SUBORDINATED SECURITY AGREEMENT


                                                    Date:  September 15, 2003

                  For  good  and   valuable   consideration,   the  receipt  and
sufficiency of which is hereby acknowledged,  and intending to be legally bound,
GENERAL DATACOMM INDUSTRIES,  INC., a Delaware corporation  ("Parent"),  GENERAL
DATACOMM, INC., a Delaware corporation,  with its chief executive office located
at 6 Rubber Avenue, Naugatuck,  Connecticut 06770 ("General DataComm"), DATACOMM
LEASING CORPORATION,  a Delaware corporation  ("DataComm Leasing"),  GDC FEDERAL
SYSTEMS, INC., a Delaware corporation ("GDC Federal"), GDC HOLDING COMPANY, LLC,
a Delaware limited  liability  company formerly known as Vital Network Services,
L.L.C.  ("GDC Holding"),  GDC REALTY,  INC., a Texas corporation ("GDC Realty"),
and GDC NAUGATUCK, INC., a Delaware corporation,  ("GDC Naugatuck", and together
with the Parent,  General DataComm,  DataComm Leasing,  GDC Federal, GDC Holding
and GDC Realty, collectively the "Debtors"), and HSBC BANK USA, as Trustee under
that certain Trust  Indenture  dated as of September 15, 2003 (together with its
successors or assigns the "Secured Party"), agree as follows:

                  1. Defined Terms.  Unless  otherwise  defined in this Security
Agreement (the "Security  Agreement"),  capitalized  terms used in this Security
Agreement shall have the meanings ascribed to such terms by Section 9-102 of the
New York Uniform Commercial Code as in effect on the date hereof.

                  2. Security  Interest.  Subject to Section 12 hereof,  Debtors
hereby grants to Secured Party a security interest ("Security  Interest") in the
property  described on the  attached  Schedule 1, whether now owned or hereafter
owned or acquired,  in all Proceeds  and  Products  thereof in any form,  in all
parts,  accessories,   attachments,  special  tools,  additions  and  accessions
thereto,   in  all  increases  or  profits  received   therefrom,   and  in  all
substitutions therefor ("Collateral").

                  3.  Indebtedness  Secured.  The Security  Interest  granted by
Debtors  secures  payment  of  any  and  all  indebtedness  of  Parent  and  its
subsidiaries  incurred under the 10% Adjustable Senior  Subordinated  Debentures
due 2008 of even date herewith in the original aggregate  principal amount equal
to the allowed claims of unsecured  creditors under Debtors'  Bankruptcy Plan of
Reorganization  Confirmed by the United States Bankruptcy Court for the District
of Delaware on August 5, 2003 (the "Debentures") issued pursuant to that certain
Trust  Indenture  Agreement  of even date  herewith  by and  between  Parent and
Secured  Party (the  "Indenture")  whether or not any such  indebtedness  is now
existing or hereafter incurred, of every kind and character, direct or indirect,
and whether any such  indebtedness  is from time to time reduced and  thereafter
increased,  or  entirely  extinguished  and  thereafter  reincurred,  including,
without limitation,  any sums advanced by Secured Party for taxes,  assessments,
insurance  and other  charges and  expenses  as  hereinafter  provided,  and all
amounts  owed under any  modifications,  renewals  or  extensions  of any of the
foregoing obligations (collectively, the "Indebtedness").

<PAGE>

                  4.       Representations and Warranties of Debtors.  Debtors
represent and warrant,  and so long as any Indebtedness remains unpaid, shall be
deemed continuously to represent and warrant, that:

                  (a) Debtors have good and indefeasible title to the Collateral
free of all  security  interests  or other  encumbrances,  except  the  Security
Interest, the Senior Secured Interest (as hereinafter defined) and any Permitted
Liens. For purposes of this Security Agreement, "Permitted Liens" shall mean (i)
any liens securing Additional Senior Secured Debt (as hereinafter  defined) (ii)
liens for unpaid  taxes that  either  (A) are not yet  delinquent  or (B) do not
constitute  an Event of Default  hereunder  and are the subject of Debtors' good
faith protest, (iii) liens set forth on Schedule 4(a), (iv) purchase money liens
or the interests of lessors  under capital  leases to the extent that such liens
or interests  secure  purchase money  indebtedness  so long as the lien attaches
only to the assets  purchased or acquired and the  proceeds  thereof,  (v) liens
arising  by  operation  of law in favor of  warehousemen,  landlords,  carriers,
mechanics, materialmen,  laborers, or suppliers, incurred in the ordinary course
of business of each Debtor and not in  connection  with the  borrowing of money,
and which liens either (A) are for sums not yet due and payable,  or (B) are the
subject of Debtors' good faith  protests,  (vi) liens arising from deposits made
in  connection  with  obtaining  worker's  compensation  or  other  unemployment
insurance,  (vii) liens or deposits to secure performance of bids,  tenders,  or
leases,  incurred in the  ordinary  course of business of each Debtor and not in
connection  with the  borrowing  of money,  (viii)  liens  arising  by reason of
security for surety or appeal  bonds in the ordinary  course of business of each
Debtor,  (ix) liens  resulting  from any judgment or award that would not have a
material  adverse  effect on the operation of Debtors'  business and as to which
the time for appeal or petition for  rehearing of which has not yet expired,  or
in  respect  of  which  Debtors  are in good  faith  prosecuting  an  appeal  or
proceeding  for a review,  and in respect of which a stay of  execution  pending
such appeal or proceeding for review has been secured, (x) liens with respect to
the  Naugatuck  Property (as  hereinafter  defined)  that are  exceptions to the
commitments  for title  insurance  issued in  connection  with the New Naugatuck
Mortgage  (xi)  with  respect  to any  real  property  constituting  Collateral,
easements,  rights of way, zoning and similar  covenants and  restrictions,  and
similar  encumbrances that customarily exist on properties of Persons engaged in
similar  activities  and  similarly  situated  and  that  in  any  event  do not
materially  interfere  with or impair the use or operation of the  Collateral by
any Debtor or the value of the  Secured  Party's  lien  thereon or  therein,  or
materially  interfere  with the ordinary  conduct of the business of any Debtor,
(xii) liens on leases (and the underlying  Equipment) in which DataComm  Leasing
is the lessor,  provided that Secured Party receives not less than 30 days prior
written  notice of the  incurrence  of such liens and the  indebtedness  secured
thereby,  and (xiii) liens with respect to the Naugatuck  Property  described on
Schedule   4(a)  or  as  provided  for  or   contemplated   under  the  Debtors'
Reorganization  Plan;  provided,  however,  that any  such  lien  constitutes  a
"permitted lien" under the Senior Loan Documents (as hereinafter defined) and is
permissible under the terms of the Indenture.

