Exhibit 10

 

 

LOAN AGREEMENT

 

 

THIS LOAN AGREEMENT (the "Agreement") is entered into this 29th day of January,
2010, by and between THE EASTERN COMPANY, a Connecticut corporation, having its
chief executive office at 112 Bridge Street, P.O. Box 460, Naugatuck,
Connecticut 06770-0460 (hereinafter referred to as "Borrower"), and PEOPLE'S
UNITED BANK, a federally-chartered savings bank, having a banking office at 255
Bank Street, Waterbury, Connecticut 06702-2219 (hereinafter referred to as
"Lender").

 

 

W I T N E S S E T H :

 

WHEREAS, Borrower has requested that Lender make available to Borrower the
Credit Facilities (as defined below), and Lender is willing to agree to
Borrower's request on the terms and conditions and in reliance upon the
representations, warranties and covenants of Borrower hereinafter set forth;

 

NOW, THEREFORE, in consideration of the foregoing and in further consideration
of the mutual covenants herein contained, the parties hereto agree as follows:

 

 

1.

DEFINITIONS

 

 

As used herein the following terms shall have the following meanings:

 

"Affiliate" shall mean any Person (a) that, directly or indirectly, controls is
controlled by, or is under common control with, Borrower; or (b) that is a
member, director, manager, or officer of Borrower or of any Person that,
directly or indirectly, controls, is controlled by, or is under common control
with, Borrower, together with, in each case, their respective relatives (whether
by blood or marriage), heirs, executors, administrators, personal
representatives, successors, and assigns; and (c) any trust of which any of the
foregoing Persons is a settlor, trustee or beneficiary. For the purposes of this
definition, the term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities (or membership
interests), by contract, or otherwise;

 

"Business Day" shall mean and refer to any day other than Saturday, Sunday or
any other day on which commercial banks in Connecticut are authorized or
required to close under the laws of the State of Connecticut, and whenever such
day relates to a LIBOR Rate Loan, a day on which dealings in U.S. Dollar
deposits are also carried out in the London interbank market;

 

"Collateral" shall have the meaning given to such term in the Security
Agreement;

 

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"Consolidated Subsidiaries" shall refer to the Subsidiaries of Borrower
described on Exhibit A attached hereto and made a part hereof; and the term
"Consolidated Subsidiary" shall refer to any one of them;

 

"Credit Facilities" shall mean collectively the Term Loan, the Revolving Credit
Loan and the Letters of Credit, as the same may hereafter be amended, modified,
restated and/or amended and restated; and "Credit Facility" shall mean any one
of the foregoing;

 

"Debt" shall mean at any time, without duplication, (i) all items (except items
of capital stock, capital surplus and retained earnings) which, in accordance
with GAAP, would be included in determining total consolidated liabilities of
Borrower and the Consolidated Subsidiaries as shown on the liability side of a
consolidated balance sheet of Borrower and the Consolidated Subsidiaries as at
the date on which Debt is to be determined; (ii) all Subordinated Debt; (iii)
all obligations secured by any Lien to which any property or asset owned by
Borrower and/or the Consolidated Subsidiaries is subject, whether or not the
obligation secured thereby shall have been assumed by Borrower and/or the
Consolidated Subsidiaries; (iv) the face amount of all outstanding letters of
credit issued for the account of Borrower (including any Letters of Credit
issued pursuant to the terms of Paragraph 3H of this Agreement) and/or the
Consolidated Subsidiaries and, without duplication, all drafts drawn thereunder
and not yet reimbursed; and (v) lease obligations of Borrower and/or the
Consolidated Subsidiaries which, in accordance with GAAP, should be capitalized;

 

"Debt Service" shall mean for any period, the sum of (i) Interest Expense, (ii)
Principal Amortization, and (iii) scheduled payments by Borrower and/or the
Consolidated Subsidiaries on account of capitalized leases;

 

"Debt Service Coverage Ratio" shall mean for any period, the ratio of Operating
Cash Flow to Debt Service;

 

"Environmental Laws" shall have the meaning given such term in the Security
Agreement;

 

"Event of Default" shall mean the existence of a state of facts under the
provisions of Paragraph 8 of this Agreement which constitute an Event of Default
and which permits Lender to declare the Term Loan and the Revolving Credit Loan
due and payable in their entireties;

 

"GAAP" shall mean generally accepted accounting principles in the United States
of America as in effect from time to time;

 

"Guaranties" shall mean the unconditional, unlimited continuing guaranties of
payment and performance of the Obligations of even date herewith, executed by
each of the Guarantors in favor of Lender; and the term "Guaranty" shall mean
any one of the Guaranties;

 

"Guarantors" shall mean collectively each of the Consolidated Subsidiaries
(other than Frazer & Jones Company, Inc., a New York corporation);

 

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"Hazardous Materials" shall have the meaning given such term in the Security
Agreement;

 

"Interest Expense" shall mean for any period, all amounts accrued by Borrower
and the Consolidated Subsidiaries, whether as interest, late charges, service
fees, or other charge for money borrowed, on account of or in connection with
Borrower's and the Consolidated Subsidiaries' indebtedness for money borrowed
from the Lender or any other Person which is a lending or financial institution
or with respect to which Borrower and the Consolidated Subsidiaries or any of
their respective properties are liable by assumption, operation of law or
otherwise, including, without limitation, any leases which are required, in
accordance with GAAP, to be carried as a liability on Borrower's and the
Consolidated Subsidiaries' consolidated balance sheet;

 

"Interest Period" shall mean with respect to the Revolving Credit Loan, the
period commencing on the date of the making or continuation of or conversion to
such Prime Rate Loan or LIBOR Rate Loan, as the case may be, and ending one (1)
month, two (2) months or (3) months thereafter, as Borrower may elect in the
applicable Notice of Borrowing or Conversion; provided, however, that (i) any
Interest Period that would otherwise end on a day that is not a Business Day
shall be extended to the next succeeding Business Day, and (ii) any Interest
Period that would otherwise extend beyond the maturity date of the Revolving
Credit Loan shall end on such maturity date;

 

"Leverage Ratio" shall mean for any period, the ratio of Debt to Tangible Net
Worth;

 

"Letters of Credit" shall mean and refer to those certain commercial and/or
standby letters of credit now or hereafter issued by Lender for the account of
Borrower, as more fully described in Paragraph 3H hereof; and "Letter of Credit"
shall mean any one of them;

 

"LIBOR" shall mean, as applicable to a LIBOR Rate Loan, the rate per annum
(rounded upward, if necessary, to the nearest 1/32 of one percent) as determined
on the basis of the offered rates for deposits in U.S. dollars, for a period of
one (1) month, two (2) months or (3) months, as appropriate, which appears on
the Telerate page 3750 as of 11:00 a.m. London time on the day that is two (2)
Business Days preceding the first day of such LIBOR Rate Loan; provided,
however, if the rate described above does not appear on the Telerate system on
any applicable interest determination date, LIBOR shall be the rate (rounded
upwards as described above, if necessary) for deposits in U.S. dollars for a
period substantially equal to the Interest Period on the Reuters Page "LIBO" (or
such other page as may replace the LIBO Page on that service for the purpose of
displaying such rates), as of 11:00 a.m. (London Time), on the day that is two
(2) Business Days prior to the beginning of such Interest Period; provided,
however, if both the Telerate and Reuters system are unavailable, then the rate
for that date will be determined on the basis of the offered rates for deposits
in U.S. dollars for a period of time comparable to such LIBOR Rate Loan which
are offered by four (4) major banks in the London interbank marked at
approximately 11:00 a.m. London time, on the day that is two (2) Business

 

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Days preceding the first day of such LIBOR Rate Loan as selected by Lender. The
principal London office of each of the four (4) major London banks will be
requested to provide a quotation of its U.S. dollar deposit offered rate. If at
least two (2) such quotations are provided, the rate for that date will be the
arithmetic mean of the quotations. If fewer than two quotations are provided as
requested, the rate for that date will be determined on the basis of the rates
quoted for loans in U.S. dollars to lending European banks for a period of time
comparable to such LIBOR Rate Loan offered by major banks in New York City at
approximately 11:00 a.m. New York City time, on the day that is two (2) Business
days preceding the first day of such LIBOR Rate Loan. In the event that Lender
is unable to obtain any such quotation as provided above, it will be deemed that
LIBOR pursuant to a LIBOR Rate Loan cannot be determined. In the event that the
Board of Governors of the Federal Reserve System shall impose a Reserve
Percentage (as defined below) with respect to LIBOR deposits of Lender, then for
any period during which such Reserve Percentage shall apply, LIBOR shall be
equal to the amount determined above divided by an amount equal to 1 minus the
Reserve Percentage. "Reserve Percentage" shall mean the maximum aggregate
reserve requirement (including all basis, supplemental, marginal and other
reserves) which is imposed on member banks of the Federal Reserve System against
"Euro-currency Liabilities" as defined in Regulation D;

 

"LIBOR Rate Loan" shall mean any advance on account of the Revolving Credit Loan
bearing interest determined by reference to the LIBOR Rate;

 

"LIBOR Rate" shall mean and refer to a rate of interest per annum equal to LIBOR
for the applicable Interest Period plus two and one-quarter percentage points
(2.25%); provided, however, that the applicable LIBOR Rate hereunder shall never
be less than four percent (4.0%) per annum;

 

"Lien" shall mean any mortgage, deed of trust, lien, pledge, assignment,
security interest, encumbrance or any transfer intended as security, including,
without limitation, any conditional sale or other title retention agreement;

 

"Loan Documents" shall mean collectively this Agreement, the Notes, the Security
Agreement, the Guaranties and any other agreement, instrument or document
whether now or hereafter executed and delivered to Lender in connection
herewith, together with any renewals, extensions, modifications or amendments
thereof;

 

"Net Income" shall mean for any period, the consolidated net income (or net
loss) of Borrower and the Consolidated Subsidiaries for such period from
continuing operations as determined in accordance with GAAP;

 

"Notes" shall mean the Term Note and the Revolving Credit Note, together with
any and all renewals, modifications, amendments or restatements thereof;

 

"Notice of Borrowing or Conversion" shall have the meaning given such term in
subparagraph (1) of Paragraph 3C hereof;

