Exhibit 10.2

 

EXECUTION COPY

 

FINANCING AGREEMENT

 

The CIT Group/Business Credit, Inc.

 

And

 

Cybex International, Inc.

 

Dated: July 16, 2003

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TABLE OF CONTENTS

 

          Page

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    SECTION 1.   

Definitions

   3     SECTION 2.   

Conditions Precedent

   20     SECTION 3.   

Revolving Loans

   25     SECTION 4.   

Term Loans

   29     SECTION 5.   

Letters of Credit

   30     SECTION 6.   

Collateral

   32     SECTION 7.   

Representations, Warranties and Covenants

   36     SECTION 8.   

Interest, Fees and Expenses

   49     SECTION 9.   

Powers

   56     SECTION 10.   

Events of Default and Remedies

   57     SECTION 11.   

Termination

   60     SECTION 12.   

Miscellaneous

   61

 

EXHIBIT              Exhibit A   -    Form of Term Loan A Promissory Note
    Exhibit B   -    Form of Term Loan B Promissory Note SCHEDULES         
    Schedule 1   -    Collateral Information     Schedule 2   -    Litigation
    Schedule 3   -    ERISA     Schedule 4   -    EBITDA Projections (2003)
    Schedule 5   -    Permitted Affiliate Payments

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THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation, with offices
located at Two Wachovia Center, 23rd Floor, 301 South Tryon Street, Charlotte,
North Carolina 28202 (hereinafter “CIT”), is pleased to confirm the terms and
conditions under which CIT shall make revolving loans, term loans and other
financial accommodations to CYBEX INTERNATIONAL, INC., a New York corporation
with a principal place of business at 10 Trotter Drive, Medway, Massachusetts
02053 (herein the “Company”).

 

SECTION 1. Definitions

 

Accounts shall mean all of the Company’s now existing and future: (a) accounts
(as defined in the UCC), and any and all other receivables (whether or not
specifically listed on schedules furnished to CIT), including, without
limitation, all accounts created by, or arising from, all of the Company’s
sales, leases, rentals of goods or renditions of services to its customers,
including but not limited to, those accounts arising under any of the Company’s
trade names or styles, or through any of the Company’s divisions; (b) any and
all instruments, documents, chattel paper (including electronic chattel paper)
(all as defined in the UCC); (c) unpaid seller’s or lessor’s rights (including
rescission, replevin, reclamation, repossession and stoppage in transit)
relating to the foregoing or arising therefrom; (d) rights to any goods
represented by any of the foregoing, including rights to returned, reclaimed or
repossessed goods; (e) reserves and credit balances arising in connection with
or pursuant hereto; (f) guarantees, supporting obligations, payment intangibles
and letter of credit rights (all as defined in the UCC); (g) insurance policies
or rights relating to any of the foregoing; (h) general intangibles pertaining
to any and all of the foregoing (including all rights to payment, including
those arising in connection with bank and non-bank credit cards), and including
books and records and any electronic media and software thereto; (i) notes,
deposits or property of account debtors securing the obligations of any such
account debtors to the Company; and (j) cash and non-cash proceeds (as defined
in the UCC) of any and all of the foregoing.

 

Administrative Management Fee shall mean the annual sum of $18,000.00 which
shall be paid to CIT in accordance with Section 8, paragraph 8.8 hereof to
offset the expenses and costs (excluding Out-of-Pocket Expenses and auditor
fees) of CIT in connection with administration, record keeping, analyzing and
evaluating the Collateral.

 

Affiliate shall mean any Person that, directly or indirectly, Controls, is
Controlled by, or is under common Control with, a specified Person. For the
purposes of this Agreement, “Control” means having the power to direct the
management and policies of a Person, whether through the ownership of voting
securities or beneficial interests, by contract, or otherwise.

 

Anniversary Date shall mean the date occurring three (3) years from the Closing
Date and the same date in every year thereafter.

 

Applicable Margin shall mean the appropriate applicable percentage corresponding
to Fixed Charge Coverage Ratio in effect as of the most recent Calculation Date:

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Tier

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Fixed Charge Coverage Ratio

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   Applicable Margin
for LIBOR Loans

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    Applicable Margin
For Chase Bank Rate
Loans

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            Revolving
Loans

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    Term
Loan A

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    Revolving
Loans

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    Term
Loan A

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I

  

Less than 1.2 to 1.0

   3.25 %   3.50 %   0.50 %   0.75 %

II

  

Equal to or greater than 1.2 to 1.0 but less than 1.4 to 1.0

   2.75 %   3.00 %   0.00 %   0.25 %

III

  

Greater than or equal to 1.4 to 1.0

   2.50 %   2.75 %   -0.25 %   0.00 %

 

The Applicable Margin shall be determined and adjusted quarterly on the first
day of the month immediately following the receipt by CIT of the financial
information for the preceding fiscal quarter in accordance with Paragraph 7.8(b)
of Section 7.8 (each a “Calculation Date”); provided, however, that (i) the
initial Applicable Margin shall be based on Tier II (as shown above) and shall
remain at Tier II until the first Calculation Date subsequent to the date the
Bank receives the financial statements for the fiscal quarter ending September
30, 2003, and (ii) if the Company fails to provide any financial statements for
any fiscal quarter within the time period set forth herein, the Applicable
Margin from the Calculation Date applicable to such fiscal quarter shall be
based on Tier I until such time as such financial statements are provided,
whereupon the Applicable Margin shall be determined as set forth above. Each
Applicable Margin shall be effective from one Calculation Date until the next
Calculation Date.

 

Availability shall mean at any time the amount by which: (a) the Borrowing Base
exceeds (b) the sum of (i) the outstanding aggregate amount of all Obligations
with respect to Revolving Loans and the Letters of Credit and (ii) the
Availability Reserve.

 

Availability Reserve shall mean the sum of: (a) the sum of (x) three (3) months
rental payments or similar charges for any of the Company’s leased premises
(other than the Company’s leased premises in Portland, Oregon so long as no
Inventory of the Company is physically located there) or other Collateral
locations (other than the Company’s leased premises in Portland, Oregon so long
as no Inventory of the Company is physically located there) for which the
Company has not delivered to CIT a landlord’s waiver in form and substance
reasonably satisfactory to CIT, plus (y) three (3) months estimated payments due
by the Company to any applicable warehousemen or third party processor (as
determined by CIT in its reasonable business judgement), provided that any of
the foregoing amounts shall be adjusted from time to time hereafter upon (i)
delivery to CIT of any such acceptable waiver, (ii) the opening or closing of a
Collateral location and/or (iii) any change in the amount of rental, storage or
processor payments or similar charges; (b) any reserve which CIT may reasonably
require from time to time pursuant to the explicit terms of this Financing
Agreement, including without

 

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limitation, for Letters of Credit pursuant to Paragraph 5.1 of Section 5 hereof;
and (c) such other reserves as CIT deems necessary in its commercially
reasonable judgment as a result of (x) negative forecasts and/or trends in the
Company’s business, industry, prospects, profits, operations or financial
condition or (y) other issues, circumstances or facts that could otherwise
negatively impact the Company, its business, prospects, profits, operations,
industry, financial condition or assets.

 

Benefit Plan shall mean a defined benefit plan as defined in Section 3(35) of
ERISA (other than a “multiemployer plan,” as such term is defined in ERISA) in
respect of which the Company or any ERISA Affiliate is, or within the
immediately preceding six (6) years was, an “employer” as defined in Section
3(5) of ERISA.

 

Board of Directors means the board of directors (or comparable managers) of the
Company or any committee thereof duly authorized to act on behalf of the board
of directors (or comparable managers).

 

Borrower Agreement shall mean the Borrower Agreement between the Company and
Ex-Im Bank.

 

Borrowing Base shall mean the sum of the Domestic Borrowing Base and the Foreign
Borrowing Base.

 

Business Day shall mean any day on which CIT and JP Morgan Chase Bank are open
for business.

 

Capital Expenditures shall mean for any period the aggregate of all expenditures
of the Company during such period that, in conformity with GAAP, are required to
be included in or reflected by the property, plant or equipment or similar fixed
asset account reflected in the balance sheet of the Company.

 

Capital Lease shall mean any lease of property (whether real, personal or mixed)
which, in conformity with GAAP, is accounted for as a capital lease or a Capital
Expenditure in the balance sheet of the Company.

 

Chase Bank Rate shall mean the rate of interest per annum announced by JP Morgan
Chase Bank from time to time as its prime rate in effect at its principal office
in New York City. (The prime rate is not intended to be the lowest rate of
interest charged by JP Morgan Chase Bank to its borrowers).

 

Chase Bank Rate Loans shall mean any loans or advances pursuant to this
Financing Agreement made or maintained at a rate of interest based upon the
Chase Bank Rate.

 

Closing Date shall mean the date that this Financing Agreement has been duly
executed by the parties hereto and delivered to CIT.

 

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Collateral shall mean all present and future Accounts, Equipment, Inventory,
Documents of Title, General Intangibles, Investment Property, Real Estate,
pledged stock of the Company’s subsidiaries and Other Collateral.

 

Collection Days shall mean one (1) Business Day to provide for the deposit,
clearance and collection of checks or other instruments representing the
proceeds of Collateral, the amount of which has been credited to the Company’s
Revolving Loan Account, and for which interest may be charged on the aggregate
amount of such deposits, at the rate provided for in Paragraph 8.1 of Section 8
of this Financing Agreement.

 

Commitment Letter shall mean the Commitment Letter, dated June 12, 2003, issued
by CIT to, and accepted by, the Company.

 

Consolidated Balance Sheet shall mean a consolidated or compiled, as applicable,
balance sheet for the Company and its consolidated subsidiaries, eliminating all
inter-company transactions and prepared in accordance with GAAP.

 

Consolidating Balance Sheet shall mean a Consolidated Balance Sheet plus
individual balance sheets for the Company and its consolidated subsidiaries,
showing all eliminations of inter-company transactions and prepared in
accordance with GAAP, and including a balance sheet for the Company exclusively.

 

Continuing Director means (a) any member of the Board of Directors who was a
director (or comparable manager) of the Company on the Closing Date, and (b) any
individual who becomes a member of the Board of Directors after the Closing Date
if such individual was appointed or nominated for election to the Board of
Directors by a majority of the Continuing Directors, but excluding any such
individual originally proposed for election in opposition to the Board of
Directors in office at the Closing Date in an actual or threatened election
contest relating to the election of the directors (or comparable managers) of
the Company and whose initial assumption of office resulted from such contest or
the settlement thereof.

 

Copyrights shall mean all present and hereafter acquired copyrights, copyright
registrations, recordings, applications, designs, styles, licenses, marks,
prints and labels bearing any of the foregoing, goodwill, any and all general
intangibles, intellectual property and rights pertaining thereto, and all cash
and non-cash proceeds thereof.

 

Current Assets shall mean those assets of the Company which, in accordance with
GAAP, are classified as current.

 

Current Liabilities shall mean those liabilities of the Company which, in
accordance with GAAP, are classified as “current”, provided however, that,
notwithstanding GAAP, the Revolving Loans and the current portion of Permitted
Indebtedness shall be considered “current liabilities”.

 

Cybex UK shall mean Cybex International UK Limited.

 

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Default shall mean any event specified in Section 10 hereof, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, event or act, has been satisfied.

 

Default Rate of Interest shall mean a rate of interest per annum on any
Obligations hereunder, equal to the sum of: (a) two percent (2%) and (b) the
applicable interest rates set forth in Paragraphs 8.1, 8.2 and 8.14 which CIT
shall be entitled to charge the Company on all Obligations due CIT by the
Company, as further set forth in Paragraph 10.2 of Section 10 of this Financing
Agreement.

 

Depository Accounts shall mean the collection accounts, which are subject to
CIT’s instructions, as specified in Paragraph 3.4 of Section 3 of this Financing
Agreement.

 

Documentary Letter of Credit Sub-Line shall mean the commitment of CIT to assist
the Company in obtaining documentary Letters of Credit, pursuant to Section 5
hereof, in an aggregate amount of $4,000,000.

 

Documentation Fee shall mean subsequent to the Closing Date, CIT’s standard fees
relating to any and all modifications, waivers, releases, amendments or
additional collateral with respect to this Financing Agreement, the Collateral
and/or the Obligations.

 

Documents of Title shall mean all present and future documents (as defined in
the UCC), and any and all warehouse receipts, bills of lading, shipping
documents, chattel paper, instruments and similar documents, all whether
negotiable or not and all goods and Inventory relating thereto and all cash and
non-cash proceeds of the foregoing.

 

Domestic Borrowing Base shall mean the sum of (a) eighty-five percent (85%) of
the Company’s aggregate outstanding Eligible Domestic Accounts Receivable, plus
(b) fifty percent (50%) of aggregate value of the Company’s Eligible Domestic
Inventory which consists of raw materials, valued at the lower of cost or
market, on a first in, first out basis, plus (c) sixty percent (60%) of the
aggregate value of the Company’s Eligible Domestic Inventory which consists of
finished goods, valued at the lower of cost or market, on a first in, first out
basis, plus (d) one hundred percent (100%) of all letters of credit issued to
CIT and accepted by CIT in its sole discretion for purposes of securing the
Obligations.

 

Early Termination Date shall mean the date on which the Company terminates this
Financing Agreement or the Revolving Line of Credit which date is prior to an
Anniversary Date.

 

Early Termination Fee shall: (a) mean the fee CIT is entitled to charge the
Company in the event the Company terminates the Revolving Line of Credit or this
Financing Agreement on a date prior to an Anniversary Date; and (b) be
determined by multiplying the Revolving Line of Credit by (x) three percent (3%)
if the Early Termination Date occurs on or before one (1) year from the Closing
Date, (y) two percent (2%) if the Early Termination Date occurs after one (1)
year from the Closing Date but on or before two (2) years from the Closing Date;
and (z) one percent (1%) if the Early Termination Date occurs after two (2)
years from the Closing Date but

 

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prior to an Anniversary Date; provided, however, the fee set forth in
subparagraph (z) above shall not be applicable if the termination occurs after
three (3) years from the Closing Date because of or in connection with a sale of
all or substantially all of the stock or assets of the Company.

 

EBIT shall mean, in any period, all earnings of the Company for said period
before all interest and tax obligations of the Company for said period,
determined in accordance with GAAP on a consistent basis with the latest audited
financial statements of the Company, but excluding the effect of extraordinary
or non-reoccurring gains or losses for such period.

 

EBITDA shall mean, in any period, all earnings of the Company for said period
before all interest and tax obligations of the Company for said period and all
depreciation and amortization expense for said period, determined in accordance
with GAAP on a consistent basis with the latest audited financial statements of
the Company, but excluding the effect of extraordinary or non-reoccurring gains
or losses for such period.

 

Eligible Domestic Accounts Receivable shall mean the gross amount of the
Company’s Trade Accounts Receivable that are subject to a valid, exclusive,
first priority and fully perfected security interest in favor of CIT, which
conform to the warranties contained herein and at all times continue to be
acceptable to CIT in the exercise of its reasonable business judgment, less,
without duplication, the sum of: (a) any returns, discounts, claims, credits and
allowances of any nature (whether issued, owing, granted, claimed or
outstanding), and (b) reserves for any such Trade Accounts Receivable that arise
from or are subject to or include: (i) sales to the United States of America,
any state or other governmental entity or to any agency, department or division
thereof, except for any such sales as to which the Company has complied with the
Assignment of Claims Act of 1940 or any other applicable statute, rules or
regulation, to CIT’s satisfaction in the exercise of its reasonable business
judgment; (ii) foreign sales, other than sales which otherwise comply with all
of the other criteria for eligibility hereunder and are secured by letters of
credit (in form and substance satisfactory to CIT) issued or confirmed by, and
payable at, banks having a place of business in the United States of America;
(iii) Accounts that are more than 60 days past due; (iv) Accounts that remain
unpaid more than ninety (90) days from invoice date (except for those such
Accounts which are less than $300,000 in the aggregate and which do not remain
unpaid more than one hundred fifty (150) days from invoice date); (v) contra
accounts; (vi) sales to any subsidiary, or to any company affiliated with the
Company in any way; (vii) bill and hold (deferred shipment) or consignment
sales; (viii) sales to any customer which is (A) insolvent or (B) the debtor in
any bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law or (C) negotiating, or has called a
meeting of its creditors for purposes of negotiating, a compromise of its debts
or (D) financially unacceptable to CIT or has a credit rating unacceptable to
CIT; (ix) all sales to any customer if fifty percent (50%) or more of the
aggregate dollar amount of all outstanding invoices to such customer are more
than 60 days past due or remain unpaid more than ninety (90) days from invoice
date (except for those such Accounts which are less than $300,000 in the
aggregate and which do not remain unpaid more than one hundred fifty (150) days
from invoice date); (x) pre-billed receivables and receivables arising from
progress billing; (xi) an amount representing, historically, returns, discounts,
claims, credits, allowances and applicable terms; (xii) sales not payable in
United States currency; and (xiii) any other reasons

 

8

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deemed necessary by CIT in its reasonable business judgment, including those
which are customary either in the commercial finance industry or in the lending
practices of CIT.

 

Eligible Domestic Inventory shall mean the gross amount of the Company’s
Inventory that is subject to a valid, exclusive, first priority and fully
perfected security interest in favor of CIT and which conforms to the warranties
contained herein and which at all times continue to be acceptable to CIT in the
exercise of its reasonable business judgment, less, without duplication, any (a)
work-in-process, (b) supplies (other than raw materials), (c) Inventory not
present in the United States of America or Inventory which is Export-Related
Inventory, (d) Inventory returned or rejected by the Company’s customers (other
than goods that are undamaged and resalable in the normal course of business)
and goods to be returned to the Company’s suppliers, (e) Inventory in transit to
third parties (other than the Company’s agents or warehouses), or Inventory in
possession of a warehouseman, bailee, third party processor, or other third
party, unless such warehouseman, bailee or third party has executed a notice of
security interest agreement (in form and substance satisfactory to CIT) and CIT
shall have a first priority perfected security interest in such Inventory, and
(f) less any reserves required by CIT in its reasonable discretion, including
for special order goods, discontinued, slow-moving and obsolete Inventory,
market value declines, bill and hold (deferred shipment), consignment sales,
shrinkage and any applicable customs, freight, duties and Taxes.

 

Eligible Foreign Accounts Receivables shall mean, at the date of determination,
all Foreign Accounts of the Company and Cybex UK which would be included in the
determination of the Foreign Borrowing Base in accordance with the Ex-Im Bank
Documents and would otherwise be Eligible Domestic Accounts Receivable but for
clause (b)(ii) of the definition thereof and without regard to the $300,000
limitation set forth in clause (b) (iv) of the definition thereof.

 

Eligible Foreign Inventory shall mean at the date of determination, all
Export-Related Inventory which would be included in the determination of the
Foreign Borrowing Base in accordance with the Ex-Im Bank Documents and would
otherwise be Eligible Domestic Inventory but for clause (c) of the definition
thereof.

 

Equipment shall mean all present and hereafter acquired equipment (as defined in
the UCC) including, without limitation, all machinery, equipment, furnishings
and fixtures, and all additions, substitutions and replacements thereof,
wherever located, together with all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto and all proceeds thereof of
whatever sort.

 

ERISA shall mean the Employee Retirement Income Security Act or 1974, as amended
from time to time and the rules and regulations promulgated thereunder from time
to time.

 

ERISA Affiliate shall mean any (i) corporation which is or was at any time a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Internal Revenue Code) as the Company; (ii) partnership or
other trade or business (whether or not incorporated) at any time under common
control (within the meaning of Section 414(c) of the Internal Revenue Code) with
the Company; and (iii) member of the same affiliated service group

 

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(within the meaning of Section 414(m) of the Internal Revenue Code) as the
Company, any corporation described in clause (i) above, or any partnership or
trade or business described in clause (ii) above.

 

Eurocurrency Reserve Requirements for any day, as applied to a LIBOR Loan, shall
mean the aggregate (without duplication) of the maximum rates of reserve
requirements (expressed as a decimal fraction) in effect with respect to CIT
and/or any present or future lender or participant on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves under
Regulation D or any other applicable regulations of the Board of Governors of
the Federal Reserve System or other governmental authority having jurisdiction
with respect thereto, as now and from time to time in effect, dealing with
reserve requirements prescribed for Eurocurrency funding (currently referred to
as “Eurocurrency Liabilities” in Regulation D of such Board) maintained by CIT
and/or any such lenders or participants (such rate to be adjusted to the nearest
one sixteenth of one percent (1/16 of 1%) or, if there is not a nearest one
sixteenth of one percent (1/16 of 1%), to the next higher one sixteenth of one
percent (1/16 of 1%)).

 

Event(s) of Default shall have the meaning provided for in Section 10 of this
Financing Agreement.

 

Executive Officers shall mean the Chairman, President, Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, Executive Vice President(s),
Senior Vice President(s), Treasurer, Controller and Secretary of the Company.

 

Ex-Im Bank shall mean the Export-Import Bank of the United States.

 

Ex-Im Bank Documents shall mean the Ex-Im Bank Guarantee, the Loan Authorization
Agreement between CIT and Ex-Im Bank and the Borrower Agreement.

 

Ex-Im Guarantee shall mean the guarantee executed by Ex-Im Bank in favor of CIT
and in form and substance satisfactory to CIT, together with all amendments,
modifications and supplements thereto.

