Document:

SUBORDINATED SECURITY AGREEMENT

                                                    Date:  September 15, 2003

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

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

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

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

<PAGE>

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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<PAGE>

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

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

                  9.       Increases, Profits, Payments or Distributions.

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

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

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

                  10.      [Intentionally Omitted].

                  11.      Events of Default; Remedies.

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

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

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<PAGE>

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

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

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

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

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

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<PAGE>

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

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

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

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

                                       9
<PAGE>

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

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

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

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

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

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

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

                                       10
<PAGE>

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

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

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

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

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

                  12.      Subordination With Respect to Senior Loan Documents.

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

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

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

                                       11
<PAGE>

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

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

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

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

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

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

                                       12
<PAGE>

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

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

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

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

                                       13
<PAGE>

                  13.      Subordination to Other Indebtedness.

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

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

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

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

                                       14
<PAGE>

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

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

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

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

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

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

                                       15
<PAGE>

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

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

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

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

                                       16
<PAGE>

                  14.      Miscellaneous.

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

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

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

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

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

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

                                       17
<PAGE>

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

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

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

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

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

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

                            [SIGNATURE PAGE FOLLOWS]

                                       18
<PAGE>

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

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

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

                                     GENERAL DATACOMM, INC.,
ATTEST:                              a Delaware corporation

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

                                      DATACOMM LEASING
ATTEST:                               CORPORATION, a Delaware corporation

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

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

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

                                      19
<PAGE>

                                       GDC FEDERAL SYSTEMS, INC.,
                                       a Delaware corporation

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

                                       GDC REALTY, INC.,
ATTEST:                                a Texas corporation

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

                                        GDC NAUGATUCK, INC.,
ATTEST:                                 a Delaware Corporation

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

                                     SECURED PARTY:

ATTEST:                              HSBC BANK USA, as Trustee

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

                                       20GENERAL DATACOMM INDUSTRIES, INC.

                            2003 Stock and Bonus Plan

<PAGE>

                        GENERAL DATACOMM INDUSTRIES, INC.
                                TABLE OF CONTENTS

SECTION 1.   GENERAL PURPOSE OF THE PLAN;
             DEFINITIONS.................................................  1

SECTION 2.   ADMINISTRATION OF PLAN;  COMMITTEE AUTHORITY TO SELECT
             PARTICIPANTS AND DETERMINE AWARDS...........................  2

SECTION 3.   SHARES ISSUABLE UNDER THE PLAN;
             MERGERS; SUBSTITUTION.......................................  4

SECTION 4.   ELIGIBILITY.................................................  5

SECTION 5.   STOCK OPTIONS...............................................  5

SECTION 6.   CONDITIONED STOCK AWARDS....................................  9

SECTION 7.   UNRESTRICTED STOCK AWARDS................................... 10

SECTION 8.   TERMINATION AND RESCISSION OF STOCK OPTIONS................. 10

SECTION 9.   TAX WITHHOLDING............................................. 12

SECTION 10.  TRANSFER, LEAVE OF ABSENCE, ETC............................. 13

SECTION 11.  AMENDMENTS AND TERMINATION ................................. 13

SECTION 12.  STATUS OF PLAN.............................................. 14

SECTION 13.  CHANGE OF CONTROL PROVISIONS................................ 14

SECTION 14.  GENERAL PROVISIONS.......................................... 15

SECTION 15.  EFFECTIVE DATE OF PLAN ..................................... 16

SECTION 16.  GOVERNING LAW............................................... 16

                                       i
<PAGE>

                           GENERAL DATACOMM INDUSTRIES
                            2003 STOCK AND BONUS PLAN

               SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS

         The name of the plan is the  General  DataComm  Industries,  Inc.  2003
Stock and Bonus Plan (the  "PLAN").  The purpose of the Plan is to encourage and
enable the officers,  directors and  employees of General  DataComm  Industries,
Inc. (the "COMPANY") and its  Subsidiaries  upon whose judgment,  initiative and
efforts the Company largely depends for the successful  conduct of its business,
to either  acquire a  proprietary  interest  in the Company or  otherwise  being
additionally  compensated  for their  efforts  on behalf of the  Company.  It is
anticipated  that  providing  such persons with a direct stake in the  Company's
welfare  or  otherwise  being  additionally  compensated,  will  assure a closer
identification of their interests with those of the Company and its stockholders
thereby  stimulating  their  efforts on the Company's  behalf and  strengthening
their desire to remain with the Company.

         The following terms shall be defined as set forth below:

         "ACT" means the Securities Exchange Act of 1934, as amended.

         "AWARD" or "AWARDS", except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Conditioned Stock Awards and Unrestricted Stock Awards.

         "BOARD" means the Board of Directors of the Company.

         "CAUSE" means personal dishonesty with respect to the Company,  willful
misconduct,  breach of fiduciary duty  involving  personal  profit,  intentional
failure  to  perform  stated  duties,  willful  violation  of any  law,  rule or
regulation  (other than traffic  violations or similar  offenses) or final cease
and desist order.

