**Exhibit10.2.3**

 

**LOANAGREEMENT**

 

THIS LOAN AGREEMENT (this “Agreement”) is made and entered into as of February12, 2002 by and between **HCC INDUSTRIES Inc.**, a Delaware Corporation(“Borrower”), and **UNION BANK OF CALIFORNIA, N.A.,**a nationalbanking association (“Bank”).

 

**SECTION 1. THE CREDIT**

 

**1.1****                   CREDITFACILITIES**

 

**1.1.1       The Revolving Loan.**Bankwill loan to Borrower an amount not to exceed Eight Million Dollars($8,000,000) outstanding in the aggregate at any one time (the “RevolvingLoan”). The proceeds of the Revolving Loan shall be used for Borrower’s generalworking capital purposes and Permitted Acquisitions (as defined in Section5.9).  All borrowings of the RevolvingLoan must be made before January 30, 2004, at which time all unpaid principaland interest of the Revolving Loan shall be due and payable. The Revolving Loanshall be evidenced by Bank’s standard form of commercial promissory note (the“Revolving Note”). Bank shall enter each amount borrowed and repaid in Bank’srecords and such entries shall be deemed correct. Omission of Bank to make anysuch entries shall not discharge Borrower of its obligation to repay in fullwith interest all amounts borrowed.

 

**1.2****                   TERMINOLOGY**

 

The following words and phrases, whetherused in their singular or plural form, shall have the meanings set forth below:

 

“Capital Expenditures” means for anyperiod, expenditures (including without limitation, the aggregate amount ofcapitalized lease obligations incurred during such period) made by Borrower andits Subsidiaries to acquire or constructed fixed assets, plant and equipment(including renewals, improvements, and replacements) during such periodcomputed in accordance with GAAP.

 

“Consolidated EBITDA” means for any period, for the twelve (12) monthperiod immediately preceding the date of calculation, for Borrower and itsSubsidiaries, and amount equal to Consolidated Net Income after eliminatingextraordinary gains and losses used in determining such Consolidated NetIncome, plus (i) provisions for income taxes, (ii) depreciation,amortization, and other non-cash charges deducted in determining suchConsolidated Net Income, and (iii) interest expense deducted in determiningsuch Consolidated Net Income.

 

“Consolidated Net Income” means, for any period, the net income ofBorrower and its Subsidiaries for such period on a consolidated basis asdetermined in accordance with GAAP.

 

“Debt Service” means that portion of long-term liabilities and capitalleases coming due within twelve (12) months following the date of calculationplus interest expense from the twelve (12) month period immediately precedingthe date of calculation.

 

“Funded Debt” means, as of any date ofdetermination, for Borrower and its Subsidiaries on a consolidated basis, thesum of (a) all obligations of Borrower for borrowed money, (b) allobligations of Borrower evidenced by bonds, debentures, notes, or other similarinstruments and all reimbursement or other obligations of Borrower in respectof letters of credit, bankers acceptances, interest rate protection agreements,other hedging agreements or other derivatives, (c) all obligations ofBorrower under capital leases, and (d) all obligations or liabilities of 

 

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others secured by a Lien on any asset ofBorrower.  Funded Debt shall not includetrade payables and accrued expenses incurred by any Person in its ordinarycourse of business.

 

“GAAP” means generally accepted accounting principlesand practices consistently applied. Accounting terms used in this Agreement butnot otherwise expressly defined have the meanings given them by GAAP.

 

“Letters of Credit” means Commercial Letters of Creditor the Standby Letters of Credit, or both, as the context may require.

 

“Lien” means any voluntary or involuntary securityinterest, mortgage, pledge, claim, charge, encumbrance, title retentionagreement, or third party interest, covering all or any part of the property ofBorrower or any Guarantor.

 

“Loan” means all the credit facilities describedabove.

 

“Loan Documents” means this Agreement, the Note, and allother documents, instruments and agreements required by Bank and executed inconnection with this Agreement, the Note, the Loans, and with all other creditfacilities from time to time made available to Borrower by Bank.