                  (b)      Each Debtor's exact legal name is as set forth in
the definition of "Debtor" in the first sentence of this Security Agreement;

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<PAGE>

                  (c)      Debtors are authorized to enter into this Security
Agreement;

                  (d)      Each Debtor is a business organization legally
created  and  registered  in  the  office  of  the  Secretary  of  State  of its
organization;

                  (e) Each Account,  Contract Right,  Supporting  Obligation and
Chattel Paper  constituting  Collateral is genuine and enforceable in accordance
with its  terms  against  the party  obligated  to pay the same  subject  to (i)
bankruptcy,  insolvency, fraudulent transfer, fraudulent conveyance, moratorium,
receivership,  reorganization, liquidation and other similar laws relating to or
affecting the rights and remedies of creditors generally, and (ii) principles of
equity  (regardless of whether  considered and applied in a proceeding in equity
or at law);

                  (f)      Debtors' records concerning the Collateral are kept
                           at the following address:

                           6 Rubber Avenue
                           Naugatuck, CT 06770
                           Attn:  Chief Financial Officer

                  (g)      Each Instrument and each Document of Title
constituting  Collateral,  if any,  is  genuine  and in all  respects  what  it
purports to be;

                  (h) If any  Collateral  is or  will be a  fixture,  it will be
affixed to real property at Debtors' real property more  particularly  described
in Exhibit "A" attached hereto as a part hereof, and such real property is owned
by Debtor;

                  (i) If any Collateral is or will be Investment Property, then,
except as set forth in  Schedule  4(i),  such  Investment  Property  is duly and
validly  authorized  and issued,  fully paid and  nonassessable,  is free of all
options  and  charges,  and is not  subject to any  charter,  bylaw,  statutory,
contractual or other restrictions governing its issuance, transfer, ownership or
control,  except as  indicated  on the  stock  certificates  for the  Investment
Property, if any; and

                  (j) If any Collateral is or will be Investment  Property,  the
appropriate  Debtor has delivered to the Secured Party all stock certificates or
other  instruments  or  documents  representing  or  evidencing  the  Investment
Property,  together  with  corresponding  assignments  or  transfer  powers duly
executed in blank by such  Debtor;  provided,  however,  that to the extent such
Investment  Property  has been  pledged as  collateral  for the  Senior  Secured
Interest,  then  such  stock  certificates  or other  instruments  or  documents
representing  or evidencing  the  Investment  Property  shall be delivered  upon
request to the Secured Party after termination of the Senior Secured Interest.

                  (k)      All of the Equipment is used or held for use in
Debtors' business.

                  (l) The  Inventory and Equipment are not stored with a bailee,
warehouseman,  or similar party (without  Secured Party's prior written consent)
and no material part of the Inventory or Equipment is located at locations other

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<PAGE>

than those  identified on Schedule  4(l);  provided,  however,  that Debtors may
amend  Schedule  4(l) so long as such  amendment  occurs  by  written  notice to
Secured  Party not less than 30 days prior to the date on which the Inventory or
Equipment is moved to such new location,  so long as such new location is within
the  continental  United  States,  and so long as,  at the time of such  written
notification,  each  Debtor  provides  to  Secured  Party  a  Collateral  Access
Agreement.

                  (m) Each Debtor keeps  records  itemizing and  describing  the
kind,  type,  quality,  and quantity of the  Inventory,  and such  Debtor's cost
therefor that are correct and accurate in all material respects.

                  (n)      Each Debtor's FEIN and organizational identification
number is identified in Schedule 4(n).

                  (o)      None of the Debtors holds any commercial tort claim
as of the date hereof, except as set forth in Schedule 4(o).

                  (p) Set forth on Schedule 4(p) is a complete and accurate list
of  all   permits,   patents,   patent   applications,   trademarks,   trademark
applications, service marks, service mark applications, trade names, copyrights,
trade secrets and know-how (collectively, the "Intellectual Property"), owned by
each Debtor, showing as of the date hereof the jurisdiction in which registered,
the registration or application  number.  Each Debtor owns or possesses adequate
licenses or other rights that are necessary for the operation of its business as
currently conducted or proposed to be conducted.  No claim is pending or, to the
knowledge of Debtors,  threatened to the effect that any Debtor  infringes upon,
or  conflicts   with,  the  asserted  rights  of  any  other  Person  under  any
Intellectual  Property,  and,  to the best of each  Debtor's  knowledge  without
independent investigation other than those investigations customarily undertaken
by owners of similar  businesses,  there is no basis for any such claim (whether
pending  or  threatened)  that is likely to have a  material  adverse  effect on
Debtors  operation of its business.  No claim is pending or, to the knowledge of
Debtors,  threatened to the effect that any such Intellectual  Property owned or
licensed by any Debtor, or in which any Debtor otherwise has the right to use is
invalid  or  unenforceable  by any  Debtor,  and,  to the best of each  Debtor's
knowledge  without  independent  investigation  other than those  investigations
customarily  undertaken by owners of similar  businesses,  there is no basis for
any such claim (whether or not pending or threatened).

                  5.       Covenants of Debtors.  Subject to the provisions of
Section 12  and 13 hereof and so long as any Indebtedness remains unpaid,
Debtors:

                  (a) will defend the Collateral  against the claims and demands
of all other parties,  will keep the Collateral free from all security interests
or  other  encumbrances,  except  the  Security  Interest,  the  Senior  Secured
Interest, Permitted Liens, and liens securing any Additional Senior Secured Debt
(as hereinafter defined) and Secured Party does not authorize, and Debtors agree
not to, sell, transfer,  lease,  license, or otherwise dispose of any Collateral
or any interest  therein without the prior written consent of Debenture  Holders
then  holding 35% or more in  principal  amount of the  Outstanding  Debentures;

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<PAGE>

except that (i) until the  occurrence  of an Event of Default that is continuing
as hereinafter provided,  Debtors may sell or dispose of Inventory and Equipment
in the  ordinary  course of Debtors'  business,  (ii) until  termination  of the
Senior Secured Interest,  the written consent of the Debenture Holders as herein
provided  shall not be required in order for Debtors to sell,  transfer,  lease,
license or otherwise  dispose of Collateral or any interest  therein,  and (iii)
after  termination of the Senior Secured  Interest,  the written  consent of the
Debenture  Holders as herein provided shall not be required in order for Debtors
to sell, transfer,  lease, license or otherwise dispose of the Collateral or any
interest therein set forth in Schedule 5(a) if the sale is for fair market value
and the proceeds of such sale are paid to reduce the Indebtedness;

                  (b) will  notify  Secured  Party  promptly  in  writing of any
change in any  Debtor's  name,  and of any  change in address  as  specified  in
Section 4(e) above,  and of any change in the location of any  Collateral  or of
the records with respect thereto, and will permit Secured Party or its agents to
inspect the Collateral;

                  (c) will keep the Collateral in good condition and repair, and
will not use the  Collateral  in violation of any  provisions  of this  Security
Agreement,  of any applicable statute,  regulation or ordinance or of any policy
insuring the Collateral;

                  (d) in  connection  herewith,  will  execute  and  file in all
appropriate  jurisdictions  such  financing  statements,   mortgages  and  other
documents,  pay all costs of title searches and filing financing  statements and
other  documents in all public offices as may be required by applicable law, and
do such other  things as  Debenture  Holders  and Secured  Party may  reasonably
request;

