bearing account nor will interest be payable in connection therewith.

 

5.4.                              Assignment;
Binding Agreement.  Neither this
Agreement nor any right or obligation hereunder shall be assignable by any
party without the prior written consent of the other parties hereto.  This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective legal
representatives, successors and assigns.

 

5.5.                              Invalidity.  In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal, or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any
way impaired thereby, it being intended that all of the rights and privileges
of the parties hereto shall be enforceable to the fullest extent permitted by
law.

 

5.6.                              Counterparts/Execution.  This Agreement may be executed in any number
of counterparts and by different signatories hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same agreement.  This Agreement may be executed by facsimile
transmission.

 

8

 

IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date
and year first above written.

 

	
   

  	
  COMPANIES:

  
	
   

  	
   

  	
   

  
	
   

  	
  IWT TESORO CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  INTERNATIONAL WHOLESALE
  TILE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PURCHASER:

  
	
   

  	
   

  	
   

  
	
   

  	
  LAURUS MASTER FUND, LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  ESCROW AGENT:

  
	
   

  	
   

  	
   

  
	
   

  	
  LOEB & LOEB LLP

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

SCHEDULE A TO FUNDS
ESCROW AGREEMENT

 

1.                                       IWT
Tesoro Corporation, a Nevada corporation

 

2.                                       International
Wholesale Tile, Inc., a Florida corporation

 

10

 

SCHEDULE B TO FUNDS
ESCROW AGREEMENT

 

	
  PURCHASER

  	
   

  	
  PRINCIPAL NOTE AMOUNT

  
	
  LAURUS MASTER
  FUND, LTD.

  	
   

  	
  Minimum
  Borrowing Note in an aggregate principal amount 

  
	
  c/o M&C
  Corporate Services Limited

  	
   

  	
  of $3,000,000

  
	
  P.O. Box
  309 GT

  	
   

  	
   

  
	
  Ugland House

  	
   

  	
  Revolving Note
  in an aggregate principal amount of $5,000,000

  
	
  George Town

  	
   

  	
   

  
	
  South Church
  Street

  	
   

  	
   

  
	
  Grand Cayman,
  Cayman Islands

  	
   

  	
   

  
	
  Fax:
  345-949-8080

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  $5,000,000

  

 

	
  FUND
  MANAGER

  	
   

  	
  CLOSING PAYMENT

  
	
  LAURUS CAPITAL
  MANAGEMENT, L.L.C.

  	
   

  	
  Closing payment
  payable in connection with investment by 

  
	
  825 Third
  Avenue, 14th Floor

  	
   

  	
  Laurus Master
  Fund, Ltd. for which Laurus Capital 

  
	
  New York, New
  York 10022

  	
   

  	
  Management, L.L.C.
  is the Manager

  
	
  Fax:
  212-541-4434

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  $195,000

  

 

	
  WARRANT RECIPIENT

  	
   

  	
  WARRANTS IN CONNECTION WITH 

  OFFERING

  
	
  LAURUS
  MASTER FUND, LTD. 

  c/o M&C Corporate Services Limited 

  P.O. Box 309 GT 

  Ugland House 

  George Town 

  South Church Street Grand Cayman, 

  Cayman Islands 

  Fax: 345-949-8080

  	
   

  	
  MBN/Revolving
  Note Warrant exercisable into 511,883 shares 

  of common stock of the IWT issuable in connection with the

  Minimum Borrowing Note and the Revolving Note.

  
	
  TOTAL

  	
   

  	
  Warrants exercisable into 511,883 shares of
  common stock

  of IWT

  

 

11Exhibit 10.22

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT is made as of this 25th day of
August, 2005 by and among LAURUS MASTER FUND, LTD. (the “Lender” or “Secured
Party”) and IWT TESORO TRANSPORT, INC., a Florida corporation, THE TILE CLUB,
INC., a Delaware corporation, IMPORT FLOORING GROUP, INC., a Delaware
corporation and IWT TESORO INTERNATIONAL LTD., a Bermuda corporation
(collectively, the “Debtor”).

 

RECITALS

 

WHEREAS, pursuant to the provisions of a certain
Security Agreement (as amended,
modified, supplemented and restated from time to time, the “Credit Agreement”) dated as of the
date hereof among IWT Tesoro Corporation and International Wholesale Tile, Inc.
(collectively, “Borrower”) and Lender, Lender has agreed to make loans and
advances and otherwise extend credit to Borrower; and

 

WHEREAS, Debtor is an affiliate and/or subsidiary of
Borrower and as such has and will derive substantial benefit from the making of
the loan advances and extensions of credit to Borrower by Lender; and

 

WHEREAS, the Debtor has guaranteed the repayment of
the loans and advances made by Lender to Borrower pursuant to a Continuing
Guaranty Agreement dated of even date herewith (as amended, modified,
supplemented and restated from time to time, the “Guaranty Agreement”); and

 

WHEREAS, it is a condition precedent to the obligation
of the Lender to make loans, advances and other extensions of credit to the
Borrower under the Credit Agreement that the Debtor shall have executed and
delivered this Security Agreement to the Secured Party;

 

NOW, THEREFORE, in consideration of the premises and
to induce the Secured Party to continue to make loans, advances and other
extensions of credit under the Credit Agreement, the Debtor hereby agrees as
follows:

 

1.                                       Defined
Terms.

 

(a)                                  Unless
otherwise defined herein, terms which are defined in the Credit Agreement and
used herein are so used as so defined.

 

(b)                                 The
following terms have the meanings given to them in the UCC and terms used
herein without definition that are defined in the UCC have the meanings given
to them in the UCC (such meanings to be equally applicable to both the singular
and plural terms of the terms defined): Accounts, Chattel Paper, Commercial
Tort Claims, Deposit Accounts, Documents, Equipment, Farm Products, Fixtures,
General Intangibles, Goods, Health-Care-Insurance Receivables, Instruments,
Inventory, Investment Property, Letter-of-Credit Rights, Payment Intangibles,
Proceeds, Software and Supporting Obligations.

 

(c)                                  The
following terms shall have the following meanings:

 

 

“Collateral” shall have the meaning assigned to
it in Section 2 of this Security Agreement.