 

“Non-Financed Capital Expenditures” means CapitalExpenditures incurred during such period not requiring the use of Funded Debt.

 

“Note” means all the promissory notes described above.

 

 “Person” meansany individual, firm, partnership, joint venture, corporation, association,limited liability company, business enterprise trust, unincorporatedorganization, government or department or agency thereof, or other entity,whether acting in an individual, fiduciary, or other capacity.

 

“Senior Funded Debt” means Funded Debt minusBorrower’s Subordinated debt.

 

“Subordinated Debt” means those certain 103⁄4% SeniorSubordinated Notes due May 15, 2007 issued by Borrower pursuant to theIndenture dated May 6, 1997 by and between Borrower and Bank of New York, astrustee, as amended from time to time, and other subordinated notes, includingbut not limited to subordinated bonus notes and subordinated notes due sellingshareholders.

 

“Subsidiary” means with respect to any Person of whichmore than twenty five percent (25%) of the outstanding capital stock (orother ownership) having ordinary voting power to elect a majority of the boardof directors, managers, or other voting members of the governing body of suchentity or Person.

 

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**1.3          BORROWING BASE**

An amount of the Loan equal to Eight Million Dollars ($8,000,000) is arevolving loan subject to a borrowing base (“Borrowing Base Loan”) if for anymonth wherein the principal amount of the loan exceeds Four Million Dollars($4,000,000), and is not the result of a Permitted Acquisition.  Notwithstanding any other provision of thisAgreement, Bank shall not be obligated to advance funds under the BorrowingBase Loan, at any time that Borrower’s aggregate obligations to Bank thereunderexceed eighty percent (80%) of Borrower’s Eligible Accounts.  If at any time Borrower’s obligations toBank under the referenced facilities exceed the sum so permitted, Borrowershall immediately repay to Bank such excess.

 

**1.3.1           Accountsand Eligible Accounts.**The term “Accounts” means allpresently existing and hereafter arising accounts receivable, contract rights,chattel paper, and all other forms of obligations owing to Borrower, payable inUnited States dollars, arising out of the sale or lease of goods, or therendition of services by Borrower, whether or not earned by performance, andany and all credit insurance, guaranties and other security therefor, as wellas all merchandise returned to or reclaimed by Borrower, and Borrower’s booksand records relating to any of the foregoing.

 

The term “EligibleAccounts” means those Accounts, net of finance charges, which have been validlyassigned to Bank and strictly comply with all Borrower’s representations andwarranties to Bank, but Eligible Accounts shall not include any Account:

 

(a)          With respect to whichthe account debtor is an officer, shareholder, director, employee or agent ofBorrower;

 

(b)         With respect to which theaccount debtor is a subsidiary of, related to, or affiliated or has commonofficers or directors with Borrower;

 

(c)          Relating to goods placedon consignment, guaranteed sale or other terms by reason of which payment bythe account debtor may be conditional;

 

(d)         With respect to which theaccount debtor is not a resident of the United States or Canada;

 

(e)          With respect to whichthe account debtor is a Federal, state or local governmental entity or agency,unless Bank, in its sole discretion, has agreed to the contrary in writing andBorrower, if necessary or desirable, has complied with the Federal Assignmentof Claims Act of 1940 or any applicable state statute or municipal ordinance ofsimilar purpose and effect with respect thereto;

 

(f)            With respect to whichBorrower is or may become liable to the account debtor for goods sold orservices rendered by the account debtor to Borrower;

 

(g)         With respect to whichthere is asserted a defense, counterclaim, discount or setoff, whetherwell-founded or otherwise, except for those discounts, allowances and returns arisingin the ordinary course of Borrower’s business;

 

(h)         With respect to which theaccount debtor becomes insolvent, fails to pay its debts as they mature or goesout of business, or which is owed by an account debtor which has become thesubject of a proceeding under any provision of the United States BankruptcyCode, as amended, or under any other bankruptcy or insolvency law, includingbut not limited to assignments for the benefit of creditors, formal or informalmoratoriums, compositions or extensions with all or substantially all of itscreditors;

