Document:

Exhibit 10.3

 

DENDRITE
INTERNATIONAL, INC.

NEW HIRE
AUTHORIZATION

 

RESTRICTED
STOCK AGREEMENT

 

THIS AGREEMENT is made on
                    ,
20     by Dendrite International, Inc., a New Jersey
corporation (the “Company”), and
                                      
(the “Participant”).

 

WHEREAS, the Company
desires to afford the Participant the opportunity to acquire ownership of the
Company’s common stock, no par value per share (“common stock”); and

 

WHEREAS, the Compensation
Committee of the Board of Directors of the Company has granted restricted stock
of the Company, no par value per share (“Restricted Stock”) to the Participant
under the Dendrite International, Inc. New Hire Authorization (the “Plan”)
pursuant to NASD Rule 4350(i) as an inducement essential to the Participant’s
entering into an employment contract with the Company;

 

NOW, THEREFORE, the
parties agree as follows:

 

1.             Vesting.  Except as expressly
provided elsewhere in this Agreement, the Restricted Stock shall vest according
to the dates shown below:

 

	
  Percentage
  of

  Shares Vesting

  	
   

  	
  First
  Date on Which

  Such Shares Vest

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

[Insert vesting schedule]

 

2.             Issuance of Share Certificates; Restrictive Legends.  The common stock certificates to be issued
pursuant to the Participant’s grant of Restricted Stock shall be endorsed with
such legends as the Company deems appropriate, and shall be held by the
Company, on behalf of the Participant, prior to vesting in accordance with the
vesting schedule set forth in Section 1 of this Agreement.  In the event that any shares of Restricted
Stock do not vest in accordance with the terms and conditions of this
Agreement, such shares shall be automatically forfeited to the Company without
further action or instrument.

 

3.             Vesting Upon Death.  Upon the
Participant’s death during active employment with the Company, all then
outstanding and unvested Restricted Stock granted hereunder shall become
immediately vested without regard to the vesting schedule set forth in Section
1 of this Agreement.

 

4.             Vesting Upon Termination of Employment. 
Upon the termination of the Participant’s employment with the Company for any
reason other than death, the Participant shall be entitled only to the
percentage of the Restricted Stock which had vested under this Agreement as of
the Participant’s termination date, except only as may otherwise be expressly
provided for in any written employment agreement executed between the
Participant and the Company, if applicable.

 

5.             Change in Control.  Upon the
occurrence of a Change in Control (as defined in the Plan), all Restricted
Stock shall automatically become vested and all restrictions on any Restricted
Stock shall automatically lapse.

 

 

6.             Non-Transferability.  Unless
otherwise determined by the Committee (as defined in the Plan) with respect to
the transferability of certain awards by a Participant to the Participant’s
Immediate Family Members (as defined in the Plan) or to trusts or partnerships
or limited liability companies established for such family members, no Restricted
Stock shall be assignable or transferable by the Participant prior to vesting
of such shares, otherwise than by will or the laws of descent or distribution.

 

7.             Rights as Shareholder.  The
Participant shall have no rights as a shareholder with respect to the common
stock underlying any Restricted Stock unless and until a certificate
representing such common stock is duly issued and delivered.

 

8.             Adjustments.  In the event of any
change in the outstanding shares of the Company’s common stock by reason of any
stock dividend or split, recapitalization, merger, consolidation, spin-off,
combination or exchange of shares or other corporate change, or any
distribution to holders of the Company’s common stock other than regular cash
dividends prior to the vesting of the Restricted Stock, the number or kind of
shares represented by the Restricted Stock awarded under this Agreement may be
adjusted by the Committee (as defined in the Plan) or the Board of Directors of
the Company in such manner as it may deem equitable.

 

9.             Compliance with Securities Laws. 
The Participant understands and acknowledges that the Restricted Stock may not
be offered, sold, transferred or otherwise disposed of except in accordance
with the Securities Act of 1933, as amended, the rules and regulations
thereunder and all applicable state securities laws.

 

10.           Withholding Taxes.  The Company
has the right to deduct from any payment to be made pursuant to the Plan the
amount of any taxes required by law to be withheld, or to require the Participant
to pay to the Company in Awards or cash the amount required to be withheld
prior to the issuance or delivery of any shares of common stock or the payment
of cash under the Plan.  Such taxes may be paid by (a) delivering
previously owned shares of common stock, or (b) having the Company retain
shares of common stock which would otherwise be released hereunder upon payment
or vesting of an award, or (c) any combination of a cash payment or the methods
set forth above. For purposes of (a) and (b) above, shares of common stock
shall be valued at Fair Market Value (as defined in the Plan) determined as of
the day immediately prior to vesting or payment.

 

11.           Forfeiture.  In consideration of
the granting of Restricted Stock pursuant to this Agreement and the Plan, the
Participant hereby agrees that notwithstanding anything in the Plan or this
Agreement to the contrary, in the event of:

 

(i) serious misconduct by
the Participant (including, without limitation, a material breach by the
Participant of Company policy, or a material breach by the Participant of the
obligations set forth in the Company’s employee handbook [or code of ethics and
standards of business conduct]), or conduct seriously prejudicial to the
business or reputation of the Company (including illegal or fraudulent
activity, criminal indictment or acts of moral turpitude), or

 

(ii) a material breach by
the Participant of any employment agreement between the Participant and the
Company, or

 

(iii) a breach by the
Participant of any written agreement not to compete with the Company or a
breach by the Participant of his or her confidentiality agreement with the
Company or a breach by the Participant of his or her covenant against
soliciting Company employees,

 

 

then (a) all unvested Restricted
Stock granted to the Participant shall be forfeited and (b) if such conduct or
activity occurs within one year following the vesting of any Restricted Stock,
the Participant shall be required to repay to the Company such shares
underlying vested Restricted Stock.  Such forfeit or repayment obligation
shall be effective as of the date specified by the Committee.

 

Any repayment obligation
may be satisfied in common stock or cash or a combination thereof (based upon
the Fair Market Value of common stock on the day prior to the date of payment),
and the Committee is hereby permitted and expressly authorized by the
Participant to offset against any future payments owed by the Company or any
Subsidiary to the Participant (including any salary, bonus, severance or other
compensation) to satisfy the repayment obligation.  The determination of
whether the Participant has engaged in any conduct or activity described in
(i), (ii) or (iii) above shall be determined by the Committee in good
faith.  This Section 11 shall have no application following a Change in
Control.

 

The Participant agrees to
reimburse the Company for all costs and expenses (including, without
limitation, court costs and the reasonable fees and expenses of attorneys)
incurred by the Company in connection with any action by the Company seeking to
enforce this Section 11.

 

12.           Beneficiaries.  The Participant
may designate a beneficiary to be assigned the Restricted Stock outstanding at
the time of the Participant’s death.  If no beneficiary has been named by
the Participant at the time of death, any Restricted Stock held by the
Participant at such time shall be transferred as provided in the Participant’s
will or by the laws of descent and distribution.  Whenever the word “Participant”
is used in this Agreement under circumstances where the provision should
logically be construed to apply to the beneficiaries, the executors, the
administrators, or the person or persons to whom the Restricted Stock may be
transferred by will or by the laws of descent and distribution, the word “Participant”
shall be deemed to include such person or persons.

 

13.           Notices.  Every notice or other
communication relating to this Agreement shall be in writing, and shall be
mailed to or delivered to the party for whom it is intended at such address as
may from time to time be designated by it in a notice mailed or delivered to
the other party as herein provided; provided that, unless and until some
other address be so designated, all notices or communications by the
Participant to the Company shall be mailed or delivered to the Company at its
principal executive office, and all notices or communications by the Company to
the Participant may be given to the Participant personally or may be mailed to
the Participant at the address in the records of the Company.

 

14.           Binding Effect.  Subject to
Section 12 hereof, this Agreement shall be binding upon the heirs, executors,
administrators and successors of the parties hereto.

 

15.           Governing Law.  This Agreement
shall be construed and interpreted in accordance with the laws of the State of
New Jersey, without giving effect to conflicts of laws principles.

 

16.           Incorporation by Reference of the Plan. 
The terms and provisions of the Plan are incorporated herein by reference, and
the Participant hereby acknowledges receiving a copy of the Plan. 
Capitalized terms not defined in this Agreement have the meaning set forth in
the Plan.  In the event of a conflict or inconsistency between
discretionary terms and provisions of the Plan and the express provisions of
this Agreement, this Agreement shall govern and control.  In all other
instances of conflicts or inconsistencies or omissions, the terms and
provisions of the Plan shall govern and control.

 

17.           Amendment.  This Agreement may be
amended by written agreement of the Participant and the Company, without the
consent of any other person.

 

 

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

 

 

	
   

  	
  DENDRITE INTERNATIONAL,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PARTICIPANT

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  

 

 

DENDRITE
INTERNATIONAL, INC.

NEW HIRE
AUTHORIZATION

 

RESTRICTED
STOCK UNITS AGREEMENT

 

THIS AGREEMENT is made on
                    ,
20     by Dendrite International, Inc., a New Jersey
corporation (the “Company”), and
                                      
(the “Participant”).

 

WHEREAS, the Company
desires to afford the Participant the opportunity to acquire ownership of the
Company’s common stock, no par value per share (“common stock”); and

 

WHEREAS, the Compensation
Committee of the Board of Directors of the Company has granted units
representing restricted shares of the common stock, no par value per share (“Restricted
Stock Units”) to the Participant under the Dendrite International, Inc. New
Hire Authorization (the “Plan”) pursuant to NASD Rule 4350(i) as an inducement
essential to the Participant’s entering into an employment contract with the
Company;

 

NOW, THEREFORE, the
parties agree as follows:

 

1.             Vesting.  Except as expressly
provided elsewhere in this Agreement, the Restricted Stock Units shall vest
according to the dates shown below:

 

	
  Percentage
  of

  Shares Vesting

  	
   

  	
  First
  Date on Which

  Such Shares Vest

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

[Insert vesting schedule]

 

2.             Issuance of Share Certificates; Restrictive Legends. 
Subject to satisfaction of all applicable withholding taxes and subject to all
other requirements pursuant to this Agreement and the Plan, the Company shall
issue and deliver to the Participant a certificate representing each portion of
fully vested Restricted Stock Units, pursuant to the vesting schedule set forth
in Section 1, as soon as reasonably practicable after each respective date of
vesting.

 

The common stock
certificates issued pursuant to the Participant’s grant of Restricted Stock
Units shall be endorsed with such legends as the Company deems appropriate.

 

3.             Vesting Upon Death.  Upon the
Participant’s death during active employment with the Company, all then
outstanding and unvested Restricted Stock Units granted hereunder shall become
immediately vested without regard to the vesting schedule set forth in Section
1 of this Agreement.

 

4.             Vesting Upon Termination of Employment. 
Upon the termination of the Participant’s employment with the Company for any
reason other than death, the Participant shall be entitled only to the
percentage of the Restricted Stock Units which had vested under this Agreement
as of the Participant’s termination date, except only as may otherwise be
expressly provided for in any written employment agreement executed between the
Participant and the Company, if applicable.

 

 

5.             Change in Control. 
Upon the occurrence of a Change in Control (as defined in the Plan), all
Restricted Stock Units shall automatically become vested and all restrictions
on any Restricted Stock Units shall automatically lapse.

 

6.             Non-Transferability. 
Unless otherwise determined by the Committee (as defined in the Plan) with
respect to the transferability of certain awards by a Participant to the
Participant’s Immediate Family Members (as defined in the Plan) or to trusts or
partnerships or limited liability companies established for such family
members, no Restricted Stock Units shall be assignable or transferable by the
Participant prior to vesting of such units, otherwise than by will or the laws
of descent or distribution.

 

7.             Rights as Shareholder.  The
Participant shall have no rights as a shareholder with respect to the common
stock underlying any Restricted Stock Units unless and until a certificate
representing such common stock is duly issued and delivered to the Participant.

 

8.             Adjustments. 
In the event of any change in the outstanding shares of the Company’s common
stock by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, combination or exchange of shares or other corporate
change, or any distribution to holders of the Company’s common stock other than
regular cash dividends prior to the vesting of the Restricted Stock Units, the
number or kind of shares represented by the Restricted Stock Units awarded
under this Agreement may be adjusted by the Committee (as defined in the Plan)
or the Board of Directors of the Company in such manner as it may deem
equitable.

 

9.             Compliance with
Securities Laws.  The Participant understands and acknowledges
that the Restricted Stock Units may not be offered, sold, transferred or
otherwise disposed of except in accordance with the Securities Act of 1933, as
amended, the rules and regulations thereunder and all applicable state
securities laws.

 

10.           Withholding
Taxes.  The Company has the right to deduct from any
payment to be made pursuant to the Plan the amount of any taxes required by law
to be withheld, or to require the Participant to pay to the Company in Awards
or cash the amount required to be withheld prior to the issuance or delivery of
any shares of common stock or the payment of cash under the Plan.  Such
taxes may be paid by (a) delivering previously owned shares of common stock, or
(b) having the Company retain shares of common stock which would otherwise be
delivered upon payment of an award, or (c) any combination of a cash payment or
the methods set forth above. For purposes of (a) and (b) above, shares of
common stock shall be valued at Fair Market Value (as defined in the Plan) determined
as of the day immediately prior to vesting or payment.

 

11.           Forfeiture. 
In consideration of the granting of Restricted Stock Units pursuant to this
Agreement and the Plan, the Participant hereby agrees that notwithstanding
anything in the Plan or this Agreement to the contrary, in the event of:

 

(i) serious misconduct by
the Participant (including, without limitation, a material breach by the
Participant of Company policy, or a material breach by the Participant of the
obligations set forth in the Company’s employee handbook [or code of ethics and
standards of business conduct]), or conduct seriously prejudicial to the
business or reputation of the Company (including illegal or fraudulent
activity, criminal indictment or acts of moral turpitude), or

 

(ii) a material breach by
the Participant of any employment agreement between the Participant and the
Company, or

 

 

(iii) a breach by the
Participant of any written agreement not to compete with the Company or a
breach by the Participant of his or her confidentiality agreement with the
Company or a breach by the Participant of his or her covenant against
soliciting Company employees,

 

then (a) all unvested
Restricted Stock Units granted to the Participant shall be cancelled and (b) if
such conduct or activity occurs within one year following the vesting of any
Restricted Stock Units, the Participant shall be required to repay to the
Company such shares underlying vested Restricted Stock Units.  Such
cancellation or repayment obligation shall be effective as of the date
specified by the Committee.