 

“Contracts” means the separate contracts
between the Debtor and third parties (including without limitation its
customers), as the same may from time to time be amended, supplemented or
otherwise modified, including, without limitation, (a) all rights of the
Debtor to receive moneys due and to become due to it thereunder or in
connection therewith, (b) all rights of the Debtor to damages arising out
of, or for, breach or default in respect thereof and (c) all rights of the
Debtor to perform and to exercise all remedies thereunder; but excluding any
contracts, the assignment or hypothecation of which, for collateral purposes,
would result in a default or require, or cause, a forfeiture or permit a
revocation of material rights under such contract.

 

“Requirement of Law” has the meaning set forth
in Section 5(b) hereof.

 

“Security Agreement” means this Security
Agreement, as amended, supplemented, restated or otherwise modified from time
to time.

 

“Vehicles” means all cars, trucks, trailers,
construction and earth moving equipment and other vehicles covered by a
certificate of title law of any state all tires and other appurtenances to any
of the foregoing.

 

2.                                       Grant
of Security Interest.

 

(a)                                  As
collateral security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations and all debts, liabilities and obligations owing by any Debtor
arising under, out of, or in connection with each Guaranty Agreement, this
Security Agreement and each of the other documents, instruments or agreements
relating to or executed in connection therewith or herewith (the “Guaranty
Obligations”), each Debtor hereby grants to the Secured Party a security
interest in all properties, assets and rights of such Debtor now owned or at
any time hereafter acquired by such Debtor or in which such Debtor now has or
at any time in the future may acquire any right, title or interest, wherever
located or situated (collectively, the “Collateral”) including, without
limitation, the following:

 

	
  (i)

  	
   

  	
  all Accounts;

  
	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  all Chattel
  Paper;

  
	
   

  	
   

  	
   

  
	
  (iii)

  	
   

  	
  all Commercial
  Tort Claims, if any, listed and described in Exhibit A attached
  hereto;

  
	
   

  	
   

  	
   

  
	
  (iv)

  	
   

  	
  all
  Consignments;

  
	
   

  	
   

  	
   

  
	
  (v)

  	
   

  	
  all Contracts;

  
	
   

  	
   

  	
   

  
	
  (vi)

  	
   

  	
  all Deposit
  Accounts, other bank accounts and all funds on deposit therein;

  

 

2

 

	
  (vii)

  	
   

  	
  all Documents;

  
	
   

  	
   

  	
   

  
	
  (viii)

  	
   

  	
  all Equipment;

  
	
   

  	
   

  	
   

  
	
  (ix)

  	
   

  	
  all Fixtures

  
	
   

  	
   

  	
   

  
	
  (x)

  	
   

  	
  all General
  Intangibles;

  
	
   

  	
   

  	
   

  
	
  (xi)

  	
   

  	
  all Goods;

  
	
   

  	
   

  	
   

  
	
  (xii)

  	
   

  	
  all
  Health-Care-Insurance Receivables;

  
	
   

  	
   

  	
   

  
	
  (xiii)

  	
   

  	
  all Instruments;

  
	
   

  	
   

  	
   

  
	
  (xiv)

  	
   

  	
  all Intellectual
  Property;

  
	
   

  	
   

  	
   

  
	
  (xv)

  	
   

  	
  all Inventory;

  
	
   

  	
   

  	
   

  
	
  (xvi)

  	
   

  	
  all Investment
  Property;

  
	
   

  	
   

  	
   

  
	
  (xvii)

  	
   

  	
  all Stock;

  
	
   

  	
   

  	
   

  
	
  (xviii)

  	
   

  	
  all
  Letter-of-Credit Rights;

  
	
   

  	
   

  	
   

  
	
  (xix)

  	
   

  	
  all Letters of
  Credit;

  
	
   

  	
   

  	
   

  
	
  (xx)

  	
   

  	
  all Payment
  Intangibles;

  
	
   

  	
   

  	
   

  
	
  (xxi)

  	
   

  	
  all Promissory
  Notes;

  
	
   

  	
   

  	
   

  
	
  (xxii)

  	
   

  	
  all Software;

  
	
   

  	
   

  	
   

  
	
  (xxiii)

  	
   

  	
  all Supporting
  Obligations including letters of credit and guarantees issued in support of
  Accounts, Chattel Paper, General Intangibles and Investment Property;

  
	
   

  	
   

  	
   

  
	
  (xxiv)

  	
   

  	
  all Vehicles;

  
	
   

  	
   

  	
   

  
	
  (xxv)

  	
   

  	
  all money, cash
  and cash equivalents and all cash held as cash collateral and all other cash
  or property at any time on deposit with or held by Secured Party for the
  account of Debtor (whether for safe keeping, custody, pledge, transmission or
  otherwise); and

  
	
   

  	
   

  	
   

  
	
  (xxvi)

  	
   

  	
  to the extent
  not otherwise included, all products and Proceeds (including
  (i) insurance claims against third parties for loss of, damage to, or
  destruction of, the foregoing Collateral, (ii) payments due or to become
  due under leases, rentals and hires of any or all of the foregoing and
  Proceeds payable under, or unearned premiums with 

  

 

3

 

	
   

  	
   

  	
  respect to
  policies of insurance in whatever form), all accessions and additions thereto
  and all substitutions and replacements therefore and products of any and all
  of the foregoing.

  

 

3.                                       Rights
of Secured Party; Limitations on Secured Party’s Obligations.

 

(a)                                  Debtor
Remains Liable under Accounts and Contracts.  Anything herein to the contrary
notwithstanding, each Debtor shall remain liable under each of the Accounts and
Contracts to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with the terms of
any agreement giving rise to each such Account and in accordance with and
pursuant to the terms and provisions of each such Contract.  The Secured Party shall not have any
obligation or liability under any Account (or any agreement giving rise
thereto) or under any Contract by reason of or arising out of this Security
Agreement or the receipt by the Secured Party of any payment relating to such
Account or Contract pursuant hereto, nor shall the Secured Party be obligated
in any manner to perform any of the obligations of any Debtor under or pursuant
to any Account (or any agreement giving rise thereto) or under or pursuant to
any Contract, to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Account (or any agreement giving rise
thereto) or under any Contract, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts
which may have been assigned to it or to which it may be entitled at any time
or times.