                  (e) except for any taxes,  assessments or charges as are being
contested in good faith,  will pay all taxes,  assessments  and other charges of
every nature that may be levied or assessed against the Collateral,  will insure
the Collateral  against risks, and in coverage,  form and amount,  to the extent
presently so insured and, after termination of the Senior Secured Interest, will
deliver each policy or certificate of insurance therefor to Secured Party;

                  (f)      will prevent the Collateral or any part thereof from
being or becoming an accession to other goods not covered by this Security
Agreement;

                  (g)  will  keep,  in  accordance   with   generally   accepted
accounting  principles,  consistently  applied,  accurate and  complete  records
concerning the Collateral,  will, to the extent required by applicable law, mark
any and all such records to indicate the Security  Interest,  and,  upon Secured
Party's request,  will upon reasonable notice permit Secured Party or its agents
to audit  and make  extracts  from  such  records  or any of  Debtors'  ledgers,
reports, correspondence or other records;

                  (h) will not create any Chattel Paper without placing a legend
on the Chattel Paper  indicating  that Secured Party has a security  interest in
the Chattel Paper;

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<PAGE>

                  (i) except as set forth in Schedule  5(i),  shall maintain its
organization  as  an  entity  in  good  standing  in  the  jurisdiction  of  its
organization or formation at all times; and Debtors shall not reorganize, merge,
restructure, or dissolve; and

                  (j) to the extent not  otherwise  delivered  to or held by the
holder of the Senior  Secured  Interest and as required by applicable  law, will
deliver  to  Secured  Party  any  Documents  of  Title  and  any  Chattel  Paper
constituting, representing or relating to the Collateral or any part thereof, if
any, any schedules,  invoices,  shipping documents,  delivery receipts, purchase
orders,  contracts or other  documents  representing or relating to purchases or
other  acquisitions,  or sales,  leases or other  disposition  of Collateral and
Proceeds  thereof,  and any and all  schedules,  documents and  statements  that
Secured Party may, from time to time, request.

                  6.  Verification  of Collateral.  Secured Party shall have the
right to verify  all or any  Collateral  in any manner  and  through  any medium
Secured  Party  may  consider  appropriate  and  Debtors  agree to  furnish  all
assistance  and  information  and  perform  any  acts  that  Secured  Party  may
reasonably require in connection therewith.

                  7. Registered Holder of Collateral. If any Collateral consists
of Investment  Property and to the extent not otherwise  delivered to or held by
the holder of the Senior  Secured  Interest,  Debtors  authorize  Secured Party,
subject to any  limitations  applicable to such  Investment  Property  under the
terms of such Investment Property, to transfer the same or any part thereof into
its own name or that of its  nominee so that  Secured  Party or its  nominee may
appear of record as the sole owner thereof; provided that so long as no Event of
Default has occurred and is continuing as  hereinafter  provided,  Secured Party
shall   deliver   promptly  to  Debtors  all   notices,   statements   or  other
communications  received by it or its nominee as such registered owner, and upon
demand and  receipt of payment of  necessary  expenses  thereof,  shall issue to
Debtors or Debtors' designee a proxy or proxies to vote and take all action with
respect to such Investment  Property.  After the occurrence of any such Event of
Default,  Debtors  waive all rights to be advised  or to  receive  any  notices,
statements  or  communications  received by Secured Party or its nominee as such
record  owner,  and agrees that no proxy or proxies  issued by Secured  Party to
Debtors or their designee as aforesaid shall thereafter be effective.

                  8.       Income from and Interest on Collateral.   Subject to
the provisions of Section 12 and 13 hereof:

                  (a)  Until  the  occurrence  of an  Event of  Default  that is
continuing as  hereinafter  provided,  Debtors  reserve the right to receive all
income from or interest on the Collateral,  including,  without limitation,  any
income  from any sale of the  Collateral  in the  ordinary  course  of  Debtors'
business,  and if Secured  Party  receives any such income or interest  prior to
such Event of Default, Secured Party shall pay the same promptly to Debtors;

                  (b)  At  all  times  until  the  Senior  Loan   Documents  (as
hereinafter  defined)  have  terminated  and the  indebtedness  and  obligations
evidenced and secured thereby are paid in full, Debtors,  without the consent of

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<PAGE>

Secured  Party  and with the  consent  of the  Senior  Lenders  (as  hereinafter
defined),  may sell any portion of the Collateral without regard to whether such
sale is within the  ordinary  course of Debtors'  business.  In the event of any
such sale of  Collateral,  Secured  Party will release its security  interest in
such  Collateral  upon Secured  Party's  receipt of  confirmation  of the Senior
Lender's consent.

                  (c) In the  event  of any  Event of  Default  and  during  the
continuance  thereof  occurring  after the Senior Loan Documents (as hereinafter
defined)  and  any  Additional  Senior  Secured  Debt  have  terminated  and the
respective  indebtedness and obligations  evidenced and secured thereby are paid
in full,  Debtors  will not demand or receive any income from or interest on the
Collateral and if Debtors receive any such income or interest without any demand
by Secured Party,  Debtors will pay the same promptly to Secured Party.  Secured
Party may apply the net cash receipts from such income or interest to payment of
any of the  Indebtedness,  provided that Secured Party shall account for and pay
over to Debtors any such income or interest  remaining  after payment in full of
the Indebtedness.

                  9.       Increases, Profits, Payments or Distributions.

                  (a)  Whether  or not an  Event  of  Default  has  occurred  as
hereinafter  provided and subject to the provisions of Section 12 and 13 hereof,
Debtors authorize Secured Party:

                           (i)  To hold any increase in or profits on the
Collateral as part of the Collateral; and

                           (ii)  If any Collateral consists of Investment
Property,   receive  any  payment  or  distribution  upon  redemption,  or  upon
dissolution and liquidation of the issuer, of any Collateral;  to surrender such
Collateral  or any part thereof in exchange  therefor;  and to hold the net cash
receipts from any such payment or distribution as part of the Collateral.

                  10.      [Intentionally Omitted].

                  11.      Events of Default; Remedies.

                  (a) To the extent that it is  continuing,  the  occurrence  or
existence of any of the events or conditions defined as Events of Default in the
Debentures,  the Indenture or any document or instrument  evidencing or securing
the Indebtedness  (continuing beyond any applicable cure period therein, if any)
including,  without limitation,  the failure of Parent to repay the Indebtedness
shall constitute an "Event of Default" hereunder.

                  (b)  Subject to the  provisions  of Sections 12 and 13 hereof,
Secured  Party,  at its  sole  election,  may  declare  all or any  part  of any
Indebtedness  not payable on demand to be  immediately  due and payable  without
demand  or  notice  of any  kind  upon the  happening  of any  Event of  Default
hereunder.