 

Export-Related Inventory shall mean, at the date of determination, all Inventory
of the Company and Cybex UK that has been purchased or manufactured by the
Company or Cybex UK for re-sale in an Export Transaction and for which Company
or Cybex UK has received a signed written purchase order acceptable to CIT from
the buyer in such Export Transaction.

 

Export Transaction shall mean any transaction in which the Company or Cybex UK
will sell goods or services to an account debtor located in a foreign country.

 

Fiscal Quarter shall mean, with respect to the Company, each three (3) month
period ending on the last Saturday in March, June and September and December 31
of each Fiscal Year.

 

Fiscal Year shall mean each twelve (12) month period commencing on January 1 of
each year and ending on the following December 31.

 

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Fixed Charge Coverage Ratio shall mean, for any applicable period of
computation, the ratio of the following for the Company and its subsidiaries on
a consolidated basis determined in accordance with GAAP: (a) EBITDA less
non-financed Capital Expenditures for such period, less, without duplication,
losses incurred in respect of Support Obligations during such period to (b)
Fixed Charges for such period.

 

Fixed Charges shall mean, for any applicable twelve-month period of computation,
the sum of (a) interest expense paid or accrued (other than interest accrued
with respect to any Subordinated Debt) in respect of any Indebtedness during
such period, without duplication, plus (b) taxes to the extent paid during or
with respect to such period plus (c) regularly scheduled payments of principal
paid on Indebtedness (excluding the Revolving Loans) during such period.

 

Foreign Accounts shall mean those Accounts of the Company and Cybex UK that are
an obligation of an account debtor located in a foreign country and which arise
from an Export Transaction.

 

Foreign Borrowing Base shall mean the sum of (a) ninety percent (90%) of the
Company’s aggregate outstanding Eligible Foreign Accounts Receivable, plus (b)
seventy percent (70%) of Cybex UK’s aggregate outstanding Eligible Foreign
Accounts Receivable, plus (c) seventy-five percent (75%) of aggregate value of
the Company’s Eligible Foreign Inventory which consists of raw materials,
work-in-process and finished goods, valued at the lower of cost or market, on a
first in, first out basis, plus (d) fifty-five percent (55%) of aggregate value
of Cybex UK’s Eligible Foreign Inventory which consists of raw materials,
work-in-process and finished goods, valued at the lower of cost or market, on a
first in, first out basis.

 

GAAP shall mean generally accepted accounting principles in the United States of
America as in effect from time to time and for the period as to which such
accounting principles are to apply, provided that in the event the Company
modifies its accounting principles and procedures as applied as of the Closing
Date, the Company shall provide such statements of reconciliation as shall be in
form and substance) acceptable to CIT.

 

General Intangibles shall mean all present and hereafter acquired general
intangibles (as defined in the UCC), and shall include, without limitation, all
present and future right, title and interest in and to: (a) all Trademarks,
tradenames, corporate names, business names, logos and any other designs or
sources of business identities, (b) Patents, together with any improvements on
said Patents, utility models, industrial models, and designs, (c) Copyrights,
(d) trade secrets, (e) licenses, (f) all applications with respect to the
foregoing, (g) all right, title and interest in and to any and all extensions
and renewals, (h) goodwill with respect to any of the foregoing, (i) any other
forms of similar intellectual property, (j) all customer lists, distribution
agreements, supply agreements, blueprints, indemnification rights and tax
refunds, together with all monies and claims for monies now or hereafter due and
payable in connection with any of the foregoing or otherwise, and all cash and
non-cash proceeds thereof, including, without limitation, the proceeds or
royalties of any licensing agreements between the Company and any licensee of
any of the Company’s General Intangibles.

 

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Guaranties shall mean the guaranty documents executed and delivered by the
Guarantors guaranteeing the Obligations.

 

Guarantors shall mean Tectrix Fitness Equipment, Inc., Cybex Capital Corporation
and Cybex UK.

 

Hilco shall mean Hilco Capital L.P., its successors and permitted assigns and
any replacement lender under the Hilco Loan Agreement.

 

Hilco Intercreditor Agreement shall mean the Intercreditor Agreement between
Hilco and CIT dated             , 2003.

 

Hilco Loan shall mean the $11,000,000.00 term loan made by Hilco to the Company
as of the Closing Date.

 

Hilco Loan Agreement shall mean the Financing Agreement, dated the date hereof,
between Hilco and the Company, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or refinanced from
time to time in accordance with Section 7.9(e) of this Agreement.

 

Hilco Loan Documents shall mean the Hilco Loan Agreement and all other
documents, instruments, and agreements executed from time to time in connection
with the Hilco Loan Agreement, as all of the foregoing now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
refinanced from time to time in accordance with Section 7.9(e) of this
Agreement.

 

Inactive Subsidiary shall mean Cybex Fitness Gerate Vertriebes GmbH.

 

Indebtedness shall mean, without duplication, all liabilities, contingent or
otherwise, which are any of the following: (a) obligations in respect of
borrowed money or for the deferred purchase price of property, services or
assets, other than Inventory, or (b) lease obligations which, in accordance with
GAAP, have been, or which should be capitalized.

 

Insurance Proceeds shall mean proceeds or payments from an insurance carrier
with respect to any loss, casualty or damage to Collateral.

 

Interest Period shall mean:

 

(a) with respect to any initial request by the Company for a LIBOR Loan, a one
month, two month or three month period commencing on the borrowing or conversion
date with respect to a LIBOR Loan and ending one, two or three months
thereafter, as applicable; and

 

(b) hereafter with respect to any continuation of, or conversion to, a LIBOR
Loan, at the option of the Company, any one month, two month or three month
period commencing on the last day of the immediately preceding Interest Period
applicable to such LIBOR Loan and ending one, two or three months thereafter, as
applicable;

 

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provided that, the foregoing provisions relating to Interest Periods are subject
to the following:

 

(i) if any Interest Period would otherwise end on a day which is not a Working
Day, that Interest Period shall be extended to the next succeeding Working Day,
unless the result of such extension would extend such payment into another
calendar month in which event such Interest Period shall end on the immediately
preceding Working Day;

 

(ii) any Interest Period that begins on the last Working Day of a calendar month
(or on a day for which there is no numerically corresponding day in the calendar
month, at the end of such Interest Period) shall end on the last Working Day of
a calendar month; and

 

(iii) for purposes of determining the availability of Interest Periods, such
Interest Periods shall be deemed available if (x) JP Morgan Chase Bank quotes an
applicable rate or CIT determines LIBOR, as provided in the definition of LIBOR,
(y) the LIBOR determined by JP Morgan Chase Bank or CIT will adequately and
fairly reflect the cost of maintaining or funding its loans bearing interest at
LIBOR, for such Interest Period, and (z) such Interest Period will end on or
before the earlier of Anniversary Date or the last day of the then current term
of this Financing Agreement. If a requested Interest Period shall be unavailable
in accordance with the foregoing sentence, the Company shall continue to pay
interest on the Obligations at the applicable per annum rate based upon the
Chase Bank Rate.

 

Inventory shall mean all of the Company’s present and hereafter acquired
inventory (as defined in the UCC) and including, without limitation, all
merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and materials
used or usable in manufacturing, processing, packaging or shipping same in all
stages of production from raw materials through work-in-process to finished
goods—and all proceeds thereof of whatever sort.

 

Investment Property shall mean the Company’s now owned or hereafter acquired
right, title and interest with respect to “investment property” as that term is
defined in the UCC, and any and all supporting obligations in respect thereof.

 

IRB shall mean the Massachusetts Industrial Finance Agency Industrial Revenue
Bonds – United Medical Corporation Issue – Series 1992 in the original principal
amount of $3,779,069.

 

IRB Letter of Credit shall mean the letter of credit issued by Wachovia Bank,
National Association on the application of the Company providing credit support
for the IRB.

 

Issuing Bank shall mean the bank issuing Letters of Credit for the Company.

 

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Letters of Credit shall mean all letters of credit issued with the assistance of
CIT in accordance with Section 5 hereof by the Issuing Bank for or on behalf of
the Company.

 

Letter of Credit Guaranty Fee shall mean the fee CIT may charge the Company
under Paragraph 8.3 of Section 8 of this Financing Agreement for: (a) issuing a
Letter of Credit Guaranty, and/or (b) otherwise aiding the Company in obtaining
Letters of Credit, all pursuant to Section 5 hereof.

 

LIBOR shall mean, at any time of determination, and subject to availability, for
each applicable Interest Period, a variable rate of interest equal to: (a) at
CIT’s election (i) the applicable LIBOR quoted to CIT by JP Morgan Chase Bank
(or any successor thereof), or (ii) the rate of interest determined by CIT at
which deposits in U.S. dollars are offered for the relevant Interest Period
based on information presented on Telerate Systems at Page 3750 as of 11:00 A.M.
(London time) on the day which is two (2) Business Days prior to the first day
of such Interest Period, provided that, if at least two such offered rates
appear on the Telerate System at Page 3750 in respect of such Interest Period,
the arithmetic mean of all such rates (as determined by CIT) will be the rate
used; divided by (b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of Eurocurrency
Reserve Requirements in effect on the day which is two (2) Business Days prior
to the beginning of such Interest Period.

 

LIBOR Lending Office with respect to CIT, shall mean the office of JP Morgan
Chase Bank, or any successor thereof, maintained at 270 Park Avenue, New York,
NY 10017.

 

LIBOR Loan shall mean any loans made pursuant to this Financing Agreement which
are made or maintained at a rate of interest based upon LIBOR, provided that (i)
no Default or Event of Default has occurred hereunder, which has not been waived
in writing by CIT, and (ii) no LIBOR Loan shall be made with an Interest Period
that ends subsequent to an Anniversary Date or any applicable Early Termination
Date.

 

Line of Credit shall mean the aggregate commitment of CIT to (a) make Revolving
Loans pursuant to Section 3 of this Financing Agreement (b) assist the Company
in opening Letters of Credit pursuant to Section 5 of this Financing Agreement
and (c) make Term Loans pursuant to Section 4 of this Financing Agreement, in
the aggregate amount equal to $19,000,000.

 

Line of Credit Fee shall: (a) mean the fee due CIT at the end of each month for
the Line of Credit, and (b) be determined by multiplying the difference between
(i) the Revolving Line of Credit (less $1,500,000) and (ii) the sum, for said
month, of (x) the average daily balance of Revolving Loans plus (y) the average
daily balance of Letters of Credit outstanding, by three-eighths percent
(0.375%) per annum for the number of days in said month.

 

Loan Documents shall mean this Financing Agreement, the Promissory Notes, the
Guaranties, the Pledge Agreement, the mortgages and/or deeds of trust on the
Real Estate, any warrants, the other closing documents and any other ancillary
loan and security agreements

 

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executed from time to time in connection with this Financing Agreement, all as
may be renewed, amended, extended, increased or supplemented from time to time.

 

Loan Facility Fee shall mean the fee payable to CIT in accordance with, and
pursuant to, the provisions of Paragraph 8.7 of Section 8 of this Financing
Agreement.

 

Mandatory Prepayment shall: (a) mean the amount by which the Company must prepay
Term Loan A on or before the 90th day after the end of each Fiscal Year of the
Company; and (b) be determined as set forth in Paragraph 4.9 of Section 4 of
this Financing Agreement.

 

Net Income shall mean with respect to any person and for any period, the
aggregate net income (or loss) after taxes of such person for such period,
determined in accordance with GAAP.

 

Obligations shall mean all loans, advances and extensions of credit made or to
be made by CIT to the Company or to others for the Company’s account (including,
without limitation, all Revolving Loans, Letter of Credit Guaranties and Term
Loans); any and all indebtedness and obligations which may at any time be owing
by the Company to CIT howsoever arising, whether now in existence or incurred by
the Company from time to time hereafter; whether secured by pledge, lien upon or
security interest in any of the Company’s Collateral, assets or property or the
assets or property of any other person, firm, entity or corporation; whether
such indebtedness is absolute or contingent, joint or several, matured or
unmatured, direct or indirect and whether the Company is liable to CIT for such
indebtedness as principal, surety, endorser, guarantor or otherwise. Obligations
shall also include indebtedness owing to CIT by the Company under any Loan
Document or under any other agreement or arrangement now or hereafter entered
into between the Company and CIT; indebtedness or obligations incurred by, or
imposed on, CIT as a result of environmental claims arising out of the Company’s
operations, premises or waste disposal practices or sites in accordance with
paragraph 7.7 hereof; the Company’s liability to CIT as maker or endorser of any
promissory note or other instrument for the payment of money; the Company’s
liability to CIT under any instrument of guaranty or indemnity, or arising under
any guaranty, endorsement or undertaking which CIT may make or issue to others
for the Company’s account, including any accommodation extended with respect to
applications for Letters of Credit, CIT’s acceptance of drafts or CIT’s
endorsement of notes or other instruments for the Company’s account and benefit.

 

Other Collateral shall mean all now owned and hereafter acquired lockbox,
blocked account and any other deposit accounts maintained with any bank or
financial institutions into which the proceeds of Collateral are or may be
deposited; all cash and other monies and property in the possession or control
of CIT; all books, records, ledger cards, disks and related data processing
software at any time evidencing or containing information relating to any of the
Collateral described herein or otherwise necessary or helpful in the collection
thereof or realization thereon; and all cash and non-cash proceeds of the
foregoing.

 

Out-of-Pocket Expenses shall mean all of CIT’s present and future expenses
incurred relative to this Financing Agreement or any other Loan Documents,
whether incurred heretofore or hereafter, which expenses shall include, without
being limited to: the cost of record searches,

 

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all costs and expenses incurred by CIT in opening bank accounts, depositing
checks, receiving and transferring funds, and wire transfer charges, any charges
imposed on CIT due to returned items and “insufficient funds” of deposited
checks and CIT’s standard fees relating thereto, any amounts paid by, incurred
by or charged to, CIT by the Issuing Bank under the Letter of Credit Guaranty or
the Company’s reimbursement agreement, application for Letter of Credit or other
like document which pertain either directly or indirectly to such Letters of
Credit, and CIT’s standard fees relating to the Letters of Credit and any drafts
thereunder, travel, lodging and similar expenses of CIT’s personnel in
connection with inspecting and monitoring the Collateral from time to time
hereunder (including field examination fees of $750 per person per day plus
out-of-pocket expenses), any applicable counsel fees and disbursements, fees and
taxes relative to the filing of financing statements, all expenses, costs and
fees set forth in Paragraph 10.3 of Section 10 of this Financing Agreement, and
title insurance premiums, real estate survey costs, costs of preparing and
recording mortgages/deeds of trust against the Real Estate.

 

Overadvance Rate shall mean a rate equal to two percent (2%) per annum in excess
of the applicable contract rate of interest determined in accordance with
Section 8, Paragraph 8.1(a) of this Financing Agreement.

 

Overadvances shall mean the amount by which (a) the sum of all outstanding
Revolving Loans and Letters of Credit exceed (b) the Borrowing Base less
$1,500,000.00.

 

Patents shall mean all of the Company’s present and hereafter acquired patents,
patent applications, registrations, any reissues or renewals thereof, licenses,
any inventions and improvements claimed thereunder, and all general intangible,
intellectual property and patent rights with respect thereto of the Company and
all income, royalties, cash and non-cash proceeds thereof.

 

Permitted Encumbrances shall mean: (a) liens existing on the date hereof on
specific items of Equipment and other liens expressly permitted, or consented to
in writing by CIT; (b) Purchase Money Liens; (c) liens of local or state
authorities for franchise or other like Taxes, provided that the aggregate
amounts of such liens shall not exceed $100,000.00 in the aggregate at any one
time; (d) statutory liens of landlords and liens of carriers, warehousemen,
mechanics, materialmen and other like liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith, by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such liens) and with
respect to which adequate reserves or other appropriate provisions are being
maintained by the Company in accordance with GAAP; (e) deposits made (and the
liens thereon) in the ordinary course of business of the Company (including,
without limitation, security deposits for leases, indemnity bonds, surety bonds
and appeal bonds) in connection with workers’ compensation, unemployment
insurance and other types of social security benefits or to secure the
performance of tenders, bids, contracts (other than for the repayment or
guarantee of borrowed money or purchase money obligations), statutory
obligations and other similar obligations arising as a result of progress
payments under government contracts; (f) easements (including, without
limitation, reciprocal easement agreements and utility agreements),
encroachments, minor defects or irregularities in title, variation and other
restrictions, charges or encumbrances (whether or not recorded) affecting the
Real Estate, if applicable, and which in the

 

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aggregate (A) do not materially interfere with the occupation, use or enjoyment
by the Company in its business of the property so encumbered and (B) in the
reasonable business judgment of CIT do not materially and adversely affect the
value of such Real Estate; and (g) liens granted CIT by the Company; (h) liens
of judgment creditors provided such liens do not exceed, in the aggregate, at
any time, $50,000.00 (other than liens bonded or insured to the reasonable
satisfaction of CIT); (i) tax liens which are not yet due and payable or which
are being diligently contested in good faith by the Company by appropriate
proceedings, and which liens are not (x) filed on any public records, (y) other
than with respect to Real Estate, senior to the liens of CIT or (z) for Taxes
due the United States of America or any state thereof having similar priority
statutes, as further set forth in paragraph 7.6 hereof; (j) liens on the
Company’s assets to secure the Hilco Loan; and (k) liens and encumbrances and
other title exceptions noted on the title insurance policies for the Real Estate
delivered to and accepted by CIT on the Closing Date.

 

Permitted Indebtedness shall mean: (a) Indebtedness under the Hilco Loan; (b)
Indebtedness under the IRB, provided that such Indebtedness is not secured by
any assets of the Company; (c) current Indebtedness (other than Indebtedness for
borrowed money) maturing in less than one year and incurred in the ordinary
course of business for raw materials, supplies, equipment, services, Taxes or
labor; (d) the Indebtedness secured by Purchase Money Liens; (e) Subordinated
Debt; (f) Indebtedness arising under the Letters of Credit and this Financing
Agreement; (g) deferred Taxes and other expenses incurred in the ordinary course
of business; and (h) recourse Indebtedness with respect to leases and third
party financing arrangements pertaining to the Company’s products and related
matters (the “Support Obligations”) which shall not at any time exceed
$6,000,000 in the aggregate; and (i) other Indebtedness existing on the date of
execution of this Financing Agreement and listed in the most recent financial
statement delivered to CIT or otherwise disclosed to CIT in writing prior to the
Closing Date.

 

Person shall mean any individual, corporation, governmental authority,
partnership, limited liability company, unincorporated business association,
trust or other entity.

 

Pledge Agreement shall mean the Stock Pledge Agreement dated July 16, 2003 from
the Company in favor of the Lender.

 

Prepayment Premium shall: (a) mean the amount due CIT by the Company upon any
voluntary prepayment, in whole or in part, of Term Loan A and (b) be computed by
multiplying the amount so prepaid by :

 

(i) three percent (3%) if such prepayment occurs on or before the expiration of
one (1) year from the Closing Date;

 

(ii) two percent (2%) if such prepayment occurs after one (1) from the Closing
Date but before the expiration of two (2) years from the Closing Date; and

 

(iii) one percent (1%) if such prepayment occurs on or after two (2) years from
the Closing Date and prior to the third anniversary of the Closing Date.

 

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Promissory Notes shall mean Term Loan Promissory Note A and Term Loan Promissory
Note B.

 

Purchase Money Liens shall mean liens on any item of Equipment acquired after
the date of this Financing Agreement provided that (a) each such lien shall
attach only to the property to be acquired, (b) a description of the Equipment
so acquired is furnished to CIT, and (c) the debt incurred in connection with
such acquisitions shall not exceed, in the aggregate, $300,000.00 in any Fiscal
Year.

 

Real Estate shall mean the Company’s fee and/or leasehold interests in the real
property, including any such real property which has been, or will be,
encumbered, mortgaged, pledged or assigned to CIT or its designee.

 

Revolving Line of Credit shall mean the aggregate commitment of CIT to make
loans and advances pursuant to Section 3 of this Financing Agreement and issue
Letters of Credit Guaranties pursuant to Section 5 hereof to the Company, in the
aggregate amount of $14,000,000.00.

 

Revolving Loan Account shall mean the account on CIT’s books, in the Company’s
name, in which the Company will be charged with all Obligations under this
Financing Agreement.

 

Revolving Loans shall mean the loans and advances made, from time to time, to or
for the account of the Company by CIT pursuant to Section 3 of this Financing
Agreement.

 

Standby Letter of Credit Sub-Line shall mean the commitment of CIT to assist the
Company in obtaining standby Letters of Credit, pursuant to Section 5 hereof, in
an aggregate amount of $4,000,000.

 

Support Obligations shall have the meaning given to such term in the definition
of “Permitted Indebtedness.”

 

Subordinated Debt shall mean the debt due a Subordinating Creditor (and the
note(s) evidencing such) which has been subordinated, by a Subordination
Agreement, to the prior payment and satisfaction of the Obligations of the
Company to CIT.

 

Subordinating Creditor shall mean UM Holdings, Ltd. and any other party
hereafter executing a Subordination Agreement.

 

Subordination Agreement shall mean the agreement (in form and substance
satisfactory to CIT) among the Company, a Subordinating Creditor and CIT
pursuant to which Subordinated Debt is subordinated to the prior payment and
satisfaction of the Company’s Obligations to CIT.

 

Surplus Cash shall mean for any Fiscal Year (a) the sum of (i) EBIT and (ii)
depreciation less (b) the sum of (i) all interest obligations paid or due by the
Company, (ii) the

 

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amount of principal repaid CIT on the Term Loans and the amount of any principal
repaid to Hilco in accordance with the terms of the Hilco Loan, (iii) unfunded
Capital Expenditures actually incurred, and (iv) all federal, state and local
tax obligations of the Company.

