**Exhibit10.12**

 

 

 

**FINANCINGAGREEMENT**

 

**The CITGroup/Business Credit, Inc.**

**(asLender)**

**And**

**HCCIndustries Inc.**

**And**

**GlassealProducts, Inc.**

**And**

**Sealtron,Inc.**

**And**

**HermeticSeal Corporation**

**(asBorrowers)**

** **

**Dated:  June 18, 2003**

 

 

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TABLE OF CONTENTS

 

 
| SECTION 1. Definitions                                |
|-------------------------------------------------------|
|                                                  |
| SECTION 2. Conditions  Precedent                      |
|                                                  |
| SECTION 3. Revolving Loans                            |
|                                                  |
| SECTION 4. Reserved                                   |
|                                                  |
| SECTION 5. Reserved                                   |
|                                                  |
| SECTION 6. Collateral                                 |
|                                                  |
| SECTION  7. Representations, Warranties and Covenants |
|                                                  |
| SECTION 8.  Interest, Fees and Expenses               |
|                                                  |
| SECTION  9. Powers                                    |
|                                                  |
| SECTION 10.  Events of Default and Remedies           |
|                                                  |
| SECTION 11. Termination                               |
|                                                  |
| SECTION  12. Suretyship Waivers and Consents          |
|                                                  |
| SECTION 13. Miscellaneous                             |
|                                                  |

 

 

 
| **SCHEDULES**                                    |
|--------------------------------------------------|
|                                             |   |
| Schedule 1 -  Collateral Information             |   |
|                                             |   |
| Schedule  2(i) - Litigation Summary              |   |
|                                             |   |
| Schedule  7.10 - Existing Commercial Tort Claims |   |
|                                             |   |
| Schedule of  Permitted Encumbrances              |   |

 

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**THE CIT GROUP/BUSINESS CREDIT, INC.**, a New York corporation, with officeslocated at 300 South Grand Avenue, Los Angeles, California 90071 (hereinafter“CIT”), is pleased to confirm the terms and conditions under which CIT shallmake revolving loans and other financial accommodations to HCC Industries Inc.,a Delaware corporation, Glasseal Products, Inc., a New Jersey corporation,Sealtron, Inc., a Delaware corporation, and Hermetic Seal Corporation, aDelaware corporation, and each with a chief executive office as set forth inSchedule 1 attached hereto (each a “Company” and collectively the “Companies”).

 

**SECTION1.  Definitions**

 

**Accounts** shall mean all of each of the Companies’ now existingand future:  **(a) **accounts (as definedin the UCC), and any and all other receivables (whether or not specificallylisted on schedules furnished to CIT), including, without limitation, all accountscreated by, or arising from, all of each of the Companies’ sales, leases,rentals of goods or renditions of services to its customers, including but notlimited to, those accounts arising under any of each of the Companies’ tradenames or styles, or through any of each of the Companies’ divisions; **(b) **anyand all instruments, documents, chattel paper (including electronic chattelpaper) (all as defined in the UCC); **(c) **unpaid seller’s or lessor’s rights(including rescission, replevin, reclamation, repossession and stoppage intransit) relating to the foregoing or arising therefrom; **(d) **rights to any goodsrepresented by any of the foregoing, including rights to returned, reclaimed orrepossessed goods; **(e) **reserves and credit balancesarising in connection with or pursuant hereto; **(f) **guarantees,supporting obligations, payment intangibles and letter of credit rights (all asdefined in the UCC); **(g) **insurance policies or rightsrelating to any of the foregoing; **(h) **general intangibles pertaining toany and all of the foregoing (including all rights to payment, including thosearising in connection with bank and non-bank credit cards), and including booksand records and any electronic media and software thereto ; **(i) **notes,deposits or property of account debtors securing the obligations of any suchaccount debtors to any Company; and **(j)** cash and non-cash proceeds(as defined in the UCC) of any and all of the foregoing.

**Administrative Management Fee** shall mean the sum of  $50,000.00 which shall be paid to CIT inaccordance with Section 8.7 hereof.

**Anniversary Date******shall mean the date occurringtwo (2) years from the Closing Date and the same date in every yearthereafter.

**Availability** shall mean, as to any Company, at any time ofcalculation, the amount by which: (a) such Company’s Borrowing Base exceeds (b) the outstandingaggregate amount of all of its Obligations, including without limitation, theRevolving Loans.

**Availability Reserve** shall mean, as to any Company, any reserve which CITmay reasonably require from time to time pursuant to this Financing Agreement.

**Borrowing Base** shall mean, as to any Company, the sum of(a) eighty-five percent (85%) of such Company’s aggregate outstandingEligible Accounts Receivable, provided, however, that if the then DilutionPercentage is greater than four percent (4%), then the rate of advanceherein shall be reduced by one percent for each one percent (1%) that theDilution Percentage exceeds four (4) percent, (b) any applicableAvailability Reserves.

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**Borrowing Period**** **shall mean any period during which Revolving Loanswill be available to the Companies.

**Business Day** shall mean any day on which CIT and JPMorgan ChaseBank are open for business.

**Chase Bank Rate** shall mean the rate of interest per annum announcedby JPMorgan Chase Bank from time to time as its prime rate in effect at itsprincipal office in New York City. (The prime rate is not intended to be the lowest rate of interestcharged by JPMorgan Chase Bank to its borrowers).

**Chase Bank Rate Loans** shall mean any loans or advances pursuant to thisFinancing Agreement made or maintained at a rate of interest based upon theChase Bank Rate.

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

**Collateral** shall mean all present and future Accounts,Equipment, Inventory, Documents of Title, General Intangibles, Pledged Stock ofeach of the Companies (except the Parent) and each of the Companies’subsidiaries and Other Collateral of each of the Companies.

**Collection Days** shall mean one (1) Business Day to provide forthe deposit, clearance and collection of checks or other instrumentsrepresenting the proceeds of Collateral, the amount of which has been creditedto the Companies’ Revolving Loan Account, and for which interest may be chargedon the aggregate amount of such deposits, at the rate provided for inParagraph 8.1 of Section 8 of this Financing Agreement.

**Commercial Tort Claim******meansa claim arising in tort and as more specifically defined in the UCC.

**Commitment Letter** shall mean the Commitment Letter, dated May 9, 2003,issued by CIT to, and accepted by, the Companies.

**Consolidated Balance Sheet******shallmean a consolidated or compiled, as applicable, balance sheet for the Companiesand the consolidated subsidiaries of each, eliminating all inter-companytransactions and prepared in accordance with GAAP.

**Consolidating Balance Sheet******shallmean a Consolidated Balance Sheet plus individual balance sheets for theCompanies and the subsidiaries of each, showing all elimination of inter-companytransactions, including a balance sheet for each of the Companies exclusively,all prepared in accordance with GAAP.

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

 

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

**Default Rate of Interest** shall mean a rate of interest per annum on anyObligations hereunder, equal to the sum of: (a) two percent (2%) and (b) the applicable incrementover the Chase Bank Rate (as set forth in paragraph 8.1 hereof) plus theChase Bank Rate, or the applicable increment over the LIBOR Rate (as set forthin Section 8.13 hereof), plus the LIBOR Rate, which CIT shall be entitled tocharge the Companies on all Obligations due CIT by the Companies, as furtherset forth in Paragraph 10.2 of Section 10 of this FinancingAgreement.

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

**Dilution Percentage** shall mean, as of anytime of calculation,  the then sum of the Borrower’s credits,claims, allowances, discounts, write-offs, contras, off-sets and deductionsdivided by the then sum of Trade Accounts Receivable, all calculated on arolling ninety (90) day average, as determined and calculated by CIT fromtime to time.

**Documents of Title** shall mean all of each of the Companies’ present andfuture documents (as defined in the UCC), and any and all warehouse receipts, bills of lading, shippingdocuments, chattel paper, instruments and similar documents, all whethernegotiable or not and all goods and Inventory relating thereto and all cash andnon-cash proceeds of the foregoing.

**Early Termination Date******shallmean the date on which the Companies or any one of them terminates thisFinancing Agreement or the Revolving Line of Credit which date is prior to anAnniversary Date.  Notice oftermination, as aforesaid, by any of Company shall be deemed notice by theCompanies for purposes hereof.

**Early Termination Fee******shall:  **(a) **mean the fee CIT is entitled tocharge the Companies in the event the Companies or any one of them terminatesthe Revolving Line of Credit or this Financing Agreement on a date prior to anAnniversary Date; and **(b) **be determined by multiplying theLine of Credit by (one) percent (1%).

**EBIT** shall mean, in any period, all earnings of theCompanies for said period before all interest and tax obligations of theCompanies for said period, determined in accordance with GAAP on a consistentbasis with the latest audited financial statements of the Companies, butexcluding the effect of extraordinary or non-reoccurring gains or losses forsuch period.

**Eligible Accounts Receivable** shall mean, as to any Company, the grossamount of such Company’s Trade Accounts Receivable that are subject to a valid,exclusive, first priority and fully perfected security interest in favor ofCIT, which conform to the warranties contained herein and which, at all times,continue to be acceptable to CIT in the exercise of its reasonable judgment, less,without duplication, the sum of: (a) any returns, discounts, claims, credits and allowances of anynature (whether issued, owing, granted, claimed or outstanding), and(b) reserves for any such Trade Accounts Receivable that arise from or aresubject to or include:  (i) salesto the United States of America,  anystate or other governmental entity or to any agency, department or divisionthereof, except for any such sales as to which such Company has 

 

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complied with theAssignment of Claims Act of 1940 or any other applicable statute, rules orregulation, to CIT’s satisfaction in the exercise of its reasonable businessjudgment; (ii) foreign sales, other than sales which otherwise comply withall of the other criteria for eligibility hereunder and are (x) secured byletters of credit (in form and substance satisfactory to CIT) issued orconfirmed by, and payable at, banks having a place of business in the UnitedStates of America, or (y) to customers residing in Canada provided suchAccounts do not exceed $500,000.00 in the aggregate at any one time;(iii) Accounts that remain unpaid more than ninety (90) days from invoicedate or sixty (60) days from due date; (iv) contra accounts;(v) sales to, any other Company, any subsidiary, or to any companyaffiliated with any Company or  in anyway; (vi) bill and hold (deferred shipment) or consignment sales;(vii) sales to any customer which is: (A) insolvent, (B) the debtor in any bankruptcy, insolvency,arrangement, reorganization, receivership or similar proceedings under anyfederal or state law, (C) negotiating, or has called a meeting of itscreditors for purposes of negotiating, a compromise of its debts, or(D) financially unacceptable to CIT or has a credit rating unacceptable toCIT; (viii) all sales to any customer if fifty percent (50%) or more of****theaggregate dollar amount of all outstanding invoices to such customer are unpaidmore than ninety (90) days from invoice date or sixty (60) days from duedate; (ix) sales to any customer and/or its affiliates to the extent suchsales  exceed at any one time twentypercent (20%) or more of all Eligible Accounts Receivable;(x) pre-billed receivables and receivables arising from progress billing;(xi) an amount representing, historically, returns, discounts, claims,credits, allowances and applicable terms; (xii) sales not payable inUnited States currency; and (xiii) any other reasons deemed necessary byCIT in its reasonable judgment, including without limitation those which arecustomary either in the commercial finance industry or in the lending practicesof CIT.

**Equipment******shall mean all of each Companies’ presentand hereafter acquired equipment (as defined in the UCC) including, withoutlimitation, all machinery, equipment, furnishings and fixtures, and alladditions, substitutions and replacements thereof, wherever located, togetherwith all attachments, components, parts, equipment and accessories installedthereon or affixed thereto and all proceeds thereof of whatever sort.

**ERISA** shall mean the Employee Retirement Income SecurityAct or 1974, as amended from time to time and the rules and regulationspromulgated thereunder from time to time.

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

 

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

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

**Fiscal Quarter** shall mean, with respect to the Companies, eachthree (3) month period ending in June, September, December, and March ofeach Fiscal Year.

**Fiscal Year** shall mean each 52 or 53 week period ending on theSaturday nearest to March 31st of each year.

**GAAP** shall mean generally accepted accounting principlesin the United States of America as in effect from time to time and for theperiod as to which such accounting principles are to apply, provided that inthe event the Companies modify their accounting principles and procedures asapplied as of the Closing Date, the Companies shall provide such statements ofreconciliation as shall be in form and substance acceptable to CIT.

**General Intangibles** shall mean all of each of the Companies’ present andhereafter acquired general intangibles (as defined in the UCC), and shallinclude, without limitation, all present and future right, title and interestin and to:  (a) all Trademarks,tradenames, corporate names, business names, logos and any other designs orsources of business identities, (b) Patents, together with anyimprovements on said Patents, utility models, industrial models, and designs,(c) Copyrights, (d) trade secrets, (e) licenses, permits andfranchises, (f) all applications with respect to the foregoing,(g) all right, title and interest in and to any and all extensions andrenewals, (h) goodwill with respect to any of the foregoing, (i) anyother forms of similar intellectual property, (j) all payment intangibles andsoftware, (k) all customer lists, distribution agreements, supplyagreements, blueprints, indemnification rights and tax refunds, together withall monies and claims for monies now or hereafter due and payable in connectionwith any of the foregoing or otherwise, and all cash and non-cashproceeds thereof, including, without limitation, the proceeds or royalties ofany licensing agreements between any Company and any licensee of any of suchCompany’s General Intangibles.

**Guaranties** shall mean the guaranty documents executed anddelivered by the Guarantors guaranteeing the Obligations.

**Guarantors** shall mean (i) HCC Machining Company, Inc., aDelaware corporation, Sealtron Acquisition Corp., a Delaware corporation andHCC Industries International, a California corporation, and (ii) any futuresubsidiaries of any of the foregoing.

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

 

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**Indenture**  shall meanthat certain Indenture dated as of May 6, 1997 in the original amount of$90,000,000 of 10 3⁄4% Senior Subordinated Notes due 2007, among HCC IndustriesInc., as Issuer, the Subsidiary Guarantors therein and IBJ Schroeder Bank &Trust Company, as Trustee.

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

**Interest Period** shall mean:

(a)           with respect to any initial requestby the Companies for a LIBOR Loan, a one month, two month, three or six monthperiod commencing on the borrowing or conversion date with respect to a LIBORLoan and ending one, two, three or six months thereafter, as applicable; and

(b)           thereafter with respect to anycontinuation of, or conversion to, a LIBOR Loan, at the option of theCompanies, any one month, two month, three or six month period commencing onthe last day of the immediately preceding Interest Period applicable to suchLIBOR Loan and ending one, two, three or six months thereafter, as applicable;

 

providedthat, the foregoing provisionsrelating to Interest Periods are subject to the following:

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

(ii)  any Interest Period thatbegins on the last Working Day of a calendar month (or on a day for which thereis no numerically corresponding day in the calendar month, at the end of suchInterest Period) shall end on the last Working Day of a calendar month; and

(iii)  for purposes of determiningthe availability of Interest Periods, such Interest Periods shall be deemedavailable if (x) JP Morgan Chase Bank quotes an applicable rate or CITdetermines LIBOR, as provided in the definition of LIBOR, (y) the LIBORdetermined by JP Morgan Chase Bank or CIT will adequately and fairly reflectthe cost of maintaining or funding its loans bearing interest at LIBOR, forsuch Interest Period, and (z) such Interest Period will end on or beforethe last day of the term of this Agreement. If a requested Interest Period shall be unavailable in accordance withthe foregoing sentence, the Company shall continue to pay interest on theObligations at the applicable per annum rate based upon the Chase Bank Rate.