 

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"Obligations" shall mean the Term Loan, the Revolving Credit Loan and the
Letters of Credit, together with interest thereon, and any and all other
liabilities and obligations of whatever nature of Borrower to Lender, no matter
how or when arising and whether under the Loan Documents, or under any other
agreements, guarantees, instruments or documents, past, present or future, and
the amount due on any notes, or other obligations of Borrower given to, received
by or held by Lender (including, without limitation, overdrafts or any debt,
liability or obligation of Borrower to others which Lender may obtain by
assignment or otherwise) for or on account of any of the foregoing, whether, in
each case, direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising. The term "Obligations" shall also include all
costs and expenses, including, without limitation, any and all attorneys' fees,
costs and expenses relating to the appraisal and/or valuation of assets and all
other costs and expenses, incurred or paid by Lender in exercising, preserving,
defending, collecting, administering, enforcing or protecting any of its rights
under the Obligations or under the Loan Documents or with respect to the
Collateral or in any litigation arising out of the transactions evidenced by the
Obligations;

 

"Operating Cash Flow" shall mean for any period, an amount equal to the sum of
Borrower's and the Consolidated Subsidiaries' Net Income for such period (minus
any extraordinary gains in such period), plus the sum of: (i) Interest Expense
of Borrower and the Consolidated Subsidiaries, and (ii) depreciation and
amortization of Borrower and the Consolidated Subsidiaries, each to the extent
deducted in determining Net Income; minus the sum of the following items in such
period: (iii) all internally-funded expenditures of Borrower and the
Consolidated Subsidiaries for fixed assets which are required to be capitalized
by Borrower and the Consolidated Subsidiaries in accordance with GAAP, (iv) cash
dividends declared and actually paid by Borrower to its shareholders, and (v)
the amount of any stock redemptions or stock buybacks by Borrower (but excluding
any and all noncash stock option transactions);

 

"Person" shall mean any individual, corporation, partnership, joint venture,
limited liability company, joint stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof, or any
other form of entity;

 

"Prime Rate" shall mean the variable per annum rate of interest so designated
from time to time by Lender or its successors at its head office as its prime
rate. The Prime Rate is a reference rate and does not necessarily represent the
lowest or best rate being charged by Lender to any customer. In no event,
however, shall the applicable Prime Rate hereunder be less than four percent
(4.0%) per annum;

 

"Prime Rate Loan" shall mean any advance on account of the Revolving Credit Loan
bearing interest determined by reference to the Prime Rate;

 

"Principal Amortization" shall mean for any period, all amounts which Borrower
and the Consolidated Subsidiaries are required to pay (whether regularly
scheduled or as a result of a default and acceleration and whether or not
actually paid by Borrower and the Consolidated Subsidiaries) in reduction of
Borrower's and the Consolidated Subsidiaries' indebtedness referred

 

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to in the definition of Interest Expense, as required by the documents relating
to such indebtedness; provided, however, that Borrower's repayment of its term
loan obligations to Bank of America, N.A. on the date hereof shall not be
treated as Principal Amortization for purposes of this Agreement;

 

"Revolving Credit Loan" shall mean that certain revolving credit loan in an
amount of up to $10,000,000.00 made available by Lender to Borrower pursuant to
the provisions of Paragraph 3B hereof;

 

"Revolving Credit Note" shall have the meaning given such term in subparagraph
(1) of Paragraph 3B hereof;

 

"Security Agreement" shall mean that certain security agreement of even date
herewith, executed by Borrower in favor of Lender pursuant to which Borrower has
granted to Lender a continuing first priority Lien on all of Borrower's present
and future right, title and interest in and to any and all of Borrower's
tangible and intangible personal property assets to secure the Obligations;

 

"Subordinated Debt" shall mean at any time, obligations of Borrower and the
Consolidated Subsidiaries for money borrowed by them from any third Person which
has been subordinated in favor of the Lender by such Person to the repayment of
the Obligations by virtue of a subordination agreement executed and delivered to
Lender, in form and content satisfactory to the Lender;

 

"Subsidiary" shall mean a corporation (with respect to another corporation) of
which more than thirty (30%) of the outstanding stock having voting power to
elect a majority of its Board of Directors (whether or not at the time the
holders of any other class or classes of securities of such corporation shall or
might have such voting power by reason of the happening of any contingency) is
at any time directly or indirectly owned by another corporation or an Affiliate
of any such other corporation;

 

"Tangible Net Worth" shall mean as at the date of determination, the excess, if
any, of Borrower's and the Consolidated Subsidiaries' consolidated assets,
excluding intangible assets such as goodwill, licenses and patents and further
excluding any amounts owed to Borrower by any Affiliates of Borrower, whether in
the form of accounts (or accounts receivable), notes or other forms of payment,
minus Borrower's and the Consolidated Subsidiaries' consolidated liabilities
(other than Subordinated Debt);

 

"Term Loan" shall mean that certain seven (7) year term loan in the amount of
$5,000,000.00 made available by Lender to Borrower pursuant to the provisions of
Paragraph 3A hereof; and

 

"Term Note" shall have the meaning given such term in subparagraph (1) of
Paragraph 3A hereof.

 

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2.

REPRESENTATIONS AND WARRANTIES

 

 

Borrower represents and warrants to Lender that:

 

(a)        The audited consolidated financial statements of Borrower and the
Consolidated Subsidiaries, dated as of January 3, 2009, prepared by Borrower's
independent certified public accountants and heretofore delivered to Lender,
present fairly, in all material respects, the consolidated position of Borrower
and the Consolidated Subsidiaries and the consolidated results of their
operations and their cash flows as of such date, in conformity with GAAP, there
has not been any material adverse change in the financial condition of Borrower
or the Consolidated Subsidiaries since the date thereof, and Borrower and the
Consolidated Subsidiaries have no liabilities, fixed or contingent, which are
not fully shown or provided for in said financial statements as of the date
thereof except (i) obligations to perform after such date under contracts,
purchase orders and other commitments incurred in the ordinary course of
business, and (ii) obligations of the Borrower and the Consolidated Subsidiaries
created after such date;

 

(b)        Borrower is a corporation duly incorporated and validly existing
under the laws of the State of Connecticut with all the requisite corporate
power and authority to own, operate and lease its properties and to carry on its
business as now being conducted;

 

(c)        Except as disclosed in Schedule 2(o) attached hereto and made a part
hereof, there is no judgment, decree or order outstanding or litigation or
governmental proceeding or investigation pending, or, to Borrower's knowledge,
threatened against Borrower which might have a material adverse effect upon
Borrower's position, financial, operating or otherwise, and Borrower has filed
all tax returns and reports required to be filed by Borrower with the United
States government and all state and local governments and has paid in full or
made adequate provision for the payment of all taxes, interest, penalties,
assessments or deficiencies shown to be due or claimed to be due on or in
respect of such tax returns and reports;

 

(d)        The Loan Documents to which Borrower is a party are each valid, legal
and binding upon Borrower and enforceable in accordance with their respective
terms, and the execution and delivery of the Loan Documents have been duly
authorized by all necessary corporate action of Borrower;

 

(e)        The execution and delivery of the Loan Documents, the consummation of
the transactions contemplated therein and the fulfillment of or compliance with
the terms and provisions of the Loan Documents: (i) will not conflict with or
result in a breach of any of the terms, conditions or provisions of any
agreement, instrument or other undertaking to which Borrower is a party or by
which Borrower is bound; (ii) do not constitute a default thereunder or under
any of them; (iii) will not result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of Borrower's property
or assets pursuant to the terms of any such agreement, instrument or other
undertaking; (iv) do not require the consent or approval of any governmental
body, agency or authority and will not violate the provisions of any

 

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laws or regulations of any governmental instrumentality applicable to Borrower;
and (v) are within Borrower's powers, and are not in contravention of any
provisions of its Certificate of Incorporation or of its By-Laws. Borrower is
not in default under any material agreement, indenture, mortgage, deed of trust,
or any other agreement or any court order or other order issued by any
governmental regulatory authority to which Borrower is a party or by which
Borrower may be bound;

 

(f)         Subject to any limitations stated therein or in connection
therewith, all information furnished or to be furnished by Borrower and any
Consolidated Subsidiary pursuant to the terms hereof or the other Loan Documents
will not, at the time the same is furnished, contain any untrue statement of a
material fact and, when taken as a whole, will not omit to state a material fact
necessary in order to make the information so furnished, in light of the
circumstances under which such information is furnished, not misleading;

 

(g)        Borrower and each Consolidated Subsidiary is in compliance with all
laws, ordinances, rules or regulations, applicable to it, of all Federal, state
or local governments or any instrumentality or agency thereof, including,
without limitation, the Employee Retirement Income Security Act ("ERISA"), and
all Federal, state and municipal laws, ordinances, rules and regulations
relating to the environment, including, without limitation, the Resource
Conservation and Recovery Act, as amended by the Hazardous and Solid Waste
Amendments of 1984 ("RCRA") and the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), except where the failure to comply by
Borrower or such Consolidated Subsidiary would not have a material adverse
effect on the financial or operating condition of Borrower or such Consolidated
Subsidiary when taken as a whole;

 

(h)        Other than the Consolidated Subsidiaries, Borrower has no
Subsidiaries and has not invested in the stock, common or preferred, of any
other corporation, and there are not fixed, contingent or other obligations on
the part of Borrower to issue any additional shares of its capital stock, other
than to employees of Borrower under Borrower's existing pension/employee benefit
plans;

 

(i)         Neither Borrower nor any of the Consolidated Subsidiaries is a party
to any agreement or instrument or subject to any corporate restriction
(including any restriction set forth in its Certificate of Incorporation)
materially and adversely affecting its operations, business, properties or
financial condition;

 

(j)         Borrower and each of the Consolidated Subsidiaries possesses all the
trademarks, trade names, copyrights, patents, licenses and governmental permits,
licenses, orders and approvals, or rights in any thereof, adequate for the
conduct of its business as now conducted and presently proposed to be conducted,
without conflict of the rights or claimed rights of others, and no action or
filing with or consent by, any Person or any governmental or public body or
authority, is required to authorize or is otherwise required in connection with
the conduct of

Borrower's or any of the Consolidated Subsidiaries' respective businesses as now
and presently proposed to be conducted;