 

Taxes shall mean all federal, state, municipal and other governmental taxes,
levies, charges, claims and assessments which are or may be due by the Company
with respect to its business, operations, Collateral or otherwise.

 

Term Loan Promissory Note A shall mean the promissory note in the form of
Exhibit A hereto executed by the Company to evidence Term Loan A made by CIT
under Section 4 hereof.

 

Term Loan Promissory Note B shall mean the promissory note in the form of
Exhibit B hereto executed by the Company to evidence Term Loan B made by CIT
under Section 4 hereof.

 

Term Loans shall mean the term loans in the respective principal amounts of
$2,000,000.00 (herein “Term Loan A”) and $3,000,000.00 (herein “Term Loan B”)
made by CIT pursuant to, and repayable in accordance with, the provisions of
Section 4 of this Financing Agreement.

 

Total Assets shall mean total assets determined in accordance with GAAP, on a
basis consistent with the latest audited financial statements of the Company.

 

Total Liabilities shall mean total liabilities determined in accordance with
GAAP, on a basis consistent with the latest audited financial statements of the
Company.

 

Trade Accounts Receivable shall mean that portion of the Company’s Accounts
which arises from the sale of Inventory or the rendition of services in the
ordinary course of the Company’s business.

 

Trademarks shall mean all present and hereafter acquired trademarks, trademark
registrations, recordings, applications, tradenames, trade styles, service
marks, prints and labels (on which any of the foregoing may appear), licenses,
reissues, renewals, and any other intellectual property and trademark rights
pertaining to any of the foregoing, together with the goodwill associated
therewith, and all cash and non-cash proceeds thereof.

 

Transfer shall mean any conveyance, transfer, pledge, assignment, hypothecation,
refinancing, mortgage, encumbrance, gift, sale, lease (including any amendment,
extension, modification, waiver or renewal thereof), lien, or other disposition,
whether direct or indirect, legal or beneficial, by law or otherwise.

 

UCC shall mean the Uniform Commercial Code as in effect from time to time in the
state of New York.

 

UM Holdings Letter of Credit shall mean the letter of credit issued by Wachovia
Bank, National Association in favor of CIT on the application of UM Holdings,
Ltd. in the face amount of $1,500,000.00.

 

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Working Capital shall mean Current Assets in excess of Current Liabilities.

 

Working Day shall mean any Business Day on which dealings in foreign currencies
and exchanges between banks may be transacted.

 

SECTION 2. Conditions Precedent

 

2.1 The obligation of CIT to make the initial loans hereunder is subject to the
satisfaction of, extension of or waiver of, on or prior to, the Closing Date,
the following conditions precedent:

 

(a) Lien Searches - CIT shall have received tax, judgment and Uniform Commercial
Code searches satisfactory to CIT for all locations presently occupied or used
by the Company.

 

(b) Casualty Insurance - The Company shall have delivered to CIT evidence
satisfactory to CIT that casualty insurance policies listing CIT as loss payee
or mortgagee, as the case may be, are in full force and effect, all as set forth
in Paragraph 7.5 of Section 7 of this Financing Agreement.

 

(c) UCC Filings - Any financing statements required to be filed in order to
create, in favor of CIT, a first perfected security interest in the Collateral,
subject only to the Permitted Encumbrances, shall have been properly filed in
each office in each jurisdiction required in order to create in favor of CIT a
perfected lien on the Collateral. CIT shall have received acknowledgment copies
of all such filings (or, in lieu thereof, CIT shall have received other evidence
satisfactory to CIT that all such filings have been made) and CIT shall have
received evidence that all necessary filing fees and all taxes or other expenses
related to such filings have been paid in full.

 

(d) Board Resolution - CIT shall have received a copy of the resolutions of the
Board of Directors or Executive Committee of each of the Company and the
Guarantors (as the case may be) authorizing the execution, delivery and
performance of (i) this Financing Agreement, (ii) the Guaranties, and (iii) any
related agreements, in each case certified by the Secretary, Assistant Secretary
or other senior authorized officer of the Company and the Guarantors (as the
case may be) as of the date hereof, together with a certificate of the Secretary
or Assistant Secretary or other senior authorized officer of the Company and the
Guarantors (as the case may be) as to the incumbency and signature of the
officers of the Company and/or the Guarantors executing such Loan Documents and
any certificate or other documents to be delivered by them pursuant hereto,
together with evidence of the incumbency of such Secretary or Assistant
Secretary or other senior authorized officer.

 

(e) Corporate Organization - CIT shall have received (i) a copy of the
Certificate of Incorporation of the Company and the Guarantors certified by the
Secretary of State of the state of its incorporation, and (ii) a copy of the
By-Laws of the Company

 

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certified by the Secretary or Assistant Secretary or other senior authorized
officer thereof, all as amended through the date hereof.

 

(f) Officer’s Certificate - CIT shall have received an executed Officer’s
Certificate of the Company, satisfactory in form and substance to CIT,
certifying that (i) the representations and warranties contained herein are true
and correct in all material respects on and as of the Closing Date; (ii) the
Company is in compliance with all of the terms and provisions set forth herein;
and (iii) no Default or Event of Default has occurred

 

(g) Opinions - Counsel for the Company and the Guarantors shall have delivered
to CIT opinions satisfactory to CIT opining, inter alia, that, subject to the
(i) filing, priority and remedies provisions of the Uniform Commercial Code,
(ii) the provisions of the Bankruptcy Code, insolvency statutes or other like
laws, (iii) the equity powers of a court of law and (iv) such other matters as
may be agreed upon with CIT: (x) this Financing Agreement, the Guaranty, the
Pledge Agreement and all other Loan Documents of the Company and the Guarantors
are (A) valid, binding and enforceable according to their terms, (B) are duly
authorized, executed and delivered, and (C) do not violate any terms,
provisions, representations or covenants in the charter or by-laws of the
Company or the Guarantors or, to the best knowledge of such counsel, of any loan
agreement, mortgage, deed of trust, note, security or pledge agreement or
indenture to which the Company or the Guarantors are signatories or by which the
Company or the Guarantors or their assets are bound; and (y) the provisions of
all federal and state securities laws, Bulk Sales Law and the Hart-Scott-Rodino
Anti-Trust Improvements Act have been fully complied with or that compliance is
not legally required and the reasons supporting such non-compliance. In
addition, counsel to the Subordinating Creditor(s) shall have delivered an
opinion satisfactory to CIT that the Subordination Agreement(s) have been duly
authorized, executed and delivered and constitute valid and binding agreements
enforceable against such Subordinating Creditor(s) in accordance with the terms
thereof.

 

(h) Absence of Default - No Default or Event of Default shall have occurred and
no material adverse change shall have occurred in the financial condition,
business, prospects, profits, operations or assets of the Company or the
Company’s subsidiaries.

 

(i) Legal Restraints/Litigation - As of the Closing Date, there shall be no (x)
litigation, investigation or proceeding (judicial or administrative) pending or
threatened against the Company or the Guarantors or their assets, by any agency,
division or department of any county, city, state or federal government arising
out of this Financing Agreement, (y) injunction, writ or restraining order
restraining or prohibiting the financing arrangements contemplated under this
Financing Agreement or (z) suit, action, investigation or proceeding (judicial
or administrative) pending against the Company or the Guarantors or their
assets, which, in the opinion of CIT, if adversely determined, could have a
material adverse effect on the business, operation, assets, financial condition
or Collateral of the Company and/or the Guarantors.

 

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(j) Guaranties - The Guarantors shall have executed and delivered to CIT
guaranties, in form acceptable to CIT, guaranteeing all present and future
Obligations of the Company.

 

(k) Subordination Agreement - The Subordinating Creditor shall have executed and
delivered to CIT a Subordination Agreement, in form and substance satisfactory
to CIT, subordinating the debt due the Subordinating Creditor by the Company to
the prior payment and satisfaction of the Obligations of the Company.

 

(l) Cash Budget Projections - CIT shall have received, reviewed and been
satisfied with a twelve (12) month cash budget projection prepared by the
Company on the form provided by CIT.

 

(m) Pledge Agreement - The Company shall (i) execute and deliver to CIT the
Pledge Agreement pledging to CIT as additional collateral for the Obligations of
the Company not less than 100% of the stock each Guarantor and (ii) deliver to
CIT the stock certificates evidencing such stock together with duly executed
stock powers (undated and in-blank) with respect thereto.

 

(n) Additional Documents - The Company shall have executed and delivered to CIT
all Loan Documents necessary to consummate the lending arrangement contemplated
between the Company and CIT.

 

(o) Disbursement Authorization - The Company shall have delivered to CIT all
information necessary for CIT to issue wire transfer instructions on behalf of
the Company for the initial and subsequent loans and/or advances to be made
under this Financing Agreement including, but not limited to, disbursement
authorizations in form acceptable to CIT.

 

(p) Examination & Verification - CIT shall have completed, to its
satisfaction  , an examination and verification of the Accounts, Inventory,
books and records of the Company which examination shall indicate that, after
giving effect to all Revolving Loans, advances and extensions of credit to be
made at closing, the Company shall have an opening additional Availability of at
least $4,500,000.00, as evidenced by a Borrowing Base certificate delivered by
the Company to CIT as of the Closing Date, all as more fully required by the
Commitment Letter. It is understood that such requirement contemplates that all
debts and obligations are current, and that all payables are being handled in
the normal course of the Company’s business and consistent with its past
practice.

 

(q) Depository Accounts - The Company shall have established a system of lockbox
and bank accounts with respect to the collection of Accounts and the deposit of
proceeds of Collateral as shall be acceptable to CIT in all respects. Such
accounts shall be subject to three party agreements (between the Company, CIT
and the depository bank), which shall be in form and substance satisfactory to
CIT.

 

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(r) Existing Revolving Credit Agreement - The Company’s existing credit
agreement with Wachovia Bank, National Association (the “Existing Lender”) shall
be (x) terminated, (y) all loans and obligations of the Company and/or the
Guarantors thereunder shall be paid or satisfied in full, including through
utilization of the proceeds of the initial Revolving Loans and Term Loans to be
made under this Financing Agreement (except the Company’s reimbursement
obligation with respect to the IRB Letter of Credit) and (z) all liens or
security interests in favor of the Existing Lender on the Collateral and
otherwise in connection therewith shall be terminated and/or released upon such
payment; provided, however, the IRB Letter of Credit shall remain in place so
long as the obligations of the Company with respect thereto are not secured by
any assets of the Company or any subsidiary of the Company.

 

(s) Mortgages/Deeds of Trust - The Company shall have executed and delivered to
CIT, an agent of CIT or to a title insurance company acceptable to CIT, such
mortgages and/or deeds of trust as CIT may reasonably require to obtain second
liens, subordinate to the liens granted by the Company to Hilco, on the Real
Estate owned by the Company.

 

(t) Title Insurance Policies - CIT shall have received, in respect of each
mortgage or deed of trust, a mortgagee’s title policy or marked-up unconditional
binder for such insurance. Each such policy shall (i) be in an amount reasonably
satisfactory to CIT; (ii) insure that the mortgage or deed of trust insured
thereby creates a valid second lien on the property covered by such mortgage or
deed of trust, free and clear of all defects and encumbrances except those
acceptable to CIT; (iii) name CIT as the insured thereunder; and (iv) contain
such available endorsements and effective coverage as CIT may reasonably
request, including, without limitation, the revolving line of credit
endorsement. CIT shall also have received evidence that all premiums in respect
of such policies have been paid and that all charges for mortgage recording
taxes, if any, shall have been paid.

 

(u) Surveys - CIT and the title insurance company issuing each policy referred
to in the immediately preceding paragraph (each, a “Title Insurance Company”)
shall have received maps or plats of a perimeter or boundary of the site of each
of the properties covered by the mortgages or deeds of trust, dated a date
satisfactory to CIT and the relevant Title Insurance Company prepared by an
independent professional licensed land surveyor satisfactory to CIT and the
relevant Title Insurance Company, which maps or plats and the surveys on which
they are based shall be made in accordance with the Minimum Standard Detail
Requirements for Land Title Surveys jointly established and adopted by the
American Land Title Association and the American Congress on Surveying and
Mapping; and, without limiting the generality of the foregoing, there shall be
surveyed and shown on the maps or plats or surveys the following: (i) the
locations on such sites of all the buildings, structures and other improvements
and the established building setback lines insofar as the foregoing affect the
perimeter or boundary of such property; (ii) the lines of streets abutting the
sites and width thereof; (iii) all access and other easements appurtenant to the
sites or necessary or desirable to use the sites; (iv) all roadways, paths,
driveways, easements, encroachments and overhanging projections and

 

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similar encumbrances affecting the sites, if recorded, apparent from a physical
inspection of the sites or otherwise known to the surveyor; (v) any
encroachments on any adjoining property by the building, structures and
improvements on the sites; and (vi) if the site is designated as being on a
filed map, a legend relating the survey to said map. Further, the survey shall
(x) be certified to CIT, the Company, Hilco and the Title Insurance Company and
(y) contain a legend reciting as to whether or not the site is located in a
flood zone.

 

(v) Environmental Report - CIT shall have received environmental audit reports
on (i) all of the Company’s leasehold and fee interests, and (ii) the Company’s
waste disposal practices. The reports must (x) be satisfactory to CIT and (y)
not disclose or indicate any material liability (real or potential) stemming
from the Company’s premises, its operations, its waste disposal practices or
waste disposal sites used by Company.

 

(w) UM Holdings Letter of Credit – The UM Holdings Letter of Credit shall have
been delivered to CIT and shall be in form and substance satisfactory to CIT.

 

(x) Hilco Loan – The Company shall have received the proceeds of the Hilco Loan
and all documentation with respect thereto shall be satisfactory to CIT.

 

(y) Hilco Intercreditor Agreement – Hilco and CIT shall have entered into the
Hilco Intercreditor Agreement in form and substance satisfactory to CIT.

 

(z) Opening Balance Sheet – CIT shall have received an opening balance sheet of
the Company as of the Closing Date which shall be in form and substance
satisfactory to CIT.

 

(aa) Warrants – CIT shall have received documentation satisfactory to it
regarding the granting to CIT of warrants to purchase up to two percent (2.0%)
of the outstanding shares of voting common stock of the Company for an amount
based on the average of the prior 30 days’ market closing price. The terms and
provisions of such warrants (including, without limitation, anti-dilution,
registration and put/call rights) shall be mutually agreed upon between CIT and
the Company.

 

(bb) Additional Collateral for IRB Letter of Credit – UM Holdings, Ltd. shall
have provided additional collateral for the IRB Letter of Credit and CIT shall
be satisfied with the terms and provisions relating to such additional
collateral.

 

(cc) Ex-Im Bank Guarantee – CIT shall have received the Ex-Im Bank Guarantee
duly executed by Ex-Im Bank on terms acceptable to CIT and the Company shall
have entered into the Borrower Agreement with Ex-Im Bank in accordance with the
Ex-Im Bank Guarantee.

 

(dd) Schedules - The Company or its counsel shall provide CIT with schedules of:
(a) any of the Company’s and its subsidiaries (i) Trademarks, (ii) Patents, and
(iii)

 

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Copyrights, as applicable and all in such detail as to provide appropriate
recording information with respect thereto, (b) any tradenames, (c) monthly
rental payments for any leased premises or any other premises where any
Collateral may be stored or processed, and (d) Permitted Liens, all of the
foregoing in form and substance satisfactory to CIT.

 

(ee) Commitment Letter - The Company shall have fully complied, to the
reasonable satisfaction of CIT, with all of the terms and conditions of the
Commitment Letter.

 

Upon the execution of this Financing Agreement and the initial disbursement of
loans hereunder, all of the above Conditions Precedent shall have been deemed
satisfied except as otherwise set forth hereinabove or as the Company and CIT
shall otherwise agree in writing.

 

2.2 Conditions to Each Extension of Credit

 

Except to the extent expressly set forth in this Financing Agreement, the
agreement of CIT to make any extension of credit requested to be made by it to
the Company on any date (including without limitation, the initial extension of
credit) is subject to the satisfaction of the following conditions precedent:

 

(a) Representations and Warranties - Each of the representations and warranties
made by the Company in or pursuant to this Financing Agreement shall be true and
correct in all material respects on and as of such date as if made on and as of
such date.

 

(b) No Default - No Default or Event of Default shall have occurred and be
continuing on such date or after giving effect to the extension of credit
requested to be made on such date.

 

(c) Credit Limits/Availability - Except as may be otherwise agreed to from time
to time by CIT and the Company in writing, after giving effect to the extension
of credit requested to be made by the Company on such date, none of the limits
set forth in Section 3.1 or 5.1 shall have been exceeded and Availability shall
not be less than $1,500,000.00.

 

Each borrowing by the Company hereunder shall constitute a representation and
warranty by the Company as of the date of such loan or advance that each of the
representations, warranties and covenants contained in the Financing Agreement
have been satisfied and are true and correct, except as the Company and CIT
shall otherwise agree herein or in a separate writing.

 

SECTION 3. Revolving Loans

 

3.1 CIT agrees, subject to the terms and conditions of this Financing Agreement,
from time to time (but subject to CIT’s right to make Overadvances), to make
loans and advances to the Company on a revolving basis (i.e. subject to the
limitations set forth herein, the Company may borrow, repay and re-borrow
Revolving Loans) in the following amounts: (a) up to the

 

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lesser of (i) $9,000,000 or (ii) the Domestic Borrowing Base less Availability
Reserves; and (b) up to the lesser of (i) $5,000,000 or (ii) the Foreign
Borrowing Base less Availability Reserves; provided, however, CIT shall be under
no obligation to make any Revolving Loan if Availability is less than $1,500,000
after the making of any such Revolving Loan. All requests for loans and advances
must be received by an officer of CIT no later than (i) 2:00 p.m., New York
time, of the Business Day on which any such Chase Bank Rate Loans and advances
are required or (ii) three Business Days prior to any requested LIBOR Loan.
Should CIT for any reason honor requests for Overadvances, any such Overadvances
shall be made in CIT’s sole discretion and subject to any additional terms CIT
deems necessary.

 

3.2 In furtherance of the continuing assignment and security interest in the
Company’s Accounts and Inventory, the Company will, upon the creation of
Accounts and purchase or acquisition of Inventory, execute and deliver to CIT in
such form and manner as CIT may reasonably require, solely for CIT’s convenience
in maintaining records of Collateral, such confirmatory schedules of Accounts
and Inventory as CIT may reasonably request, including, without limitation,
weekly schedules of Accounts and monthly schedules of Inventory, all in form and
substance satisfactory to CIT, and such other appropriate reports designating,
identifying and describing the Accounts and Inventory as CIT may reasonably
request, and provided further that CIT may request any such information more
frequently, from time to time, upon its reasonable prior request. In addition,
upon CIT’s request, the Company shall provide CIT with copies of agreements
with, or purchase orders from, the Company’s customers, and copies of invoices
to customers, proof of shipment or delivery, access to its computers, electronic
media and software programs associated therewith (including any electronic
records, contracts and signatures) and such other documentation and information
relating to said Accounts and other Collateral as CIT may reasonably require.
Failure to provide CIT with any of the foregoing shall in no way affect,
diminish, modify or otherwise limit the security interests granted herein. The
Company hereby authorizes CIT to regard the Company’s printed name or rubber
stamp signature on assignment schedules or invoices as the equivalent of a
manual signature by one of the Company’s authorized officers or agents.

 

3.3 The Company hereby represents and warrants that: each Trade Account
Receivable is based on an actual and bona fide sale and delivery of Inventory or
rendition of services to customers, made by the Company in the ordinary course
of its business; the Inventory being sold, and the Trade Accounts Receivable
created, are the exclusive property of the Company and are not and shall not be
subject to any lien, consignment arrangement, encumbrance, security interest or
financing statement whatsoever, other than the Permitted Encumbrances; the
invoices evidencing such Trade Accounts Receivable are in the name of the
Company; and the customers of the Company have accepted the Inventory or
services, owe and are obligated to pay the full amounts stated in the invoices
according to their terms, without dispute, offset, defense, counterclaim or
contra, except for disputes and other matters arising in the ordinary course of
business with respect to which the Company has complied with the notification
requirements of Paragraph 3.5 of this Section 3. The Company confirms to CIT
that any and all Taxes or fees relating to its business, its sales, the Accounts
or Inventory relating thereto, are its sole responsibility and that same will be
paid by the Company when due, subject to Paragraph 7.6 of Section 7 of this
Financing Agreement, and that none of said Taxes or fees represent a lien on or
claim against the Accounts. The Company hereby further represents and

 

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warrants that it shall not acquire any Inventory on a consignment basis, nor
co-mingle its Inventory with any of its customers or any other person, including
pursuant to any bill and hold sale or otherwise, and that its Inventory is
marketable to its customers in the ordinary course of business of the Company,
except as it may otherwise report in writing to CIT pursuant to Paragraph 3.5
hereof from time to time. The Company also warrants and represents that it is a
duly and validly existing corporation and is qualified in all states where the
failure to so qualify would have an adverse effect on the business of the
Company or the ability of the Company to enforce collection of Accounts due from
customers residing in that state. The Company agrees to maintain such books and
records regarding Accounts and Inventory as CIT may reasonably require and
agrees that the books and records of the Company will reflect CIT’s interest in
the Accounts and Inventory. All of the books and records of the Company will be
available to CIT at normal business hours, including any records handled or
maintained for the Company by any other company or entity.