**Inventory** shall mean all of each of the Companies’ present andhereafter acquired inventory (as defined in the UCC) and including, withoutlimitation, all merchandise, inventory and goods, and all additions, substitutionsand replacements thereof, wherever located, together with all goods andmaterials used or usable in manufacturing, processing, packaging or shippingsame in all 

 

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stages of production,from raw materials through work-in-process to finished goods, andall proceeds thereof of whatever sort.

**Investment Property******shall mean all now owned and hereafteracquired investment property (as defined in the UCC) and all proceeds thereof.

**LIBOR** shall mean, at any time of determination, and subjectto availability, for each applicable Interest Period, a variable rate ofinterest equal to:  (a) at CIT’selection (i) the rate set forth in the New York edition of The Wall StreetJournal under the “Money Rates” section for “London Interbank Offered Rates”,(ii) the applicable LIBOR quoted to CIT by JP Morgan Chase Bank (or anysuccessor thereof), or (iii) the rate of interest determined by CIT at whichdeposits in U.S. dollars are offered for the relevant Interest Period based oninformation presented on Telerate Systems at Page 3750 as of 11:00 A.M. (Londontime) on the day which is two (2) Business Days prior to the first day ofsuch Interest Period, providedthat, if at least two such offeredrates appear on the Telerate Page (or any successor thereof) 3750 in respect ofsuch Interest Period, the arithmetic mean of all such rates (as determined byCIT) will be the rate used; divided by (b) a number of equal to 1.0 minus theaggregate (but without duplication) of the rates (expressed as a decimalfraction) of Eurocurrency Reserve Requirements in effect on the day which istwo (2) Business Days prior to the beginning of such Interest Period.

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

**LIBOR Loan** shall mean any loans made pursuant to this Agreementwhich are made or maintained at a rate of interest based upon LIBOR, providedthat (i) no Default or Event of Default has occurred hereunder, which hasnot been waived in writing by CIT, and (ii) no LIBOR Loan shall be madewith an Interest Period that ends after the end of the term of this Agreement.

**Line of Credit** shall mean the aggregate commitment of CIT to makeRevolving Loans pursuant to Section 3 of this Financing Agreement in theaggregate amount equal to $7,500,000.

**Line of Credit Fee** shall:  **(a) **meanthe fee due CIT at the end of each month for the Line of Credit, and **(b) **bedetermined by multiplying the difference between (i) the Revolving Line ofCredit and (ii) the sum, for said month, of the average daily balance ofRevolving Loans outstanding for said month, by one-half percent (.5%) perannum for the number of days in said month; provided that during anyNon-Borrowing Period the percentage shall be increased to one percent (1%) perannum for the number of days in said month.

**Loan Documents** shall mean this Financing Agreement, the otherclosing documents and any other ancillary loan and security agreements executedfrom time to time in connection with this Financing Agreement, all as may berenewed, amended, extended, increased or supplemented from time to time.

**Loan Facility Fee** shall mean the fee payable to CIT in accordance with,and pursuant to, the provisions of Paragraph 8.6 of Section 8 of thisFinancing Agreement.

 

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**Non-Borrowing Period** shall mean such period that Revolving Loans will notbe available to the Companies.  ANon-Borrowing Period shall commence as of the first day of any month (i)following the Companies providing CIT with not less than 30 days prior writtennotice of an election to commence a Non-Borrowing Period and (ii) payment infull of all outstanding Revolving Loans. Thereafter, unless otherwise agreed to in writing by CIT, no BorrowingPeriod shall commence without the Companies providing CIT with not less than 30days prior written notice of their election to commence a Borrowing Period.  Such Borrowing Period shall commence on thefirst day of the month after such 30 days notice.

**Obligations******shall mean all loans, advances andextensions of credit made or to be made by CIT to the Companies, or any one ofthem, or to others for the Companies’ account (including, without limitation,all Revolving Loans; any and all indebtedness and obligations which may at anytime be owing by the Companies, or any one of them, to CIT howsoever arising,whether now in existence or incurred by the Companies, or any one of them, fromtime to time hereafter; whether principal, interest, fees, costs, expenses orotherwise; whether secured by pledge, lien upon or security interest in any ofthe Companies’ Collateral, assets or property or the assets or property of anyother person, firm, entity or corporation; whether such indebtedness isabsolute or contingent, joint or several, matured or unmatured, direct orindirect and whether the Companies, or any one of them, are liable to CIT forsuch indebtedness as principal, surety, endorser, guarantor or otherwise.  Obligations shall also include indebtednessowing to CIT by the Companies, or any one of them, under any Loan Document orunder any other agreement or arrangement now or hereafter entered into betweenthe Companies and CIT; indebtedness or obligations incurred by, or imposed on,CIT as a result of environmental claims arising out of the Companies’operations, premises or waste disposal practices or sites in accordance withparagraph 7.7 hereof; the Companies’ liability to CIT as maker or endorserof any promissory note or other instrument for the payment of money; anyCompany’s liability to CIT under any instrument of guaranty or indemnity, orarising under any guaranty, endorsement or undertaking which CIT may make orissue to others for the Companies’ account, CIT’s acceptance of drafts or CIT’sendorsement of notes or other instruments for the Companies’ account andbenefit; and any and all indebtedness, liabilities or obligations of everykind, nature and description owing by any Company to any affiliate of CIT.

**Other Collateral** shall mean all of each of the Companies’ now ownedand hereafter acquired lockbox, blocked account and any other deposit accountsmaintained with any bank or financial institutions into which the proceeds ofCollateral are or may be deposited; all Investment Property; all CommercialTort Claims; all cash and other monies and property in the possession orcontrol of CIT; all books, records, ledger cards, disks and related dataprocessing software at any time evidencing or containing information relatingto any of the Collateral described herein or otherwise necessary or helpful inthe collection thereof or realization thereon; and all cash and non-cashproceeds of the foregoing.

**Out-of-Pocket Expenses** shall mean all of CIT’s present andfuture expenses incurred relative to this Financing Agreement or any other LoanDocuments, whether incurred heretofore or hereafter, which expenses shallinclude, without being limited to:  thecost of record searches, all costs and expenses incurred by CIT in opening bankaccounts, depositing checks, receiving and transferring funds, and wiretransfer charges, any charges imposed on CIT due to returned items and“insufficient funds” of deposited checks and CIT’s 

 

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standard fees relatingthereto, and CIT’s travel, lodging and similar expenses of CIT’s  personnel in connection with inspecting andmonitoring the Collateral from time to time hereunder, any applicable counselfees and disbursements, fees and taxes relative to the filing of financingstatements and all expenses, costs and fees, including attorneys’ fees, setforth in Paragraph 10.3 of Section 10 of this Financing Agreement.

**Overadvances** shall mean the amount by which (a) the sum ofall outstanding Revolving Loans and advances made hereunder exceed (b) theBorrowing Base.

**Parent** shall mean HCC Industries Inc., which Parent shallalso be included in the definition of the Companies.

**Patents** shall mean all of each of the Companies’ present andhereafter acquired patents, patent applications, registrations, any reissues orrenewals thereof, licenses, any inventions and improvements claimed thereunder,and all general intangible, intellectual property and patent rights withrespect thereto of the Companies, or any one of them, and all income,royalties, cash and non-cash proceeds thereof.

**Permitted Encumbrances** shall mean: (a) liens existing on the date hereof on specific items ofEquipment and other liens expressly permitted, or consented to in writing byCIT; (b) Purchase Money Liens; (c) liens of local or stateauthorities for franchise or other like Taxes, provided that the aggregateamounts of such liens shall not exceed $100,000.00 in the aggregate at any onetime; (d) statutory liens of landlords and liens of carriers,warehousemen, bailees, mechanics, materialmen and other like liens imposed bylaw, created in the ordinary course of business and for amounts not yet due (orwhich are being contested in good faith, by appropriate proceedings or otherappropriate actions which are sufficient to prevent imminent foreclosure ofsuch liens) and with respect to which adequate reserves or other appropriateprovisions are being maintained by the Companies in accordance with GAAP; (e) depositsmade (and the liens thereon) in the ordinary course of business of theCompanies (including, without limitation, security deposits for leases,indemnity bonds, surety bonds and appeal bonds) in connection with workers’compensation, unemployment insurance and other types of social securitybenefits or to secure the performance of tenders, bids, contracts (other thanfor the repayment or guarantee of borrowed money or purchase moneyobligations), statutory obligations and other similar obligations arising as aresult of progress payments under government contracts; (f) easements(including, without limitation, reciprocal easement agreements and utilityagreements), encroachments, minor defects or irregularities in title, variationand other restrictions, charges or encumbrances (whether or not recorded)affecting the real estate, if applicable, and which in the aggregate(A) do not materially interfere with the occupation, use or enjoyment byany of the Companies of their business or the property so encumbered and(B) in the reasonable business judgment of CIT do not materially andadversely affect the value of such real estate; and (g) liens granted CITby the Companies, or any one of them; (h) liens of judgment creditorsprovided such liens do not exceed, in the aggregate, at any time, $50,000.00(other than liens bonded or insured to the reasonable satisfaction of CIT); and(i) tax liens which are not yet due and payable or which are beingdiligently contested in good faith by the Companies by appropriate proceedings,and which liens are not (x) filed on any public records, (y) otherthan with respect to real estate, senior to the liens of CIT or (z) forTaxes due the United States of America or any state thereof having similarpriority statutes, as further set forth in paragraph 7.6 hereof.

 

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**Permitted Indebtedness******shallmean:  **(a) **current Indebtednessmaturing in less than one year and incurred in the ordinary course of businessfor raw materials, supplies, equipment, services, Taxes or labor; **(b) **theIndebtedness secured by Purchase Money Liens;**(c) **Subordinated Debt; **(d) **Indebtednessarising under this Financing Agreement; **(e) **deferred Taxes and other expensesincurred in the ordinary course of business; and **(f) **other Indebtednessexisting on the date of execution of this Financing Agreement and listed in themost recent financial statement delivered to CIT or otherwise disclosed to CITin writing prior to the Closing Date.

**Pre-Tax Income**** **shall mean, in any period, all earnings of theCompanies for said period, before all tax obligations of the Companies for saidperiod, determined and in accordance with GAAP on a consistent basis with thelatest audited financial statements of the Companies, but excluding the effectof extraordinary or non-recurring gains or losses for such period.

**Purchase Money Liens** shall mean liens on any item of Equipment acquiredafter the date of this Financing Agreement provided that **(a) **each such lien shallattach only to the property to be acquired, **(b) **a description of theEquipment so acquired is furnished to CIT, and**(c) **the debt incurredin connection with such acquisitions shall not exceed, in the aggregate,$500,000.00 in any Fiscal Year.

**Revolving Line of Credit** shall mean the aggregate commitment of CIT to makeloans and advances pursuant to Section 3 of this Financing Agreement inthe aggregate amount up to the sum of (a) $7,500,000.00.

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

**Revolving Loans** shall mean the loans and advances made, from time totime, to or for the account of each of the Companies by CIT pursuant toSection 3 of this Financing Agreement.

**Senior Subordinated Notes** shall mean these certain 10 3⁄4% Notes issued pursuantto the Indenture.

**Subordinated Debt** shall mean the debt due pursuant to the Indenture,including the Senior Subordinated Notes.

**Senior Indebtedness** shall have the same meaning as provided in theIndenture.

**Taxes** shall mean all federal, state, municipal and othergovernmental taxes, levies, charges, claims and assessments which are or may bedue by the Companies with respect to their business, operations, Collateral orotherwise.

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

**Total Liabilities** shall mean total liabilities determined in accordancewith GAAP, on a basis consistent with the latest audited financial statementsof the Companies.

 

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**Trade Accounts Receivable** shall mean that portion of each of the Companies’Accounts which arises from the sale of Inventory or the rendition of servicesin the ordinary course of the Companies’ business.

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

**UCC** shall mean the Uniform Commercial Code as the same may be amended andin effect from time to time in the state of California.

**Working Capital** shall mean Current Assets in excess of CurrentLiabilities.

**WorkingDay** shallmean any Business Day on which dealings in foreign currencies and exchangesbetween banks may be transacted.

 

**SECTION2.  Conditions Precedent**

 

The obligation ofCIT to make the initial loans hereunder is subject to the satisfaction of,extension of or waiver of in writing, on or prior to, the Closing Date, thefollowing conditions precedent:

 

**(a)           LienSearches** -CIT shall have received tax, judgment and Uniform Commercial Code searchessatisfactory to CIT for all locations presently occupied or used by each of theCompanies.

**(b)           CasualtyInsurance** -Each of the Companies shall have delivered to CIT evidence satisfactory to CITthat casualty insurance policies listing CIT as additional insured, loss payeeor mortgagee, as the case may be, are in full force and effect, all as setforth in Paragraph 7.5 of Section 7 of  this Financing Agreement.

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

**(d)           BoardResolution** -CIT shall have received a copy of the resolutions of the Board of Directors ofeach of the Companies and the Guarantors (as the case may be) authorizing theexecution, delivery and performance of (i) this Financing Agreement,(ii) the Guaranties, and (iii) any related agreements, in each casecertified by the Secretary or Assistant Secretary of the Companies and theGuarantors (as the 

 

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case may be) as of thedate hereof, together with a certificate of the Secretary or AssistantSecretary of the Companies and the Guarantors (as the case may be) as to theincumbency and signature of the officers of the Companies and/or the Guarantorsexecuting such Loan Documents and any certificate or other documents to bedelivered by them pursuant hereto, together with evidence of the incumbency ofsuch Secretary or Assistant Secretary.

**(e)           CorporateOrganization** -CIT shall have received (i) a copy of the Certificate of Incorporation ofthe Companies and the Guarantors certified by the Secretary of State of thestate of its incorporation, and (ii) a copy of the By-Laws of theCompanies certified by the Secretary or Assistant Secretary thereof, all asamended through the date hereof.

**(f)            Officer’sCertificate** -CIT shall have received an executed Officer’s Certificate of each of theCompanies, satisfactory in form and substance to CIT, certifying that(i) the representations and warranties contained herein are true andcorrect in all material respects on and as of the Closing Date; (ii) eachof the Companies is in compliance with all of the terms and provisions setforth herein; (iii) no Default or Event of Default has occurred and, (iv)all financial tests and requirements have been met so as to qualify thisFinancing Agreement and the Obligations thereunder as Senior Indebtedness.

**(g)           Reserved**

**(h)           Absenceof Default** -No Default or Event of Default shall have occurred and no material adversechange shall have occurred in the financial condition, business, prospects,profits, operations or assets of the Companies, or any one of them, the****Guarantorsor any of the Companies’ subsidiaries.

**(i)            LegalRestraints/Litigation** — Except as provided in Schedule 2(i), as of the Closing Date, thereshall be no:  (x) litigation,investigation or proceeding (judicial or administrative) pending or threatenedagainst the Companies, or any one of them or the Guarantors or their assets, byany agency, division or department of any county, city, state or federalgovernment arising out of this Financing Agreement; (y) injunction, writor restraining order restraining or prohibiting the financing arrangementscontemplated under this Financing Agreement; or (z) suit, action,investigation or proceeding (judicial or administrative) pending against theCompanies, or any one of them, or the Guarantors or their assets, which, in theopinion of CIT, if adversely determined, could have a material adverse effecton the business, operation, assets, financial condition or Collateral of the Companies,or any one of them, and/or the Guarantors.