 

(i)             Owed by any accountdebtor with respect to which twenty-five percent (25%) or more of theaggregate dollar amount of its Accounts are not paid within ninety (90) days ofthe invoice date;

 

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(j)             Any invoice that isnot paid by the account debtor within ninety (90) days of the invoicedate;

 

(k)          Or portion of theAccounts owed by any single account debtor which exceeds fifteen percent(15%) of all Borrower’s Accounts; and

 

(l)             Which Bank deemsineligible.

 

**1.4          Prepayment.** The Loanmay be prepaid in full or in part but only in accordance with the terms of theNote, and any such prepayment shall be subject to any prepayment fee providedfor therein. In the event of a principal prepayment on any term indebtedness,the amount prepaid shall be applied to the scheduled principal installments duein the reverse order of their maturity on the Loan being prepaid.

 

**1.5          Interest.**The unpaidprincipal balance of the Loan shall bear interest at the rate or rates providedin the Note.

 

**1.6          Commitment Fee.**Onthe last calendar day of the third month following the execution of thisAgreement and on the last calendar day of each three-month period thereafter,Borrower shall pay to Bank a fee of one eight of one percent (0.125%) per yearon the unused portion of the Revolving Loan for the preceding quarter, computedon the basis of a 360 day year for actual days elapsed.

 

**1.7          Audit and Appraisal Fees.**Borrowershall pay to Bank any fees, expenses, or other out-of-pocket costs incurred inconjunction with any audit or inspection of Borrower’s books and records, orany appraisals, validations, or other means used to determine or examine Bank’scollateral.

 

**1.8          Balances.**Borrowershall maintain its major depository accounts with Bank until all obligations ofBorrower to Bank under the Loan Documents have been paid in full.

 

**1.9          Disbursement.** Bankshall disburse the proceeds of the Loan as provided in Bank’s standard formAuthorization(s) to Disburse executed by Borrower.

 

**1.10        Security.**Prior to anyLoan disbursement, Borrower shall execute one or more security agreements onBank’s standard form, and one or more financing statements suitable for filingin the official records of the appropriate state government and/or any otherlocation required by Bank, granting to Bank a first priority security interestin such of Borrower’s property as is described in said security agreement(s).Any exceptions to Bank’s first priority Lien are permitted only as provided inthis Agreement.

 

**SECTION2. CONDITIONS PRECEDENT**

 

Bank shall not be obligated to disburse all or any portion of the Loansunless at or prior to the time of each such disbursement, the followingconditions have been fulfilled to Bank’s satisfaction:

 

**2.1          Compliance.**Borrowershall have performed and complied with all terms and conditions required bythis Agreement to be performed or complied with, and shall have executed anddelivered to Bank the Note and all other Loan Documents.

 

**2.2          Guaranties.**GlassealProducts, Inc., Sealtron, Inc., Sealtron Acquisition Corp., Hermetic SealCorporation, HCC Machining Company, Inc. and HCC Industries International(individually a “Guarantor” and collectively “Guarantors”) shall have executedand delivered to Bank their respective continuing guaranties in form and amountsatisfactory to Bank.

 

**2.3          Authorization to Obtain Credit.**Borrowershall have provided Bank with an executed copy of Bank’s form Authorization toObtain Credit, authorizing the execution, delivery and performance of thisAgreement and the other Loan Documents. Such resolutions shall also designatethe persons who are authorized to act on 

 

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Borrower’s behalf in connection with this Agreement to do the thingsrequired of Borrower pursuant to this Agreement.

 

**2.4          Termination Statements.**Borrowershall have provided Bank with termination statements executed by such securedcreditors as may be required by Bank, suitable for filing with the Secretary ofState in each state designated by Bank.