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<PAGE>

                  (c) Upon the happening and during the continuance of any Event
of Default and subject to the  provisions of Sections 12 and 13 hereof,  Secured
Party's rights and remedies with respect to the  Collateral  shall be those of a
Secured Party under the New York Uniform Commercial Code, as amended,  and under
any other  applicable  law,  as the same may from time to time be in effect,  in
addition  to those  rights  granted  herein  and in any other  agreement  now or
hereafter  in effect  between  Debtors  and  Secured  Party  including,  without
limitation, those granted in the Debentures. Secured Party's rights and remedies
under this Security Agreement,  the Indenture, and all other agreements shall be
cumulative.  No exercise by Secured Party of one right or remedy shall be deemed
an  election,  and no waiver by Secured  Party of any Event of Default  shall be
deemed a continuing waiver. No delay by Secured Party shall constitute a waiver,
election, or acquiescence by it.

                  (d)  Subject to the  provisions  of Sections 12 and 13 hereof,
without in any way requiring notice to be given in the following manner; Debtors
agree that any notice by Secured Party of sale,  disposition  or other  intended
action  hereunder or in connection  therewith,  whether  required by the Uniform
Commercial Code or otherwise,  shall constitute  reasonable notice to Debtors if
such notice is mailed by regular or certified mail,  postage  prepaid,  at least
five (5) days prior to such action,  to Debtors'  address  specified below or to
any other address that Debtors have specified in writing to Secured Party as the
address to which notices hereunder shall be given to Debtors.

                  (e) Debtors  agrees to pay all costs and expenses  incurred by
Secured  Party in enforcing  this  Security  Agreement,  in  realizing  upon any
Collateral and in enforcing and collecting any Indebtedness,  including, without
limitation,  if Secured Party retains  counsel for any such purpose,  reasonable
attorneys' fees.

                  (f)  Subject to the  provisions  of Sections 12 and 13 hereof,
upon the happening and during the  continuance  of any Event of Default,  at the
request of Secured  Party,  Debtors shall  assemble the  Collateral  and make it
available to Secured Party at the Debtors'  real  property  described in Exhibit
"A"  attached  hereto or at such  Debtor's  principal  place of business if such
principal place of business is not located at the property  described in Exhibit
"A".  Secured  Party has no  obligation  to  clean-up or  otherwise  prepare the
Collateral for sale.

                  (g) Subject to the provisions of Sections 12 and 13 hereof and
except as otherwise expressly provided in this Security  Agreement,  each Debtor
hereby waives notice of acceptance of its joint and several liability, notice of
the  occurrence of any Event of Default,  or of any demand for any payment under
this  Security  Agreement,  notice of any action at any time taken or omitted by
Secured Party under or in respect of any of the Indebtedness, any requirement of
diligence or to mitigate  damages  and,  generally,  to the extent  permitted by
applicable  law, all  demands,  notices and other  formalities  of every kind in
connection with this Security  Agreement  (except as otherwise  provided in this
Security  Agreement).  Each Debtor hereby  assents to, and waives notice of, any
extension  or   postponement  of  the  time  for  the  payment  of  any  of  the
Indebtedness,  the  acceptance  of any payment of any of the  Indebtedness,  the
acceptance of any partial payment thereon,  any waiver,  consent or other action

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<PAGE>

or  acquiescence by Secured Party at any time or times in respect of any default
by any  Debtor  in the  performance  or  satisfaction  of  any  term,  covenant,
condition or provision of this Security Agreement, any and all other indulgences
whatsoever  by  Secured  Party in respect  of any of the  Indebtedness,  and the
taking,  addition,  substitution or release, in whole or in part, at any time or
times, of any security for any of the Indebtedness or the addition, substitution
or release, in whole or in part, of any Debtor.  Without limiting the generality
of the foregoing,  each Debtor assents to any other action or delay in acting or
failure to act on the part of Secured  Party with  respect to the failure by any
Debtor to comply with any of its respective  obligations  hereunder,  including,
without limitation, any failure strictly or diligently to assert any right or to
pursue  any  remedy or to  comply  fully  with  applicable  laws or  regulations
thereunder,  that might,  but for the  provisions  of this Section  11(g) afford
grounds for  terminating,  discharging  or relieving any Debtor,  in whole or in
part, from any of its obligations  under this Section 11, it being the intention
of each Debtor that, so long as any of the Indebtedness remains unsatisfied, the
obligations of such Debtors under this Section 11 shall not be discharged except
by performance and then only to the extent of such performance.  The obligations
of each  Debtor  under  this  Section  11 shall not be  diminished  or  rendered
unenforceable  by any  winding  up,  reorganization,  arrangement,  liquidation,
reconstruction or similar  proceeding with respect to any Debtor,  Secured Party
or any  Debenture  holder.  The  joint  and  several  liability  of the  Debtors
hereunder  shall  continue  in  full  force  and  effect   notwithstanding   any
absorption,  merger,  amalgamation  or any other change  whatsoever in the name,
constitution or place of formation of any Debtor, Secured Party or any Debenture
Holder.

                  (h) Each Debtor  hereby agrees that it will not enforce any of
its rights of contribution or subrogation against the other Debtors with respect
to any liability  incurred by it  hereunder,  any payments made by it to Secured
Party or any  Debenture  holder with respect to any of the  Indebtedness  or any
Collateral  security  therefor.  Any claim that any Debtor may have  against any
other Debtor with respect to any  payments to Secured  Party  hereunder or under
any of the Indenture or Debentures  are hereby  expressly made  subordinate  and
junior  in right of  payment,  without  limitation  as to any  increases  in the
Indebtedness  arising thereunder,  to the prior indefeasible  payment in full in
cash of the  Indebtedness  and,  in the  event  of any  insolvency,  bankruptcy,
receivership,  liquidation, reorganization or other similar proceeding under the
laws of any  jurisdiction  relating  to any  Debtor,  its  debts or its  assets,
whether voluntary or involuntary, all such Indebtedness shall be paid in full in
cash  before any  payment or  distribution  of any  character,  whether in cash,
securities or other property, shall be made to any other Debtor therefor.

                  (i)  Subject to the  provisions  of Sections 12 and 13 hereof,
upon the  occurrence,  and  during  the  continuation,  of an Event of  Default,
Secured Party may do any one or more of the following on behalf of the Debenture
holders, all of which are authorized by each Debtor:

                           (i)      Settle or adjust disputes and claims
directly  with  Account  Debtors for amounts and upon terms that  Secured  Party
considers  reasonable,  and  in  such  cases,  Secured  Party  will  credit  the

                                       9
<PAGE>

Indebtedness  with only the net amounts  received by Secured Party in payment of
such disputed  Accounts  after  deducting  all expenses  incurred or expended in
connection therewith;

                           (ii)     Cause each Debtor to hold all returned
Inventory in trust for Secured Party,  segregate all returned Inventory from all
other property of such Debtor or in such Debtor's  possession and  conspicuously
label said returned Inventory as the property of Secured Party;

