Document:

INTERCREDITOR AGREEMENT

         This Intercreditor Agreement ("Agreement") is made and entered into
as of the 12th day of April, 2002 by and between U.S. Bank National
Association, a national banking association, as trustee for the holders (the
"Holders") of the Notes described below ("Creditor"), and Fleet Capital
Corporation, a Rhode Island corporation, as Agent for itself and the various
financial institutions ("Senior Lenders") from time to time party to the
Senior Credit Agreement described below ("Agent").

                             W I T N E S S E T H:
                             - - - - - - - - - -

         WHEREAS, as of the date hereof Kinetek Industries, Inc., a Delaware
corporation ("Kinetek"), has issued (i) those certain 5% Senior Secured Notes
due May 1, 2007 in the original principal amount of $15,000,000 and (ii) those
certain 10% Senior Secured Notes due May 1, 2007 in the original principal
amount of $11,000,000 (collectively, the "Notes" and each, a "Note") pursuant
to the terms of those certain Indentures (the "Indentures") each dated as of
even date herewith and each by and among Creditor, as trustee on behalf of
each Holder, Kinetek, as issuer, and Kinetek, Inc., a Delaware corporation,
Advanced D.C. Holdings, Inc., a Delaware corporation, Advanced D.C. Motors,
Inc., a New York corporation, Electrical Design and Control Company, a
Delaware corporation, The Imperial Electric Corporation, a Delaware
corporation, Merkle-Korff Industries, Inc., an Illinois corporation, Motion
Control Engineering, Inc., a California corporation, FIR Group Holdings, Inc.,
a Delaware corporation and Gear Research, Inc., a Delaware corporation, as
guarantors (collectively, the "Guarantors" and, together with Kinetek, the
"Companies");

         WHEREAS, the Guarantors have each guaranteed payment and performance
of the Indentures and the Notes pursuant to the Indentures (collectively, the
"Creditor Guaranties");

         WHEREAS, subject to the terms and conditions hereof, the obligations
of Kinetek under the Indentures and the Notes, and the obligations of the
Guarantors under the Creditor Guaranties, are secured by liens and security
interests subordinate to the liens and security interests in favor of Agent
and Senior Lenders;

         WHEREAS, the Companies are indebted to Agent and Senior Lenders in
connection with the advances of monies and other financial accommodations by
Agent and Senior Lenders to the Companies;

         WHEREAS, such advances of monies and other financial arrangements are
evidenced by various agreements, instruments and documents, including, without
limitation, a Loan and Security Agreement dated December 18, 2001 by and among
the Companies, Agent and Senior Lenders, as amended to date (the "Senior
Credit Agreement"); and

         WHEREAS, the indebtedness of the Companies under the Senior Credit
Agreement is secured by liens on and security interests in substantially all
of the assets of the Companies;

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         NOW, THEREFORE, for good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged by Creditor,
Creditor hereby agrees with Agent, for itself and on behalf of the Senior
Lenders, as hereinafter set forth.

         1.   Definitions. In addition to those terms defined in the foregoing
preamble, the following terms, when used in this Agreement, shall have the
meanings set forth below:

          (a) Agent - Fleet Capital Corporation, in its capacity as Agent
     under the Senior Credit Agreement.

          (b) Bankruptcy Code - Chapter 11 of Title I of the United States
     Code (11 U.S.C.ss.101 et seq.).

          (c) Blockage Period - As defined in Section 3(a) hereof.

          (d) Business Day - As defined in the Senior Credit Agreement.

          (e) Collateral - As defined in the Senior Credit Agreement.

          (f) Creditor's Documents - The Notes, the Indentures, the Creditor
     Guaranties, and any other agreement, instrument or document executed by
     any Loan Party and, or in favor of, Creditor in connection therewith.

          (g) Default - As defined in the Senior Credit Agreement.

          (h) Default Notice - As defined in Section 3(a) hereof.

          (i) Event of Default - As defined in the Senior Credit Agreement.

          (j) Insolvency Proceeding - Any voluntary or involuntary insolvency,
     bankruptcy, receivership, custodianship, liquidation, dissolution,
     reorganization, assignment for the benefit of creditors, appointment of a
     custodian, receiver, trustee or other officer with similar powers or any
     other proceeding for the liquidation, dissolution or other winding up of
     any Loan Party.

          (k) Loan Documents - As defined in the Senior Credit Agreement.

          (l) Loan Party - Each Company and each other Person that now or
     hereafter guarantees payment of all or a portion of the Senior Debt or
     the Subordinated Debt or agrees to provide financial support to any
     Company.

          (m) Person - As defined in the Senior Credit Agreement.

          (n) Post Petition Interest - Interest at the contract rate accruing
     subsequent to the filing of a petition initiating any Insolvency

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     Proceeding as to any Loan Party whether or not such interest is an
     allowable claim in any such Insolvency Proceeding.

          (o) Reorganization Subordinated Securities - (a) Any equity
     securities issued in substitution of all or any portion of the
     Subordinated Debt that are subordinated in right of payment to the Senior
     Debt and pledged in favor of Agent to secure the Senior Debt (or any
     notes or other securities issued in substitution of all or any portion of
     the Senior Debt), and (b) any notes or other debt securities issued in
     substitution of all or any portion of the Subordinated Debt that are
     subordinated to the Senior Debt (or any notes or other securities issued
     in substitution of all or any portion of the Senior Debt), in each case
     at least to the same extent that the Subordinated Debt is subordinated to
     the Senior Debt pursuant to the terms of this Agreement.

          (p) Revolving Loan Commitment - As defined in the Senior Credit
     Agreement.

          (q) Senior Covenant Default - Any Default or Event of Default that
     is not a Senior Payment Default.

          (r) Senior Debt - (a) All of the obligations, liabilities and
     indebtedness of each Loan Party to Senior Lenders and Agent, including,
     without limitation, all of the Obligations under, and as such term is
     defined in, the Senior Credit Agreement and any refinancings thereof on
     terms consistent with the limitations contained in Section 12 hereof;
     provided, that the maximum amount of obligations, liabilities and
     indebtedness of the Loan Parties that constitutes Senior Debt shall not
     at any time exceed the limitations set forth in Section 4 hereof, and (b)
     any guarantee of any or all of the obligations, liabilities and
     indebtedness described in the preceding clause (a).

          (s) Senior Payment Default - Any Event of Default under Subsection
     10.1.1 of the Senior Credit Agreement.

          (t) Subordinated Debt - Any indebtedness, obligations and
     liabilities which may now or hereafter be owing by any of (a) any Loan
     Party (including a receiver or trustee for any Loan Party, or any Loan
     Party as debtor in possession) to Creditor under the Creditor's Documents
     and (b) any guarantor of any or all of the indebtedness, obligations and
     liabilities described in the preceding clause (a).

         2.  Standstill Regarding Liens; Subordination. Creditor agrees that
any and all liens and security interests of Creditor in the Collateral,
whether now existing or hereafter arising, shall be and hereby are
subordinated to the rights and interests of Agent and Senior Lenders in those
assets and Creditor shall under no circumstances have any right to possession
of any such assets or to foreclose upon any such assets, whether by judicial
action or otherwise, unless and until all of the Senior Debt has been fully
paid in cash and

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<PAGE>

satisfied and all lending commitments under the Loan Documents have been
terminated. Creditor agrees that it will not at any time contest the validity,
perfection, priority or enforceability of the Senior Debt, the Loan Documents,
or the liens and security interests of Agent and Senior Lenders in the
Collateral securing the Senior Debt. Creditor further agrees that (i) Creditor
will release its liens on and its security interests in any of the Collateral
upon request therefor by Agent in connection with the sale or other
disposition of such Collateral and (ii) Agent shall be, and hereby is,
authorized to file such termination statements and releases necessary to
effect the release of any and all such liens and security interests. In
furtherance of the foregoing, Creditor hereby irrevocably appoints Agent its
attorney-in-fact, with full authority in the place and stead of Creditor and
in the name of Creditor or otherwise, to execute and deliver any document or
instrument which Creditor may be required to deliver pursuant to the
immediately preceding sentence.

         3.  Payments and Actions.

         (a) At any time when no Blockage Period is in effect, the Companies
     may make and Creditor may receive any amounts then due and payable under
     the terms of Creditor's Documents (as they exist on the date hereof or as
     they are amended from time to time consistent with Section 5 hereof, or
     otherwise with the prior written consent of Agent), except that in no
     event as long as any Senior Debt is outstanding shall the Companies be
     entitled to make, or shall Creditor be entitled to receive, any of the
     following payments:

               (i) any repayment upon acceleration of the Subordinated Debt;

               (ii) any prepayment pursuant to an offer upon the occurrence of
          a Change of Control or an Asset Sale (as each such term is defined
          in the Indentures); or

               (iii) any optional prepayment at the Make-Whole Price (as
          defined in the Indentures).

     A "Blockage Period," as defined in the next sentence, shall commence if
     either (A) a Senior Payment Default occurs or (B) a Senior Covenant
     Default has occurred and Agent has elected, in its discretion, to give
     Creditor written notice of such Senior Covenant Default (a "Default
     Notice") and so commence a Blockage Period, provided, however, that,
     except in the case of a Senior Payment Default, (I) the total number of
     days of all Blockage Periods may not exceed one hundred eighty (180) days
     in any three hundred sixty (360) day period and (II) no Senior Covenant
     Default existing on the date a Default Notice is given shall be the basis
     of any subsequent Default Notice unless such Senior Covenant Default has
     been cured or waived for a period of at least sixty (60) days. The period
     beginning with (x) the date on which the Senior Payment Default occurs,
     in the case of a Senior Payment Default, or (y) the date any such Default

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<PAGE>

     Notice is issued by Agent, in the case of a Senior Covenant Default, and
     ending on the earlier of (1) the close of business on the one hundred
     eightieth (180th) day thereafter in the case of Senior Covenant Defaults
     only, and (2) the date upon which the applicable Senior Payment Default
     or Senior Covenant Default is cured or waived, shall be referred to as a
     "Blockage Period".

          (b) To the extent that Creditor intends to take any action to
     enforce any payment with respect to the Subordinated Debt or otherwise
     take any action against any Loan Party or any property of any Loan Party,
     Creditor shall provide Agent with not less than five (5) Business Days
     prior written notice of its taking of any such action, which notice may
     be provided whether or not a Blockage Period is then in effect.

         4.  Limitation on the Amount of Senior Debt. Notwithstanding anything
to the contrary herein, the amount of the debt that shall constitute Senior
Debt shall not exceed the following: (a) $75,000,000 minus (b) any permanent
reductions in the Revolving Loan Commitments plus (c) interest (including Post
Petition Interest, whether or not allowed in an Insolvency Proceeding), costs,
disbursements, indemnification amounts, fees and expenses provided for
pursuant to the Senior Credit Agreement.

         5. Amendment of Creditor's Documents. Until such time as the Senior
Debt has been fully and indefeasibly paid in cash and satisfied and all
lending commitments under the Loan Documents have been terminated, Creditor's
Documents may not be modified or amended without Agent's prior written consent
so as to increase the obligations of any Loan Party thereunder (including,
without limitation, increasing the amount of principal, the rate of interest,
the amount of fees and the amount of prepayment premiums), shorten the
maturity or amortization thereof, modify any prepayment provision thereof to
increase the amount payable thereunder, expand the conditions under which such
prepayment is required or accelerate the payment thereof, add any prepayment
provision thereto, or add or change any covenants or default provisions in a
manner more restrictive to any Loan Party.

         6.  Subordinated Debt Owed Only to Creditor. Creditor (a) as of the
date hereof, warrants and represents that the entire Subordinated Debt is owed
only to Holders on whose behalf Creditor is acting as trustee under the
Indentures and that no other party owns an interest in the Subordinated Debt
and (b) covenants not to transfer any of its rights and obligations as trustee
under either Indenture unless the transferee thereof expressly agrees to be
bound by the provisions of this Agreement.

         7.  Insolvency Proceedings. Notwithstanding any provision of this
Agreement to the contrary, if any Insolvency Proceeding occurs, then, and in
any such event, (a) Agent and Senior Lenders shall be entitled to receive
payment in full in cash of any and all of the Senior Debt prior to the payment
of all or any part of the Subordinated Debt, and (b) any payment or
distribution of any kind or character, whether in cash, securities or other
property, which shall be payable or deliverable upon or with respect to any or

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<PAGE>

all of the Subordinated Debt (other than a payment in the form of, or a
distribution of, Reorganization Subordinated Securities which Creditor is
hereby specifically authorized to receive and retain) shall be paid or
delivered directly to Agent for application on any of the Senior Debt until
the Senior Debt has been fully paid in cash and satisfied. Creditor shall
retain the right to vote and file proofs of claim and otherwise act with
respect to the Subordinated Debt in any Insolvency Proceeding involving any
Loan Party or its assets in accordance with this Section 7; provided, however,
that Agent is hereby irrevocably authorized and empowered, in its discretion,
to (i) make and present for and on behalf of Creditor such proofs of claim
against each Loan Party on account of the Subordinated Debt as Agent may deem
expedient or proper if, and only if, Creditor has failed to do so at least ten
(10) days prior to the due date thereof, (ii) vote such proofs of claim in any
such proceeding if, and only if, Creditor has failed to do so at least five
(5) days prior to the last day for voting proofs of claim and (iii) receive
and collect any and all dividends or other payments or disbursements made
thereon in whatever form the same may be paid or issued (other than a payment
in the form of, or a distribution of, Reorganization Subordinated Securities
which Creditor is hereby specifically authorized to receive and retain) and to
apply the same on account of any of the Senior Debt. In circumstances in which
Agent is permitted to act on Creditor's behalf pursuant to the proviso to the
preceding sentence, (i) Creditor irrevocably authorizes and empowers Agent to
demand, sue for, collect and receive each of the aforesaid payments and
distributions and give acquittance therefor and to file claims and take such
other actions, in Agent's own name or in the name of Creditor or otherwise, as
Agent may deem necessary or advisable for the enforcement of this Section 7
and (ii) Creditor will execute and deliver to Agent such powers of attorney,
assignments and other instruments or documents, including notes (together with
such assignments or endorsements as Agent shall deem necessary), as may be
reasonably requested by Agent in order to enable Agent to enforce any and all
claims upon or with respect to any or all of the Subordinated Debt and to
collect and receive any and all payments and distributions which may be
payable or deliverable at any time upon or with respect to the Subordinated
Debt (other than a payment in the form of, or a distribution of,
Reorganization Subordinated Securities which Creditor is hereby specifically
authorized to receive and retain). In the event that Creditor turns over to
the Agent any payment or contributions received by it in accordance with this
Agreement, Creditor shall for purposes of determining whether any default
under the Creditor's Documents has occurred be deemed not to have received
such payment or distribution. In the event that any Loan Party fails to make
any payment on account of the Subordinated Debt by reason of any provision
contained herein, such failure shall, notwithstanding such provision contained
herein, constitute a default with respect to the Subordinated Debt if and to
the extent such failure would otherwise constitute such a default in
accordance with the terms of the Subordinated Debt.