**(j)            Guaranties** - Each Guarantor shall haveexecuted and delivered to CIT a guaranty, in form acceptable to CIT,guaranteeing all present and future Obligations of the Companies and securityagreement granting to CIT a security interest in all such Guarantor’s personalproperty assets as collateral security for its guaranty.

**(k)           CashBudget Projections** - CIT shall have received, reviewed and been satisfied with atwelve (12) month cash budget projection prepared by each Company on theform provided by CIT.

**(l)            PledgeAgreement** -Parent and/or the Companies, as the case may be, shall (i) execute anddeliver to CIT a pledge and security agreement pledging to CIT as additional 

 

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collateral for theObligations of the Companies not less than 100% of the issued and outstandingstock of the Companies (but not the Parent) and not less than 100% of the stockof all subsidiaries of the Companies and, (ii) deliver to CIT the stockcertificates evidencing such stock together with duly executed stock powers(undated and in-blank) with respect thereto, all in form and substancesatisfactory to CIT.

**(m)          AdditionalDocuments** -Each of the Companies shall have executed and delivered to CIT, in form andsubstance satisfactory to CIT, the Companies and their respective counsel, allLoan Documents reasonably necessary to consummate the lending arrangementcontemplated between the Companies and CIT.

**(n)           DisbursementAuthorization**- The Companies shall have delivered to CIT all information necessary forCIT to issue wire transfer instructions on behalf of each of the Companies forthe initial and subsequent loans and/or advances to be made under thisFinancing Agreement including, but not limited to, disbursement authorizationsin form acceptable to CIT.

**(o)           Examination& Verification** —CIT shall have completed, to CIT’s satisfaction, an examination andverification of the Accounts, financial statements, books and records of theCompanies which examination shall indicate that, after giving effect to allRevolving Loans, advances and extensions of credit to be made at closing, theCompanies shall have an aggregate opening additional Availability of at least$3,000,000.00, as evidenced by a Borrowing Base certificate delivered by eachof the Companies to CIT as of the Closing Date, all as more fully required bythe CIT Commitment Letter.  It isunderstood that such requirement contemplates that all debts and obligationsare current, and that all payables are being handled in the normal course ofthe Companies’ business and consistent with their past practice.

**(p)           DepositoryAccounts** -Each of the Companies shall have established a system of lockbox and bankaccounts with respect to the collection of Accounts and the deposit of proceedsof Collateral as shall be acceptable to CIT in all respects.  Such accounts shall be subject to threeparty agreements (between the Companies, CIT and the depository bank), whichshall be in form and substance satisfactory to CIT.

**(q)           Schedules** - The Companies or their counselshall provide CIT with schedules of: (a) any of the Companies’ and their subsidiaries(i) Trademarks, (ii) Patents, and (iii) Copyrights, asapplicable and all in such detail as to provide appropriate recordinginformation with respect thereto, (b) any tradenames, (c) monthlyrental payments for any leased premises or any other premises where anyCollateral may be stored or processed, and (d) Permitted Encumbrances, allof the foregoing in form and substance satisfactory to CIT.

**(r)           CITCommitment Letter** — Each of the Companies shall have fully complied, to the reasonablesatisfaction of CIT, with all of the terms and conditions of the CIT CommitmentLetter.

Upon the execution ofthis Financing Agreement and the initial disbursement of loans hereunder, allof the above Conditions Precedent shall have been deemed satisfied except asotherwise set forth hereinabove or as the Companies and CIT shall otherwiseagree in writing**.**

 

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**2.2          Conditionsto Each Extension of Credit**

 

Except to the extent expressly set forth in thisFinancing Agreement, the agreement of CIT to make any extension of creditrequested to be made by it to any of the Companies on any date (includingwithout limitation, the initial extension of credit) is subject to thesatisfaction of the following conditions precedent:

 

**(a)           Representationsand Warranties**- Each of the representations and warranties made by each of the Companiesin or pursuant to this Financing Agreement shall be true and correct in allmaterial respects on and as of such date as if made on and as of such date.

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

**(c)           BorrowingBase** -Except as may be otherwise agreed to from time to time by CIT and the Companiesin writing, after giving effect to the extension of credit requested to be madeby any of the Companies on such date, the aggregate outstanding balance of theRevolving Loans owing by each of the Companies will not exceed the lesser of(i) the Revolving Line of Credit or (ii) such Company’s BorrowingBase.

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

 

**SECTION3.  Revolving Loans**

 

**3.1         **CIT agrees, subject to the terms andconditions of this Financing Agreement, from time to time, and within(x) Availability and (y) the Revolving Line of Credit (but subject toCIT’s right to make “Overadvances”), to make loans and advances to each Companyon a revolving basis (i.e. subject to the limitations set forth herein, each ofthe Companies may borrow, repay and re-borrow Revolving Loans).  Such loans and advances shall not exceedsuch Company’s Borrowing Base.  Allrequests for loans and advances must be received by an officer of CIT no laterthan (i) 1:00 p.m., New York time, of the Business Day on which anysuch Chase Bank Rate Loans and advances are required or (ii) three BusinessDays prior to any requested LIBOR Loan. Should CIT for any reason honor requests for Overadvances, any suchOveradvances shall be made in CIT’s sole discretion and subject to anyadditional terms CIT deems necessary.

**3.2         **In furtherance of the continuingassignment and security interest in each of the Companies’ Accounts andInventory, each of the Companies will, upon the creation of Accounts, executeand deliver to CIT in such form and manner as CIT may reasonably require,solely for CIT’s convenience in maintaining records of Collateral, suchconfirmatory schedules of Accounts as CIT may reasonably request, including,without limitation, (i) weekly schedules of Accounts, and (ii) within fifteen(15) days after the end of each month, collateral reports for the month ended,including but not limited to, accounts receivable and accounts payable agingsfor each Company, all in form and substance satisfactory to CIT, and such otherappropriate reports designating, identifying and describing the Accounts as CITmay reasonably request, and 

 

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provided further that CITmay request any such information more frequently, from time to time, upon itsreasonable prior request.  In addition,each of the Companies shall provide CIT with copies of agreements with, orpurchase orders from, such Company’s customers, and copies of invoices tocustomers, proof of shipment or delivery, access to its computers, electronicmedia and software programs associated therewith (including any electronicrecords, contracts and signatures) and such other documentation and informationrelating to said Accounts and other Collateral as CIT may reasonably require.  Failure to provide CIT with any of theforegoing shall in no way affect, diminish, modify or otherwise limit thesecurity interests granted herein.  Eachof the Companies hereby authorizes CIT to regard such Company’s printed name orrubber stamp signature on assignment schedules or invoices as the equivalent ofa manual signature by one of such Company’s authorized officers or agents.  The Companies shall use their best effortsto work with CIT to establish electronic collateral reports.

**3.3         **Each Company hereby represents andwarrants that:  each Trade AccountReceivable of such Company is based on an actual and bona fide sale anddelivery of Inventory or rendition of services to customers, made by suchCompany in the ordinary course of its business; the Inventory being sold, andthe Trade Accounts Receivable created, are the exclusive property of suchCompany and are not and shall not be subject to any lien, consignmentarrangement, encumbrance, security interest or financing statement whatsoever,other than the Permitted Encumbrances; the invoices evidencing such TradeAccounts Receivable are in the name of such Company; and the customers of suchCompany have accepted the Inventory or services, owe and are obligated to paythe full amounts stated in the invoices according to their terms, withoutdispute, offset, defense, counterclaim or contra, except for disputes and othermatters arising in the ordinary course of business with respect to which suchCompany has complied with the notification requirements of Paragraph 3.5hereof.  Each Company confirms to CITthat any and all Taxes or fees relating to its business, its sales, theAccounts or Inventory relating thereto, are its sole responsibility and thatsame will be paid by such Company when due, subject to Paragraph 7.6 of Section 7of this Financing Agreement, and that none of said Taxes or fees represent alien on or claim against the Accounts. Each Company hereby further represents and warrants that it shall notacquire any Inventory on a consignment basis, nor co-mingle its Inventory withany of its customers or any other person, including pursuant to any bill andhold sale or otherwise, and that its Inventory is marketable to its customersin the ordinary course of business of such Company, except as it may otherwise reportin writing to CIT pursuant to Paragraph 3.5 hereof from time to time.  Each Company also warrants and representsthat it is a duly and validly existing corporation and is qualified in allstates where the failure to so qualify would have an adverse effect on thebusiness of such Company or the ability of such Company to enforce collectionof Accounts due from customers residing in that state.  Each Company agrees to maintain such booksand records regarding Accounts and Inventory as CIT may reasonably require andagrees that the books and records of such Company will reflect CIT’s interestin the Accounts and Inventory.  All ofthe books and records of each Company will be available to CIT at normalbusiness hours, including any records handled or maintained for such Company byany other company or entity.

**3.4          (a)**  The Companies, at their expense,shall implement a lockbox arrangement as required by CIT with respect to allcollections and proceeds of Collateral. Any checks, cash, credit card sales and receipts, notes or otherinstruments or property received by any Company with respect to any Collateral,including Accounts, outside of the lockbox arrangement shall be 

 

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held by the Companies intrust for CIT, separate from the Companies’ own property and funds, andpromptly turned over to CIT with proper assignments or endorsements by depositto the lockbox Depository Accounts.  TheCompanies shall: (i) indicate on all of their invoices that funds should bedelivered to and deposited in a Depository Account; (ii) direct all of theiraccount debtors to deposit any and all proceeds of Collateral into the lockboxDepository Accounts; (iii) irrevocably authorize and direct any banks whichmaintain the Companies’ initial receipt of cash, checks and other items topromptly wire transfer all available funds to a Depository Account; and (iv)advise all such banks of CIT’s security interest in such funds.  The Company shall provide CIT with priorwritten notice of any and all deposit accounts opened or to be openedsubsequent to the Closing Date.  Subjectto Collection Days, all amounts received by CIT in payment of Accounts will becredited to the Revolving Loan Account when CIT is advised by its bank of itsreceipt of “collected funds” at CIT’s lockbox in New York, New York on theBusiness Day of such advice if advised no later than 10:00 a.m. PST or on thenext succeeding Business Day if so advised after 10:00 a.m. PST.  No checks, drafts or other instrument receivedby CIT shall constitute final payment to CIT unless and until such instrumentshave actually been collected.

**(b)          **The Companies shall establish andmaintain, at their expense, deposit accounts with such banks as are acceptableto CIT (the “Blocked Accounts”) into which the Companies shall promptly causeto be deposited:  (i) all proceedsof Collateral received by the Companies, including all amounts payable to theCompanies from credit card issuers and credit card processors, and(ii) all amounts on deposit in deposit accounts used by the Companies ateach of their locations, all as further provided in Paragraph 3.4(a)above.  The banks at which the BlockedAccounts are established shall enter into an agreement, in form and substancesatisfactory to CIT (the “Blocked Account Agreements”), providing that allcash, checks and items received or deposited in the Blocked Accounts are theproperty of CIT, that the depository bank has no lien upon, or right of set offagainst, the Blocked Accounts and any cash, checks, items, wires or other funds from time to time on deposittherein, except as otherwise provided in the Blocked Account Agreements, andthat automatically, on a daily basis****the depository bank will wire, orotherwise transfer, in  immediatelyavailable funds, all funds received or deposited into the Blocked Accounts tosuch bank account as CIT may from time to time designate for such purpose.  During any Non-Borrowing Period, andprovided no Default shall exist or have occurred, CIT shall instruct thedepository banks at which the Blocked Accounts are maintained to transfer thefunds on deposit in the Blocked Accounts to such operating bank accounts of theCompanies as the Companies may specify in writing to CIT until such time as CITshall notify the depository bank otherwise. The Companies hereby confirm and agree that all amounts deposited insuch Blocked Accounts and any other funds received and collected by CIT,whether as proceeds of Inventory or other Collateral or otherwise, shall be theproperty of CIT.

 

**3.5         **Each Company agrees to notify CIT:  (a) of any matters affecting the value,enforceability or collectability of any Account and of all customer disputes,offsets, defenses, counterclaims, returns, rejections and all reclaimed orrepossessed merchandise or goods, and of any adverse effect in the value of itsInventory, in its weekly collateral reports (as applicable) provided to CIThereunder, in such detail and format as CIT may reasonably require from time totime; and (b) promptly of any such matters which (i) are material, asa whole, to the Accounts and/or the Inventory, or (ii) which adverselyaffect the value of any Account or Inventory in an amount of $25,000 ormore.  Each Company agrees to issuecredit memoranda promptly (with 

 

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duplicates to beimmediately forwarded to CIT) upon accepting returns or grantingallowances.  Upon the occurrence of anEvent of Default (which is not waived in writing by CIT) and on notice fromCIT, each Company agrees that all returned, reclaimed or repossessedmerchandise or goods shall be set aside by such Company, marked with CIT’s name(as secured party) and held by such Company for CIT’s account.

**3.6          (a)** Subject to (b) below, CITshall maintain a Revolving Loan Account on its books  in which each of the Companies will be charged with all loans andadvances made by CIT to it or for its account, and with any other Obligations,including any and all costs, expenses and reasonable attorney’s fees which CITmay incur in connection with the exercise by or for CIT of any of the rights orpowers herein conferred upon CIT, or in the prosecution or defense of anyaction or proceeding to enforce or protect any rights of CIT in connection withthis Financing Agreement, the other Loan Documents or the Collateral assignedhereunder, or any Obligations owing by such Company.  The Companies will be credited with all amounts received by CITfrom the Companies or from others for the Companies’ account, including, asabove set forth, all amounts received by CIT in payment of Accounts, and suchamounts will be applied to payment of the Obligations as set forth herein.  In no event shall prior recourse to anyAccounts or other security granted to or by a Company be a prerequisite toCIT’s right to demand payment of any Obligation.  Further, it is understood that CIT shall have no obligationwhatsoever to perform in any respect any of the Companies’ contracts orobligations relating to the Accounts.