                           (iii)    Without notice to or demand upon any Debtor,
make such  payments  and do such acts as Secured  Party  considers  necessary or
reasonable to protect its security  interests in the Collateral (for the benefit
of the  Debenture  holders).  Each Debtor  agrees to assemble the  Collateral if
Secured Party so requires, and to make the Collateral available to Secured Party
as Secured Party may designate.  Each Debtor  authorizes  Secured Party to enter
the premises where the Collateral is located, to take and maintain possession of
the Collateral, or any part of it, and to pay, purchase,  contest, or compromise
any encumbrance,  charge, or lien that in Secured Party's  determination appears
to conflict with the security interests of Secured Party and to pay all expenses
incurred in  connection  therewith.  With respect to a Debtors'  owned or leased
premises,  such  Debtor  hereby  grants  Secured  Party a license  to enter into
possession of such premises and to occupy the same,  without  charge,  for up to
120 days in order to exercise any of Secured Party's rights or remedies provided
herein, at law, in equity, or otherwise;

                           (iv)     Without notice to any Debtor (such notice
being expressly waived),  and without constituting a retention of any Collateral
in satisfaction of an obligation,  set off and apply to the Indebtedness any and
all (i)  balances  and  deposits of each Debtor held by Secured  Party,  or (ii)
indebtedness  at any time owing to or for the  credit or the  account of Debtors
held by Secured Party;

                           (v)      Hold, as cash collateral, any and all
balances  and  deposits of each Debtor held by Secured  Party to secure the full
and final repayment of all of the Indebtedness;

                           (vi)     Ship, reclaim, recover, store, finish,
maintain,  repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the  Collateral.  Secured Party is hereby granted a license
or other right to use, without charge for the benefit of Debenture holders, each
Debtor's labels, patents, copyrights,  rights of use of any name, trade secrets,
trade names, trademarks,  service marks, and advertising matter, or any property
of a similar nature, as it pertains to the Collateral,  in completing production
of,  advertising  for sale, and selling any Collateral and each Debtor's  rights
under all licenses and all franchise  agreements  shall inure to Secured Party's
benefit;

                           (vii)    Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including any Debtor's premises)
as Secured Party determines is commercially reasonable. It is not necessary that
the Collateral be present at any such sale;

                                       10
<PAGE>

                           (viii) Secured Party shall give notice of the
disposition of the Collateral as follows:

                                    (A)     Secured Party shall give the
Debtors with rights in the  applicable  Collateral and each holder of a security
interest in the  Collateral  who has filed with Secured Party a written  request
for notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some other  disposition other than a public sale is to
be made of the  Collateral,  then the time on or after which the private sale or
other disposition is to be made;

                                    (B)     The notice shall be personally
delivered  or  mailed,  postage  prepaid,  to  the  Debtor  with  rights  in the
applicable  Collateral  at the address  provided for notice in the  Indenture at
least 5 days  before the date fixed for the sale,  or at least 5 days before the
date on or after which the private sale or other  disposition  is to be made; no
notice  needs  to be  given  prior  to the  disposition  of any  portion  of the
Collateral that is perishable or threatens to decline  speedily in value or that
is of a type  customarily sold on a recognized  market.  Notice to Persons other
than the Debtor with rights in the applicable  Collateral  shall be sent to such
addresses as they have furnished to Agent;

                           (ix)     Secured Party, on behalf of the Debenture
holders, may credit bid and purchase at any public sale; and

                           (x)      Secured Party may seek the appointment of a
receiver or keeper to take possession of all or any portion of the Collateral or
to operate  same and,  to the  maximum  extent  permitted  by law,  may seek the
appointment  of such a receiver  without the  requirement  of prior  notice or a
hearing.

                  12.      Subordination With Respect to Senior Loan Documents.

                  (a)  Secured  Party  hereby  acknowledges  and agrees that all
Collateral  is subject  to a prior  lien  therein  ("Senior  Secured  Interest")
granted to Ableco Finance LLC ("Senior  Secured  Agent") to secure the repayment
of all  obligations  under that certain Loan and Security  Agreement dated as of
August 20, 2002 (as amended,  supplemented  or otherwise  modified  from time to
time,  the "Senior Loan  Agreement"),  by and among Debtors,  as borrowers,  the
lenders from time to time party  thereto (the "Senior  Lenders")  and the Senior
Secured Agent as agent for the Senior Lenders,  and the other Loan Documents (as
defined  in  the  Senior  Loan  Agreement)   (collectively,   the  "Senior  Loan
Documents").

                  (b)  At  all  times  until  the  Senior  Loan  Documents  have
terminated and the  indebtedness  and obligations  evidenced and secured thereby
are paid in full,  Secured Party and Debtors agree for the benefit of the Senior
Secured  Lender and any and all future  holders of the Senior Loan  Documents or
any interest therein as follows:

                           (i)      The Security Interest and the lien of any
judgment obtained by Secured Party against Debtors pursuant to the Debentures or
Indenture are and at all times hereafter shall be subject,  junior,  subordinate
and inferior in line, operation, payment and effect to the Senior Loan Documents

                                       11
<PAGE>

and the indebtedness and obligations  evidenced and secured thereby,  and to any
extension, consolidation, modification or supplement to any thereof. No payments
of  principal  and/or  interest  under the  Debentures  shall be made  until all
indebtedness and obligations  evidenced and secured by the Senior Loan Documents
shall have been paid and  satisfied in full,  in cash.  The  provisions  of this
Section  12(b)(i) shall be deemed to prohibit  payments by Parent to the holders
of the  Debentures  unless and until Secured  Party shall have received  written
notice from Senior Secured Agent that it consents to such payment.

                           (ii)     In the event of an Event of Default under
any of the terms or conditions of the  Debentures or Indenture  resulting in the
exercise  of the  rights  of the  holder  thereof,  such  proceedings  shall  be
especially advertised as being under and subject to the operation, lien, payment
and effect of the Senior Loan Documents.

                           (iii)    The Debentures and Indenture shall be
expressly  subject,  junior,  inferior and subordinate to all future advances by
Senior  Lenders to or for the  benefit of Debtors  pursuant  to the Senior  Loan
Documents and to any expenses  (including without  limitation taxes,  insurance,
repairs, appraisals),  charges and fees reasonably incurred by the holder of the
Senior Loan Documents, including any interest, expenses, charges, and fees which
may increase  the  indebtedness  and  obligations  evidenced  and secured by the
Senior Loan Documents above the original principal amount thereof. Debtors agree
to subordinate all future subordinated notes or other subordinated  indebtedness
to  Senior  Lenders  if the same are  created  after  the date of this  Security
Agreement  until such time as the  indebtedness  and  obligations  evidenced and
secured by the Senior Loan Documents shall have been paid and satisfied in full.