 

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(k)        The fair salable value of the consolidated assets of Borrower and the
Consolidated Subsidiaries exceeds and will, immediately following the making and
funding of the Term Loan and the Revolving Credit Loan, exceed their total
consolidated liabilities (including, without limitation, contingent
liabilities). The fair salable value of the consolidated assets of Borrower and
the Consolidated Subsidiaries is and will, immediately following the making and
funding of the Term Loan and the Revolving Credit Loan, be greater than
Borrower's and the Consolidated Subsidiaries' probable consolidated liabilities
(including, without limitation, contingent liabilities) on their consolidated
debts as such debts become absolute and matured. Borrower's and the Consolidated
Subsidiaries' consolidated assets do not and, immediately following the making
and funding of the Term Loan and the Revolving Credit Loan, will not constitute
unreasonably small capital to carry out their respective businesses as conducted
or as proposed to be conducted. Neither Borrower nor any Consolidated Subsidiary
intends to, nor does it believe that it will incur debts beyond its ability to
pay such debts as they mature (taking into account the timing and amounts of
cash to be received by Borrower and such Consolidated Subsidiary and the amounts
to be payable on or in respect of obligations of Borrower and such Consolidated
Subsidiary);

 

(l)         The name of Borrower has not changed during the immediately
preceding six (6) years; Borrower has conducted and currently conducts its
business solely in its own name and through the operating divisions of Borrower
located in the United States of America listed in Exhibit F attached hereto and
made a party hereof;

 

(m)       (i)          No fact, including but not limited to any "reportable
event", as that term is defined in Section 4043 of ERISA, exists in connection
with any pension or other employee benefit plans (hereinafter collectively
referred to as the "Plans" and individually as the "Plan") of Borrower or any of
the Consolidated Subsidiaries (collectively, the "Companies") under Sections
414(b), (c), (m), (n) and (o) of the Internal Revenue Code of 1986, as amended
(the "Revenue Code"), which might constitute grounds for termination of any such
Plan by the Pension Benefit Guaranty Corporation (the "PBGC"), or for the
appointment by the appropriate United States District Court of a trustee to
administer any such Plan. A list of all of the Companies' respective Plans are
attached hereto as Exhibit D and made a part hereof;

 

(ii)        No "prohibited transaction" within the meaning of Section 406 of
ERISA or Section 4975 of the Revenue Code exists or will exist upon the
execution and delivery of this Agreement and the other Loan Documents, or the
performance by the parties hereto or thereto of their respective duties and
obligations hereunder and thereunder;

 

(iii)       Each of the Companies agrees to do all acts, including, but not
limited to, making all contributions necessary to maintain compliance with ERISA
and the Revenue Code, and agrees not to terminate any such Plan in a manner or
do so or fail to do any

act which could result in the imposition of a lien on any of its properties
pursuant to Section 4068 of ERISA;

 

 

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(iv)       None of the Companies sponsors or maintains, and has never
contributed to, and has not incurred any withdrawal liability under a
"multi-employer plan" as defined in Section 3 of ERISA and none of the Companies
has any written or verbal commitment of any kind to establish, maintain or
contribute to any "multi-employer plan" under the Multi-Employer Pension Plan
Amendment Act of 1980;

 

(v)        Each of the Companies has satisfied the minimum funding requirements
of ERISA and the Revenue Code with respect to the Plans;

 

(vi)       Any Plan complies currently, and has complied in the past, both as to
form and (to the best of the Companies' knowledge) in operation, with its terms
and with the provisions of the Revenue Code and ERISA, and all applicable
regulations thereunder and all rules issued by the Internal Revenue Service,
U.S. Department of Labor and the PBGC and as such, is and remains a "qualified"
Plan under the Revenue Code;

 

(vii)      No actions, suits or claims are pending (other than routine claims
for benefits) against any Plan, or the assets of any such Plan;

 

(viii)    The Companies have performed all obligations required to be performed
by it or them under any Plan and the Companies are not in default, or in
violation of any Plan, and have no knowledge of any such default or violation by
any other party to any and all Plans; and

 

(ix)       No liability has been incurred by any of the Companies to the PBGC or
to participants or beneficiaries on account of any termination of a Plan subject
to Title IV of ERISA, no notice of intent to terminate a Plan has been filed by
(or on behalf of) any of the Companies pursuant to Section 4041 of ERISA and no
proceeding has been commenced by the PBGC pursuant to Section 4042 of ERISA;

 

 

(o)

Except as disclosed in Schedule 2(o) attached hereto:

 

(i) Borrower and each Consolidated Subsidiary has obtained all permits, licenses
and other authorizations which are required under all Environmental Laws.
Borrower and each Consolidated Subsidiary is in compliance with the terms and
conditions of all such permits, licenses and authorizations, and is also in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any applicable Environmental Law or in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except where the failure to comply by
Borrower or such Consolidated Subsidiary would not have a material adverse
effect on the financial or operating condition of Borrower or such Consolidated
Subsidiary when taken as a whole;

 

(ii)        No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed and

 

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no investigation or review is pending or threatened by any governmental or other
entity with respect to any alleged failure by Borrower or any Consolidated
Subsidiary to have any permit, license or authorization required in connection
with the conduct of Borrower's or such Consolidated Subsidiary's business or
with respect to any Environmental Laws, including, without limitation,
Environmental Laws relating to the generation, treatment, storage, recycling,
transportation, disposal or release of any Hazardous Materials;

 

(iii)       No oral or written notification of a Release of a Hazardous Material
has been filed by or against Borrower or any Consolidated Subsidiary and, to
Borrower's knowledge, no property now or previously owned, leased or used by
Debtor or any Consolidated Subsidiary is listed or proposed for listing on the
Comprehensive Environmental Response, Compensation and Liability Inventory of
Sites or National Priorities List under CERCLA, as amended, or on any similar
state or federal list of sites requiring investigation or clean-up;

 

(iv)       There are no Liens arising under or pursuant to any Environmental
Laws on any of the property or properties owned, leased or used by Borrower or
any Consolidated Subsidiary, and no governmental actions have been taken or are
in process which could subject any of such properties to such liens or
encumbrances or, as a result of which Borrower or any Consolidated Subsidiary
would be required to place any notice or restriction relating to the presence of
Hazardous Materials at any property owned by it in any deed to such property;
and

 

(v)         Neither Borrower or any Consolidated Subsidiary nor, to the
knowledge of Borrower or any Consolidated Subsidiary, any previous owner,
tenant, occupant or user of any property owned, leased or used by Borrower or
any Consolidated Subsidiary, has (i) engaged in or permitted any operations or
activities upon or any use or occupancy of such property, or any portion
thereof, for the purpose of or in any way involving the release, discharge,
refining, dumping or disposal (whether legal or illegal, accidental or
intentional) of any Hazardous Materials on, under, or in or about such property,
or (ii) transported or had transported any Hazardous Materials to such property
except to the extent such Hazardous Substances are raw products commonly used in
day-to-day manufacturing operations of such property and, in such case, in
compliance with, all Environmental Laws; (iii) engaged in or permitted any
operations or activities which would allow the facility to be considered a
treatment, storage or disposal facility as that term is defined in 40 CFR 264
and 265, (iv) engaged in or permitted any operations or activities which would
cause any of its properties to become subject to the Connecticut Transfer Act,
Section 22a-134 et seq., C.G.S., or (v) constructed, stored or otherwise located
Hazardous Materials on, under, in or about any such property except to the
extent commonly used in day-to-day operations of any such property and, in such
case, in compliance in all material respects with all Environmental Laws.
Further, to the knowledge of Borrower and each Consolidated Subsidiary and
except as disclosed in Schedule 2(o) attached hereto, no Hazardous Materials
have migrated from other properties upon, about or beneath any such property;

 

(p)        Neither Borrower nor any Consolidated Subsidiary is a party to any
collective bargaining or union agreement except as set forth on Exhibit E
attached hereto and

 

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made a part hereof. Such union contracts are in full force and effect and are
not

currently subject to renegotiation. Borrower and each Consolidated Subsidiary is
in full

compliance with the terms and conditions of all such union contracts and knows
of no threatened work stoppage by any union members;

 

(q)        Borrower shall use the proceeds of the Term Loan to repay in full the
outstanding balance of Borrower's indebtedness to Bank of America, N.A. as of
the date hereof, and Borrower shall use the proceeds of advances on account of
the Revolving Credit Loan to fund permitted asset acquisitions and capital
expenditures and for general working capital purposes (including, without
limitation, the issuance of Letters of Credit);

 

(r)         Neither Borrower nor any of the Consolidated Subsidiaries is in
violation of any laws relating to terrorism or money laundering, including,
without limitation, Executive Order No. 13224 on Terrorist Financing, effective
December 21, 2001, and the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,
Public Law 107-56; and

 

(s)         All representations and warranties of Borrower and the Consolidated
Subsidiaries contained herein shall survive the execution of this Agreement.

 

 

3.

TERMS OF CREDIT FACILITIES

 

Pursuant to the terms of this Agreement, Lender shall make the Credit Facilities
available to Borrower, upon the request of Borrower, upon the following terms
and conditions:

 

 

A.