**(b)** In order to utilize the collective borrowingpowers of the Companies (collectively the “Collective Borrowers”) in the mostefficient and economical manner, and in order to facilitate the handling of theaccounts of the Collective Borrowers on CIT’s books, the Collective Borrowershave requested, and CIT has agreed to handle accounts of the CollectiveBorrowers on CIT’s books on a combined basis, all in accordance with thefollowing provisions:  (i)** **inlieu of maintaining separate accounts on CIT’s books in the name of each of theCollective Borrowers, CIT shall maintain one account under the name: HCCIndustries (herein the “Collective Account”). Confirmatory assignments of Accounts will continue to be made to CIT byeach of the Collective Borrowers.  Loansand advances made by CIT to any of the Collective Borrowers will be charged tothe Collective Account indicated above, along with any charges and expensesunder this Financing Agreement.  TheCollective Account will be credited, with all amounts received by CIT from anyof the Collective Borrowers or from others for their account including allamounts received by CIT in payment of Accounts assigned to CIT as provided inthis Financing Agreement.  Each monthCIT will render to the Collective Borrowers one extract of the combined CollectiveAccount, which shall be deemed to be an account stated as to each of theCollective Borrowers and which will be deemed correct and accepted by all ofthe Collective Borrowers unless CIT receives a written statement of exceptionsfrom them within thirty (30) days after such extract has been rendered byCIT.  It is expressly understood andagreed by each of the Collective Borrowers that CIT shall have no obligation toaccount separately to any of the Collective Borrowers.  Requests for loans and advances may be madeby Parent as agent for  the CollectiveBorrowers and CIT is hereby authorized and directed to accept, honor and relyon such instructions and requests, subject to the limitation and provisions setforth in this Financing Agreement.  It isexpressly understood and agreed by each of the Collective Borrowers that CITshall have no responsibility to inquire into the correctness of theapportionment, allocation, or disposition of any loans and advances made to anyof the Collective Borrowers or any of CIT’s expenses and charges relatingthereto.  All loans and advances aremade for the Collective

 

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Account.  The Collective Borrowers jointly andseverally unconditionally guarantee to CIT the prompt payment in full of allloans and advances made and to be made by CIT to any of them under this Financing Agreement, as well as all otherObligations of the Collective Borrowers to CIT and hereby expressly confirm in all respects the Guaranties executed byeach of the Collective Borrowers in CIT’s favor as more fully set forth therein. All Accounts assigned to CIT by any of the Collective Borrowers and anyother collateral security now or hereafter given to CIT  by any of the Collective Borrowers (be itAccounts or otherwise), shall secure all loans and advances made by CIT  to any of the Collective Borrowers, andshall be deemed to be pledged to CIT as security for any and all otherObligations of the Collective Borrowers to CIT as set forth under thisFinancing Agreement, the Guaranties, or any other agreements between CIT  and any of the Collective Borrowers.  It is understood that the handling of theaccounts of the Collective Borrowers in a combined fashion, as more fully setforth herein, is done solely as an accommodation to the Collective Borrowersand at their request, and that CIT shall incur no liability to the CollectiveBorrowers as a result hereof.  To induceCIT to do so, and in consideration thereof, each of the Collective Borrowershereby agrees to indemnify CIT and hold CIT harmless against any and allliability, expense, loss or claim of damage or injury, made against CIT  by any of the Collective Borrowers or by anythird party whosoever, arising from or incurred solely by reason of the methodof handling the accounts of the Collective Borrowers as herein provided, CITrelying on any instructions of any of the Collective Borrowers, or any otheraction taken by CIT in accordance with this subparagraph (b) ofParagraph 3.6 of Section 3 of this Financing Agreement.  The foregoing request was made because theCollective Borrowers are engaged in an integrated operation that requiresfinancing on a basis permitting the availability of credit from time to time toeach of the Collective Borrowers as required for the continued successfuloperation of each of the Collective Borrowers. Each of the Collective Borrowers expects to derive benefit, directly orindirectly, from such availability since the successful operation of each ofthe Collective Borrowers is dependent on the continued successful performanceof the functions of the integrated group. In addition, the Companies have informed CIT that:

 

(i)            Parent, in order to increase theefficiency and productivity of each of the other Collective Borrowers, hascentralized in itself a cash management system which entails, in part, centraldisbursement and operating accounts in which it provides the working capitalneeds of each of the other Collective Borrowers and manages and timely pays theaccounts payable of each of the other Collective Borrowers;

(ii)           Parent is further enhancing theoperating efficiencies of the other Collective Borrowers by purchasing, orcausing to be purchased, in its name for its account all materials, supplies,inventory and services required by the other Collective Borrower which willresult in reducing the operating costs of the other Collective Borrowers; and

(iii)          Since all of the Collective Borrowersare now engaged in an integrated operation that requires financing on anintegrated basis and since each Collective Borrower expects to benefit from 

 

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the continuedsuccessful performance of such integrated operations and in order to bestutilize the collective borrowing powers of each Collective Borrower in the mosteffective and cost efficient manner and to avoid adverse effects on theoperating efficiencies of each Collective Borrower and the existing back-officepractices of the Collective Borrowers, each Collective Borrower has requestedthat all Revolving Loans and advances be disbursed solely upon the request ofParent and to bank accounts managed solely by Parent and that Parent willmanage for the benefit of each Collective Borrower the expenditure and usage ofsuch funds.

**3.7         **After the end of each month, CIT shallpromptly send the Companies a statement showing the accounting for the charges,loans, advances and other transactions occurring between CIT and the Companiesduring that month.  The monthlystatements shall be deemed correct and binding upon the Companies and shallconstitute an account stated between the Companies and CIT unless CIT receivesa written statement of the exceptions within thirty (30) days of the dateof the monthly statement.

**3.8         **In the event that any requested advanceexceeds Availability or that (a) the outstanding balance of RevolvingLoans exceeds (b) (x) the Borrowing Base or (y) the RevolvingLine of Credit, any such nonconsensual Overadvance shall be due and payable toCIT immediately upon CIT’s demand therefor. Failure to pay such Overadvance shall constitute an Event of Default.

**3.9         **The Companies shall use the proceeds of the loans andadvances under this Financing Agreement for the Companies’ ordinary andnecessary working capital purposes. However, CIT shall also allow advances under the Revolving Loan for thepurpose of allowing Companies to repurchase not less than $40,000,000 of SeniorSubordinated Notes for an amount not in excess of 50% of such SeniorSubordinated Notes present face value. The use of such proceeds of Revolving Loans shall be contingent uponCompanies otherwise meeting eligibility and other borrowing requirementshereunder, and receipt by CIT of evidence acceptable to CIT of no Defaulthereunder or under the Indenture as a result of such purchase.

 

**SECTION4.  Reserved**

** **

**SECTION5.  Reserved**

** **

**SECTION6.  Collateral**

 

**6.1         **As security for the prompt payment infull of all Obligations, each Company hereby pledges and grants to CIT acontinuing general lien upon, and security interest in, all of its:

**(a)          **Accounts;

**(b)          **Inventory;

**(c)          **General Intangibles;

 

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**(d)          **Documents of Title;

**(e)          **Other Collateral; and

**(f)           **Equipment.

**6.2         **The security interests granted hereunder shall extendand attach to:

**(a)          **All Collateral which is owned by theCompany or in which any of the Companies has any interest, whether held by theCompanies or others for their account, and, if any Collateral is Equipment,whether the Companies’ interest in such Equipment is as owner, finance lesseeor conditional vendee;

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

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

**6.3         **Each Company agrees to safeguard, protectand hold all Inventory for CIT’s account and make no disposition thereof exceptin the ordinary course of its business of the Company, as herein provided.  Each Company represents and warrants thatInventory will be sold and shipped by such Company to its customers only in theordinary course of such Company’s business, and then only on open account andon terms currently being extended by such Company to its customers, providedthat, absent the prior written consent of CIT, the Companies shall not sellInventory on a consignment basis nor retain any lien or security interest inany sold Inventory.  Upon the sale,exchange, or other disposition of Inventory, as herein provided, the securityinterest in the Inventory provided for herein shall, without break incontinuity and without further formality or act, continue in, and attach to,all proceeds, including any instruments for the payment of money, TradeAccounts Receivable, documents of title, shipping documents, chattel paper andall other cash and non-cash proceeds of such sale, exchange ordisposition.  As to any such sale,exchange or other disposition, CIT shall have all of the rights of an unpaidseller, including stoppage in transit, replevin, rescission andreclamation.  Each Company hereby agreesto immediately forward any and all proceeds of Collateral to the DepositoryAccount, and to hold any such proceeds (including any notes and instruments),in trust for CIT pending delivery to CIT. Irrespective of CIT’s perfection status in any and all of the GeneralIntangibles, including, without limitations, any Patents, Trademarks,Copyrights or licenses with respect thereto, each Company hereby irrevocablygrants CIT a royalty free license to sell, or otherwise dispose or transfer, inaccordance with Paragraph 10.3 of Section 10 of this FinancingAgreement, and the applicable terms hereof, of any of the Inventory upon theoccurrence of an Event of Default which has not been waived in writing by CIT.

 

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**6.4         **Each Company agrees at its own cost andexpense to keep the Equipment in as good and substantial repair and conditionas the same is now or at the time the lien and security interest granted hereinshall attach thereto, reasonable wear and tear excepted, making any and allrepairs and replacements when and where necessary.  Each Company also agrees to safeguard, protect and hold allEquipment in accordance with the terms hereof and subject to  CIT’s security interest.  Any sale, exchange or other disposition ofany Equipment shall be made by such Company only with CIT’s prior writtenconsent  Upon the sale, exchange, orother disposition of the Equipment, as herein provided, the security interestprovided for herein shall, without break in continuity and without furtherformality or act, continue in, and attach to, all proceeds, including anyinstruments for the payment of money, Accounts, documents of title, shippingdocuments, chattel paper and all other cash and non-cash proceeds of suchsales, exchange or disposition.  As toany such sale, exchange or other disposition, CIT shall have all of the rightsof an unpaid seller, including stoppage in transit, replevin, rescission andreclamation.

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

**6.6         **Notwithstanding CIT’s security interestin the Collateral and to the extent that the Obligations are now or hereaftersecured by any assets or property other than the Collateral or by theguarantee, endorsement, assets or property of any other person, CIT shall havethe right in its sole discretion to determine which rights, liens, securityinterests or remedies CIT shall at any time pursue, foreclose upon, relinquish,subordinate, modify or take any other action with respect to, without in anyway modifying or affecting any of them, or any of CIT’s rights hereunder.

**6.7         **Any balances to the credit of theCompanies and any other property or assets of the Companies in the possessionor control of CIT may be held by CIT as security for any Obligations andapplied in whole or partial satisfaction of such Obligations when due.  The liens and security interests grantedherein, and any other lien or security interest CIT may have in any otherassets of the Companies, shall secure payment and performance of all nowexisting and future Obligations.  CITmay in its discretion charge any or all of the Obligations to the RevolvingLoan Account when due.

**6.8         **Each Company possesses all GeneralIntangibles and rights thereto necessary to conduct its business as conductedas of the Closing Date and each Company shall maintain its rights in, and thevalue of,  the foregoing in the ordinarycourse of its business, including, without limitation, by making timely paymentwith respect to any applicable licensed rights.  Each Company shall deliver to CIT, and/or shall cause theappropriate party to deliver to CIT, from time to time such pledge or securityagreements with respect to General Intangibles (now or hereafter acquired)****ofsuch Company and its subsidiaries as CIT shall require to obtain valid firstliens thereon.  In furtherance of theforegoing, each Company shall provide timely notice to CIT of any additionalPatents, Trademarks, tradenames, service marks, Copyrights, brand names, 

 

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trade names, logos and other trade designations acquired or applied forsubsequent to the Closing Date and each Company shall execute suchdocumentation as CIT may reasonably require to obtain and perfect its lienthereon.  Each Company hereby confirms thatit shall deliver, or cause to be delivered, any pledged stock issued subsequentto the Closing Date to CIT in accordance with the applicable terms of thePledge Agreement and prior to such delivery, shall hold any such stock in trustfor CIT.  Each Company herebyirrevocably grants to CIT a royalty-free, non-exclusive license in the GeneralIntangibles, including tradenames, Trademarks, Copyrights, Patents, licenses,and any other proprietary and intellectual property rights and any and allright, title and interest in any of the foregoing, for the sole purpose, uponthe occurrence of an Event of Default, of the right to:  (i) advertise for sale and sell ortransfer any Inventory bearing any of the General Intangibles, and(ii) make, assemble, prepare for sale or complete, or cause others to doso, any applicable raw materials or Inventory bearing any of the GeneralIntangibles, including use of the Equipment and real estate for the purpose ofcompleting the manufacture of unfinished goods, raw materials orwork-in-process comprising  Inventory,and apply the proceeds thereof to the Obligations hereunder, all as further setforth in this Financing Agreement and irrespective of CIT’s lien and perfectionin any General Intangibles.

 

**SECTION7.  Representations, Warranties andCovenants**

 

**7.1         **Each Company warrants and representsthat:  (i) Schedule 1 heretocorrectly and completely sets forth such Company’s (A) chief executiveoffice, (B) Collateral locations, (C) tradenames, and (D) allthe other information listed on said Schedule; (ii) except for thePermitted Encumbrances, after filing of financing statements in the applicablefiling clerks office at the locations set forth in Schedule 1, this FinancingAgreement creates a valid, perfected and first priority security interest inthe Collateral and the security interests granted herein constitute and shallat all times constitute the first and only liens on the Collateral;(iii) except for the Permitted Encumbrances, such Company is, or will be,at the time additional Collateral is acquired by it, the absolute owner of itsCollateral with full right to pledge, sell, consign, transfer and create asecurity interest therein, free and clear of any and all claims or liens infavor of others; (iv) such Company will, at its expense, forever warrantand, at CIT’s request, defend the same from any and all claims and demands ofany other person other than a holder of a Permitted Encumbrance; (v) suchCompany will not grant, create or permit to exist, any lien upon, or securityinterest in, the Collateral, or any proceeds thereof, in favor of any otherperson other than the holders of the Permitted Encumbrances; and that theEquipment does not comprise a part of the Inventory of such Company; and(vi) the Equipment of such Company is and will only be used by suchCompany in its business and will not be held for sale or lease, or removed fromits premises, or otherwise disposed of by such Company except as otherwisepermitted in this Financing Agreement.

**7.2         **Each Company agrees to maintain books andrecords pertaining to the Collateral in accordance with GAAP and in suchadditional detail, form and scope as CIT shall reasonably require.  Each Company agrees that CIT or its agentsmay enter upon such Company’s premises at any time during normal businesshours, and from time to time in its reasonable business judgement, for thepurpose of inspecting the Collateral and any and all records pertainingthereto.  Each Company irrevocably authorizesall accountants and third parties to disclose and deliver directly to CIT, atsuch Company’s expense, all financial statements and information, books,records, work papers, management reports and other information generated bythem or in their 

 

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possession regarding suchCompany and/or the Collateral.  EachCompany agrees to afford CIT thirty (30) days prior written notice of anychange in the location of any Collateral, other than to locations, that as ofthe Closing Date, are known to CIT and at which CIT has filed financingstatements and otherwise fully perfected its liens thereon.  Each Company is also to advise CIT promptly,in sufficient detail, of any material adverse change relating to the type,quantity or quality of the Collateral or on the security interests granted toCIT therein.

**7.3         **Each Company agrees to execute anddeliver to CIT, from time to time, solely for CIT’s convenience in maintaininga record of the Collateral, such written statements, and schedules as CIT mayreasonably require, designating, identifying or describing the Collateral.

**7.4         **Each Company agrees to comply with therequirements of all state and federal laws in order to grant to CIT valid andperfected first security interests in the Collateral, subject only to thePermitted Encumbrances.  CIT is herebyauthorized by the Companies to file (including pursuant to the applicable termsof the UCC) from time to time any financing statements, continuations oramendments covering the Collateral. Each Company hereby consents to and ratifies any and all executionand/or filing of financing statements on or prior to the Closing Date byCIT.  Each Company agrees to do whateverCIT may reasonably request, from time to time, by way of:  (a) filing notices of liens, financingstatements, amendments, renewals and continuations thereof;(b) cooperating with CIT’s agents and employees; (c) keepingCollateral records; (d) transferring proceeds of Collateral to CIT’spossession; and (e) performing such further acts as CIT may reasonablyrequire in order to effect the purposes of this Financing Agreement, includingbut not limited to obtaining control agreements with respect to depositaccounts and/or Investment Property.