 

3.4 (a) Until CIT has advised the Company to the contrary after the occurrence
of an Event of Default, the Company, at its expense, will enforce, collect and
receive all amounts owing on the Accounts in the ordinary course of its business
and any proceeds it so receives shall be subject to the terms hereof, and held
on behalf of and in trust for CIT. Such privilege shall terminate at the
election of CIT, upon the occurrence of an Event of Default. Any checks, cash,
credit card sales and receipts, notes or other instruments or property received
by the Company with respect to any Collateral, including Accounts, shall be held
by the Company in trust for CIT, separate from the Company’s own property and
funds, and promptly turned over to CIT with proper assignments or endorsements
by deposit to the Depository Accounts. The Company shall: (i) indicate on all of
its invoices that funds should be delivered to and deposited in a Depository
Account; (ii) direct all of its account debtors to deposit any and all proceeds
of Collateral into the Depository Accounts; (iii) irrevocably authorize and
direct any banks which maintain the Company’s initial receipt of cash, checks
and other items to promptly wire transfer all available funds to a Depository
Account; and (iv) advise all such banks of CIT’s security interest in such
funds. The Company shall provide CIT with prior written notice of any and all
deposit accounts opened or to be opened subsequent to the Closing Date. Subject
to Collection Days, all amounts received by CIT in payment of Accounts will be
credited to the Revolving Loan Account when CIT is advised by its bank of its
receipt of “collected funds” at CIT’s bank account in New York, New York on the
Business Day of such advise if advised no later than 1:00 p.m. EST or on the
next succeeding Business Day if so advised after 1:00 PM EST. No checks, drafts
or other instrument received by CIT shall constitute final payment to CIT unless
and until such instruments have actually been collected.

 

(b) The Company shall establish and maintain, in its name and at its expense,
deposit accounts with such banks as are acceptable to CIT (the “Blocked
Accounts”) into which the Company shall promptly cause to be deposited: (i) all
proceeds of Collateral received by the Company, including all amounts payable to
the Company from credit card issuers and credit card processors, and (ii) all
amounts on deposit in deposit accounts used by the Company at each of its
locations, all as further provided in Paragraph 3.4(a) above. The banks at which
the Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to CIT (the “Blocked Account Agreements”), providing that
all cash, checks and items received or deposited in the Blocked Accounts are the
property of CIT, that the depository bank has no lien

 

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upon, or right of set off against, the Blocked Accounts and any cash, checks,
items, wires or other funds from time to time on deposit therein, except as
otherwise provided in the Blocked Account Agreements, and that automatically, on
a daily basis the depository bank will wire, or otherwise transfer, in
immediately available funds, all funds received or deposited into the Blocked
Accounts to such bank account as CIT may from time to time designate for such
purpose. The Company hereby confirms and agrees that all amounts deposited in
such Blocked Accounts and any other funds received and collected by CIT, whether
as proceeds of Inventory or other Collateral or otherwise, shall be the property
of CIT.

 

3.5 The Company agrees to notify CIT: (a) of any matters affecting more than
$100,000 of the value, enforceability or collectibility of any Account and of
all customer disputes, offsets, defenses, counterclaims, returns, rejections and
all reclaimed or repossessed merchandise or goods (in each case in excess of
$100,000), and of any adverse effect in more than $100,000 of the value of its
Inventory, in its weekly and monthly collateral reports (as applicable) provided
to CIT hereunder, in such detail and format as CIT may reasonably require from
time to time and (b) promptly of any such matters which are material, as a
whole, to the Accounts and/or the Inventory. The Company agrees to issue credit
memoranda promptly (with duplicates to CIT upon request after the occurrence of
an Event of Default) upon accepting returns or granting allowances. Upon the
occurrence of an Event of Default (which is not waived in writing by CIT) and on
notice from CIT, the Company agrees that all returned, reclaimed or repossessed
merchandise or goods shall be set aside by the Company, marked with CIT’s name
(as secured party) and held by the Company for CIT’s account.

 

3.6 CIT shall maintain a Revolving Loan Account on its books in which the
Company will be charged with all loans and advances made by CIT to it or for its
account, and with any other Obligations, including any and all costs, expenses
and reasonable attorney’s fees which CIT may incur in connection with the
exercise by or for CIT of any of the rights or powers herein conferred upon CIT,
or in the prosecution or defense of any action or proceeding to enforce or
protect any rights of CIT in connection with this Financing Agreement, the other
Loan Documents or the Collateral assigned hereunder, or any Obligations owing by
the Company. The Company will be credited with all amounts received by CIT from
the Company or from others for the Company’s account, including, as above set
forth, all amounts received by CIT in payment of Accounts, and such amounts will
be applied to payment of the Obligations as set forth herein. In no event shall
prior recourse to any Accounts or other security granted to or by the Company be
a prerequisite to CIT’s right to demand payment of any Obligation. Further, it
is understood that CIT shall have no obligation whatsoever to perform in any
respect any of the Company’s contracts or obligations relating to the Accounts.

 

3.7 After the end of each month, CIT shall promptly send the Company a statement
showing the accounting for the charges, loans, advances and other transactions
occurring between CIT and the Company during that month. The monthly statements
shall be deemed correct and binding upon the Company and shall constitute an
account stated between the Company and CIT unless CIT receives a written
statement of the exceptions within thirty (30) days of the date of the monthly
statement.

 

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3.8 In the event that (a) the sum of (i) the outstanding balance of Revolving
Loans and (ii) outstanding balance of Letters of Credit exceeds (b) the lesser
of (x) the Borrowing Base less $1,500,000.00 or (y) the Revolving Line of
Credit, any such nonconsensual Overadvance shall be due and payable to CIT
immediately upon CIT’s demand therefor.

 

SECTION 4. Term Loans

 

TERM LOAN A

 

4.1 The Company hereby agrees to execute and deliver to CIT Term Loan Promissory
Note A, in the form of Exhibit A attached hereto, to evidence Term Loan A to be
extended by CIT.

 

4.2 Upon receipt of such Term Loan Promissory Note A, CIT hereby agrees to
extend to the Company Term Loan A in the principal amount of $2,000,000.00.

 

4.3 The principal amount of Term Loan A shall be repaid to CIT by the Company
by: (i) eleven (11) equal quarterly principal installments of $100,000.00 each,
followed by (ii) one (1) installment of $900,000.00, whereof the first
installment shall be due and payable on September 30, 2003 and the subsequent
installments shall be due and payable on the last day of each calendar quarter
thereafter until paid in full.

 

TERM LOAN B

 

4.4 The Company hereby agrees to execute and deliver to CIT Term Loan Promissory
Note B, in the form of Exhibit B attached hereto, to evidence Term Loan B to be
extended by CIT.

 

4.5 Upon receipt of such Term Loan Promissory Note B, CIT hereby agrees to
extend to the Company Term Loan B in the principal amount of $3,000,000.00.

 

4.6 The principal amount of Term Loan B shall be repaid CIT by the Company by:
(i) twelve (12) equal quarterly principal installments of $250,000.00 each,
whereof the first installment shall be due and payable on September 30, 2003 and
the subsequent installments shall be due and payable on the last day of each
calendar quarter thereafter until paid in full.

 

ADDITIONAL PROVISIONS FOR TERM LOANS

 

4.7 In the event this Financing Agreement or the Line of Credit is terminated by
either CIT or the Company for any reason whatsoever, the Term Loans shall become
due and payable on the effective date of such termination notwithstanding any
provision to the contrary in the Promissory Notes or this Financing Agreement.

 

4.8 The Company may prepay at any time, at its option, in whole or in part, the
Term Loans, provided that on each such prepayment, the Company shall pay: (a)
accrued interest on the principal so prepaid to the date of such prepayment and
(b)the Prepayment Premium, if any.

 

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4.9 In the event the Company has Surplus Cash in any Fiscal Year beginning with
the Fiscal Year ending December 31, 2003, the Company must make a Mandatory
Prepayment of the Term Loans within ninety (90) days of the end of any such
Fiscal Year by an amount equal to twenty-five (25%) of said Surplus Cash. Such
prepayment shall be applied first to Term Loan B and then to Term Loan A.

 

4.10 Each prepayment (whether voluntary or mandatory) shall be applied to the
then last maturing installments of principal of the applicable Term Loan.

 

4.11 The Company hereby authorizes CIT to charge its Revolving Loan Account with
the amount of all amounts due under this Section 4 as such amounts become due.
The Company confirms that any charges which CIT may so make to its Revolving
Loan Account as herein provided will be made as an accommodation to the Company
and solely at CIT’s discretion.

 

SECTION 5. Letters of Credit

 

In order to assist the Company in establishing or opening Letters of Credit with
an Issuing Bank, the Company has requested CIT to join in the applications for
such Letters of Credit, and/or guarantee payment or performance of such Letters
of Credit and any drafts or acceptances thereunder through the issuance of the
Letters of Credit Guaranty, thereby lending CIT’s credit to the Company and CIT
has agreed to do so. These arrangements shall be handled by CIT subject to the
terms and conditions set forth below.

 

5.1 CIT shall assist the Company in obtaining standby Letter(s) of Credit in an
amount not to exceed the outstanding amount of the Standby Letter of Credit
Sub-Line and CIT shall assist the Company in obtaining documentary Letter(s) of
Credit in an amount not to exceed the outstanding amount of the Documentary
Letter of Credit Sub-Line; provided, however, CIT shall be under no obligation
to assist the Company in obtaining any Letter of Credit if Availability is less
than $1,500,000 after the obtaining of any such Letter of Credit. CIT’s
assistance for amounts in excess of the limitation set forth herein shall at all
times and in all respects be in CIT’s sole discretion. It is understood that the
term, form and purpose of each Letter of Credit and all documentation in
connection therewith, and any amendments, modifications or extensions thereof,
must be mutually acceptable to CIT, the Issuing Bank and the Company, provided
that Letters of Credit shall not be used for the purchase of domestic Inventory
or to secure present or future debt of domestic Inventory suppliers. Any and all
outstanding Letters of Credit shall be reserved dollar for dollar from
Availability as an Availability Reserve.

 

5.2 CIT shall have the right, without notice to the Company, to charge the
Company’s Revolving Loan Account with the amount of any and all indebtedness,
liability or obligation of any kind incurred by CIT under the Letters of Credit
Guaranty at the earlier of (a) payment by CIT under the Letters of Credit
Guaranty, or (b) the occurrence of an Event of Default. Any amount charged to
Company’s Revolving Loan Account shall be deemed a Revolving Loan hereunder and
shall incur interest at the rate provided in Paragraph 8.1 of Section 8 of this
Financing Agreement.

 

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5.3 The Company unconditionally indemnifies CIT and holds CIT harmless from any
and all loss, claim or liability incurred by CIT arising from any transactions
or occurrences relating to Letters of Credit established or opened for the
Company’s account, the collateral relating thereto and any drafts or acceptances
thereunder, and all Obligations thereunder, including any such loss or claim due
to any errors, omissions, negligence, misconduct or action taken by any Issuing
Bank, other than for any such loss, claim or liability arising out of the gross
negligence or willful misconduct by CIT under the Letters of Credit Guaranty.
This indemnity shall survive termination of this Financing Agreement. The
Company agrees that any charges incurred by CIT for the Company account by the
Issuing Bank shall be conclusive on CIT and may be charged to the Company’s
Revolving Loan Account.

 

5.4 CIT shall not be responsible for: the existence, character, quality,
quantity, condition, packing, value or delivery of the goods purporting to be
represented by any documents; any difference or variation in the character,
quality, quantity, condition, packing, value or delivery of the goods from that
expressed in the documents; the validity, sufficiency or genuineness of any
documents or of any endorsements thereon, even if such documents should in fact
prove to be in any or all respects invalid, insufficient, fraudulent or forged;
the time, place, manner or order in which shipment is made; partial or
incomplete shipment, or failure or omission to ship any or all of the goods
referred to in the Letters of Credit or documents; any deviation from
instructions; delay, default, or fraud by the shipper and/or anyone else in
connection with the goods or the shipping thereof; or any breach of contract
between the shipper or vendors and the Company.

 

5.5 The Company agrees that any action taken by CIT, if taken in good faith, or
any action taken by any Issuing Bank, under or in connection with the Letters of
Credit, the guarantees, the drafts or acceptances, or the Collateral, shall be
binding on the Company and shall not put CIT in any resulting liability to the
Company. In furtherance thereof, CIT shall have the full right and authority to
clear and resolve any questions of non-compliance of documents; to give any
instructions as to acceptance or rejection of any documents or goods; to execute
any and all steamship or airways guaranties (and applications therefore),
indemnities or delivery orders; to grant any extensions of the maturity of, time
of payment for, or time of presentation of, any drafts, acceptances, or
documents; and to agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the
applications, Letters of Credit, drafts or acceptances; all in CIT’s sole name,
and the Issuing Bank shall be entitled to comply with and honor any and all such
documents or instruments executed by or received solely from CIT, all without
any notice to or any consent from the Company. Notwithstanding any prior course
of conduct or dealing with respect to the foregoing including amendments and
non-compliance with documents and/or the Company’s instructions with respect
thereto, CIT may exercise its rights hereunder in its sole and reasonable
business judgement. In addition, without CIT’s express consent and endorsement
in writing, the Company agrees: (a) not to execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders; to grant any
extensions of the maturity of, time of payment for, or time of presentation of,
any drafts, acceptances or documents; or to agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letters of Credit, drafts or acceptances;
and (b) after the occurrence of an

 

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Event of Default which is not cured within any applicable grace period, if any,
or waived by CIT, not to (i) clear and resolve any questions of non-compliance
of documents, or (ii) give any instructions as to acceptances or rejection of
any documents or goods.

 

5.6 The Company agrees that any necessary import, export or other licenses or
certificates for the import or handling of the Collateral will have been
promptly procured; all foreign and domestic governmental laws and regulations in
regard to the shipment and importation of the Collateral, or the financing
thereof will have been promptly and fully complied with; and any certificates in
that regard that CIT may at any time request will be promptly furnished. In this
connection, the Company warrants and represents that all shipments made under
any such Letters of Credit are in accordance with the laws and regulations of
the countries in which the shipments originate and terminate, and are not
prohibited by any such laws and regulations. The Company assumes all risk,
liability and responsibility for, and agrees to pay and discharge, all present
and future local, state, federal or foreign Taxes, duties, or levies. Any
embargo, restriction, laws, customs or regulations of any country, state, city,
or other political subdivision, where the Collateral is or may be located, or
wherein payments are to be made, or wherein drafts may be drawn, negotiated,
accepted, or paid, shall be solely the Company’s risk, liability and
responsibility.

 

5.7 Upon any payments made to the Issuing Bank under the Letter of Credit
Guaranty, CIT shall acquire by subrogation, any rights, remedies, duties or
obligations granted or undertaken by the Company to the Issuing Bank in any
application for Letters of Credit, any standing agreement relating to Letters of
Credit or otherwise, all of which shall be deemed to have been granted to CIT
and apply in all respects to CIT and shall be in addition to any rights,
remedies, duties or obligations contained herein.

 

SECTION 6. Collateral

 

6.1 As security for the prompt payment in full of all Obligations, the Company
hereby pledges and grants to CIT a continuing general lien upon, and security
interest in, all of its assets including, without limitation, all of its:

 

(a) Accounts;

 

(b) Inventory;

 

(c) General Intangibles;

 

(d) Documents of Title;

 

(e) Other Collateral;

 

(f) Investment Property;

 

(g) Equipment; and

 

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(h) Real Estate.

 

Notwithstanding anything to the contrary herein or in the Ex-Im Bank Documents,
if Ex-Im Bank obtains any rights (whether arising directly or indirectly by
operation of law, by contract or otherwise) to assert any claim against the
Collateral on account of any payments made under the Ex-Im Guarantee, including,
without limitation, any and all rights of subrogation, reimbursement,
exoneration, contribution and/or indemnity, Ex-Im Bank has agreed that it will
not, directly or indirectly, seek or receive any proceeds from a liquidation or
other exercise of remedies with respect to the Secondary Collateral (as such
term is defined, together with all related definitions, in the Ex-Im Bank
Documents as in effect on the date hereof) until all obligations owing to Hilco
under the Hilco Loan Agreement have been paid in full in cash.

 

6.2 The security interests granted hereunder shall extend and attach to:

 

(a) All Collateral which is presently in existence and which is owned by the
Company or in which the Company has any interest, whether held by the Company or
others for its account, and, if any Collateral is Equipment, whether the
Company’s interest in such Equipment is as owner, finance lessee or conditional
vendee;

 

(b) All Equipment, whether the same constitutes personal property or fixtures,
including, but without limiting the generality of the foregoing, all dies, jigs,
tools, benches, molds, tables, accretions, component parts thereof and additions
thereto, as well as all accessories, motors, engines and auxiliary parts used in
connection with, or attached to, the Equipment; and

 

(c) All Inventory and any portion thereof which may be returned, rejected,
reclaimed or repossessed by either CIT or the Company from the Company’s
customers, as well as to all supplies, goods, incidentals, packaging materials,
labels and any other items which contribute to the finished goods or products
manufactured or processed by the Company, or to the sale, promotion or shipment
thereof.

 

6.3 The Company agrees to safeguard, protect and hold all Inventory for CIT’s
account and make no disposition thereof except in the ordinary course of its
business of the Company, as herein provided. The Company represents and warrants
that Inventory will be sold and shipped by the Company to its customers only in
the ordinary course of the Company’s business, and then only on open account and
on terms currently being extended by the Company to its customers, provided
that, absent the prior written consent of CIT, the Company shall not sell
Inventory on a consignment basis nor retain any lien or security interest in any
sold Inventory. Upon the sale, exchange, or other disposition of Inventory, as
herein provided, the security interest in the Inventory provided for herein
shall, without break in continuity and without further formality or act,
continue in, and attach to, all proceeds, including any instruments for the
payment of money, Trade Accounts Receivable, documents of title, shipping
documents, chattel paper and all other cash and non-cash proceeds of such sale,
exchange or disposition. As to any such sale, exchange or other disposition, CIT
shall have all of the rights of an unpaid seller, including stoppage in transit,
replevin, rescission and reclamation. The Company hereby agrees to immediately
forward any and all proceeds of Collateral to the Deposit

 

33

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Account, and to hold any such proceeds (including any notes and instruments), in
trust for CIT pending delivery to CIT. Irrespective of CIT’s perfection status
in any and all of the General Intangibles, including, without limitations, any
Trademarks, Copyrights or licenses with respect thereto, the Company hereby
irrevocably grants CIT a royalty free license to sell, or otherwise dispose or
transfer, in accordance with Paragraph 10.3 of Section 10 of this Financing
Agreement, and the applicable terms hereof, of any of the Inventory upon the
occurrence of an Event of Default which has not been waived in writing by CIT.

 

6.4 The Company agrees at its own cost and expense to keep the Equipment in as
good and substantial repair and condition as the same is now or at the time the
lien and security interest granted herein shall attach thereto, reasonable wear
and tear excepted, making any and all repairs and replacements when and where
necessary. The Company also agrees to safeguard, protect and hold all Equipment
in accordance with the terms hereof and subject to CIT’s security interest.
Absent CIT’s prior written consent, any sale, exchange or other disposition of
any Equipment shall be made by the Company in the ordinary course of business
and as set forth herein. The Company may, in the ordinary course of its
business, sell, exchange or otherwise dispose of obsolete or surplus Equipment
provided, however, that (a) the then value of the Equipment so disposed of in
any Fiscal Year does not exceed $250,000.00 in the aggregate and (b) the
proceeds of any such sales or dispositions shall be held in trust by the Company
for CIT and shall be immediately delivered to CIT by deposit to the Depository
Account, except that the Company may retain and use such proceeds to purchase
forthwith replacement Equipment which the Company determines in its reasonable
business judgment to have a collateral value at least equal to the Equipment so
disposed of or sold, provided, however, that the aforesaid right shall
automatically cease upon the occurrence of a Default or an Event of Default
which is not waived in writing by CIT. Upon the sale, exchange, or other
disposition of the Equipment, as herein provided, the security interest provided
for herein shall, without break in continuity and without further formality or
act, continue in, and attach to, all proceeds, including any instruments for the
payment of money, Accounts, documents of title, shipping documents, chattel
paper and all other cash and non-cash proceeds of such sales, exchange or
disposition. As to any such sale, exchange or other disposition, CIT shall have
all of the rights of an unpaid seller, including stoppage in transit, replevin,
rescission and reclamation.

 

6.5 The rights and security interests granted to CIT hereunder are to continue
in full force and effect, notwithstanding the termination of this Financing
Agreement or the fact that the Revolving Loan Account may from time to time be
temporarily in a credit position, until the final payment in full to CIT of all
Obligations and the termination of this Financing Agreement. Any delay, or
omission by CIT to exercise any right hereunder shall not be deemed a waiver
thereof, or be deemed a waiver of any other right, unless such waiver shall be
in writing and signed by CIT. A waiver on any one occasion shall not be
construed as a bar to, or waiver of, any right or remedy on any future occasion.

 

6.6 Notwithstanding CIT’s security interest in the Collateral and to the extent
that the Obligations are now or hereafter secured by any assets or property
other than the Collateral or by the guarantee, endorsement, assets or property
of any other person, CIT shall have the right in its sole discretion to
determine which rights, liens, security interests or remedies CIT shall at any

 

34

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time pursue, foreclose upon, relinquish, subordinate, modify or take any other
action with respect to, without in any way modifying or affecting any of them,
or any of CIT’s rights hereunder.