 

(b)                                 Notice
to Account Debtors and Contracting Parties. 
Upon the request of the Secured Party at any time after the occurrence
and during the continuance of an Event of Default, each Debtor shall notify
account debtors on the Accounts and parties to the Contracts that the Accounts
and the Contracts have been assigned to the Secured Party and that payments in
respect thereof shall be made directly to the Secured Party.  The Secured Party may in its own name or in
the name of others communicate with account debtors on the Accounts and parties
to the Contracts to verify with them to its satisfaction the existence, amount
and terms of any Accounts or Contracts.

 

(c)                                  Analysis
of Accounts.  The Secured Party shall
have the right, at its own expense, to make test verifications of the Accounts
in any manner and through any medium that it reasonably considers advisable,
and the Debtor shall furnish all such assistance and information as the Secured
Party may reasonably require in connection therewith, provided that the making
of the foregoing test verifications shall be at the expense of the Debtor if
and only if an Event of Default shall have occurred and be continuing.  At any time upon the Secured Party’s request
and after the occurrence and during the continuance of an Event of Default, or
in connection with the Debtor’s annual audit, the Debtor, at its sole expense,
shall cause its independent public accountants or others selected by the Debtor
and satisfactory to the Secured Party to furnish to the Secured Party reports
showing reconciliations, aging and test verifications of, and trial balances
for, the Accounts.

 

(d)                                 Collections
on Accounts.  The Secured Party
hereby authorizes the Debtor to collect the Accounts subject to the Secured
Party’s direction and control, and the Secured Party may curtail or terminate
said authority upon the occurrence and during the continuance of 

 

4

 

an Event of Default.  If required by the Secured Party upon the
occurrence and during the continuance of an Event of Default, any payments of
Accounts, when collected by the Debtor, shall be forthwith (and, in any event,
within two Business Days) deposited by the Debtor in the exact form received,
duly endorsed by the Debtor to the Secured Party if required, in a special collateral
account maintained by the Secured Party, subject to withdrawal by the Secured
Party only, as hereinafter provided, and, until so turned over, shall be held
by the Debtor in trust for the Secured Party, segregated from other funds of
the Debtor.  Each deposit of any such
Proceeds shall be accompanied by a report identifying in reasonable detail the
nature and source of the payments included in the deposit.  All Proceeds constituting collections of
Accounts while held by the Secured Party (or by the Debtor in trust for the
Secured Party) shall continue to be collateral security for all of the
Obligations and the Guaranty Obligations and shall not constitute payment
thereof until applied as hereinafter provided. 
If an Event of Default shall have occurred and be continuing, at any
time at the Secured Party’s election, the Secured Party shall apply all or any
part of the funds on deposit in said special collateral account on account of
the Obligations and the Guaranty Obligations, and any part of such funds which
the Secured Party elects not so to apply and deems not required as collateral
security for the Obligations and the Guaranty Obligations shall be paid over
from time to time by the Secured Party to the Debtor or to whomsoever may be
lawfully entitled to receive the same. 
At the Secured Party’s request during the continuance of an Event of
Default, the Debtor shall deliver to the Secured Party all original and other
documents evidencing, and relating to, the agreements and transactions which
gave rise to the Accounts, including, without limitation, all original orders,
invoices and shipping receipts.

 

4.                                       Representations
and Warranties.  The Debtor hereby
represents and warrants that:

 

(a)                                  Title;
No Other Encumbrances.  Except for
the Liens granted to the Secured Party pursuant to this Security Agreement, and
the other Permitted Liens, the Debtor owns each item of the Collateral free and
clear of any and all Liens.  No security
agreement, financing statement or other public notice with respect to all or any
part of the Collateral is on file or of record in any public office, except
such as may have been filed in favor of the Secured Party or any other Person
holding a Permitted Lien.

 

(b)                                 Perfected
Liens.  Except with respect to
Vehicles referred to in Section 5(q) the Liens granted pursuant to this
Security Agreement constitute perfected Liens on the Collateral (not
constituting real property) in favor of the Secured Party, which are prior to
all other Liens on the Collateral, except for Permitted Liens and which are
enforceable as such against all creditors of and purchasers from the Debtor and
against any owner or purchaser of the real property where any of the Equipment
is located and any present or future creditor obtaining a Lien on such real
property.

 

(c)                                  Accounts.  The amount represented by the Debtor to the
Secured Party from time to time as owing by each account debtor or by all
account debtors in respect of the Accounts will at such time be the correct
amount actually owing by such account debtor or debtors thereunder in all
material respects.  No amount payable to
the Debtor under or in connection with any Account is evidenced by any
Instrument or Chattel Paper (other than 

 

5

 

Contracts constituting
Chattel Paper), which has not been delivered to the Secured Party.  The place where the Debtor keeps its records
concerning the Accounts is set forth in Schedule 4(c).

 

(d)                                 Contracts.  No consent of any party (other than the
Debtor) to any Contract is required, or purports to be required, in connection
with the execution, delivery and performance of this Security Agreement.  Each Contract is in full force and effect and
constitutes a valid and legally enforceable obligation of the parties thereto,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditor’s rights generally.  No consent
or authorization of, filing with or other act by or in respect of any
Governmental Authority is required in connection with the execution, delivery,
performance, validity or enforceability of any of the Contracts by any party
thereto other than those which have been duly obtained, made or performed, are
in full force and effect and do not subject the scope of any such Contract to
any material adverse limitation, either specific or general in nature.  Neither the Debtor nor (to the best of the
Debtor’s knowledge) any other party to any Contract is in default in a manner
which could reasonably be expected to materially adversely affect the value of
all such Contracts as Collateral or is reasonably likely to become in default
in the performance or observance of any of the terms thereof in any material
respect.  The Debtor has fully performed
all its current obligations under each Contract.  The right, title and interest of the Debtor
in, to and under each Contract are not subject to any defense, offset,
counterclaim or claim which in the aggregate could reasonably be expected to
have a Material Adverse Effect.  No
amount payable to the Debtor under or in connection with any Contract is
evidenced by any Instrument or Chattel Paper (other than Contracts constituting
Chattel Paper), which has not been delivered to the Secured Party.