**7.5          (a)**  Each Company agrees tomaintain insurance on its properties under such policies of insurance, withsuch insurance companies, in such reasonable amounts and covering suchinsurable risks as are at all times reasonably satisfactory to CIT.  All policies covering the Equipment andInventory are, subject to the rights of any holders of Permitted Encumbrancesholding claims senior to CIT, to be made payable to CIT, in case of loss, undera standard non-contributory “mortgagee”, “lender” or “secured party”clause and are to contain such other provisions as CIT may require to fullyprotect CIT’s interest in the Inventory and Equipment and to any payments to bemade under such policies.  All originalpolicies or true copies thereof are to be delivered to CIT, premium prepaid,with the loss payable endorsement in CIT’s favor, and shall provide for notless than thirty (30) days prior written notice to CIT of the exercise ofany right of cancellation.  At anyCompany’s request, or if any Company fails to maintain such insurance, CIT mayarrange for such insurance, but at the Companies’ expense and without anyresponsibility on CIT’s part for: (i) obtaining the insurance, (ii) the solvency of theinsurance companies, (iii) the adequacy of the coverage, or (iv) thecollection of claims.  Upon theoccurrence of an Event of Default which is not waived in writing by CIT, CITshall, subject to the rights of any holders of Permitted Encumbrances holdingclaims senior to CIT, have the sole right, in the name of CIT or the Companies,to file claims under any insurance policies, to receive, receipt and giveacquittance for any payments that may be payable thereunder, and to execute anyand all endorsements, receipts, releases, assignments, reassignments or otherdocuments that may be necessary to effect the collection, compromise orsettlement of any claims under any such insurance policies.

 

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**(b)           (i)  **In the event of any loss or damage byfire or other casualty, insurance proceeds relating to Inventory shall firstreduce the relevant Company’s Revolving Loan. Upon the occurrence of a Default or Event of Default, such InsuranceProceeds may be applied to the Obligations in such order as CIT may elect;

**(ii)          **In the event any part of a Company’sEquipment is damaged by fire or other casualty and the Insurance Proceeds forsuch damage or other casualty is less than or equal to $100,000.00, CIT shallpromptly apply such Proceeds to reduce the Companies’ outstanding balance inthe Revolving Loan Account.  Upon theoccurrence of a Default or Event of default, CIT may apply Insurance Proceedsto the Obligations in such manner as it may deem advisable in its solediscretion; and

**(iii)        **In the event any part of a Company’sEquipment is damaged by fire or other casualty, and the Insurance Proceeds isgreater than $100,000.00, CIT may, subject to the rights of any holders ofPermitted Encumbrances holding claims senior to CIT, apply the InsuranceProceeds to the payment of the Obligations in such manner and in such order asCIT may reasonably elect.

**7.6         **Each Company agrees to pay, when due, allTaxes, including sales taxes, assessments, claims and other charges lawfullylevied or assessed upon such Company or the Collateral unless such Taxes arebeing diligently contested in good faith by such Company by appropriateproceedings and adequate reserves are established in accordance with GAAP.  Notwithstanding the foregoing, if any lienshall be filed or claimed thereunder (a) for Taxes due the United Statesof America, or (b) which in CIT’s opinion might create a valid obligationhaving priority over the rights granted to CIT herein, exclusive of RealEstate, such lien shall not be deemed to be a Permitted Encumbrance hereunderand such Company shall immediately pay such tax and remove the lien of record.  If a Company fails to do so promptly, thenat CIT’s election, CIT may (i) create an Availability Reserve in suchamount as it may deem appropriate in its business judgement, or (ii) uponthe occurrence of a Default or Event of Default, imminent risk of seizure,filing of any priority lien, forfeiture, or sale of the Collateral, pay Taxeson the Companies’ behalf, and the amount thereof shall be an Obligation securedhereby and due on demand.

**7.7         **Each Company:  (a) agrees to comply with all acts, rules, regulations andorders of any legislative, administrative or judicial body or official, whichthe failure to comply with would have a material and adverse impact on theCollateral, or any material part thereof, or on the business or operations ofsuch Company, provided that such Company may contest any acts, rules,regulations, orders and directions of such bodies or officials in anyreasonable manner which will not, in CIT’s reasonable opinion, materially andadversely effect CIT’s rights or priority in the Collateral; (b) agrees tocomply with all environmental statutes, acts, rules, regulations or orders aspresently existing or as adopted or amended in the future, applicable to theCollateral, the ownership and/or use of its real property and operation of itsbusiness, which the failure to comply with would have a material and adverseimpact on the Collateral, or any material part thereof, or on the operation ofthe business of such Company; and (c) shall not be deemed to have breachedany provision of this Paragraph 7.7 if (i) the failure to comply withthe requirements of this Paragraph 7.7 resulted from good faith error orinnocent omission, (ii) such Company promptly commences and diligentlypursues a cure of such breach, and (iii) such 

 

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failure is cured within(30) days following such Company’s receipt of notice of such failure, orif such cannot in good faith be cured within thirty (30) days, then suchbreach is cured within a reasonable time frame based upon the extent and natureof the breach and the necessary remediation, and in conformity with anyapplicable consent order, consensual agreement and applicable law.

**7.8         **Until termination of this FinancingAgreement and payment and satisfaction of all Obligations due hereunder, theCompanies agree that, unless CIT shall have otherwise consented in writing, theCompanies will furnish to CIT: (a) within ninety (90) days after the end of each Fiscal Year,an audited Consolidated Balance Sheet, with an accompanying ConsolidatingBalance Sheet attached thereto, as at the close of such year, and statements ofprofit and loss, cash flow and reconciliation of surplus of Parent, theCompanies and all subsidiaries of each for such year, such Consolidated BalanceSheet to be audited by independent public accountants selected by the Companiesand satisfactory to CIT; (b) within forty-five (45) days after the end ofeach Fiscal Quarter a Consolidated Balance Sheet and Consolidating BalanceSheet as at the end of such period and statements of profit and loss and cashflow of Parent, the Companies and all subsidiaries of each, certified by anauthorized financial or accounting officer of the Companies; (c) withinthirty (30) days after the end of each month, monthly interim financialstatements consisting of a Consolidated Balance Sheet as at the end of suchperiod and statements of profit and loss of the Companies and all subsidiariesfor such period, certified by an authorized financial or accounting officer of theCompanies; and (d) from time to time, such further information regarding thebusiness affairs and financial condition of the Parent, the Companies and/orany subsidiaries thereof as CIT may reasonably request, including, withoutlimitation (i) the accountant’s letter of recommendations and(ii) annual cash flow projections in form satisfactory to CIT.  Each financial statement which the Companiesare required to submit hereunder must be accompanied by an officer’scertificate, signed by the President, Vice President, Controller, or Treasurer,pursuant to which any one such officer must certify that:  (x) the financial statement(s) fairlyand accurately represent(s) each Company’s financial condition at the end ofthe particular accounting period, as well as each Company’s operating resultsduring such accounting period, subject to year-end audit adjustments; and(y) during the particular accounting period:  (A) there has been no Default or Event of Default under thisFinancing Agreement, provided, however, that if any such officer hasknowledge that any such Default or Event of Default, has occurred during suchperiod, the existence of and a detailed description of same shall be set forthin such officer’s certificate; (B) the Companies’ property insurancepolicies remain in effect; (C) the Companies have not received any noticethat could result in a material adverse effect on the value of the Collateraltaken as a whole; and (D) the exhibits attached to such financialstatement(s) constitute detailed calculations showing compliance with allfinancial covenants contained in this Financing Agreement.

**7.9         **Until termination of the FinancingAgreement and payment and satisfaction of all Obligations hereunder, eachCompany agrees that, without the prior written consent of CIT, except asotherwise herein provided, such Company will not:

**(a)****                                 **Mortgage, assign, pledge, transfer orotherwise permit any lien, charge, security interest, encumbrance or judgment,(whether as a result of a purchase money or title retention transaction, orother security interest, or otherwise) to exist on any 

 

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                                                of each of the Company’s Collateral or any other assets, whether now ownedor hereafter acquired, except for the Permitted Encumbrances;

**(b)****                                 **Incur or create any Indebtedness otherthan the Permitted Indebtedness;

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

**(d)****                                 **Merge, consolidate or otherwise alter ormodify its corporate name, principal place of business, structure, orexistence, re-incorporate or re-organize, or enter into or engage in anyoperation or activity materially different from that presently being conductedby such Company, except that such Company may change its corporate name oraddress or merge with or into any other Company (if a Company is the survivorof such merger); provided in the event of any such name change or mergerthat:  (i) such Company shall giveCIT thirty (30) days prior written notice thereof and (ii) suchCompany shall execute and deliver, prior to or simultaneously with any suchaction, any and all documents and agreements requested by CIT to confirm thecontinuation and preservation of all security interests and liens granted toCIT hereunder;

**(e)****                                 **Assume, guarantee, endorse, or otherwisebecome liable upon the obligations of any person, firm, entity or corporation,except by the endorsement of negotiable instruments for deposit or collectionor similar transactions in the ordinary course of business;

**(f)****                                   **Declare or pay any dividend ordistributions of any kind on, or purchase, acquire, redeem or retire, any ofthe capital stock or equity interest, of any class whatsoever, whether now orhereafter outstanding;

**(g)****                                **Make any advance or loan to, or anyinvestment in, any firm, entity, person or corporation, or purchase or acquireall or substantially all of the stock or assets of any entity, person orcorporation; or

**(h)****                                **Pay any management, consulting or othersimilar fees to any person, corporation or other entity affiliated with suchCompany; provided, however, if at the time of payment and after giving effectto such payment no Event of Default shall have occurred or be continuing,Companies shall be allowed to pay management, consulting or other similar feesin an aggregate amount not to exceed $250,000.00 in any Fiscal Year.

**7.10       **Existing Commercial Tort Claims in whichany of the Companies is a plaintiff or other claimant are listed on Schedule7.10, attached hereto.  TheCompanies agree that in the event any future Commercial Tort Claim should arisein which any Company is a plaintiff or claimant, to notify CIT in writing andto take such steps as CIT may deem reasonably necessary in order to perfectCIT’s security interest in such Commercial Tort Claim.

 

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**7.11       **Each Company agrees to advise CIT inwriting of:  (a) all expenditures(actual or anticipated) in excess of $150,000.00 from the budgeted amounttherefor in any Fiscal Year for (i) environmental clean-up,(ii) environmental compliance or (iii) environmental testing and theimpact of said expenses on such Company’s Working Capital; and (b) anynotices such Company receives from any local, state or federal authorityadvising such Company of any environmental liability (real or potential)stemming from such Company’s operations, its premises, its waste disposalpractices, or waste disposal sites used by such Company and to provide CIT withcopies of all such notices if so required.

**7.12       **Such Company hereby agrees to indemnifyand hold harmless CIT and its officers, directors, employees, attorneys andagents (each an “Indemnified Party”) from, and holds each of them harmlessagainst, any and all losses, liabilities, obligations, claims, actions,damages, costs and expenses (including attorney’s fees) and any payments madeby CIT pursuant to any indemnity provided by CIT with respect to or to whichany Indemnified Party could be subject insofar as such losses, liabilities,obligations, claims, actions, damages, costs, fees or expenses with respect tothe Loan Documents, including without limitation those which may arise from orrelate to:  (a) the DepositoryAccount, the Blocked Accounts, the lockbox and/or any other depository accountand/or the agreements executed in connection therewith; and (b) any andall claims or expenses asserted against CIT as a result of any environmentalpollution, hazardous material or environmental clean-up relating to thereal estate; or any claim or expense which results from such Company’soperations (including, but not limited to, such Company’s, off-sitedisposal practices) and use of the real estate, which CIT may sustain or incur(other than solely as a result of the physical actions of CIT on such Company’spremises which are determined to constitute gross negligence or willfulmisconduct by a court of competent jurisdiction), all whether through thealleged or actual negligence of such person or otherwise, except and to theextent that the same results solely and directly from the gross negligence orwillful misconduct of such Indemnified Party as finally determined by a courtof competent jurisdiction.  Each Companyhereby agrees that this indemnity shall survive termination of this FinancingAgreement, as well as payments of Obligations which may be due hereunder.  CIT may, in its sole business judgement,establish such Availability Reserves with respect thereto as it may deemadvisable under the circumstances and, upon any termination hereof, hold suchreserves as cash reserves for any such contingent liabilities.

**7.13       **Without the prior written consent of CIT,each Company agrees that it will not enter into any transaction, including,without limitation, any purchase, sale, lease, loan or exchange of propertywith the Parent or any subsidiary or affiliate of any Company or Parent,provided that, except as otherwise set forth in this Financing Agreement, aCompany may enter into sale and service transactions in the ordinary course ofits business and pursuant to the reasonable requirements of such Company, andupon standard terms and conditions and fair and reasonable terms, no lessfavorable to such Company than such Company could obtain in a comparable armslength transaction with an unrelated third party, provided further that noDefault or Event of Default exists or will occur hereunder prior to and aftergiving effect to any such transaction.

**7.14       **The Companies shall maintain a cumulativePre-Tax Income, tested each fiscal quarter, which will require that theCompanies’ cumulative Pre-Tax Income for any Fiscal Year shall not be less thanthe Companies’ base case projection delivered to CIT and dated as of 

 

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January 15, 2003, by morethan $2,000,000 during the fiscal year ending March 31, 2004 and by more than$5,000,000 during fiscal year ending March 31, 2005.  The Companies may cure a cumulative Pre-Tax Income Default forany quarter by a cash infusion no later than thirty (30) days after the end ofsuch quarter in the form of subordinated debt (subject to a subordinationagreement acceptable to CIT) or equity investment in an amount equal to orgreater than the amount that the pre-tax loss exceeds the required minimumcumulative Pre-Tax Income requirement. The cumulative Pre-Tax Income covenant will not be measured duringNon-Borrowing Periods, but if the Companies elect to borrow under the RevolvingLine of Credit, the Companies must be in compliance with the cumulative Pre-TaxIncome covenant based on the most recent fiscal quarter.

**7.15       **The Companies shall be permitted to makeregularly scheduled payments of interest on and to repurchase the SubordinatedDebt so long as (a) no event of default has occurred and is continuing at thetime of such payment or the repurchase or would result therefrom, (b) theCompanies have at least $2,000,000 of excess Availability under the RevolvingLine of Credit after giving effect to such repurchase of the Subordinated debt,(c) the Companies have at least $1,500,000 of excess Availability under theRevolving Line of Credit after giving effect to such payments of interest on theSubordinated Debt and (c) if the Companies repurchase Subordinated Debt, suchCompanies must repurchase not less than $40,000,000 in face value of the Notesevidencing the Subordinated Debt.  Inaddition, CIT agrees to subordinate its lien on Equipment to a new term lenderprovided that the proceeds of such term loan are used to repurchase the SeniorSubordinated Notes and such term lender enters into an Intercreditor Agreementwith CIT in form and substance satisfactory to CIT.

**7.16       **The Companies shall promptly inform CIT in writing ofany matter, breach or occurrence which constitutes, or with the passage of timecould constitute, an Event of Default hereunder.

 

**SECTION8.  Interest, Fees and Expenses**

 

**8.1          (a) **Interest shall be payable monthly as ofthe end of each month Chase Bank Rate Loans shall bear interest at a rate perannum equal to the Chase Bank Rate plus one and one-half percent (1.5%)per annum on the average of the net balances owing by the Companies to CIT intheir Revolving Loan Account at the close of each day during such month.  In the event of any change in said ChaseBank Rate, the rate hereunder for Chase Bank Rate Loans shall change, as of thedate of such change, so as to remain one and one-half percent (1.5%) abovethe Chase Bank Rate.  The rate hereundershall be calculated based on a 360-day year.  CIT shall be entitled to charge the Revolving Loan Account at therate provided for herein when due until all Obligations have been paid in full.

**(b)          **Upon and after the occurrence of an Eventof Default and the giving of any required notice by CIT in accordance with theprovisions of Section 10, Paragraph 10.2 hereof, all Obligationsshall bear interest at the Default Rate of Interest.