 

**2.5          Continuing Compliance.**Atthe time any disbursement is to be made and immediately thereafter, there shallnot exist any Event of Default (as hereinafter defined) or any event,condition, or act which with notice or lapse of time, or both, would constitutean Event of Default.

 

**SECTION3. REPRESENTATIONS AND WARRANTIES**

 

Borrower represents and warrants that:

 

**3.1          Business Activity.**Borrower’sprincipal business is a manufacturer of hermetic seals and other electricalcomponents.

 

**3.2          Affiliates and Subsidiaries.**Borrower’saffiliates and subsidiaries (those entities in which Borrower has either acontrolling interest or a twenty-five percent (25%) or more ownership interest)and their addresses, and the names of the persons or entities owning fivepercent (5%) or more of the equity interests in Borrower, are as provided on aschedule delivered to Bank on or before the date of this Agreement.

 

**3.3          Organization and Qualification.**Borroweris duly organized and existing under the laws of the state of its organization,is duly qualified and in good standing in any jurisdiction where suchqualification is required, and has the power and authority to carry on thebusiness in which it is engaged and/or proposes to engage.

 

**3.4          Power and Authorization.**Borrowerhas the power and authority to enter into this Agreement and to execute anddeliver the Note and all other Loan Documents. This Agreement and all thingsrequired by this Agreement and the other Loan Documents have been dulyauthorized by all requisite action of Borrower.

 

**3.5          Authority to Borrow.**Theexecution, delivery and performance of this Agreement, the Note and all otherLoan Documents are not in contravention of any of the terms of any indenture,agreement or undertaking to which Borrower is a party or by which it or any ofits property is bound or affected.

 

**3.6          Compliance with Laws.**Borroweris in compliance with all applicable laws, rules, ordinances or regulationswhich materially affect the operations or financial condition of Borrower.

 

**3.7          Title.**Except forassets which may have been disposed of in the ordinary course of business,Borrower has good and marketable title to all property reflected in itsfinancial statements delivered to Bank and to all property acquired by Borrowersince the date of said financial statements, free and clear of all Liens,except Liens specifically referred to in said financial statements.

 

**3.8          Financial Statements.**Borrower’sfinancial statements, including both a balance sheet at March 31, 2001,together with supporting schedules, and an income statement for the twelve (12)months ended March 31, 2001, have heretofore been furnished to Bank, are trueand complete, and fairly represent Borrower’s financial condition for theperiod covered thereby. Since March 31, 2001, there has been no materialadverse change in Borrower’s financial condition or operations.

 

**3.9          Litigation.**There isno litigation or proceeding pending or threatened against Borrower or any of itsproperty which is reasonably likely to affect the financial condition, propertyor business of Borrower in a materially adverse manner or result in liabilityin excess of Borrower’s insurance coverage.

 

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**3.10        ERISA.**Borrower’sdefined benefit pension plans (as defined in the Employee Retirement IncomeSecurity Act of 1974, as amended (“ERISA”)), meet, as of the date hereof, theminimum funding standards of Section 302 of ERISA, and no Reportable Event or ProhibitedTransaction as defined in ERISA has occurred with respect to any such plan.

 

**3.11        Regulation U.**Noaction has been taken or is currently planned by Borrower, or any agent actingon its behalf, which would cause this Agreement or the Note to violateRegulation U or any other regulation of the Board of Governors of the FederalReserve System, or to violate the Securities and Exchange Act of 1934, in eachcase as in effect now or as the same may hereafter be in effect. Borrower isnot engaged in the business of extending credit for the purpose of purchasingor carrying margin stock as one of its important activities and, except as maybe expressly agreed to and documented between Borrower and Bank, none of theproceeds of the Loan will be used directly or indirectly for such purpose.

 

**3.12        No Event of Default.**Borroweris not now in default in the payment of any of its material obligations, andthere exists no Event of Default, and no condition, event or act which withnotice or lapse of time, or both, would constitute an Event of Default.

 

**3.13        Continuing Representations andWarranties.**The foregoing representations and warrantiesshall be considered to have been made again at and as of the date of each andevery Loan disbursement and shall be true and correct as of each such date.