         8.  Payments Received by Creditor. Should any payment or distribution
be received by Creditor upon or with respect to the Subordinated Debt which
Creditor is not permitted to receive and retain pursuant to Section 3 or
Section 7 hereof, Creditor shall receive and hold the same in trust, as
trustee, for Agent, and shall forthwith deliver the same to Agent in precisely
the form received (except for the endorsement or assignment by Creditor where
necessary), for application on any of the Senior Debt and, until so delivered,
the same shall be held in trust by Creditor as the property of Agent. If

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Creditor fails to make any such endorsement or assignment to Agent, Agent, or
any of its officers or employees, is hereby irrevocably authorized to make the
same.

         9.  Obligations of the Loan Parties Unconditional. Nothing contained
herein is intended to or shall impair, as between each Loan Party and Creditor
only, the Obligations of the Loan Parties, which are absolute and
unconditional, to pay to the holder of the Subordinated Debt the Subordinated
Debt as and when the same shall become due and payable in accordance with its
terms, or to affect the relative rights of the Loan Parties and creditors of
the Loan Parties other than Agent and Senior Lenders.

         10.  Instrument Legend; Subsequent Holders of Subordinated Debt. The
Notes, and any other instrument or certificate evidencing any of the
Subordinated Debt, or any portion thereof, will contain a statement that
payment thereof is subordinated to the claims of Agent, pursuant to the terms
of this Agreement and copies thereof will be delivered to Agent by the
appropriate Loan Party. Any instrument or certificate evidencing any of the
Subordinated Debt, or any portion thereof, which is hereafter executed by any
Loan Party will, on the date thereof, contain a similar statement and a copy
thereof will be delivered by such Loan Party to Agent on the date of its
execution or within five (5) business days thereafter. Any subsequent holder
of the Notes or any other instrument or any of certificate evidencing any of
the Subordinated Debt shall hold such Note or other instrument or certificate
subject to all of the terms of this Agreement.

         11.  Continuing Nature of Subordination. This Agreement shall be
irrevocable and shall continue in effect until the Senior Debt has been
indefeasibly and fully paid in cash and satisfied and all lending commitments
under the Loan Documents have been terminated. This is a continuing agreement
of subordination and Agent and Senior Lenders may continue, at any time and
without notice to Creditor, to extend Senior Debt to or for the benefit of the
Loan Parties on the faith hereof.

         12.  Additional Agreements Among the Loan Parties, Agent and Senior
Lenders. Agent and Senior Lenders may, at any time and from time to time,
enter into such agreement or agreements with the Loan Parties, their
affiliates and subsidiaries as Agent and/or Senior Lenders deem proper,
including amendments and modifications of the Senior Credit Agreement, and may
exchange, sell, release, surrender or otherwise deal with any Collateral or
any guaranties underlying any or all of the Senior Debt, without in any way
thereby impairing or affecting this Agreement, provided that no such amendment
or modification shall (i) increase the interest rate payable on any component
thereof by more that 2% over the interest rate applicable thereto on the date
hereof except for increases provided for in the Senior Credit Agreement as in
effect on the date hereof, (ii) change the maturity date of any component
thereof to an earlier date (provided that the foregoing shall not apply to an
acceleration of the Senior Debt pursuant to the Senior Credit Agreement),
(iii) extend the final maturity of the Senior Debt by more than one year, (iv)
increase the Senior Debt in excess of the limitations contained in Section 4
hereof or (v) explicitly limit or prohibit the making of any payment under
Creditor's Documents not already explicitly limited or prohibited by the terms
of the Senior Credit Agreement.

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         13.  Creditor's Waivers. Creditor expressly waives all notice of the
acceptance by Agent and the Senior Lenders of the subordination and other
provisions of this Agreement and all the notices not specifically required
pursuant to the terms of this Agreement or under the Uniform Commercial Code
in connection with foreclosure on or sale of assets whatsoever and Creditor
expressly consents to reliance by Agent and Senior Lenders upon the
subordination and other agreements as herein provided. Creditor acknowledges
that neither Agent nor any Senior Lender has made warranties or
representations with respect to the due execution, legality, validity,
completeness or enforceability of the Senior Credit Agreement or the
collectibility of the Senior Debt, that each of Agent and each Senior Lender
shall be entitled to manage and supervise its financial arrangements with each
Loan Party in accordance with its usual practices, modified from time to time
as it deems appropriate under the circumstances, without affecting the
validity or enforceability of this Agreement; and that neither Agent nor any
Senior Lender shall have any liability to Creditor for, and Creditor waives
any claim which Creditor may now or hereafter have against, Agent and each
Senior Lender arising out of any and all actions which Agent and/or any Senior
Lender, in good faith, takes or omits to take (including, without limitation,
actions with respect to the creation, perfection or continuation of liens or
security interests in any existing or future Collateral, actions with respect
to the occurrence of a Default or Event of Default, actions with respect to
the foreclosure upon, sale, release, or depreciation of, or failure to realize
upon, any of the Collateral and actions with respect to the collection of any
claim for all or any part of the Senior Debt from any account debtor,
guarantor or any other party) with respect to and in accordance with the
Senior Credit Agreement or any other agreement related thereto or to the
collection of the Senior Debt or the valuation, use, protection or release of
the Collateral. Creditor waives the right to assert the doctrine of
marshalling with respect to any of the Collateral, and consents and agrees
that Agent may proceed against any or all of the Collateral in such order as
Agent shall determine in its sole discretion. Agent agrees that Creditor shall
not have any liability to Agent or any Senior Lender for, and Agent waives any
claim which Agent or any Senior Lender may now or hereafter have against,
Creditor arising out of any and all actions which Creditor, in good faith,
takes or omits to take (including, without limitation, actions with respect to
the occurrence of a Default or an Event of Default and actions with respect to
the collection of any claim for all or any part of the Subordinated Debt from
any guarantor or any other party) with respect to and in accordance with
Creditor's Documents, so long as the same actions are exercised in a manner
consistent with the terms of this Agreement. Creditor agrees that it will not
take any action to contest the relative rights and duties of any holders of
any Senior Debt with respect to any Collateral, established in any instruments
or agreements creating or evidencing any of the Senior Debt.

         14.  Modifications and Waivers. No amendments, modifications or
waivers shall be deemed to be made by Agent or by Creditor of any of their
respective rights hereunder, unless the same shall be in a writing, and each
amendment, modification or waiver, if any, shall be an amendment, modification
or waiver only with respect to the specific instance involved and shall in no
way impair or alter the rights or obligations of Agent or Creditor in any
other respect or at any other time.

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         15.  Information Concerning Financial Condition of the Loan Parties.
Each party hereto hereby assumes responsibility for keeping itself informed of
the financial condition of the Loan Parties, their subsidiaries and their
affiliates, and of all other circumstances bearing upon the risk of nonpayment
of the Senior Debt and/or Subordinated Debt that diligent inquiry would
reveal, and each party hereby agrees that neither Agent nor any Senior Lender
nor Creditor shall have any duty to advise any other party of information
known to such entity regarding such condition or any such circumstances. If
any party, in its sole discretion, undertakes, at any time or from time to
time, to provide any such information to another party, such information shall
be given with no representation or warranty of any kind from such party and
such party shall be under no obligation (a) to provide any such information to
any party at that time or to any other party on any subsequent occasion or (b)
to undertake any investigation not a part of its regular business routine.
Creditor hereby agrees that all payments received by Agent may be applied,
reversed, and reapplied, in whole or in part, to any of the Senior Debt,
without affecting the validity or enforceability of this Agreement and,
subject to Sections 4 and 12 hereof, assents to any extension or postponement
of the time of payment of the Senior Debt or to any other indulgence with
respect thereto, to any substitution, exchange or release of all or any of the
Collateral and to the addition or release of any other party or person
primarily or secondarily liable therefor.

         16.  Representations and Warranties of Creditor.

               (a) Creditor hereby represents and warrants to Agent and Senior
          Lenders as follows:

                    (i) Creditor is a national banking association duly
               organized and validly existing under the federal laws of the
               United States of America;

                    (ii) Creditor has the power and authority to enter into,
               execute, deliver, and carry out the terms of this Agreement for
               itself and, under the terms of Creditor's Documents, on behalf
               of each Holder, all of which has been duly authorized by all
               proper and necessary action and is not prohibited by Creditor's
               organizational documents;

                    (iii) this Agreement, when executed and delivered, will
               constitute the valid and legally binding obligation of Creditor
               (for itself and, under the terms of Creditor's Documents, on
               behalf of each Holder) enforceable in accordance with its
               terms, except as such enforceability may be limited by
               applicable bankruptcy, insolvency, reorganization, moratorium
               or similar laws affecting the enforcement of creditor's rights
               generally and by equitable principles; and

                    (iv) no provisions of any mortgage, indenture, contract,
               agreement, statute, rule, regulation, judgment, decree or order
               binding on Creditor conflicts with, or requires any consent

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               which has not already been obtained under, or would in any way
               prevent the execution, delivery or performance of the terms of
               this Agreement by Creditor. The execution, delivery and
               carrying out of the terms of this Agreement will not constitute
               a default under any such mortgage, indenture, contract or
               agreement. No pending or, to the best of Creditor's knowledge,
               threatened litigation, arbitration or other proceedings if
               adversely determined would in any way prevent the performance
               of the terms of this Agreement by Creditor.

                    (b) Agent hereby represents and warrants to Creditor as
               follows:

                         (i) Agent is a corporation duly organized, validly
                    existing and in good standing under the laws of the State
                    of Rhode Island;

                         (ii) Agent has the power and authority to enter into,
                    execute, deliver, and carry out the terms of this
                    Agreement, all of which have been duly authorized by all
                    proper and necessary action and are not prohibited by its
                    organizational documents;

                         (iii) this Agreement, when executed and delivered,
                    will constitute the valid and legally binding obligation
                    of Agent enforceable in accordance with its terms, except
                    as such enforceability may be limited by applicable
                    bankruptcy, insolvency, reorganization, moratorium or
                    similar laws affecting the enforcement of agent's rights
                    generally and by equitable principles; and

                         (iv) no provisions of any mortgage, indenture,
                    contract, agreement, statute, rule, regulation, judgment,
                    decree or order binding on Agent conflicts with, or
                    requires any consent which has not already been obtained
                    under, or would in any way prevent the execution, delivery
                    or performance of the terms of this Agreement by Agent.
                    The execution, delivery and carrying out of the terms of
                    this Agreement will not constitute a default under any
                    such mortgage, indenture, contract or agreement. No
                    pending or, to the best of Agent's knowledge, threatened
                    litigation, arbitration or other proceedings if adversely
                    determined would in any way prevent the performance of the
                    terms of this Agreement by Agent.

         17.  Subrogation. After the indefeasible payment in full in cash of
the Senior Debt and the termination of all lending commitments under the
Senior Credit Agreement, and prior to repayment in full of the Subordinated
Debt, Creditor shall be subrogated to the rights of the Senior Lenders to the
extent that distributions otherwise payable to Creditor have been applied to
the Senior Debt in accordance with the provisions of this Agreement. For
purposes of such subrogation, no payments or distributions to the holders of
Senior Debt of any cash, property or securities to which Creditor would be

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<PAGE>

entitled except for the provisions of this Agreement, and no payments pursuant
to the provisions of this Agreement to the holders of Senior Debt by Creditor,
shall, as among the Loan Parties, their creditors (other than Agent and the
Senior Lenders), any guarantors of the Senior Debt or Subordinated Debt and
Creditor be deemed to be a payment of or distribution by any Loan Party or
such guarantor to or on account of the Senior Debt. Neither Agent nor any
Senior Lender shall have any obligation or duty to protect Creditor's rights
of subrogation arising pursuant to this Agreement or under any applicable law,
nor shall Agent or any Senior Lender be liable for any loss to, or impairment
of, any subrogation rights held by Creditor.

         18.  WAIVERS. AGENT AND CREDITOR EACH AGREE THAT ALL SERVICE OF
PROCESS UPON AGENT OR CREDITOR BE MADE BY REGISTERED OR CERTIFIED MAIL OR
MESSENGER DIRECTED TO IT AT THE ADDRESS SET FORTH BELOW AND THAT SERVICE SO
MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR
THREE (3) DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO ITS ADDRESS AS SET
FORTH BELOW. AGENT AND CREDITOR EACH WAIVE, TO THE EXTENT PERMITTED BY LAW,
TRIAL BY JURY, AND WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH
MIGHT, BUT FOR THIS WAIVER, BE REQUIRED. NOTHING CONTAINED HEREIN SHALL AFFECT
THE RIGHT OF AGENT OR CREDITOR TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.

         19.  Governing Law; Binding Effect; No Third Party Beneficiaries. This
Agreement shall be interpreted, and the rights and liabilities of the parties
hereto determined, in accordance with the laws and decisions of the State of
Illinois, shall be binding upon and inure to the benefit of the parties hereto
and their successors and assigns. Each Holder shall, for purposes of this
Agreement (and notwithstanding any right, privilege or benefit created by any
other agreement, document or instrument) act only through and by Creditor. In
addition, in the event the Senior Debt or any portion thereof shall be held by
more than one (1) Senior Lender, such Senior Lenders shall, for purposes of
this Agreement (and notwithstanding any right, privilege or benefit created by
any other agreement, document or instrument) act only through and by the
Agent. Nothing contained in this Agreement is intended to create any rights in
favor of any third party, including, but not limited to, any Loan Party,
including but not limited to any independent right to enforce the provisions
hereof against Creditor.