Term Loan

 

(1)        The Term Loan shall be in the amount of Five Million and No/100
Dollars ($5,000,000.00) and shall be evidenced by a promissory note dated the
date hereof, in the original principal amount of $5,000,000.00, executed by
Borrower and payable to the order of Lender, in the form of Exhibit B attached
hereto and made a part hereof (herein referred to as the "Term Note"). The
outstanding principal balance of the Term Loan shall bear interest at a fixed
rate per annum equal to four and ninety-eight hundredths percent (4.98%).
Interest shall be charged on the principal balance of the Term Loan from time to
time outstanding on the basis of the actual number of days elapsed computed on
the basis of a three hundred sixty (360) day year;

 

(2)         Interest accruing on the principal balance of the Term Loan shall be
payable monthly in arrears, on the first (1st) Business Day of each month
hereafter, commencing on March 1, 2010, and at maturity. The principal balance
of the Term Loan shall be paid on a quarterly basis over a seven (7) year term
on the first (1st) Business Day of each calendar quarter hereafter, commencing
on April 1, 2010 and maturing on January 31, 2017, as more fully described in
the Term Note. All payments received by Lender on account of the Term Loan shall
be in lawful money of the United States of America and in immediately available
funds, and shall be first applied by Lender first to outstanding accrued
interest and then to outstanding principal. Borrower hereby authorizes Lender to
debit Borrower's operating account with Lender for the

 

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payment of the installments of accrued interest and principal with respect to
the Term Loan on the due dates thereof and at maturity. In the event that there
are not sufficient funds in Borrower's operating account to pay such installment
payments on account of the Term Loan in full on the due date thereof, then
Borrower shall immediately pay to Lender the amount of such installment
payment(s) then due (or the amount of such shortfall, as appropriate) in
immediately available funds; and

 

(3)         If Borrower elects to prepay the principal balance of the Term Loan
in full prior to the stated maturity date thereof, then, in addition to paying
the amount of accrued interest on the principal amount being prepaid, Borrower
shall also be required to pay to Lender a prepayment premium equal to the "Net
Loss" (as defined below) that Lender or any subsequent holder of the Term Note
sustains or incurs as a result of such prepayment. As used herein, the term "Net
Loss" means either (a) the present value of the interest charged hereunder at
the applicable fixed contract rate on the principal amount of the Term Note from
the date of such prepayment to the stated maturity date thereof (i.e., January
31, 2017) less the present value of the interest (at the then-current
"Reinvestment Rate") on the principal amount being prepaid, for the period of
time from the date of prepayment until the stated maturity date (i.e., January
31, 2017), or (b) if Lender has obtained matched funds in connection with the
Term Note, any prepayment fee paid by Lender or any subsequent holder of the
Term Note to such matched funding source on account of Borrower's prepayment. As
used herein, the "Reinvestment Rate" shall mean the rate available to Lender or
any subsequent holder of the Term Note, as utilized by other money center banks
doing business in the State of Connecticut, for the investment in the United
States Treasury obligations of the principal amount prepaid with maturities
coterminous with the maturity of the Term Loan.

 

 

B.

Revolving Credit Loan

 

(1)         Borrower shall have the right, until the termination of Lender's
obligations to make advances on account of the Revolving Credit Loan as set
forth in subparagraph (5) of this Paragraph 3B, to from time to time borrow, pay
and reborrow on account of the Revolving Credit Loan and, until such
termination, Lender shall make advances to Borrower on account of the Revolving
Credit Loan as described herein. The principal amount of the Revolving Credit
Loan, or such part thereof as may be from time to time outstanding, shall be in
the maximum amount of up to Ten Million and No/100 Dollars ($10,000,000.00) and
shall be evidenced by a promissory note dated the date hereof, in the original
principal amount of $10,000,000.00, executed by Borrower and payable to the
order of Lender, in the form of Exhibit C attached hereto and made a part hereof
(herein referred to as the "Revolving Credit Note"). The maximum amount
available to Borrower on account of the Revolving Credit Loan shall be reduced
by the amount of the from time to time issued and outstanding Letters of Credit.
The Revolving Credit Note shall be in the amount of $10,000,000.00 and, in the
event Lender determines to increase the maximum principal amount of the
Revolving Credit Loan and Borrower agrees thereto, Borrower shall immediately
execute and deliver to Lender a further Revolving Credit Note (or a replacement
Revolving Credit Note) to evidence such increase;

 

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                                         (2)        Each advance on account of
the Revolving Credit Loan shall bear interest at a rate per annum equal to, at
Borrower's option, either: (A) the Prime Rate (with a "floor" rate of four
percent (4.0%) per annum) with respect to a Prime Rate Loan, which rate shall
change contemporaneously with any change in the Prime Rate, or (B) the LIBOR
Rate (with a "floor" rate of four percent (4.0%) per annum) with respect to a
LIBOR Rate Loans. Interest shall be charged on the principal balance of the
Revolving Credit Loan from time to time outstanding on the basis of actual
number of days elapsed computed on the basis of a three hundred sixty (360) day
year. Such interest shall be payable monthly, on the first (1st) Business Day of
each month hereafter, commencing on the first (1st ) Business Day of the month
immediately following the date of the initial advance hereunder, with respect to
Prime Rate Loans, and shall be payable for such Interest Period on the earlier
of: (a) the first (1st) Business Day of each month hereafter, commencing on the
first (1st) Business Day of the month immediately following the date of the
initial advance hereunder, or (b) the last Business Day of such Interest Period
and when such LIBOR Rate Loan is due, with respect to LIBOR Rate Loans. All
payments received by Lender on account of the Revolving Credit Loan shall be in
lawful money of the United States of America and in immediately available funds,
and shall be applied by Lender first to outstanding accrued interest and then to
outstanding principal. Borrower hereby authorizes Lender to debit Borrower's
operating account with Lender for the payment of the installments of accrued
interest with respect to the Revolving Credit Loan on the due dates thereof. In
the event that there are not sufficient funds in Borrower's operating account to
pay such installment payment on account of the Revolving Credit Loan in full on
the due date thereof, then Borrower shall immediately pay to Lender the amount
of such installment payment then due (on the amount of such shortfall, as
appropriate) in immediately available funds;

 

(3)         All advances on account of the Revolving Credit Loan made by Lender
to Borrower pursuant to this Paragraph 3B shall be recorded in an account on the
books of Lender bearing Borrower's name (hereinafter called "Borrower's
Account"). Lender shall render and send to Borrower a monthly statement of
Borrower's Account showing the outstanding aggregate principal balance of the
Revolving Credit Loan, together with interest and other appropriate debits and
credits as of the date of the statement. The statement of Borrower's Account
shall be considered correct in all respects, absent manifest error, and accepted
by and be conclusively binding upon Borrower unless Borrower makes specific
written objections thereto within thirty (30) days after the date the statement
of Borrower's Account is sent;

 

(4)         In the event that the aggregate principal amount of the Revolving
Credit Loan outstanding at any one time exceeds the sum of $10,000,000.00,
Borrower shall immediately pay to Lender an amount equal to or otherwise
eliminate such excess;

 

(5)        The provisions of this Paragraph 3B shall continue in effect until
January 31, 2012 and from year to year thereafter, unless terminated as to
future transactions by either party hereto giving not less than sixty (60) days
written notice of termination prior to the end of any such one year period to
the other party hereto; provided, however, that Lender may terminate the
provisions of this Paragraph 3B at any time upon the happening of an Event of
Default hereunder. Upon the effective date of such termination, Borrower shall
immediately pay to Lender the then outstanding aggregate principal amount of the
Revolving Credit Loan,

 

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together with interest accrued thereon to the date of payment. No such
termination shall (i) in any way affect or impair the security interest granted
to Lender hereunder or any other rights of Lender under any of the Loan
Documents, arising prior to any such termination or by reason thereof, (ii)
relieve Borrower of any obligation to Lender under any of the Loan Documents, or
otherwise, until all the Obligations are fully paid and performed, or (iii)
affect any right or remedy of Lender under any of the Loan Documents; and

 

(6)         Borrower shall pay to Lender, on the first (1st) Business Day of
each calendar quarter following the date hereof, commencing on April 1, 2010,
until the termination date of the Revolving Credit Loan (as described in
Paragraph 3B(5) above) and on such termination date, a nonrefundable unused line
fee for the calendar quarter (or portion thereof, as appropriate) immediately
preceding such payment in an amount equal to one-quarter of one percent (.25%)
per annum times the excess, if any, of (i) $10,000,000.00 minus (ii) the average
daily outstanding principal amount of the Revolving Credit Loan plus the stated
amount of any issued and outstanding Letters of Credit during such calendar
quarter (or portion thereof, as appropriate). In the case of the first payment
and last payment hereunder, if the immediately preceding period is less than a
full calendar quarter, the unused line fee as so calculated shall be prorated by
multiplying the same by a fraction, the denominator of which shall be 91 and the
numerator of which shall be the actual number of days elapsed in such period.

 

 

C.

Notice and Manner of Borrowing.

 

(1)         Whenever Borrower desires to obtain or continue a Prime Rate Loan or
a LIBOR Rate Loan (collectively, a "Loan") hereunder or convert an outstanding
Loan into a Loan of a different type provided for in this Agreement, Borrower
shall notify Lender (which notice shall be irrevocable) by telex, telegraph or
telephone (each a "Notice of Borrowing or Conversion") received no later than
2:00 p.m. (Waterbury, Connecticut time) (a) on the date which the requested Loan
is to be made or continued as or converted to a Prime Rate Loan, or (b) two (2)
Business Days prior to the date which the requested Loan is to be made or
continued as or converted to a LIBOR Rate Loan. Such notice shall specify (A)
the effective date and amount of each Revolving Credit Loan to be continued or
converted, (B) the interest rate option to be applicable thereto, and (C) the
duration of the applicable Interest Period (Lender reserves the right to limit
the duration of the Interest Period on any LIBOR Rate Loan to one (1) month);

 

(2)         Whenever Borrower chooses a LIBOR Rate Loan (whether as a new Loan,
as a continuation of an outstanding LIBOR Rate Loan, or as a conversion of an
outstanding Prime Rate Loan), such LIBOR Rate Loan shall be automatically
renewed at the end of the applicable Interest Period for the same Interest
Period unless Borrower notifies Lender in writing that it wishes to choose a
different Interest Period or to convert the LIBOR Rate Loan to a Prime Rate
Loan. Any Interest Period which begins on a day for which there is no
numerically corresponding day in the calendar month during which such Interest
Period is to end, shall end of the last day of such calendar month; and

 

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(3)         Subject to the terms and conditions hereof, Lender shall make each
Revolving Credit Loan on the effective date specified therefor by crediting the
amount of such Loan to Borrower's operating account with Lender.