 

Any repayment obligation
may be satisfied in common stock or cash or a combination thereof (based upon
the Fair Market Value of common stock on the day prior to the date of payment),
and the Committee is hereby permitted and expressly authorized by the
Participant to offset against any future payments owed by the Company or any
Subsidiary to the Participant (including any salary, bonus, severance or other
compensation) to satisfy the repayment obligation.  The determination of
whether the Participant has engaged in any conduct or activity described in
(i), (ii) or (iii) above shall be determined by the Committee in good
faith.  This Section 11 shall have no application following a Change in
Control.

 

The Participant agrees to
reimburse the Company for all costs and expenses (including, without
limitation, court costs and the reasonable fees and expenses of attorneys)
incurred by the Company in connection with any action by the Company seeking to
enforce this Section 11.

 

12.           Beneficiaries. 
The Participant may designate a beneficiary to be assigned the Restricted Stock
Units outstanding at the time of the Participant’s death.  If no
beneficiary has been named by the Participant at the time of death, any
Restricted Stock Units held by the Participant at such time shall be
transferred as provided in the Participant’s will or by the laws of descent and
distribution.  Whenever the word “Participant” is used in this Agreement
under circumstances where the provision should logically be construed to apply
to the beneficiaries, the executors, the administrators, or the person or
persons to whom the Restricted Stock Units may be transferred by will or by the
laws of descent and distribution, the word “Participant” shall be deemed to
include such person or persons.

 

13.           Notices. 
Every notice or other communication relating to this Agreement shall be in
writing, and shall be mailed to or delivered to the party for whom it is
intended at such address as may from time to time be designated by it in a
notice mailed or delivered to the other party as herein provided; provided
that, unless and until some other address be so designated, all notices or
communications by the Participant to the Company shall be mailed or delivered
to the Company at its principal executive office, and all notices or
communications by the Company to the Participant may be given to the
Participant personally or may be mailed to the Participant at the address in
the records of the Company.

 

14.           Binding
Effect.  Subject to Section 12 hereof, this Agreement shall
be binding upon the heirs, executors, administrators and successors of the
parties hereto.

 

15.           Governing
Law.  This Agreement shall be construed and interpreted in
accordance with the laws of the State of New Jersey, without giving effect to
conflicts of laws principles.

 

16.           Incorporation
by Reference of the Plan.  The terms and provisions of the
Plan are incorporated herein by reference, and the Participant hereby
acknowledges receiving a copy of the Plan.  Capitalized terms not defined
in this Agreement have the meaning set forth in the Plan.  In the event of
a conflict or inconsistency between discretionary terms and provisions of the
Plan and the express provisions of this Agreement, this Agreement shall govern
and control.  In all other instances of conflicts or inconsistencies or
omissions, the terms and provisions of the Plan shall govern and control.

 

 

17.           Amendment. 
This Agreement may be amended by written agreement of the Participant and the
Company, without the consent of any other person.

 

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

 

 

	
   

  	
  DENDRITE INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PARTICIPANT

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:Exhibit 10.16

 

AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT

 

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

 

WHEREAS, Lender and Borrower entered into a Loan and
Security Agreement, dated September 10, 2003, as amended by that certain
First Amendment to Loan and Security Agreement dated February 19, 2004, as
further amended by that certain Second Amendment to Loan and Security Agreement
dated March 22, 2004, and as further amended by that certain Third
Amendment to Loan and Security Agreement dated October 7, 2004
(collectively the “Loan Agreement”); and

 

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

 

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

 

SECTION 1.                         CREDIT FACILITY

 

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

 

1.1                               Revolving
Credit Loans.

 

1.1.1                     Loans
and Reserves.  Lender agrees, for
so long as no Default or Event of Default exists, to make Revolving Credit
Loans to Borrower from time to time, as requested by Borrower in the manner set
forth in subsection 3.1.1 hereof, up to a
maximum principal amount at any time outstanding equal to the Borrowing Base at
such time minus the LC Amount and reserves, if any.  Lender shall have the right to establish
reserves in such amounts, and with respect

 

 

to such matters, as
Lender shall deem necessary or appropriate, against the amount of Revolving
Credit Loans which Borrower may otherwise request under this subsection 1.1.1, including, without limitation, with
respect to (i) price adjustments,
damages, unearned discounts, returned products or other matters for which
credit memoranda are issued in the ordinary course of Borrower’s business; (ii) shrinkage, spoilage and obsolescence of Inventory;
(iii) slow moving Inventory; (iv) other sums chargeable against Borrower’s Loan
Account as Revolving Credit Loans under any section of this Agreement; (v) amounts owing by Borrower to any Person to the
extent secured by a Lien on, or trust over, any Property of Borrower; and (vi) such other matters, events, conditions or
contingencies as to which Lender, in its reasonable credit judgment, determines
reserves should be established from time to time hereunder. The Revolving
Credit Loans shall be further evidenced by the Revolving Credit Note and shall
be secured by all of the Collateral.

 

1.1.2                     Use
of Proceeds.  The Revolving
Credit Loans shall be used solely for the satisfaction of existing Indebtedness
of Borrower to Congress Financial Corporation and for Borrower’s general
working capital needs in a manner consistent with the provisions of this Agreement
and all applicable laws.

 

1.1.3                     Joint Facility.  Borrower acknowledges and agrees that the
credit facility made pursuant to this Agreement is a joint credit facility
extended by Lender for the joint needs of IWT Tesoro Corporation and
International Wholesale Tile, Inc. Each of IWT Tesoro Corporation and
International Wholesale Tile, Inc. acknowledge and agree that their
liability under this Agreement, the Revolving Credit Note and the other Loan
Documents in respect of the Obligations is joint and several.  IWT Tesoro Corporation and International
Wholesale Tile, Inc. each acknowledge and agree that each of them receives
a benefit from the extension of credit to the other as contemplated in this
Agreement and that in making Revolving Credit Loans under this Agreement,
Lender has relied upon the agreements of IWT Tesoro Corporation and
International Wholesale Tile, Inc. contained herein, including without
limitation their agreements to be jointly and severally liable for the
repayment of the Obligations.

 

1.2                               Letters
of Credit; LC Guaranties.  Lender
agrees, for so long as no Default or Event of Default exists and if requested
by Borrower, to (i) issue its, or cause to be
issued its Affiliate’s, Letters of Credit for the account of Borrower or (ii) execute LC Guaranties by which Lender or its
Affiliate shall guaranty the payment or performance by Borrower of its
reimbursement obligations with respect to Letters of Credit and letters of
credit issued for Borrower’s account by other Persons in support of Borrower’s
obligations (other than obligations for the repayment of Money Borrowed), provided
that the LC Amount at any time shall not exceed $8,000,000. No Letter of Credit
or LC Guarantee may have an expiration date that is later than thirty (30) days
prior to the last day of the Original Term or the then applicable Original Term. Any amounts paid by
Lender under any LC Guaranty or in connection with any Letter of Credit shall
be treated as Revolving Credit Loans,

 

2

 

shall be secured by all
of the Collateral and shall bear interest and be payable at the same rate and
in the same manner as Revolving Credit Loans.

 

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

 

SECTION 2.                         INTEREST,
FEES AND CHARGES

 

2.1                               Interest.

 

2.1.1                     Rates
of Interest.  Interest shall accrue
on the Revolving Credit Loans in accordance with the terms of the Revolving
Credit Note. Interest shall accrue on the principal amount of the Base Rate
Advances outstanding at the end of each day at a fluctuating rate per annum
equal to 0.50% plus the Base Rate. Interest shall accrue on the
principal amount of each of the LIBOR Advances outstanding at the end of each
day at a fixed rate per annum equal to 3.00% plus the LIBOR for the applicable
Interest Period. The rate of interest applicable to Base Rate Advances shall
increase or decrease by an amount equal to any increase or decrease in the Base
Rate, effective as of the opening of business on the day that any such change
in the Base Rate occurs.  Interest shall accrue
on the principal amount of the Base Rate Overadvance outstanding at the end of
each day at a fluctuating rate per annum equal to 2.00% plus the Base
Rate. Interest shall accrue on the principal amount of each of the LIBOR
Overadvance outstanding at the end of each day at a fixed rate per annum equal
to 4.50% plus the LIBOR for the applicable Interest Period.

 

2.1.2                     Default
Rate of Interest.  Upon and after
the occurrence of an Event of Default, and during the continuation thereof, the
principal amount of all Loans shall bear interest at a rate per annum equal to
5% above the interest rate otherwise applicable thereto (the “Default Rate”).

 

2.1.3                     Maximum
Interest.  In no event whatsoever
shall the aggregate of all amounts deemed interest under the Revolving Credit
Note and charged or collected pursuant to the terms of this Agreement exceed
the highest rate permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto. If any
provisions of this Agreement are

 

3

 

in contravention of any
such law, such provisions shall be deemed amended to conform thereto.

 

2.2                               Computation of Interest and Fees.  Interest, Letter of Credit and LC Guaranty
fees and unused line fees and collection charges hereunder shall be calculated
daily and shall be computed on the actual number of days elapsed over a year of
360 days. For the purpose of computing interest hereunder, all items of payment
received by Lender shall be deemed applied by Lender on account of the
Obligations (subject to final payment of such items) on the second Business Day
after 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 fully earned and nonrefundable on the
Closing Date.  Borrower shall pay an
additional closing fee of $25,000.00 which shall be fully earned and
nonrefundable on the Effective Date.

 

2.4                               Letter
of Credit and LC Guaranty Fees. 
Borrower shall pay to Lender:

 

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

 

(ii)                                for
documentary Letters of 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 LC Guaranty and an additional fee equal to .5% per annum of
the face amount of such Letter of Credit or LC Guaranty payable upon each
renewal thereof and each extension thereof plus the normal and customary
charges associated with the issuance and administration of each such Letter of
Credit or LC Guaranty (which fees and charges shall be fully earned upon
issuance, renewal or extension (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 not be subject to rebate or proration upon the
termination of this Agreement for any reason).

 

4

 

2.5                               Unused
Line Fee.  Borrower shall pay to
Lender a fee equal to 0.375% per annum of the average monthly amount of the
unused portion of the Total Credit Facility. The unused line fee shall be
payable monthly in arrears on the first day of each calendar month hereafter.

 

2.6                               Collection
Charges.  If items of payment are
received by Lender at a time when there are no Revolving Credit Loans
outstanding, such items of payment shall be subject to a collection charge
equal to any and all out-of-pocket costs incurred by Lender, which collection
charges shall be payable on the first Business Day of each month.

 

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

 

2.8                               Reimbursement
of Expenses.  If, at any time or
times regardless of whether or not an Event of Default then exists, Lender or
any Participating Lender incurs legal or accounting expenses or any other costs
or out-of-pocket expenses in connection with (i) the
negotiation and preparation of this Agreement or any of the other Loan
Documents, any amendment of or modification of this Agreement or any of the
other Loan Documents, or any sale or attempted sale of any interest herein to a
Participating Lender; (ii) the
administration of this Agreement or any of the other Loan Documents and the
transactions contemplated hereby and thereby; (iii) any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
Lender, Borrower or any other Person) in any way relating to the Collateral,
this Agreement or any of the other Loan Documents or Borrower’s affairs; (iv) any attempt to enforce any rights of Lender or any
Participating Lender against Borrower or any other Person which may be
obligated to Lender by virtue of this Agreement or any of the other Loan
Documents, including, without limitation, the Account Debtors; or (v) any attempt to inspect, verify, protect, preserve,
restore, collect, sell, liquidate or otherwise dispose of or realize upon the
Collateral; then all such legal and accounting expenses, other costs and out of
pocket expenses of Lender shall be charged to Borrower. All amounts chargeable
to Borrower under this Section 2.8
shall be Obligations secured by all of the Collateral, shall be payable on
demand to Lender or to such Participating Lender, as the case may be, and shall
bear interest from the date such demand is made until paid in full at the rate
applicable to Base Rate Advances from time to time. Borrower shall also
reimburse Lender for

 

5

 

expenses incurred by
Lender in its administration of the Collateral to the extent and in the manner
provided in Section 6 hereof.

 

2.9                               Bank
Charges.  Borrower shall pay to
Lender, on demand, any and all fees, costs or expenses which Lender or any
Participating 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) the
forwarding to Borrower or any other Person on behalf of Borrower, by Lender or
any Participating Lender, of proceeds of loans made by Lender to Borrower
pursuant to this Agreement and (ii) the
depositing for collection, by Lender or any Participating Lender, of any check
or item of payment received or delivered to Lender or any Participating Lender
on account of the Obligations.

 

SECTION 3.                         LOAN
ADMINISTRATION

 

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

 

3.1.1                     Loan
Requests.  A request for a
Revolving Credit Loan shall be made, or shall be deemed to be made, in the
following manner: (i) Borrower
may give Lender notice of its intention to borrow, in which notice Borrower
shall specify the amount of the proposed borrowing and the proposed borrowing
date, 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
there exists 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 to be a
request for a Revolving Credit Loan on the due date in the amount required to
pay such interest or other Obligation. As an accommodation to Borrower, Lender
may permit facsimile or electronic requests for loans and electronic
transmittal of instructions, authorizations, agreements or reports to Lender by
Borrower. Unless Borrower specifically directs Lender in writing not to accept
or act upon facsimile or electronic communications from Borrower, Lender shall
have no liability to Borrower for any loss or damage suffered by Borrower as a
result of Lender’s honoring of any requests, execution of any instructions,
authorizations or agreements or reliance on any reports communicated to it by
facsimile or electronically and purporting to have been sent to Lender by
Borrower and Lender shall have no duty to verify the origin of any such
communication or the authority of the person sending it.

 

3.1.2                     Disbursement.  Borrower hereby irrevocably authorizes Lender
to disburse the proceeds of each Revolving Credit Loan requested, or deemed to
be requested, pursuant to this subsection 3.1.2
as follows: (i) the proceeds of each
Revolving Credit Loan requested under subsection 3.1.1(i) shall
be disbursed by Lender in lawful money of the United States of America in
immediately available funds, in the case of the initial borrowing, in
accordance with

 

6

 

the terms of the written
disbursement letter from Borrower, and in the case of each subsequent
borrowing, by wire transfer to such bank account as may be agreed upon by
Borrower and Lender from time to time or elsewhere if pursuant to a written
direction from Borrower; and (ii) the
proceeds of each Revolving Credit Loan requested under subsection 3.1.1(ii) shall
be disbursed by Lender by way of direct payment of the relevant interest or
other Obligation.