 

6.7 Any balances to the credit of the Company and any other property or assets
of the Company in the possession or control of CIT may be held by CIT as
security for any Obligations and applied in whole or partial satisfaction of
such Obligations when due. The liens and security interests granted herein, and
any other lien or security interest CIT may have in any other assets of the
Company, shall secure payment and performance of all now existing and future
Obligations. CIT may in its discretion charge any or all of the Obligations to
the Revolving Loan Account when due.

 

6.8 The Company possess all General Intangibles and rights thereto necessary to
conduct its business as conducted as of the Closing Date and the Company shall
maintain its rights in, and the value of, the foregoing in the ordinary course
of its business, including, without limitation, by making timely payment with
respect to any applicable licensed rights. The Company shall deliver to CIT,
and/or shall cause the appropriate party to deliver to CIT, from time to time
such pledge or security agreements with respect to General Intangibles (now or
hereafter acquired) of the Company and its subsidiaries as CIT shall require to
obtain valid first liens thereon. In furtherance of the foregoing, the Company
shall provide timely notice to CIT of any additional Patents, Trademarks,
tradenames, service marks, Copyrights, brand names, trade names, logos and other
trade designations acquired or applied for subsequent to the Closing Date and
the Company shall execute such documentation as CIT may reasonably require to
obtain and perfect its lien thereon. The Company hereby confirms that it shall
deliver, or cause to be delivered, any pledged stock issued subsequent to the
Closing Date to CIT in accordance with the applicable terms of the Pledge
Agreement and prior to such delivery, shall hold any such stock in trust for
CIT. The Company hereby irrevocably grants to CIT a royalty-free, non-exclusive
license in the General Intangibles, including tradenames, Trademarks,
Copyrights, Patents, licenses, and any other proprietary and intellectual
property rights and any and all right, title and interest in any of the
foregoing, for the sole purpose, upon the occurrence of an Event of Default, of
the right to: (i) advertise for sale and sell or transfer any Inventory bearing
any of the General Intangibles, and (ii) make, assemble, prepare for sale or
complete, or cause others to do so, any applicable raw materials or Inventory
bearing any of the General Intangibles, including use of the Equipment and Real
Estate for the purpose of completing the manufacture of unfinished goods, raw
materials or work-in-process comprising Inventory, and apply the proceeds
thereof to the Obligations hereunder, all as further set forth in this Financing
Agreement and irrespective of CIT’s lien and perfection in any General
Intangibles.

 

6.9 This Financing Agreement and the obligation of the Company to perform all of
its covenants and obligations hereunder are further secured by mortgage(s),
deed(s) of trust or assignment(s) on the Real Estate.

 

6.10 The Company shall give to CIT from time to time such mortgage(s), deed(s)
of trust or assignment(s) on the Real Estate or real estate acquired after the
date hereof as CIT shall require to obtain a valid second lien thereon subject
only to those exceptions of title as set forth in future title insurance
policies that are satisfactory to CIT.

 

35

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6.11 As additional credit support for the Obligations, the Company agrees to
provide the UM Holdings Letter of Credit to CIT on the Closing Date. CIT agrees
to release the UM Holdings Letter of Credit within thirty (30) days of CIT’s
receipt of the Company’s annual audited financial statements for the fiscal year
ending December 31, 2003 provided the following conditions are satisfied to the
reasonable satisfaction of CIT:

 

(i) no Default or Event of Default has occurred prior to the receipt by CIT of
such audited financial statements or is indicated on such financial statements;

 

(ii) the Company has met or has exceeded its forecasted projections for EBITDA
for the fiscal quarters ending June 28, 2003, September 27, 2003 and December
31, 2003 (as such projections are set forth on Schedule 4 attached hereto);

 

(iii) the Company has maintained a liquidity position satisfactory to CIT at all
times prior to the receipt by CIT of such audited financial statements; and

 

(iv) CIT is otherwise reasonably satisfied with the financial condition and
prospects of the Company.

 

If CIT releases the UM Holdings Letter of Credit, the UM Holdings Letter of
Credit will no longer be included in the Domestic Borrowing Base.

 

SECTION 7. Representations, Warranties and Covenants

 

7.1 The Company hereby warrants, represents and covenants that: (a) the fair
value of the Total Assets exceeds the book value of the Total Liabilities; (b)
the Company is generally able to pay its debts as they become due and payable;
and (c) the Company does not have unreasonably small capital to carry on its
business as it is currently conducted absent extraordinary and unforeseen
circumstances. The Company further warrants and represents that: (i) Schedule 1
hereto correctly and completely sets forth the Company’s (A) chief executive
office, (B) Collateral locations, (C) tradenames, and (D) all the other
information listed on said Schedule; (ii) except for the Permitted Encumbrances,
after filing of financing statements in the applicable filing clerks office at
the locations set forth in Schedule 1, this Financing Agreement creates a valid,
perfected and first priority security interest in the Collateral and the
security interests granted herein constitute and shall at all times constitute
the first and only liens on the Collateral; (iii), except for the Permitted
Encumbrances, the Company is, or will be, at the time additional Collateral is
acquired by it, the absolute owner of the Collateral with full right to pledge,
sell, consign, transfer and create a security interest therein, free and clear
of any and all claims or liens in favor of others; (iv) the Company will, at its
expense, forever warrant and, at CIT’s request, defend the same from any and all
claims and demands of any other person other than a holder of a Permitted
Encumbrance; (v) the Company will not grant, create or permit to exist, any lien
upon, or security interest in, the Collateral, or any proceeds thereof, in favor
of any other person other than the holders of the Permitted Encumbrances; and
that the Equipment does not comprise a part of the Inventory of the Company, and
(vi) the Equipment is and will only be used by the Company in its business and
will not be held for sale or lease, or removed

 

36

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from its premises, or otherwise disposed of by the Company except as otherwise
permitted in this Financing Agreement.

 

7.2 The Company agrees to maintain books and records pertaining to the
Collateral in accordance with GAAP and in such additional detail, form and scope
as CIT shall reasonably require. The Company agrees that CIT or its agents may
enter upon the Company’s premises at any time during normal business hours, and
from time to time in its reasonable business judgement, for the purpose of
inspecting the Collateral and any and all records pertaining thereto. The
Company agrees to afford CIT thirty (30) days prior written notice of any change
in the location of any Collateral, other than to locations, that as of the
Closing Date, are known to CIT and at which CIT has filed financing statements
and otherwise fully perfected its liens thereon. The Company is also to advise
CIT promptly, in sufficient detail, of any material adverse change relating to
the type, quantity or quality of the Collateral or on the security interests
granted to CIT therein.

 

7.3 The Company agrees to: (a) execute and deliver to CIT, from time to time,
solely for CIT’s convenience in maintaining a record of the Collateral, such
written statements, and schedules as CIT may reasonably require, designating,
identifying or describing the Collateral; and (b) provide CIT, on request, with
an appraisal of the Inventory which appraisal shall be at the Company’s expense
and otherwise acceptable to CIT. The Company’s failure, however, to promptly
give CIT such statements, or schedules shall not affect, diminish, modify or
otherwise limit CIT’s security interests in the Collateral.

 

7.4 The Company agrees to comply with the requirements of all state and federal
laws in order to grant to CIT valid and perfected first security interests in
the Collateral, subject only to the Permitted Encumbrances. CIT is hereby
authorized by the Company to file (including pursuant to the applicable terms of
the UCC) from time to time any financing statements, continuations or amendments
covering the Collateral whether or not the Company’s signature appears thereon.
The Company hereby consents to and ratifies any and all execution and/or filing
of financing statements on or prior to the Closing Date by CIT. The Company
agrees to do whatever CIT may reasonably request, from time to time, by way of:
filing notices of liens, financing statements, amendments, renewals and
continuations thereof; cooperating with CIT’s agents and employees; keeping
Collateral records; transferring proceeds of Collateral to CIT’s possession; and
performing such further acts as CIT may reasonably require in order to effect
the purposes of this Financing Agreement.

 

7.5 (a) The Company agrees to maintain insurance on the Real Estate, Equipment
and Inventory under such policies of insurance, with such insurance companies,
in such reasonable amounts and covering such insurable risks as are at all times
reasonably satisfactory to CIT. All policies covering the Real Estate, Equipment
and Inventory are, subject to the rights of any holders of Permitted
Encumbrances holding claims senior to CIT, to be made payable to CIT, in case of
loss, under a standard non-contributory “mortgagee”, “lender” or “secured party”
clause and are to contain such other provisions as CIT may require to fully
protect CIT’s interest in the Real Estate, Inventory and Equipment and to any
payments to be made under such policies. All original policies or true copies
thereof are to be delivered to CIT, premium prepaid, with the loss payable

 

37

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endorsement in CIT’s favor, and shall provide for not less than thirty (30) days
prior written notice to CIT of the exercise of any right of cancellation. At the
Company’s request, or if the Company fails to maintain such insurance, CIT may
arrange for such insurance, but at the Company’s expense and without any
responsibility on CIT’s part for: obtaining the insurance, the solvency of the
insurance companies, the adequacy of the coverage, or the collection of claims.
Upon the occurrence of an Event of Default which is not waived in writing by
CIT, CIT shall, subject to the rights of any holders of Permitted Encumbrances
holding claims senior to CIT, have the sole right, in the name of CIT or the
Company, to file claims under any insurance policies, to receive, receipt and
give acquittance for any payments that may be payable thereunder, and to execute
any and all endorsements, receipts, releases, assignments, reassignments or
other documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.

 

(b)(i) In the event of any loss or damage by fire or other casualty, insurance
proceeds relating to Inventory shall first reduce the Company’s Revolving Loan,
then the Term Loans;

 

(ii) In the event any part of the Company’s Real Estate or Equipment is damaged
by fire or other casualty and the Insurance Proceeds for such damage or other
casualty is less than or equal to $100,000.00, CIT shall promptly apply such
Proceeds to reduce the Company’s outstanding balance in the Revolving Loan
Account.

 

(iii) As long as an Event of Default has not occurred (or which has not been
waived in writing), the Company has sufficient business interruption insurance
to replace the lost profits of any of the Company’s facilities, and the
Insurance Proceeds are in excess of $100,000.00, the Company may elect (by
delivering written notice to CIT) to replace, repair or restore such Real Estate
or Equipment to substantially the equivalent condition prior to such fire or
other casualty as set forth herein. If the Company does not, or cannot, elect to
use the Insurance Proceeds as set forth above, CIT may, subject to the rights of
any holders of Permitted Encumbrances holding claims senior to CIT, apply the
Insurance Proceeds to the payment of the Obligations in such manner and in such
order as CIT may reasonably elect.

 

(iv) If the Company elects to use the Insurance Proceeds for the repair,
replacement or restoration of any Real Estate and/or Equipment, and there is
then no Event of Default, (i) Insurance Proceeds in excess of $100,000.00 on
Equipment and/or Real Estate will be applied to the reduction of the Revolving
Loans and (ii) CIT may set up a reserve against Availability for an amount equal
to said Insurance Proceeds. The reserve will be reduced dollar-for-dollar upon
receipt of non-cancelable executed purchase orders, delivery receipts or
contracts for the replacement, repair or restoration of Equipment and/or the
Real Estate and disbursements in connection therewith. Prior to the commencement
of any material restoration, repair or replacement of Real Estate, the Company
shall

 

38

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provide CIT with a restoration plan and a total budget certified by an
independent third party experienced in construction costing. If there are
insufficient Insurance Proceeds to cover the cost of restoration as so
determined, the Company shall be responsible for the amount of any such
insufficiency, prior to the commencement of restoration and shall demonstrate
evidence of such before the reserve will be reduced. Completion of restoration
shall be evidenced by a final, unqualified certification of the design architect
employed, if any; an unconditional Certificate of Occupancy, if applicable; such
other certification as may be required by law; or if none of the above is
applicable, a written good faith determination of completion by the Company
(herein collectively the “Completion”). Upon Completion, any remaining reserve
as established hereunder will be automatically released.

 

(c) In the event the Company fails to provide CIT with timely evidence,
acceptable to CIT, of its maintenance of insurance coverage required pursuant to
paragraph 7.5(a) above, CIT may purchase, at the Company’s expense, insurance to
protect CIT’s interests in the Collateral. The insurance acquired by CIT may,
but need not, protect the Company’s interest in the Collateral, and therefore
such insurance may not pay claims which the Company may have with respect to the
Collateral or pay any claim which may be made against the Company in connection
with the Collateral. In the event CIT purchases, obtains or acquires insurance
covering all or any portion of the Collateral, the Company shall be responsible
for all of the applicable costs of such insurance, including premiums, interest
(at the applicable Chase Bank Rate for Revolving Loans set forth in paragraph
8.1 of Section 8 hereof), fees and any other charges with respect thereto, until
the effective date of the cancellation or the expiration of such insurance. CIT
may charge all of such premiums, fees, costs, interest and other charges to the
Company’s Revolving Loan Account. The Company hereby acknowledges that the costs
of the premiums of any insurance acquired by CIT may exceed the costs of
insurance which the Company may be able to purchase on its own. In the event
that CIT purchases such insurance, CIT will notify the Company of said purchase
within thirty (30) days of the date of such purchase. If, within thirty (30)
days of the date of such notice, the Company provides CIT with proof that the
Company had the insurance coverage required pursuant to 7.5(a) above (in form
and substance satisfactory to CIT) as of the date on which CIT purchased
insurance and the Company continued at all times to have such insurance, then
CIT agrees to cancel the insurance purchased by CIT and credit the Company’s
Revolving Loan Account with the amount of all costs, interest and other charges
associated with any insurance purchased by CIT, including with any amounts
previously charged to the Revolving Loan Account.

 

7.6 The Company agrees to pay, when due, all Taxes, including sales taxes,
assessments, claims and other charges lawfully levied or assessed upon the
Company or the Collateral unless such Taxes are being diligently contested in
good faith by the Company by appropriate proceedings and adequate reserves are
established in accordance with GAAP. Notwithstanding the foregoing, if any lien
shall be filed or claimed thereunder (x) for Taxes due the United States of
America or (y) which in CIT’s opinion might create a valid obligation having
priority over the rights granted to CIT herein (exclusive of Real Estate), such
lien shall not be deemed to be a Permitted Encumbrance hereunder and the Company
shall immediately pay such tax

 

39

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and remove the lien of record. If the Company fails to do so promptly, then at
CIT’s election, CIT may (i) create an Availability Reserve in such amount as it
may deem appropriate in its business judgement, or (ii) upon the occurrence of a
Default or Event of Default, imminent risk of seizure, filing of any priority
lien, forfeiture, or sale of the Collateral, pay Taxes on the Company’s behalf,
and the amount thereof shall be an Obligation secured hereby and due on demand.

 

7.7 The Company: (a) agrees to comply with all acts, rules, regulations and
orders of any legislative, administrative or judicial body or official, which
the failure to comply with would have a material and adverse impact on the
Collateral, or any material part thereof, or on the business or operations of
the Company, provided that the Company may contest any acts, rules, regulations,
orders and directions of such bodies or officials in any reasonable manner which
will not, in CIT’s reasonable opinion, materially and adversely effect CIT’s
rights or priority in the Collateral; (b) agrees to comply with all
environmental statutes, acts, rules, regulations or orders as presently existing
or as adopted or amended in the future, applicable to the Collateral, the
ownership and/or use of its real property and operation of its business, which
the failure to comply with would have a material and adverse impact on the
Collateral, or any material part thereof, or on the operation of the business of
the Company; and (c) shall not be deemed to have breached any provision of this
Paragraph 7.7 if (i) the failure to comply with the requirements of this
Paragraph 7.7 resulted from good faith error or innocent omission, (ii) the
Company promptly commences and diligently pursues a cure of such breach, and
(iii) such failure is cured within (30) days following the Company’s receipt of
notice of such failure, or if such cannot in good faith be cured within thirty
(30) days, then such breach is cured within a reasonable time frame based upon
the extent and nature of the breach and the necessary remediation, and in
conformity with any applicable consent order, consensual agreement and
applicable law.

 

7.8 Until termination of this Financing Agreement and payment and satisfaction
of all Obligations due hereunder, the Company agrees that, unless CIT shall have
otherwise consented in writing, the Company will furnish to CIT: (a) within one
hundred five (105) days after the end of each Fiscal Year of the Company, an
audited Consolidated Balance Sheet, with an unaudited Consolidating Balance
Sheet attached thereto, as at the close of such year, and statements of profit
and loss, cash flow and reconciliation of surplus of the Company and its
consolidated subsidiaries for such year, audited (with respect to consolidated
financial statements only) by independent public accountants selected by the
Company and satisfactory to CIT; (b) within sixty (60) days after the end of
each Fiscal Quarter (i) a Consolidated Balance Sheet and Consolidating Balance
Sheet as at the end of such period and statements of profit and loss and
statements of cash flow of the Company and its consolidated subsidiaries,
certified by an authorized financial or accounting officer of the Company and
(ii) a detailed report setting forth the amount of all Support Obligations, the
amount of all Support Obligations entered into during such Fiscal Quarter and
the amount of all payments made under Support Obligations during such Fiscal
Quarter; (c) within thirty (30) days after the end of each month a Consolidated
Balance Sheet as at the end of such period and statements of profit and loss and
statements of cash flow of the Company and all subsidiaries for such period,
certified by an authorized financial or accounting officer of the Company; and
(d) from time to time, such further information regarding the business affairs
and financial condition of the Company and its consolidated subsidiaries as CIT
may reasonably request, including, without limitation (i) the accountant’s

 

40

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management practice letter and (ii) annual cash flow projections in form
satisfactory to CIT. Each financial statement which the Company is required to
submit hereunder must be accompanied by an officer’s certificate, signed by the
President, Vice President, Controller, or Treasurer, pursuant to which any one
such officer must certify that: (x) the financial statement(s) fairly and
accurately represent(s) the Company’s financial condition at the end of the
particular accounting period, as well as the Company’s operating results during
such accounting period, subject to year-end audit adjustments; and (y) during
the particular accounting period: (A) there has been no Default or Event of
Default under this Financing Agreement, provided, however, that if any such
officer has knowledge that any such Default or Event of Default, has occurred
during such period, the existence of and a detailed description of same shall be
set forth in such officer’s certificate; (B) the Company has not received any
notice of cancellation with respect to its property insurance policies; (C) the
Company has not received any notice that could result in a material adverse
effect on the value of the Collateral taken as a whole; and (D) the exhibits
attached to such financial statement(s) constitute detailed calculations showing
compliance with all financial covenants contained in this Financing Agreement.

 

7.9 Until termination of the Financing Agreement and payment and satisfaction of
all Obligations due hereunder, the Company agrees that, without the prior
written consent of CIT, except as otherwise herein provided, the Company will
not:

 

  (a) Mortgage, assign, pledge, transfer or otherwise permit any lien, charge,
security interest, encumbrance or judgment, (whether as a result of a purchase
money or title retention transaction, or other security interest, or otherwise)
to exist on any of the Company’s Collateral or any other assets, whether now
owned or hereafter acquired, except for the Permitted Encumbrances;

 

  (b) Incur or create any Indebtedness other than the Permitted Indebtedness;

 

  (c) Sell, lease, assign, transfer or otherwise dispose of (i) Collateral,
except as otherwise specifically permitted by this Financing Agreement, or (ii)
either all or substantially all of the Company’s assets, which do not constitute
Collateral;

 

  (d) Merge, consolidate or otherwise alter or modify its corporate name,
principal place of business, structure, or existence, re-incorporate or
re-organize, or enter into or engage in any operation or activity materially
different from that presently being conducted by the Company, or purchase or
acquire all or substantially all of the capital stock or assets of any
corporation or entity, except that the Company may change its corporate name or
address, provided that (i) the Company shall give CIT thirty (30) days prior
written notice thereof and (ii) the Company shall execute and deliver, prior to
or simultaneously with any such action, any and all documents and agreements
requested by CIT to confirm the continuation and preservation of all security
interests and liens granted to CIT hereunder;

 

  (e)

(i) Amend, modify or otherwise change (or permit the amendment, modification or
other change in any manner of) any of the provisions of any of its or its
subsidiaries’ Indebtedness or of any instrument or agreement (including, without
limitation, any purchase agreement, indenture, loan agreement or security
agreement) relating to any such Indebtedness if such amendment, modification or
change would shorten the final maturity or average life to maturity of, or

 

41

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require any payment to be made earlier than the date originally scheduled on,
such Indebtedness, would increase the interest rate applicable to such
Indebtedness, would change the subordination provision, if any, of such
Indebtedness, or would otherwise be adverse to CIT or the issuer of such
Indebtedness in any respect, or, in the case of the Hilco Loan, accelerate
(other than an acceleration of the Hilco Loan after an event of default under
the Hilco Loan Documents) the due date or increase the amounts of any principal
payments in respect of the Hilco Loan, or (ii) except for the Obligations and
Indebtedness with respect to the Hilco Loan, make any voluntary or optional
payment, prepayment, redemption, defeasance, sinking fund payment or other
acquisition for value of any of its or its subsidiaries’ Indebtedness
(including, without limitation, by way of depositing money or securities with
the trustee therefor before the date required for the purpose of paying any
portion of such Indebtedness when due), or refund, refinance, replace or
exchange any other Indebtedness for any such Indebtedness (except to the extent
such Indebtedness is otherwise expressly permitted by the definition of
“Permitted Indebtedness”) (provided that prepayments of the “Loans” (as such
term is defined in the Hilco Loan Agreement) shall not be permitted to be made
unless both immediately before and after such prepayment Availability is not
less than $2,500,000), or make any payment, prepayment, redemption, defeasance,
sinking fund payment or repurchase of any outstanding Indebtedness as a result
of any asset sale, change of control, issuance and sale of debt or equity
securities or similar event, or give any notice with respect to any of the
foregoing;

 

  (f) Assume, guarantee, endorse, or otherwise become liable upon the
obligations of any person, firm, entity or corporation, except (i) for Support
Obligations to the extent permitted in clause (h) of the definition of Permitted
Indebtedness and (ii) by the endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business;

 

  (g) Declare or pay any dividend or distributions of any kind on, or purchase,
acquire, redeem or retire, any of the capital stock or equity interest, of any
class whatsoever, whether now or hereafter outstanding;

 

  (h) Make any advance or loan to, or any investment in, any firm, entity,
person or corporation or purchase or acquire all or substantially all of the
stock or assets of any entity, person or corporation;

 

  (i) Pay any management, consulting or other similar fees to any person,
corporation or other entity affiliated with the Company (other than payments to
any Affiliate described on Schedule 5 hereto); or;

 

  (j) engage in any sale – leaseback transactions.