 

D.          Payments Not at End of Interest Period. Borrower may prepay a LIBOR
Rate Loan only upon at least three (3) Business Days prior written notice to
Lender (which notice shall be irrevocable), and any such prepayment shall occur
only on the last day of the Interest Period for such LIBOR Rate Loan. Borrower
shall pay to Lender, upon request of Lender, a "yield maintenance fee" (as
described below) to compensate it for any loss, cost, or expense incurred as a
result of: (i) any payment of a LIBOR Rate Loan on a date other than the last
day of the Interest Period for such LIBOR Rate Loan; (ii) any failure by
Borrower to borrow a LIBOR Rate Loan on the date specified by Borrower's written
notice; (iii) any failure by Borrower to pay a LIBOR Rate Loan on the date for
payment specified in Borrower's written notice. Such "yield maintenance fee"
shall be computed as follows: The current rate for United States Treasury
securities (bills on a discounted basis shall be converted to a bond equivalent)
with a maturity date closest to the term chosen pursuant to the Fixed Rate
Election (as defined below) as to which the prepayment is made, shall be
subtracted from the LIBOR in effect at the time of prepayment. If the result is
zero or a negative number, there shall be no yield maintenance fee. If the
result is a positive number, then the resulting percentage shall be multiplied
by the amount of the principal balance being prepaid. The resulting amount shall
be divided by 360 and multiplied by the number of days remaining in the term
chosen pursuant to the Fixed Rate Election as to which the prepayment is made.
Said amount shall be reduced to present value calculated by using the above
referenced United States Treasury securities rate and the number of days
remaining in the term chosen pursuant to the Fixed Rate Election as to which
prepayment is made. The resulting amount shall be the yield maintenance fee due
to Lender upon the payment of a LIBOR Rate Loan. Each reference in this
paragraph to "Fixed Rate Election" shall mean the election by Borrower of the
LIBOR Rate. If by reason of an Event of Default, Lender elects to declare the
Notes to be immediately due and payable, then any yield maintenance fee with
respect to a LIBOR Rate Loan shall become due and payable in the same manner as
though Borrower had exercised such right of prepayment.

 

E.           Computation of Interest and Fees. Interest and all fees payable
hereunder shall be computed daily on the basis of a year of three hundred sixty
(360) days and paid for the actual number of days for which due. If the due date
for any payment of principal is extended by operation of law, interest shall be
payable for such extended time. If any payment required by this Agreement
becomes due on a day that is not a Business Day such payment may be made on the
next succeeding Business Day, and such extension shall be included in computing
interest and fees in connection with such payment.

 

F.          Late Charges. If the entire amount of any required principal and/or
interest installment payment is not paid in full within ten (10) days after the
same is due, Borrower shall pay to Lender a late fee equal to five percent
(5.0%) of the required payment.

 

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                          G.          Default Rate of Interest. Interest on the
Revolving Credit Loan and the Term Loan, at all times after the occurrence of
and during the continuation of an Event of Default, and interest on all payments
of interest that are not paid when due, shall accrue at a default rate per annum
equal to two percentage points (2.0%) above the Prime Rate (with the Prime Rate
not being less than four percent (4.0%)), which rate shall change
contemporaneously with any change in the Prime Rate, with respect to the
Revolving Credit Loan, and at a default rate per annum equal to two percentage
points (2.0%) above the fixed rate on the Term Loan, with respect to the Term
Loan.

 

H.          Letters of Credit. Upon Borrower's request therefor, Lender shall,
from time to time so long as no Event of Default has occurred and is continuing
as of such date of request, issue (i) standby Letters of Credit for the account
of Borrower, and/or (ii) commercial Letters of Credit for the account of
Borrower, provided the aggregate amounts available to be drawn under such
standby and commercial Letters of Credit (or actually drawn but not yet
reimbursed by Borrower), together with the sum of all advances on account of the
Revolving Credit Loan then outstanding, shall not exceed the sum of
$10,000,000.00. Each such Letter of Credit issued by Lender for the account of
Borrower and unreimbursed drafts drawn thereunder shall reduce the amount
available to Borrower on account of the Revolving Credit Loan in an amount equal
to the stated amount of such Letter of Credit so long as such Letter of Credit
is outstanding or such draw unpaid. No Letter of Credit shall be issued by
Lender for the account of Borrower which has an expiration date later than sixty
(60) days prior to the termination date of the Revolving Credit Loan described
in Paragraph 3B(5) above. Upon payment by Lender under any Letter of Credit, any
amount so paid shall be immediately due and payable by Borrower and Lender shall
have the right to effect payment thereof, together with the payment of any fees,
expenses and charges described below, immediately by a charge to Borrower's
operating account maintained with Lender. Unless and until such charge to
Borrower's operating account is made by Lender, the unreimbursed amount of any
drawn Letter of Credit shall be considered an advance on account of the
Revolving Credit Loan to satisfy Borrower's reimbursement obligation to Lender
which shall bear interest at the default rate prescribed in Paragraph 3G above
until paid in full by Borrower.

 

Lender shall charge Borrower its then-prevailing fee for the issuance of such
Letters of Credit, based upon the stated amount of each, which fee shall be
payable by Borrower to Lender upon the issuance thereof. In the event that
Borrower desires either a standby or a commercial Letter of Credit, the
documentation thereof shall consist of Lender's standard forms therefor and
Borrower specifically acknowledges that (i) the reimbursement obligation of
Borrower and any fee on account of such Letters of Credit shall be included in
the Obligations; and (ii) the occurrence of an Event of Default hereunder shall
constitute a default under the documentation relating to such Letters of Credit
and shall entitle Lender to exercise its rights thereunder with respect to such
default.

 

I.           Cash Management Arrangement. Borrower and Lender shall enter into
Lender's form of agreement governing People's United Bank's Cash Management
system which shall provide for provisional credit thereunder for the benefit of
Borrower upon terms and conditions acceptable to Lender.

 

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J.           Guaranties. Each of the Guarantors shall jointly, severally and
unconditionally guarantee Borrower's payment and performance of the Obligations,
and shall each execute and deliver its respective Guaranty to Lender on the date
hereof. Borrower shall cause any future Subsidiary of Borrower to become a
"Guarantor" hereunder and to execute and deliver a Guaranty to Lender upon
Lender's request.

 

 

4.

CAPITAL ADEQUACY PROVISIONS.

 

(a)         Illegality. Notwithstanding any other provisions herein, if any
applicable law, regulation or directive, or any change therein or in the
interpretation or application thereof shall make it unlawful for Lender to make
or maintain any LIBOR Rate Loans as contemplated by this Agreement: (a) the
obligation of Lender to make LIBOR Rate Loans or to continue LIBOR Rate Loans as
such and convert Prime Rate Loans to LIBOR Rate Loans shall forthwith be
canceled, and (b) such Loans then outstanding as LIBOR Rate Loans, if any, shall
be converted automatically, without notice, to Prime Rate Loans on the
respective last Business Days of the then current Interest Periods with respect
thereto or within such earlier period as required by law. If any such conversion
of a LIBOR Rate Loan is made on a day that is not the last Business Day of the
then current Interest Period applicable thereto, Borrower shall pay to Lender
such amount or amounts as may be required pursuant to Paragraph 3D hereof.

 

(b)        Increased Costs. In the event that applicable law, treaty or
regulation or directive from any government, governmental agency or regulatory
authority, or any change therein or in the interpretation or application
thereof, or compliance by Lender with any request

or directive (whether or not having the force of law) from any central bank or
government, governmental agency or regulatory authority, shall:

 

(i)          subject Lender to any tax of any kind whatsoever (except taxes on
the overall net income of Lender) with respect to this Agreement, the Notes or
any of the Loans made by it, or change the basis of taxation of payments to
Lender in respect thereof (except for changes in the rate of tax on the overall
net income of Lender);

 

(ii)        impose, modify or hold applicable any reserve, premium, special
deposit, compulsory loan or similar requirements against assets held by,
deposits or other liabilities in or for the account of, advances, loans or other
extensions of credit by, or any other acquisition of funds by, or its issuance
of or participation in any letter of credit hereunder any office of any Lender,
including, without limitation, pursuant to Regulations of the Board of Governors
of the Federal Reserve System; or

 

(iii)       in the opinion of Lender, cause the Notes, any Loans or this
Agreement to be included in any calculations used in the computation of
regulatory capital standards; or

 

 

(iv)

impose on Lender any other condition;

 

 

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and the result of any of the foregoing is to increase the cost to Lender of
making, renewing or maintaining any of the Loans or any part thereof or issuing
or participating in any letter of credit by an amount that Lender deems to be
material or to reduce the amount of any payment (whether of principal, interest
or otherwise) in respect of any of the Loans by an amount that Lender deems to
be material, then, in any case, Borrower shall promptly pay to Lender, upon its
demand, such additional amount as will compensate Lender for such additional
costs or such reduction as the case may be (collectively, the "Additional
Costs").

 

(c)         Basis for Determining LIBOR Rate Inadequate or Unfair. In the event
that Lender shall have determined (which determination shall be conclusive and
binding upon Borrower) that (a) by reason of circumstances affecting the
interbank LIBOR market, adequate and reasonable means do not exist for
determining LIBOR, or (b) U.S. Dollar deposits in the relevant amount and for
the relevant maturity are no longer available to Lender in the interbank LIBOR
market, or (c) the making or continuation of LIBOR Rate Loans has been made
impractical or unlawful by the occurrence of a contingency that materially and
adversely affects the interbank LIBOR market, or (d) the LIBOR Rate will not
adequately and fairly reflect the cost to Lender of making or maintaining LIBOR
Rate Loans, or (e) the LIBOR Rate shall no longer represent the effective cost
to Lender of U.S. dollar deposits in the relevant market for deposits in which
it regularly participates, Lender shall give Borrower notice of such
determination as soon as practicable. If such notice is given (i) any requested
LIBOR Rate Loan shall be made as a Prime Rate Loan, unless Borrower gives Lender
three (3) Business Days' prior written notice that its request for such
borrowing is canceled, (ii) any Prime Rate Loan that was to have been converted
to a LIBOR Rate Loan shall be continued as a Prime Rate Loan, and (iii) any
outstanding LIBOR Rate Loan shall be automatically converted, without notice, to
a Prime Rate Loan effective on the last Business Day of the then current
Interest Period applicable thereto. Until such notice has been withdrawn, no
further LIBOR Rate Loans shall be made or continued as such, nor shall Borrower
have the right to convert Prime Rate Loans to LIBOR Rate Loans.