 

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

 

3.1.4                     LIBOR
Advances.  Notwithstanding the
provisions of subsection 3.1.1, in the event Borrower desires to obtain a
LIBOR Advance or LIBOR Overadvance, Borrower shall give Lender prior, written,
irrevocable notice no later than 11:00 A.M. Hartford, Connecticut Time on
the 2nd Business Day prior to the requested borrowing date specifying (i) Borrower’s
election to obtain a LIBOR Advance or LIBOR Overadvance, (ii) the date of
the proposed borrowing (which shall be a Business Day) and (iii) the
amount to be borrowed, which amount shall be in a minimum principal amount of
$1,000,000 and may increase in integral multiples of $250,000. In no event
shall Borrower be permitted to have outstanding at any one time LIBOR Advances
or LIBOR Overadvances with more than three (3) different Interest Periods.

 

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

 

3.1.6                     Continuation
of LIBOR Advances.  Borrower
shall have the right on two (2) Business Days’ prior irrevocable written
notice given to Lender by Borrower (prior to 11:00 A.M. Hartford,
Connecticut Time on such Business Day), subject to the provisions hereof, to
continue any LIBOR Advance into a

 

7

 

subsequent Interest
Period of the same or a different permitted duration, in each case subject to
the satisfaction of the following conditions:

 

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

 

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

 

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

 

3.1.7                     Inability
to Make LIBOR Advances. 
Notwithstanding any other provision hereof, if any applicable law,
treaty, regulation or directive, or any change therein or in the interpretation
or 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 or
any corporation or bank then controlling any Lender makes or maintains any
LIBOR Advances) to make or maintain its LIBOR Advances or LIBOR Overadvances,
or if with respect to any Interest Period, Lender is unable to determine the
LIBOR relating thereto, or adverse or unusual conditions in, or changes in
applicable law relating to, the London interbank market make it, in the
reasonable judgment of Lender, impracticable to fund therein any of the LIBOR
Advances, or make the projected LIBOR unreflective of the actual costs of funds
therefor to Lender, the obligation of Lender to make LIBOR Advances or LIBOR
Overadvances hereunder shall forthwith be suspended during the pendency of such
circumstances and Borrower shall, if any affected LIBOR Advances or LIBOR
Overadvances are then outstanding, promptly upon request from Lender, convert
such affected LIBOR Advances or LIBOR Overadvances into Base Rate Advances.

 

3.2                               Payments.  Except where evidenced by notes or other
instruments issued or made by Borrower to Lender specifically containing
payment provisions which are in conflict with this Section 3.2
(in which event the conflicting provisions of said notes or other instruments
shall govern and control), the Obligations shall be payable as follows:

 

3.2.1                     Principal.  Principal payable on account of Revolving
Credit Loans shall be payable by Borrower to Lender immediately upon the
earliest

 

8

 

of (i) the
receipt by Lender or Borrower of any proceeds of any of the Collateral to the
extent of said proceeds, (ii) the
occurrence of an Event of Default in consequence of which Lender elects to
accelerate the maturity and payment of the Obligations, or (iii) termination
of this Agreement pursuant to Section 4
hereof; provided, however, that if an Overadvance shall exist at
any time, Borrower shall, on demand, repay the Overadvance. Each payment
(including principal prepayment) by Borrower on account of principal of the
Revolving Credit Loans shall be applied first to Base Rate Advances, then to
LIBOR Advances.

 

3.2.2                     Interest.  Interest accrued on the Revolving Credit
Loans shall be due on the earliest of (i) the
first calendar day of each month (for the immediately preceding month),
computed through the last calendar day of the preceding month, (ii) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate 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 to this Agreement shall be payable by Borrower as
and when provided in Section 2
hereof, to Lender or to any other Person designated by Lender in writing.

 

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

 

3.2.5                     Prepayment
of LIBOR Advances.  Borrower may
prepay a LIBOR Advance only upon at least three (3) Business Days prior
written notice to Lender (which notice shall be irrevocable), and any such
prepayment shall occur only on the last day of 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 the reasonable opinion of Lender)
to compensate Lender for any loss, cost, or expense incurred as a result
of:  (i) any
payment of a LIBOR Advance on a date other than the last day of the Interest
Period for such Loan; (ii) any
failure by Borrower to borrow a LIBOR Advance on the date specified by Borrower’s
written notice; or (iii) any failure by Borrower to pay a LIBOR Advance on
the date for payment specified in Borrower’s written notice. Without limiting
the foregoing, Borrower shall pay to Lender a “yield maintenance fee” in an
amount computed as follows:  the current
rate for United States Treasury securities (bills on a discounted basis shall
be converted to a bond equivalent) with a maturity date closest to the Interest
Period 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 the
result 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 be
multiplied by the amount of the principal balance being prepaid. The resulting
amount shall be

 

9

 

divided by 360 and
multiplied by the number of days remaining in the Interest Period chosen
pursuant to the LIBOR Advance as to which the prepayment is made. Said amount
shall be reduced to present value calculated by using the above referenced
United States Treasury securities rate and the number of days remaining in the
term chosen pursuant to the LIBOR Advance as to which prepayment is made. The
resulting amount shall be the yield maintenance fee due to Lender upon the prepayment
of a LIBOR Advance. If by reason of an Event of Default, Lender elects to
declare the Obligations to be immediately due and payable, then any yield
maintenance fee with respect to a LIBOR Advance shall become due and payable in
the same manner as though the Borrower had exercised such right of prepayment.

 

3.3                               Mandatory
Prepayments.

 

3.3.1                     Proceeds
of Sale, Loss, Destruction or Condemnation of Collateral.  Except as provided in subsection 6.4.2
hereof, if Borrower sells any Collateral or, if any of the
Collateral is lost or destroyed or taken by condemnation, Borrower shall pay to
Lender, unless otherwise agreed by Lender, as and when received by Borrower and
as a mandatory prepayment of the Revolving Loan, a sum equal to the proceeds
(including insurance payments) received by Borrower from such sale, loss,
destruction or condemnation.

 

3.4                               Application
of Payments and Collections.  All
items of payment received by Lender by 12:00 noon, Connecticut time, on any
Business Day shall be deemed received on that Business Day. All items of
payment received after 12:00 noon, Connecticut time, on any Business Day shall
be deemed received on the following Business Day. Borrower irrevocably waives
the right to direct the application of any and all payments and collections at
any time or times hereafter received by Lender from or on behalf of Borrower,
and Borrower does hereby irrevocably agree that Lender shall have the
continuing exclusive right to apply and reapply any and all such payments and
collections received at any time or times hereafter by Lender or its agent
against the Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. If as
the result of collections of Accounts as authorized by subsection 6.2.6
hereof a credit balance exists in the Loan Account, such credit balance shall
not accrue interest in favor of Borrower, but shall be available to Borrower at
any time or times for so long as no Default or Event of Default exists.

 

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

 

3.6                               Loan
Account.  Lender shall enter all
Loans as debits to the Loan Account and shall also record in the Loan Account
all payments made by Borrower on any Obligations and all proceeds of Collateral
which are finally paid to Lender,

 

10

 

and may record therein,
in accordance with customary accounting practice, other debits and credits,
including interest and all charges and expenses properly chargeable to
Borrower.

 

3.7                               Statements
of Account.  Lender will account
to Borrower monthly with a statement of Loans, charges and payments made
pursuant to this Agreement, and such account rendered by Lender shall be deemed
final, binding and conclusive upon Borrower unless Lender is notified by
Borrower in writing to the contrary within thirty (30) days of the date each
accounting is mailed to Borrower. Such notice shall only be deemed an objection
to those items specifically objected to therein.

 

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

 

(i)                                    (1)                                 subject
Lender to any tax with respect to this Agreement (other than any tax based on
or 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
of principal, fees, interest or any other amount payable hereunder or under any
Loan Documents (other than in respect of any tax based on or measured by net
income or otherwise in the nature of a net income tax;

 

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

 

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

 

and the result of any of
the foregoing is to increase the cost to Lender of making, renewing or
maintaining Loans hereunder by an amount that Lender deems to be material or to
reduce 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 and

 

11

 

certification not later
than sixty (60) days following its receipt of notice of the imposition of such
increased costs, such additional amount as will compensate Lender for such
additional cost or such reduction, as the case may be, to the extent Lender has
not otherwise been compensated, with respect to a particular Loan, for such
increased cost as a result of an increase in the Base Rate or the LIBOR. An
officer of Lender shall determine the amount of such additional cost or reduced
amount using reasonable averaging and attribution methods and shall certify the
amount of such additional cost or reduced amount to Borrower, which
certification shall include a written explanation of such additional cost or
reduction to Borrower.  Such
certification shall be conclusive absent manifest error. If Lender claims 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 different lending office or to file any
certificate or document reasonably requested by Borrower 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 would not, in the sole discretion of
Lender, be otherwise disadvantageous to Lender.

 

3.9                               Basis
for Determining Interest Rate Inadequate or Unfair.  In the event that Lender shall have
determined that:

 

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

 

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

 

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

 

12

 

SECTION 4.                         TERM
AND TERMINATION

 

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

 

4.2                               Termination.

 

4.2.1                     Termination
by Lender.  Lender may terminate
this Agreement, without notice, upon or after the occurrence of an Event of
Default.

 

4.2.2                     Termination
by Borrower.  Upon at least
ninety (90) days prior written notice to Lender, Borrower may, at its option,
terminate this Agreement; provided, however, no such termination
shall be effective until Borrower has paid all of the Obligations in
immediately available funds and all Letters of Credit and LC Guaranties have
expired or have been cash collateralized to Lender’s satisfaction. Any notice
of termination given by Borrower shall be irrevocable unless Lender otherwise
agrees in writing, and Lender shall have no obligation to make any Loans or
issue or procure any Letters of Credit or LC Guaranties on or after the
termination date stated in such notice. Borrower may elect to terminate this
Agreement in its entirety only. No section of this Agreement or type of
Loan available hereunder may be terminated singly.

 

4.2.3                     Termination
Charges.  At the effective date
of termination of this Agreement for any reason, Borrower shall pay to Lender
(in addition to the then outstanding principal, accrued interest and other
charges owing under the terms of this Agreement and any of the other Loan
Documents) as liquidated damages for the loss of the bargain and not as a
penalty, an amount equal to 2% of the Total Credit Facility if termination
occurs during the first twelve-month period of the Term (September 10,
2003 through September 10, 2004); 1% of the Total Credit Facility if
termination occurs during the second 12-month period of the Term (September 11,
2004 through September 10, 2005). If termination occurs after September 10,
2005, no termination charge shall be payable.

 

4.2.4                     Effect
of Termination.  All of the
Obligations shall be immediately due and payable upon the termination date
stated in any notice of termination of this Agreement. All undertakings,
agreements, covenants, warranties and representations of Borrower contained in
the Loan Documents shall survive any such termination and Lender shall retain
its Liens in the Collateral and all of its rights and remedies under the Loan
Documents notwithstanding such termination until Borrower has paid the
Obligations to Lender, in full, in immediately available funds, together with
the applicable termination charge, if any. Notwithstanding the payment in full
of the Obligations, Lender shall not be

 

13

 

required to terminate its
security interests in the Collateral unless, with respect to any loss or damage
Lender may incur as a result of dishonored checks or other items of payment
received by Lender from Borrower or any Account Debtor and applied to the
Obligations, Lender shall, at its option, (i) have
received a written agreement, executed by Borrower and by any Person whose
loans or other advances to Borrower are used in whole or in part to satisfy the
Obligations, indemnifying Lender from any such loss or damage; or (ii) have retained such monetary reserves and Liens on
the Collateral for such period of time as Lender, in its reasonable discretion,
may deem necessary to protect Lender from any such loss or damage.

 

SECTION 5.                         SECURITY
INTERESTS

 

5.1                               Security
Interest in Collateral.  To
secure the prompt payment and performance to Lender of the Obligations,
Borrower hereby grants to Lender a continuing Lien upon all of Borrower’s
assets, including all of the following Property and interests in Property of
Borrower, whether now owned or existing or hereafter created, acquired or
arising and wheresoever located:

 

(i)                                    Accounts;

 

(ii)                                Certificated
Securities, excluding the stock of International Wholesale Tile, Inc. and
the Guarantors;

 

(iii)                            Chattel Paper;

 

(iv)                               Computer
Hardware and Software and all rights with respect thereto, including, any and
all licenses, options, warranties, service contracts, program services, test
rights, maintenance rights, support rights, improvement rights, renewal rights
and indemnifications, and any substitutions, replacements, additions or model
conversions of any of the foregoing;

 

(v)                                   Contract
Rights;

 

(vi)                               Deposit
Accounts;

 

(vii)                           Documents;

 

(viii)                       Equipment;

 

(ix)                              Financial Assets;

 

(x)                                  Fixtures;

 

(xi)                              General
Intangibles, including Payment Intangibles and Software;

 

14

 

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

 

(xiii)                      Health-Care-Insurance
Receivables;

 

(xiv)                         Instruments;

 

(xv)                             Intellectual Property;

 

(xvi)                         Inventory;

 

(xvii)                     Investment Property;

 

(xviii)                 money (of every jurisdiction
whatsoever);

 

(xix)                        Letter-of-Credit Rights;

 

(xx)                            Payment Intangibles;

 

(xxi)                        Security Entitlements;

 

(xxii)                    Supporting Obligations;

 

(xxiii)                Uncertificated Securities; and

 

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

 

together with all books,
records, writings, data bases, information and other property relating to, used
or useful in connection with, or evidencing, embodying, incorporating or
referring to any of the foregoing, and all Proceeds, products, offspring,
rents, issues, profits and returns of and from any of the foregoing; provided
that to the extent that the provisions of any lease or license of Computer
Hardware and Software or Intellectual Property expressly prohibit (which
prohibition is enforceable under applicable law) any assignment thereof, and
the grant of a security interest therein, Lender will not enforce its security
interest in Borrower’s rights under such lease or license (other than in
respect of the Proceeds thereof) for so long as such prohibition continues, it being
understood that upon request of Lender, Borrower will in good faith use
reasonable efforts to 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 rights under such lease or license.