         20.  Section Titles; Gender. The section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto. The
singular form of any word used in this Agreement shall include the plural form
and the neuter form of any word used in this Agreement shall include the
masculine and feminine forms, and vice versa.

                                      11
<PAGE>

         21.  Notices. Any notice required hereunder shall be in writing and
addressed to the party to be notified as follows:

         If to Agent:                   Fleet Capital Corporation
                                        20800 Swenson Drive, Suite 350
                                        Waukesha, Wisconsin 53186
                                        Attention:  Loan Administration Manager
                                        Facsimile No.: (262) 798-4882

                                        with a copy to:

                                        Fleet Capital Corporation
                                        One South Wacker Drive, Suite 1400
                                        Chicago, Illinois  60606
                                        Attention:  Loan Administration Manager
                                        Facsimile No.:  (312) 827-4222

         If to Creditor:                U.S. Bank National Association
                                        180 East 5th Street
                                        St. Paul, Minnesota  55101
                                        Attention: ___________________
                                        Facsimile No.: (651) 244-0711

                                        with a copy to:

                                         _____________________________________
                                         _____________________________________
                                         _____________________________________
                                         Facsimile No.: ______________________

                                         and with a copy to:

                                         Kinetek Industries, Inc.
                                         1751 Lake Cook Road; Suite 550
                                         Deerfield, IL 60015
                                         Attention:  Gordon L. Nelson, Jr.
                                         Facsimile No.:  (847)945-9645

or to such other address as any party may designate for itself by notice.
Notice shall be deemed to have been duly given (a) if delivered personally or
otherwise actually received, (b) if sent by overnight delivery service, (c) if
mailed by first class United States mail, postage prepaid, registered or
certified, with return receipt requested, or (d) if sent by facsimile with
facsimile confirmation of receipt (with duplicate notice sent by United States
mail as provided above). Notice mailed as provided in clause (c) above shall
be effective upon the expiration of three (3) business days after its deposit
in the United States mail, postage prepaid. Notice given in any other manner
described in this Section 21 shall be effective upon receipt by the addressee

                                      12
<PAGE>

thereof; provided, however, that if any notice is tendered to an addressee and
delivery thereof is refused by or on behalf of such addressee, such notice
shall be effective upon such tender.

         22.  Possessory Collateral. Agent hereby agrees that, with respect to
any Collateral securing both the Senior Debt and the Subordinated Debt which
is in the form of negotiable "documents", "goods", "instruments", "money" or
"tangible chattel paper" (in each case, as such term is defined in the
applicable Uniform Commercial Code) and which is in the custody of Agent (the
"Possessory Collateral"), for the sole purpose of perfecting the security
interest in such Collateral that has been granted to Creditor, Agent holds
possession and shall hold possession of such Possessory Collateral for the
benefit of Creditor as well as for the benefit of itself and Senior Lenders.
The foregoing shall be subject to each of the terms and conditions hereof and
each of the rights and benefits of Agent and Senior Lenders set forth herein
(including, without limitation, those set forth in Section 2 hereof), and
shall not be deemed to derogate from or limit any of the same. In addition,
the foregoing shall not impose any duties or obligations on Agent to Borrower
or Creditor, and shall not be deemed to create any duties or obligations
(fiduciary or otherwise) on the part of Agent (including, without limitation,
any duty to safeguard the Possessory Collateral, to ensure perfection with
respect to the Possessory Collateral or to maintain the value of the
Possessory Collateral); provided, that after the indefeasible payment in full
in cash of the Senior Debt and the termination of all lending commitments
under the Loan Documents, Agent (unless directed otherwise in writing by
Creditor) shall deliver to Creditor all Possessory Collateral then in its
possession, together with such instruments of transfer or assignments in blank
reasonably requested by Creditor in order to further effectuate such delivery.

         23.  Notice to Creditor. Agent agrees to provide to Creditor
appropriate notice, pursuant to the requirements of the applicable provisions
of the Uniform Commercial Code, of any foreclosure sale or other foreclosure
proceeding commenced by Agent with respect to any of the Collateral.

                                      13
<PAGE>

         IN WITNESS WHEREOF, this Agreement has been signed this 12th day of
April, 2002.

                               U.S. BANK NATIONAL ASSOCIATION,
                                 as Trustee

                              By:  /s/ Richard H. Prokosch
                                  ------------------------------------------
                                    Title:  Vice President

                              FLEET CAPITAL CORPORATION, as Agent

                              By:   /s/ Robert J. Lund
                                  ------------------------------------------
                                    Title:  Senior Vice President

                                      14
<PAGE>

                                    CONSENT

         Each of the undersigned hereby consents to, and acknowledges receipt
of a copy of the foregoing Intercreditor Agreement this 12th day of April,
2002, and agrees that, except as provided in the foregoing Intercreditor
Agreement, it will not pay any of the Subordinated Debt or grant any security
therefor, until the Senior Debt has been paid in full in cash and satisfied
and all Loan Documents have been terminated. Capitalized terms used in this
Consent shall have the meaning ascribed to such terms in the foregoing
Intercreditor Agreement. The undersigned further acknowledges and agrees that
the Intercreditor Agreement may be modified or amended at any time or times
without notice to or the consent of the undersigned and that the undersigned
is not a beneficiary of any of the rights, benefits or privileges granted to
Agent or Creditor thereunder.

                                 KINETEK INDUSTRIES, INC.

                                 By  /s/ Gordon L. Nelson, Jr.
                                  ------------------------------------------
                                 Title  Vice President

                                 KINETEK, INC.

                                 By  /s/ Gordon L. Nelson, Jr.
                                  ------------------------------------------
                                 Title  Vice President

                                 ADVANCED D.C. HOLDINGS, INC.

                                 By  /s/ Gordon L. Nelson, Jr.
                                  ------------------------------------------
                                 Title  Vice President

                                 ADVANCED D.C. MOTORS, INC.

                                 By  /s/ Gordon L. Nelson, Jr.
                                  ------------------------------------------
                                 Title  Vice President

                                 ELECTRICAL DESIGN AND
                                  CONTROL COMPANY

                                 By  /s/ Gordon L. Nelson, Jr.
                                  ------------------------------------------
                                 Title  Vice President

                                      15
<PAGE>

                                 THE IMPERIAL ELECTRIC COMPANY

                                 By  /s/ Gordon L. Nelson, Jr.
                                  ------------------------------------------
                                 Title  Vice President

                                 MERKLE-KORFF INDUSTRIES, INC.

                                 By  /s/ Gordon L. Nelson, Jr.
                                  ------------------------------------------
                                 Title  Vice President

                                 MOTION CONTROL ENGINEERING, INC.

                                 By  /s/ Gordon L. Nelson, Jr.
                                  ------------------------------------------
                                 Title  Vice President

                                 FIR GROUP HOLDINGS, INC.

                                 By  /s/ Gordon L. Nelson, Jr.
                                  ------------------------------------------
                                 Title  Vice President

                                 GEAR RESEARCH, INC.

                                 By  /s/ Gordon L. Nelson, Jr.
                                  ------------------------------------------
                                 Title  Vice President

                                      16Execution Copy

--------------------------------------------------------------------------------
                            KINETEK INDUSTRIES, INC.,

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

                         U.S. BANK NATIONAL ASSOCIATION,
                                   as Trustee

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

                               SECURITY AGREEMENT
                              Dated: April 12, 2002

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

--------------------------------------------------------------------------------
<PAGE>

                               SECURITY AGREEMENT

          THIS SECURITY AGREEMENT is made as of the 12th day of April,
2002, by and among U.S. BANK NATIONAL ASSOCIATION, as Trustee under those
certain Indentures, identified below, a national banking association with an
office at 180 East Fifth Street, Saint Paul, Minnesota 55101 and KINETEK
INDUSTRIES, INC., a Delaware corporation with its chief executive office and
principal place of business at ArborLake Centre, Suite 550, 1751 Lake Cook Road,
Deerfield, Illinois 60015 ("Kinetek" or "Issuer"). Capitalized terms used in
this Agreement have the meanings assigned to them in Appendix A, General
Definitions.

                             W I T N E S S E T H:
                             -------------------

     WHEREAS, as of the date hereof Kinetek has issued (i) those certain 5%
Senior Secured Notes due 2007 in the original principal amount of $15,000,000
and (ii) those certain 10% Senior Secured Notes due 2007, in the original
principal amount of $ 11,000,000 (collectively, the "Notes" and each, a
"Note") pursuant to the terms of those two certain Indentures, each dated as
of even date herewith by and among U.S. Bank National Association, as Trustee
(the "Trustee"), and Kinetek as Issuer and the Guarantors identified below
(collectively the "Indentures");

     WHEREAS, Advanced D.C. Motors, Inc., a New York corporation, Electrical
Design and Control Company, a Delaware corporation, The Imperial Electric
Corporation, a Delaware corporation, Merkle-Korff Industries, Inc., an
Illinois corporation, Motion Control Engineering, Inc., a California
corporation, Gear Research, Inc., a Delaware corporation, Kinetek, Inc., a
Delaware corporation, Motion Holdings, Inc., a Delaware corporation, Advanced
D.C. Holdings, Inc., a Delaware corporation and FIR Group Holdings, Inc., a
Delaware Corporation (collectively, the "Guarantors") have each guaranteed
payment and performance of the Indenture and the Notes pursuant to certain
guarantees contained in the Indentures (collectively, the "Guaranties"); and

         WHEREAS, subject to the terms and conditions hereof, the parties desire
that the obligations of Kinetek under the Indentures and the Notes, and the
other obligations identified herein, be secured by liens and security interests
granted herein, that are subordinate to the Senior Lender Liens as set forth in
the Intercreditor Agreement;

         NOW, THEREFORE, for good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
agree as hereinafter set forth.

<PAGE>

                         SECTION 1. SECURITY INTERESTS

     1.1.  Security Interest in Collateral.

     To secure the prompt payment and performance to Trustee of the
Obligations for the benefit of the Note Holders, the Issuer hereby grants to
Trustee for its benefit and the benefit of each Holder of the Notes, a
continuing Lien upon all of the Issuer's assets, including all of the
following Property and interests in Property of the Issuer (collectively, the
"Collateral"), whether now owned or existing or hereafter created, acquired or
arising and wheresoever located:

               (i) Accounts;

               (ii) Certificated Securities;

               (iii) Chattel Paper, (including Electronic Chattel Paper and
     Tangible Chattel Paper);

               (iv) Computer Hardware and Software and all rights with respect
          thereto, including, any and all licenses, options, warranties,
          service contracts, program services, test rights, maintenance
          rights, support rights, improvement rights, renewal rights and
          indemnifications, and any substitutions, replacements, additions or
          model conversions of any of the foregoing;

               (v) Contract Rights;

               (vi) Deposit Accounts;

               (vii) Documents;

               (viii) Equipment;

               (ix) Financial Assets;

               (x) Fixtures;

               (xi) General Intangibles, including Payment Intangibles and
          Software;

               (xii) Goods (including all of its Equipment, Fixtures and
          Inventory), and all accessions, additions, attachments,
          improvements, substitutions and replacements thereto and therefor;

               (xiii) Instruments;

               (xiv) Intellectual Property;

               (xv) Inventory;

               (xvi) Investment Property;

               (xvii) money (of every jurisdiction whatsoever);

               (xviii) Letter-of-Credit Rights;

               (xix) Payment Intangibles;

                                      2
<PAGE>

               (xx) Security Entitlements;

               (xxi) Software;

               (xxii) Supporting Obligations;

               (xxiii) Uncertificated Securities; and

               (xxiv) Commercial Tort Claims; and

               (xxv) to the extent not included in the foregoing, all other
          personal property of any kind or description;

together with all books, records, writings, data bases, information and other
property relating to, used or useful in connection with, or evidencing,
embodying, incorporating or referring to any of the foregoing, and all Proceeds,
products, offspring, rents, issues, profits and returns of and from any of the
foregoing; provided, that (a) the grant under this Section 1.1 shall not include
more than 65% of the Securities of any Foreign Subsidiary and (b) the foregoing
shall not include (and the grant, assignment and transfer of a security interest
as provided herein shall not extend to) (i) "intent-to use" trademarks at all
times prior to the first use thereof, whether by the actual use thereof in
commerce, the recording of a statement of use with the United States Patent and
Trademark Office or otherwise or (ii) any General Intangibles or Intellectual
Property which in accordance with applicable licenses or other agreements
applicable thereto terminate or become terminable if a security interest is
granted therein (a "Terminable Intangible"); provided, further, that the
foregoing shall include any and all Accounts, Chattel Paper, Payment Intangibles
and Instruments arising under any and all such Terminable Intangibles.

     1.2.  Other Collateral.

          1.2.1.  Commercial Tort Claims. The Issuer shall promptly notify
     Trustee in writing upon incurring or otherwise obtaining a Commercial
     Tort Claim after the date hereof involving an amount in excess of
     $200,000 against any third party and, upon request of Trustee, promptly
     enter into an amendment to this Agreement and do such other acts or
     things deemed appropriate by Trustee to give Trustee a security interest
     in any such Commercial Tort Claim. The Issuer represents and warrants
     that as of the date of this Agreement, to its knowledge, neither the
     Issuer nor any Guarantor possesses any Commercial Tort Claims.