 

(e)                                  Inventory
and Equipment.  The Inventory and the
Equipment are kept at the locations listed in Schedule 4(e).

 

(f)                                    Chief
Executive Office.  The Debtor’s chief
executive office, chief place of business and jurisdiction of incorporation are
as set forth in Schedule 4(f).

 

(g)                                 Intellectual
Property.  All Intellectual Property
owned by the Debtor in its own name as of the date hereof is listed on Schedule 4(g).  To the best of the Debtor’s knowledge, all
the Intellectual Property is valid, subsisting, unexpired, enforceable and has
not been abandoned.  Except as set forth
in Schedule 4(g), none of such Intellectual Property is the subject
of any licensing or franchise agreement. 
No holding, decision or judgment has been rendered by any Governmental
Authority which would limit, cancel or question the validity of any
Intellectual Property.  Except as
disclosed in the Credit Agreement, no action or proceeding is pending (i) seeking
to limit, cancel or question the validity of any of the Intellectual Property,
or (ii) which, if adversely determined, could reasonably be expected to
have a Material Adverse Effect.

 

(h)                                 Governmental
Obligors.  None of the obligors on
any Accounts, and none of the parties to any Contracts, is a Governmental
Authority with respect to which the Federal Assignment of Claims Act is
applicable.

 

(i)                                     Deposit
Accounts.  All deposit, custody,
money market or other accounts (whether, in any case, time or demand or
interest or non-interest bearing) maintained by the 

 

6

 

Debtor with any bank or
any other financial institution are Deposit Accounts and are listed on Schedule 4(i).

 

(j)                                     Commercial
Tort Claims.  All Commercial Tort
Claims to which the Debtor has a right are listed on Exhibit A.

 

5.                                       Covenants.  The Debtor covenants and agrees with the
Secured Party that, from and after the date of this Security Agreement until
the obligations are paid in full and the commitment terminated:

 

(a)                                  Further
Documentation; Pledge of Instruments and Chattel Paper.  At any time and from time to time, upon the
written request of the Secured Party, and at the sole expense of the Debtor,
the Debtor will promptly and duly execute and deliver such further instruments
and documents and take such further action as the Secured Party may reasonably
request for the purpose of obtaining or preserving the full benefits of this
Security Agreement and of the rights and powers herein granted, including,
without limitation, the filing of any financing or continuation statements
under the UCC in effect in any jurisdiction with respect to the Liens created
hereby.  The Debtor also hereby
authorizes the Secured Party to file any such financing or continuation
statement without the signature of the Debtor to the extent permitted by
applicable law.  A carbon, photographic
or other reproduction of this Security Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.  If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any Instrument or
Chattel Paper (other than Contracts constituting Chattel Paper), such
instrument or Chattel Paper shall be immediately delivered to the Secured
Party, duly endorsed in a manner satisfactory to the Secured Party to be held
as Collateral pursuant to this Security Agreement.

 

(b)                                 Indemnification.  The Debtor agrees to pay, and to save the
Secured Party harmless from, any and all liabilities, reasonable costs and
expenses (including, without limitation, reasonable legal fees and expenses) (i) with
respect to, or resulting from, any delay in paying, any and all excise, sales
or other taxes which may be payable or determined to be payable with respect to
any of the Collateral, (ii) with respect to, or resulting from, any delay
not caused by the Secured Party in complying with any requirement of law, rule,
regulation or guideline of any Governmental Authority (collectively, a “Requirement
of Law”) applicable to any of the Collateral or (iii) in connection with
any of the transactions contemplated by this Security Agreement.  In any suit, proceeding or action brought by
the Secured Party under any Account or Contract for any sum owing thereunder,
or to enforce any provisions of any Account or Contract, the Debtor will save,
indemnify and keep the Secured Party harmless from and against all expense,
loss or damage suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction or liability whatsoever of the account debtor or
obligor thereunder, arising out of a breach by the Debtor of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing to or in favor of such account debtor or obligor or its
successors from the Debtor.

 

(c)                                  Maintenance
of Records.  The Debtor will keep and
maintain at its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments received
and all credits granted with respect to the Accounts.  The Debtor will mark its books and records
pertaining to the Collateral to evidence this Security 

 

7

 

Agreement and the
security interests granted hereby.  For
the Secured Party’s further security, the Secured Party shall have a security
interest in all of the Debtor’s books and records pertaining to the Collateral,
and the Debtor shall turn over any such books and records to the Secured Party
or to its representatives during normal business hours at the request of the
Secured Party.

 

(d)                                 Right
of Inspection.  Permit
representatives of the Secured Party from time to time, as often as may be
reasonably requested, but only during normal business hours, to visit and
inspect the assets of Debtor and each of its Subsidiaries, inspect, audit and
make extracts from its books and records, and discuss with its officers, its
employees and its independent accountants, Debtor’s and each of its
Subsidiaries’ business, assets, liabilities, financial condition, business
prospects and results of operations; provided that absent the occurrence of a
Default or an Event of Default, such inspections shall be limited to three
times during each year of terms of this Agreement.

 

(e)                                  Compliance
with Laws, etc.  The Debtor will
comply in all material respects with all Requirements of Law applicable to the
Collateral or any part thereof or to the operation of the Debtor’s business;
provided, however, that the Debtor may contest any Requirement of Law in any
reasonable manner which shall not, in the sole opinion of the Secured Party,
adversely affect the Secured Party’s rights or the priority of its Liens on the
Collateral.

 

(f)                                    Compliance
with Terms of Contracts, etc.  The
Debtor will perform and comply in all material respects with all its
obligations under the Contracts and all its other Contractual Obligations
relating to the Collateral except where such nonperformance and noncompliance
could not reasonably be expected to have a Material Adverse Effect.