 

15

 

5.2                               Other
Collateral.

 

5.2.1                     Commercial Tort Claims.  Borrower shall promptly notify Lender in
writing upon incurring or otherwise obtaining a Commercial Tort Claim after the
Closing Date against any third party and, upon request of Lender, promptly
enter into an amendment to this Agreement and do such other acts or things
deemed appropriate by Lender to give Lender a security interest in any such
Commercial Tort Claim.

 

5.2.2                     Other
Collateral.  Borrower shall
promptly notify Lender in writing upon acquiring or otherwise obtaining any
Collateral after the date hereof consisting of Deposit Accounts, Investment
Property, Letter-of-Credit Rights or Electronic Chattel Paper and, upon the
request of Lender, promptly execute such other documents, and do such other
acts or things deemed appropriate by Lender to deliver to Lender control with
respect to such Collateral; promptly notify Lender in writing upon acquiring or
otherwise obtaining any Collateral after the date hereof consisting of
Documents or Instruments and, upon the request of Lender, will promptly execute
such other documents, and do such other acts or things deemed appropriate by
Lender to deliver to Lender possession of such Documents which are negotiable
and Instruments, and, with respect to nonnegotiable Documents, to have such
nonnegotiable Documents issued in the name of Lender; and with respect to
Collateral in the possession of a third party, other than Certificated Securities
and Goods covered by a Document and obtain an acknowledgement from the third
party that it is holding the Collateral for the benefit of Lender.

 

5.3                               Lien
Perfection; Further Assurances. 
Borrower shall execute such UCC-1 financing statements as are required
by the UCC and such other instruments, assignments or documents as are
necessary to perfect Lender’s Lien upon any of the Collateral and shall take
such other action as may be required to perfect or to continue the perfection
of Lender’s Lien upon the Collateral. Unless prohibited by applicable law,
Borrower hereby irrevocably authorizes Lender to execute and file any such
financing statements, including, without limitation, financing statements that
indicate the Collateral (i) as all
assets of Borrower or words of similar effect, or (ii) as
being of an equal or lesser scope, or with greater or lesser detail, than as
set forth in Section 5.1, on Borrower’s
behalf.  Borrower also hereby ratifies
its authorization for Lender to have filed in any jurisdiction any like
financing statements or amendments thereto if filed prior to the date hereof.
The parties agree that a photographic or other reproduction of this Agreement
shall be sufficient as a financing statement and may be filed in any appropriate
office in lieu thereof. At Lender’s request, Borrower shall also promptly
execute or cause to be executed and shall deliver to Lender any and all
documents, instruments and agreements deemed necessary by Lender to give effect
to or carry out the terms or intent of the Loan Documents.

 

16

 

SECTION 6.                         COLLATERAL
ADMINISTRATION

 

6.1                               General

 

6.1.1                     Location
of Collateral.  All Collateral,
other than Inventory in transit and motor vehicles, will at all times be kept
by Borrower and its Subsidiaries at one or more of the business locations set
forth in Exhibit C hereto and shall not,
without the prior written approval of Lender, be moved therefrom except, prior
to an Event of Default and Lender’s acceleration of the maturity of the
Obligations in consequence thereof, for (i) sales
of Inventory 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                     Insurance
of Collateral.  Borrower shall
maintain and pay for credit insurance upon Eligible Extended Term Accounts and
insurance upon all Collateral wherever located and with respect to Borrower’s
business, covering casualty, hazard, public liability and such other risks in
such amounts and with such insurance companies as are reasonably satisfactory
to Lender. Borrower shall deliver the originals of such policies to Lender with
satisfactory lender’s loss payable endorsements, naming Lender as sole loss
payee, assignee or additional insured, as appropriate. Each policy of insurance
or endorsement shall contain a clause requiring the insurer to give not less
than thirty (30) days prior written notice to Lender in the event of
cancellation of the policy for any reason whatsoever and a clause specifying
that the interest of Lender shall not be impaired or invalidated by any act or
neglect of Borrower or the owner of the Property or by the occupation of the
premises 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 shall not be required to,
procure the same and charge Borrower therefor. Borrower agrees to deliver to
Lender, promptly as rendered, true copies of all reports made in any reporting
forms to insurance companies.

 

6.1.3                     Protection
of Collateral.  All expenses of
protecting, storing, warehousing, insuring, handling, maintaining and shipping
the Collateral, any and all excise, property, sales, and use taxes imposed by
any state, federal, or local authority on any of the Collateral or in respect
of the sale thereof shall be borne and paid by Borrower. If Borrower fails to
promptly pay any portion thereof when due, Lender may, at its option, but shall
not be required to, pay the same and charge Borrower therefor. Lender shall not
be liable or responsible in any way for the safekeeping of any of the
Collateral or for any loss or damage thereto (except for reasonable care in the
custody thereof while any Collateral is in Lender’s actual possession) or for
any diminution in the value thereof, or for any act or default of any
warehouseman, carrier, forwarding agency, or other person whomsoever, but the
same shall be at Borrower’s sole risk.

 

17

 

6.2                               Administration
of Accounts.

 

6.2.1                     Records,
Schedules and Assignments of Accounts. 
Borrower shall keep accurate and complete records of its Accounts and
all payments and collections thereon and shall submit to Lender on such
periodic basis as Lender shall request a sales and collections report for the
preceding period, in form satisfactory to Lender. In addition, if Accounts in
an aggregate face amount in excess of $100,000.00 become ineligible because
they fall within one of the specified categories of ineligibility set forth in
the definition of Eligible Accounts or otherwise established by Lender,
Borrower shall notify Lender of such occurrence on the first Business Day
following such occurrence and the Borrowing Base shall thereupon be adjusted to
reflect such occurrence. If requested by Lender, Borrower shall execute and
deliver to Lender formal written assignments of all of its Accounts weekly or
daily, which shall include all Accounts that have been created since the date
of the last assignment, together with copies of invoices or invoice registers
related thereto.

 

6.2.2                     Discounts,
Allowances, Disputes.  If
Borrower grants any discounts, allowances or credits that are not shown on the
face of the invoice for the Account involved, Borrower shall report such
discounts, allowances or credits, as the case may be, to Lender as part of the
next 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, Borrower
shall provide Lender with written notice thereof at the time of submission of
the 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 of
Default, Lender shall have the right to settle or adjust all disputes and
claims directly with the Account Debtor and to compromise the amount or extend
the time for payment of the Accounts upon such terms and conditions as Lender
may 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 tax
payable to any governmental taxing authority, Lender is authorized, in its sole
discretion, to pay the amount thereof to the proper taxing authority for the
account of Borrower and to charge Borrower therefor, provided, however that
Lender shall not be liable for any taxes to any governmental taxing authority
that may be due by Borrower.

 

6.2.4                     Account
Verification.  Whether or not a
Default 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, in
the name of Lender, any designee of Lender, or Borrower, to verify the
validity, amount or any other matter relating to any Accounts by mail,
telephone, electronic communication or otherwise.  Borrower shall cooperate fully with Lender in
an effort to facilitate and promptly conclude any such verification process.

 

18

 

6.2.5                     Maintenance
of Dominion Account.  Borrower
shall maintain a Dominion Account acceptable to Lender with such banks as may
be selected by Borrower and be acceptable to Lender.  Borrower shall issue to any such banks an
irrevocable letter of instruction directing such banks to transfer on a daily
basis all amounts standing credit in such Dominion Account to the Fleet
Concentration Account for application on account of the Obligations. All funds
deposited in the Dominion Account shall immediately become the property of
Lender and Borrower shall obtain the agreement by such banks in favor of Lender
to waive any recoupment, setoff rights, and any security interest in, or against
the funds so deposited. Lender agrees with Borrower that Lender shall not give
any such instructions or withhold any withdrawal rights from Borrower with
respect to the Fleet Concentration Account unless a Default, or an Event of
Default has occurred and is continuing.

 

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

 

6.3                               Administration
of Inventory.

 

6.3.1                     Records
and Reports of Inventory. 
Borrower shall keep accurate and complete records of its Inventory.
Borrower shall to furnish Lender Inventory reports in form and detail
satisfactory to Lender at such times as Lender may request, but at least once
each month, not later than the twentieth (20th) day of such month.
Borrower shall conduct a physical inventory no less frequently than annually
and shall provide to Lender a report based on each such physical inventory
promptly thereafter, together with such supporting information as Lender shall
request.

 

6.3.2                     Returns
of Inventory.  If at any time or
times hereafter any Account Debtor returns any Inventory to Borrower the
shipment of which generated an Account on which such Account Debtor is
obligated in excess of $100,000.00, Borrower shall immediately notify Lender of
the same, specifying the reason for such return and the location, condition and
intended disposition of the returned Inventory.

 

19

 

6.4                               Administration
of Equipment.

 

6.4.1                     Records
and 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 in
accordance with subsection 6.4.2 hereof, and
shall furnish Lender with a current schedule containing the foregoing
information on at least an annual basis and more often if requested by Lender.
Immediately on request therefor by Lender, Borrower shall deliver to Lender any
and all evidence of ownership, if any, of any of the Equipment.

 

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

 

6.5                               Payment
of Charges.  All amounts
chargeable to Borrower under Section 6
hereof shall be Obligations secured by all of the Collateral, shall be payable
on demand and shall bear interest from the date such advance was made until
paid in full at the rate applicable to Base Rate Advances from time to time.

 

SECTION 7.                                                                            REPRESENTATIONS AND WARRANTIES

 

7.1                               General
Representations and Warranties. 
To induce Lender to enter into this Agreement and to make advances
hereunder, Borrower warrants, represents and covenants to Lender that:

 

7.1.1                     Organization
and Qualification.  Each of
Borrower and its Subsidiaries is a corporation duly organized, validly existing
and 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 do
business and is in good standing as a foreign corporation in each state or
jurisdiction listed on Exhibit D
hereto and in all other states and jurisdictions where the character of its
Properties or the nature of its activities make such qualification necessary in
which the failure of Borrower or any of its Subsidiaries to be so qualified
would have a material adverse effect on the financial condition, business or
Properties of Borrower or any of its Subsidiaries.

 

20

 

7.1.2                     Corporate
Power and Authority.  Each of
Borrower and its Subsidiaries is duly authorized and empowered to enter into,
execute, deliver and perform this Agreement and each of the other Loan
Documents to which it is a party. The execution, delivery and performance of
this Agreement and each of the other Loan Documents have been duly authorized
by all necessary corporate action and do not and will not (i) require
any consent or approval of the shareholders (or members, in the case of a
limited liability company) of Borrower or any of its Subsidiaries; (ii) contravene Borrower’s or any of its Subsidiaries’
charter, articles or certificate of incorporation or by-laws; (iii) violate, or cause Borrower or any of its
Subsidiaries to be in default under, any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
in effect having applicability to Borrower or any of its Subsidiaries; (iv) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease
or instrument to which Borrower or any of its Subsidiaries is a party or by
which it or its Properties may be bound or affected; or (v) result
in, or require, the creation or imposition of any Lien (other than Permitted
Liens) upon or with respect to any of the Properties now owned or hereafter
acquired by Borrower or any of its Subsidiaries.

 

7.1.3                     Legally
Enforceable Agreement.  This
Agreement is, and each of the other Loan Documents when delivered under this
Agreement will be, a legal, valid and binding obligation of each of Borrower
and its Subsidiaries enforceable against it in accordance with its respective
terms.

 

7.1.4                     Capital
Structure.  Exhibit E
hereto states (i) the correct name of each
of the Subsidiaries of Borrower, its jurisdiction of incorporation and the
percentage of its Voting Stock owned by Borrower, (ii) the
name of each of Borrower’s corporate or joint venture Affiliates and the nature
of the affiliation, (iii) the
number, nature and holder of all outstanding Securities of Borrower and each
Subsidiary of Borrower and (iv) the
number of authorized, issued and treasury shares of Borrower and each
Subsidiary of Borrower. Borrower has good title to all of the shares it
purports to own of the stock of each of its Subsidiaries, free and clear in
each case of any Lien other than Permitted Liens. All such shares have been
duly issued and are fully paid and non-assessable. As of June 17, 2003,
there are no outstanding options to purchase, or any rights or warrants to
subscribe for, or any commitments or agreements to issue or sell, or any
Securities or obligations convertible into, or any powers of attorney relating
to, shares of the capital stock of Borrower or any of its Subsidiaries, except
as set forth on the Borrower’s registration statement Form SB-2 effective June 17,
2003.  There are no outstanding
agreements or instruments binding upon any of Borrower’s shareholders (or
members, in the case of a limited liability company) relating to the ownership
of its shares of capital stock (or member interests, in the case of a limited
liability company).

 

21

 

7.1.5                     Corporate
Names, etc.  Neither Borrower nor
any of its Subsidiaries has been known as or used any corporate, fictitious or
trade 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 corporation
of a merger or consolidation or acquired all or substantially all of the assets
of any Person.  Each of Borrower’s and
its Subsidiaries’ state(s) of incorporation or organization, Type of
Organization and Organizational I.D. Number is set forth on Exhibit F. The exact legal name of Borrower and each of
its Subsidiaries is set forth on Exhibit F.

 

7.1.6                     Business
Locations; Agent for Process. 
Each of Borrower’s and its Subsidiaries’ chief executive office and
other places of business are as listed on Exhibit C
hereto. During the preceding one-year period, neither Borrower nor any of its
Subsidiaries has had an office, place of business or agent for service of
process other than as listed on Exhibit C.
Except as shown on Exhibit C,
no Inventory is stored with a bailee, warehouseman or similar party, nor is any
Inventory consigned to any Person.

