EXHIBIT 10.1

TWELFTH AMENDMENT TO FINANCING AGREEMENT

This Twelfth Amendment to Financing Agreement (“Amendment”) is made and entered
into as of this 31st day of August, 2006 between Key Tronic Corporation
(“Company”) and The CIT Group/Business Credit, Inc. (“CIT”) in reference to that
certain Financing Agreement between Company and CIT dated August 22, 2001, as
amended (“Financing Agreement”). Capitalized terms herein, unless otherwise
defined herein, shall have the meaning set forth in the Financing Agreement.

Company has requested to base its Applicable Margin on its Fixed Charge Ratio
instead of its EBITDA, eliminate its EBITDA, Tangible Net Worth and Capital
Expenditure covenants and that other amendments be made to the Financing
Agreement. CIT is willing to make the financial accommodations requested by
Company, but only on the terms and conditions set forth below.

NOW, THEREFORE, the parties hereto do hereby agree as follows:

1. Definitions. The following definitions are hereby amended and restated in
their entirety, with an effective date of August 1, 2006, as follows:

(a) “Applicable Margin means, with respect to the JP Morgan Chase Bank Rate or
LIBOR, as applicable, the amount set forth below corresponding to the applicable
level.”

 

          Applicable Margin  

Level

  

Fixed Charge Ratio

  

JP Morgan Chase
Bank Rate

(Revolver)

   

LIBOR

(Revolver
Only)

    Real Estate Term
Loan and Capital
Expenditure Loan
(JP Morgan Chase
Bank Rate)  

I

   <1.25x    0 %   2.25 %   0 %

II

   ³1.25x, but <1.62x    0 %   2.00 %   0 %

III

   ³1.62, but <2.00x    0 %   1.75 %   0 %

IV

   ³ 2.00x    0 %   1.50 %   0 %

(b) “Collection Days” shall be deleted in its entirety in Section 1, as well as
references thereto in Section 3.4(a) and Section 8.6.

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2. Financial Covenants.

Section 7.11(a) with respect to the Tangible Net Worth covenant, Section 7.11(b)
with respect to the EBITDA covenant, and Section 7.11(d) with respect to the
Capital Expenditure covenant are hereby deleted in their entirety.

3. Interest. The first paragraph of Section 8.1(a) of the Financing Agreement
shall be, and is hereby amended entirely, with an effective date of August 1,
2006, to read as follows:

“8.1 (a) Interest on the Revolving Loans shall be payable monthly as of the end
of each month, and shall bear interest at an amount per annum equal to (a) the
JP Morgan Chase Bank Rate plus the Applicable Margin on the average of the net
balances owing by the Company to CIT in the Revolving Loan Account at the close
of each day during such month on balances other than Libor Loans and (b) the
applicable Libor plus the Applicable Margin on any Libor Loan, on a per annum
basis, on the average of the net balances owing by the Company to CIT in the
Revolving Loan Account at the close of each day during such month. The
Applicable Margin shall be calculated quarterly and shall be based on the Fixed
Charge Ratio for said Fiscal Quarter. In the event of any change in said JP
Morgan Chase Bank Rate, the rate under clause (a) above shall change, effective
as of the date of such change, so as to remain equal to the Applicable Margin
plus the new JP Morgan Chase Bank Rate. The rate hereunder shall be calculated
based on a 360-day year. CIT shall be entitled to charge the Revolving Loan
Account at the rate provided for herein when due until all Obligations have been
paid in full.”

4. Representations and Warranties. In order to induce CIT to enter into this
Amendment, the Company represents and warrants to CIT as follows:

(a) Power and Authority. The Company has all requisite corporate power and
authority to enter into this Amendment and to carry out the transactions
contemplated by, and perform its obligations under, the Financing Agreement, as
amended and supplemented by this Amendment.

(b) Authorization of Agreements. The execution and delivery of this Amendment by
the Company and the performance by the Company of the Financing Agreement, as
amended and supplemented hereby, have been duly authorized by all necessary
action, and this Amendment has been duly executed and delivered by the Company.

(c) Representations and Warranties in the Financing Agreement. The Company
confirms that as of the Amendment Effective Date, the representations and
warranties contained in Section 7 of the Financing Agreement are (before and
after giving effect to this Amendment) true and correct in all material respects
(except to the extent any such representation and warranty is expressly stated
to have been made as of a specific date, in which case it shall be true and
correct as of such specific date).

5. Conditions. CIT’s obligations hereunder are subject to the delivery to CIT by
August 31, 2006 an original of this fully executed Amendment.

6. Counterparts. This Amendment may be signed in counterparts with the same
affect as if the signatures to each counterpart were upon a single instrument.

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7. Reaffirmation. Except as modified by the terms herein, the Financing
Agreement and the Loan Documents remain in full force and effect in accordance
with their terms without offset, counterclaim or recoupment.

8. Governing Law. This Amendment shall be governed by the laws of the State of
California.

9. Fees and Expenses. Company agrees to pay, on demand, all reasonable
attorneys’ fees and costs incurred in connection with the negotiation,
documentation and execution of this Amendment. If any legal action or proceeding
shall be commenced at any time by any party to this Amendment in connection with
its interpretation or enforcement, the prevailing party or parties in such
action or proceeding shall be entitled to reimbursement of its reasonable
attorneys’ fees and costs in connection therewith.

10. Waiver of Jury Trial. COMPANY AND CIT HEREBY WAIVE ALL RIGHTS EITHER MAY
HAVE TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE, DEFEND,
INTERPRET OR OTHERWISE CONCERNING THIS AMENDMENT.

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

 

KEY TRONIC CORPORATION

By  

/s/ Ronald F. Klawitter

Its

 

Executive Vice President and CFO

Date

 

September 5, 2006

THE CIT GROUP/BUSINESS CREDIT, INC.

By  

/s/ Kirk Wolverton

Its

 

Vice President

Date

 

August 31, 2006

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Each of the undersigned confirms that the foregoing Amendment shall not affect,
modify or diminish such undersigned’s obligations under any instrument of
Guarantee and/or any related pledge or security agreements executed in favor of
CIT and reaffirms and ratifies each of the terms and conditions of such
Guarantee and/or related pledge or security agreements.

 

KEY TRONIC JUAREZ, SA DE CV

By  

/s/ Ronald F. Klawitter

Its

 

CFO

Date

 

September 5, 2006

KEY TRONIC REYNOSA, SA DE CV

By  

/s/ Ronald F. Klawitter

Its

 

CFO

Date

 

September 5, 2006