 

(g)                                 Payment
of Obligations.  The Debtor will pay
promptly when due all taxes, assessments and governmental charges or levies
imposed upon the Collateral or in respect of its income or profits therefrom,
as well as all claims of any kind (including, without limitation, claims for
labor, materials and supplies) against or with respect to the Collateral,
except that no such charge need be paid if (i) the validity thereof is
being contested in good faith by appropriate proceedings, (ii) such
proceedings do not involve any material danger of the sale, forfeiture or loss
of any of the Collateral or any interest therein and (iii) such charge is
adequately reserved against on the Debtor’s books in accordance with GAAP.

 

(h)                                 Limitation
on Liens on Collateral.  The Debtor
will not create, incur or permit to exist, will defend the Collateral against,
and will take such other action as is necessary to remove, any Lien or claim on
or to the Collateral, other than the Liens created hereby and Permitted Liens,
and will defend the right, title and interest of the Secured Party in and to
any of the Collateral against the claims and demands of all Persons whomsoever.

 

(i)                                     Limitations
on Dispositions of Collateral.  The
Debtor will not sell, transfer, lease or otherwise dispose of any of the
Collateral, or attempt, offer or contract to do so except for (x) sales of Inventory
in the ordinary course of its business and (y) so long as no Default or Event
of Default has occurred and is continuing, the disposition in the ordinary
course 

 

8

 

of business of property
not material to the conduct of its business or as otherwise permitted under the
Credit Agreement.

 

(j)                                     Limitations
on Modifications, Waivers, Extensions of Contracts and Agreements Giving Rise
to Accounts.  The Debtor will not (i) amend,
modify, terminate or waive any provision of any Contract or any agreement
giving rise to an account in any manner which could reasonably be expected to
materially adversely affect the value of such Contracts or Accounts as
Collateral when examined in the aggregate, (ii) fail to exercise promptly
and diligently each and every material right which it may have under each
Contract and each agreement giving rise to an Account (other than any right of
termination) where such failure could have a material adverse effect on the
value of such Contracts or Accounts when examined in the aggregate or (iii) fail
to deliver to the Secured Party a copy of each material demand, notice or
document received by it relating in any way to any Contract or any material
agreement giving rise to an Account.

 

(k)                                  Maintenance
of Equipment.  The Debtor will
maintain each item of Equipment in good operating condition, ordinary wear and
tear and immaterial impairments of value and damage by the elements excepted,
and will provide all maintenance, service and repairs necessary for such
purpose except where the failure to maintain such Equipment could not
reasonably be expected to have a material adverse effect.

 

(l)                                     Maintenance
of Insurance.  The Debtor will
maintain, with financially sound and reputable companies, insurance policies (i) insuring
the Inventory, Equipment and Vehicles against loss by fire, explosion, theft
and such other casualties in amounts comparable to amounts of insurance
coverage obtained by similar businesses of similar size acting prudently and (ii) insuring
the Debtor, the Secured Party against liability for personal injury and
property damage relating to such Inventory, Equipment and Vehicles, such
policies to be in such form and amounts and having such coverage as shall be
comparable to forms, amounts and coverage, respectively, obtained by similar
businesses of similar size acting prudently, with losses payable to the Debtor,
the Secured Party as its interests may appear. 
All such insurance shall (i) provide that no cancellation, material
reduction in amount or material change in coverage thereof shall be effective
until at least thirty (30) days after receipt by the Secured Party of written
notice thereof, (ii) name the Secured Party as insured and (iii) be
reasonably satisfactory in all other respects to the Secured Party.  If required by the Secured Party, the Debtor
shall deliver to the Secured Party a report of a reputable insurance broker
with respect to such insurance as set forth in the Credit Agreement.

 

(m)                               Further
Identification of Collateral.  The
Debtor will furnish to the Secured Party from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Secured Party may reasonably
request, all in reasonable detail.

 

(n)                                 Notices.  The Debtor will advise the Secured Party
promptly, in reasonable detail, at its address set forth in the Credit
Agreement, (i) of any Lien (other than Liens created hereby or Permitted
Liens) on, or claim asserted against, any of the Collateral and (ii) of
the occurrence of any other event which could reasonably be expected to have a
Material Adverse Effect.

 

9

 

(o)                                 Changes
in Locations, Name, etc.  The Debtor
will not (i) change the location of its chief executive office, chief
place of business or jurisdiction of incorporation or organization from that
specified in Schedule 4(f) or remove its books and records
from the location specified in Schedule 4(c), (ii) permit any of
the Inventory or Equipment to be kept at a location other than disclosed to
Secured Party, or (iii) change its name, identity or corporate structure
to such an extent that any financing statement filed by the Secured Party in
connection with this Security Agreement would become seriously misleading or
faulty under Article 9, unless it shall have given the Secured Party at
least thirty (30) days prior written notice thereof.

 

(p)                                 Intellectual
Property.

 

(i)                                     The
Debtor (either itself or through licensees) will, except with respect to any
trademark that the Debtor shall reasonably determine is of negligible economic
value to it, (i) continue to use each trademark on each and every
trademark class of goods applicable to its current line as reflected in its current
catalogs, brochures and price lists in order to maintain such trademark in full
force free from any claim of abandonment for non-use, (ii) maintain as in
the past the quality of products and services offered under such trademark, (iii) with
respect to a registered trademark, employ such trademark with the appropriate
notice of registration, (iv) not adopt or use any mark which is
confusingly similar or a colorable imitation of such trademark unless the
Secured Party, shall obtain a perfected security interest in such mark pursuant
to this Security Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby any
trademark may become invalidated.

 

(ii)                                  The
Debtor will not, except with respect to any patent that the Debtor shall
reasonably determine is of negligible economic value to it, do any act, or omit
to do any act, whereby any patent may become abandoned or dedicated.

 

(iii)                               The Debtor will notify
the Secured Party immediately if it knows, or has reason to know, that any
application or registration relating to any Intellectual Property may become
abandoned or dedicated, or of any adverse determination or development
(including, without limitation, the institution of, or any such determination
or development in, any proceeding in the United States Patent and Trademark
Office or any court or tribunal in any country) regarding the Debtor’s
ownership of any Intellectual Property or its right to register the same or to
keep and maintain the same.