 

7.1.7                     Title
to Properties; Priority of Liens. 
Each of Borrower and its Subsidiaries has good, indefeasible and
marketable title to and fee simple ownership of, or valid and subsisting
leasehold interests in, all of its real Property, and good title to all of the
Collateral and all of its other Property, in each case, free and clear of all
Liens except Permitted Liens. Borrower has paid or discharged all lawful claims
which, if unpaid, might become a Lien against any of Borrower’s Properties that
is 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 which
Accounts are Eligible Accounts, on all statements and representations made by
Borrower with respect to any Account or Accounts. Unless otherwise indicated in
writing to Lender, with respect to each Account:

 

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

 

(ii)                                It
arises out of a completed, bona  fide sale and delivery of goods
or rendition of services by Borrower in the ordinary course of its business and
in accordance with the terms and conditions of all purchase orders, contracts
or other documents relating thereto and forming a part of the contract between
Borrower and the Account Debtor;

 

(iii)                            It is
for a liquidated amount maturing as stated in the duplicate invoice covering
such sale or rendition of services, a copy of which has been furnished or is
available to Lender;

 

22

 

(iv)                               Such
Account, and Lender’s security interest therein, is not, and will not (by
voluntary act or omission of Borrower) be in the future, subject to any offset,
Lien, deduction, recoupment, defense, dispute, counterclaim or any other
adverse condition except for disputes resulting in returned goods where the
amount in controversy is deemed by Lender to be immaterial, and each such
Account is absolutely owing to Borrower and is not contingent in any respect or
for any reason;

 

(v)                                   Borrower
has made no agreement 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
ordinary course of its business for prompt payment and which are reflected in
the calculation of the net amount of each respective invoice related thereto
and are 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 of any Accounts or tend to reduce the amount payable thereunder
from the face amount of the invoice and statements delivered to Lender with
respect thereto;

 

(vii)                           To the
best of Borrower’s knowledge, the Account Debtor thereunder (1) had the capacity to contract at the time any
contract or other document giving rise to the Account was executed and (2) such Account Debtor is Solvent; and

 

(viii)                       To the best
of Borrower’s knowledge, there are no proceedings or actions which are
threatened or pending against any Account Debtor thereunder which might result
in any material adverse change in such Account Debtor’s financial condition or
the collectibility of such Account.

 

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

 

23

 

7.1.10              Financial
Statements; Fiscal Year.  The
Consolidated and consolidating balance sheets of Borrower and such other
Persons described therein (including the accounts of all Subsidiaries of
Borrower for the respective periods during which a Subsidiary relationship
existed) as of December 31, 2002, and the related statements of income,
changes in stockholder’s equity, and changes in financial position for the
periods ended on such dates, have been prepared in accordance with GAAP, and
present fairly the financial positions of Borrower and 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 material change in the
condition, financial or otherwise, of Borrower and such other Persons as shown
on the Consolidated balance sheet as of such date and no material change in the
aggregate value of Equipment and real Property owned by Borrower or such other
Persons, except changes in the ordinary course of business, none of which
individually or in the aggregate has been materially adverse. The fiscal year
of Borrower and each of its Subsidiaries ends on December 31 of each year.

 

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

 

7.1.12              Solvent
Financial Condition.  Each of
Borrower and its Subsidiaries is now and, after giving effect to the Loans to
be made and the Letters of Credit and LC Guaranties to be issued hereunder, at
all times will be, Solvent.

 

7.1.13              Surety
Obligations.  Except as set forth
on Exhibit P, neither Borrower nor
any of its Subsidiaries is obligated as surety or indemnitor under any surety
or similar bond or other contract, or has issued or entered into any agreement
to assure payment, performance or completion of performance of any undertaking
or obligation of any Person.

 

7.1.14              Taxes.  Borrower’s federal tax identification number
is 912048019. The federal tax identification number of each of Borrower’s
Subsidiaries is shown on Exhibit G
hereto. Borrower and each of its Subsidiaries has filed all federal, state and
local 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 and
other governmental charges upon it, its income and Properties as and when such
taxes, assessments, fees, levies and charges are due

 

24

 

and payable, unless and
to the extent any thereof are being actively contested in good faith and by
appropriate proceedings and Borrower maintains reasonable reserves on its books
therefor. The provision for taxes on the books of Borrower and its Subsidiaries
are adequate for all years not closed by applicable statutes, and for its
current fiscal year.

 

7.1.15              Brokers.  There are no claims for brokerage
commissions, finder’s fees or investment banking fees in connection with the
transactions contemplated by this Agreement.

 

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

 

7.1.17              Governmental
Consents.  Each of 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 to conduct its
business as heretofore or proposed to be conducted by it and to own or lease
and operate its Properties as now owned or leased by it.

 

7.1.18              Compliance
with Laws.  Each of Borrower and
its Subsidiaries has duly complied with, and its Properties, business
operations and leaseholds are in compliance in all material respects with, the
provisions of all federal, state and local laws, rules and regulations
applicable to Borrower or such Subsidiary, as applicable, its Properties or the
conduct of its business and there have been no citations, notices or orders of
noncompliance issued to Borrower or any of its Subsidiaries under any such law,
rule or regulation. Each of Borrower and its Subsidiaries has established
and maintains an adequate monitoring system to insure that it remains in
material compliance with all federal, state and local laws, rules and
regulations applicable to it. No Inventory has been produced in violation of
the Fair Labor Standards Act (29 U.S.C. §201 et  seq.), as
amended.

 

7.1.19              Restrictions.  Neither Borrower nor any of its Subsidiaries
is a party or subject to any contract, agreement, or charter or other corporate
restriction, which materially and adversely affects its business or the use or
ownership of any of its Properties. Neither Borrower nor any of its
Subsidiaries is a party or subject to any contract or agreement which restricts
its right or ability to incur Indebtedness, other than as set forth on Exhibit I hereto, none of which prohibit the execution
of or compliance with this Agreement or the other Loan Documents by Borrower or
any of its Subsidiaries, as applicable.

 

25

 

7.1.20              Litigation.  Except as set forth on Exhibit J
hereto, there are no actions, suits, proceedings or investigations pending, or
to the best knowledge of Borrower, threatened, against or affecting Borrower or
any of its Subsidiaries, or the business, operations, Properties, prospects,
profits or condition of Borrower or any of its Subsidiaries. Neither Borrower
nor any of its Subsidiaries is in default with respect to any order, writ,
injunction, judgment, decree or rule of any court, governmental authority
or arbitration board or tribunal.

 

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

 

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

 

7.1.23              Pension
Plans.  Except as disclosed on Exhibit M hereto, neither Borrower nor any of its
Subsidiaries has any Plan. Borrower and each of its Subsidiaries is in full
compliance with the requirements of ERISA and the regulations promulgated
thereunder with respect to each Plan. No fact or situation that could result in
a material adverse change in the financial condition of Borrower or any of its
Subsidiaries exists in connection with any Plan. Neither Borrower nor any of
its Subsidiaries has any withdrawal liability in connection with a
Multi-employer Plan.

 

7.1.24              Trade
Relations.  There exists no
actual or, to the best knowledge of Borrower, threatened termination,
cancellation or limitation of, or any modification or change in, the business
relationship between Borrower or any of its Subsidiaries and any customer or
any group of customers whose purchases individually or in the aggregate are
material to the business of Borrower or any of its Subsidiaries, or with any
material supplier, and there exists no present condition or state of facts or
circumstances which would materially affect adversely Borrower or any of its
Subsidiaries or prevent Borrower or any of its Subsidiaries from conducting
such business after the consummation of the transaction contemplated by this
Agreement in substantially the 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 any collective

 

26

 

bargaining agreement.
There are no material grievances, disputes or controversies with any union or
any other organization of Borrower’s or any of its Subsidiaries’ employees, or
threats of strikes, work stoppages or any asserted pending demands for
collective bargaining by any union or organization.

 

7.2                               Continuous
Nature of Representations and Warranties.  Each representation and warranty contained in
this Agreement and the other Loan Documents shall be continuous in nature and
shall remain materially accurate, complete and not misleading at all times
during the term of this Agreement, except for changes in the nature of Borrower’s
or its Subsidiaries’ business or operations that would render the information
in any exhibit attached hereto either inaccurate, incomplete or misleading, so
long as Lender has consented to such changes or such changes are expressly
permitted 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
loan request, of each representation, warranty or other statement made or
furnished to Lender by or on behalf of Borrower, any Subsidiary of Borrower, or
Guarantor in this Agreement, any of the other Loan Documents, or any
instrument, certificate or financial statement furnished in compliance with or
in reference thereto.

 

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

 

SECTION 8.                                                                            COVENANTS AND CONTINUING AGREEMENTS

 

8.1                               Affirmative
Covenants.  During the term of
this Agreement, and thereafter for so long as there are any Obligations to
Lender, Borrower covenants that, unless otherwise consented to by Lender in
writing, it shall:

 

8.1.1                     Visits
and Inspections.  Permit
representatives of Lender, on at least three occasions during the first year of
the Loan, at least two occasions during each subsequent year of the Loan, and
from time to time, as often as may be reasonably requested, but only during
normal business hours, to visit and inspect the Properties of Borrower 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, 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 the
occurrence of any event or the existence of any fact which renders any
representation or warranty in this Agreement or any of the other Loan Documents
inaccurate, incomplete or misleading.

 

27

 

8.1.3                     Financial
Statements.  Keep, and cause each
Subsidiary to keep, adequate records and books of account with respect to its
business activities in which proper entries are made in accordance with GAAP
reflecting all its financial transactions; and cause to be prepared and
furnished to Lender the following (all to be prepared in accordance with GAAP
applied on a consistent basis, unless Borrower’s certified public accountants
concur in any change therein and such change is disclosed to Lender and is consistent
with GAAP):

 

(i)                                    not
later than one hundred twenty (120) days after the close of each fiscal year of
Borrower, unqualified, audited financial statements of Borrower and its
Subsidiaries as of the end of such year, on a Consolidated and consolidating
basis, certified by a firm of independent certified public accountants of
recognized standing selected by Borrower but acceptable to Lender (except for a
qualification for a change 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 of Borrower’s fiscal year, unaudited, interim financial
statements of Borrower and its Subsidiaries as of the end of such month and of
the portion of Borrower’s financial year then elapsed, on a Consolidated and
consolidating basis following December 31, 2003, certified by the
principal financial officer of Borrower as prepared in accordance with GAAP and
fairly presenting the Consolidated financial position and results of operations
of Borrower and its Subsidiaries for such month and period subject only to
changes from audit and year-end adjustments and except that such statements
need not contain notes;

 

(iii)                            promptly
upon Lender’s request, but in any event, on the second full Business Day for
the previous week, 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 of
each month (a) a reconciliation of Accounts, (b) an aging of accounts
receivable, and accounts payable, and (c) inventory reporting set forth in
Section 6.3.1;

 

(v)                                   promptly after the
sending or filing thereof, as the case may be, copies of any proxy statements,
financial statements or reports which Borrower has made available to its
shareholders (or members, in the case of a limited liability company) and
copies of any regular, periodic and special reports or registration statements
which Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;

 

28

 

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

 

(vii)                           such other data and
information (financial and otherwise) as Lender, from time to time, may
reasonably request, bearing upon or related to the Collateral or Borrower’s and
each of its Subsidiaries’ financial condition or results of operations; and

 

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

 

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

 

8.1.4                     Landlord
and Storage Agreements.  Provide
Lender with copies of all agreements between Borrower or any of its
Subsidiaries and any landlord or warehouseman which owns any premises at which
any Inventory may, from time to time, be kept.

 

8.1.5                     [Intentionally
Omitted.]

 

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

 

8.1.7                     Deposit
and Brokerage Accounts.  For each
deposit account or brokerage account that Borrower at any time opens or
maintains, Borrower shall, at Lender’s request and option, pursuant to an
agreement in form and substance satisfactory to Lender, cause the depository
bank or securities

 

29

 

intermediary, as
applicable, to agree to comply at any time with instructions from Lender to
such depository bank or securities intermediary, as applicable, directing the
disposition of funds from time to time credited to such deposit or brokerage
account, without further consent of Borrower.

 

8.2                               Negative
Covenants.  During the term of
this Agreement, and thereafter for so long as there are any Obligations to
Lender, Borrower covenants that, unless Lender has first consented thereto in
writing, it will not:

 

8.2.1                     Mergers;
Consolidations; Acquisitions; Structural Changes.  Merge or consolidate, or permit any
Subsidiary of Borrower to merge or consolidate, with any Person; nor acquire,
nor permit any of its Subsidiaries to acquire, all or any substantial part of
the Properties of any Person; nor change its or any of its Subsidiaries’ state
of incorporation or organization or Type of Organization; nor change its or any
of its Subsidiaries’ legal names.

 

8.2.2                     Loans.  Make, or permit any Subsidiary of Borrower to
make, any loans or other advances of money (other than for salary, travel
advances, advances against commissions and other similar advances in the
ordinary course of business) to any Person.

 

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

 

(i)                                    Obligations
owing to Lender;

 

(ii)                                Subordinated
Debt existing on the date of this Agreement;

 

(iii)                            Indebtedness
of any Subsidiary of Borrower to Borrower;

 

(iv)                               accounts
payable to trade creditors and current operating expenses (other than for Money
Borrowed and current trade creditors in the ordinary course of business) which
are not aged more than one hundred twenty (120) days from billing date or more
than sixty (60) days from the due date, in each case incurred in the ordinary
course of business and paid within such time period, unless the same are being
actively contested in good faith and by appropriate and lawful proceedings; and
Borrower or such Subsidiary shall have set aside such reserves, if any, with
respect thereto as are required by GAAP and deemed adequate by Borrower or such
Subsidiary and its independent accountants;

 

(v)                                   [Omitted.];

 

30

 

(vi)                               Permitted
Purchase Money Indebtedness;

 

(vii)                           contingent
liabilities arising out of endorsements of checks and other negotiable
instruments for deposit or collection in the ordinary course of business; and

 

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

 

8.2.4                     Affiliate
Transactions.  Enter into, or be
a party to, or permit any Subsidiary of Borrower to enter into or be a party
to, any transaction with any Affiliate of Borrower or stockholder, except in
the ordinary course of and pursuant to the reasonable requirements of Borrower’s
or such Subsidiary’s business and upon fair and reasonable terms which are
fully disclosed to Lender and are no less favorable to Borrower than would
obtain in a comparable arm’s length transaction with a Person not an Affiliate
or stockholder of Borrower or such Subsidiary.

 

8.2.5                     Limitation
on Liens.  Create or suffer to
exist, or permit any Subsidiary of Borrower to create or suffer to exist, any
Lien upon any of its Property, income or profits, whether now owned or
hereafter acquired, except:

 

(i)                                    Liens
at any time granted in favor of Lender;

 

(ii)                                Liens
for taxes (excluding any Lien imposed pursuant to any of the provisions of
ERISA) not yet due, or being contested in the manner described in subsection 7.1.14 hereto, but only if in Lender’s
judgment such Lien does not adversely affect Lender’s rights or the priority of
Lender’s Lien in the Collateral;

 

(iii)                            Liens
arising in the ordinary course of Borrower’s business by operation of law or
regulation, but only if payment in respect of any such Lien is not at the time
required and such Liens do not, in the aggregate, materially detract from the
value of the Property of Borrower or materially impair the use thereof in the
operation of Borrower’s business;

 

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

 

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

 

(vi)                               such
other Liens as appear on Exhibit P
hereto; and

 

31

 

(vii)                           such
other Liens as Lender may hereafter approve in writing.