          1.2.2.  Other Collateral. The Issuer shall promptly notify Trustee in
     writing upon acquiring or otherwise obtaining any Collateral after the
     date hereof consisting of Deposit Accounts, Investment Property,
     Letter-of-Credit Rights or Chattel Paper and, within 10 days after
     request by Trustee, execute such other documents, and do such other acts
     or things deemed appropriate by Trustee to provide to Trustee or its
     agent "control" (within the meaning of the applicable Uniform Commercial
     Code) or possession with respect to such Collateral; including without
     limitation, executing and delivering and causing the relevant depositary
     bank to execute and deliver an Account Control Agreement, promptly notify
     Trustee in writing upon acquiring or otherwise obtaining any Collateral
     after the date hereof consisting of Instruments and, within 10 days after
     request by Trustee, execute such other documents, and do such other acts
     or things deemed appropriate by Trustee to provide Trustee or its agent
     control or possession with respect to such Instruments and with respect
     to Collateral in the possession of a third party, other than Certificated

                                      3
<PAGE>

     Securities and Goods covered by a Document, use its best efforts to
     obtain an acknowledgement from the third party that it is holding the
     Collateral for the benefit of Trustee in addition to the Senior Agent.
     The provisions of this subsection 1.2.2 shall not apply to more than 65%
     of the Securities of any Foreign Subsidiary. Notwithstanding the
     foregoing or any other provision in this Agreement or any other Security
     Document to the contrary, neither this Agreement nor any other Security
     Document shall require a pledge of any of the securities or other
     ownership interests of De Sheng Electric Motor Co., Ltd., upon the
     acquisition of the same.

     1.3.  Lien Perfection; Further Assurances.

     Issuer shall, and at any time and from time to time upon the written
request of the Trustee, the Issuer shall, in each case at the Issuer's
expense, promptly execute such UCC-1 financing statements as are required by
the UCC and such other instruments, assignments or documents as are necessary
to perfect Trustee's Lien upon any of the Collateral and shall take such other
action as may be required to perfect or to continue the perfection of
Trustee's Lien upon the Collateral. Issuer shall pay, or reimburse Trustee
for, all costs and fees of preparing and having filed UCC-1 financing
statements, amendments thereto and other documents, and of taking such other
actions, to perfect and to continue Trustee's Lien on any and all Collateral,
including without limitation the initial perfection thereof. Unless prohibited
by applicable law, the Issuer hereby authorizes Trustee to execute and file
any such financing statement, including, without limitation, financing
statements that indicate the Collateral (i) as all assets of the Issuer or
words of similar effect, or (ii) as being of an equal or lesser scope, or with
greater or lesser detail, than as set forth in Section 1.1, on the Issuer's
behalf. The Issuer also hereby ratifies its authorization for Trustee to have
filed in any jurisdiction any like financing statements or amendments thereto
if filed prior to the date hereof. The parties agree that a carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement and may be filed in any appropriate office in lieu
thereof. At Trustee's request, the Issuer shall also promptly execute or cause
to be executed and shall deliver to Trustee or its agent any and all
documents, instruments and agreements deemed necessary by Trustee, to give
effect to or carry out the terms or intent of the Other Agreements. The
provisions of this Section 1.3 (i) shall not require that any leasehold
mortgages be provided other than upon Trustee's reasonable request therefor
and (ii) shall not apply to the motor vehicles owned by the Issuer to the
extent that the fair market value of the motor vehicles owned by the Issuer
and the Guarantors does not exceed $300,000 in the aggregate.

     1.4.  Lien on Realty.

     The due and punctual payment and performance of the Obligations shall
also be secured by the Lien created by the Mortgages upon all real Property
identified therein. Each Mortgage shall be executed by the Issuer or the
applicable Guarantor, as mortgagor in favor of Trustee. Each Mortgage shall be
duly recorded, at Issuer's expense, in each office where such recording is
required to constitute a fully perfected second Lien (subject only to the Lien
in favor of the Senior Agent) on the real Property covered thereby. The Issuer
shall deliver to Trustee, at Issuer's expense, mortgagee title insurance
policies issued by a title insurance company reasonably satisfactory to

                                      4
<PAGE>

Trustee, which policies shall be in form and substance satisfactory to Trustee
and shall insure a valid second Lien in favor of Trustee (subject only to the
Lien in favor of the Senior Agent), for the benefit of itself and Holders of
the Notes, on the Property covered by each Mortgage, subject only to those
exceptions acceptable to Trustee and its counsel. The Issuer shall deliver to
Trustee such other documents, including, without limitation, as-built survey
prints of the real Property, as Trustee and its counsel may request relating
to the real Property subject to the Mortgages. Trustee agrees that final
survey prints of the real Property existing as of December 14, 2001, and final
title insurance policies reflecting the delivery of such surveys, all in form
or substance reasonably satisfactorily to Trustee, may be delivered to Trustee
within 30 days after the date hereof. Notwithstanding the foregoing provisions
of this Section 1.4, the Issuer may grant a Lien in real Property acquired by
the Issuer after the date hereof to a mortgagee other than Trustee, so long as
(a) the fair market value of such real Property does not exceed (1) $500,000
individually or (2) $1,000,000 in the aggregate, together with all other real
Property owned the Issuer that is not subject to the Lien of a Mortgage and
(b) such Lien granted to a mortgagee other than Trustee secures Indebtedness
that is incurred pursuant to and in accordance with subsection 8.2.3(xiv) of
the Senior Loan Agreement.

     1.5  Subordination.

     Notwithstanding any other provision contained herein, the Lien granted by
the Issuer to the Trustee, and any other rights of the Trustee with respect to
the Collateral, pursuant to this Agreement, or any other document or
instrument, to secure the Obligations shall be (i) subordinate and junior to
priority to the Liens granted to the Senior Agent and the Senior Lenders
pursuant to the Senior Loan Agreement and the other Senior Security Documents
(the "Senior Lender Liens") and (ii) subject to each of the terms and
conditions of the Intercreditor Agreement. Any provisions contained herein
that purport to give the Trustee the right to exercise its judgment, the right
to be satisfied or other similar rights or decision making abilities shall
only be operative after such time as all indebtedness under the Senior Loan
Agreement has been fully and indefeasibly paid in cash and satisfied and all
lending commitments under the Senior Loan Agreement have been terminated. In
addition, the Issuer and the Trustee acknowledge and agree that, to the extent
that any provision hereunder imposes an obligation upon the Issuer that the
Issuer is unable to satisfy due to the satisfaction of its obligations under
the Senior Loan Agreement and the Senior Security Documents, such provision
shall not become operative until all indebtedness under the Senior Loan
Agreement has been fully and indefeasibly paid in cash and satisfied and all
lending commitments under the Senior Loan Agreement have been terminated.

                     SECTION 2. COLLATERAL ADMINISTRATION

     2.1.  General.

          2.1.1.  Location of Collateral. All Collateral, other than Inventory
     in transit and motor vehicles, will at all times be kept by the Issuer or
     one of the Guarantors at one or more of the business locations set forth
     in Exhibit 2.1.1 hereto, as updated by the Issuer providing prior written
     notice to Trustee of any new location.

          2.1.2.  Insurance of Collateral. Issuer shall, and shall cause each
     Guarantor to, maintain and pay for insurance upon all Collateral wherever
     located and with respect to the business of the Issuer and each
     Guarantor, covering casualty, hazard, public liability, workers'
     compensation and such other risks in such amounts and with such insurance
     companies as are reasonably satisfactory to Trustee. The Issuer shall,
     and shall cause each Guarantor to, deliver certified copies of such
     policies to Trustee as promptly as practicable, with satisfactory

                                      5
<PAGE>

     lender's loss payable endorsements, naming Trustee as a loss payee,
     assignee or additional insured, as appropriate, as its interest may
     appear, and showing only such other loss payees, assignees and additional
     insureds as are satisfactory to Trustee. Each policy of insurance or
     endorsement shall contain a clause requiring the insurer to give not less
     than 10 days' prior written notice to Trustee in the event of
     cancellation of the policy for nonpayment of premium and not less than 30
     days' prior written notice to Trustee in the event of cancellation of the
     policy for any other reason whatsoever and a clause specifying that the
     interest of Trustee shall not be impaired or invalidated by any act or
     neglect of the Issuer, any Guarantor or the owner of the Property or by
     the occupation of the premises for purposes more hazardous than are
     permitted by said policy. The Issuer agrees, and shall cause each
     Guarantor to agree, to deliver to Trustee, promptly as rendered, true
     copies of all reports made in any reporting forms to insurance companies.

          Unless Issuer or Guarantors provide Trustee with evidence of the
     insurance coverage required by this Agreement, Trustee may purchase
     insurance at the Issuer's expense to protect Trustee's interests in the
     Properties of the Issuer and Guarantors. This insurance may, but need
     not, protect the interests of the Issuer and each of the Guarantors. The
     coverage that Trustee purchases may not pay any claim that the Issuer or
     any Guarantor makes or any claim that is made against the Issuer or any
     such Guarantor in connection with said Property. The Issuer or Guarantors
     may later cancel any insurance purchased by Trustee, but only after
     providing Trustee with evidence that the Issuer or Guarantors have
     obtained insurance as required by this Agreement. If Trustee purchases
     insurance, the Issuer and Guarantors will be jointly and severally
     responsible for the costs of that insurance, including interest and any
     other charges Trustee may impose in connection with the placement of
     insurance, until the effective date of the cancellation or expiration of
     the insurance. The costs of the insurance may be added to the
     Obligations. The costs of the insurance may be more than the cost of
     insurance that the Issuer and each of the Guarantors may be able to
     obtain on their own.

          2.1.3.  Protection of Collateral. Neither Trustee nor any Holder
     shall be liable or responsible in any way for the safekeeping of any of
     the Collateral or for any loss or damage thereto (except for reasonable
     care in the custody thereof while any Collateral is in Trustee's or any
     Holder's actual possession) or for any diminution in the value thereof,
     or for any act or default of any warehouseman, carrier, forwarding
     agency, or other person whomsoever, but the same shall be at the sole
     risk of Issuer and the Guarantors.

     2.2.  Taxes.

     After such time as all indebtedness under the Senior Loan Agreement has
been fully and indefeasibly paid in cash and satisfied and all lending
commitments under the Senior Loan Agreement have been terminated, if any item
of Collateral becomes subject to charge for any tax payable to any
governmental taxing authority, Trustee is authorized, in its sole discretion,
to pay the amount thereof to the proper taxing authority for the account of
the Issuer and to charge the Issuer therefor, except for taxes that (i) are
being actively contested in good faith and by appropriate proceedings and with
respect to which the Issuer maintains reasonable reserves on its books
therefor and (ii) would not reasonably be expected to result in any Lien other
than a Permitted Lien. In no event shall Trustee or any Holder be liable for
any taxes to any governmental taxing authority that may be due by the Issuer.

                                      6
<PAGE>

     2.3.  Certain Matters Relating to Accounts.

     Trustee shall have the right to make test verifications of the Accounts
of Issuer and Guarantors in any manner and through any medium that it
reasonably considers advisable, provided, that no such test verification
activities shall involve actions or communications with Account Debtor parties
unless and until an Event of Default has occurred and is continuing. Issuer
shall, and shall cause each Guarantor to, furnish all such assistance and
information as Trustee may require in connection with such test verifications.
At any time and from time to time, upon Trustee's request and at the expense
of Issuer, Issuer shall cause independent public accountants or others
satisfactory to Trustee to furnish to Trustee reports showing
reconciliation's, aging and test verifications of, and trial balances for, the
Accounts of Issuer and Guarantors.

     SECTION 3.  REPRESENTATIONS AND WARRANTIES, COVENANTS

     3.1.  General Representations, Warranties and Covenants.

     The Issuer warrants, represents and covenants to Trustee that:

          3.1.1.  Qualification. Issuer and each of the Guarantors is a
     corporation duly organized, validly existing and in good standing under
     the laws of the jurisdiction of its incorporation or organization. The
     Issuer and each Guarantor is duly qualified and is authorized to do
     business and is in good standing as a foreign limited liability company,
     limited partnership or corporation, as applicable, in each state or
     jurisdiction listed on Exhibit 3.1.1 hereto and in all other states and
     jurisdictions in which the failure of the Issuer or any Guarantor to be
     so qualified could reasonably be expected to have a Material Adverse
     Effect.

          3.1.2.  Power and Authority. Issuer and each Guarantor is duly
     authorized and empowered to enter into, execute, deliver and perform this
     Agreement and each of the Other Agreements to which it is a party. The
     execution, delivery and performance of this Agreement and each of the
     Other Agreements have been duly authorized by all necessary corporate or
     other relevant action and do not and will not (i) require any consent or
     approval of the shareholders of the Issuer or any of the shareholders,
     partners or members, as the case may be, of any Guarantor; (ii)
     contravene the Issuer's or any Guarantor's certificate of incorporation;
     (iii) violate, or cause the Issuer or any Guarantor to be in default
     under, any provision of any law, rule, regulation, order, writ, judgment,
     injunction, decree, determination or award in effect having applicability
     to the Issuer or any Guarantor the violation of which could reasonably be
     expected to have a Material Adverse Effect; (iv) result in a breach of or
     constitute a default under any indenture or loan or credit agreement or
     any other agreement, lease or instrument to which the Issuer or any
     Guarantor is a party or by which it or its Properties may be bound or
     affected, including without limitation, the Parent Indenture, the breach
     of or default under which could reasonably be expected to have a Material
     Adverse Effect; or (v) result in, or require, the creation or imposition
     of any Lien (other than Permitted Liens) upon or with respect to any of
     the Properties now owned or hereafter acquired by the Issuer or any
     Guarantor.

                                      7
<PAGE>

          3.1.3.   Legally Enforceable Agreements. This Agreement and each of
     the Other Agreements to which the Issuer and each Guarantor is a party,
     is a legal, valid and binding obligation of the Issuer and each Guarantor
     party thereto, enforceable against the Issuer and each Guarantor in
     accordance with its respective terms.

          3.1.4.   Title to Properties; Priority of Liens. Issuer and each
     Guarantor has indefeasible and marketable title to and fee simple
     ownership of, or valid and subsisting leasehold interests in, all of its
     real Property, and title to all of the Collateral and all of its other
     Property, in each case, free and clear of all Liens except Permitted
     Liens. The Issuer and each Guarantor has paid or discharged each lawful
     claim which, if unpaid, is reasonably likely to become a Lien against any
     of the Issuer's or such Guarantor's Properties that is not a Permitted
     Lien. The Liens granted to Trustee under Section 1 hereof are superior in
     priority to all Liens other than the Senior Lender Liens, subject only to
     Permitted Liens.