 

(iv)                              Whenever
the Debtor, either by itself or through any Secured Party, employee, licensee
or designee, shall file an application for the registration of any Intellectual
Property with the United States Patent and Trademark Office with the United
States Copyright Office or any similar office or agency in any other country or
any political subdivision thereof, the Debtor shall report such filing to the
Secured Party within five (5) Business Days after the last day of the
fiscal quarter in which such filing occurs.

 

(v)                                 The
Debtor shall execute and deliver any and all agreements, instruments,
documents, and papers as the Secured Party may request to evidence the 

 

10

 

Secured Party’s security interest in any Intellectual Property and the
goodwill and general intangibles of the Debtor relating thereto or represented
thereby, and the Debtor hereby constitutes the Secured Party its
attorney-in-fact to execute and file all such writings for the foregoing purposes,
all acts of such attorney being hereby ratified and confirmed; such power being
coupled with an interest is irrevocable until the Obligations are paid in full
and the commitment is terminated.

 

(vi)                              The
Debtor will take all reasonable and necessary steps, including, without
limitation, in any proceeding before the United States Patent and Trademark
Office, or any similar office or agency in any other country or any political
subdivision thereof, to maintain and pursue each application (and to obtain the
relevant registration) and to maintain each registration of any registered
Intellectual Property, including, without limitation, filing of applications
for renewal, affidavits of use and affidavits of incontestability.

 

(vii)                           In the event that any material
Intellectual Property included in the Collateral is infringed, misappropriated
or diluted by a third party, the Debtor shall promptly notify the Secured Party
after it learns thereof and shall, unless the Debtor shall reasonably determine
that such Intellectual Property is of negligible economic value to the Debtor,
promptly sue for infringement, misappropriation or dilution, to seek injunctive
relief where appropriate and to recover any and all damages for such
infringement, misappropriation or dilution, or take such other actions as the
Debtor shall reasonably deem appropriate under the circumstances to protect
such Intellectual Property.

 

(q)                                 Vehicles.  The Debtor will maintain each Vehicle in good
operating condition, ordinary wear and tear and immaterial impairments of value
and damage by the elements excepted, and will provide all maintenance, service
and repairs necessary for such purpose. 
The Debtor will notify the Secured Party of each acquisition or sale of
a Vehicle, promptly following the acquisition or sale thereof.  If an Event of Default shall occur and be
continuing, at the request of the Secured Party the Debtor shall, within five (5) Business
Days after such request, file applications for certificates of title indicating
the Secured Party’s Lien on the Vehicles covered by such certificates, together
with any other necessary documentation, in each office in each jurisdiction
which the Secured Party shall deem advisable to perfect its Lien on the
Vehicles.

 

(r)                                    Inventory.  None of the Inventory of the Debtor shall be
evidenced by a warehouse receipt.

 

(s)                                  Commercial
Tort Claims.  The Debtor shall
promptly notify the Secured Party in writing upon incurring or otherwise
obtaining a Commercial Tort Claim against any third party, and upon request of
the Secured Party, promptly enter into an amendment to this Security Agreement
and do such other acts or things deemed appropriate by the Secured Party to
give the Secured Party a security interest in any such Commercial Tort Claim.

 

11

 

6.                                       Secured
Party’s Power of Attorney.

 

(a)                                  Debtor
hereby irrevocably designates, makes, constitutes and appoints Lender (and all
Persons designated by Lender) as Debtor’s true and lawful attorney (and agent-in-fact)
and Lender, or Lender’s agent, may, without notice to Debtor and in either
Debtor’s or Lender’s name, but at the cost and expense of Debtor:

 

(b)                                 At
such time or times upon or after the occurrence of a Default or an Event of
Default as Lender or said agent, in its sole discretion, may determine, endorse
Debtor’s name on any checks, notes, acceptances, drafts, money orders or any
other evidence of payment or proceeds of the Collateral which come into the
possession of Lender or under Lender’s control.

 

(c)                                  At
such time or times upon or after the occurrence of an Event of Default as
Lender or its agent in its sole discretion may determine: (i) demand
payment of the Accounts from the Account Debtors, enforce payment of the
Accounts by legal proceedings or otherwise, and generally exercise all of
Debtor’s rights and remedies with respect to the collection of the Accounts; (ii) settle,
adjust, compromise, discharge or release any of the Accounts or other
Collateral or any legal proceedings brought to collect any of the Accounts or
other Collateral; (iii) sell or assign any of the Accounts and other
Collateral upon such terms, for such amounts and at such time or times as
Lender deems advisable and, at Lender’s option, with all warranties regarding
the Collateral disclaimed; (iv) take control, in any manner, of any item
of payment or proceeds relating to any Collateral; (v) prepare, file and
sign Debtor’s name to a proof of claim in bankruptcy or similar document
against any Account Debtor or to any notice of lien, assignment or satisfaction
of lien or similar document in connection with any of the Collateral; (vi) receive,
open and dispose of all mail addressed to Debtor and to notify postal
authorities to change the address for delivery thereof to such address as Lender
may designate; (vii) endorse the name of Debtor upon any of the items of
payment or proceeds relating to any Collateral and deposit the same to the
account of Lender on account of the Obligations; (viii) endorse the name
of Debtor 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) use Debtor’s stationery and sign
the name of Debtor to verifications of the Accounts and notices thereof to
Account Debtors; (x) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Accounts, Inventory, Equipment and any other Collateral; (xi) make and adjust
claims under policies of insurance; and (xii) do all other acts and things
necessary, in Lender’s determination, to fulfill Debtor’s obligations under
this Agreement.

 

(d)                                 Other
Powers.  The Debtor also authorizes
the Secured Party, at any time and from time to time, to execute, in connection
with the sale provided for in Section 9 hereof, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.

 

(e)                                  No
Duty on Secured Party’s Part.  The
powers conferred on the Secured Party hereunder are solely to protect the
Secured Party’s interests in the Collateral and shall not impose any duty upon
the Secured Party to exercise any such powers. 
The Secured Party shall be accountable only for amounts that they
actually receives as a result of the exercise of such 

 

12

 

powers, and neither they
nor any of their officers, directors, employees or agents shall be responsible
to the Debtor for any act or failure to act hereunder, except for its own gross
negligence or willful misconduct.