 

(d)        Indemnity. Borrower agrees to indemnify Lender and to hold Lender
harmless from any loss (including any of the Additional Costs referred to in
this Paragraph 4 and any lost profits) or expense that it may sustain or incur
as a consequence of (a) a default by Borrower in the payment of the principal of
or interest on any LIBOR Rate Loan, or (b) the failure by Borrower to complete a
borrowing of, conversion into or continuation of a LIBOR Rate Loan after notice
thereof has been given, including, but not limited to, in each case, any such
loss or expense arising from the reemployment of funds obtained by it or from
fees, interest or other amounts payable to terminate the deposits from which
such funds were obtained. Lender shall prepare a certificate as to any
additional amounts payable to it pursuant to this Paragraph 4, which certificate
shall be submitted by Lender to Borrower and shall, absent manifest error, be
deemed conclusive.

 

 

5.

AFFIRMATIVE COVENANTS

 

Borrower covenants and agrees that, from the date hereof until the full payment
of the Obligations, unless Lender otherwise agrees in writing, Borrower shall:

 

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(a)         Maintain (i) a Debt Service Coverage Ratio of not less than 1.1 to
1.0, tested at the end of each fiscal quarter of Borrower hereafter as follows:
(A) the test as of the fiscal quarter ending April 3, 2010 shall be for the
three (3) month period ending April 3, 2010; (B) the test as of the fiscal
quarter ending July 3, 2010 shall be for the six (6) month period ending July 3,
2010; (C) the test as of the fiscal quarter ending October 2, 2010 shall be for
the nine (9) month period ending October 2, 2010; (D) the test as of the fiscal
quarter ending January 1, 2011 shall be for the twelve (12) month period ending
January 1, 2011; and (E) the tests as of the end of each subsequent fiscal
quarter of Borrower shall be on a rolling four (4) quarter basis for that fiscal
quarter and the immediately preceding three (3) fiscal quarters of Borrower;
(ii) a Leverage Ratio of not more than 1.75 to 1.0, tested at the end of each
fiscal quarter of Borrower hereafter, commencing with the fiscal quarter ending
April 3, 2010; and (iii) its Tangible Net Worth in an amount of not less than
$43,000,000.00, tested at the end of each fiscal quarter of Borrower hereafter,
commencing with the fiscal quarter ending April 3, 2010, and increasing for each
fiscal year of Borrower, commencing with the fiscal year ending January 1, 2011,
by an amount equal to fifty percent (50.0%) of Borrower's and the Consolidated
Subsidiaries' consolidated Net Income for the fiscal year just ended; each of
the foregoing financial covenants to be determined in accordance with GAAP
consistently applied from year to year;

 

(b)        Pay and discharge all taxes, general and special, charges and
assessments, and other governmental obligations, which may have been or shall be
levied, charged or assessed on or against Borrower, Borrower's property, or
Borrower's income or profits before they become delinquent and pay and discharge
on or before their due date any and all other lawful claims and demands
whatsoever, including, without limitation, trade obligations;

 

 

(c)

Maintain, at all times:

 

(i)          Insurance on Borrower's properties against loss by fire and all
available extended coverage risks in such amounts and with such insurers as may
be reasonably satisfactory to Lender, which insurance shall by the terms of the
policy provide that in the event of loss or damage, the proceeds thereof shall
be first payable to Lender pursuant to a loss payee clause satisfactory to
Lender. The proceeds of any such insurance shall be applied by Lender in
accordance with the provisions of the Security Agreement; and

 

(ii)        General public liability insurance against claims for personal
injury, death or property damage in such amounts as are reasonably satisfactory
to Lender and Worker's Compensation insurance in statutory amounts with
companies licensed to do business in the State of Connecticut or in other states
where the Borrower's non-Connecticut facilities are located, with Lender being
named as additional insured;

 

 

(d)

Furnish to Lender:

 

(i)          Within one hundred twenty (120) calendar days after the end of each
of Borrower's and the Consolidated Subsidiaries' fiscal years following the date
hereof, Borrower's and the Consolidated Subsidiaries' consolidated financial
statements including

 

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Borrower's and the Consolidated Subsidiaries' consolidated balance sheet,
statement of income, statement of capital/stockholders' equity, and statement of
cash flows. Each of such financial statements shall set forth in comparative
form, the corresponding figures for the preceding fiscal year, all in reasonable
detail, including all supporting schedules, comments and notes; shall be audited
by independent certified public accountants of recognized standing selected by
Borrower and satisfactory to Lender; shall be accompanied by an unqualified
audit opinion/report from Borrower's independent certified public accountants;
and shall be prepared in accordance with GAAP consistently applied from year to
year, including the fiscal year preceding that for which such statement is being
furnished;

 

 

(ii)

[Intentionally Omitted];

 

(iii)       Within sixty (60) calendar days after the end of each quarter
following the date hereof, the unaudited balance sheet of Borrower and the
Consolidated Subsidiaries as at the end of such period and the end of the
corresponding period of the preceding fiscal year, and a consolidated statement
of income and consolidated statement of cash flows (as applicable) of Borrower
and the Consolidated Subsidiaries for the period between the end of the last
fiscal year and the end of such period and for the corresponding period of the
preceding fiscal year, certified by the chief financial officer of Borrower as
fairly presenting the financial position of Borrower and the results of
Borrower's and the Consolidated Subsidiaries' operations as at the end of each
such period;

 

(iv)       Concurrently with the delivery of any and all financial statements
required by this Agreement, a certificate of the President, Treasurer or Chief
Financial Officer of Borrower stating that (xx) to the best of his/her knowledge
and belief, all taxes, assessments and charges levied upon Borrower which have
become due have been paid, or specifying any such taxes, assessments or charges
which have not been paid and stating why they remain unpaid; and (yy) to the
best of his/her knowledge and belief, after reviewing each and every financial
covenant (both affirmative and negative) of Borrower hereunder, Borrower is in
compliance with each of such financial covenants, or specifying each instance of
covenant default and/or non-compliance of which the signer has knowledge and
setting forth what action has been taken to cure any such default and/or
non-compliance;

 

(v)         Within forty-five (45) days after the end of each fiscal year of
Borrower hereafter, a written forecast/projection of the financial operations of
Borrower and the Consolidated Subsidiaries for the current fiscal year, in such
form and containing such detail as Lender may reasonably request;

 

(vi)       In the event that Borrower is contemplating an acquisition of all or
substantially all of the assets or capital stock of another Person, a proforma
covenant compliance certificate demonstrating Borrower's compliance, after
giving effect to the contemplated acquisition, with the affirmative and negative
covenants set forth herein;

 

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(vii)      Promptly, upon the filing of same with the Securities and Exchange
Commission, copies of all annual reports, quarterly reports and other material
statements filed with or issued by the Securities and Exchange Commission; and

 

(viii)     Promptly upon Lender's request therefor, such other information
relating to Borrower and the Consolidated Subsidiaries and Borrower's and the
Consolidated Subsidiaries' affairs as Lender may from time to time reasonably
request, including, without limitation, all reports, notices or statements sent
to Borrower's shareholders by Borrower;

 

(f)         Allow Lender by or through any of its officers, agents, attorneys,
or accountants designated by it (hereinafter "Examiners"), for the purpose of
ascertaining whether or not the Loan Documents are being performed and for the
purpose of examining Borrower's and the Consolidated Subsidiaries' respective
records, to enter the offices and plants of Borrower and the Consolidated
Subsidiaries to examine or inspect the properties, books and financial records
of Borrower and the Consolidated Subsidiaries, to make and take away copies of
such books and records or extracts therefrom, and to discuss the affairs,
finances and accounts of Borrower and the Consolidated Subsidiaries with
Borrower and the Consolidated Subsidiaries all at such reasonable times, upon
reasonable prior notice, and as often as Lender may reasonably request. The
Lender and the Examiners shall maintain all information obtained by them in
strict confidence and shall not disclose same to any third party (other than to
bank regulators or examiners), unless compelled to do so by court order;

 

(g)        Pay to Lender, on demand, any and all expenses, including attorneys'
fees, incurred or expended by Lender in preparation of the Loan Documents, in
making or processing the Loans, in the collection or attempted collection of the
Obligations and in protecting and/or enforcing the rights of Lender against
Borrower under any of the Loan Documents;

 

(h)        Keep complete and accurate books and records pertaining to the
Obligations and Borrower's and the Consolidated Subsidiaries' covenants under
this Agreement;

 

(i)         Comply (and cause each of the Consolidated Subsidiaries to comply)
with all laws, ordinances and rules and regulations applicable to Borrower and
the Consolidated Subsidiaries of any Federal, state or local government or any
instrumentality or agency thereof, including, without limitation, ERISA, the
Federal Occupational Safety and Health Act ("OSHA") and Federal, state and
municipal laws, ordinances, rules and regulations concerning the environment,
including, without limitation, RCRA and CERCLA, except where the failure to
comply by Borrower or such Consolidated Subsidiary would not have a material
adverse effect on the financial or operating condition of Borrower or such
Consolidated Subsidiary when taken as a whole;

 

(j)         Maintain Borrower's primary operating and deposit accounts with
Lender; and

 

(k)        Promptly advise Lender of (i) the happening of an Event of Default or
the existence of a state of facts which by the passage of time, the giving of
notice, or both, would

 

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constitute an Event of Default; and (ii) the occurrence of any action, suit or
litigation commenced by or against Borrower or any Consolidated Subsidiary
which, if adversely determined, could reasonably be expected to have a material
adverse effect on Borrower's or such Consolidated Subsidiary's condition,
financial, operating or otherwise.

 

 

6.