          3.1.5.   Organization; Capital Structure. Exhibit 3.1.5 hereto states,
     as of the date hereof, (i) the correct name of Issuer and each of the
     Guarantors, its jurisdiction of incorporation or organization and the
     percentage of its Voting Stock owned by Issuer or other Guarantors, (ii)
     the name of Issuer's and each Guarantor's corporate or joint venture
     relationships and the nature of the relationship, (iii) the number,
     nature and holder of all outstanding Securities of each of Issuer and
     Guarantors and the holder of Securities of each Subsidiary of Issuer and
     Guarantors and (iv) the number of authorized, issued and treasury
     Securities of Issuer and Guarantors. Each of Issuer and Guarantors has
     good title to all of the Securities it purports to own of each of such
     entities, free and clear in each case of any Lien other than Permitted
     Liens. All such Securities have been duly issued and are fully paid and
     non-assessable. As of the date hereof, there are no outstanding options
     to purchase, or any rights or warrants to subscribe for, or any
     commitments or agreements to issue or sell any Securities or obligations
     convertible into, or any powers of attorney relating to any Securities of
     Issuer or any Guarantors. Except as set forth on Exhibit 3.1.5, as of the
     date hereof, there are no outstanding agreements or instruments
     binding upon any of Issuer's or any of its Guarantors'
     partners, members or shareholders, as the case may be, relating to the
     ownership of its Securities.

          3.1.6.   Names; Organization. Neither Issuer nor any Guarantor has
     been known as or has used any legal, fictitious or trade names except
     those listed on Exhibit 3.1.6 hereto. Except as set forth on Exhibit
     3.1.6, neither Issuer nor any Guarantor has been the surviving entity of
     a merger or consolidation or has acquired all or substantially all of the
     assets of any Person. Issuer and each Guarantor's state(s) of
     incorporation or organization, Type of Organization and Organizational
     I.D. Number is set forth on Exhibit 3.1.6. The exact legal name of Issuer
     and each Guarantor is set forth on Exhibit 3.1.6.

                                      8
<PAGE>

          3.1.7.   Business Locations; Agent for Process. Issuer's and each
     Guarantor's chief executive office, location of books and records and
     other places of business are as listed on Exhibit 2.1.1 hereto, as
     updated from time to time by Issuer in accordance with the provisions of
     subsection 2.1.1; provided, that Exhibit 2.1.1 hereto need not include,
     and Trustee need not receive, notice of, up to (i) $5,000 of Inventory
     located at any one location and (ii) $50,000 of Inventory at all
     locations in the aggregate. During the preceding one-year period, neither
     Issuer nor any Guarantor has had an office, place of business or agent
     for service of process, other than as listed on Exhibit 2.1.1. All
     tangible Collateral is and will at all times be kept by Issuer or a
     Guarantor in accordance with subsection 2.1.1. Except as shown on Exhibit
     2.1.1, as of the date hereof, no Inventory is stored with a bailee,
     distributor, warehouseman or similar party, nor is any Inventory
     consigned to any Person.

          3.1.8.   Accounts. Trustee may rely, in determining which Accounts
     constitute Accounts that represent Collateral, on all statements and
     representations made by the Issuer and the Guarantors with respect to any
     Account or Accounts. With respect to each of the Accounts of Issuer and
     the Guarantors, unless otherwise disclosed to Trustee in writing:

               (i) It is genuine and in all respects what it purports to be,
          and it is not evidenced by a judgment;

               (ii) It arises out of a completed, bona fide sale and delivery
          of goods or rendition of services by the Issuer and the Guarantors,
          in the ordinary course of its business and in accordance with the
          terms and conditions of all purchase orders, contracts or other
          documents relating thereto and forming a part of the contract
          between the Issuer and the Guarantors and the Account Debtor;

               (iii) It is for a liquidated amount maturing as stated in the
          duplicate invoice covering such sale or rendition of services, a
          copy of which has been furnished or is available to Trustee;

               (iv) To the best of the Issuer's knowledge, there are no facts,
          events or occurrences which in any way impair the validity or
          enforceability of any Accounts or tend to reduce the amount payable
          thereunder from the face amount of the invoice and statements
          delivered or made available to Trustee with respect thereto;

               (v) To the best of the Issuer's knowledge, the Account Debtor
          thereunder (1) had the capacity to contract at the time any contract
          or other document giving rise to the Account was executed and (2)
          such Account Debtor is Solvent; and

               (vi) To the best of the Issuer's knowledge, there are no
          proceedings or actions which are threatened or pending against the
          Account Debtor thereunder which might result in any material adverse
          change in such Account Debtor's financial condition or the
          collectibility of such Account.

                                      9
<PAGE>

          3.1.9.   Equipment. The Equipment of Issuer and each Guarantor is in
     good operating condition and repair, and all necessary replacements of
     and repairs thereto shall be made so that the operating efficiency
     thereof shall be maintained and preserved, reasonable wear and tear
     excepted. The Issuer will not permit any of its Equipment or any
     Guarantor's Equipment to become affixed to any real Property leased to
     the Issuer or a Guarantor so that an interest arises therein under the
     real estate laws of the applicable jurisdiction unless the landlord of
     such real Property has executed a landlord waiver or leasehold mortgage
     in favor of and in form reasonably acceptable to Trustee, and the Issuer
     will not permit any of its Equipment to become an accession to any
     personal Property other than Collateral Equipment that is subject to
     second priority (except for Permitted Liens) Liens in favor of Trustee.

          3.1.10.   Patents, Trademarks, Copyrights and Licenses. Issuer and
     each Guarantor owns, possesses or licenses or has the right to use all
     the patents, trademarks, service marks, trade names, copyrights, licenses
     and other Intellectual Property necessary for the present and planned
     future conduct of its business without any known conflict with the rights
     of others, except for such conflicts as could not reasonably be expected
     to have a Material Adverse Effect. All such patents, trademarks, service
     marks, tradenames, copyrights, licenses, and other similar rights are
     listed on Exhibit 3.1.10 hereto. No claim has been asserted to Issuer or
     any Guarantor which is currently pending that their use of their
     Intellectual Property or the conduct of their business does or may
     infringe upon the Intellectual Property rights of any third party. To the
     knowledge of Issuer and except as set forth on Exhibit 3.l.10 hereto, as
     of the date hereof, no Person is engaging in any activity that infringes
     in any material respect upon the Issuer's or any Guarantor's material
     Intellectual Property. Except as set forth on Exhibit 3.1.10, Issuer's
     and each Guarantor's material trademarks, service marks, and copyrights
     are registered with the U.S. Patent and Trademark Office or in the U.S.
     Copyright Office, as applicable. In addition, except as set forth on
     Exhibit 3.1.10, Issuer's and each Guarantor's material license agreements
     and similar arrangements relating to its Inventory (1) permits, and does
     not restrict, the assignment by Issuer or any Guarantor to Trustee, or
     any other Person designated by Trustee, of all of Issuer's or such
     Guarantor's, as applicable, rights, title and interest pertaining to such
     license agreement or such similar arrangement and (2) would permit the
     continued use by Issuer or such Guarantor, or Trustee or its assignee, of
     such license agreement or such similar arrangement and the right to sell
     Inventory subject to such license agreement for a period of no less than
     6 months after a default or breach of such agreement or arrangement, in
     each case to the extent that the failure to permit the same could not
     reasonably be expected to have a Material Adverse Affect. The
     consummation and performance of the transactions and actions contemplated
     by this Agreement and the Other Documents, including without limitation,
     the exercise by Trustee of any of its rights or remedies under Section 4,
     will not result in the termination or impairment of any of Issuer's or
     any Guarantor's ownership or rights relating to its Intellectual
     Property, except for such Intellectual Property rights the loss or
     impairment of which could not reasonably be expected to have a Material
     Adverse Effect. Except as listed on Exhibit 3.1.10 and except as could
     not reasonably be expected to have a Material Adverse Effect, (i) neither
     Issuer nor any Guarantor is in breach of, or default under, any term of
     any license or sublicense with respect to any of its Intellectual
     Property and (ii) to the knowledge of Issuer, no other party to such
     license or sublicense is in breach thereof or default thereunder, and
     such license is valid and enforceable.

                                      10
<PAGE>
     3.2.  Reimbursement of Expenses

     If, at any time or times regardless of whether or not an Event of Default
then exists, (i) Trustee incurs legal or accounting expenses or any other
costs or out-of-pocket expenses in connection with (1) the negotiation and
preparation of this Agreement or any of the Other Agreements, any amendment of
or modification of this Agreement or any of the Other Agreements, or (2) the
administration of this Agreement or any of the Other Agreements and the
transactions contemplated hereby and thereby; or (ii) Trustee incurs legal or
accounting expenses or any other costs or out-of-pocket expenses in connection
with (1) any litigation, contest, suit, proceeding or action (whether
instituted by Trustee, any Holder, the Issuer or any other Person) relating to
the Collateral, this Agreement or any of the Other Agreements or the Issuer's
or any Guarantor's affairs; (2) any attempt to enforce any rights of Trustee
or any Holder against the Issuer or any other Person which may be obligated to
Trustee or any Holder by virtue of this Agreement or any of the Other
Agreements, including, without limitation, the Account Debtors; or (3) any
attempt to inspect, verify, protect, preserve, restore, collect, sell,
liquidate or otherwise dispose of or realize upon the Collateral; then all
such legal and accounting expenses, other costs and out of pocket expenses of
Trustee as shall be charged to the Issuer; provided, that (a) if an Event of
Default does not then exist, the Issuer shall only be responsible for such
expenses, costs and out-of-pocket expenses to the extent that the same are
reasonable and (b) the Issuer shall be responsible for such expenses, costs
and out-of-pocket expenses to the extent incurred because of the gross
negligence or willful misconduct of Trustee. All amounts chargeable to the
Issuer under this Section 3.2 shall be Obligations secured by all of the
Collateral, shall be payable to Trustee on the earlier of 15 days after demand
therefor or, in the case of expenses billed to Trustee by a third party, the
due date thereof, and shall bear interest from the date due hereunder until
paid in full at the rate of 12% per annum.

     3.3.  Collateral Protection Expenses; Appraisals.

     All out-of-pocket expenses incurred in protecting, storing, warehousing,
insuring, handling, maintaining and shipping the Collateral, and any and all
excise, property, sales, and use taxes imposed by any state, federal, or local
authority on any of the Collateral or in respect of the sale thereof shall be
paid by the Issuer. If the Issuer fails to promptly pay any portion thereof
when due, Trustee may, at its option, but shall not be required to, pay the
same and charge the Issuer therefor. Additionally, from time to time after all
indebtedness under the Senior Loan Agreement has been fully and indefeasibly
paid and satisfied and all lending commitments under the Senior Loan Agreement
have been terminated, Trustee may, at the Issuer's expense, obtain appraisals
from appraisers (who may be personnel of Trustee), stating the then current
fair market value of all or any portion of the real estate or personal
property of the Issuer or any Guarantor, including without limitation the
Inventory of the Issuer or any Guarantor.

                                      11
<PAGE>

     3.4.  No Deductions.

     Any and all payments or reimbursements made hereunder shall be made free
and clear of and without deduction for any and all taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto;
excluding, however, the following: taxes imposed on the income of Trustee or
any Holder or franchise taxes by the jurisdiction under the laws of which
Trustee or any Holder is organized or doing business or any political
subdivision thereof and taxes imposed on its income by the jurisdiction of
Trustee's or such Holder's applicable lending office or any political
subdivision thereof or franchise taxes (all such taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto
excluding such taxes imposed on net income, herein "Tax Liabilities").

     3.5.  Affirmative Covenants.

     For so long as any Obligations are outstanding, Issuer covenants that it
shall:

          3.5.1.   Visits and Inspections; Holder Meeting. Permit and cause each
     Guarantor to permit Trustee and/or representatives of Trustee, and during
     the continuation of any Default or Event of Default any Holder, from time
     to time, as often as may be reasonably requested, but only during normal
     business hours, to visit and inspect the Properties of Issuer and each
     Guarantor, inspect, audit and at the Issuer's expense, make extracts or
     copies from its books and records, and discuss with its officers, its
     employees and its independent accountants, the Issuer's and each
     Guarantor's business, assets, liabilities, financial condition, business
     prospects and results of operations; provided that so long as no Default
     or Event of Default exists, Trustee and each Holder shall provide Issuer
     and each Guarantor with at least two days' prior notice of any
     inspection, audit or discussion between such Person and Issuer's and each
     Guarantor's independent accountants. Without limiting the foregoing,
     Issuer shall, and shall cause each Guarantor to, participate and shall
     cause their key management personnel to participate in a meeting with
     Trustee and Holders periodically, which meeting(s) shall be held at such
     times and such places as may be reasonably requested by Trustee.

          3.5.2.   Landlord, Processor and Storage Agreements. Provide Trustee
     with copies of all agreements between Issuer or any Guarantor and any
     landlord, processor, distributor, warehouseman or consignee which owns
     any premises at which any Collateral may, from time to time, be kept.

          3.5.3.   Maintenance of Perfected Security Interest. The Issuer shall,
     and shall cause each Guarantor to, maintain the security interest created
     by this Agreement or any Guarantor Security Agreement as the case may be,
     as a second priority security interest (or a first priority security
     interest after the Senior Lender Liens have been terminated) subject only
     to Permitted Liens, and shall defend such security interest against the
     claims and demands of all Persons whomsoever.

          3.5.4.   Restricted Subsidiaries. Issuer shall cause each domestic
     Restricted Subsidiary hereafter in existence, that did not execute the
     Indentures as a Guarantor, to execute and deliver supplemental indentures
     to the Indentures, a Guarantor Security Agreement and, if applicable, a

                                      12
<PAGE>

     Copyright, Patent, Trademarks and License Mortgage pursuant to which such
     domestic Restricted Subsidiary guaranties the payment and performance of
     the Obligations and grants to Trustee a second priority (or first
     priority if the Senior Lender Liens have terminated) Lien, subject only
     to Permitted Liens, on all of its Properties of the types described in
     Section 1 hereto. Additionally, the appropriate Person shall execute and
     deliver to Trustee a Pledge Agreement pursuant to which the Trustee is
     granted a valid, second priority (or first priority if the Senior Lender
     Liens have terminated) Lien, subject only to Permitted Liens, with
     respect to all of the issued and outstanding Securities of each such
     Restricted Subsidiary.