 

8.2.6                     Subordinated
Debt.  Make, or permit any
Subsidiary of Borrower to make, any payment of any part or all of any
Subordinated Debt or take any other action or omit to take any other action in
respect of any Subordinated Debt, except in accordance with the Subordination
Agreement relative thereto.

 

8.2.7                     Distributions.  Declare or make, or permit any Subsidiary of
Borrower to declare or make, any Distributions.

 

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

 

8.2.9                     Disposition
of Assets.  Sell, lease or
otherwise dispose of any of, or permit any Subsidiary of Borrower to sell,
lease or otherwise dispose of any of, its Properties, including any disposition
of Property as part of a sale and leaseback transaction, to or in favor of any
Person, except (i) sales of Inventory in the
ordinary course of business for so long as no Event of Default exists
hereunder, (ii) a transfer of Property
to Borrower by a Subsidiary of Borrower or (iii) dispositions
expressly authorized by this Agreement.

 

8.2.10              Stock
of Subsidiaries.  Permit any of
its Subsidiaries to issue any additional shares of its capital stock except
director’s qualifying shares.

 

8.2.11              Bill-and-Hold
Sales, Etc.  Make a sale to any
customer on a bill-and-hold, guaranteed sale, sale and return, sale on approval
or consignment basis, or any sale on a repurchase or return basis.

 

8.2.12              Restricted
Investment.  Make or have, or
permit any Subsidiary of Borrower to make or have, any Restricted Investment.

 

8.2.13              [Intentionally
Omitted.]

 

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

 

32

 

8.3                               Specific
Financial Covenants.  During the
term of this Agreement, and thereafter for so long as there are any Obligations
to Lender, Borrower covenants that, unless otherwise consented to by Lender in
writing, it shall:

 

8.3.1                     Leverage.  Maintain a ratio of Total Debt to
Tangible Capital Base not greater than the following ratios at the end of each
of 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.

  	
   

  

 

8.3.2                     Inventory
Turnover.

 

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

 

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

 

(iii) 
For purposes of the calculation of the Inventory Turnover covenant at the
fiscal quarter ending December 31 of each year, COGS shall be determined
by reference to the prior six (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 be determined by reference to the fiscal quarter being tested
multiplied by four (4).  This covenant
shall be tested on September 30, 2003 and on the last day of each fiscal
quarter for the previous fiscal quarter thereafter.

 

8.3.3                     Minimum
Fixed Charge Coverage Ratio.  Maintain
a ratio of EBITDA less (1) Unfunded Capital Expenditures and less (2) taxes
to Principal Paid (not including the Loan) plus (i) Interest
Expenses and (ii)

 

33

 

Distributions of not less
than 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 of calculating this covenant, any excess Unfunded Capital
Expenditures in 2003 may be 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 last day of each fiscal quarter on a rolling basis
by reference to the fiscal quarter then ending and the three immediately
preceding fiscal quarters. For purposes of testing this covenant on September 30,
2003 only, Unfunded Capital Expenditures shall not be included. For purposes of
testing this covenant during the period from the Effective Date to June 30,
2005 only, if the Unfunded Capital Expenditures exceed $1,500,000, the excess
may be offset by the Equity Injection during such period.

 

SECTION 9.                                                                            CONDITIONS
PRECEDENT

 

Notwithstanding
any other provision of this Agreement or any of the other Loan Documents, and
without affecting in any manner the rights of Lender under the other sections
of this Agreement, Lender shall not be required to make any Loan under this
Agreement unless and until each of the following conditions has been and
continues to be satisfied:

 

9.1                               Documentation.  Lender shall have received, in form and
substance satisfactory to Lender, a duly executed copy of this Agreement and
the other Loan Documents, together with such additional documents, instruments
and certificates as Lender shall require in connection therewith from time to
time, all in form and substance satisfactory to Lender, including but not
limited to:

 

(i)                                    A certificate of the Secretary of each
Borrower certifying as to (a) the resolutions of the Borrower approving
the execution and delivery of this Agreement, (b) the fact that the
Articles of Incorporation and Bylaws of the Borrower, which were certified and
delivered to the Lender as of September 10, 2003 continue in full force
and effect and have not been amended or otherwise modified except as set forth
in the Certificate to be delivered, and (c) certifying that the officers
and agents of the Borrower who have been certified to the Lender, as

 

34

 

being authorized to
sign and to act on behalf of the Borrower, continue to be so authorized and
setting forth the sample signatures of each of the officers and agents of the
Borrower authorized to execute and deliver this Agreement and all other
documents, agreements and certificates on behalf of the Borrower.

 

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

 

9.2                               No
Default.  No Default or Event of
Default shall exist.

 

9.3                               Other
Loan Documents.  Each of the
conditions precedent set forth in the other Loan Documents shall have been
satisfied.

 

9.4                               Availability.  Lender shall have determined that immediately
after Lender has made the initial Loans and issued the initial Letters of
Credit and LC Guaranties contemplated hereby, and paid all closing costs
incurred in connection with the transactions contemplated hereby, Availability
as of the Closing Date shall not be less than $750,000.00.  Availability on a daily basis as of fiscal
quarters ending 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 each fiscal quarter shall not be less than $500,000.00.  This covenant shall be tested daily.

 

Notwithstanding
anything contained in this Section 9.4 to the contrary, the minimum
Availability required by this Section 9.4 shall be waived until the
earlier to occur 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 of
Borrower’s knowledge, threatened or proposed before any court, governmental
agency or legislative body to enjoin, restrain or prohibit, or to obtain
damages in respect of, or which is related to or arises out of this Agreement
or the consummation of the transactions contemplated hereby.

 

SECTION 10.                                                                     EVENTS
OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT

 

10.1                        Events
of Default.  The occurrence of
one or more of the following events shall constitute an “Event of
Default”:

 

35

 

10.1.1              Payment
of Note.  Borrower shall fail to
pay any installment of principal, interest or premium, if any, owing on the
Revolving Credit Note on or within ten (10) days after the due date of
such installment.

 

10.1.2              Payment
of Other Obligations.  Borrower
shall fail to pay any of the Obligations that are not evidenced by the
Revolving 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 or
other statement made or furnished to Lender by or on behalf of Borrower, any
Subsidiary of Borrower, or Guarantor in this Agreement, any of the other Loan
Documents or any instrument, certificate or financial statement furnished in
compliance with or in reference thereto proves to have been false or misleading
in any material respect when made or furnished or when reaffirmed pursuant to Section 7.2 hereof.

 

10.1.4              Breach
of Specific Covenants.  Borrower
shall 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 to
perform, keep or observe such covenant.

 

10.1.5              Breach
of Other Covenants.  Borrower
shall fail or neglect to perform, keep or observe any covenant contained in
this Agreement (other than a covenant which is dealt with specifically
elsewhere in Section 10.1 hereof) and the
breach of 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
such breach from Lender or the date on which such failure or neglect first
becomes known to any officer of Borrower.

 

10.1.6              Default
Under Security Documents/Other Agreements.  Any event of default shall occur under, or
Borrower shall default in the performance or observance of any term, covenant,
condition or agreement contained in, any of the Security Documents; or the
Other Agreements and such default shall continue beyond any applicable grace
period.

 

10.1.7              Other
Defaults.  There shall occur any
default 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 any
of its Property is bound, creating or relating to any Indebtedness (other than
the Obligations) if the payment or maturity of such Indebtedness is accelerated
in consequence of such event of default or demand for payment of such
Indebtedness is made.

 

36

 

10.1.8              Uninsured
Losses.  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              Adverse
Changes.  There shall occur any
material adverse change in the financial condition or business prospects of
Borrower or any Guarantor.

 

10.1.10       Insolvency
and Related Proceedings. 
Borrower or any Guarantor shall cease to be Solvent or shall suffer the
appointment of a receiver, trustee, custodian or similar fiduciary, or shall
make an assignment for the benefit of creditors, or any petition for an order
for relief shall be filed by or against Borrower or any Guarantor under the
Bankruptcy Code (if against Borrower or any Guarantor, the continuation of such
proceeding for more than thirty (30) days), or Borrower or any Guarantor shall
make any offer of settlement, extension or composition to their respective
unsecured creditors generally.

 

10.1.11       Business
Disruption; Condemnation.  There
shall occur a cessation of a substantial part of the business of Borrower, any
Subsidiary of Borrower or any Guarantor for a period which significantly
affects Borrower’s or such Guarantor’s capacity to continue its business, on a
profitable basis; or Borrower, any Subsidiary of Borrower or any Guarantor
shall suffer the loss or revocation of any license or permit now held or
hereafter acquired by Borrower or such Guarantor which is necessary to the
continued or lawful operation of its business; or Borrower or any Guarantor
shall be enjoined, restrained or in any way prevented by court, governmental or
administrative order from conducting all or any material part of its business
affairs; or any material lease or agreement pursuant to which Borrower or any
Guarantor leases, uses or occupies any Property shall be canceled or terminated
prior to the expiration of its stated term; or any part of the Collateral shall
be taken through condemnation or the value of such Property shall be impaired
through condemnation.

 

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

 

10.1.13       ERISA.  A Reportable Event shall occur which Lender,
in its sole discretion, shall determine in good faith constitutes grounds for
the termination by the Pension Benefit Guaranty Corporation of any Plan or for
the appointment by the appropriate United States district court of a trustee
for any Plan, or if any Plan shall be terminated or any such trustee shall be
requested or appointed, or if Borrower, any Subsidiary of Borrower or any
Guarantor is in “default” (as defined in Section 4219(c)(5) of ERISA)
with respect to payments to a Multi-employer Plan resulting from Borrower’s,
such Subsidiary’s or such Guarantor’s complete or partial withdrawal from such
Plan.

 

37

 

10.1.14       Challenge
to Agreement.  Borrower, any
Subsidiary of Borrower or any Guarantor, or any Affiliate of any of them, shall
challenge or contest in any action, suit or proceeding the validity or
enforceability of this Agreement, or any of the other Loan Documents, the
legality or enforceability of any of the Obligations or the perfection or
priority of any Lien granted to Lender.

 

10.1.15       Repudiation
of or Default Under Guaranty Agreement. 
Any Guarantor shall revoke or attempt to revoke the Guaranty Agreement
signed by such Guarantor, or shall repudiate such Guarantor’s liability
thereunder or shall be in default under the terms thereof.

 

10.1.16       Criminal
Forfeiture.  Borrower, any
Subsidiary of Borrower or any Guarantor shall be criminally indicted or
convicted under any law that could lead to a forfeiture of any Property of
Borrower, any Subsidiary of Borrower or any Guarantor.

 

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

 

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

 

10.3                        Other
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:

 

10.3.1              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 Agreement or any of the other Loan Documents, and
none of which shall be exclusive.

 

10.3.2              The
right to take immediate possession of the Collateral, and to (i) require Borrower to assemble the Collateral, at
Borrower’s expense, and make it available to Lender at a place designated by
Lender which is

 

38

 

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 Borrower, Borrower agrees not to charge Lender for storage
thereof).

 

10.3.3              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. Seller may, at Seller’s option, disclaim any and all warranties
regarding the Collateral in connection with any such sale. Borrower agrees that
ten (10) days written notice to Borrower 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 Borrower’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. The proceeds realized from the
sale of any Collateral may be applied, after allowing two (2) Business
Days for collection, first to the costs, expenses and attorneys’ fees incurred
by Lender in collecting the 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 third, to the
principal of the Obligations. If any deficiency shall arise, Borrower and each
Guarantor (subject to the Guaranty Agreement) shall remain jointly and
severally liable to Lender therefor.

 

10.3.4              Lender
is hereby granted a license or other right to use, without charge, Borrower’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 Borrower’s rights under all licenses and all franchise
agreements shall inure to Lender’s benefit.

 

10.3.5              Lender
may, at its option, require Borrower to deposit with Lender funds equal to the
LC Amount and, if Borrower fails to promptly make such deposit, Lender may
advance such amount as a Base Rate Advance (whether or not an Overadvance is
created thereby). Any such deposit or advance shall be held by Lender as a
reserve to fund future payments on such LC Guaranties and future drawings
against such Letters of Credit. At such time as all LC Guaranties have been
paid or terminated and all Letters of Credit have been drawn upon or expired,
any amounts remaining in such reserve shall be applied

 

39

 

against any outstanding
Obligations, or, if all Obligations have been indefeasibly paid in full,
returned to Borrower.

 

10.4                        Remedies
Cumulative; No Waiver.  All
covenants, conditions, provisions, warranties, guaranties, indemnities, and
other undertakings of Borrower contained in this Agreement and the other Loan
Documents, or in any document referred to herein or contained in any agreement
supplementary hereto or in any schedule or in any Guaranty Agreement given
to Lender or contained in any other agreement between Lender and Borrower,
heretofore, concurrently, or hereafter entered into, shall be deemed cumulative
to and not in derogation or substitution of any of the terms, covenants,
conditions, or agreements of Borrower herein contained. The failure or delay of
Lender to require strict performance by Borrower of any provision of this
Agreement or to exercise or enforce any rights, Liens, powers, or remedies
hereunder or under any of the aforesaid agreements or other documents or
security 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 Loans
and all other Obligations owing or to become owing from Borrower to Lender
shall have been fully satisfied. None of the undertakings, agreements,
warranties, covenants and representations of Borrower contained in this
Agreement or any of the other Loan Documents and no Default or Event of Default
by Borrower under this Agreement or any other Loan Documents shall be deemed to
have been suspended or waived by Lender, unless such suspension or waiver is by
an instrument in writing specifying such suspension or waiver and is signed by
a duly authorized representative of Lender and directed to Borrower.

 

SECTION 11.                                                                     MISCELLANEOUS

 

11.1                        Power
of Attorney.  Borrower hereby
irrevocably designates, makes, constitutes and appoints Lender (and all Persons
designated 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 either
Borrower’s or Lender’s name, but at the cost and expense of Borrower:

 

11.1.1              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 Borrower’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.

 

11.1.2              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
Borrower’s rights and remedies with respect to the collection of the Accounts; (ii) settle, adjust,

 

40

 

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
Borrower’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
Borrower and to notify postal authorities to change the address for delivery
thereof to such address as Lender may designate; (vii) endorse
the name of Borrower 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
Borrower 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
Borrower’s stationery and sign the name of Borrower 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
Borrower’s obligations under this Agreement.