 

7.                                       Performance
by Secured Party of Debtor’s Obligations. 
If the Debtor fails to perform or comply with any of its agreements
contained herein and the Secured Party, as provided for by the terms of this
Security Agreement, shall itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the expenses of the Secured
Party incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum equal to the Default Rate, shall be
payable by the Debtor to the Secured Party on demand and shall constitute
Obligations secured hereby.

 

8.                                       Proceeds.  In addition to the rights of the Secured
Party specified in Section 3(d) with respect to payments of Accounts,
it is agreed that if an Event of Default shall occur and be continuing (a) all
Proceeds received by the Debtor consisting of cash, checks and other near-cash
items shall be held by the Debtor in trust for the Secured Party, segregated
from other funds of the Debtor, and shall, forthwith upon receipt by the
Debtor, be turned over to the Secured Party in the exact form received by the
Debtor (duly endorsed by the Debtor to the Secured Party, if required), and (b) any
and all such Proceeds received by the Secured Party (whether from the Debtor or
otherwise) may, in the sole discretion of the Secured Party, be held by the
Secured Party as collateral security for, and/or then or at any time thereafter
may be applied by the Secured Party against, the Obligations (whether matured
or unmatured), such application to be made in accordance with the provisions of
the Credit Agreement.  Any balance of
such Proceeds remaining after the Obligations shall have been paid in full and
the commitment shall have been terminated shall be paid over to the Debtor or
to whomsoever may be lawfully entitled to receive the same.

 

9.                                       Remedies.  Upon and after the occurrence of an Event of
Default, Lender shall have and may exercise from time to time the following
other rights and remedies:

 

(a)                                  All
of the rights and remedies of a secured party under the UCC or under other
applicable law, and all other legal and equitable rights to which Lender may be
entitled, all of which rights and remedies shall be cumulative and shall be in
addition to any other rights or remedies contained in this Security Agreement
or any of the other Loan Documents, and none of which shall be exclusive.

 

(b)                                 The
right to take immediate possession of the Collateral, and to (i) require
Debtor to assemble the Collateral, at Debtor’s expense, and make it available
to Lender at a place designated by Lender which is reasonably convenient to
both parties, and (ii) enter any premises where any of the Collateral
shall be located and to keep and store the Collateral on said premises until
sold (and if said premises be the property of Debtor, Debtor agrees not to
charge Lender for storage thereof).

 

(c)                                  The
right to sell or otherwise dispose of all or any Collateral in its then
condition, or after any further manufacturing or processing thereof, at public
or private sale or sales, with such notice as may be required by law, in lots
or in bulk, for cash or on credit, all as Lender, in its sole discretion, may
deem advisable. Debtor agrees that ten (10) days written 

 

13

 

notice to Debtor of any
public or private sale or other disposition of Collateral shall be reasonable
notice thereof, and such sale shall be at such locations as Lender may
designate in said notice. Lender shall have the right to conduct such sales on
Debtor’s premises, without charge therefor, and such sales may be adjourned
from time to time in accordance with applicable law.  Lender shall have the right to sell, lease or
otherwise dispose of the Collateral, or any part thereof, for cash, credit or
any combination thereof, and Lender may purchase all or any part of the
Collateral at public or, if permitted by law, private sale and, in lieu of
actual payment of such purchase price, may set off the amount of such price
against the Obligations and the Guaranty Obligations. The proceeds realized
from the sale of any Collateral may be applied first to the costs, expenses and
attorneys’ fees incurred by Lender in collecting the Obligations and/or the
Guaranty Obligations, in enforcing the rights of Lender under the 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/or the Guaranty Obligations;
and third, to the principal of the Obligations and/or the Guaranty Obligations.
If any deficiency shall arise, Debtor shall remain jointly and severally liable
to Lender therefor.

 

(d)                                 Lender
is hereby granted a license or other right to use, without charge, Debtor’s
labels, patents, copyrights, rights of use of any name, trade secrets,
tradenames, trademarks and advertising matter, or any Property of a similar
nature, as it pertains to the Collateral, in advertising for sale and selling
any Collateral and Debtor’s rights under all licenses and all franchise
agreements shall inure to Lender’s benefit.

 

10.                                 Limitation
on Duties Regarding Preservation of Collateral.  The Secured Party’s sole duty with respect to
the custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the UCC or otherwise, shall be to deal
with it in the same manner as the Secured Party deals with similar property for
its own account.  Neither the Secured Party,
nor any of its respective directors, officers, employees or agents shall be
liable for failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any obligation to
sell or otherwise dispose of any Collateral upon the request of the Debtor or
otherwise.

 

11.                                 Powers
coupled with an Interest.  All
authorizations and agencies herein contained with respect to the Collateral are
irrevocable and powers coupled with an interest.

 

12.                                 Severability.  Any provision of this Security Agreement,
that is prohibited or unenforceable in any jurisdiction, shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.

 

13.                                 Paragraph
Headings.  The paragraph headings
used in this Security Agreement are for convenience of reference only and are
not to affect the construction hereof or be taken into consideration in the
interpretation hereof.

 

14.                                 No
Waiver; Cumulative Remedies.  The
Secured Party shall not by any act (except by a written instrument pursuant to Section 15
hereof), delay, indulgence, omission or 

 

14

 

otherwise be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Default
or Event of Default or in any breach of any of the terms and conditions
hereof.  No failure to exercise, nor any
delay in exercising, on the part of the Secured Party, any right, power or
privilege hereunder shall operate as a waiver thereof.  No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.  A waiver by the Secured Party of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy, which the Secured Party would otherwise have on any future
occasion.  The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.

 

15.                                 Waivers
and Amendments; Successors and Assigns, Governing Law.  None of the terms or provisions of this
Security Agreement may be waived, amended, supplemented or otherwise modified
except as provided by the Credit Agreement. 
This Security Agreement shall be binding upon the successors and assigns
of the Debtor and shall inure to the benefit of the Secured Party and its
respective successors and assigns.  This
Security Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York, applicable to contracts
made and performed in such state.