                           (iv)     Until the Senior Loan Documents have been
terminated and the indebtedness and obligations  under the Senior Loan Documents
have been paid in full:

                                    (A)  the Secured Party and the holders of
the Debentures  will not (I) exercise or seek to exercise any rights or remedies
(including  recoupment or set-off) with respect to any Collateral (whether under
this Security Agreement, applicable law or otherwise), (II) institute any action
or proceeding  with respect to such rights or remedies  (including any action of
foreclosure,  to seek relief from the automatic  stay pursuant to Section 362 of
Title 11 of the U.S.  Code  with  respect  to the  Collateral),  (III)  contest,
protest or object to any foreclosure  proceeding or action brought by the Senior
Secured Agent or any Senior Lender,  the exercise of any right by Senior Secured
Agent or any Senior  Lender  under any  lockbox  agreement,  landlord  waiver or
bailee's letter or similar  agreement or  arrangement,  or any other exercise by
any such party, of any rights and remedies  relating to the Collateral under the
Senior Loan  Documents or otherwise,  or (IV) object to the  forbearance  by the
Senior  Secured  Agent or the Senior  Lenders  from  bringing  or  pursuing  any
foreclosure proceeding or action or any other exercise of any rights or remedies
relating to the Collateral; and

                                    (B)  the Senior Secured Agent and the Senior
Lenders  shall have the exclusive  right to enforce  rights,  exercise  remedies
(including recoupment,  set-off and the right to credit bid their debt) and make

                                       12
<PAGE>

determinations regarding the release,  disposition, or restrictions with respect
to the Collateral  without any  consultation  with or the consent of the Secured
Party or any holder of the Debentures;  provided,  that (I) in any insolvency or
similar  proceeding  commenced by or against the Debtors,  the Secured Party may
file a claim or statement of interest  with  respect to the  Debentures  and any
other  obligations  under the  Indenture,  (II) the  Secured  Party may take any
action in order to perfect or maintain the  perfection of its Security  Interest
in the Collateral and (III) Senior Secured Agent and Senior Lenders shall at all
times act in a manner that is commercially reasonable.

In  exercising  rights and remedies with respect to the  Collateral,  the Senior
Secured  Agent and the Senior  Lenders may enforce the  provisions of the Senior
Loan Documents and exercise remedies  thereunder,  all in such order and in such
manner as they may  determine  in the  exercise of their sole  discretion.  Such
exercise and enforcement  shall include the ability of an agent appointed by the
Senior  Secured  Agent to sell or otherwise  dispose of Collateral by private or
public sale or any other means permissible under applicable law. In the event of
any such private or public sale,  the Secured Party agrees,  on behalf of itself
and the holders of the Debentures,  that such sale will be free and clear of the
Security Interests securing the Debentures.  In furtherance thereof, the Secured
Party  agrees  that it will  execute  any and  all  Security  Interest  releases
reasonably requested by Senior Secured Agent in connection therewith, so long as
the  proceeds  from  such  disposal  of  Collateral  are  applied  to repay  the
indebtedness  and  obligations  under the Senior Loan  Documents  and any excess
proceeds  are  paid  over to the  Secured  Party  to  satisfy  indebtedness  and
obligations under the Debentures.  The Senior Secured Agent is entitled to incur
expenses in connection  with such sale or  disposition,  and to exercise all the
rights and remedies of a secured lender under the Uniform Commercial Code of any
applicable jurisdiction and of a secured creditor under bankruptcy or insolvency
laws of any applicable jurisdiction.

                           (v)      The Secured Party, on behalf of itself and
the  holders of the  Debentures,  agrees  that it will not take or  receive  any
Collateral or any proceeds of Collateral in connection  with the exercise of any
right or remedy (including recoupment or set-off) with respect to any Collateral
(whether under this Security Agreement, applicable law or otherwise), unless and
until all indebtedness and obligations  under the Senior Loan Documents has been
paid in full. Without limiting the generality of the foregoing, unless and until
all indebtedness and obligations  under the Senior Loan Documents have been paid
in full,  the sole right of the Secured Party and the holders of the  Debentures
with respect to the Collateral is to hold a Security  Interest in the Collateral
pursuant to this  Security  Agreement  for the period and to the extent  granted
therein and to receive a share of the proceeds  thereof,  if any, only after all
indebtedness  and obligations  under the Senior Loan Documents have been paid in
full.

                           (vi)     The provisions of this Section 12 are
intended  to be for the benefit of, and shall be  enforceable  directly  by, the
Senior Secured Agent and each Senior Lender.


                                       13
<PAGE>

                  13.      Subordination to Other Indebtedness.

                  (a) In addition  and subject to the Senior  Secured  Interest,
Secured Party hereby acknowledges and agrees that Collateral  consisting of real
property and the improvements  thereon owned by GDC Naugatuck,  Inc. and located
at 6 Rubber Avenue, Naugatuck, Connecticut 06770 (the "Naugatuck Property") may,
without the consent of Secured Party,  become subject to a senior  mortgage lien
to be granted therein ("New Naugatuck Mortgage") in connection with the Debtors'
borrowing of money  ("Naugatuck  Debt") from a lender (the "Senior  Secured Real
Estate Lender") that is secured by the Naugatuck Property; provided, however, in
the event of the granting of the New  Naugatuck  Mortgage,  the proceeds of such
borrowing are used to satisfy the  obligations  to the Senior  Lenders under the
Senior Loan  Documents  and any  proceeds in excess of the amounts  necessary to
satisfy such obligations are paid to Secured Party to satisfy the Debentures. In
the event any Senior  Secured Real Estate Lender  requires that Secured  Party's
security  interest in the  Naugatuck  Property be released,  Secured Party shall
release such interest so long as the proceeds of the New Naugatuck Mortgage have
been paid in accordance with the first sentence of this subsection (a).

                  (b) In addition  and subject to the Senior  Secured  Interest,
Secured party hereby  acknowledges  and agrees that the Collateral may,  without
the  consent  of  Secured  Party,  become  subject  to a senior  lien(s)  in the
Collateral  to secure  (i)  indebtedness  that  replaces  the  indebtedness  and
obligations  evidenced  and secured by the Senior Loan  Documents  ("Replacement
Debt");  (ii) indebtedness of the Debtors to fund Debtors' working capital needs
("Working Capital Debt");  and (iii) indebtedness of the Debtors the proceeds of
which are used to satisfy  the  Debentures  ("Debenture  Refinancing  Debt" and,
together with the Naugatuck Debt, the  Replacement  Debt and the Working Capital
Debt, the "Additional Senior Secured Debt");  provided,  however, that amount of
any Replacement Debt may not exceed and the term of any Replacement Debt may not
extend beyond the amount and term of the indebtedness and obligations  evidenced
and secured by the Senior Loan  Documents  at the time the  Replacement  Debt is
incurred;  provided, further, however, that Working Capital Debt can be incurred
only to the extent that the Debtors' aggregate inventory and accounts receivable
with respect to ongoing operations exceed the Debtors'  aggregate  inventory and
accounts  receivable on the  effective  date of the Debtors' Plan (as defined in
the  Indenture);  and  provided,  further,  however,  that the  total  amount of
indebtedness  that is senior to the  Debentures  does not exceed thirty  million
dollars ($30,000,000) at any time.