     3.6.  Negative Covenants.

          For so long as there are any Obligations outstanding, Issuer
     covenants that it shall not:

          3.6.1.   Matters Relating to Parent Indenture.

               (i) Become, or permit any Guarantor to become, a
          "Non-Restricted Subsidiary" under and as defined in the Parent
          Indenture; or

               (ii) Provide, or permit any Guarantor to provide, a guarantee
          in respect of the Parent Senior Notes pursuant to subsection 4.15 of
          the Parent Indenture.

          3.6.2.   Structural Changes. Change its, or permit any Guarantor to
     change its, state of incorporation or organization, Type of Organization
     or Organizational I.D. Number; nor change its or permit any Guarantor to
     change its legal name, in each case without providing 30 days' prior
     written notice thereof to Trustee.

     3.7.  Intangible Collateral. Issuer represents and warrants, and covenants
and agrees, that its, and each Guarantor's, General Intangibles and
Intellectual Property constituting Terminable Intangibles are not, and will
not at any time be, material to the business or operations of the Issuer and
the Guarantors taken as a whole.

                  SECTION 4. RIGHTS AND REMEDIES ON DEFAULT

     4.1.  Remedies.

     Upon the occurrence and during the continuance of an Event of Default,
Trustee shall have and may exercise from time to time the following other
rights and remedies (subject in each case to the terms of the Intercreditor
Agreement and Section 1.5 hereof):

          4.1.1.  All of the rights and remedies of a secured party under the
     UCC or under other applicable law, and all other legal and equitable
     rights to which Trustee may be entitled, all of which rights and remedies
     shall be cumulative and shall be in addition to any other rights or
     remedies contained in this Agreement or any of the Other Agreements, and
     none of which shall be exclusive.

                                      13
<PAGE>

          4.1.2.   The right to take immediate possession of the Collateral, and
     to (i) require the Issuer and each of the Guarantors to assemble the
     Collateral, at the Issuer's expense, and make it available to Trustee at
     a place designated by Trustee which is reasonably convenient to both
     parties, and (ii) enter any premises where any of the Collateral shall be
     located and to keep and store the Collateral on said premises until sold
     (and if said premises be the Property of the Issuer or the Guarantors,
     the Issuer agrees not to charge, or permit any Guarantor to charge,
     Trustee for storage thereof).

          4.1.3.   The right to sell or otherwise dispose of all or any
     Collateral in its then condition, or after any further manufacturing or
     processing thereof, at public or private sale or sales, with such notice
     as may be required by law, in lots or in bulk, for cash or on credit, all
     as Trustee, in its sole discretion, may deem advisable. Trustee may, at
     Trustee's option, disclaim any and all warranties regarding the
     Collateral in connection with any such sale. The Issuer agrees that 10
     days' written notice to it or any of the Guarantors of any public or
     private sale or other disposition of Collateral shall be reasonable
     notice thereof, and such sale shall be at such locations as Trustee may
     designate in said notice. Trustee shall have the right to conduct such
     sales on the Issuer's or any Guarantor's premises, without charge
     therefor, and such sales may be adjourned from time to time in accordance
     with applicable law. Trustee shall have the right to sell, lease or
     otherwise dispose of the Collateral, or any part thereof, for cash,
     credit or any combination thereof, and Trustee, on behalf of the Holders,
     may purchase all or any part of the Collateral at public or, if permitted
     by law, private sale and, in lieu of actual payment of such purchase
     price, may set off the amount of such price against the Obligations. The
     proceeds realized from the sale of any Collateral may be applied, after
     allowing 2 Business Days for collection (provided, that amounts received
     in immediately available funds shall be credited upon receipt thereof),
     first to the costs, expenses and attorneys' fees incurred by Trustee in
     collecting the Obligations, in enforcing the rights of Trustee and
     Holders under the Other Agreements and in collecting, retaking,
     completing, protecting, removing, storing, advertising for sale, selling
     and delivering any Collateral, second to the interest due upon any of the
     Obligations; and third, to the principal of the Obligations. If any
     deficiency shall arise, the Issuer and each Guarantor shall remain
     jointly and severally liable to Trustee therefor.

          4.1.4.   Trustee is hereby granted a license or other right to use,
     without charge, the Issuer's and each Guarantor's labels, patents,
     copyrights, licenses, rights of use of any name, trade secrets,
     tradenames, trademarks and advertising matter, or any Property of a
     similar nature, as it pertains to the Collateral, in completing,
     advertising for sale and selling any Collateral and the Issuer's and each
     Guarantor's rights under all licenses and all franchise agreements shall
     inure to Trustee's benefit.

          4.1.5.   At Trustee's request, Issuer shall deliver, and shall cause
     each Guarantor to deliver, to Trustee all original and other documents
     evidencing, and relating to, the agreements and transactions which gave
     rise to the Accounts, including, without limitation, all original orders,
     invoices and shipping receipts. Trustee in its own name or in the name of
     others may communicate with Account Debtors under the Accounts to verify
     with them to Trustee's satisfaction the existence, amount and terms of

                                      14
<PAGE>

     any Accounts. Upon the request of Trustee at any time, Issuer shall
     notify Account Debtors on the Accounts that the Accounts have been
     assigned to Trustee and that payments in respect thereof shall be made
     directly to Trustee. Anything herein to the contrary notwithstanding,
     Issuer shall remain liable under each of the Accounts to observe and
     perform all the conditions and obligations to be observed and performed
     by it thereunder, all in accordance with the terms of any agreement
     giving rise thereto. Neither the Trustee nor any Holder shall have any
     obligation or liability under any Account (or any agreement giving rise
     thereto) by reason of or arising out of this Agreement or the receipt by
     Trustee or any Holder of any payment relating thereto, nor shall Trustee
     or any Holder be obligated in any manner to perform any of the
     obligations of Issuer under or pursuant to any Account (or any agreement
     giving rise thereto), to make any payment, to make any inquiry as to the
     nature or the sufficiency of any payment received by it or as to the
     sufficiency of any performance by any party thereunder, to present or
     file any claim, to take any action to enforce any performance or to
     collect the payment of any amounts which may have been assigned to it or
     to which it may be entitled at any time or times. Any payments of
     Accounts, when collected by Issuer ("Proceeds of Accounts"), consisting
     of cash, cash equivalents, checks and other near-cash items, shall be
     held by Issuer in trust for Trustee, segregated from other funds of
     Issuer, and shall, forthwith upon receipt by such Issuer (and, in any
     event within two Business Days) be turned over to Trustee in the exact
     form received by Issuer, (duly endorsed by such Issuer to Trustee, if
     required), and deposited in any account that is subject to an Account
     Control Agreement maintained under sole dominion and control of Trustee.
     Each such deposit of Proceeds of Accounts shall be accompanied by a
     report identifying in reasonable detail the nature and source of payments
     included in the deposit. All Proceeds of Accounts while held by the
     Trustee (or by such Issuer in trust for Trustee) shall continue to be
     held as collateral security for all the Obligations and shall not
     constitute payment thereof until so applied as provided in Section 4.1.3.

     4.2.  Set Off and Sharing of Payments.

     Subject to the terms of the Intercreditor Agreement and Section 1.5
hereof, in addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, during the continuance of
any Event of Default, Trustee is hereby authorized by the Issuer at any time
or from time to time, with reasonably prompt subsequent notice to the Issuer
(any prior or contemporaneous notice to the Issuer being hereby expressly
waived) to set off and to appropriate and to apply any and all (i) balances
held by Trustee at any of its offices for the account of the Issuer
(regardless of whether such balances are then due to the Issuer), and (ii)
other property at any time held or owing by Trustee to or for the credit or
for the account of the Issuer, against and on account of any of the
Obligations.

     4.3.  Remedies Cumulative; No Waiver.

     All covenants, conditions, provisions, warranties, guaranties,
indemnities, and other undertakings of the Issuer and/or the Guarantors
contained in this Agreement and the Other Agreements, or in any document
referred to herein or contained in any agreement supplementary hereto or in
any schedule given to the Trustee or any Holder or contained in any other
agreement between Trustee and the Issuer and/or the Guarantors heretofore,
concurrently, or hereafter entered into, shall be deemed cumulative to and not

                                      15
<PAGE>

in derogation or substitution of any of the terms, covenants, conditions, or
agreements of the Issuer herein contained. The failure or delay of Trustee to
require strict performance by the Issuer of any provision of this Agreement or
any Other Agreement or to exercise or enforce any rights, Liens, powers, or
remedies hereunder or under any of the aforesaid agreements or other documents
or security or Collateral shall not operate as a waiver of such performance,
Liens, rights, powers and remedies, but all such requirements, Liens, rights,
powers, and remedies shall continue in full force and effect until all
Obligations owing or to become owing from the Issuer to Trustee and each
Holder have been fully satisfied. None of the undertakings, agreements,
warranties, covenants and representations of the Issuer and/or the Guarantors
contained in this Agreement or any of the Other Agreements and no Default or
Event of Default by the Issuer under this Agreement or any Other Agreements
shall be deemed to have been suspended or waived by Majority Holders, unless
such suspension or waiver is by an instrument in writing specifying such
suspension or waiver and is signed by a duly authorized representative of
Trustee and directed to the Issuer.

                            SECTION 5. THE TRUSTEE

     5.1.  Authorization and Action.

     By purchase or acceptance of any Note, each Holder appoints and
authorizes Trustee to take such action on its behalf and to exercise such
powers under this Agreement and the Security Documents as are delegated to
Trustee by the terms hereof and thereof, together with such powers as are
reasonably incidental thereto. Each Holder hereby acknowledges that Trustee
shall not have by reason of this Agreement assumed a fiduciary relationship in
respect of any Holder. Upon the effective appointment of a successor Trustee
under the Indentures, such successor Trustee shall succeed to the rights,
powers, and duties of Trustee under this Agreement and all Other Agreements,
and the term "Trustee" shall mean such successor effective upon its
appointment. In performing its functions and duties under this Agreement and
the Security Documents, Trustee shall act solely as agent of Holders and shall
not assume, or be deemed to have assumed, any obligation toward, or
relationship of agency or trust with or for, any Holder. As to any matters not
expressly provided for by this Agreement, the Security Documents, Trustee may,
but shall not be required to, exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of the
Majority Holders, whenever such instruction shall be requested by Trustee or
required hereunder, or a greater or lesser number of Holders if so required
hereunder, and such instructions shall be binding upon all Holders; provided,
that Trustee shall be fully justified in failing or refusing to take any
action which exposes Trustee to any liability or which is contrary to this
Agreement and the Security Documents, the Other Agreements or applicable law,
unless Trustee is indemnified to its satisfaction by the Holders against any
and all liability and expense which it may incur by reason of taking or
continuing to take any such action. If Trustee seeks the consent or approval
of the Majority Holders (or a greater or lesser number of Holders as required
in this Agreement or any Security Document), with respect to any action
hereunder or thereunder, Trustee shall send notice thereof to each Holder and
shall notify each Holder at any time that the Majority Holders (or such
greater or lesser number of Holders) have instructed Trustee to act or refrain
from acting pursuant hereto.

                                      16
<PAGE>

     5.2.  Trustee's Reliance, Etc.

     Neither Trustee, any Affiliate of Trustee, nor any of their respective
directors, officers, agents or employees shall be liable for any action taken
or omitted to be taken by it or them under or in connection with this
Agreement or the Other Agreements, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, Trustee: (i) may consult with legal counsel, independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts, (ii) makes no warranties or
representations to any Holder and shall not be responsible to any Holder for
any recitals, statements, warranties or representations made in or in
connection with this Agreement or any Other Agreements; (iii) shall not have
any duty beyond Trustee's customary practices in respect of acting as Trustee
in similar transactions, to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement or
the Other Agreements on the part of the Issuer, to inspect the property
(including the books and records) of the Issuer, to monitor the financial
condition of the Issuer or to ascertain the existence or possible existence or
continuation of any Default or Event of Default; (iv) shall not be responsible
to any Holder for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or the Other Agreements or
any other instrument or document furnished pursuant hereto or thereto; (v)
shall incur no liability under or in respect of this Agreement or the Other
Agreements by acting upon any notice, consent, certificate, message or other
instrument or writing (which may be by telephone, facsimile, telegram, cable
or telex) believed in good faith by it to be genuine and signed or sent by the
proper party or parties; and (vi) may assume that no Event of Default has
occurred and is continuing, unless Trustee has actual knowledge of the Event
of Default, has received notice from the Issuer or any Guarantor or the
Issuer's or any Guarantor's independent certified public accountants stating
the nature of the Event of Default, or has received notice from a Holder
stating the nature of the Event of Default and that such Holder considers the
Event of Default to have occurred and to be continuing.

     5.3.  Amendment.

     No amendment, modification or supplement or waiver of any provision of
this Agreement nor consent to any departure by Trustee therefrom, shall in any
event be effective unless the same shall be in writing and signed by Trustee
and the Issuer, and approved or consented to by the Majority Holders and then
such amendment, modification or supplement or such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, that no amendment, modification, supplement, waiver or
consent shall be effective, unless in writing and signed by each Holder, do
any of the following: (1) amend any provision of this Agreement that requires
the consent of all Holders or consent to or waive any breach thereof, (2)
amend the definition of the term "Majority Holders", (3) amend this Section
5.3 or (4) release any substantial portion of the Collateral. If a fee is to
be paid by Issuer in connection with any waiver or amendment hereunder, the
agreement evidencing such amendment or waiver may provide that only Holders
executing such agreement by a specified date may share in such fee (and in
such case, such fee shall be divided among the applicable Holders on a pro
rata basis without including the interests of any Holders who have not timely
executed such agreement).