**8.2         **On the date one year after the ClosingDate and on the same date of each year thereafter while this FinancingAgreement is in effect, the Companies shall pay to CIT an annual 

 

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loan fee of one percent(1%) of the Line of Credit, which fee shall be fully earned and payable on eachsuch date.

**8.3         **During any Borrowing Period, should theCompanies’ average outstanding balance of Revolving Loans for any month, beless than $2,000,000.00 (“Minimum Borrowing”), the Companies shall pay to CITan amount equal to the difference between such average outstanding balance andthe Minimum Borrowing multiplied by the interest rate for Chase Bank Rate Loansapplicable to Revolving Loans on the last day of such month.

**8.4         **The Companies shall reimburse or pay CIT,as the case may be, for all Out-of-Pocket Expenses.

**8.5         **Upon the last Business Day of each month,commencing on June 30, 2003, the Companies shall pay to CIT (i) the Lineof Credit Fee, and (ii) interest on the Collection Days.  Interest will be computed at the rate, andin the manner, set forth in Paragraph 8.1 of this Financing Agreement.

**8.6         **To induce CIT to enter into thisFinancing Agreement and to extend to the Companies the Revolving Loans, theCompanies shall pay to CIT a Loan Facility Fee in the amount of $112,500.00,which Loan Facility Fee is fully earned and payable as follows: one-half uponexecution of the Commitment Letter and one-half on the Closing Date.

**8.7         **On the Closing Date and each anniversaryof the Closing Date thereafter, the Companies shall pay to CIT anAdministrative Management Fee in the amount of $50,000.00, which fee shall bedeemed fully earned on such date.

**8.8         **So long as no Event of Default shall haveoccurred or be continuing, the Administrative Management Fee shall be deemedpayment of CIT’s standard charges and fees for CIT’s personnel used by CIT forreviewing the books and records of the Companies and for verifying, testing,protecting, safeguarding, preserving or disposing of all or any part of theCollateral.  During any period after anEvent of Default, such fees and charges shall be payable in addition to theAdministrative Management Fee and any Out-of-Pocket Expenses.

**8.9         **Each Company hereby authorizes CIT tocharge its Revolving Loan Account with the amount of all payments due hereunderas such payments become due.  EachCompany confirms that any charges which CIT may so make to its Revolving LoanAccount as herein provided will be made as an accommodation to such Company andsolely at CIT’s discretion.

**8.10       **In the event that CIT or any participanthereunder (or any financial institution which may from time to time become aparticipant or lender hereunder) shall have determined in the exercise of itsreasonable business judgement that, subsequent to the Closing Date, any changein applicable law, rule, regulation or guideline regarding capital adequacy, orany change in the interpretation or administration thereof, or compliance byCIT or such participant with any new request or directive regarding capitaladequacy (whether or not having the force of law) of any such authority,central bank or comparable agency, has or would have the effect of reducing therate of return on CIT’s or such participant’s capital as a consequence of itsobligations hereunder to a level below that which CIT or such participant couldhave achieved but for such adoption, change or compliance (taking intoconsideration CIT or such participant’s policies with 

 

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respect to capitaladequacy) by an amount reasonably deemed by CIT or such participant to bematerial, then, from time to time, the Companies shall pay no later thanfive (5) days following demand to CIT or such participant such additionalamount or amounts as will compensate CIT’s or such participant’s for suchreduction.  In determining such amountor amounts, CIT or such participant may use any reasonable averaging orattribution methods.  The protection ofthis Paragraph 8.10 shall be available to CIT or such participantregardless of any possible contention of invalidity or inapplicability withrespect to the applicable law, regulation or condition.  A certificate of CIT or such participantsetting forth such amount or amounts as shall be necessary to compensate CIT orsuch participant with respect to this Section 8 and the calculationthereof when delivered to the Companies shall be conclusive on the Companiesabsent manifest error.  Notwithstandinganything in this paragraph to the contrary, in the event CIT or suchparticipant has exercised its rights pursuant to this paragraph, and subsequentthereto determines that the additional amounts paid by the Companies in wholeor in part exceed the amount which CIT or such participant actually required tobe made whole, the excess, if any, shall be returned to the Companies by CIT orsuch participant, as applicable.

**8.11       **In the event that any applicable law,treaty or governmental regulation, or any change therein or in theinterpretation or application thereof, or compliance by CIT or such participantwith any request or directive (whether or not having the force of law) from anycentral bank or other financial, monetary or other authority, shall:

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

**(b)          **impose, modify or hold applicable anyreserve, special deposit, assessment or similar requirement against assets heldby, or deposits in or for the account of, advances or loans by, or other creditextended by CIT or such participant by reason of or in respect to thisFinancing Agreement and the Loan Documents, including (without limitation)pursuant to Regulation D of the Board of Governors of the Federal ReserveSystem; or

**(c)          **impose on CIT or such participant anyother condition with respect to this Financing Agreement or any other document,and the result of any of the foregoing is to increase the cost to CIT or suchparticipant of making, renewing or maintaining its loans hereunder by an amountthat CIT or such participant deems to be material in the exercise of itsreasonable business judgement or to reduce the amount of any payment (whetherof principal, interest or otherwise) in respect of any of the loans by anamount that CIT or such participant deems to be material in the exercise of itsreasonable business judgement, then, in any case the Companies shall pay CIT orsuch participant, within five (5) days following its demand, such additionalcost or such reduction, as the case may be. CIT or such participant shall certify the amount of such additional costor reduced amount to the Companies and the calculation thereof and suchcertification shall be conclusive upon the Companies absent manifest error.  Notwithstanding anything in thisparagraph to the contrary, in the event CIT or such participant hasexercised its rights pursuant to this paragraph, and subsequent theretodetermine that the additional amounts paid by the Companies in whole or in partexceed the amount which CIT or such participant

 

 

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actually requiredpursuant hereto, the excess, if any, shall be returned to the Companies by CITor such participant.

 

**8.12       **The Company may request LIBOR Loans onthe following terms and conditions:

**(a)          **The Company may elect, subsequent to theClosing Date and from time to time thereafter (i) to request any loan made hereunder to be a LIBOR Loan as of the dateof such loan or (ii) to convert Chase Bank Rate Loans to LIBOR Loans, and mayelect from time to time to convert LIBOR Loans to Chase Bank Rate Loans bygiving CIT at least three (3) Business Days’ prior irrevocable notice of suchelection, provided that any such conversion of LIBOR Loans to Chase Bank RateLoans shall only be made, subject to the second following sentence, on the lastday of an Interest Period with respect thereto.  Should the Company elect to convert Chase Bank Rate Loans toLIBOR Loans, it shall give CIT at least three (3) Business Days’ priorirrevocable notice of such election.  Ifthe last day of an Interest Period with respect to a loan that is to beconverted is not a Business Day or Working Day, then such conversion shall bemade on the next succeeding Business Day or Working Day, as the case may be,and during the period from such last day of an Interest Period to suchsucceeding Business Day, as the case may be, such loan shall bear interest asif it were an Chase Bank Rate Loan.  Allor any part of outstanding Chase Bank Rate Loans then outstanding may beconverted to LIBOR Loans as provided herein, provided that partial conversionsshall be in multiples in an aggregate principal amount of $1,000,000 or more.

**(b)          **Any LIBOR Loans may be continued as suchupon the expiration of an Interest Period, provided the Company sonotifies  CIT, at least three (3)Business Days’ prior to the expiration of said Interest Period, and providedfurther that no LIBOR Loan may be continued as such upon the occurrence of anyDefault or Event of Default under this Agreement, but shall be automaticallyconverted to a Chase Bank Rate Loan on the last day of the Interest Periodduring which occurred such Default or Event of Default.  Absent such notification, LIBOR Rate Loansshall convert to Chase Bank Rate Loans on the last day of the applicableInterest Period.  Each notice ofelection, conversion or continuation furnished by the Company pursuant heretoshall specify whether such election, conversion or continuation is for a one,two, three or six month period. Notwithstanding anything to the contrary contained herein, CIT (or anyparticipant, if applicable) shall not be required to purchase United StatesDollar deposits in the London interbank market or from any other applicableLIBOR Rate market or source or otherwise “match fund” to fund LIBOR Rate Loans,but any and all provisions hereof relating to LIBOR Rate Loans shall be deemedto apply as if CIT (and any participant, if applicable) had purchased suchdeposits to fund any LIBOR Rate Loans.

**(c)          **The Company may request a LIBOR Loan,convert any Chase Bank Rate Loan or continue any LIBOR Loan provided there isthen no Default or Event of Default in effect. Upon the election, conversion or continuation of a LIBOR Loan by theCompanies, a $500 processing fee should be paid to CIT.

 

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**8.13**

**(a)          **The LIBOR Loans shall bear interest foreach Interest Period with respect thereto on the unpaid principal amountthereof at a rate per annum equal to the LIBOR determined for each InterestPeriod in accordance with the terms hereof plus three and one-half percent(3.5%).

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

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

**8.14**

**(a)          **Interest in respect of the LIBOR Loansshall be calculated on the basis of a 360 day year and shall be payable as ofthe end of each month.

**(b)          **CIT shall, at the request of the Company,deliver to the Company a statement showing the quotations given by JPMorganChase Bank and the computations used in determining any interest rate pursuantto Section 8 hereof.

**8.15       **As further set forth in paragraph 8.11above, in the event that CIT (or any financial institution which may become aparticipant hereunder) shall have determined in the exercise of its reasonablebusiness judgment (which determination shall be conclusive and binding upon theCompany) that by reason of circumstances affecting the interbank LIBOR market,adequate and reasonable means do not exist for ascertaining LIBOR applicablefor any Interest Period with respect to; (a) a proposed loan that the Companyhas requested be made as a LIBOR Loan; (b) a LIBOR Loan that will result fromthe requested conversion of a Chase Bank Rate Loan into a LIBOR Loan; or (c)the continuation of LIBOR Loans beyond the expiration of the then currentInterest Period with respect thereto, CIT shall forthwith give written noticeof such determination to the Company at least one day prior to, as the case maybe, the requested borrowing date for such LIBOR Loan, the conversion date ofsuch Chase Bank Rate Loan or the last day of such Interest Period.  If such notice is given (i) any requestedLIBOR Loan shall be made as a Chase Bank Rate Loan, (ii) any Chase Bank RateLoan that was to have been converted to a LIBOR Loan shall be continued as aChase Bank Rate Loan, and (iii) any outstanding LIBOR Loan shall be converted,on the last day of then current Interest Period with respect thereto, to a ChaseBank Rate Loan.  Until such notice hasbeen withdrawn by CIT, no further LIBOR Loan shall be made nor shall theCompany have the right to convert a Chase Bank Rate Loan to a LIBOR Loan.

**8.16       **If any payment on a LIBOR Loan becomesdue and payable on a day other than a Business Day or Working Day, the maturitythereof shall be extended to the next succeeding Business Day or Working Dayunless the result of such extension would be to extend such payment intoanother calendar month in which event such payment shall be made on theimmediately preceding Business Day or Working Day.

 

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**8.17       **Notwithstanding any other provisionsherein, if any law, regulation, treaty or directive or any change therein or inthe interpretation or application thereof, shall make it unlawful for CIT tomake or maintain LIBOR Loans as contemplated herein, the then outstanding LIBORLoans, if any, shall be converted automatically to Chase Bank Rate Loans as ofthe end of such month, or within such earlier period as required by law.  The Company hereby agrees promptly to payCIT, upon demand, any additional amounts necessary to compensate CIT for anycosts incurred by CIT in making any conversion in accordance with this Section8 including, but not limited to, any interest or fees payable by CIT to lendersof funds obtained by CIT in order to make or maintain LIBOR Loans hereunder.

**8.18       **The Company agrees to indemnify and tohold  CIT (including any participant)harmless from any loss or expense which CIT or such participant may sustain or incur as a consequence of:  (a) Default by the Company in payment of theprincipal amount of or interest on any LIBOR Loans, as and when the same shallbe due and payable in accordance with the terms of this Agreement, including,but not limited to, any such loss or expense arising from interest or feespayable by  CIT or such participant tolenders of funds obtained by either of them in order to maintain the LIBOR Loanshereunder; (b) default by the Company in making a borrowing or conversion afterthe Company has given a notice in accordance with Paragraph 8.12 of Section 8hereof; (c) any prepayment of LIBOR Loans on a day which is not the last day ofthe Interest Period applicable thereto, including, without limitation,prepayments arising as a result of the application of the proceeds ofCollateral to the Revolving Loans; and (d) default by the Company in making anyprepayment after the Company had given notice to CIT thereof.  The determination by CIT of the amount ofany such loss or expense, when set forth in a written notice to the Company,containing CIT’s calculations thereof in reasonable detail, shall be conclusiveon the Company in the absence of manifest error.  Calculation of all amounts payable under this paragraph withregard to LIBOR Loans shall be made as though CIT had actually funded the LIBORLoans through the purchase of deposits in the relevant market and currency, asthe case may be, bearing interest at the rate applicable to such LIBOR Loans inan amount equal to the amount of the LIBOR Loans and having a maturitycomparable to the relevant interest period; provided, however, that CIT mayfund each of the LIBOR Loans in any manner CIT sees fit and the foregoingassumption shall be used only for calculation of amounts payable under thisparagraph.  In addition, notwithstandinganything to the contrary contained herein, CIT shall apply all proceeds ofCollateral and all other amounts received by it from or on behalf of theCompany (i) initially to the Chase Bank Rate Loans and (ii) subsequently toLIBOR Loans; provided, however, (x) upon the occurrence of an Event of Defaultor (y) in the event the aggregate amount of outstanding LIBOR Rate Loansexceeds Availability or the applicable maximum levels set forth therefor, CITmay apply all such amounts received by it to the payment of Obligations in suchmanner and in such order as CIT may elect in its reasonable businessjudgment.  In the event that any suchamounts are applied to Revolving Loans which are LIBOR Loans, such applicationshall be treated as a prepayment of such loans and CIT shall be entitled toindemnification hereunder.  Thiscovenant shall survive termination of this Agreement and payment of theoutstanding Obligations.

**8.19       **Notwithstanding anything to the contraryin this Agreement, in the event that, by reason of any Regulatory Change (forpurposes hereof “Regulatory Change” shall mean, with respect to CIT, any changeafter the date of this Agreement in United States federal, state or foreign lawor regulations (including, without limitation, Regulation D) or the adoption or

 

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making after such date ofany interpretation, directive or request applying to a class of banks includingCIT of or under any United States federal, state or foreign law or regulations(whether or not having the force of law and whether or not failure to complytherewith would be unlawful), CIT either (a) incurs any material additionalcosts based on or measured by the excess above a specified level of the amountof a category of deposits or other liabilities of such bank which includesdeposits by reference to which the interest rate on LIBOR Loans is determinedas provided in this Agreement or a category of extensions of credit or otherassets of CIT which includes LIBOR Loans, or (b) becomes subject to anymaterial restrictions on the amount of such a category of liabilities or assetswhich it may hold, then, if CIT so elects by notice to the Company theobligation of CIT to make or continue, or to convert Chase Bank Rate Loans intoLIBOR Loans hereunder shall be suspended until such Regulatory Change ceases tobe in effect.

**8.20       **For purposes of this Financing Agreement andSection 8 thereof, any reference to CIT shall include any financialinstitution which may become a participant or co-lender subsequent to theClosing Date.