NEGATIVE COVENANTS

 

Borrower covenants and agrees that, from the date hereof until the full payment
of the Obligations, unless Lender shall otherwise consent in writing, Borrower
shall not:

 

(a)         Create, incur, assume or suffer to exist any Lien of any kind upon
or defect in title to or restriction upon the use of any of Borrower's property
or assets of any character, whether owned at the date hereof or hereafter
acquired except:

 

(i)          Liens in favor of Lender pursuant to the terms of the Security
Agreement;

 

(ii)        Liens arising out of judgments or awards not in excess of the
aggregate sum of $500,000.00 in respect of which Borrower shall in good faith be
prosecuting an appeal or proceedings for review and in respect of which Borrower
shall have secured a subsisting stay of execution pending such appeal or
proceedings for review, provided Borrower shall have set aside on its books
adequate reserves with respect to such judgment or award;

 

(iii)       Liens for taxes, assessments or governmental charges or levies,
provided payment thereof shall not at the time be required in accordance with
the provisions of Paragraph 5(b) of this Agreement;

 

(iv)       Deposits or other Liens to secure payments of workers' compensation,
unemployment insurance, old age pensions or other social security obligations;

 

(v)         Inchoate mechanic's, workmen's, repairmen's, warehousemen's,
vendors' or carriers' liens, or other similar Liens arising in the ordinary
course of business and securing sums which are not past due, or deposits or
pledges to obtain the release of any such liens;

 

(vi)       Liens existing on the date hereof (which do not exceed the sum of
$100,000.00 in the aggregate), but not the extension of coverage to other
property, or the refunding or modification thereof in whole or in part;

 

(vii)      Liens securing purchase money financing permitted by Paragraph 6(d)
below; and

 

(viii)    Easements, rights of way, encroachments or other title defects with
respect to real property which do not materially impair the value or use of such
real property;

 

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(b)        Sell, transfer, assign, lease, or otherwise dispose of any of its
properties or assets, or change the nature of its business, except for in the
ordinary course of Borrower's business for adequate consideration;

 

(c)         Declare or pay any dividends or make any other distributions on any
shares of its capital stock (other than dividends payable solely in such
shares), or purchase, redeem, retire or otherwise acquire, directly or
indirectly, any such shares; provided, however, that (i) so long as no Event of
Default has occurred and is continuing or would result from the payment of such
dividends by Borrower, Borrower shall be entitled to declare and make annual
cash dividends, payable quarterly, and (ii) so long as no Event of Default has
occurred and is continuing or would result from the repurchase or redemption by
Borrower of its capital stock, Borrower shall be permitted to repurchase or
redeem for cash an amount of up to $750,000.00 of its capital stock during
fiscal year 2010 and an amount of up to $1,250,000.00 of its capital stock
during each fiscal year thereafter (it being understood that any and all noncash
stock option transactions by Borrower shall be excluded from this covenant);

 

(d)        Create or assume any obligations for money borrowed from any Person
other than Lender in excess of the aggregate sum of $2,000,000.00 at any one
time outstanding, and not incur any indebtedness for borrowed money (including
purchase money indebtedness) in excess of the sum of $1,000,000.00 in any single
transaction without the express prior written consent of Lender;

 

(e)        Endorse, guaranty, or become surety for the obligations of any third
Person, except for the endorsement of checks in the ordinary course of business,
and for guaranties of the obligations of any Person (including obligations for
borrowed money of any Consolidated Subsidiary, but excluding guaranties of
operating leases of any Consolidated Subsidiary) not in excess of the aggregate
amount of $500,000.00 at any one time outstanding;

 

(f)         Make any loans or advances, other than advances, not exceeding
$500,000.00 in the aggregate at any one time outstanding, to its directors,
officers, shareholders or employees for travel and other minor business expenses
in the ordinary course of business;

 

(g)        Purchase or otherwise acquire any securities except obligations of
the United States Government or certificates of deposit issued by a commercial
bank having total assets of not less than $50,000,000.00, and an office in the
State of Connecticut, provided that the same are pledged to and deposited with
the Lender;

 

(h)        Enter into any transactions of any kind with any of its Affiliates
upon terms that are less favorable to Borrower than terms that could be obtained
elsewhere on an arm's length basis;

 

(i)         Enter into any merger or consolidation, or sell all or substantially
all of Borrower's assets, or liquidate, dissolve or otherwise terminate or alter
Borrower's existence, form or method of conducting Borrower's business;

 

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(j)         Change its corporate name, or conduct its business in a materially
different manner, or change its chief executive office or places of business
where a material amount of its assets are located or where a material amount of
its business operations are performed and/or maintained; and

 

 

(k)

Acquire, form or dispose of any Consolidated Subsidiaries (other than

Consolidated Subsidiaries who have no material assets and have ceased business
operations) or acquire for the sum of $1,000,000.00 or more all or substantially
all of the assets of any other Person or any portion of the assets of any other
Person which constitutes a division, product line or line of business.

 

 

7.

RIGHTS OF LENDER

 

When the Obligations, or any of them, become immediately due and payable, after
the occurrence of an Event of Default, Lender may, pursue any legal remedy
available to it to collect the Obligations outstanding at said time, to enforce
its rights hereunder, and to enforce any and all other rights or remedies
available to it.

 

 

8.

DEFAULT PROVISIONS

 

(a)        The Notes shall forthwith become immediately due and payable, and
Borrower's eligibility to request any further advances on account of the
Revolving Credit Loan or to request the issuance of additional Letters of Credit
shall automatically terminate, without presentment, protest, demand or notice of
any kind, if Borrower or any of the Guarantors becomes insolvent (including in
said term either a negative Tangible Net Worth or an inability to pay their
respective debts as they mature) or bankrupt, or makes an assignment for the
benefit of their respective creditors, or consents to the appointment of a
trustee or receiver of all or a substantial part of their respective properties
or such appointment is made without their consent, or if bankruptcy,
reorganization, arrangement, receivership or liquidation proceedings are
instituted by or against Borrower or any of the Guarantors, and any involuntary
bankruptcy proceeding is not dismissed within sixty (60) days of the filing of
same;

 

(b)        Lender may, at its option, declare the Notes due and payable
whereupon the same shall become due and payable forthwith, without presentment,
protest, demand or notice of any kind in any of the following cases:

 

(i)          If any payment of principal or interest or any other payment
required by the Notes or by the terms of any of the Loan Documents shall not be
fully paid when demand (to the extent the same is payable on demand) is made for
the payment of the same or within ten (10) days after the same shall fall due if
payable other than on demand;

 

(ii)        If any payment of principal or interest or any other payment
required by any of the obligations of Borrower or any of the Guarantors for any
other money borrowed by Borrower or any of the Guarantors from Lender or for
money borrowed by Borrower or any of the Guarantors from any third person in
excess of the aggregate sum of $250,000.00 shall not be

 

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fully paid when demand is made for the payment of the same (to the extent
payable on demand) or when the same shall fall due, or if any of said
obligations shall become or be declared in default (and all applicable cure
and/or grace periods have expired);

 

(iii)       If any warranty or representation by Borrower or any of the
Guarantors contained in the Loan Documents or in any statement furnished by
Borrower or any of the Guarantors to Lender proves incorrect in any material
respect;

 

(iv)       If default exists in the due observance of any of the covenants or
agreements of Borrower or any of the Guarantors set forth in any of the Loan
Documents;

 

(v)         If a final unappealable judgment (not covered by insurance) in an
amount in excess of $250,000.00 is entered against Borrower or any of the
Guarantors and remains unsatisfied for a period of thirty (30) calendar days;

 

(vi)       If Borrower or any of the Guarantors is voluntarily or involuntarily
dissolved, or take any action to effect a dissolution, ceases to conduct
business;

 

(vii)      If the Liens granted by Borrower to Lender in the Collateral pursuant
to the Security Agreement shall cease to be continuing first priority Liens, or
if an Event of Default shall occur under the terms of the Security Agreement;

 

(viii)     If any Guaranty shall for any reason cease to be in full force and
effect, or be declared null and void or unenforceable in whole or in part, or
the validity or enforceability of any Guaranty shall be challenged or denied by
any Guarantor;

 

(ix)       If Borrower suffers a net loss on a consolidated basis, as determined
in accordance with GAAP consistently applied, in any three (3) consecutive
fiscal quarters; or

 

(x)         If any "Change in Control" (as defined below) occurs. As used
herein, the term "Change in Control" shall mean the happening of any of the
following:

 

(A)        When any "person", as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934 (the "Exchange Act"), other than Borrower
or any Affiliate of Borrower, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
Borrower representing more than twenty percent (20.0%) of the combined voting
power of either (I) the then outstanding shares of common stock of Borrower (the
"Outstanding Common Stock") or (II) the then outstanding voting securities of
Borrower entitled to vote generally in the election of directors (the "Voting
Securities"); or

 

(B)        Individuals who, at the beginning of any twenty-four (24) month
period, constitute the Directors of Borrower (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Directors or cease to be
able to exercise the powers of the majority of the Board of Directors, provided
that any individual becoming a director

 

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subsequent to the beginning of such period whose election or nomination for
election by Borrower's stockholders was approved by a vote of at least a
majority of the Directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of Directors of Borrower (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act); or

 

(C)        Consummation by Borrower of a reorganization, merger or consolidation
(a "Business Combination"), in each case, with respect to which all or
substantially all of the individuals or entities who were the respective
beneficial owners of the Outstanding Common Stock and Voting Securities
immediately prior to such Business Combination do not, following consummation of
all transactions intended to constitute part of such Business Combination,
beneficially own, directly or indirectly, more than seventy-five percent (75.0%)
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation,
business trust or other entity resulting from or being the surviving entity in
such Business Combination in substantially the same proportion as their
ownership immediately prior to such Business Combination of the Outstanding
Common Stock and Voting Securities, as the case may be; or

 

(D)        Consummation of a complete liquidation or dissolution of Borrower or
sale or other disposition of all or substantially all of the assets of Borrower
other than to a corporation, business trust or other entity with respect to
which, following consummation of all transactions intended to constitute part of
such sale or disposition, more than seventy-five percent (75.0%) of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote in the
election of directors, as the case may be, is then owned beneficially, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Common Stock and
Voting Securities, immediately prior to such sale or disposition in
substantially the same proportion as their ownership of the Outstanding Common
Stock and Voting Securities, as the case may be, immediately prior to such sale
or disposition.

 

Notwithstanding the foregoing, an Event of Default shall not occur hereunder if
any one of the foregoing Events of Default involves a Guarantor whose assets, on
a consolidated basis, do not represent ten percent (10.0%) or more of the
consolidated assets of Borrower and the Consolidated Subsidiaries as of the date
that such Event of Default occurs.

 

 

9.