 

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

 

11.3                        Modification
of Agreement; Sale of Interest. 
This Agreement may not be modified, altered or amended, except by an
agreement in writing signed by Borrower and Lender. Borrower may not sell,
assign or transfer any interest in this Agreement, any of the other Loan
Documents, or any of the Obligations, or any portion thereof, including,
without limitation, Borrower’s rights, title, interests, remedies, powers, and
duties hereunder or thereunder. Borrower hereby consents to Lender’s
participation, sale, assignment, transfer or other disposition, at any time

 

41

 

or times hereafter, of
this Agreement and any of the other Loan Documents, or of any portion hereof or
thereof, including, without limitation, Lender’s rights, title, interests,
remedies, powers, and duties hereunder or thereunder. In the case of an
assignment, the assignee shall have, to the extent of such assignment, the same
rights, benefits and obligations as it would if it were “Lender” hereunder and
Lender shall be relieved of all obligations hereunder upon any such
assignments.  Borrower agrees that it
will use its best efforts to assist and cooperate with Lender in any manner
reasonably requested by Lender to effect the sale of participations in or
assignments of any of the Loan Documents or any portion thereof or interest
therein, including, without limitation, assisting in the preparation of appropriate
disclosure documents. Borrower further agrees that Lender may disclose credit
information regarding Borrower, its Subsidiaries and any Guarantor to any
potential participant or assignee.

 

11.4                        Severability.  Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.

 

11.5                        Successors
and Assigns.  This Agreement, the
Other Agreements and the Security Documents shall be binding upon and inure to
the benefit of the successors and assigns of Borrower and Lender permitted
under Section 11.3 hereof.

 

11.6                        Cumulative
Effect; Conflict of Terms.  The
provisions of the Other Agreements and the Security Documents are hereby made
cumulative with the provisions of this Agreement. Except as otherwise provided
in Section 3.2 hereof and except as
otherwise provided in any of the other Loan Documents by specific reference to
the applicable provision of this Agreement, if any provision contained in this
Agreement is in direct conflict with, or inconsistent with, any provision in
any of the other Loan Documents, the provision contained in this Agreement
shall govern and control.

 

11.7                        Execution
in Counterparts.  This Agreement
may be executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which counterparts taken together shall
constitute but one and the same instrument.

 

11.8                        Notice.  Except as otherwise provided herein, all
notices, requests and demands to or upon a party hereto, to be effective, shall
be in writing and shall be sent by certified or registered mail, return receipt
requested, by personal delivery against receipt, by overnight courier or by
facsimile and, unless otherwise expressly

 

42

 

provided herein, shall be
deemed to have been validly served, given or delivered immediately when
delivered against receipt, one Business Day after deposit in the mail, postage
prepaid, or with an overnight courier or, in the case of facsimile notice, when
sent, addressed as 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 address
as each party may designate for itself by notice given in accordance with this Section 11.8; provided, however, that any
notice, request or demand to or upon Lender pursuant to subsection 3.1.1
or 4.2.2 hereof shall not be
effective until received by Lender.

 

11.9                        Lender’s
Consent.  Whenever Lender’s
consent is required to be obtained under this Agreement, any of the Other
Agreements or any of the Security

 

43

 

Documents as a condition
to any action, inaction, condition or event, Lender shall be authorized to give
or withhold such consent in its sole and reasonable discretion and to condition
its consent upon the giving of additional collateral security for the
Obligations, the payment of money or any other matter.

 

11.10                 Credit Inquiries.  Borrower hereby authorizes and permits Lender
to respond to usual and customary credit inquiries from third parties
concerning Borrower or any of its Subsidiaries or any Guarantor.

 

11.11                 Time of
Essence.  Time is of the essence
of this Agreement, the Other Agreements and the Security Documents.

 

11.12                 Entire
Agreement.  This Agreement and
the other Loan Documents, together with all other instruments, agreements and
certificates executed by the parties in connection therewith or with reference
thereto, embody the entire understanding and agreement between the parties
hereto and thereto with respect to the subject matter hereof and thereof and
supersede all prior agreements, understandings and inducements, whether express
or implied, oral or written.

 

11.13                 Interpretation.  No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.

 

11.14                 GOVERNING LAW; CONSENT TO FORUM.  THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED
AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN STAMFORD,
CONNECTICUT.  THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN 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 FOR FORECLOSURE OF
LENDER’S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER’S OTHER REMEDIES
IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION 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
BUSINESS OF BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR
COURT OF HARTFORD, CONNECTICUT, OR, AT LENDER’S OPTION, THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF CONNECTICUT, HARTFORD DIVISION, SHALL

 

44

 

HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER
PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT.  BORROWER EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE 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 LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM  NON
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.  BORROWER 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 BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT
AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER’S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.  NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF
ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS
AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.

 

11.15                 WAIVERS BY
BORROWER.  BORROWER WAIVES (i) 
THE RIGHT TO TRIAL BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY
OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (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 LENDER ON WHICH BORROWER MAY IN
ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO
IN THIS REGARD; (iii) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE
COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR
TO ALLOWING LENDER TO EXERCISE ANY OF LENDER’S REMEDIES; (iv) THE BENEFIT
OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; (v) NOTICE OF
ACCEPTANCE HEREOF; AND (VI)

 

45

 

EXCEPT AS
PROHIBITED BY LAW, ANY RIGHT TO CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER’S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER.  BORROWER WARRANTS AND REPRESENTS THAT IT HAS
REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND
VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

[signature page follows]

 

46

 

IN
WITNESS WHEREOF, this Agreement has been duly executed on the
day and year specified at the beginning of 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

  

 

47

 

	
  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 such
President, being authorized so to do, executed the foregoing instrument for the
purposes therein contained as his free act and deed and the free act and deed
of the corporation.

 

In
Witness Whereof I hereunto 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 Wholesale
Tile, Inc., a Florida corporation, and that he, as such President, being
authorized so to do, executed the foregoing instrument for the purposes therein
contained as their free act and deed and the free act and deed of the
corporation.

 

In
Witness Whereof I hereunto set my hand.

 

 

	
   

  	
   

  	
   

  
	
   

  	
  Commissioner of
  the Superior Court/

  
	
   

  	
  Notary Public

  
	
   

  	
  My Commission
  Expires:

  

 

48

 

APPENDIX A

 

GENERAL DEFINITIONS

 

When
used in the Amended and Restated Loan and Security Agreement dated as of                     ,
200 , by and between Fleet Capital Corporation, IWT Tesoro Corporation 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 Uncertificated Security
have the respective meanings assigned thereto under the UCC (as defined below);
(b) the terms Commercial
Tort Claims, Electronic Chattel Paper, Health-Care-Insurance
Receivables, Letter-of-Credit Rights, Payment Intangibles, Software,
Supporting Obligations and Tangible Chattel Paper
have the respective meanings assigned thereto in the UCC Revisions (as defined
below); (c) all terms indicating Collateral
having the meanings assigned thereto under the UCC or the UCC Revisions shall
be deemed to mean such Property, whether now owned or hereafter created or
acquired by Borrower or in which Borrower now has or hereafter acquires any
interest; (d) capitalized terms which are
not otherwise defined have the respective meanings assigned thereto in said
Loan and Security Agreement; and (e) the
following terms shall have the following meanings (terms defined in the
singular to have the same meaning when used in the plural and vice versa):

 

Account Debtor - any Person
who 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 assets except:  (i) any
surplus resulting from any 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 similar intangibles; (iv) goodwill,
including any amounts, however designated on a Consolidated balance sheet of a
Person or its Subsidiaries, representing the excess of the purchase price paid
for assets or stock over the value assigned thereto on the books of such
Person; (v) Restricted Investments; (vi) unamortized debt discount
and expense; (vii) assets located and notes and receivables 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 any
date means a sum equal to:

 

 

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

 

(ii)                                  the
amount at which such Person’s liabilities (other than capital stock and
surplus) would be shown on such balance sheet in accordance with GAAP, and
including as liabilities all reserves for contingencies and other potential
liabilities.

 

Affiliate  - a Person (other
than a Subsidiary):  (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled 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 of a
Person; or (iii) 5% or more of the
Voting Stock (or in the case of a Person which is not a corporation, 5% or more
of the equity interest) of which is beneficially owned or held by a Person or a
Subsidiary of a Person.

 

Agreement - the Loan and
Security Agreement referred to in the first sentence of this Appendix A, all
Exhibits thereto and this Appendix A.

 

Availability - the amount of
money which Borrower is entitled to borrow from time to time as Revolving
Credit Loans, such amount being the difference derived when the sum of the
principal amount of Revolving Credit Loans then outstanding (including any
amounts which Lender may have paid for the account of Borrower pursuant to any
of the Loan Documents and which have not been reimbursed by Borrower) and the
LC Amount is subtracted from the Borrowing Base.  If the amount outstanding is equal to or
greater than the Borrowing Base, Availability is zero (0).

 

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

 

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

 

Base Rate Advances – any
Loan bearing interest computed by reference to the Base Rate.

 

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

 

2

 

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

 

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

 

(ii)                                an amount 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 Term Accounts except for the requirement of Credit Insurance;
plus

 

(c)                                  the sum of (1) 65% of the value of
Eligible Inventory consisting of floor tile, wall tile, marble and decorative
tile (provided however the 65% measurement contained in this subsection (1) shall
be increased to 70% on the Effective Date and continue until the earlier to
occur of (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 Inventory consisting of trim; plus (3) 40% of
Listello; plus (4) 10% of Intransit Inventory at such date, each
calculated on the basis of the lower of cost or market with the cost of raw
materials and finished goods calculated on a first-in, first-out basis; provided,
however, such sum shall not 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 Effective Date and continue until the earlier to occur
of (i) the date upon which the Borrowers 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 value of
all life insurance policies taken as collateral by the Lender and in which the
Lender has a first perfected lien.

 

For purposes hereof, the net amount of Eligible
Accounts and Eligible Extended Term Accounts at any time shall be the face
amount of such Eligible Accounts and Eligible 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 by

 

3

 

Account
Debtors, granted, outstanding or payable in connection with such Accounts at
such time.

 

Borrowing Base Certificate –
a certificate by a responsible officer of Borrower, substantially in the form
of Exhibit Q (or another form
acceptable to Lender) setting forth the calculation of the Borrowing Base,
including a calculation of each component thereof, all in such detail as shall
be satisfactory to Lender.  All
calculations of the Borrowing Base in connection with the preparation of any
Borrowing Base Certificate shall originally be made by Borrower and certified
to Lender; provided, that Lender shall have the right to review and adjust, in
the exercise of its reasonable credit judgment, any such calculation after
giving notice thereof to the Borrower, (1) to
reflect its reasonable estimate of declines in value of any of the Collateral
described therein, and (2) to the
extent that such calculation is not in accordance with this Agreement.

 

Business Day - any day
excluding Saturday, Sunday and any day which is a legal holiday under the laws
of the State of Connecticut or is a day on which banking institutions located
in such state are closed.

 

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

 

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

 

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

 

Collateral - all of the
Property and interests in Property described in Section 5
of the Agreement, and all other Property and interests in Property that now or
hereafter 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
respect to (i) computer and other
electronic data processing hardware, including all integrated computer systems,
central processing units, memory units, display terminals, printers, computer
elements, card readers, tape drives, hard and soft disk drives, cables,
electrical supply hardware, generators, power equalizers, accessories,
peripheral devices and other related computer hardware; (ii) all
Software and

 

4

 

all
software programs designed for use on the computers and electronic data
processing hardware described in clause (i) above,
including all operating system software, utilities and application programs in
any form (source code and object code in magnetic tape, disk or hard 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 - the
consolidation in accordance with GAAP of the accounts or other items as to
which such term applies.

 

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

 

Credit Insurance - at any
date means a policy of credit insurance obtained by the Borrower issued by a
reputable insurance carrier acceptable to Lender in its sole discretion and
with 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 Credit
Insurance has been assigned to the Lender as additional collateral for the
Loans.

 

Current Assets - at any date
means the amount at which all of the current assets of a Person would be
properly classified as current assets shown on a balance sheet at such date in
accordance with GAAP.

 

Current Liabilities – at any
date means the amount at which all of the current liabilities of a Person would
be properly classified as current liabilities on a balance sheet at such date
in accordance with GAAP [excluding the Loans and current maturities of any
long-term Indebtedness].

 

Default - an event or
condition the occurrence of which would, with the lapse of time or the giving
of notice, or both, become an Event of Default.

 

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

 

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

 

5

 

Dominion Account - a special
account established by Borrower pursuant to the Agreement at a bank selected by
Borrower, but acceptable to Lender in its reasonable discretion, which will
provide that the balances in such account shall on a daily basis automatically
be deposited into the Fleet Concentration Account and which Lender shall have
sole and exclusive access and control for withdrawal purposes.

 

EBITDA - with respect to any
fiscal period, the sum of Borrower’s Consolidated net earnings (or loss) before
interest expense, taxes, depreciation and amortization for said period as
determined in accordance with GAAP, excluding extraordinary gains and non-cash
adjustments made under the Financial Accounting Standards Board Statement No. 133.

 

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

 

Eligible Account - an
Account arising in the ordinary course of Borrower’s business from the sale of
goods or rendition of services which Lender, in its reasonable credit judgment,
deems to be an Eligible Account.  Without
limiting the generality of the foregoing, no Account shall be an Eligible
Account if:

 

(i)                                    it arises out of a
sale made by Borrower to a Subsidiary or an Affiliate of Borrower or to a
Person controlled by an Affiliate of Borrower; or

 

(ii)                                it is unpaid for more
than sixty (60) days after the original due date shown on the invoice; or

 

(iii)                            it is due 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 Eligible
Accounts hereunder; or

 

(v)                                   the
total unpaid Accounts of the Account Debtor exceed 20% of the net amount of all
Eligible Accounts, to the extent of such excess; or

 

(vi)                               any covenant,
representation or warranty contained in the Agreement with respect to such
Account has been breached; or

 

(vii)                           the Account Debtor is also
Borrower’s creditor or supplier, or the Account Debtor has disputed liability
with respect to such Account, or the Account Debtor has made any claim with
respect to

 

6

 

any
other Account due from such Account Debtor to Borrower, or the Account
otherwise is or may become subject to any right of setoff by the Account
Debtor; or

 

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

 

(ix)                              it
arises 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 each
case acceptable to Lender in its sole discretion; or

 

(x)                                  it
arises 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 return
basis; or

 

(xi)                              the Account Debtor is the
United States of America or any department, agency or instrumentality thereof,
unless Borrower assigns its right to payment of such Account to Lender, in a
manner satisfactory to Lender, so as to comply with the Assignment of Claims
Act of 1940 (31 U.S.C. §203 et  seq., as amended); or

 

(xii)                          the Account is subject to a
Lien other than a Permitted Lien; or

 

(xiii)                      the goods giving rise to such
Account have not been delivered to and accepted by the Account Debtor
(excluding 10% of goods in transit which shall be deemed eligible hereunder) or
the services giving rise to such Account have not been performed by Borrower
and accepted by the Account Debtor or the Account otherwise does not represent
a final sale; or

 

(xiv)                         the Account is evidenced by
chattel paper or an instrument of any kind, or has been reduced to judgment; or

 

7

 

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

 

(xvi)                         Borrower
has made an agreement with the Account Debtor to extend the time of payment
thereof.