                  (c) At all times until the  Additional  Senior Secured Debt is
paid in full and  subject to all rights of the Senior  Lenders  under the Senior
Loan  Documents,  Secured Party and Debtors agree for the benefit of the holders
of the  Additional  Senior  Secured  Debt and any and all future  holders of the
Additional Senior Secured Debt or any interest therein as follows:

                           (i)      The Security Interest and the lien of any
judgment obtained by Secured Party against Debtors pursuant to the Debentures or
Indenture are and at all times hereafter shall be subject,  junior,  subordinate
and inferior in line,  operation,  payment and effect to the  Additional  Senior

                                       14
<PAGE>

Secured Debt, and to any extension, consolidation, modification or supplement to
any thereof.  Except as specifically  provided herein,  no payments of principal
and/or interest under the Debentures  shall be made until all  indebtedness  and
obligations constituting the Additional Senior Secured Debt shall have been paid
and satisfied in full, in cash.  Except as specifically  provided,  herein,  the
provisions  of this  Section  13(c)(i)  shall be deemed to prohibit  payments by
Parent to the holders of the  Debentures  unless and until  Secured  Party shall
have received written notice from the holders,  if any, of the Additional Senior
Secured Debt that such holder consents to such payment.

                           (ii)     In the event of an Event of Default under
any of the terms or conditions of the  Debentures or Indenture  resulting in the
exercise  of the  rights  of the  holder  thereof,  such  proceedings  shall  be
especially advertised as being under and subject to the operation, lien, payment
and effect of the Additional Senior Secured Debt.

                           (iii)    The Debentures and Indenture shall be
expressly subject, junior, inferior and subordinate to all future advances under
the  Additional  Senior Secured Debt to or for the benefit of Debtors and to any
expenses (including without limitation taxes, insurance,  repairs,  appraisals),
charges and fees reasonably  incurred by the holder(s) of the Additional  Senior
Secured  Debt,  including any interest,  expenses,  charges,  and fees which may
increase the Additional Senior Secured Debt above the original  principal amount
thereof,  provided that such future  advances are permitted under Section 13(b),
above, at the time such advances are made.

                           (iv)     Until the Additional Senior Secured Debt, if
any, has been paid in full:

                                    (A)  the Secured Party and the holders of
the Debentures  will not (I) exercise or seek to exercise any rights or remedies
(including  recoupment or set-off) with respect to any Collateral (whether under
this Security Agreement, applicable law or otherwise), (II) institute any action
or proceeding  with respect to such rights or remedies  (including any action of
foreclosure,  to seek relief from the automatic  stay pursuant to Section 362 of
Title 11 of the U.S.  Code  with  respect  to the  Collateral),  (III)  contest,
protest or object to any foreclosure proceeding or action brought by the holders
of the Additional  Senior Secured Debt, the exercise of any right by the holders
of any  Additional  Senior  Secured Debt under any lockbox  agreement,  landlord
waiver or bailee's  letter or similar  agreement  or  arrangement,  or any other
exercise  by any  such  party,  of  any  rights  and  remedies  relating  to the
Collateral  securing the Additional  Senior  Secured Debt or otherwise,  or (IV)
object to the  forbearance by any holder of Additional  Senior Secured Debt from
bringing or pursuing any foreclosure  proceeding or action or any other exercise
of any rights or remedies relating to the Collateral; and

                                    (B)  subject to the rights of the Senior
Secured  Agent and the Senior  Lenders  set forth in Section  12(b)(iv)(B),  the
holders of any Additional  Senior Secured Debt shall have the exclusive right to
enforce rights,  exercise remedies (including recoupment,  set-off and the right
to  credit  bid their  debt)  and make  determinations  regarding  the  release,
disposition,  or  restrictions  with  respect  to  the  Collateral  without  any

                                       15
<PAGE>

consultation  with or the  consent  of the  Secured  Party or any  holder of the
Debentures; provided, that (I) in any insolvency or similar proceeding commenced
by or against the  Debtors,  the Secured  Party may file a claim or statement of
interest  with respect to the  Debentures  and any other  obligations  under the
Indenture,  (II) the  Secured  Party may take any  action in order to perfect or
maintain the perfection of its Security Interest in the Collateral and (III) the
holder(s)  of any  Additional  Senior  Secured  Debt shall at all times act in a
manner that is commercially reasonable.

In exercising rights and remedies with respect to the Collateral,  any holder of
Additional  Senior  Secured  Debt may enforce  such debt and  exercise  remedies
thereunder,  all in such order and in such manner as they may  determine  in the
exercise of their sole discretion.  Such exercise and enforcement  shall include
the ability of an agent appointed by a holder of Additional  Senior Secured Debt
to sell or  otherwise  dispose of  Collateral  by private or public  sale or any
other means  permissible  under applicable law. In the event of any such private
or public sale, the Secured Party agrees, on behalf of itself and the holders of
the Debentures,  that such sale will be free and clear of the Security Interests
securing the Debentures.  In furtherance  thereof, the Secured Party agrees that
it will execute any and all Security Interest releases reasonably requested by a
holder of Additional Senior Secured Debt in connection therewith, so long as the
proceeds  from  such  disposal  of  Collateral  are  applied  (i) to  repay  the
indebtedness and obligations under the Senior Loan Documents,  (ii) to repay the
indebtedness and obligations under any Additional Senior Secured Debt, and (iii)
any excess  proceeds are paid over to the Secured Party to satisfy  indebtedness
and obligations under the Debentures. A holder of Additional Senior Secured Debt
is entitled to incur expenses in connection with such sale or  disposition,  and
to exercise  all the rights and  remedies of a secured  lender under the Uniform
Commercial Code of any applicable  jurisdiction  and of a secured creditor under
bankruptcy or insolvency laws of any applicable jurisdiction.

                           (v)      The Secured Party, on behalf of itself and
the  holders of the  Debentures,  agrees  that it will not take or  receive  any
Collateral or any proceeds of Collateral in connection  with the exercise of any
right or remedy (including recoupment or set-off) with respect to any Collateral
(whether under this Security Agreement, applicable law or otherwise), unless and
until all indebtedness  and obligations  under the Senior Loan Documents and any
Additional  Senior  Secured  Debt has been paid in full.  Without  limiting  the
generality of the foregoing,  unless and until all  indebtedness and obligations
under the Senior Loan Documents and any Additional  Senior Secured Debt has been
paid in full,  the sole  right  of the  Secured  Party  and the  holders  of the
Debentures with respect to the Collateral is to hold a Security  Interest in the
Collateral  pursuant to this Security Agreement for the period and to the extent
granted  therein and to receive a share of the proceeds  thereof,  if any,  only
after all  indebtedness  and  obligations  under the Senior Loan  Documents  and
Additional Senior Secured Debt have been paid in full. Notwithstanding the prior
provisions of this Section 13(c)(v),  Secured Party shall not be prohibited from
receiving the payments described in Sections 13(a) and 13(b) out of the proceeds
of any Naugatuck Debt or the Debenture Refinancing Debt.

                           (vi)     The provisions of this Section 13 are
intended  to be for the benefit of, and shall be  enforceable  directly  by, any
holder of Additional Senior Secured Debt.