 

**SECTION9.  Powers**

 

Each Companyhereby constitutes CIT, or any person or agent CIT may designate, as itsattorney-in-fact, at such Company’s cost and expense, to exerciseall of the following powers, which being coupled with an interest, shall beirrevocable until all Obligations to CIT have been paid in full:

 

**(a)          **To receive, take, endorse, sign, assignand deliver, all in the name of CIT or the Companies, or any one of them, anyand all checks, notes, drafts, and other documents or instruments relating tothe Collateral;

**(b)          **To receive, open and dispose of all mailaddressed to the Companies, or any one of them, and to notify postalauthorities to change the address for delivery thereof to such address as CITmay designate;

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

**(d)          **To request from customers indebted onAccounts at any time, in the name of the Companies, or any one of them, in thename of certified public accountant designated by CIT or in the name of CIT’sdesignee, information concerning the amounts owing on the Accounts;

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

**(f)           **To take or bring, in the name of CIT orthe Companies, or any one of them, all steps, actions, suits or proceedingsdeemed by CIT necessary or desirable to enforce or effect collection of theAccounts.

 

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Notwithstandinganything hereinabove contained to the contrary, the powers set forth in(b) and (f) above may only be exercised after the occurrence of anEvent of Default and until such time as such Event of Default is waived inwriting by CIT.

 

**SECTION10.  Events of Default and Remedies**

 

**10.1       **Notwithstanding anything hereinabove tothe contrary, CIT may terminate this Financing Agreement immediately upon theoccurrence of any of the following Events of Default:

**(a)****                                 **cessation of the business of any Company****orof any Guarantor****or the calling of a meeting of the creditors of any Companyor of any Guarantor for purposes of compromising the debts and obligations ofany Company or any Guarantor;

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

**(c)****                                 **(i) the commencement by****anyCompany or by any Guarantor of any bankruptcy, insolvency, arrangement,reorganization, receivership or similar proceedings under any federal or statelaw; (ii) the commencement against any Company or any Guarantor of anybankruptcy, insolvency, arrangement, reorganization, receivership or similarproceeding under any federal or state law by creditors of any Company or of anyGuarantor, provided that such Default shall not be deemed an Event of Defaultif such proceeding is controverted within ten (10) days and dismissed andvacated within thirty (30) days of commencement, except in the event thatany of the actions sought in any such proceeding shall occur or any Company orany Guarantor shall take action to authorize or effect any of the actions inany such proceeding; or (iii) the commencement (x) by any of theCompany’s or any Guarantor’s subsidiaries, or any one of them, of anybankruptcy, insolvency, arrangement, reorganization, receivership or similarproceeding under any applicable state law, or (y) against any Company’s orany Guarantor’s subsidiaries, or any one of them, of any involuntarybankruptcy, insolvency, arrangement, reorganization, receivership or similarproceeding under applicable law, provided that such Default shall not be deemedan Event of Default if such proceeding is controverted within ten (10)days and dismissed or vacated within thirty (30) days of commencement,except in the event that any of the actions sought in any such proceeding shalloccur or any Company’s or any Guarantor’s subsidiaries, or any one of them,shall take action to authorize or effect any of the actions in any suchproceeding;

**(d)****                                 **breach by any Company of any warranty,representation or covenant contained herein (other than those referred to insub-paragraph (e)****below) or in any other written agreementbetween such Company or CIT, provided that such Default by such Company of anyof the warranties, representations or covenants referred in thisclause (d) shall not be deemed to be an Event of Default unless and untilsuch Default shall remain unremedied to CIT’s satisfaction for a period often (10) days 

 

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                                                after such breach is actually known tothe Companies or reasonably should have been known to the Companies;

**(e)****                                 **breach by any Company of any warranty,representation or covenant of Paragraphs 3.3 (other than the fourthsentence of Paragraph 3.3) and 3.4 of Section 3 hereof;Paragraphs 6.3 and 6.4 (other than the first sentence of Paragraph 6.4)of Section 6 hereof; Paragraphs 7.1, 7.5, 7.6, and 7.8through 7.14 hereof;

**(f)****                                   **failure of the Companies to pay any ofthe Obligations, provided that nothing contained herein shall prohibit CIT fromcharging such amounts to the Revolving Loan Account on the due date thereof;

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

**(h)****                                **without the prior written consent of CITand, except as permitted herein, any Company shall (x) amend or modify theSubordinated Debt, or (y) make any payment on account of the SubordinatedDebt;

**(i)****                                   **the occurrence of any default or event ofdefault (after giving effect to any applicable grace or cure periods) under anyinstrument or agreement evidencing (x) Subordinated Debt, including theIndenture and the Senior Subordinated Notes or (y) any other Indebtednessof any Company having a principal amount in excess of $250,000;

**(j)****                                   **if any Guarantor dies or terminates itsrespective Guaranty or otherwise fails to perform any of the terms of theGuaranty, all prior to termination of this Financing Agreement and payment infull of all Obligations; or

**(k)****                               **any judgment or judgments aggregating inexcess of $100,000.00 or any injunction or attachment is obtained or enforcedagainst the Company or any Guarantor and which remains unstayed for more thanten (10) Business Days.

**10.2       **Upon the occurrence of a Default and/oran Event of Default, at the option of CIT, all loans, advances and extensionsof credit provided for in this Financing Agreement shall be thereafter in CIT’ssole discretion and the obligation of CIT to make Revolving Loans shall cease unlesssuch Default is cured to CIT’s satisfaction or Event of Default is waived inwriting by CIT, and at the option of CIT upon the occurrence of an Event ofDefault:  **(a) **all Obligationsshall become immediately due and payable; **(b) **CIT may charge the Companies theDefault Rate 

 

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of Interest on all thenoutstanding or thereafter incurred Obligations in lieu of the interest providedfor in Section 8 of this Financing Agreement, and **(c) **CIT may immediately terminatethis Financing Agreement upon notice to the Companies; provided, however, thatupon the occurrence of an Event of Default listed in  Paragraph 10.1(c) of this Section 10, this FinancingAgreement shall automatically terminate and all Obligations shall become dueand payable, without any action, declaration, notice or demand by CIT.  The exercise of any option is not exclusiveof any other option, which may be exercised at any time by CIT.

**10.3       **Immediately upon the occurrence of anyEvent of Default, CIT may, to the extent permitted by law:  **(a) **remove from any premises wheresame may be located any and all books and records, computers, electronic mediaand software programs associated with any Collateral (including any electronicrecords, contracts and signatures pertaining thereto), documents, instruments,files and records, and any receptacles or cabinets containing same, relating tothe Accounts, or CIT may use, at the Companies’ expense, such of the Companies’personnel, supplies or space at the Companies’ places of business or otherwise,as may be necessary to properly administer and control the Accounts or thehandling of collections and realizations thereon; **(b) **bring suit, in thename of the Companies or CIT, and generally shall have all other rightsrespecting said Accounts, including without limitation the right to:  accelerate or extend the time of payment,settle, compromise, release in whole or in part any amounts owing on anyAccounts and issue credits in the name of the Companies or CIT; **(c) **sell,assign and deliver the Collateral and any returned, reclaimed or repossessedInventory, with or without advertisement, at public or private sale, for cash,on credit or otherwise, at CIT’s sole option and discretion, and CIT may bid orbecome a purchaser at any such sale, free from any right of redemption, whichright is hereby expressly waived by the Companies; **(d) **foreclose thesecurity interests in the Collateral created herein or by the Loan Documents byany available judicial procedure, or to take possession of any or all of theCollateral, including any Inventory, Equipment and/or Other Collateral withoutjudicial process, and to enter any premises where any Inventory and Equipmentand/or Other Collateral may be located for the purpose of taking possession ofor removing the same; and **(e) **exercise any other rights andremedies provided in law, in equity, by contract or otherwise.  CIT shall have the right, without notice oradvertisement, to sell, lease, or otherwise dispose of all or any part of theCollateral, whether in its then condition or after further preparation orprocessing, in the name of the Companies or CIT, or in the name of such otherparty as CIT may designate, either at public or private sale or at any broker’sboard, in lots or in bulk, for cash or for credit, with or without warrantiesor representations  (including but notlimited to warranties of title, possession, quiet enjoyment and the like), andupon such other terms and conditions as CIT in its sole discretion may deemadvisable, and CIT shall have the right to purchase at any such sale.  If any Inventory and Equipment shall requirerebuilding, repairing, maintenance or preparation, CIT shall have the right, atits option, to do such of the aforesaid as is necessary, for the purpose ofputting the Inventory and Equipment in such saleable form as CIT shall deemappropriate and any such costs shall be deemed an Obligation hereunder.  Any action taken by CIT pursuant to thisparagraph shall not effect commercial reasonableness of the sale.  The Companies agree, at the request of CIT,to assemble the Inventory and Equipment and to make it available to CIT atpremises of the Companies or elsewhere and to make available to CIT the premisesand facilities of the Companies for the purpose of CIT’s taking possession of,removing or putting the Inventory and Equipment in saleable form.  If notice of intended disposition of anyCollateral is required by law, it is agreed that ten (10) days noticeshall constitute reasonable notification and full compliance with the law.  

 

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The net cash proceeds resulting from CIT’s exercise of any of theforegoing rights, (after deducting all charges, costs and expenses, includingreasonable attorneys’ fees) shall be applied by CIT to the payment of the  Obligations, whether due or to become due,in such order as CIT may elect, and the Companies shall remain liable to CITfor any deficiencies, and CIT in turn agrees to remit to the Companies or theirsuccessors or assigns, any surplus resulting therefrom.  The enumeration of the foregoing rights isnot intended to be exhaustive and the exercise of any right shall not precludethe exercise of any other rights, all of which shall be cumulative.  The Companies hereby indemnify CIT and holdsCIT harmless from any and all costs, expenses, claims, liabilities,Out-of-Pocket Expenses or otherwise, incurred or imposed on CIT by reason ofthe exercise of any of its rights, remedies and interests hereunder, including,without limitation, from any sale or transfer of Collateral, preserving,maintaining or securing the Collateral, defending its interests in Collateral(including pursuant to any claims brought by the Companies, the Companies asdebtor-in-possession, any secured or unsecured creditors of the Companies, anytrustee or receiver in bankruptcy, or otherwise), and the Companies herebyagree to so indemnify and hold CIT harmless, absent CIT’s gross negligence orwillful misconduct as finally determined by a court of competentjurisdiction.  The foregoingindemnification shall survive termination of this Financing Agreement untilsuch time as all Obligations (including the foregoing) have been finally andindefeasibly paid in full.  Infurtherance thereof CIT, may establish such reserves for Obligations hereunder(including any contingent Obligations) as it may deem advisable in itsreasonable business judgement.

 

**SECTION11.  Termination**

 

Except asotherwise permitted herein, CIT may terminate this Financing Agreement only asof the initial or any subsequent Anniversary Date and then only by giving theCompanies at least sixty (60) days prior written notice oftermination.  Notwithstanding theforegoing CIT may terminate the Financing Agreement immediately upon theoccurrence of an Event of Default, provided, however, that if the Event ofDefault is an event listed in Paragraph 10.1(c) of Section 10 of this Financing Agreement,this Financing Agreement shall terminate in accordance with paragraph 10.2of Section 10.  This FinancingAgreement, unless terminated as herein provided, shall automatically continuefrom Anniversary Date to Anniversary Date. The Companies may terminate this Financing Agreement at any time uponsixty (60) days’ prior written notice to CIT, provided that the Companiespay to CIT immediately on demand an Early Termination Fee, if applicable.  Notice of termination, as aforesaid, by anyCompany shall be deemed to be notice by the Companies for purposes hereof.  All Obligations shall become due and payableas of any termination hereunder or under Section 10 hereof and, pending afinal accounting, CIT may withhold any balances in the Companies’ account(unless supplied with an indemnity satisfactory to CIT) to cover all of theObligations, whether absolute or contingent, including, but not limited to,cash reserves for any contingent Obligations. All of CIT’s rights, liens and security interests shall continue afterany termination until all Obligations have been paid and satisfied in full.

 

**SECTION12.  Suretyship Waivers and Consents**

 

The followingprovisions shall apply to the extent that all or any portion of the Obligationsnow or hereafter constitute the obligations of any persons other than, or inaddition 

 

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to, each Company(collectively, the “Obligors”) (for purpose of this section, each Company, withrespect to each other Company, shall be considered an Obligor):

 

**(a)****                                 **Conditions to Exercise of Rights. Each Company hereby waives any right it may now or hereafter have torequire CIT, as a condition to the exercise of any remedy or other rightagainst each Obligor hereunder or under any other document executed by anyObligor in connection with any Obligation, (i) to proceed against any Obligoror other person, or against any other collateral assigned to CIT by any Obligoror other person, (ii) to pursue any other right or remedy in CIT’s power, or(iii) to make or give any presentment, demand, protest, notice of dishonor,notice of protest or other demand or notice of any kind in connection with anyObligation or any Collateral.

**(b)****                                 **Waiver of Rights and Defenses. Each Company hereby waives any rights or defenses it may now orhereafter have by reason of or that relate to: (1) any disability or other defense of any Obligor or other person, (2)the cessation, from any cause other than full performance, of the obligationsof any Obligor or any other person, (3) the application of the proceeds of anyObligation by any Obligor or other person, for purposes other than the purposesrepresented to such Company by any Obligor or otherwise intended or understoodby such Company or any Obligor, (4) any act or omission by CIT which directlyor indirectly results in or contributes to the release of any Obligor or otherperson or any collateral for any Obligation, (5) the unenforceability orinvalidity of any collateral assignment or guaranty with respect to anyObligation, or the lack of perfection or continuing perfection or lack ofpriority of any lien which secures any Obligation, (6) any failure of CIT tomarshal assets in favor of such Company or any other person, (7) anymodification of any Obligation, including any renewal, extension, accelerationor increase in interest rate, (8) any election of remedies, (9) any Obligationor other obligation being secured by real property or an estate for years; (10)any law which provides that the obligation of a surety or guarantor mustneither be larger in amount nor in other respects more burdensome than that ofthe principal or which reduces a surety’s or guarantor’s obligation inproportion to the principal obligation, (11) any failure of CIT to file orenforce a claim in any bankruptcy or other proceeding with respect to anyperson, (12) the election by CIT, in any bankruptcy proceeding of any person,of the application or non-application of Section 1111(b)(2) of the UnitedStates Bankruptcy Code, (13) any extension of credit or the grant of any lienunder Section 364 of the United States Bankruptcy Code, (14) any use of cashcollateral under Section 363 of the United States Bankruptcy Code, or (15) anyagreement or stipulation with respect to the provision of adequate protectionin any bankruptcy proceeding of any person.

**(c)****                                 **Subrogation. Each Company hereby waives (a) any right of subrogation which suchCompany may now or hereafter have against any Obligor that relates to anyObligation, (b) any right to enforce any remedy such Company may now orhereafter have against any Obligor that relates to any Obligation, and (c) anyright to participate in any collateral now or hereafter assigned to CIT withrespect to any Obligation (and such Company further agrees that, if and to theextent that 

 

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                                                any waiver set forth in this subsectionis ever held to be unenforceable, all such rights of subrogation, enforcementand participation shall be junior and subordinate to the right of CIT to obtainpayment and performance of the Obligations and to all rights of CIT in and toany property which now or hereafter serves as collateral security for anyObligation).