 

16.                                 Jurisdiction.  The Debtor hereby consents and agrees that
the state or federal courts located in the County of New York, State of New
York shall have exclusive jurisdiction to hear and determine any claims or
disputes between the Debtor, on the one hand, and Lender, on the other hand,
pertaining to this Security Agreement or to any matter arising out of or
related to this Security Agreement, provided, that Lender and the Debtor
acknowledge that any appeals from those courts may have to be heard by a court
located outside of the County of New York, State of New York, and further
provided, that nothing in this Security Agreement shall be deemed or operate to
preclude Lender from bringing suit or taking other legal action in any other
jurisdiction to collect on the Obligations and the Guaranty Obligations, to
realize on the Collateral or any other security for the Obligations or the
Guaranty Obligations, or to enforce a judgment or other court order in favor of
Lender.  The Debtor expressly submits and
consents in advance to such jurisdiction in any action or suit commenced in any
such court, and the Debtor hereby waives any objection which it may have based
upon lack of personal jurisdiction, improper venue or forum  non  conveniens.  The Debtor hereby waives personal service of
the summons, complaint and other process issued in any such action or suit and
agrees that service of such summons, complaint and other process may be made by
registered or certified mail addressed to the Debtor at the address set forth
on the signature lines hereto and that service so made shall be deemed completed
upon the earlier of the Debtor’s actual receipt thereof or three (3) days
after deposit in the U.S. mails, proper postage prepaid.

 

The parties desire that their disputes be resolved by
a judge applying such applicable laws. 
Therefore, to achieve the best combination of the benefits of the
judicial system and of arbitration, the parties hereto waive all rights to trial
by jury in any action, suit, or proceeding brought to resolve any dispute,
whether arising in contract, tort, or otherwise between Lender, and/or any
Debtor arising out of, connected with, related or incidental to the
relationship established between them in connection with this Security
Agreement or the transactions related hereto.

 

15

 

17.                                 Joinder.  It is understood and agreed that any Person
that desires to become a Debtor hereunder, or is required to execute a
counterpart of this Security Agreement after the date hereof pursuant to the
requirements of the Credit Agreement or any Ancillary Agreement, shall become a
Debtor hereunder by (a) executing a Joinder Agreement in form and
substance satisfactory to Lender, (b) delivering supplements to such
exhibits and annexes to the Credit Agreement or any Ancillary Agreements as
Lender shall reasonably request and (c) taking all actions as specified in
this Security Agreement as would have been taken by the Debtor had it been an
original party to this Security Agreement, in each case with all documents
required above to be delivered to Lender and with all documents and actions
required above to be taken to the reasonable satisfaction of Lender.

 

18.                                 Notices.  Notices hereunder shall be given to the
Debtor in the manner set forth in the Credit Agreement at the address set forth
below the Debtors’ signature lines.

 

19.                                 Termination.  Upon the termination of the Guaranty
Agreement set forth in the Credit Agreement, this Security Agreement shall
terminate and the Secured Party shall deliver any release of the Liens created
under this Security Agreement that the Debtor may reasonably request.

 

20.                                 Specific
Releases.   So long as no Default or
Event of Default has occurred and is continuing, if the Debtor shall sell,
transfer, lease or otherwise dispose of any of the Collateral permitted by the
terms of this Security Agreement, including, without limitation, Section 5(i) hereof,
then the Secured Party shall deliver a release in respect of any Lien created
under this Security Agreement in such disposed Collateral that the Debtor may
reasonably request.

 

16

 

IN WITNESS WHEREOF, the parties hereto have caused
this Security Agreement to be duly executed and delivered as of the date first
above written.

 

	
   

  	
  LENDER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LAURUS MASTER
  FUND, LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DEBTOR:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  IWT TESORO
  TRANSPORT, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notice Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  191 Post Road
  West

  
	
   

  	
   

  	
  Westport,
  Connecticut 06880

  
	
   

  	
   

  	
  Attention: Henry
  J. Boucher, Jr., CEO

  
	
   

  	
   

  	
  Telephone:  (203)
  221-2770

  
	
   

  	
   

  	
  Facsimile:   (203)
  221-2797

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE TILE CLUB,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notice Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  191 Post Road
  West

  
	
   

  	
   

  	
  Westport,
  Connecticut 06880

  
	
   

  	
   

  	
  Attention: Henry
  J. Boucher, Jr., CEO

  
	
   

  	
   

  	
  Telephone:  (203)
  221-2770

  
	
   

  	
   

  	
  Facsimile:   (203)
  221-2797

  

 

17

 

 

	
   

  	
  IMPORT FLOORING
  GROUP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notice Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  191 Post Road
  West

  
	
   

  	
   

  	
  Westport,
  Connecticut 06880

  
	
   

  	
   

  	
  Attention: Henry
  J. Boucher, Jr., CEO

  
	
   

  	
   

  	
  Telephone:  (203)
  221-2770

  
	
   

  	
   

  	
  Facsimile:    (203)
  221-2797

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  IWT TESORO
  INTERNATIONAL LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notice Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  191 Post Road
  West

  
	
   

  	
   

  	
  Westport,
  Connecticut 06880

  
	
   

  	
   

  	
  Attention: Henry
  J. Boucher, Jr., CEO

  
	
   

  	
   

  	
  Telephone:  (203)
  221-2770

  
	
   

  	
   

  	
  Facsimile:    (203)
  221-2797

  

 

18

 

EXHIBIT A

 

[Commercial Tort Claims, if any]

 

19

 

SCHEDULE 4(c)

 

Location of Books and Records

 

20

 

SCHEDULE 4(e)

 

Location of Inventory and Equipment

 

21

 

SCHEDULE 4(f)

 

Chief Executive Office, Chief Place of Business 

and Jurisdiction of Incorporation

 

22

 

SCHEDULE 4(g)

 

Intellectual Property

 

23

 

SCHEDULE 4(i)

 

Deposit Accounts

 

24

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