 

**SECTION4. AFFIRMATIVE COVENANTS**

 

Until all sums payable pursuant to this Agreement, the Note and theother Loan Documents have been paid in full, unless Bank otherwise consents inwriting, Borrower agrees that:

 

**4.1          Use of Proceeds.**Borrowerwill use the proceeds of the Loan only as provided in Section 1 above.

 

**4.2          Payment of Obligations.**Borrowerwill pay and discharge promptly all taxes, assessments and other governmentalcharges and claims levied or imposed upon it or its property, or any partthereof; provided, however, that Borrower shall have the right in good faith tocontest any such taxes, assessments, charges or claims and, pending the outcomeof such contest, to delay or refuse payment thereof provided that adequatelyfunded reserves are established by it to pay and discharge any such taxes,assessments, charges and claims.

 

**4.3          Maintenance of Existence.**Borrowerwill maintain and preserve its existence, its assets, and all rights,franchises, licenses and other authority necessary for the conduct of itsbusiness, and will maintain and preserve its property, equipment and facilitiesin good order, condition and repair. Bank may, at reasonable times, visit andinspect any of Borrower’s properties.

 

**4.4          Records.**Borrowerwill keep and maintain full and accurate accounts and records of its operationsin accordance with GAAP and will permit Bank, at Borrower’s expense, to haveaccess thereto, to make examination and photocopies thereof, and to make auditsof Borrower’s accounts and records and Bank’s collateral during regularbusiness hours.

 

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**4.5          Information Furnished.**Borrowerwill furnish to Bank:

 

**(a)****                                 **WithinForty Five (45) days after the close of each fiscal quarter, except forthe final quarter of each fiscal year, its unaudited balance sheet as of theclose of such fiscal quarter, its unaudited income and expense statement withyear-to-date totals and supportive schedules, its statement of cash flows withyear-to-date totals, and its statement of retained earnings for that fiscalquarter**,**all prepared in accordance with GAAP.

 

**(b)****                                 **WithinOne Hundred Twenty (120) days after the close of each fiscal year, acopy of its consolidated statement of financial condition including at leastits balance sheet as of the close of such fiscal year, its income and expensestatement, its statements of cash flows, and its retained earnings statementfor such fiscal year, examined and prepared on an audited basis by independentcertified public accountants selected by Borrower and reasonably satisfactoryto Bank, in accordance with GAAP along with any management letter provided bysuch accountants.

 

**(c)****                                 **WithinForty Five (45) days after the close of each fiscal****quarter, a certification ofcompliance with all covenants under this Agreement, executed by Borrower’s dulyauthorized officer, via electronic mail, or in other form acceptable to Bank.

 

**(d)****                                 **Promptwritten notice to Bank of any Event of Default or breach under any of the termsor provisions of this Agreement or any other Loan Document, any litigationwhich would have a material adverse effect on Borrower’s financial condition,and any other matter which has resulted in, or is likely to result in, amaterial adverse change in Borrower’s financial condition or operations.

 

**(e)****                                 **Ifthe Loan is subject to a Borrowing Base, then within Twenty Five (25) daysafter the close of each calendar month, a copy of Borrower’s monthly accountsreceivable aging and a Borrowing Base Certificate, executed by Borrower’s chieffinancial officer or other duly authorized officer of Borrower, in formacceptable to Bank, accurately reporting the amounts of Borrower’s Accounts,Eligible Accounts, as the Borrowing Base may require.

 

**(f)****                                   **Suchother financial statements and information (including without limitation,Federal and state income tax returns for Borrower with all supportiveschedules) as Bank may reasonably request from time to time.

 

**4.6****                               Profitability.**Borrower will achieve a Consolidated Net Income for the preceding twelve(12) month  period of any positiveamount as reported by the end of each fiscal quarter of Borrower.