         "CHANGE OF CONTROL" shall have the meaning set forth in Section 13.

         "CLASS B STOCK" means the Class B Common Stock,  $.01 par value, of the
Company, subject to adjustments pursuant to Section 3.

         "CODE" means the Internal  Revenue  Code of 1986,  as amended,  and any
successor Code, and related rules, regulations and interpretations.

         "COMMON STOCK" means the Common Stock,  $.01 par value, of the Company,
subject to adjustments pursuant to Section 3.

         "COMMITTEE" shall have the meaning set forth in Section 2.

                                       1
<PAGE>

         "CONDITIONED STOCK AWARD" means an Award granted pursuant to Section 6.

         "DISABILITY"  means disability as set forth in Section 22(e) (3) of the
Code.

         "EFFECTIVE DATE" shall have the meaning set forth in Section 15.

         "ELIGIBLE PERSON" shall have the meaning set forth in Section 4.

         "FAIR MARKET VALUE" on any given date means the closing price per share
of the Stock on the trading day  immediately  preceding such date as reported by
the NASDAQ Stock Market or another nationally recognized stock exchange,  or, if
the Stock is not listed on such an exchange,  the fair market value of the Stock
as determined by the Committee.

         "INCENTIVE  STOCK  OPTION"  means  any  Stock  Option   designated  and
qualified as an "incentive stock option" as defined in Section 422 of the Code.

         "NON-QUALIFIED  STOCK  OPTION"  means any Stock  Option  that is not an
Incentive Stock Option.

         "NORMAL  RETIREMENT"  means retirement from active  employment with the
Company and its  Subsidiaries in accordance with the retirement  policies of the
Company and its Subsidiaries then in effect.

         "OPTION" or "STOCK OPTION" means any option to purchase shares of Stock
granted pursuant to Section 5.

         "PLAN  OF  REORGANIZATION"  means  the  plan of  reorganization  of the
Company in its Chapter 11 proceedings in the United States  Bankruptcy Court for
the District of Delaware.

         "STOCK"  means the Common Stock,  and/or Class B Common  Stock,  as the
case may be.

         "SUBSIDIARY" means a subsidiary as defined in Section 424 of the Code.

         "UNRESTRICTED  STOCK AWARD" means an Award granted  pursuant to Section
7.

         SECTION 2.  ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT
                     PARTICIPANTS AND DETERMINE AWARDS.

         (a)  COMMITTEE.  The Plan shall be  administered  by a committee of the
Board (the "Committee")  consisting of all members of the Stock Option Committee

                                       2

<PAGE>

of the Company (not less than two (2) persons).  Except as specifically reserved
to the Board  under the terms of the Plan,  the  Committee  shall  have full and
final  authority  to operate,  manage and  administer  the Plan on behalf of the
Company.  Action  by the  Committee  shall  require  the  affirmative  vote of a
majority of all members thereof.

         (b)      POWERS OF COMMITTEE.  The Committee shall have the power and
authority to grant Awards  consistent with the terms of the Plan,  including the
power and authority:

                  (i) to select the officers, directors and other employees of
the  Company  and its  Subsidiaries  to whom  Awards  may  from  time to time be
granted;

                  (ii) to determine the time or times of grant,  and the extent,
if any, of Incentive  Stock Options,  Non-Qualified  Stock Options,  Conditioned
Stock and  Unrestricted  Stock  Awards,  or any  combination  of the  foregoing,
granted to any one or more participants;

                  (iii) to  determine  the number of shares to be covered by any
Award  and  whether  the  Award is of  Common  Stock or Class B Stock,  or both,
provided that no Award shall include Class B Stock after December 31, 2003;

                  (iv)  to  determine  and  modify  the  terms  and  conditions,
including  restrictions,  not  inconsistent  with the terms of the Plan,  of any
Award,  which  terms and  conditions  may  differ  among  individual  Awards and
participants,  and to approve  the form of written  instruments  evidencing  the
Awards;  PROVIDED,  HOWEVER,  that no such action shall adversely  affect rights
under any  outstanding  Award without the  participant's  consent;  and PROVIDED
FURTHER  that the  Committee  shall have no  authority to change the exercise or
purchase price of any Award after the initial grant of the Award;

                  (v) to accelerate the exercisability or vesting of all or
any portion of any Award;

                  (vi) subject to the provisions of Section 5(a) (ii), to extend
the period in which any  outstanding  Stock Option may be  exercised,  provided,
however,  that such  modification  of an  Incentive  Stock  Option may cause the
option to fail to satisfy the incentive  stock option  requirements  of the Code
and may not be effected without the consent of the holder;

                  (vii) to determine whether, and under what circumstances Stock
and other  amounts  payable  with  respect to an Award shall be deferred  either
automatically  or at the  election  of the  participant  and whether and to what
extent the  Company  shall pay or credit  amounts  equal to  interest  (at rates
determined by the Committee) or dividends or deemed dividends on such deferrals;
and

                                       3
<PAGE>

                  (viii) to adopt,  alter and repeal such rules,  guidelines and
practices for administration of the Plan and for its own acts and proceedings as
it shall deem  advisable;  to interpret the terms and provisions of the Plan and
any Award (including related written instruments); to make all determinations it
deems  advisable  in the  administration  of the Plan;  to decide  all  disputes
arising  in  connection   with  the  Plan;   and  to  otherwise   supervise  the
administration of the Plan.