**(d)****                                 **Obligor Information. Each Company warrants and agrees: (a) that it has not relied, and will not rely, on any representations orwarranties by CIT to it with respect to the creditworthiness of any Obligor orthe prospects of repayment of any Obligation, (b) that it has establishedand/or will establish adequate means of obtaining from each Obligor on acontinuing basis, financial and other information pertaining to the businessoperations, if any, and financial condition of each Obligor, (c) that itassumes full responsibility for keeping informed with respect to each Obligor’sbusiness operations, if any, and financial condition, and (d) that CIT shall haveno duty to disclose or report to it any information now or hereafter known toCIT with respect to any Obligor, including without limitation informationrelating to any Obligor’s business operations or financial condition.

**(e)****                                 **General Waiver. Each Company hereby waives any and all rights of subrogation,reimbursement, indemnification, and contribution and any other rights anddefenses that are or may become available to such Company whether at law or inequity, including those that may be available by reason of California CivilCode Sections 2787 to 2855, inclusive.

**(f)****                                   **Liens on Real Property. In the event that all or any part of the Obligations at any time now orhereafter are secured by any one or more deeds of trust or mortgages or otherinstruments creating or granting liens on any interests in real property, eachCompany expressly waives all rights and defenses that such Company may havebecause the Obligations are secured by real property.  This means, among other thing: (1) CIT may collect from any Companywithout first foreclosing on any real or personal property collateral pledgedby any Obligor, and (2) if CIT forecloses on any real property collateralpledged by any Obligor: (i) the amount of the Obligations may be reduced onlyby the price for which that collateral is sold at the foreclosure sale, even ifthe collateral is worth more than the sale price, and (ii) CIT may collect fromany Company even if CIT, by foreclosing on the real property collateral, hasdestroyed any right such Company may have to collect from any Obligor.  This is an unconditional and irrevocablewaiver of any rights and defenses any Company may have because the Obligationsare secured by real property.  Theserights and defenses include, but are not limited to, any rights or defensesbased upon California Code of Civil Procedure §§ 580a, 580b, 580d or 726, asmodified or recodified from time to time. Each Company waives all rights and defenses arising out of an electionof remedies by CIT, even though that election of remedies, such as anonjudicial foreclosure with respect to security for any Obligation, hasdestroyed such Company’s rights of subrogation and reimbursement against anyObligor by the operation of California Code of Civil Procedure §580d orotherwise.

 

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**(g)****                                **Lawfulness and Reasonableness. Each Company warrants that all of the waivers in this Section 12 aremade with full knowledge of their significance, and of the fact that eventsgiving rise to any defense or other benefit waived by such Company may destroyor impair rights which such Company would otherwise have against CIT, Obligorsand other persons, or against collateral. Each Company agrees that all such waivers are reasonable under thecircumstances and further agrees that, if any such waiver is determined (by acourt of competent jurisdiction) to be contrary to any law or public policy,such waiver shall be effective to the fullest extent permitted by law.

 

**SECTION13.  Miscellaneous**

 

**13.1       **Each Company hereby waives diligence,notice of intent to accelerate, notice of acceleration, demand, presentment andprotest and any notices thereof as well as notice of nonpayment.  No delay or omission of CIT or the Companiesto exercise any right or remedy hereunder, whether before or after thehappening of any Event of Default, shall impair any such right or shall operateas a waiver thereof or as a waiver of any such Event of Default.  No single or partial exercise by CIT of anyright or remedy precludes any other or further exercise thereof, or precludesany other right or remedy.

**13.2       **This Financing Agreement and the LoanDocuments executed and delivered in connection therewith constitute the entireagreement between the Companies and CIT; supersede any prior agreements; can be changed only by a writing signedby both the Companies and CIT; and shall bind and benefit the Companies and CITand their respective successors and assigns.

**13.3       **In no event shall the Companies, upondemand by CIT for payment of any Indebtedness relating hereto, by accelerationof the maturity thereof, or otherwise, be obligated to pay interest and fees inexcess of the amount permitted by law. Regardless of any provision herein or in any agreement made inconnection herewith, CIT shall never be entitled to receive, charge or apply,as interest on any indebtedness relating hereto, any amount in excess of themaximum amount of interest permissible under applicable law.  If CIT ever receives, collects or appliesany such excess, it shall be deemed a partial repayment of principal andtreated as such; and if principal is paid in full, any remaining excess shallbe refunded to the Companies.  Thisparagraph shall control every other provision hereof, the Loan Documentsand of any other agreement made in connection herewith.

**13.4       **If any provision hereof or of any otheragreement made in connection herewith is held to be illegal or unenforceable,such provision shall be fully severable, and the remaining provisions of theapplicable agreement shall remain in full force and effect and shall not beaffected by such provision’s severance. Furthermore, in lieu of any such provision, there shall be addedautomatically as a part of the applicable agreement a legal and enforceableprovision as similar in terms to the severed provision as may be possible.

 

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**13.5        EACHCOMPANY AND CIT EACH HEREBY WAIVE ANY RIGHT TO A  TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THE LOANDOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER.  EACH COMPANY HEREBY IRREVOCABLY WAIVESPERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN  RECEIPT REQUESTED.  IN NO EVENT WILL CIT BE LIABLE FOR LOST PROFITS OR OTHER SPECIALOR CONSEQUENTIAL DAMAGES.**

**13.6       **Except as otherwise herein provided, anynotice or other communication required hereunder shall be in writing (providedthat, any electronic communications from any Company with respect to anyrequest, transmission, document, electronic signature, electronic mail orfacsimile transmission shall be deemed binding on the Companies for purposes ofthis Financing Agreement, provided further that any such transmission shall notrelieve the Companies from any other obligation hereunder to communicatefurther in writing), and shall be deemed to have been validly served, given ordelivered when hand delivered or sent by facsimile, or three days after depositin the United State mails, with proper first class postage prepaid and addressedto the party to be notified or to such other address as any party hereto maydesignate for itself by like notice, as follows:

(A)                              if to CIT, at:

TheCIT Group/Business Credit, Inc.300 South Grand Avenue, 3rd FloorLos Angeles, California 90071Attn:  Regional Credit ManagerFax No.:  (213) 613-2501

(B)                                if to the Companies at:

c/oHCC Industries Inc. 4232 Temple City Blvd.Rosemead, California 91770Attn: PresidentFax No.: (626) 582-1186

**13.7        THEVALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS  FINANCING AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BEGOVERNED BY THE LAWS OF THE  STATE OFCALIFORNIA, EXCEPT TO THE EXTENT THAT ANY OTHER LOAN DOCUMENT INCLUDES ANEXPRESS ELECTION TO BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION.**

 

42

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**INWITNESS WHEREOF,**the parties hereto have caused this Financing Agreement to be effective,executed, accepted and delivered at Los Angeles, California, by their properand duly authorized officers as of the date set forth above.

 
| **COMPANIES:**           |   | **THE  CIT GROUP/BUSINESS CREDIT, INC.** |
|--------------------------|--------|------------------------------------------|
|                     |   |                                     |
| **HCC  INDUSTRIES INC.** |   |                                     |

 
| By:                            | s/s Richard Ferraid             |   | By:    | s/s    Rebecca J. Martin |
|--------------------------------|---------------------------------|--------|--------|-----------------------------------------|
|                           | Richard Ferraid, President      |   |   | Rebecca J. Martin                       |
|                           |                            |   |   | Title:  Vice President             |
| By:                            | s/s Christopher Bateman         |   |   |                                    |
|                           | Christopher Bateman, Secretary  |   |   |                                    |
|                           |                            |   |   |                                    |
| **GLASSEAL  PRODUCTS, INC.**   |                            |   |   |
|                           |                            |   |   |                                    |
| By:                            | s/s Richard Ferraid             |   |   |                                    |
|                           | Richard Ferraid, President      |   |   |                                    |
|                           |                            |   |   |                                    |
| By:                            | s/s Christopher Bateman         |   |   |                                    |
|                           | Christopher Bateman, Secretary  |   |   |                                    |
|                           |                            |   |   |                                    |
| **SEALTRON,  INC.**            |                            |   |   |
|                           |                            |   |   |                                    |
| By:                            | s/s Richard Ferraid             |   |   |                                    |
|                           | Richard Ferraid, President      |   |   |                                    |
|                           |                            |   |   |                                    |
| By:                            | s/s Christopher Bateman         |   |   |                                    |
|                           | Christopher Bateman, Secretary  |   |   |                                    |
|                           |                            |   |   |                                    |
| **HERMETIC  SEAL CORPORATION** |                            |   |   |
|                           |                            |   |   |                                    |
| By:                            | s/s Richard Ferraid             |   |   |                                    |
|                           | Richard Ferraid, President      |   |   |                                    |
|                           |                            |   |   |                                    |
| By:                            | s/s Christopher  Bateman        |   |   |                                    |
|                           | Christopher  Bateman, Secretary |   |   |                                    |

 

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** Schedule 1**

 

**Collateral Information**

 

 
| **COMPANY****NAME**        |   | **STATE OF****INCORPORATION** |   | **FEDERAL  TAX****I.D. NO.** |   | **CHIEF  EXECUTIVE****OFFICE**                   |   | **COLLATERAL  LOCATION** |
|----------------------------|--------|-------------------------------|--------|------------------------------|--------|--------------------------------------------------|--------|--------------------------|
| HCC Industries Inc.        |   | Delaware                      |   | 95-2691666                   |   | 4232 Temple City Blvd.  Rosemead, CA 91770       |   | California               |
|                       |   |                          |   |                         |   |                                             |   |                     |
| Hermetic Seal  Corporation |   | Delaware                      |   | 95-3443353                   |   | 4232 Temple City Blvd.  Rosemead, CA 91770       |   | California               |
|                       |   |                          |   |                         |   |                                             |   |                     |
| Glasseal Products, Inc.    |   | New Jersey                    |   | 22-1909729                   |   | 485 Oberlin Ave. South  Lakewood, NJ  08701 |   | New Jersey               |
|                       |   |                          |   |                         |   |                                             |   |                     |
| Sealtron, Inc.             |   | Delaware                      |   | 31-1191739                   |   | 9705 Reading Road  Cincinnati, OH  45215    |   | Ohio                     |

 

1

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**Schedule2(i)**

 

**Litigation Summary**

 

**HCCIndustries Inc.**

 

1.     HCC vs. SDI (settled as of June 18, 2003)

 

 

**HermeticSeal Corporation**

 

1.               Montesdeoca vs. Hermetic Seal Corp. (workercompensation)

 

2.     Solorio vs. Hermetic Seal Corp. (worker compensation)

 

 

**GlassealProducts, Inc.**

 

1.               Flomet vs. Glasseal (supplier claim for $42,000;Glasseal Products counter claim for $26,000)

 

        2.     Glasseal vs. MOEC(Glasseal Products claim for cancellation charges)

 

 

**Sealtron,Inc.**

 

        1.     Linville vs.Sealtron (worker compensation)

 

1

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**Schedule7.10**

 

**Existing Commercial Tort Claims**

 

 

None.

 

1

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**Scheduleof Permitted Encumbrances**

 

 

**HCCINDUSTRIES INC.**

 

 

Delaware Secretary of State

 
| **Filing No. & Date** |   | **Secured Party**                   |   | **Collateral**     |
|---------------------------|--------|-------------------------------------|--------|--------------------|
| 10988985  08/20/2001      |   | Wells Fargo Equipment  Finance Inc. |        | Specific equipment |
| 20989230 

03/28/2002     |   | Wells Fargo Equipment  Finance Inc. |   | Specific equipment |

 

 

California Secretary of State

 
| **Filing No. & Date** |   | **Secured Party**               |   | **Collateral**                   |
|---------------------------|--------|---------------------------------|--------|----------------------------------|
| 0104060440   02/07/2001   |   | General Electric  Capital Corp. |   | Specific equipment and  proceeds |
| 0105361006   02/20/2001   |   | General Electric  Capital Corp. |   | Specific equipment and  proceeds |
| 0109660438   04/04/2001   |   | General Electric  Capital Corp. |   | Specific equipment and  proceeds |
| 0109660449   04/04/2001   |   | General Electric  Capital Corp. |   | Specific equipment and  proceeds |
| 0109660518   04/04/2001   |   | General Electric  Capital Corp. |   | Specific equipment and  proceeds |
| 0109660522   04/04/2001   |   | General Electric  Capital Corp. |   | Specific equipment and  proceeds |
| 010960019   04/04/2001    |   | General Electric  Capital Corp. |   | Specific equipment and  proceeds |

 

 

**HCCMACHINING COMPANY, INC.**

 

 

California Secretary of State

 
| **Filing No. & Date** |   | **Secured Party**           |   | **Collateral**     |
|---------------------------|--------|-----------------------------|--------|--------------------|
| 0029460660   10/10/2000   |   | Methods Machine Tools  Inc. |   | Specific equipment |

 

1

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**HCCINDUSTRIES INTERNATIONAL**

 

None.

 

**HERMETICSEAL CORPORATION**

 

Delaware Secretary of State

 
| **Filing No. & Date** |   | **Secured Party** |   | **Collateral**                         |
|---------------------------|--------|-------------------|--------|----------------------------------------|
| 21655418   06/05/2002     |   | Comerica Leasing  |   | Specific equipment and  proceeds       |
| 21655459   06/05/2002     |   | Comerica Leasing  |   | Specific equipment  lease and proceeds |

 

 

California Secretary of State

 
| **Filing No. & Date** |   | **Secured Party**                         |   | **Collateral**                           |
|---------------------------|--------|-------------------------------------------|--------|------------------------------------------|
| 93190295   09/17/1993     |   | CIT Group/Equipment  Financing            |   | Specific equipment                       |
| 9510960526   04/14/1995   |   | General Electric  Capital Corp.           |   | Specific equipment  lease and proceeds   |
| 9725560556   09/11/1997   |   | Magid Glove and Safety  Manufacturing Co. |   | All inventory financed  by Secured Party |
| 9919860104   07/07/1999   |   | KeyCorp Leasing                           |   | Specific equipment and  proceeds         |
| 0001260161   01/05/2000   |   | KeyCorp Leasing                           |   | Specific equipment and  proceeds         |
| 0010160105   04/04/2000   |   | KeyCorp Leasing                           |   | Specific equipment and  proceeds         |
| 0010160114   04/04/2000   |   | KeyCorp Leasing                           |   | Specific equipment and  proceeds         |
| 0030160723   10/18/2000   |   | Comerica Leasing                          |   | Specific equipment and  proceeds         |

 

 

Los Angeles County, California

 
| **Filing No. & Date** |   | **Secured Party**               |   | **Collateral**                     |
|---------------------------|--------|---------------------------------|--------|------------------------------------|
| 95-1326000  08/15/95      |   | General Electric  Capital Corp. |   | Equipment, fixtures,  and proceeds |

 

2

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**GLASSEALPRODUCTS, INC.**

 

None.

 

 

 

**SEALTRON,INC.**

 

Delaware Secretary of State

 
| **Filing No. & Date** |   | **Secured Party** |   | **Collateral**                         |
|---------------------------|--------|-------------------|--------|----------------------------------------|
| 21655418   06/05/2002     |   | Comerica Leasing  |   | Specific equipment  lease and proceeds |
| 21655459   06/5/2002      |   | Comerica Leasing  |   | Specific equipment  lease and proceeds |

 

 

California Secretary of State

 
| **Filing No. & Date** |   | **Secured Party** |   | **Collateral**                   |
|---------------------------|--------|-------------------|--------|----------------------------------|
| 0001161276   01/05/2000   |   | KeyCorp Leasing   |   | Specific equipment and  proceeds |
| 0001260166   01/05/2000   |   | KeyCorp Leasing   |   | Specific equipment and  proceeds |

 

 

**SEALTRONACQUISITION CORP.**

 

None

 

 

 

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