 

7.10 Until termination of the Financing Agreement and payment and satisfaction
in full of all Obligations hereunder, the Company shall:

 

  (a)

have for each Fiscal Quarter set forth below the Fixed Charge Coverage Ratio
corresponding to such Fiscal Quarter; provided that (v) for the Fiscal Quarter
ending September 27, 2003, the Fixed Charge Coverage Ratio

 

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shall be calculated for the Fiscal Quarter ending September 27, 2003, (w) for
the Fiscal Quarter ending December 31, 2003, the Fixed Charge Coverage Ratio
shall be calculated for the two consecutive Fiscal Quarters ending December 31,
2003, (x) for the Fiscal Quarter ending March 27, 2004, the Fixed Charge
Coverage Ratio shall be calculated for the three consecutive Fiscal Quarters
ending March 27, 2004, (y) for the Fiscal Quarter ending June 26, 2004, the
Fixed Charge Coverage Ratio shall be calculated for the four consecutive Fiscal
Quarters ending June 26, 2004, and (z) for each Fiscal Quarter thereafter, the
Fixed Charge Coverage Ratio shall be calculated for the four consecutive Fiscal
Quarters ending at the end of such Fiscal Quarter.

 

Period

--------------------------------------------------------------------------------

  

Ratio

--------------------------------------------------------------------------------

(i) For each Fiscal Quarter ending

during the period commencing on

the Closing Date through and including

June 26, 2004

  

greater than 1.0 to 1.0

(ii) For each Fiscal Quarter ending

during the period commencing on

June 27 2004 through and including

June 25, 2005

  

greater than 1.1 to 1.0

(iii) For each Fiscal Quarter ending

thereafter

  

greater than 1.2 to 1.0; and

 

  (b) not contract for, purchase, make expenditures for, lease pursuant to a
Capital Lease or otherwise incur obligations with respect to Capital
Expenditures (whether subject to a security interest or otherwise) in excess of
$2,500,000 during the Company’s Fiscal Year ended December 31, 2003, $3,000,000
during the Company’s Fiscal year ended December 32, 2004 and $3,500,000 during
the Company’s Fixed Year ended December 31, 2005 and during each Fiscal Year
thereafter (computed on a non-cumulative basis); and

 

  (c) have Availability of at least $1,500,000 at all times.

 

7.11 The Company agrees to advise CIT in writing of: (a) all expenditures
(actual or anticipated) in excess of $150,000.00 from the budgeted amount
therefor in any Fiscal Year for (x) environmental clean-up, (y) environmental
compliance or (z) environmental testing and the impact of said expenses on the
Company’s Working Capital; and (b) any notices the Company receives from any
local, state or federal authority advising the Company of any environmental
liability (real or potential) stemming from the Company’s operations, its
premises, its waste disposal practices, or waste disposal sites used by the
Company and to provide CIT with copies of all such notices if so required.

 

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7.12 The Company hereby agrees to indemnify and hold harmless CIT and its
officers, directors, employees, attorneys and agents (each an “Indemnified
Party”) from, and holds each of them harmless against, any and all losses,
liabilities, obligations, claims, actions, damages, costs and expenses
(including attorney’s fees) and any payments made by CIT pursuant to any
indemnity provided by CIT with respect to or to which any Indemnified Party
could be subject insofar as such losses, liabilities, obligations, claims,
actions, damages, costs, fees or expenses with respect to the Loan Documents,
including without limitation those which may arise from or relate to: (i) the
Depository Account, the Blocked Accounts, the lockbox and/or any other
depository account and/or the agreements executed in connection therewith, and
(ii) any and all claims or expenses asserted against CIT as a result of any
environmental pollution, hazardous material or environmental clean-up relating
to the Real Estate; or any claim or expense which results from the Company’s
operations (including, but not limited to, the Company’s off-site disposal
practices) and use of the Real Estate, which CIT may sustain or incur (other
than solely as a result of the physical actions of CIT on the Company’s premises
which are determined to constitute gross negligence or willful misconduct by a
court of competent jurisdiction), all whether through the alleged or actual
negligence of such person or otherwise, except and to the extent that the same
results solely and directly from the gross negligence or willful misconduct of
such Indemnified Party as finally determined by a court of competent
jurisdiction. The Company hereby agrees that this indemnity shall survive
termination of this Financing Agreement, as well as payments of Obligations
which may be due hereunder. CIT may, in its sole business judgement, establish
such Availability Reserves with respect thereto as it may deem advisable under
the circumstances and, upon any termination hereof, hold such reserves as cash
reserves for any such contingent liabilities.

 

7.13 Without the prior written consent of CIT, the Company agrees that it will
not enter into any transaction, including, without limitation, any purchase,
sale, lease, loan or exchange of property any of its Affiliates (other than
transactions between the Company and a Guarantor, provided that the aggregate
amount of all loans, advances or other Transfers of assets by the Company to
such Guarantor shall not exceed $500,000 in the aggregate), provided that,
except as otherwise set forth in this Financing Agreement (including, without
limitation, in Schedule 5 attached hereto), the Company may enter into sale and
service transactions in the ordinary course of its business and pursuant to the
reasonable requirements of the Company, and upon standard terms and conditions
and fair and reasonable terms, no less favorable to the Company than the Company
could obtain in a comparable arms length transaction with an unrelated third
party, provided further that no Default or Event of Default exists or will occur
hereunder prior to and after giving effect to any such transaction..

 

7.14 The Company agrees to maintain and preserve, and cause each of its
subsidiaries to maintain and preserve, all of its properties which are necessary
or useful in the proper conduct of its business in good working order and
condition, ordinary wear and tear excepted, and comply, and cause each of its
subsidiaries to comply, at all times with the material provisions of all leases
to which it is a party as lessee or under which it occupies property, so as to
prevent any loss or forfeiture thereof or thereunder.

 

7.15 The Company agrees to obtain, maintain and preserve, and cause each of its
subsidiaries to obtain, maintain and preserve, and take all necessary action to
timely renew, all

 

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material permits, licenses, authorizations, approvals, entitlements and
accreditations which are necessary or useful in the proper conduct of its
business.

 

7.16 The Company agrees to take such action and execute, acknowledge and
deliver, and cause each of its subsidiaries to take such action and execute,
acknowledge and deliver, at its sole cost and expense, such agreements,
instruments or other documents as CIT may require from time to time in order (a)
to carry out more effectively the purposes of this Agreement and the other Loan
Documents, (b) to subject to valid and perfected liens any of the Collateral or
any other property of the Company, (c) to establish and maintain the validity
and effectiveness of any of the Loan Documents and, subject to the terms of the
Hilco Intercreditor Agreement, the validity, perfection and priority of the
liens intended to be created thereby, and (d) to better assure, convey, grant,
assign, transfer and confirm unto CIT the rights now or hereafter intended to be
granted to its under this Agreement or any other Loan Document. In furtherance
of the foregoing, to the maximum extent permitted by applicable law, the Company
(i) authorizes CIT to execute any such agreements, instruments or other
documents in Company’s name and to file such agreements, instruments or other
documents in the filing office, (ii) authorizes CIT to file any financing
statement required hereunder or under any appropriate filing office without the
signature of the Company, and (iii) ratifies the filing of any financing
statement, and any continuation statement or amendment with respect thereto,
filed without signature of the Company prior to the date hereof.

 

7.17 The Company agrees to cause all Indebtedness (other than Indebtedness and
obligations described on Schedule 5 attached hereto) and other obligations now
or hereafter owed by it to any of its affiliates, to be subordinated in right of
payment and security to agreement in form and substance satisfactory to CIT.

 

7.18 In order to induce CIT to enter into this Agreement and to make the loans
and advances provided for herein and to assist the Company in establishing or
opening Letters of Credit, the Company makes, on or as of the occurrence of each
such loan, advance or assistance (except to the extent such representations or
warranties relate to an earlier date or are no longer true and correct in all
material respects solely as a result of transactions not prohibited by the Loan
Documents), the following representations and warranties to CIT.

 

(a) Organization and Qualification. The Company (i) is duly organized validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, (ii) has the corporate or limited liability
company (as the case may be) power to own its property and to carry on its
business as now conducted and (iii) is duly qualified to do business and is in
good standing, in each case in each jurisdiction in which the failure to be so
qualified or in good standing would reasonably be expected to have a Material
Adverse Effect.

 

(b) Authorization and Validity. The Company has the corporate or limited
liability company (as the case may be) power and authority to execute, deliver
and perform its obligations hereunder and under the other Loan Documents to
which the Company is a party and all such action has been duly authorized by all
necessary corporate proceedings on its part. The Loan Documents to which it is a
party have been duly and validly executed and delivered by the Company and
constitute valid and legally binding agreements of the Company enforceable in

 

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accordance with the respective terms thereof, except, in each case, as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws relating to or affecting
the enforcement of creditors’ rights generally and general principles of equity.

 

(c) Consents. No authorization, consent, approval, license or exemption (other
than such exemptions that exist under applicable law, that are permitted, or
that have been obtained) of any person or filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is necessary for the valid, delivery or
performance by the Company of any Loan Document to which it is a party or for
the grant of a security interest in or mortgage on the collateral covered by the
Loan Documents, except such matters relating to performance as would ordinarily
be done in the ordinary course of business after the date hereof.

 

(d) Conflicting or Adverse Agreements or Ratifications. Neither the delivery of
the Loan Documents nor compliance with the terms and provisions hereof or
thereof will be contrary to the provisions of, or constitute a default under (i)
the charter or bylaws or operating agreement (as the case may be) of the Company
or (ii) any applicable law or any applicable regulation, order, writ, injunction
or decree of any court or governmental instrumentality or (iii) any material
agreement to which the Company is a party or by which it is bound or to which it
is subject.

 

(e) Title to Assets; Licenses and Permits. The Company has good title to all
personal property and good and indefeasible title to or a subsisting leasehold
interest in, all realty as reflected as of the date hereof on its books and
records as being owned or leased by it after giving effect to the transaction
contemplated herein, subject to no liens except Permitted Encumbrances. All of
such assets are being maintained by the appropriate person in good working
condition in accordance with industry standards.

 

(f) Litigation. Except as set forth in Schedule 2, no proceedings before any
court or governmental agency or department are pending against the Company and
to the knowledge of the Company, none of same have been threatened which if
adversely determined could reasonably be expected to have a Material Adverse
Effect.

 

(g) No Defaults. The Company is not in default (i) under any material provisions
of any instrument evidencing any Indebtedness or of any agreement relating
thereto in such manner as to cause a Material Adverse Effect or (ii) in any
respect under or in violation of any order, writ, injunction or decree of any
court or governmental instrumentality, in such manner as to cause a Material
Adverse Effect or (iii) under any provision of any material contract to which
the Company is a party, which default would reasonably be expected to have a
Material Adverse Effect. The Company will give CIT prompt written notice of any
event or circumstance that may constitute such a default and, in any event, will
provide it upon receipt with copies of all material notices from landlords or
other property owners with respect to any business location or operation of the
Company.

 

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(h) Investment Company Act. The Company is not an “investment company,” as such
term is defined in, or subject to registration under, the Investment Company Act
of 1940, as amended.

 

(i) ERISA. The Company does not maintain or contribute to any Benefit Plan other
than those listed on Schedule 3. Each Benefit Plan has been and is being
maintained and funded in accordance with its terms and in compliance in all
material respects with all provisions of ERISA and the Internal Revenue Code
applicable thereto. The Company and each ERISA Affiliate have fulfilled all
obligations related to the minimum funding standards of ERISA and the Internal
Revenue Code for each Benefit Plan and no “accumulated funding deficiency,” as
such term is defined in Section 302 of ERISA and Section 412 of the Internal
Revenue Code, has occurred or is reasonably likely to occur, nor do the
conditions for imposition of a lien under Section 302(f) of ERISA exist or are
reasonably likely to exist, with respect to any Benefit Plan, and neither the
Company nor any ERISA Affiliate has incurred any liability (other than routine
liability for premiums) under Title IV of ERISA with respect to any Benefit
Plan. No event or events have occurred with respect to any Benefit Plan in
connection with which the Company, any ERISA Affiliate, or, to the knowledge of
the Company, any fiduciary of a Benefit Plan, directly or indirectly, would be
subject to any material liability (other than routine liability for premiums,
contributions (if required) and, with respect to a Benefit Plan, routine
liabilities for benefits), individually or in the aggregate, under ERISA or the
Internal Revenue Code.

 

(j) Environmental Matters. To the best of the Company’s knowledge, the Company
(a) possesses all environmental, health and safety licenses, permits,
authorizations, registrations, approvals and similar rights necessary under
Environmental Laws for the Company to conduct its operations as now being
conducted, except where failure to have such licenses, permits, authorizations,
registrations, approvals, and similar rights would not reasonably be expected to
have a Material Adverse Effect, and (b) each of such licenses, permits,
authorizations, registrations, approvals and similar rights is valid and
subsisting, in full force and effect and enforceable by the Company, and the
Company is in compliance with all terms, conditions or other provisions of such
permits, authorizations, regulations, approvals and similar rights except for
such failure or noncompliance that, individually or in the aggregate for the
Company, would not reasonably be expected to have a Material Adverse Effect. The
Company has not received any written notices of any violation or noncompliance
with, or remedial obligation under, any Environmental Laws (which violation,
non-compliance, or remedial obligation has not been cured or would not
reasonably be expected to have a Material Adverse Effect) and there are no
writs, injunctions, decrees, orders or judgments outstanding under the
Environmental Laws, or lawsuits, claims, proceedings, or, to the knowledge of
the Company, investigations or inquiries pending or threatened under
Environmental Laws, relating to the ownership, use, condition, maintenance or
operation of, or conduct of business related to, any property owned, leased or
operated by the Company or other assets of the Company other than those
violations, instances of noncompliance, obligations, writs, injunctions,
decrees, orders, judgments, lawsuits, claims, proceedings, investigations or
inquiries that individually or in the aggregate for the Company, would not
reasonably be expected to have a Material Adverse Effect. There are no
obligations, undertakings or liabilities arising out of or relating to
Environmental Laws which the Company has agreed to, assumed or retained, or to
the best of the Company’s knowledge by which the Company are adversely affected,
by contract or otherwise,

 

47

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except such obligations, undertakings or liabilities as would not reasonably be
expected to have a Material Adverse Effect. The Company has not received a
written notice or claim to the effect that any of them are or may be liable to
any other person as the result of a release or threatened release of a Hazardous
Material except such notice or claim that would not reasonably be expected to
have a Material Adverse Effect. The Company has complied with all Environmental
Laws and the requirements of any permits, licenses or other authorizations
issued under any Environmental Laws, except any noncompliance that would not
reasonably be expected to have a Material Adverse Effect.

 

(k) Purpose of Loans. The proceeds of the Revolving Loans and the Term Loans
will be used by the Company to refinance existing Indebtedness and for working
capital purposes. None of the proceeds of any Revolving Loans or the Term Loans
will be used directly or indirectly for the purpose of purchasing or carrying
any “margin stock” within the meaning of Regulation U (herein called “margin
stock”) or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry margin stock, or for any other purpose
which might constitute this transaction as a “purpose credit” within the meaning
of Regulation U. Neither the Company nor any agent acting on its behalf has
taken or will take any action which might cause this Agreement or any other Loan
Document to violate Regulation U, Regulation X or any other regulation of the
Board of Governors or to violate the Securities Exchange Act of 1934.

 

(l) Insurance. The Company maintains insurance of such types as is usually
carried by corporations of established reputation engaged in the same or similar
businesses and similarly situated with financially sound, responsible and
reputable insurance companies or associations (or, as to workers’ compensation
or similar insurance, with an insurance fund or by self-insurance authorized by
the jurisdiction in which its operations are carried on) and in such amounts
(and with co-insurance and deductibles) as such insurance is usually carried by
corporations of established reputation and engaged in the same or similar
businesses and similarly situated, but in any event, with respect to
improvements to real property and tangible personal property (assuming the
subject improvements are in fact replaced or restored), in amounts acceptable to
CIT. Company does not maintain any formalized self-insurance program with
respect to its assets or operations or material risks with respect thereto.

 

(m) Indebtedness and Contingent Liabilities. Except as disclosed in writing to
CIT, the Company does not have any outstanding Indebtedness (excluding the loans
and advances hereunder) or material contractually assumed contingent liabilities
other than Permitted Indebtedness.

 

(n) Security Interests in Favor of CIT. This Agreement and the other Loan
Documents create valid security interest and liens in all of the Collateral
described therein in favor of CIT securing the Obligations and constitute
(subject to (i) the filing of financing statements on the date hereof and
thereafter from time to time on the CIT’s request therefor and (ii) delivery of
any collateral after the date hereof as provided herein or any other Loan
Document and (iii) the execution of Blocked Account Agreements with the banks
which maintain Depository Accounts) and, except for Permitted Encumbrances,
perfected first priority

 

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liens and security interests in substantially all of such collateral described
therein subject to no liens other than Permitted Encumbrances

 

(o) USA Patriot Act. Neither the making of the Loans hereunder (or the extension
of any other credit contemplated hereunder) nor the Company’s use of the
proceeds thereof will violate Sections 326 and 371 through 377 of the Uniting
and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56 (also known as the USA
Patriot Act) or any enabling legislation or rules, regulations or executive
orders relating thereto.

 

(p) Guarantors. Tetrix Fitness Equipment, Inc. has no assets other than
intangible assets associated with its acquisition by the Company and Cybex
Capital Corp. has no assets other than a depreciating asset of $350,000,
comprised of leases which are in run-down.

 

(q) Inactive Subsidiary. The Inactive Subsidiary does not (i) have any material
operations or conduct any material business, or (ii) have assets of $50,000 or
greater.

 

SECTION 8. Interest, Fees and Expenses

 

8.1 (a) Interest on the Revolving Loans, whether bearing interest based on the
Chase Bank Rate or LIBOR, shall be payable monthly as of the end of each month.
Revolving Loans which are Chase Bank Rate Loans shall bear interest during each
month at a rate equal to the Chase Bank Rate plus the Applicable Margin on the
average of the net balances owing by the Company to CIT in the Revolving Loan
Account at the close of each day during such month. In the event of any change
in said Chase Bank Rate, the rate hereunder for Revolving Loans which are Chase
Bank Rate Loans shall change, as of the date of such change, so as to remain at
the Chase Bank Rate plus the Applicable Margin. The rate hereunder for Revolving
Loans which are Chase Bank Rate Loans shall be calculated based on a 360-day
year. CIT shall be entitled to charge the Company’s Revolving Loan Account at
the rate provided for herein when due until all Obligations have been paid in
full.

 

(b) Notwithstanding any provision to the contrary contained in this section 8,
in the event that the sum of (i) the outstanding Revolving Loans and (ii) the
outstanding Letters of Credit exceed the lesser of either (x) the Borrowing Base
less Availability Reserves or (y) the Revolving Line of Credit: (A) as a result
of Revolving Loans advanced by CIT at the request of the Company (herein
“Requested Overadvances”), for any one (1) or more days in any month or (B) for
any other reason whatsoever (herein “Other Overadvances”) and such Other
Overadvances continue for five (5) or more days in any month, the average net
balance of all Revolving Loans for such month shall bear interest at the
Overadvance Rate. Upon and after the occurrence of an Event of Default and the
giving of any required notice by CIT in accordance with the provisions of
Section 10, Paragraph 10.2 hereof, all Obligations shall bear interest at the
Default Rate of Interest.

 

8.2 (a) Interest on Term Loan A, whether bearing interest based on the Chase
Bank Rate or LIBOR, shall be payable monthly as of the end of each month on the
unpaid balance or on payment in full prior to maturity. That portion of Term
Loan A which consists of Chase Bank

 

49

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Rate Loans shall bear interest in an amount equal to the Chase Bank Rate plus
the Applicable Margin. In the event of any change in said Chase Bank Rate the
rate hereunder for any such Chase Bank Rate Loans shall change, as of the date
of such change, so as to remain at the Chase Bank Rate plus the Applicable
Margin. The rate hereunder shall be calculated based on a 360 day year. CIT
shall be entitled to charge the Revolving Loan Account at the rate provided for
herein when due until all Obligations have been paid in full.