SET-OFF

 

Borrower and each Guarantor hereby grants to Lender, a Lien and right of setoff
as security for all liabilities and obligations to Lender, whether now existing
or hereafter arising, upon and against all deposits, credits, collateral and
property, now or hereafter in the possession, custody, safekeeping or control of
Lender or any Affiliate of Lender, or in transit to any of them. At any time
after the occurrence of and during the continuance of an Event of Default,
without

 

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demand or notice, Lender may set off the same or any part thereof and apply the
same to any liability or obligation of Borrower and any Guarantor even though
unmatured. ANY AND ALL RIGHTS TO REQUIRE LENDER TO EXERCISE ITS RIGHTS OR
REMEDIES WITH RESPECT TO ANY COLLATERAL WHICH SECURES THE LOANS, PRIOR TO
EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER
PROPERTY OF THE BORROWR OR ANY GUARANTOR ARE HEREBY KNOWINGLY, VOLUNTARILY AND
IRREVOCABLY WAIVED.

 

 

10.

INDEMNITY

 

Borrower hereby agrees to indemnify and hold harmless Lender and its officers,
directors, employees, agents and attorneys (herein collectively called the
"Indemnified Parties") from and against any and all claims, damages,
liabilities, costs and expenses which may be incurred by or asserted against any
of the Indemnified Parties in connection with or arising out of any
investigation, litigation or proceeding related to this Agreement or the
negotiation and preparation of documentation in connection herewith, except for
claims or losses resulting solely from such Indemnified Parties' gross
negligence or willful misconduct.

 

 

11.

CROSS-COLLATERALIZATION AND CROSS-DEFAULT

 

Borrower hereby acknowledges and agrees that all of the Collateral described in
the Security Agreement shall secure all of the Credit Facilities, and that the
occurrence of an Event of Default under any one of the Loan Documents shall
constitute an Event of Default under each of the other Loan Documents.

 

 

12.

GENERAL PROVISIONS

 

(a)         No delay or failure of Lender in exercising any right, power or
privilege hereunder shall affect such right, power or privilege, nor shall any
single or partial exercise preclude any further exercise thereof or the exercise
of any other rights, powers or privileges;

 

(b)        This Agreement, the security interest hereby granted to Lender by
Borrower and every representation, warranty, covenant, promise and other term
herein contained shall survive until the Obligations have been paid in full;

 

(c)        This Agreement is an integrated document, contains a complete
statement of all arrangements between the parties hereto with respect to the
subject matter hereof and supersedes any and all previous agreements, written or
oral, between such parties concerning its subject matter. This Agreement shall
not be varied by parol evidence;

 

(d)        THIS AGREEMENT IS MADE, EXECUTED AND DELIVERED IN THE STATE OF
CONNECTICUT, AND IT IS THE SPECIFIC DESIRE AND INTENTION OF THE PARTIES THAT IT
SHALL IN ALL RESPECTS BE CONSTRUED UNDER THE LAWS OF THE STATE OF CONNECTICUT;

 

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(e)         All agreements between Borrower, the Guarantors and Lender are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount paid or agreed to be paid to Lender for the use or
the forbearance of the indebtedness evidenced hereby exceed the maximum
permissible under applicable law. As used herein, the term "applicable law"
shall mean the law in effect as of the date hereof provided, however, that in
the event there is a change in the law which results in a higher permissible
rate of interest, then this Agreement shall be governed by such new law as of
its effective date. In this regard, it is expressly agreed that it is the intent
of Borrower and Lender in the execution, delivery and acceptance of this
Agreement to contract in strict compliance with the laws of the State of
Connecticut from time to time in effect. If, under or from any circumstances
whatsoever, fulfillment of any provision hereof or of any of the Loan Documents
at the time of performance of such provision shall be due, shall involve
transcending the limit of such validity prescribed by applicable law, then the
obligation to be fulfilled shall automatically be reduced to the limits of such
validity, and if under or from circumstances whatsoever Lender should ever
receive as interest an amount which would exceed the highest lawful rate, such
amount which would be excessive interest shall be applied to the reduction of
the principal balance evidenced hereby and not to the payment of interest. This
provision shall control every other provision of all agreements between
Borrower, the Guarantors and Lender;

 

(f)         Upon receipt by Borrower of an affidavit of an officer of Lender as
to the loss, theft, destruction or mutilation of either of the Notes or any
other security document which is not of public record, and, in the case of any
such loss, theft, destruction or mutilation, upon cancellation of such Note or
other security document, Borrower will issue, in lieu thereof, a replacement
note or other security document in the same principal amount thereof and
otherwise of like tenor;

 

(g)         Lender shall have the unrestricted right at any time and from time
to time, and without the consent of or notice to Borrower or any Guarantor, to
grant to one or more banks or other financial institutions (each, a
"Participant") participating interests in Lender's obligation to lend hereunder
and/or any or all of the Loans held by Lender hereunder. In the event of any
such grant by Lender of a participating interest to a Participant, whether or
not upon notice to Borrower, Lender shall remain responsible for the performance
of its obligations hereunder and Borrower shall continue to deal solely and
directly with Lender in connection with Lender's rights and obligations
hereunder. Lender may furnish any information concerning Borrower in its
possession from time to time to prospective Participants, provided that Lender
shall require any such prospective Participant to agree in writing to maintain
the confidentiality of such information;

 

(h)        The captions for the paragraphs contained in this Agreement have been
inserted for convenience only and form no part of this Agreement and shall not
be deemed to affect the meaning or construction of any of the covenants,
agreements, conditions or terms hereof;

 

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(i)         This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided, however,
that Borrower shall not assign, voluntarily, by operation of law or otherwise,
any of its rights hereunder without the prior written consent of Lender and any
such attempted assignment without such consent shall be null and void;

 

(j)         TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS. BORROWER ACKNOWLEDGES THAT LENDER IS
RELYING ON THE FOREGOING WAIVER IN ENTERING INTO THIS TRANSACTION;

 

(k)        BORROWER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS AGREEMENT IS
A PART IS A COMMERCIAL TRANSACTION, AND HEREBY WAIVES ITS RIGHTS TO: (1) NOTICE
AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR OTHERWISE
ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH
LENDER MAY DESIRE TO USE, AND (2) REQUEST THAT LENDER POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT BORROWER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY LENDER BY VIRTUE OF ANY DEFAULT OR
PROVISION OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, BORROWER FURTHER
EXPRESSLY WAIVES DILIGENCE, DEMAND, PRESENTMENT, PROTEST, NOTICE OF NONPAYMENT
OR PROTEST, NOTICE OF THE ACCEPTANCE OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS, NOTICE OF ANY OTHER ACTION TAKEN IN RELIANCE HEREON AND ALL OTHER
DEMANDS AND NOTICES OF ANY DESCRIPTION IN CONNECTION WITH THIS AGREEMENT (OTHER
THAN THE NOTICES SPECIFICALLY REQUIRED BY THIS AGREEMENT) OR THE OTHER LOAN
DOCUMENTS, ANY OF THE OBLIGATIONS OR OTHERWISE;

 

(l)         BORROWER ACKNOWLEDGES THAT IT MAKES THE WAIVERS SET FORTH IN
SUBPARAGRAPHS (j) AND (k) OF THIS PARAGRAPH 12 KNOWINGLY AND VOLUNTARILY,
WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THOSE
WAIVERS WITH ITS ATTORNEYS. BORROWER FURTHER ACKNOWLEDGES THAT LENDER HAS NOT
AGREED WITH OR REPRESENTED TO BORROWER THAT THE PROVISIONS OF SUBPARAGRAPHS (j)
AND (k) OF THIS PARAGRAPH 12 WILL NOT BE FULLY ENFORCED IN ALL INSTANCES; and

 

(m)       This Agreement may be executed and delivered in any number of
counterparts. Each counterpart shall constitute an original, but all
counterparts together shall constitute but one and the same agreement.

 

 

-30-

 

{W1772792;7}

 

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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals
the day and year first above written.

 

BORROWER:

 

 

THE EASTERN COMPANY

 

 

 

By: /s/Leonard F. Leganza

 

Leonard F. Leganza

 

Its President

 

Duly Authorized

 

 

LENDER:

 

PEOPLE'S UNITED BANK

 

By: /s/ W. Russ Brightly

W. Russ Brightly

Its Senior Vice President

 

-31-

 

{W1772792;7}

 

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

LIST OF EXHIBITS AND SCHEDULES

 

Exhibits:

 

 

A -

List of Consolidated Subsidiaries

 

 

B -

Form of Term Note

 

 

C -

Form of Revolving Credit Note

 

 

D -

List of Pension or Other Employee Benefit Plans

 

 

E -

List of Collective Bargaining or Union Agreements

 

 

F -

List of Operating Divisions (Domestic) of Borrower

 

Schedules:

 

2(o) - Environmental Disclosure

 

 

-32-

 

{W1772792;7}

 

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

EXHIBIT A

 

LIST OF CONSOLIDATED SUBSIDIARIES

 

Sesamee Mexicana, S.A. de C.V., a corporation organized under the laws of Mexico

 

World Security Industries Company Limited, a corporation organized under the
laws of Hong Kong

 

World Lock Co., Ltd., a corporation organized under the laws of the People's
Republic of China

 

Eberhard Hardware Manufacturing Limited, a corporation organized under the laws
of the Province of Ontario, Canada

 

Ashtabula Industrial Hardware Co., a corporation organized under the laws of the
State of Ohio

 

Energy Harvesting Company, a corporation organized under the laws of the State
of Connecticut

 

Canadian Commercial Vehicles Corporation, a corporation organized under the laws
of the Province of Nova Scotia, Canada

 

Eastern Industrial Limited, a corporation organized under the laws of the
People's Republic of China

 

Eberworld S.A. de C.V., a corporation organized under the laws of Mexico

 

Frazer & Jones Company, Inc., a corporation organized under the laws of the
State of New York

 

 

{W1772792;7}

 

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

EXHIBIT F

 

LIST OF OPERATING DIVISIONS (DOMESTIC)

 

Eberhard Manufacturing Company

21944 Drake Road

Strongville, Ohio 44149

 

Frazer & Jones Division

3000 Milton Avenue

Solvay, New York 13209

 

Greenwald Industries Division

212 Middlesex Avenue

Chester, Connecticut 06412

 

The Illinois Lock/CCL Security Products/Royal Lock Division

301 West Hintz Road

Wheeling, Illinois 60090-5754

 

 

{W1772792;7}