 

**4.7****                               DebtService Coverage Ratio.**Borrower will maintain a ratio of ConsolidatedEBITDA, less Non-Financed Capital Expenditures and cash taxes for the twelve(12) month period immediately preceding the date of calculation, to DebtService of not less than 1.10:1.00 as of the close of each fiscalquarter through March 31, 2003 and 1.25:1.00 thereafter.

 

**4.8****                               FundedDebt to EBITDA. **Borrower willmaintain a ratio of Funded Debt to Consolidated EBITDA of not more than 5.25:1.00as of the close of each fiscal quarter through March 31, 2003, and 5.00:1.00thereafter.

 

**4.9****                               SeniorFunded Debt to EBITDA. **Borrowerwill maintain a ratio of Senior Funded Debt to Consolidated EBITDA of not morethan 1.00:1.00 as of the close of each fiscal quarter.

 

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**4.10****                        Insurance.**Borrower will keep all of its insurable property, whether real, personal ormixed, insured by companies approved by Bank, against fire and such otherrisks, and in such amounts as is customarily obtained by companies conductingsimilar business with respect to like properties. Borrower will furnish to Bankstatements of its insurance coverage, will promptly upon Bank’s request furnishother or additional insurance deemed necessary by Bank to the extent that suchinsurance may be available, and hereby assigns to Bank, as security forBorrower’s obligations to Bank, the proceeds of any such insurance. Prior toany Loan disbursement, Bank will be named loss payee under all policiesinsuring the collateral. Borrower will maintain adequate worker’s compensationinsurance and adequate insurance against liability for damage to persons orproperty. All policies shall require at least ten (10) days’ written notice toBank before alteration or cancellation.

 

**4.11****                        AdditionalRequirements.**Upon Bank’s demand, Borrower will promptly take such furtheraction and execute all such additional documents and instruments in connectionwith this Agreement and the other Loan Documents as Bank in its reasonablediscretion deems necessary, and promptly supply Bank with such otherinformation concerning its affairs as Bank may request from time to time.

 

**4.12****                        Litigationand Attorneys’ Fees.**Upon Bank’s demand, Borrower will promptly pay to Bankreasonable attorneys’ fees, including the reasonable estimate of the allocatedcosts and expenses of in-house legal counsel and staff, and all costs and otherexpenses paid or incurred by Bank in collecting, modifying or compromising theLoan or in enforcing or exercising its rights or remedies created by, connectedwith or provided for in this Agreement and the other Loan Documents. If anyjudicial action, arbitration or other proceeding is commenced, only theprevailing party shall be entitled to attorneys’ fees and court costs.

 

**4.13****                        BankExpenses.**Upon Bank’s request, Borrower will pay or reimburse Bank for allcosts, expenses and fees incurred by Bank in preparing and documenting thisAgreement and the Loan, and all amendments and modifications to any LoanDocuments, including but not limited to all filing and recording fees, costs ofappraisals, insurance and attorneys’ fees, including the reasonable estimate ofthe allocated costs and expenses of in-house legal counsel and staff.  Bank will advise Borrower of any expenseprior to any such expenses being incurred.

 

**SECTION5. NEGATIVE COVENANTS**

 

Until all sums payable pursuant to this Agreement, the Note and theother Loan Documents have been paid in full, unless Bank otherwise consents inwriting, Borrower agrees that:

 

**5.1****                               Liens.**Borrower will not create, assume or suffer to exist any Lien on any of itsproperty, whether real, personal or mixed, now owned or hereafter acquired, orupon the income or profits thereof, except (a) Liens in favor of Bank, (b)Liens for taxes not delinquent and taxes and other items being contested ingood faith, (c) minor encumbrances and easements on real property which do notaffect its market value, (d) existing Liens on Borrower’s personal property andreal property, including refinancing of existing indebtedness, and (e) futurepurchase money security interests encumbering only the personal propertypurchased.