 

(b) Interest on Term Loan B shall be payable monthly as of the end of each month
on the unpaid balance or on payment in full prior to maturity and shall be in an
amount equal to the greater of (i) the Chase Bank Rate plus five percent (5.0%)
per annum or (ii) ten percent (10%) per annum. In the event of any change in
said Chase Bank Rate the rate hereunder for Term Loan B shall change, as of the
date of such change, so as to remain at the greater of (i) five percent (5.0%)
above the Chase Bank Rate or (ii) ten percent (10%) per annum. The rate
hereunder shall be calculated based on a 360 day year. CIT shall be entitled to
charge the Revolving Loan Account at the rate provided for herein when due.

 

8.3 In consideration of the Letter of Credit Guaranty of CIT, the Company shall
pay CIT the Letter of Credit Guaranty Fee which shall be an amount equal to (a)
three percent (3.0%) on the face amount of each documentary Letter of Credit
payable upon issuance thereof and (b) three percent (3.0%) per annum, payable
monthly, on the face amount of each standby Letter of Credit less the amount of
any and all amounts previously drawn under such standby Letter of Credit.

 

8.4 Any and all charges, fees, commissions, costs and expenses charged to CIT
for the Company’s account by any Issuing Bank in connection with, or arising out
of, Letters of Credit or out of transactions relating thereto will be charged to
the Revolving Loan Account in full when charged to, or paid by CIT, or as may be
due upon any termination of this Financing Agreement hereof, and when made by
any such Issuing Bank shall be conclusive on CIT.

 

8.5 The Company shall reimburse or pay CIT, as the case may be, for: (a) all
Out-of-Pocket Expenses and (b) any applicable Documentation Fee.

 

8.6 Upon the last Business Day of each month, commencing on July 31, 2003, the
Company shall pay to CIT (i) the Line of Credit Fee, and (ii) interest on the
Collection Days. Interest will be computed at the rate, and in the manner, set
forth in Paragraph 8.1 of this Financing Agreement.

 

8.7 To induce CIT to enter into this Financing Agreement and to extend to the
Company the Revolving Loans and Term Loans, the Company shall pay to CIT a Loan
Facility Fee in the amount of $380,000, $190,000 of which will be payable on the
Closing Date (reduced by the $50,000 fee payable on the Closing Date pursuant to
Section 8.8(ii) below), $95,000 of which will be payable on December 31, 2003
and $95,000 of which will be payable on June 30, 2004; provided, however, CIT
agrees to waive the final payment of $95,000 on June 30, 2004 if the following
conditions are satisfied to the reasonable satisfaction of CIT:

 

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(i) no Default or Event of Default has occurred prior to the receipt by CIT of
the annual audited financial statements of the Company for fiscal year 2003
delivered in accordance with subparagraph 7.8(a) of Section 7 hereof or is
indicated on such financial statements;

 

(ii) the Company has met or exceeded its forecasted projections for EBITDA for
the fiscal quarters ending June 30, 2003, September 30, 2003 and December 31,
2003 (as such projections are set forth on Schedule 4 attached hereto);

 

(iii) the Company has maintained a liquidity position satisfactory to CIT at all
times prior to receipt by CIT of the Company’s audited financial statements for
the Fiscal Year ended December 31, 2003; and

 

(iv) CIT is otherwise reasonably satisfied with the financial condition and
prospects of the Company.

 

8.8 On the Closing Date and each anniversary of the Closing Date thereafter, the
Company shall pay to CIT (i) the Administrative Management Fee in the amount of
$18,000.00 and (ii) a fee in the amount of $50,000.00 for the administration of
the Foreign Borrowing Base.

 

8.9 The Company shall pay CIT’s standard charges and fees for CIT’s personnel
used by CIT for reviewing the books and records of the Company and for
verifying, testing, protecting, safeguarding, preserving or disposing of all or
any part of the Collateral (which fees shall be in addition to the
Administrative Management Fee and any Out-of-Pocket Expenses).

 

8.10 The Company hereby authorizes CIT to charge the Revolving Loan Account with
the amount of all payments due hereunder as such payments become due. The
Company confirms that any charges which CIT may so make to the Revolving Loan
Account as herein provided will be made as an accommodation to the Company and
solely at CIT’s discretion.

 

8.11 In the event that CIT or any participant hereunder (or any financial
institution which may from time to time become a participant or lender
hereunder) shall have determined in the exercise of its reasonable business
judgement that subsequent to the Closing Date any change in applicable law,
rule, regulation or guideline regarding capital adequacy, or any change in the
interpretation or administration thereof, or compliance by CIT or such
participant with any new request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on CIT’s or such participant’s capital as a consequence of its obligations
hereunder to a level below that which CIT or such participant could have
achieved but for such adoption, change or compliance (taking into consideration
CIT or such participant’s policies with respect to capital adequacy) by an
amount reasonably deemed by CIT or such participant to be material, then, from
time to time, the Company shall pay no later than five (5) days following demand
to CIT or such participant such additional amount or amounts as will compensate
CIT’s or such participant’s for such reduction. In determining such amount or
amounts, CIT or such participant may use any reasonable averaging or attribution
methods. The protection of this Paragraph 8.11 shall be available to CIT or such
participant regardless of any possible contention

 

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of invalidity or inapplicability with respect to the applicable law, regulation
or condition. A certificate of CIT or such participant setting forth such amount
or amounts as shall be necessary to compensate CIT or such participant with
respect to this Section 8 and the calculation thereof when delivered to the
Company shall be conclusive on the Company absent manifest error.
Notwithstanding anything in this paragraph to the contrary, in the event CIT or
such participant has exercised its rights pursuant to this paragraph, and
subsequent thereto determines that the additional amounts paid by the Company in
whole or in part exceed the amount which CIT or such participant actually
required pursuant hereto, the excess, if any, shall be returned to the Company
by CIT or such participant.

 

8.12 In the event that any applicable law, treaty or governmental regulation, or
any change therein or in the interpretation or application thereof, or
compliance by CIT or such participant with any request or directive (whether or
not having the force of law) from any central bank or other financial, monetary
or other authority, shall:

 

(a) subject CIT or such participant to any tax of any kind whatsoever with
respect to this Financing Agreement or change the basis of taxation of payments
to CIT or such participant of principal, fees, interest or any other amount
payable hereunder or under any other documents (except for changes in the rate
of tax on the overall net income of CIT or such participant by the federal
government or the jurisdiction in which it maintains its principal office);

 

(b) impose, modify or hold applicable any reserve, 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 CIT or such participant by
reason of or in respect to this Financing Agreement and the Loan Documents,
including (without limitation) pursuant to Regulation D of the Board of
Governors of the Federal Reserve System; or

 

(c) impose on CIT or such participant any other condition with respect to this
Financing Agreement or any other document, and the result of any of the
foregoing is to increase the cost to CIT or such participant of making, renewing
or maintaining its loans hereunder by an amount that CIT or such participant
deems to be material in the exercise of its reasonable business judgement 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 CIT or such participant deems
to be material in the exercise of its reasonable business judgement, then, in
any case the Company shall pay CIT or such participant, within five (5) days
following its demand, such additional cost or such reduction, as the case may
be. CIT or such participant shall certify the amount of such additional cost or
reduced amount to the Company and the calculation thereof and such certification
shall be conclusive upon the Company absent manifest error. Notwithstanding
anything in this paragraph to the contrary, in the event CIT or such participant
has exercised its rights pursuant to this paragraph, and subsequent thereto
determine that the additional amounts paid by the Company in whole or in part
exceed the amount which CIT or such participant actually required pursuant
hereto, the excess, if any, shall be returned to the Company by CIT or such
participant.

 

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8.13 The Company may request LIBOR Loans on the following terms and conditions:

 

(a) The Company may elect, subsequent to five (5) days from the Closing Date and
from time to time thereafter (i) to request any loan made hereunder to be a
LIBOR Loan as of the date of such loan or (ii) to convert Chase Bank Rate Loans
to LIBOR Loans, and may elect from time to time to convert LIBOR Loans to Chase
Bank Rate Loans by giving CIT at least three (3) Business Days’ prior
irrevocable notice of such election, provided that any such conversion of LIBOR
Loans to Chase Bank Rate Loans shall only be made, subject to the second
following sentence, on the last day of an Interest Period with respect thereto.
Should the Company elect to convert Chase Bank Rate Loans to LIBOR Loans, it
shall give CIT at least four Business Days’ prior irrevocable notice of such
election. If the last day of an Interest Period with respect to a loan that is
to be converted is not a Business Day or Working Day, then such conversion shall
be made on the next succeeding Business Day or Working Day, as the case may be,
and during the period from such last day of an Interest Period to such
succeeding Business Day, as the case may be, such loan shall bear interest as if
it were an Chase Bank Rate Loan. All or any part of outstanding Chase Bank Rate
Loans then outstanding with respect to Revolving Loans, Term Loans may be
converted to LIBOR Loans as provided herein, provided that partial conversions
shall be in multiples in an aggregate principal amount of $1,000,000 or more.
The aggregate amount of all such LIBOR Loans shall not exceed $7,000,000.00 at
any one time outstanding. CIT shall be entitled to charge the Company a $500 fee
upon the first effective day of any such election for a LIBOR Loan.

 

(b) Any LIBOR Loans may be continued as such upon the expiration of an Interest
Period, provided the Company so notifies CIT, at least three (3) Business Days’
prior to the expiration of said Interest Period, and provided further that no
LIBOR Loan may be continued as such upon the occurrence of any Default or Event
of Default under this Financing Agreement, but shall be automatically converted
to a Chase Bank Rate Loan on the last day of the Interest Period during which
occurred such Default or Event of Default. Absent such notification, LIBOR Rate
Loans shall convert to Chase Bank Rate Loans on the last day of the applicable
Interest Period. Each notice of election, conversion or continuation furnished
by the Company pursuant hereto shall specify whether such election, conversion
or continuation is for a month period. Notwithstanding anything to the contrary
contained herein, CIT (or any participant, if applicable) shall not be required
to purchase United States Dollar deposits in the London interbank market or from
any other applicable LIBOR Rate market or source or otherwise “match fund” to
fund LIBOR Rate Loans, but any and all provisions hereof relating to LIBOR Rate
Loans shall be deemed to apply as if CIT (and any participant, if applicable)
had purchased such deposits to fund any LIBOR Rate Loans.

 

(c) The Company may request a LIBOR Loan, convert any Chase Bank Rate Loan or
continue any LIBOR Loan provided there is then no Default or Event of Default in
effect.

 

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8.14 (a) The LIBOR Loans shall bear interest for each Interest Period with
respect thereto on the unpaid principal amount thereof at a rate per annum equal
to the LIBOR determined for each Interest Period in accordance with the terms
hereof plus the Applicable Margin.

 

(b) If all or a portion of the outstanding principal amount of the Obligations
shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such outstanding amount, to the extent it is a LIBOR Loan, shall be
converted to a Chase Bank Rate Loan at the end of the last Interest Period
therefor.

 

(c) The Company may not have more than four (4) LIBOR Loans outstanding at any
given time.

 

8.15 (a) Interest in respect of the LIBOR Loans shall be calculated on the basis
of a 360 day year and shall be payable on the last day of each month and the
last day of the applicable Interest Period.

 

(b) CIT shall, at the request of the Company, deliver to the Company a statement
showing the quotations given by JP Morgan Chase Bank and the computations used
in determining any interest rate pursuant to Paragraph 8.14 of Section 8 hereof.

 

8.16 As further set forth in paragraph 8.12 above, in the event that CIT (or any
financial institution which may become a participant hereunder) shall have
determined in the exercise of its reasonable business judgement (which
determination shall be conclusive and binding upon the Company) that by reason
of circumstances affecting the interbank LIBOR market, adequate and reasonable
means do not exist for ascertaining LIBOR applicable for any Interest Period
with respect to (a) a proposed loan that the Company has requested be made as a
LIBOR Loan, (b) a LIBOR Loan that will result from the requested conversion of a
Chase Bank Rate Loan into a LIBOR Loan or (c) the continuation of LIBOR Loans
beyond the expiration of the then current Interest Period with respect thereto,
CIT shall forthwith give written notice of such determination to the Company at
least one day prior to, as the case may be, the requested borrowing date for
such LIBOR Loan, the conversion date of such Chase Bank Rate Loan or the last
day of such Interest Period. If such notice is given (i) any requested LIBOR
Loan shall be made as a Chase Bank Rate Loan, (ii) any Chase Bank Rate Loan that
was to have been converted to a LIBOR Loan shall be continued as a Chase Bank
Rate Loan, and (iii) any outstanding LIBOR Loan shall be converted, on the last
day of then current Interest Period with respect thereto, to a Chase Bank Rate
Loan. Until such notice has been withdrawn by CIT, no further LIBOR Loan shall
be made nor shall the Company have the right to convert a Chase Bank Rate Loan
to a LIBOR Loan.

 

8.17 If any payment on a LIBOR Loan becomes due and payable on a day other than
a Business Day or Working Day, the maturity thereof shall be extended to the
next succeeding Business Day or Working Day unless the result of such extension
would be to extend such payment into another calendar month in which event such
payment shall be made on the immediately preceding Business Day or Working Day.

 

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8.18 Notwithstanding any other provisions herein, if any law, regulation, treaty
or directive or any change therein or in the interpretation or application
thereof, shall make it unlawful for CIT to make or maintain LIBOR Loans as
contemplated herein, the then outstanding LIBOR Loans, if any, shall be
converted automatically to Chase Bank Rate Loans as of the end of such month, or
within such earlier period as required by law. The Company hereby agrees
promptly to pay CIT, upon its demand, any additional amounts necessary to
compensate CIT for any costs incurred by CIT in making any conversion in
accordance with this Section 8 including, but not limited to, any interest or
fees payable by CIT to lenders of funds obtained by CIT in order to make or
maintain LIBOR Loans hereunder.

 

8.19 The Company agrees to indemnify and to hold CIT (including any participant)
harmless from any loss or expense which CIT or such participant may sustain or
incur as a consequence of (a) default by the Company in payment of the principal
amount of or interest on any LIBOR Loans, as and when the same shall be due and
payable in accordance with the terms of this Financing Agreement, including, but
not limited to, any such loss or expense arising from interest or fees payable
by CIT or such participant to lenders of funds obtained by either of them in
order to maintain the LIBOR Loans hereunder, (b) default by the Company in
making a borrowing or conversion after the Company has given a notice in
accordance with Paragraph 8.13 of Section 8 hereof, (c) any prepayment of LIBOR
Loans on a day which is not the last day of the Interest Period applicable
thereto, including, without limitation, prepayments arising as a result of the
application of the proceeds of Collateral to the Revolving Loans and (d) default
by the Company in making any prepayment after the Company had given notice to
CIT thereof. The determination by CIT of the amount of any such loss or expense,
when set forth in a written notice to the Company, containing CIT’s calculations
thereof in reasonable detail, shall be conclusive on the Company in the absence
of manifest error. Calculation of all amounts payable under this paragraph with
regard to LIBOR Loans shall be made as though CIT had actually funded the LIBOR
Loans through the purchase of deposits in the relevant market and currency, as
the case may be, bearing interest at the rate applicable to such LIBOR Loans in
an amount equal to the amount of the LIBOR Loans and having a maturity
comparable to the relevant interest period provided, however, that CIT may fund
each of the LIBOR Loans in any manner CIT sees fit and the foregoing assumption
shall be used only for calculation of amounts payable under this paragraph. In
addition, notwithstanding anything to the contrary contained herein, CIT shall
apply all proceeds of Collateral and all other amounts received by it from or on
behalf of the Company (i) initially to the Chase Bank Rate Loans and (ii)
subsequently to LIBOR Loans; provided, however, (x) upon the occurrence of an
Event of Default or (y) in the event the aggregate amount of outstanding LIBOR
Rate Loans exceeds Availability or the applicable maximum levels set forth
therefor, CIT may apply all such amounts received by it to the payment of
Obligations in such manner and in such order as CIT may elect in its reasonable
business judgment. In the event that any such amounts are applied to Revolving
Loans which are LIBOR Loans, such application shall be treated as a prepayment
of such loans and CIT shall be entitled to indemnification hereunder. This
covenant shall survive termination of this Financing Agreement and payment of
the outstanding Obligations.

 

8.20 Notwithstanding anything to the contrary in this Agreement, in the event
that, by reason of any Regulatory Change (for purposes hereof “Regulatory
Change” shall mean, with respect to CIT, any change after the date of this
Financing Agreement in United States federal,

 

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state or foreign law or regulations (including, without limitation, Regulation
D) or the adoption or making after such date of any interpretation, directive or
request applying to a class of banks including CIT of or under any United States
federal, state or foreign law or regulations (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful), CIT
either (a) incurs any material additional costs based on or measured by the
excess above a specified level of the amount of a category of deposits or other
liabilities of such bank which includes deposits by reference to which the
interest rate on LIBOR Loans is determined as provided in this Financing
Agreement or a category of extensions of credit or other assets of CIT which
includes LIBOR Loans or (b) becomes subject to any material restrictions on the
amount of such a category of liabilities or assets which it may hold, then, if
CIT so elects by notice to the Company the obligation of CIT to make or
continue, or to convert Chase Bank Rate Loans into LIBOR Loans hereunder shall
be suspended until such Regulatory Change ceases to be in effect.

 

8.21 For purposes of this Financing Agreement and Section 8 thereof, any
reference to CIT shall include any financial institution which may become a
participant or co-lender subsequent to the Closing Date.

 

SECTION 9. Powers

 

The Company hereby constitutes CIT, or any person or agent CIT may designate, as
its attorney-in-fact, at the Company’s cost and expense, to exercise all of the
following powers, which being coupled with an interest, shall be irrevocable
until all Obligations to CIT have been paid in full:

 

(a) To receive, take, endorse, sign, assign and deliver, all in the name of CIT
or the Company, any and all checks, notes, drafts, and other documents or
instruments relating to the Collateral;

 

(b) To receive, open and dispose of all mail addressed to the Company and to
notify postal authorities to change the address for delivery thereof to such
address as CIT may designate;

 

(c) To request from customers indebted on Accounts at any time, in the name of
CIT information concerning the amounts owing on the Accounts;

 

(d) To request from customers indebted on Accounts at any time, in the name of
the Company, in the name of certified public accountant designated by CIT or in
the name of CIT’s designee, information concerning the amounts owing on the
Accounts;

 

(e) To transmit to customers indebted on Accounts notice of CIT’s interest
therein and to notify customers indebted on Accounts to make payment directly to
CIT for the Company’s account; and

 

(f) To take or bring, in the name of CIT or the Company, all steps, actions,
suits or proceedings deemed by CIT necessary or desirable to enforce or effect
collection of the Accounts.

 

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Notwithstanding anything hereinabove contained to the contrary, the powers set
forth in (b), (c), (e) and (f) above may only be exercised after the occurrence
of an Event of Default and until such time as such Event of Default is waived in
writing by CIT.