                                       16
<PAGE>

                  14.      Miscellaneous.

                  (a)  Pursuant to Section  9-509(a) (1) of the New York Uniform
Commercial Code, Debtors hereby authorize Secured Party, at Debtors' expense, to
file in any or all offices of the  Secretary  of State or other  public  central
filing  offices for filing under the Uniform  Commercial  Code in the applicable
jurisdictions, and in offices designated for the filing or recording of a record
of mortgage,  initial financing  statements,  amendments to financing statements
and continuation  statements,  all without the Debtors' signatures or execution,
that cover all assets of Debtors and/or all Collateral described herein, and all
property  that becomes  collateral  under  Section  9-315(a) (2) of the New York
Uniform  Commercial Code.  Debtors  authorize Secured Party to perform all other
acts which Secured Party deems  appropriate to perfect and continue the Security
Interest and to protect and preserve the Collateral.

                  (b) (i) As further  security  for payment of the  Indebtedness
but subject to Sections 12 and 13 hereof,  Debtors hereby grant to Secured Party
a Security  Interest in and lien on any and all property and proceeds of Debtors
that are or may  hereafter be in Secured  Party's  possession  in any  capacity,
including,  without limitation,  all monies,  escrows and reserves owed or to be
owed by Secured Party to Debtors. With respect to all of such property,  Secured
Party  shall  have the same  rights  hereunder  as it has  with  respect  to the
Collateral.

                           (ii)  Without limiting any other right of Secured
Party,  whenever  Secured Party has the right to declare any  Indebtedness to be
immediately due and payable  (whether or not it has so declared),  Secured Party
at its sole  election  may set off against the  Indebtedness  any and all monies
then owed to Debtors by Secured Party in any  capacity,  whether or not due, and
Secured Party shall be deemed to have exercised such right of setoff immediately
at the time of such election even though any charge  therefor is made or entered
on Secured Party's records subsequent thereto.

                  (c)  Subject to the  provisions  of Sections 12 and 13 hereof,
upon Debtors'  failure to perform any of their duties  hereunder,  Secured Party
may, but shall not be obligated to, perform any or all such duties,  and Debtors
shall pay an amount equal to the expense thereof to Secured Party forthwith upon
written demand by Secured Party.

                  (d)  Subject to the  provisions  of Sections 12 and 13 hereof,
upon the  occurrence of and Event of Default that is  continuing,  Secured Party
may demand,  collect and sue on the  Collateral  (in either  Debtors' or Secured
Party's  name at the  latter's  option)  with the right to enforce,  compromise,
settle or discharge the Collateral, and may endorse any Debtor's name on any and
all  checks,  commercial  paper,  and any  other  Instruments  pertaining  to or
constituting the Collateral.

                  (e) No delay or omission by Secured  Party in  exercising  any
right or remedy hereunder or with respect to any Indebtedness shall operate as a
waiver  thereof  or of any other  right or  remedy,  and no  single  or  partial
exercise  thereof shall  preclude any other or further  exercise  thereof or the
exercise of any other right or remedy.  Secured  Party may remedy any default by

                                       17
<PAGE>

Debtors  hereunder or with respect to any Indebtedness in any reasonable  manner
without  waiving the  default  remedied  and without  waiving any other prior or
subsequent  default  by  Debtors.  All  rights and  remedies  of  Secured  Party
hereunder are cumulative.  All duties and  obligations of Debtors  hereunder are
joint and several.

                  (f)  Secured  Party  shall  have no  obligation  to take,  and
Debtors  shall have the sole  responsibility  for  taking,  any and all steps to
preserve  rights  against any and all prior parties to any Instrument or Chattel
Paper,  whether  Collateral  or Proceeds  and whether or not in Secured  Party's
possession.  Debtors waive protest of any Instrument  constituting Collateral at
any time held by Secured Party on which Debtors are in any way liable and waives
notice of any other action taken by Secured Party.

                  (g) The rights and benefits of Secured Party hereunder  shall,
if Secured  Party so agrees,  inure to any party  acquiring  any interest in the
Indebtedness or any part thereof. This Security Agreement shall bind all persons
who become bound as a debtor to this Security Agreement pursuant to the New York
Uniform Commercial Code.

                  (h) No modification,  rescission, waiver, release or amendment
of any  provision of this Security  Agreement  shall be made except by a written
agreement  subscribed  by Debtors  and by a duly  authorized  officer of Secured
Party.

                  (i) This  Security  Agreement  and the  transaction  evidenced
hereby shall be construed under the laws of the State of New York.

                  (j) No extension, alteration or other such modification of the
Indenture,  the  Debentures  or any of the  collateral  documents  evidencing or
securing the Indebtedness shall effect the attachment,  perfection,  validity or
priority of this Security Agreement or the associated financing statements.


                            [SIGNATURE PAGE FOLLOWS]



                                       18
<PAGE>



SIGNED, SEALED AND
DELIVERED
IN THE PRESENCE OF:                 DEBTORS:

ATTEST:                             GENERAL DATACOMM INDUSTRIES,
                                    INC., a Delaware corporation

/S/GERALD GORDON                            /S/ HOWARD MODLIN
________________________            By: ____________________________
Gerald Gordon, Assistant Secretary      Name:  Howard S. Modlin
                                        Title: Chairman


                                     GENERAL DATACOMM, INC.,
ATTEST:                              a Delaware corporation

/S/ GERALD GORDON                           /S/ HOWARD MODLIN
________________________            By: ____________________________
Gerald Gordon, Assistant Secretary      Name:  Howard S. Modlin
                                        Title: Chairman


                                      DATACOMM LEASING
ATTEST:                               CORPORATION, a Delaware corporation

/S/ GERALD GORDON                          /S/ HOWARD MODLIN
________________________            By: ____________________________
Gerald Gordon, Assistant Secretary      Name:  Howard S. Modlin
                                        Title: Chairman


                                       GDC HOLDING COMPANY, L.L.C.,
                                       a Delaware limited liability company

/S/ GERALD GORDON                         /S/ HOWARD MODLIN
________________________            By: ____________________________
Witness Assistant Secretary             Name:  Howard S. Modlin
                                        Title: Chairman

                                      19
<PAGE>


                                       GDC FEDERAL SYSTEMS, INC.,
                                       a Delaware corporation

 ATTEST: /S/ GERALD GORDON                /S/ HOWARD MODLIN
________________________            By: ____________________________
Gerald Gordon, Assistant Secretary      Name:  Howard S. Modlin
                                        Title: Chairman


                                       GDC REALTY, INC.,
ATTEST:                                a Texas corporation

/S/ GERALD GORDON                        /S/ HOWARD MODLIN
________________________            By: ____________________________
Gerald Gordon, Assistant Secretary      Name:  Howard S. Modlin
                                        Title: Chairman


                                        GDC NAUGATUCK, INC.,
ATTEST:                                 a Delaware Corporation

/S/ GERALD GORDON                        /S/ HOWARD MODLIN
________________________            By: ____________________________
Gerald Gordon, Assistant Secretary      Name:  Howard S. Modlin
                                        Title: Chairman



                                     SECURED PARTY:

ATTEST:                              HSBC BANK USA, as Trustee

/S/GERALD GORDON                        /S/ FRANK J. GODINO
________________________             By:__________________________
Name: Gerald Gordon                     Name:  Frank J. Godino
Title: Assistant Secretary              Title: Vice President


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