 

**5.2****                               Borrowings.**Borrower will not sell, discount or otherwise transfer any accountreceivable or any note, draft or other evidence of indebtedness, except to Bankor except to a financial institution at face value for deposit or collectionpurposes only, and without any fees other than the financial institution’snormal fees for such services. Borrower will not borrow any money, becomecontingently liable to borrow money, or enter any agreement to directly orindirectly obtain borrowed money, except pursuant to agreements with Bank or exceptfor purchase money indebtedness.

 

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**5.3****                               Saleof Assets, Liquidation or Merger.**Borrower will not liquidate, dissolve orenter into any consolidation, merger, partnership or other combination, orconvey, sell or lease all or the greater part of its assets or business, orpurchase or lease all or the greater part of the assets or business of another.

 

**5.4****                               Loans,Advances and Guaranties.**Borrower will not, except in the ordinary courseof business as currently conducted, make any loans or advances, become aguarantor or surety, or pledge its credit or properties.

 

**5.5****                               Investments.**Borrower will not purchase the debt or equity of another except for savingsaccounts and certificates of deposit of Bank, direct U.S. Governmentobligations, and commercial paper issued by corporations with the top ratingsof Moody’s or Standard & Poor’s, provided that all such permittedinvestments shall mature within one year of purchase.

 

**5.6****                               Redemptionof Stock.** Borrower will not redeem or retire any share of its capital stockfor value.

 

**5.7****                               AffiliateTransactions.**Borrower will not transfer any property to any affiliate,except for value received in the normal course of business and for an amount,including any management or service fee(s), as would be conducted and chargedwith an unrelated or unaffiliated entity. Borrower will not pay any managementfee or fee for services to any affiliate without Bank’s prior written consent.

 

**5.8****                               CapitalExpenditures.** Borrower will not make Capital Expenditures in excess of FourMillion Dollars ($4,000,000) in any fiscal year. Each such expenditure shall berequired for Borrower to continue its business as currently conducted. Inaggregating such expenditures to determine compliance with the abovelimitation, Borrower shall include the current expense portion of all leases,whether or not capitalized, and the current portion of any debt used to financecapital expenditures.

 

**5.9****                               PermittedAcquisitions.**   Borrower may acquireall or substantially all of the assets of a Person or a unit or division of aPerson constituting a business, provided that (a) the purchase price of suchacquisition or acquisitions is less than Eight Million Dollars ($8,000,000) inany fiscal year, (b) no Events of Default shall have occurred and be continuingon the date such acquisition is consummated, before or after giving effectthereto, (c) the Person or business acquired is principally engaged in the sameline of business (or a business reasonably incidental thereto), (d) aftergiving effect to the consummation of such acquisition, Borrower shall be in proforma compliance with the covenants set forth in Sections 4.5, 4.6, 4.7,4.8, and 4.9 for the most recent full fiscal quarter immediately preceding suchconsummation date.

 

**SECTION6. EVENTS OF DEFAULT**

 

The occurrence of any of the following events (“Events of Default”)shall terminate any obligation of Bank to make or continue the Loan and shallautomatically, unless otherwise provided under the Note, make all sums ofinterest and principal and any other amounts owing under the Loan immediatelydue and payable, without notice of default, presentment or demand for payment,protest or notice of nonpayment or dishonor, or any other notices or demands:

 

**6.1****                              **Borrowershall default in the due and punctual payment of the principal of or theinterest on the Note or on any amounts owing under any of the Loan Documents;

 

**6.2****                              **Anydefault shall occur under the Note;

 

**6.3****                              **Borrowershall default in the due performance or observance of any covenant or conditionof the Loan Documents;

 

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**6.4****                              **Anyguaranty or subordination agreement required hereunder shall be breached orbecomes ineffective, or any Guarantor or subordinating creditor shall die,disavow or attempt to revoke or terminate such guaranty or subordinationagreement; or

 

**6.5****                              **Thereshall be a change in ownership or control of ten percent (10%) or more of theequity interests in Borrower or any Guarantor.