 

SECTION 10. Events of Default and Remedies

 

10.1 Notwithstanding anything hereinabove to the contrary, CIT may terminate
this Financing Agreement immediately upon the occurrence of any of the following
(herein “Events of Default”):

 

  (a) cessation of the business of the Company or the calling of a meeting of
the creditors of the Company for purposes of compromising the debts and
obligations of the Company;

 

  (b) the failure of the Company to generally meet its debts as they mature;

 

  (c) (i) the commencement by the Company of any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceedings under any
federal or state law; (ii) the commencement against the Company, of any
bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceeding under any federal or state law by creditors of the Company, provided
that such Default shall not be deemed an Event of Default if such proceeding is
controverted within ten (10) days and dismissed and vacated within thirty (30)
days of commencement, except in the event that any of the actions sought in any
such proceeding shall occur or the Company shall take action to authorize or
effect any of the actions in any such proceeding, or (iii) the commencement (x)
by the Company’s subsidiaries, or any one of them, of any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar proceeding
under any applicable state law, or (y) against the Company’s subsidiaries, or
any one of them, of any involuntary bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceeding under applicable law,
provided that such Default shall not be deemed an Event of Default if such
proceeding is controverted within ten (10) days and dismissed or vacated within
thirty (30) days of commencement, except in the event that any of the actions
sought in any such proceeding shall occur or the Company’s subsidiaries, or any
one of them, shall take action to authorize or effect any of the actions in any
such proceeding;

 

  (d) breach by the Company of any warranty, representation or covenant
contained herein (other than those referred to in sub-paragraph (e) below) or in
any other written agreement between the Company or CIT, provided that such
Default by the Company of any of the warranties, representations or covenants
referred in this clause (d) shall not be deemed to be an Event of Default unless
and until such Default shall remain unremedied to CIT’s satisfaction for a
period of ten (10) days from the date of such breach;

 

  (e)

breach by the Company of any warranty, representation or covenant of Paragraphs
3.3 (other than the fourth sentence of Paragraph 3.3) and 3.4 of Section 3
hereof; Paragraphs 6.3 and 6.4 (other than the first sentence of

 

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Paragraph 6.4) of Section 6 hereof; Paragraphs 7.1, 7.5, 7.6, and 7.8 through
7.18 hereof;

 

  (f) failure of the Company to pay any of the Obligations within five (5)
Business Days of the due date thereof, provided that nothing contained herein
shall prohibit CIT from charging such amounts to the Revolving Loan Account on
the due date thereof;

 

  (g) the Company shall (i) engage in any “prohibited transaction” as defined in
ERISA, (ii) have any “accumulated funding deficiency” as defined in ERISA, (iii)
have any “reportable event” as defined in ERISA, (iv) terminate any “plan”, as
defined in ERISA or (v) be engaged in any proceeding in which the Pension
Benefit Guaranty Corporation shall seek appointment, or is appointed, as trustee
or administrator of any “plan”, as defined in ERISA, and with respect to this
sub-paragraph (h) such event or condition (x) remains uncured for a period of
thirty (30) days from date of occurrence and (y) could, in the reasonable
opinion of CIT, subject the Company to any tax, penalty or other liability
material to the business, operations or financial condition of the Company;

 

  (h) without the prior written consent of CIT and, except as permitted in the
Subordination Agreement, the Company shall (x) amend or modify the Subordinated
Debt, or (y) make any payment on account of the Subordinated Debt;

 

  (i) the occurrence of any default or event of default (after giving effect to
any applicable grace or cure periods) under any instrument or agreement
evidencing (x) Subordinated Debt or (y) any other Indebtedness of the Company
having a principal amount in excess of $250,000 (including Indebtedness with
respect to the Hilco Loan); or

 

  (j) (i) any “person” or “group” (within the meaning of Sections 13(d) and
14(d) of the Exchange Act) becomes the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of a percentage of the
stock of the Company having the right to vote for the election of members of the
Board of Directors which is in excess of the percentage of such stock
beneficially owned by UM Holdings, Ltd. and its Affiliates, (ii) a majority of
the members of the Board of Directors do not constitute Continuing Directors,
(iii) the Company ceases to own, directly or indirectly, and control 100% of the
outstanding stock of each of its subsidiaries (other than the Inactive
Subsidiaries) existing on the Closing Date, (iv) John Aglialoro ceases for any
reason whatsoever (other than as a result of death or disability) to be actively
engaged in the management of the Company or (v) UM Holdings, Ltd. and/or its
Affiliates shall at any time collectively own less than 40% of the issued and
outstanding voting stock of the Company;

 

  (k)

the receipt by CIT of notice from the issuer of the UM Holdings Letter of Credit
that such issuer elects not to renew UM Holdings Letter of Credit for an
additional one year period and the failure of UM Holdings, Ltd. or the Company,
unless the UM Holdings Letter of Credit has been returned to UM Holdings, Ltd.
in accordance with the terms of this Financing Agreement, to replace the UM
Holdings Letter of Credit with a replacement letter of credit (in form and
substance satisfactory to CIT and issued by an issuer satisfactory to

 

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CIT) no less than 45 days prior to the expiration of the UM Holdings Letter of
Credit.

 

10.2 Upon the occurrence of a Default and/or an Event of Default, at the option
of CIT, all loans, advances and extensions of credit provided for in Sections 3,
4 and 5 of this Financing Agreement shall be thereafter in CIT’s sole discretion
and the obligation of CIT to make Revolving Loans and/or open Letters of Credit
shall cease unless such Default is cured to CIT’s satisfaction or Event of
Default is waived in writing by CIT , and at the option of CIT upon the
occurrence of an Event of Default: (a) all Obligations shall become immediately
due and payable; (b) CIT may charge the Company the Default Rate of Interest on
all then outstanding or thereafter incurred Obligations in lieu of the interest
provided for in Section 8 of this Financing Agreement, provided that, with
respect to this clause “(b)” CIT has given the Company written notice of the
Event of Default, provided, however, that no notice is required if the Event of
Default is the Event listed in Paragraph 10.1(c) of this Section 10, and (c) CIT
may immediately terminate this Financing Agreement upon notice to the Company,
provided, however, that upon the occurrence of an Event of Default listed in
Paragraph 10.1(c) of this Section 10, this Financing Agreement shall
automatically terminate and all Obligations shall become due and payable,
without any action, declaration, notice or demand by CIT. The exercise of any
option is not exclusive of any other option, which may be exercised at any time
by CIT.

 

10.3 Immediately upon the occurrence of any Event of Default, CIT may, to the
extent permitted by law: (a) remove from any premises where same may be located
any and all books and records, computers, electronic media and software programs
associated with any Collateral (including any electronic records, contracts and
signatures pertaining thereto), documents, instruments, files and records, and
any receptacles or cabinets containing same, relating to the Accounts, or CIT
may use, at the Company’s expense, such of the Company’s personnel, supplies or
space at the Company’s places of business or otherwise, as may be necessary to
properly administer and control the Accounts or the handling of collections and
realizations thereon; (b) bring suit, in the name of the Company or CIT, and
generally shall have all other rights respecting said Accounts, including
without limitation the right to: accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Company or CIT; (c) sell, assign
and deliver the Collateral and any returned, reclaimed or repossessed Inventory,
with or without advertisement, at public or private sale, for cash, on credit or
otherwise, at CIT’s sole option and discretion, and CIT may bid or become a
purchaser at any such sale, free from any right of redemption, which right is
hereby expressly waived by the Company; (d) foreclose the security interests in
the Collateral created herein or by the Loan Documents by any available judicial
procedure, or to take possession of any or all of the Collateral, including any
Inventory, Equipment and/or Other Collateral without judicial process, and to
enter any premises where any Inventory and Equipment and/or Other Collateral may
be located for the purpose of taking possession of or removing the same and (e)
exercise any other rights and remedies provided in law, in equity, by contract
or otherwise. CIT shall have the right, without notice or advertisement, to
sell, lease, or otherwise dispose of all or any part of the Collateral, whether
in its then condition or after further preparation or processing, in the name of
the Company or CIT, or in the name of such other party as CIT may designate,
either at public or private sale or at any broker’s board, in lots or in bulk,

 

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for cash or for credit, with or without warranties or representations, and upon
such other terms and conditions as CIT in its sole discretion may deem
advisable, and CIT shall have the right to purchase at any such sale. If any
Inventory and Equipment shall require rebuilding, repairing, maintenance or
preparation, CIT shall have the right, at its option, to do such of the
aforesaid as is necessary, for the purpose of putting the Inventory and
Equipment in such saleable form as CIT shall deem appropriate. The Company
agrees, at the request of CIT, to assemble the Inventory and Equipment and to
make it available to CIT at premises of the Company or elsewhere and to make
available to CIT the premises and facilities of the Company for the purpose of
CIT’s taking possession of, removing or putting the Inventory and Equipment in
saleable form. If notice of intended disposition of any Collateral is required
by law, it is agreed that ten (10) days notice shall constitute reasonable
notification and full compliance with the law. The net cash proceeds resulting
from CIT’s exercise of any of the foregoing rights, (after deducting all
charges, costs and expenses, including reasonable attorneys’ fees) shall be
applied by CIT to the payment of the Obligations, whether due or to become due,
in such order as CIT may elect, and the Company shall remain liable to CIT for
any deficiencies, and CIT in turn agrees to remit to the Company or its
successors or assigns, any surplus resulting therefrom. The enumeration of the
foregoing rights is not intended to be exhaustive and the exercise of any right
shall not preclude the exercise of any other rights, all of which shall be
cumulative. The Company hereby indemnifies CIT and holds CIT harmless from any
and all costs, expenses, claims, liabilities, Out-of-Pocket Expenses or
otherwise, incurred or imposed on CIT by reason of the exercise of any of its
rights, remedies and interests hereunder, including, without limitation, from
any sale or transfer of Collateral, preserving, maintaining or securing the
Collateral, defending its interests in Collateral (including pursuant to any
claims brought by the Company, the Company as debtor-in-possession, any secured
or unsecured creditors of the Company, any trustee or receiver in bankruptcy, or
otherwise), and the Company hereby agrees to so indemnify and hold CIT harmless,
absent CIT’s gross negligence or willful misconduct as finally determined by a
court of competent jurisdiction. The foregoing indemnification shall survive
termination of this Financing Agreement until such time as all Obligations
(including the foregoing) have been finally and indefeasibly paid in full. In
furtherance thereof CIT, may establish such reserves for Obligations hereunder
(including any contingent Obligations) as it may deem advisable in its
reasonable business judgement. Any applicable mortgage(s), deed(s) of trust or
assignment(s) issued to CIT on the Real Estate shall govern the rights and
remedies of CIT thereto.

 

SECTION 11. Termination

 

Except as otherwise permitted herein, CIT may terminate this Financing Agreement
only as of the initial or any subsequent Anniversary Date and then only by
giving the Company at least sixty (60) days prior written notice of termination.
Notwithstanding the foregoing CIT may terminate the Financing Agreement
immediately upon the occurrence of an Event of Default, provided, however, that
if the Event of Default is an event listed in Paragraph 10.1(c) of Section 10 of
this Financing Agreement, this Financing Agreement shall terminate in accordance
with paragraph 10.2 of Section 10. This Financing Agreement, unless terminated
as herein provided, shall automatically continue from Anniversary Date to
Anniversary Date. The Company may terminate this Financing Agreement at any time
upon sixty (60) days’ prior written notice to CIT, provided that the Company
pays to CIT immediately on demand an Early Termination Fee

 

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and/or the Prepayment Premium, if applicable. All Obligations shall become due
and payable as of any termination hereunder or under Section 10 hereof and,
pending a final accounting, CIT may withhold any balances in the Company’s
account (unless supplied with an indemnity satisfactory to CIT) to cover all of
the Obligations, whether absolute or contingent, including, but not limited to,
cash reserves for any contingent Obligations, including an amount of 110% of the
face amount of any outstanding Letters of Credit with an expiry date on, or
within thirty (30) days of the effective date of termination of this Financing
Agreement. All of CIT’s rights, liens and security interests shall continue
after any termination until all Obligations have been paid and satisfied in
full.

 

SECTION 12. Miscellaneous

 

12.1 The Company hereby waives diligence, notice of intent to accelerate, notice
of acceleration, demand, presentment and protest and any notices thereof as well
as notice of nonpayment. No delay or omission of CIT or the Company to exercise
any right or remedy hereunder, whether before or after the happening of any
Event of Default, shall impair any such right or shall operate as a waiver
thereof or as a waiver of any such Event of Default. No single or partial
exercise by CIT of any right or remedy precludes any other or further exercise
thereof, or precludes any other right or remedy.

 

12.2 This Financing Agreement and the Loan Documents executed and delivered in
connection therewith constitute the entire agreement between the Company and
CIT; supersede any prior agreements; can be changed only by a writing signed by
both the Company and CIT; and shall bind and benefit the Company and CIT and
their respective successors and assigns.

 

12.3 In no event shall the Company, upon demand by CIT for payment of any
indebtedness relating hereto, by acceleration of the maturity thereof, or
otherwise, be obligated to pay interest and fees in excess of the amount
permitted by law. Regardless of any provision herein or in any agreement made in
connection herewith, CIT shall never be entitled to receive, charge or apply, as
interest on any indebtedness relating hereto, any amount in excess of the
maximum amount of interest permissible under applicable law. If CIT ever
receives, collects or applies any such excess, it shall be deemed a partial
repayment of principal and treated as such; and if principal is paid in full,
any remaining excess shall be refunded to the Company. This paragraph shall
control every other provision hereof, the Loan Documents and of any other
agreement made in connection herewith.

 

12.4 If any provision hereof or of any other agreement made in connection
herewith is held to be illegal or unenforceable, such provision shall be fully
severable, and the remaining provisions of the applicable agreement shall remain
in full force and effect and shall not be affected by such provision’s
severance. Furthermore, in lieu of any such provision, there shall be added
automatically as a part of the applicable agreement a legal and enforceable
provision as similar in terms to the severed provision as may be possible.

 

12.5 THE COMPANY AND CIT EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED

 

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THEREUNDER. THE COMPANY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS
AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED. IN NO EVENT WILL CIT BE LIABLE FOR LOST PROFITS OR OTHER
SPECIAL OR CONSEQUENTIAL DAMAGES.

 

12.6 Except as otherwise herein provided, any notice or other communication
required hereunder shall be in writing (provided that, any electronic
communications from the Company with respect to any request, transmission,
document, electronic signature, electronic mail or facsimile transmission shall
be deemed binding on the Company for purposes of this Financing Agreement,
provided further that any such transmission shall not relieve the Company from
any other obligation hereunder to communicate further in writing), and shall be
deemed to have been validly served, given or delivered when hand delivered or
sent by facsimile, or three days after deposit in the United State mails, with
proper first class postage prepaid and addressed to the party to be notified or
to such other address as any party hereto may designate for itself by like
notice, as follows:

 

(A) if to CIT, at:

 

The CIT Group/Business Credit, Inc.

2WO Wachovia Center, 25th Floor

301 South Tryon Street

Charlotte, NC 28202

Attn: Regional Credit Manager

Fax No.: (704) 339-2894

 

(B) if to the Company at:

 

Cybex International, Inc.

10 Trotter Drive

Medway, MA 02083

Attn: Arthur Hicks

Fax No: (508) 533-5799

 

With a courtesy copy of any material notice to the Company’s counsel at:

 

Archer & Greiner, PC

One Centennial Square

Haddenfield, NJ 08038

Attn: James H. Carll, Esquire

Fax No. (856) 795-0574

 

provided, however, that the failure of CIT to provide the Company’s counsel with
a copy of such notice shall not invalidate any notice given to the Company and
shall not give the Company any rights, claims or defenses due to the failure of
CIT to provide such additional notice.

 

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12.7 THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING AGREEMENT
AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK, EXCEPT TO THE EXTENT THAT ANY OTHER LOAN DOCUMENT INCLUDES AN EXPRESS
ELECTION TO BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement to
be effective, executed and accepted by their proper and duly authorized officers
as of the date set forth above.

 

CYBEX INTERNATIONAL, INC.  

THE CIT GROUP/

BUSINESS CREDIT, INC.

By:

 

/s/ Arthur W. Hicks, Jr.

--------------------------------------------------------------------------------

  By:  

/s/ Richard S. Cassels

--------------------------------------------------------------------------------

Title:

 

Chief Financial Officer

 

Title:

 

Senior Vice President

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SCHEDULE 1 – COLLATERAL INFORMATION

 

CYBEX INTERNATIONAL, INC.     STATE INCORPORATION OR FORMATION:   New York
FEDERAL TAX I.D. NUMBER:   11-1731581 CHIEF EXECUTIVE OFFICE:   10 Trotter
Drive, Medway MA 02053-2275 COLLATERAL LOCATIONS:  

10 Trotter Drive, Medway MA 02053-2275

151 24th Avenue NW, Owatonna MN 55060-1099

728 N. Cedar Avenue, Owatonna MN 55060-1137

CYBEX CAPITAL CORPORATION     STATE OF INCORPORATION OR FORMATION:   New York
FEDERAL TAX I.D. NUMBER:   11-3135906 CHIEF EXECUTIVE OFFICE:   99 SW Wilshire,
Suite 190, Portland OR 97225 COLLATERAL LOCATIONS:   99 SW Wilshire, Suite 190,
Portland OR 97225 CYBEX INTERNATIONAL UK LIMITED     STATE OF INCORPORATION OR
FORMATION:   England FEDERAL TAX I.D. NUMBER:   N/A CHIEF EXECUTIVE OFFICE:   10
North Parkway Close, Round Spinney, Northampton NN38RQ UK COLLATERAL LOCATIONS:
  10 North Parkway Close, Round Spinney, Northampton NN38RQ UK TECTRIX FITNESS
EQUIPMENT, INC.     STATE OF INCORPORATION OR FORMATION:   California FEDERAL
TAX I.D. NUMBER:   33-0338901 CHIEF EXECUTIVE OFFICE:   10 Trotter Drive, Medway
MA 02053-2275 COLLATERAL LOCATIONS:   N/A DORMANT CYBEX FITNESS GERATE VERTRIEBS
GMBH     STATE OF INCORPORATION OR FORMATION:   Germany FEDERAL TAX I.D. NUMBER:
  N/A CHIEF EXECUTIVE OFFICE:   N/A DORMANT COLLATERAL LOCATIONS:   N/A DORMANT

 

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Schedule 2

 

Litigation

 

Hot New Products, Inc. d/b/a Fitnesszone v. Trotter, Inc. and Cybex
International, Inc., CV 98-JEO-1730-S, United States District Court for the
Northern District of Alabama, Southern Division. The Hot New Products suit was
initiated in July 1997 as a breach of contract, fraud, unjust enrichment and
recoupment action in Alabama state court. Amended in 1998 to include federal
antitrust claims, including price discrimination and price conspiracy
violations. Plaintiff has made a claim of $3.5 Million (not including any
possible punitive and/or other exemplary damages).

 

Gary J. Colassi v. Cybex International, Inc., Civil Action 02-11909 RWZ, United
States District Court for the District of Massachusetts. The Colassi matter was
initiated in August 2002and is a patent infringement action alleging that Cybex
is infringing on U.S. Patent 6,123,646 issued to Mr. Colassi. Plaintiff has not
formulated a specific demand amount but has intimated that an adverse judgment
would involve a significant royalty on all Cybex treadmills containing the
Stableflex system as well as punitive damages.

 

Free Motion Fitness, Inc. f/k/a Ground Zero Design Corporation v. Cybex
International, Inc., 1:01CV00152 BSJ, United States District Court for the
District of Utah. Action initiated by Free Motion in December 2001 alleging that
Cybex is infringing on a patent owned by Free Motion. No specific amount has
been demanded, however, an adverse judgment would involve a significant royalty
on all sales of the FT-360 Functional Trainer and possible punitive damages.

 

Chris J. Creighton and Healthline, Inc. v. Cybex International, Inc., et. al.,
Case Number 788623, Superior Court of the State of California, Orange County.
Initiated in January 1997, the Creighton matter involved claims for fraud,
negligent misrepresentation, breach of contract and other allegations. Settled
in March 2003 for a cash payment of $285,000 over time as well as an equipment
component of $140,000 also over time. To date more than $30,000 of the equipment
component has been satisfied and cash payments of $100,000 have been made. The
settlement agreement contains a $600,000 consent judgment in case of breach.

 

Gene Kirilla, II, et al v. Cybex International, Inc., et al, Civil Division G.D.
No. 1997-1725, Court of Common Pleas of Mercer County, Pennsylvania. Initiated
in April 1997, the Kirilla matter involved a claim of $12,000,000 on allegations
of breach of covenant of good faith and fair dealing, negligent
misrepresentation and unjust enrichment. This matter went to trial in 2002 and
the jury rendered a verdict for approximately $875,000 in favor of Mr. Kirilla.
Both sides filed post-trial motions and the judge elected not to enter a
judgment on the verdict until the post-trial motions were resolved. Post-trial
motions were argued in August 2002 and have not yet been ruled on by the judge.
A ruling could come at anytime and could involve an award of fees and interest
by the judge in addition to the jury verdict by could also involve a reduction
of the jury award. The Company intends to appeal any judgment in this matter.

 

The Company in the ordinary course of business is subject to product liability
and similar litigation, all of which the Company believes is covered by
insurance.

 

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The descriptions for all matter provided on this Schedule (in italics) are
provided for informational purposes only and are not in any way intended to
limit the scope of this Schedule.

 

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SCHEDULE #3

CYBEX INTERNATONAL, INC.

 

BENEFIT PLANS    PLANS Medical   

90/70 Blue Care Elect PPO

80/60 Blue Care Elect PPO

Network Blue New England HMO

 

Fallon HMO

Vision      Dental    Delta Premier Plan Continental Assurance Company   

Group Life Insurance

Supplemental Life Insurance

Short Term Disability (Advice to Pay only)

Long Term Disability

Business Travel Accident Insurance      Flexible Spending Accounts   

Healthcare Flexible Spending

Dependent Care Spending

401 (K)    Cybex Savings and Investment Plan Employee Assistance Programs Group
Home/Auto Discount Insurance (employee voluntary) COBRA Administrator Payroll
Service Workman’s Compensation Insurance

 

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PROVIDER

 

Blue Cross Blue Shield of Massachusetts

Blue Cross Blue Shield of Massachusetts

Blue Cross Blue Shield of Massachusetts

 

Fallon Community Health Plan

 

Vision Service Plan

 

Delta Dental USA

 

 

 

 

 

AIG Life Insurance Company

 

Medical Claims Service

 

Fidelity Investments

 

Health Resources (Medway)

South Central Human Resources Center (Owatonna)

 

MetLife

 

Benefit Concepts Inc. of Rhode Island

 

ADP

 

Liberty Mutual Company

 

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SCHEDULE 4

 

2003 EBITDA PROJECTIONS

 

2ND QUARTER 2003

   $ 2,022,000

3RD QUARTER 2003

   $ 2,222,000

4TH QUARTER 2003

   $ 3,178,000     

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CUMULATIVE 9 MONTHS

   $ 5,422,000     

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SCHEDULE 5

 

Related Party Payments

 

1. Compensation payable to John Aglialoro as an employee of Cybex International,
Inc., as authorized from time to time by the independent Directors of Cybex
International, Inc. Mr. Aglialoro’s current salary is at the rate of $360,000
per annum, subject to increase of up to 10% per year as authorized by the
independent Directors of Cybex International, Inc. Any bonus payable to Mr.
Aglialoro with respect to any year will be authorized by the independent
Directors of Cybex International, Inc. and will not exceed 50% of approved
salary.

 

2. Fees (not to exceed $200,000 per annum) payable to UM Holdings Ltd under
Services Agreement pursuant to which services of Chief Financial Officer are
provided.

 

3. Fees (not to exceed $100,000 per annum) payable to UM Holdings Ltd under
Services Agreement pursuant to which services of General Counsel are provided.

 

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