                                      17
<PAGE>

                           SECTION 6. MISCELLANEOUS

     6.1.  Power of Attorney.

     Subject to the terms of the Intercreditor Agreement and Section 1.5
hereof, the Issuer hereby irrevocably designates, makes, constitutes and
appoints Trustee (and all Persons designated by Trustee) as the Issuer's true
and lawful attorney (and agent-in-fact), solely with respect to the matters
set forth in this Section 6.1, and Trustee, or Trustee's agent, may, without
notice to the Issuer and in the Issuer's or Trustee's name, but at the cost
and expense of the Issuer:

          6.1.1.   At such time or times upon or after the occurrence and during
     the continuance of an Event of Default, and subject to the terms of the
     Intercreditor Agreement and Section 1.5 hereof, as Trustee in its sole
     discretion, may determine, endorse Issuer's name on any checks, notes,
     acceptances, drafts, money orders or other evidence of payment or
     proceeds of collateral that come into possession or control of Trustee.

          6.1.2.   At such time or times upon or after the occurrence and during
     the continuance of an Event of Default, and subject to the terms of the
     Intercreditor Agreement and Section 1.5 hereof, as Trustee or its agent
     in its sole discretion may determine: (i) demand payment of the Accounts
     from the Account Debtors, enforce payment of the Accounts by legal
     proceedings or otherwise, and generally exercise all of the Issuer's
     rights and remedies with respect to the collection of the Accounts; (ii)
     settle, adjust, compromise, discharge or release any of the Accounts or
     other Collateral or any legal proceedings brought to collect any of the
     Accounts or other Collateral; (iii) sell or assign any of the Accounts
     and other Collateral upon such terms, for such amounts and at such time
     or times as Trustee deems advisable, and at Trustee's option, with all
     warranties regarding the Collateral disclaimed; (iv) take control, in any
     manner, of any item of payment or proceeds relating to any Collateral;
     (v) prepare, file and sign the Issuer's name to a proof of claim in
     bankruptcy or similar document against any Account Debtor or to any
     notice of lien, assignment or satisfaction of lien or similar document in
     connection with any of the Collateral; (vi) receive, open and dispose of
     all mail addressed to the Issuer whether or not relating to its Accounts
     that comes into Trustee's possession and notify the postal authorities to
     change the address for mail delivery to Issuer to such address as Trustee
     may designate; (vii) endorse the name of the Issuer upon any of the items
     of payment or proceeds relating to any Collateral and deposit the same to
     the account of Trustee on account of the Obligations; (viii) endorse the
     name of the Issuer upon any chattel paper, document, instrument, invoice,
     freight bill, bill of lading or similar document or agreement relating to
     the Accounts, Inventory and any other Collateral; (ix) use the Issuer's
     stationery and sign the name of the Issuer to verifications of the
     Accounts and notices thereof to Account Debtors; (x) use the information
     recorded on or contained in any data processing equipment and Computer
     Hardware and Software relating to the Accounts, Inventory, Equipment and
     any other Collateral; (xi) make and adjust claims under policies of
     insurance; and (xii) do all other acts and things necessary, in Trustee's
     determination, to fulfill the Issuer's obligations under this Agreement.

                                      18
<PAGE>

     The power of attorney granted hereby shall constitute a power coupled
with an interest and shall be irrevocable.

     6.2.  Indemnity.

     The Issuer hereby agrees to indemnify Trustee (and each of its
Affiliates) and hold Trustee (and each of its Affiliates) harmless from and
against any liability, loss, damage, suit, action or proceeding ever suffered
or incurred by any such Person (including reasonable attorneys fees and legal
expenses) as the result of the Issuer's failure to observe, perform or
discharge the Issuer's duties hereunder. In addition, the Issuer shall defend
Trustee (and its Affiliates) against and save it harmless from all claims of
any Person with respect to the Collateral (except those resulting from the
gross negligence or intentional misconduct of any such Person). Without
limiting the generality of the foregoing, these indemnities shall extend to
any claims asserted against Trustee or any Holder (and each of their
Affiliates) by any Person under any Environmental Laws by reason of the
Issuer's or any other Person's failure to comply with laws applicable to solid
or hazardous waste materials or other toxic substances. Notwithstanding any
contrary provision in this Agreement, the obligation of the Issuer under this
Section 6.2 shall survive the payment in full of the Obligations and the
termination of this Agreement.

     6.3.  Severability.

     Wherever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.

     6.4.  Successors and Assigns.

     This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Issuer and the Trustee.

     6.5.  Cumulative Effect; Conflict of Terms.

     The provisions of the Other Agreements are hereby made cumulative with
the provisions of this Agreement. Except as otherwise provided in any of the
Other Agreements by specific reference to the applicable provision of this
Agreement, if any provision contained in this Agreement is in direct conflict
with, or inconsistent with, any provision in any of the Other Agreements, the
provision contained in this Agreement shall govern and control.

     6.6.  Execution in Counterparts.

     This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts taken together shall constitute but one and the same instrument.

                                      19
<PAGE>

     6.7.  Notice.

     Except as otherwise provided herein, all notices, requests and demands to
or upon a party hereto, to be effective, shall be in writing, return receipt
requested, by personal delivery against receipt, by overnight courier or by
facsimile and, unless otherwise expressly provided herein, shall be deemed to
have been validly served, given, delivered or received immediately when
delivered against receipt, one Business Day after deposit with an overnight
courier or, in the case of facsimile notice, when sent, addressed as set forth
in the Indenture.

     6.8.  Consent.

     Whenever Trustee's, Majority Holders' or all Holders' consent is required
to be obtained under this Agreement, any of the Other Agreements or any of the
Security Documents as a condition to any action, inaction, condition or event,
except as otherwise specifically provided herein, Trustee, Majority Holders or
all Holders, as applicable, shall be authorized to give or withhold such
consent in their sole and absolute discretion and to condition its consent
upon the giving of additional Collateral security for the Obligations, the
payment of money or any other matter.

     6.9.   Time of Essence.

     Time is of the essence of this Agreement, the Other Agreements and the
Security Documents.

     6.10.  Entire Agreement.

     This Agreement and the Other Agreements, together with all other
instruments, agreements and certificates executed by the parties in connection
therewith or with reference thereto, embody the entire understanding and
agreement between the parties hereto and thereto with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings
and inducements, whether express or implied, oral or written.

     6.11.  Interpretation.

     No provision of this Agreement or any of the Other Agreements shall be
construed against or interpreted to the disadvantage of any party hereto by
any court or other governmental or judicial authority by reason of such party
having or being deemed to have structured or dictated such provision.

     6.12.  Confidentiality.

     Trustee shall hold all nonpublic information obtained pursuant to the
requirements of this Agreement in accordance with Trustee's customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure reasonably required by a Noteholder or prospective Noteholder in
connection with the contemplated participation or assignment or as required or
requested by any governmental authority or representative thereof or pursuant
to legal process.

                                      20
<PAGE>

     6.13.  GOVERNING LAW.

     THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT IF ANY OF THE
COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN NEW YORK, THE LAWS
OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR
FORECLOSURE OF TRUSTEE'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF
TRUSTEE'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE
LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF
NEW YORK. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS
OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF THE
ISSUER, OR TRUSTEE. THE ISSUER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO THE ISSUER AT THE ADDRESS SET FORTH IN THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER
OF THE ISSUER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO AFFECT THE RIGHT OF TRUSTEE OR ANY HOLDER TO SERVE LEGAL PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY TRUSTEE
OR ANY HOLDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF
ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM
OR JURISDICTION.

     6.14.  WAIVERS BY THE ISSUER.

     THE ISSUER WAIVES (i) THE RIGHT TO TRIAL BY JURY (WHICH TRUSTEE HEREBY
ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND
ARISING OUT OF OR RELATED TO ANY OF THE SECURITY DOCUMENTS, THE OBLIGATIONS OR
THE COLLATERAL; (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF
PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE,
SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS,
CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY
TIME HELD BY TRUSTEE, TRUSTEE'S AGENT OR ANY HOLDER ON WHICH THE ISSUER MAY IN
ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER TRUSTEE OR
TRUSTEE'S AGENT OR ANY HOLDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO
TRUSTEE'S OR TRUSTEE'S AGENT TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR
ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING
TRUSTEE TO EXERCISE ANY OF TRUSTEE'S REMEDIES; (iv) THE BENEFIT OF ALL
VALUATION, APPRAISEMENT AND EXEMPTION LAWS; (v) NOTICE OF ACCEPTANCE HEREOF
AND (vi) EXCEPT AS PROHIBITED BY LAW, ANY RIGHT TO CLAIM OR RECOVER ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER
THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE ISSUER ACKNOWLEDGES THAT THE
FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO TRUSTEE ENTERING INTO THIS
AGREEMENT AND THAT TRUSTEE IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE
DEALINGS WITH THE ISSUER. THE ISSUER WARRANTS AND REPRESENTS THAT IT HAS
REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND
VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.

     6.15.  Term of Agreement.

     This Agreement shall be in full force and effect for a term commencing
on the date hereof and continuing until all Obligations have been paid in full
and the Indentures shall be fully discharged. Upon payment in full of the
Obligations and the discharge of the Indenture, the Liens provided for hereunder
shall terminate and all rights to the Collateral shall revert to the Issuer. The
Trustee agrees that, upon such termination of the Liens hereunder, the Trustee
shall, at the Issuer's expense, execute and deliver to the Issuer such documents
as the Issuer shall reasonably request to evidence the termination of such
Liens.

     6.16.  Reinstatement. This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any amount received by Trustee
in respect of the Obligations is rescinded or must otherwise be restored or
returned by Trustee upon the insolvency, bankruptcy, dissolution, liquidation
or reorganization of Issuer or upon the appointment of any intervenor or
conservator of, or trustee or similar official for, Issuer or any substantial
part of its assets; or otherwise, all as though such payments had not been
made.

                                      21
<PAGE>

         IN WITNESS WHEREOF, this Agreement has been duly executed on the day
and year specified at the beginning of this Agreement.

                             KINETEK INDUSTRIES, INC.

                             By    /s/ Gordon L. Nelson, Jr.
                                   --------------------------------------
                             Its   Vice President
                                   --------------------------------------

                             U.S. BANK NATIONAL ASSOCIATION, as Trustee

                             By   /s/ Richard H. Prokosch
                                 ----------------------------------------
                             Its  Vice President
                                 ----------------------------------------

                                      22
<PAGE>

                                  APPENDIX A

                              GENERAL DEFINITIONS

          When used in the Security Agreement dated as of April 12,
2002, by and among U.S. BANK NATIONAL ASSOCIATION, as Trustee and KINETEK
INDUSTRIES, INC., (a) the terms Account, Certificated Security, Chattel Paper,
Commercial Tort Claims, Deposit Account, Document, Electronic Chattel Paler,
Equipment, Financial Asset, Fixture, General Intangibles, Goods, Instruments,
Inventory, Investment Property, Letter-of-Credit Rights, Payment Intangibles,
Proceeds, Security, Security Entitlement, Software, Supporting Obligations,
Tangible Chattel Paper and Uncertificated Security have the respective meanings
assigned thereto under the UCC; (b) all terms reflecting Collateral having the
meanings assigned thereto under the UCC shall be deemed to mean such Property,
whether now owned or hereafter created or acquired by the Issuer or in which the
Issuer now has or hereafter acquires any interest; (c) capitalized terms which
are not otherwise defined have the respective meanings assigned thereto in said
Security Agreement; and (d) the following terms shall have the following
meanings (terms defined in the singular to have the same meaning when used in
the plural and vice versa):

          Account Control Agreement - an account control agreement reasonably
     satisfactory to the Trustee. For the avoidance of doubt, such account
     control agreement shall provide the Trustee with "control" of a deposit
     account within the meaning of the applicable Uniform Commercial Code,
     subject to the terms of the Intercreditor Agreement."

          Account Debtor - any Person who is or may become obligated under or
     on account of any Account, Contract Right, Chattel Paper or General
     Intangible.

          ADC - Advanced D.C. Motors, Inc., a New York corporation and an
     indirect wholly-owned Subsidiary of Kinetek.

          ADC Holdings - Advanced D.C. Holdings, Inc., a Delaware corporation
     and a direct wholly-owned Subsidiary of Kinetek.

          Affiliate - a Person (other than a Subsidiary): (i) which directly
     or indirectly through one or more intermediaries controls, or is
     controlled by, or is under common control with, a Person; (ii) which
     beneficially owns or holds 10% or more of any class of the Voting Stock
     of a Person; or (iii) 10% or more of the Voting Stock (or in the case of
     a Person which is not a corporation, 10% or more of the equity interest)
     of which is beneficially owned or held by a Person or a Subsidiary of a
     Person. Without limiting the foregoing in any way, any director or
     executive officer of a Person shall deemed to be an "Affiliate" of such
     Person for purposes of this Agreement.

          Agreement - the Security Agreement referred to in the first sentence
     of this Appendix A, all Exhibits and Schedules thereto and this Appendix
     A, as each of the same may be amended from time to time.

                                     A-1

<PAGE>

          Assignment - the Collateral Assignment of Intercompany Note and
     Intercompany Loan and Security Documents from Issuer to Trustee, dated
     the date hereof, as the same may be amended from time to time.

          Business Day - any day excluding Saturday, Sunday and any day which
     is a legal holiday under the laws of the State of New York or the State
     of Minnesota or is a day on which banking institutions located in either
     of such states are closed.

          Collateral - all of the Property and interests in Property described
     in Section 1 of the Agreement, and all other Property and interests in
     Property that now or hereafter secure the payment and performance of any
     of the Obligations.

          Computer Hardware and Software - all of the Issuer's rights
     (including rights as licensee and lessee) with respect to (i) computer
     and other electronic data processing hardware, including all integrated
     computer systems, central processing units, memory units, display
     terminals, printers, computer elements, card readers, tape drives, hard
     and soft disk drives, cables, electrical supply hardware, generators,
     power equalizers, accessories, peripheral devices and other related
     computer hardware; (ii) all software and all software programs designed
     for use on the computers and electronic data processing hardware
     described in clause (i) above, including all operating system software,
     utilities and application programs in any form (source code and object
     code in magnetic tape, disk or hard copy format or any other listings
     whatsoever); (iii) any firmware associated with any of the foregoing; and
     (iv) any documentation for hardware, Software and firmware described in
     clauses (i), (ii) and (iii) above, including flow charts, logic diagrams,
     manuals, specifications, training materials, charts and pseudo codes.