 

**SECTION7. GENERAL PROVISIONS**

 

**7.1****                               AdditionalRemedies.**The rights, powers and remedies given to Bank hereunder shall becumulative and not alternative and shall be in addition to all rights, powersand remedies given to Bank by law against Borrower or any other person or entityincluding but not limited to Bank’s rights of setoff and banker’s lien.

 

**7.2****                               Nonwaiver.**Any forbearance or failure or delay by Bank in exercising any right, poweror remedy hereunder shall not be deemed a waiver thereof and any single orpartial exercise of any right, power or remedy shall not preclude the furtherexercise thereof. No waiver shall be effective unless it is in writing andsigned by an officer of Bank.

 

**7.3****                               Inurement.**The benefits of this Agreement and the other Loan Documents shall inure tothe successors and assigns of Bank and the permitted successors and assigns ofBorrower, but any attempted assignment by Borrower without Bank’s prior writtenconsent shall be null and void.

 

**7.4****                               ApplicableLaw.**This Agreement and the other Loan Documents shall be governed by andconstrued according to the laws of the State of California.

 

**7.5****                               Severability.**Should any one or more provisions of this Agreement or any other LoanDocument be determined to be illegal or unenforceable, all other provisions ofsuch document shall nevertheless be effective.

 

**7.6****                               ControllingDocument.**In the event of any inconsistency between the terms of thisAgreement and any other Loan Document, the terms of the other Loan Documentshall prevail.

 

**7.7****                               Construction.**The section and subsection headings herein are for convenient referenceonly and shall not limit or otherwise affect the interpretation of thisAgreement.

 

**7.8****                               Amendments.**This Agreement may be amended only in writing signed by all parties hereto.

 

**7.9****                               Counterparts.**Borrower and Bank may execute one or more counterparts to this Agreement,each of which shall be deemed an original, but all such counterparts when takentogether, shall constitute one and the same agreement.

 

**7.10****                        Notices.** Any notices or other communicationsprovided for or allowed hereunder shall be effective only when given by one ofthe following methods and addressed to the parties at their respectiveaddresses and shall be considered to have been validly given (a) upon delivery,if delivered personally, (b) upon receipt, if mailed, first class postageprepaid, with the United States Postal Service, (c) on the next business day,if sent by overnight courier service of recognized standing, or (d) upontelephoned confirmation of receipt, if telecopied. The addresses to whichnotices or demands are to be given may be changed from time to time by noticedelivered as provided above.

 

**7.11****                        IntegrationClause.**Except for the other Loan Documents, this Agreement constitutes theentire agreement between Bank and Borrower regarding the Loan, and all priororal or written communications between Borrower and Bank shall be of no furthereffect or evidentiary value.

 

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THIS AGREEMENT is executed on behalf of the parties by their dulyauthorized representative(s) as of the date first above written.

 
| **BORROWER**               |   | **BANK**                            |
|----------------------------|--------|-------------------------------------|
| **HCC  Industries Inc.**   |   | **Union  Bank of California, N.A.** |
|                       |   |                                |
|                       |   |                                |
| BY:                        |   |                                | BY: |   |
|                       |   |                                |
| Printed Name:              |   |                                | Printed Name: |   Kjell  Gronvold |
|                       |   |                                |
| Title:                     |   |                                | Title: |   |   Vice President |
|                       |   |                                |
|                       |   |                                |
| BY:                        |   |                                |   |
|                       |   |                                |
| Printed Name:              |   |                                |   |
|                       |   |                                |
| Title:                     |   |                                |   |
|                       |   |                                |
| Address:                   |   | Address:                            |
|                       |   |                                |
| 4232 Temple City Blvd.     |   | 17800 Castlelton Street, Suite 500  |
| Rosemead, CA 91770         |   | City of Industry, CA  91748    |
| Attention: Chris Bateman   |   | Attention:   Kjell Gronvold    |
|                       |   |                                |
| Telephone: (626) 443-8931  |   | Telephone: (626) 810-6561           |
| Telecopier: (626) 582-1186 |   | Telecopier: (626) 810-6558          |
|                            |        |                                     |  |  |  |  |  |  |

 

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