 

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

 

(i)                                    it arises out of a
sale made by Borrower to a Subsidiary or an Affiliate of Borrower or to a
Person controlled by an Affiliate of Borrower; or

 

(ii)                                it is unpaid for more
than sixty (60) days after the original due date shown on the invoice; or

 

(iii)                            it is due or unpaid more
than one hundred eighty (180) days after the original invoice date; or

 

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

 

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

 

(vi)                               any covenant,
representation or warranty contained in the Agreement with respect to such
Account has been breached; or

 

(vii)                           the Account Debtor is also
Borrower’s creditor or supplier, or the Account Debtor has disputed liability
with respect to such Account, or the Account Debtor has made any claim with
respect to any other Account due from such Account Debtor to Borrower, or the
Account otherwise is or may become subject to any right of setoff by the
Account Debtor; or

 

(viii)                       the Account Debtor has commenced
a voluntary case under the federal bankruptcy laws, as now constituted or
hereafter amended, or made an assignment for the benefit of creditors, or a

 

8

 

decree
or order for relief has been entered by a court having jurisdiction in the
premises in respect of the Account Debtor in an involuntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or any other
petition or other application for relief under the federal bankruptcy laws has
been filed against the Account Debtor, or if the Account Debtor has failed,
suspended business, ceased to be Solvent, or consented to or suffered a
receiver, trustee, liquidator or custodian to be appointed for it or for all or
a significant portion of its assets or affairs; or

 

(ix)                              it
arises 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 each
case acceptable to Lender in its sole discretion; or

 

(x)                                  it
arises 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 return
basis; or

 

(xi)                              the Account Debtor is the
United States of America or any department, agency or instrumentality thereof,
unless Borrower assigns its right to payment of such Account to Lender, in a
manner satisfactory to Lender, so as to comply with the Assignment of Claims
Act of 1940 (31 U.S.C. §203 et  seq., as amended); or

 

(xii)                          the Account is subject to a
Lien other than a Permitted Lien; or

 

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

 

(xiv)                         the Account is evidenced by
chattel paper or an instrument of any kind, or has been reduced to judgment; or

 

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

 

9

 

(xvi)                         Borrower
has made an agreement with the Account Debtor to extend the time of payment
beyond one hundred twenty (120) days of the due date thereof; or

 

(xvii)                     An
Account which is not subject to Credit Insurance; or

 

(xviii)                 An Account
which is subject to Credit Insurance and with respect to which (a) Borrower
has failed to comply with the terms, covenants, limitations and conditions of
the Credit Insurance, or (b) the insured has failed to make or honor a
claim present under the Credit Insurance within sixty (60) days of the
submission thereof or has earlier denied coverage with respect thereto.

 

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

 

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

 

(ii)                                it is not in good, new
and saleable condition; or

 

(iii)                            it is slow-moving (which mean all items (a) purchased more
than two (2) years from the date of testing, and (b) which have
turnover of less than one-half times per year), obsolete or
unmerchantable; or

 

(iv)                               it does not meet all
standards imposed by any governmental agency or authority; or

 

(v)                                   it does not conform
in all respects to the warranties and representations set forth in the
Agreement; or

 

(vi)                               it is not at all times
subject to Lender’s duly perfected, first-priority security interest and no
other Lien except a Permitted Lien; or

 

(vii)                           it is not situated at a
location in compliance with the Agreement or is in transit.

 

Environmental Laws - all
federal, state and local laws, rules, regulations, ordinances, programs,
permits, guidances, orders and consent decrees relating to health, safety and
environmental matters.

 

10

 

Equity Injection – means proceeds paid to Borrower from the
issuance of securities of Borrower whether or not made pursuant to a
registration statement under the federal securities laws, which proceeds shall
be sufficient such that Borrower shall be in compliance with all financial
covenants set forth in Section 8.3
of this Agreement.

 

ERISA - the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder.

 

Event of Default - as
defined in Section 10.1 of the
Agreement.

 

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

 

Fleet Concentration Account
– an account in the name of the Lender at Bank, which Lender shall have
sole and exclusive access and control for withdrawal purposes.

 

GAAP - generally accepted
account principles in the United States of America in effect from time to time.

 

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

 

Guaranty Agreements - the
Continuing Guaranty Agreements which are
to be executed by each Guarantor in form and substance satisfactory to Lender.

 

Indebtedness - as applied to
a Person means, without duplication

 

11

 

(i)                                    all items which in
accordance with GAAP would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as at the date as
of which Indebtedness is to be determined, including, without limitation,
Capitalized Lease Obligations,

 

(ii)                                all obligations of
other Persons which such Person has guaranteed,

 

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

 

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

 

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

 

Interest Expenses  – means
with respect to any applicable period, scheduled interest payments required to
be made for such period in respect of Indebtedness.

 

12

 

Interest Period – as
applicable to any LIBOR Advance, a period commencing on the date a LIBOR
Advance 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
by Borrower; provided that (i) any
Interest Period which would otherwise end on a day which is not a Business Day
shall end in the next preceding or succeeding Business Day as is Lender’s
custom in the market to which such LIBOR Advance relates; (ii) there
remains a minimum of one (1) month, two (2) months, three (3) months
or six (6) months (depending upon which Interest Period Borrower selects)
in the Term; and (iii) all Interest Periods of
the same duration which commence on the same date shall end on the same date.

 

Intransit Inventory – means Inventory
meeting the requirements of Eligible Inventory, except that it is in-transit
from a supplier’s location to Borrower’s location.

 

LC Amount - at any time, the
aggregate undrawn face amount of all Letters of Credit and LC Guaranties then
outstanding.

 

LC Guaranty - any guaranty
pursuant to which Lender or any Affiliate of Lender shall guaranty the payment
or performance by Borrower of its reimbursement obligation under any letter of
credit.

 

Letter of Credit - any
letter of credit issued by Lender or any of Lender’s Affiliates for the account
of Borrower.

 

LIBOR – as applicable to any
LIBOR Advance, the rate per annum (rounded upward, if necessary, to the nearest
1/32 of one percent) as 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 appears on the Telerate page 3750 as of 11:00 a.m. (London
time) on the day that is two (2) London Banking Days preceding the first
day of such LIBOR Advance; provided, however, if the rate described above does
not appear on the Telerate System on any applicable interest determination
date, the LIBOR rate shall be the rate (rounded upwards as described above, if
necessary) for deposits in U.S. dollars for a period substantially equal to the
interest period on the Reuters Page “LIBO” (or such other page as may
replace the LIBO Page on that service for the purpose of displaying such
rates), as of 11:00 a.m. (London Time), on the day that is two (2) London
Banking Days prior to the beginning of such interest period.  If both the Telerate and Reuters systems are
unavailable, then the rate for that date 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 offered by four (4) major banks in the London
interbank market at approximately 11:00 a.m. (London time), on the day
that is two (2) London Banking Days preceding the first day of such LIBOR

 

13

 

Advance
as selected by Lender.  The principal
London office of each of the major London Banks so selected will be requested
to provide a quotation of its U.S. dollar deposit offered rate.  If at least two (2) such quotations are
provided, the rate for that date will be the arithmetic mean of the
quotations.  If fewer than two quotations
are provided as requested, the rate for that date will be determined on the
basis of the rates quoted for loans in U.S. dollars to leading European banks
for a period of time comparable to such LIBOR Advance offered by major banks in
Hartford, Connecticut at approximately 11:00 a.m. (Hartford, Connecticut
time), on the day that is two (2) London Banking Days preceding the first
day of such LIBOR Advance.  In the event
that Lender is unable to obtain any such quotation as provided above, it will
be determined that LIBOR pursuant to a LIBOR Advance cannot be determined.  In the event that the Board of Governors of
the Federal Reserve System shall impose a Reserve Percentage with respect to
LIBOR deposits of Bank then for any period during which such Reserve Percentage
shall apply, LIBOR shall be equal to the amount determined above divided by an
amount equal to 1 minus the Reserve Percentage.

 

LIBOR Advance – any Loan
bearing interest computed by reference to the LIBOR.

 

LIBOR Overadvance – any
Overadvance bearing interest computed by reference to the LIBOR.

 

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

 

Loan Account - the loan
account established on the books of Lender pursuant to Section 3.6
of the Agreement.

 

Loan Documents - the
Agreement, the Other Agreements and the Security Documents.

 

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

 

14

 

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

 

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

 

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

 

Obligations - all Loans and
all other advances, debts, liabilities, obligations, covenants and duties,
together with all interest, fees and other charges thereon, owing, arising, due
or 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, whether arising under the Agreement or any of the
other Loan Documents or otherwise whether direct or indirect (including those
acquired by assignment), absolute or contingent, primary or secondary, due or
to become due, now existing or hereafter arising and however acquired.

 

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

 

Other Agreements - any and
all agreements, instruments and documents (other than the Agreement and the
Security Documents), heretofore, now or hereafter executed by Borrower, any
Subsidiary of Borrower or any other third party and delivered to Lender in
respect of the transactions contemplated by the Agreement.

 

Overadvance - the amount, if
any, by which the outstanding principal amount of Revolving Credit Loans plus
the LC Amount exceeds the Borrowing Base.

 

15

 

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

 

Participating Lender - each
Person who shall be granted the right by Lender to participate in any of the
Loans described in the Agreement and who shall have entered into a
participation agreement in form and substance satisfactory to Lender.

 

Permitted Liens - any Lien
of 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 which
is secured by a Purchase Money Lien and which, when aggregated with the
principal amount of all other such Indebtedness and Capitalized Lease
Obligations of Borrower at the time outstanding, does not exceed $25,000.  For the purposes of this definition, the
principal amount of any Purchase Money Indebtedness consisting of capitalized
leases shall be computed as a Capitalized Lease Obligation.

 

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

 

Plan - an employee benefit
plan now or hereafter maintained for employees of Borrower that is covered by
Title IV of ERISA.

 

Principal Paid  - means as of any date as to which the amount thereof shall
be determined, all principal amounts scheduled to be paid during the applicable
period.

 

Projections - Borrower’s
forecasted Consolidated and consolidating (a) balance
sheets, (b) profit and loss statements, (c) cash flow statements, and (d) revolving
collateral to loan statements, all prepared on a consistent basis with Borrower’s
historical financial statements, together with appropriate supporting details
and a statement of underlying assumptions.

 

Property - any interest in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible.

 

Purchase Money Indebtedness -
means and includes (i) Indebtedness
(other than the Obligations) for the payment of all or any part of the purchase
price of any fixed assets, (ii) any
Indebtedness (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
purpose of financing all or any part

 

16

 

of the
purchase price thereof, and (iii) any
renewals, extensions or refinancings thereof, but not any increases in the
principal amounts thereof outstanding at the time.

 

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

 

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

 

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

 

Restricted Investment - any
investment made in cash or by delivery of Property to any Person, whether by
acquisition of stock, Indebtedness or other obligation or Security, or by loan,
advance or capital contribution, or otherwise, or in any Property except the
following:

 

(i)                                    investments in one
or more Subsidiaries of Borrower to the extent existing on the Closing Date;

 

(ii)                                Property to be used in
the ordinary course of business;

 

(iii)                            Current Assets arising from
the sale of goods and services in the ordinary course of business of Borrower
and its Subsidiaries;

 

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

 

(v)                                   investments in
certificates of deposit maturing within one (1) year from the date of
acquisition issued by a bank or trust company organized under the laws of the
United States or any state thereof having capital surplus and undivided profits
aggregating at least $100,000,000; and

 

(vi)                               investments in
commercial paper given the highest rating by a national credit rating agency
and maturing not more than 270 days from the date of creation thereof.

 

17

 

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

 

Revolving Credit Note – the
Amended and Restated Revolving Credit Note to be executed by Borrower on or
about the Effective Date in favor of Lender to evidence the Revolving Credit
Loan, which shall be in the form of Exhibit A
to the Agreement.

 

Schedule of Accounts -
as defined in subsection 6.2.1 of the
Agreement.

 

Security - shall have the
same meaning as in Section 2(1) of
the Securities Act of 1933, as amended.

 

Security Documents - the
Guaranty Agreement and all other instruments and agreements now or at any time
hereafter securing the whole or any part of the Obligations.

 

Solvent – as to any Person,
that such Person (i) owns Property whose fair
saleable value is greater than the amount required to pay all of such Person’s
Indebtedness (including contingent debts), (ii) is
able to pay all of its Indebtedness as such Indebtedness matures and (iii) has capital sufficient to carry on its business
and transactions 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 manner
satisfactory to Lender.

 

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

 

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

 

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

 

Term - as defined in Section 4.1 of the Agreement.

 

Total Credit Facility -
$25,000,000.00.

 

18

 

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

 

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

 

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

 

UCC Revisions – the
revisions to Article 9 and other Articles of the Uniform Commercial Code,
as adopted by the State of Connecticut, effective October 1, 2001.

 

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

 

Voting Stock - Securities of
any class or classes of a corporation the holders of which are ordinarily, in
the absence of contingencies, entitled to elect a majority of the corporate
directors (or Persons performing similar functions).

 

Other Terms.  All other terms contained in the Agreement
shall have, when the context so indicates, the meanings provided for by the UCC
to 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 to
any particular section, paragraph or subdivision.  Any pronoun used shall be deemed to cover all
genders.  The section titles, table
of contents and list of exhibits appear as a matter of convenience only and
shall not affect the interpretation of the Agreement.  All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations.  All references to any of
the Loan Documents shall include any and all modifications thereto and any and
all extensions or renewals thereof.

 

19

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