          Contract Right - any right of the Issuer and each Guarantor to
     payment under a contract for the sale or lease of goods or the rendering
     of services, which right is at the time not yet earned by performance.

          Copyright, Patent, Trademarks and License Mortgages - collectively,
     each of the four Copyright, Patent, Trademarks and License Mortgages,
     dated as of the date hereof, between Trustee and Issuer, Imperial,
     Merkle-Korff and MCE, respectively, and all other copyright, patent,
     trademark and license mortgages and comparable documents now or at any
     time hereafter securing the whole or any part of the Obligations..

          Default - as defined in the Indentures.

          EDC - Electrical Design and Control Company, a Delaware corporation
     and a direct wholly-owned Subsidiary of Kinetek.

          Environmental Laws - all federal, state and local laws, rules,
     regulations, ordinances, orders and consent decrees relating to health,
     safety and environmental matters.

          Event of Default - as defined in the Indentures.

                                     A-2

<PAGE>

          FIR - FIR Electromeccanica, a corporation organized under the laws
     of Italy and a direct wholly-owned Subsidiary of FIR Holdings.

          FIR Holdings - FIR Group Holdings, Inc., a Delaware corporation and
     a direct wholly-owned Subsidiary of Kinetek. -

          Foreign Subsidiary - any now or hereafter existing Subsidiary of the
     Issuer or a Restricted Subsidiary that was not formed under the laws of
     any state of the United States of America.

          Gear - Gear Research, Inc., a Delaware corporation and an indirect
     wholly-owned Subsidiary of Kinetek and direct wholly-owned Subsidiary of
     Imperial.

          Guarantor Security Agreements - collectively, each of the ten
     Guarantor Security Agreements, dated as of the date hereof, between each
     of the Guarantors respectively and Trustee, and any such Guarantor
     Security Agreements entered into in the future by Trustee and any
     additional Guarantors, securing the Obligations, as the same may be
     amended from time to time.

          Guarantors - Each of the Persons identified in the second recital
     paragraph of this Agreement, and any other Person at any time, that
     guarantees payment or performance of the whole or any part of the
     Obligations pursuant to the Guaranty.

          Guaranty - The guaranty of payment and performance by each of the
     Guarantors pursuant to the Indenture.

          Holders - as defined in the Indentures.

          Imperial - The Imperial Electric Company, a Delaware corporation and
     a direct wholly-owned Subsidiary of Kinetek.

          Indentures - as defined in the first recital paragraph of the
     Security Agreement.

          Intellectual Property - means: all past, present and future: trade
     secrets, know-how and other proprietary information; trademarks, internet
     domain names, service marks, trade dress, trade names, business names,
     designs, logos, slogans (and all translations, adaptations, derivations
     and combinations of the foregoing) indicia and other source and/or
     business identifiers, and the goodwill of the business relating thereto
     and all registrations or applications for registrations which have
     heretofore been or may hereafter be issued thereon throughout the world;
     copyrights (including copyrights for computer programs) and copyright
     registrations or applications for registrations which have heretofore
     been or may hereafter be issued throughout the world and all tangible
     property embodying the copyrights, unpatented inventions (whether or not
     patentable); patent applications and patents; industrial design
     applications and registered industrial designs; license agreements
     related to any of the foregoing and income therefrom; books, records,
     writings, computer tapes or disks, flow diagrams, specification sheets,
     computer software, source codes, object codes, executable code, data,
     databases and other physical manifestations, embodiments or

                                     A-3
<PAGE>

     incorporations of any of the foregoing; the right to sue for all past,
     present and future infringements of any of the foregoing; all other
     intellectual property; and all common law and other rights throughout the
     world in and to all of the foregoing.

          Intercreditor Agreement - the Intercreditor Agreement between
     Trustee and the Senior Agent, dated the date hereof.

          Issuer - Kinetek Industries, Inc., a Delaware corporation.

          Lien - any interest in Property securing an obligation owed to, or a
     claim by, a Person other than the owner of the Property, whether such
     interest is based on common law, statute or contract. The term "Lien"
     shall also include rights of seller under conditional sales contracts or
     title retention agreements, reservations, exceptions, encroachments,
     easements, rights-of-way, covenants, conditions, restrictions, leases and
     other title exceptions and encumbrances affecting Property. For the
     purpose of the Agreement, the Issuer shall be deemed to be the owner of
     any Property which it has acquired or holds subject to a conditional sale
     agreement or other arrangement pursuant to which title to the Property
     has been retained by or vested in some other Person for security
     purposes.

          Majority Holders - as of any date, Holders holding more than 50% of
     the aggregate principal amount of outstanding Notes.

          Material Adverse Effect - (i) a material adverse effect on the
     business, condition (financial or otherwise), operation, performance or
     properties of Issuer and the Guarantors taken as a whole, (ii) a material
     adverse effect on the rights and remedies of Trustee or Holders under the
     Other Agreements, or (iii) the material impairment of the ability of
     Issuer or any Guarantor to perform its obligations hereunder or under any
     Other Agreements.

          MCE - Motor Control Engineering, Inc., a California corporation and
     an indirect wholly-owned Subsidiary of Kinetek.

          MCE Holdings - Motion Holdings, Inc., a Delaware corporation and a
     direct wholly-owned Subsidiary of Kinetek.

          Merkle-Korff - Merkle-Korff Industries, Inc., an Illinois
     corporation and a direct wholly-owned Subsidiary of Kinetek.

          Mortgages - (i) the Real Property Mortgage executed by Gear on or
     about the date hereof in favor of Trustee, for the benefit of Holders, by
     which Gear has granted to Trustee, as security for the Obligations, a
     Lien upon the real Property of Gear located at 4329 Eastern Avenue SE,
     Grand Rapids, Michigan 44508, (ii) the Real Property Mortgage executed by
     ADC on or about the date hereof in favor of Trustee, for the benefit of
     Holders, by which ADC has granted to Trustee, as security for the
     Obligations, a Lien upon the real Property of ADC located at 6268 East
     Molloy Road, Syracuse, New York 13057, (iii) the Open-End Real Property
     Mortgage executed by Imperial on or about the date hereof in favor of

                                     A-4
<PAGE>

     Trustee, for the benefit of Holders, by which Imperial has granted to
     Trustee, as security for the Obligations, a Lien upon the real Property
     of Imperial located at 345 Sycamore Street, Middleport, Ohio 45760 and
     (iv) all other mortgages, deeds of trust and comparable documents now or
     at any time hereafter securing the whole or any part of the Obligations.

          Motors and Gears - Motors and Gears Holdings, Inc., a Delaware
     corporation and a majority-owned Subsidiary of Jordan.

          Motors and Gears Note - the $37,671,186.87 13 1/2% Senior Discount
     Note due 2007 issued by M&G in favor of Jordan.

          Notes - the Issuer's 5% Senior Secured Notes due May 1, 2007 and 10%
     Senior Secured Notes due 2007, issued pursuant to the Indentures.

          Obligations - all amounts of principal, interest and premium, if
     any, owing on the Notes and all other advances, debts, liabilities,
     obligations, covenants and duties, together with all interest, fees and
     other charges thereon, owing, arising, due or payable from the Issuer to
     Trustee, for its own benefit, or for the benefit of any Holder, of any
     kind or nature, present or future, arising under this Agreement, the
     Indenture or any of the other Other Agreements, whether direct or
     indirect (including those acquired by assignment), absolute or
     contingent, primary or secondary, due or to become due, now existing or
     hereafter arising and however acquired.

          Organizational I.D. Number - with respect to any Person, the
     organizational identification number assigned to such Person by the
     applicable governmental unit or agency of the jurisdiction of
     organization of such Person.

          Other Agreements - any and all agreements, instruments and documents
     including the Indentures and the Security Documents, heretofore, now or
     hereafter executed by the Issuer or any Guarantor, delivered to Trustee
     or any Holder in respect of the transactions contemplated by the
     Indentures and the Security Documents.

          Parent - Kinetek, Inc., a Delaware corporation, formerly known as
     Motors and Gears, Inc.

          Parent Indenture - the Indenture dated as of December 17, 1997
     between Parent and State Street Bank and Trust Company, as Trustee.

          Parent Senior Notes - the 10 3/4% Series D Senior Notes Due 2006 in
     the aggregate outstanding principal amount of $270,000,000 issued by
     Parent pursuant to the Parent Indenture.

          Permitted Liens - as defined in the Indentures.

                                     A-5
<PAGE>

          Person - an individual, partnership, corporation, limited liability
     company, joint stock company, land trust, business trust, or
     unincorporated organization, or a government or agency or political
     subdivision thereof.

          Pledge Agreements - collectively, (i) the Pledge Agreement executed
     by Kinetek on or about the date hereof in favor of Trustee, for the
     benefit of Holders, by which Kinetek has granted to Trustee, as security
     for the Obligations, a Lien on the 100% of the Securities of each of ADC
     Holdings, EDC, Imperial, MCE Holdings, Merkle-Korff and FIR Holdings,
     (ii) the Pledge Agreement executed by ADC Holdings on or about the
     Closing Date in favor of Trustee, for the benefit of Holders, by which
     ADC Holdings has granted to Trustee, as security for the Obligations, a
     Lien on the 100% of the Securities of ADC, (iii) the Pledge Agreement
     executed by MCE Holdings on or about the Closing Date in favor of
     Trustee, for the benefit of Holders, by which MCE Holdings has granted to
     Trustee, as security for the Obligations, a Lien on the 100% of the
     Securities of MCE (iv) the Pledge Agreement executed by Imperial on or
     about the Closing Date in favor of Trustee, for the benefit of Holders,
     by which Imperial has granted to Trustee, as security for the
     Obligations, a Lien on the 100% of the Securities of Gear, (v) the Pledge
     Agreement executed by Parent on or about the Closing Date in favor of
     Trustee, for the benefit of Holders, by which Parent has granted to
     Trustee, as security for the Obligations, a Lien on the 100% of the
     Securities of Kinetek, (vi) the Pledge Agreement executed by FIR Holdings
     on or about the Closing Date in favor of Trustee, for the benefit of
     Holders, by which FIR Holdings has granted to Trustee, as security for
     the Obligations, a Lien on the 65% of the Securities of FIR, and (vii)
     all other pledge agreements and comparable documents now or at any time
     hereafter securing the whole or any part of the Obligations.

          Property - any interest in any kind of property or asset, whether
     real, personal or mixed, or tangible or intangible.

          Restricted Subsidiary - as defined in the Indentures.

          Security - all shares of stock, partnership interests, membership
     interests, membership units or other ownership interests in any other
     Person and all warrants, options or other rights to acquire the same.

          Security Documents - this Agreement, the Assignment, the Copyright,
     Patent, Trademark and License Mortgages, the Guarantor Security
     Agreements, the Mortgages, the Pledge Agreements, and all other
     instruments and agreements now or at any time hereafter securing the
     whole or any part of the Obligations.

          Senior Agent - Fleet Capital Corporation, in its capacity as Agent
     under the Senior Loan Agreement or any successor Agent thereto in
     accordance with the Senior Loan Agreement.

          Senior Lenders - the financial lenders identified as Lenders under
     the Senior Loan Agreement.

                                     A-6
<PAGE>

          Senior Lender Liens - as defined in Section 1.5 of the Agreement.

          Senior Loan Agreement - the Loan and Security Agreement dated as of
     December 18, 2001 among Kinetek, certain Subsidiaries of Kinetek, the
     financial institutions party thereto as lenders and the Senior Agent and
     any other loan or credit agreement that evidences indebtedness that would
     constitute "Senior Debt" under and as defined in the Intercreditor
     Agreement.

          Solvent - as to any Person, that such Person (i) owns Property whose
     fair saleable value is greater than the amount required to pay all of
     such Person's Indebtedness (including contingent debts), (ii) is able to
     pay all of its Indebtedness as such Indebtedness matures and (iii) has
     capital sufficient to carry on its business and transactions and all
     business and transactions in which it is about to engage.

          Senior Security Documents - the Security Documents as defined in the
     Senior Loan Agreement.

          Subsidiary - any Person of which another Person owns, directly or
     indirectly through one or more intermediaries, more than 50% of the
     Voting Stock at the time of determination.

          Terminable Intangible - as defined in Section 1.1 of the Agreement.

          Trustee - U.S. Bank National Association, as Trustee under the
     Indentures, and any successor Trustee thereto in accordance with the
     Indentures.

          Type of Organization - with respect to any Person, the kind or type
     of entity by which such Person is organized, such as a corporation or
     limited liability company.

          UCC - the Uniform Commercial Code as in effect in the State of New
     York on the date of this Agreement, as it may be amended or otherwise
     modified.

          Voting Stock - Securities of any class or classes of a corporation,
     limited partnership or limited liability company or any other entity the
     holders of which are ordinarily, in the absence of contingencies,
     entitled to vote with respect to the election of corporate directors (or
     Persons performing similar functions).

          Other Terms. All other terms contained in the Agreement shall have,
     when the context so indicates, the meanings provided for by the UCC or by
     the Indenture to the extent the same are used or defined therein.

          Certain Matters of Construction. The terms "herein", "hereof' and
     "hereunder" and other words of similar import refer to the Agreement as a
     whole and not to any particular section, paragraph or subdivision. Any
     pronoun used shall be deemed to cover all genders. The section titles,
     table of contents and list of exhibits appear as a matter of convenience
     only and shall not affect the interpretation of the Agreement. All
     references to statutes and related regulations shall include any
     amendments of same and any successor statutes and regulations. All
     references to any of the Other Agreements shall include any and all
     amendments, modifications, supplements thereto and any restatements
     thereof, thereto and any and all extensions or renewals thereof.

                                     A-7

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