         All decisions and  interpretations of the Committee shall be binding on
all persons, including the Company and Plan participants.

         SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION.

         (a) SHARES ISSUABLE. The maximum number of shares of Stock with respect
to which Awards may be granted under the Plan shall be nine million, one hundred
eighty five thousand,  three hundred and sixty1  (9,185,360)  consisting of four
million,  five hundred ninety two thousand,  six hundred and eighty  (4,592,680)
shares of Common Stock and four million,  five hundred ninety two thousand,  six
hundred and eighty  (4,592,680) shares of Class B Stock,2 provided that no Award
shall  include  Class B Stock after  December  31,  2003.  For  purposes of this
limitation,  the  shares of Stock  underlying  any Awards  which are  forfeited,
canceled,  reacquired  by the  Company or  otherwise  terminated  (other than by
exercise)  shall be added  back to the  shares of Stock  with  respect  to which
Awards may be granted  under the Plan so long as the  participants  to whom such
Awards had been  previously  granted  retained no benefits of  ownership  of the
underlying shares of Stock to which the Award related.  Likewise,  if any Option
is exercised by the delivery of a number of shares of Stock,  either actually or
by attestation, to the Company as full or partial payment in connection with the
exercise  of an Option  under  this or any prior plan of the  Company,  only the
number of shares of Stock issued net of the shares of Stock  delivered  shall be
deemed issued for purposes of determining  the maximum number of shares of Stock
available for issuance under the Plan. Subject to such overall  limitation,  any
type or types  of  Award  may be  granted  with  respect  to  shares,  including
Incentive  Stock  Options.  Shares issued under the Plan may be  authorized  but
unissued shares or shares reacquired by the Company.

         (b) STOCK DIVIDENDS, MERGERS, ETC. In the event that after approval of
the Company's  Plan of  Reorganization,  the Company  effects a stock  dividend,
stock  split,   reverse  stock  split,   combination,   or  similar   change  in
capitalization  affecting  the  Stock,  the  Committee  shall  make  appropriate
adjustments  in (i) the  number and kind of shares of stock or  securities  with

-----------
1 an aggregate of 20% of the outstanding Stock of the Company on a fully diluted
  basis
2 Those  figures -- 9,185,360  maximum  shares,  4,592,680  common  shares,  and
  4,592,680  Class B shares --  reflect  the  number  of shares  prior to the
  1:10 reverse split  contemplated by the Debtor's Amended Joint Plan of
  Reorganization dated April 29, 2003 and will be adjusted to reflect the
  reverse split.

                                       4
<PAGE>

respect to which Awards may thereafter be granted  (including without limitation
the  limitations  set forth in Section 3(a) above),  (ii) the number and kind of
shares remaining subject to Outstanding Awards, and (iii) the option or purchase
price in  respect of such  shares.  In the event of any  merger,  consolidation,
dissolution or liquidation of the Company,  the Committee in its sole discretion
may, as to any outstanding  Awards,  make such substitution or adjustment in the
aggregate  number  of shares  reserved  for  issuance  under the Plan and in the
number and  purchase  price (if any) of shares  subject to such Awards as it may
determine  and  as  may be  permitted  by the  terms  of  such  transaction,  or
accelerate,  amend or terminate such Awards upon such terms and conditions as it
shall provide  (which,  in the case of the  termination of the vested portion of
any Award,  shall  require  payment or other  consideration  which the Committee
deems equitable in the  circumstances),  subject,  however, to the provisions of
Section 14.

         (c) SUBSTITUTE AWARDS. The Committee may grant Awards under the Plan in
substitution  for stock and stock  based  awards  held by  employees  of another
corporation who concurrently  become employees of the Company or a Subsidiary as
the result of a merger or  consolidation  of the employing  corporation with the
Company or a Subsidiary  or the  acquisition  by the Company or a Subsidiary  of
property or stock of the employing  corporation  (collectively,  "MERGER").  The
Committee  may direct  that the  substitute  awards be granted on such terms and
conditions as the Committee considers appropriate in the circumstances.

         SECTION 4. ELIGIBILITY.

         Awards may be granted only to  directors,  officers or employees of the
Company or its Subsidiaries ("ELIGIBLE PERSONS").

         SECTION 5. STOCK OPTIONS.

         Any Stock  Option  granted  under the Plan shall be in such form as the
Committee may from time to time approve.

         Stock  Options  granted  under the Plan may be either  Incentive  Stock
Options or Non-Qualified  Stock Options.  To the extent that any option does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified  Stock
Option.

         No Incentive  Stock  Option  shall be granted  under the Plan after the
tenth anniversary of the Effective Date.

         (a)  GRANT  OF STOCK  OPTIONS.  The  Committee  in its  discretion  may
determine the effective date of Stock Options, PROVIDED, HOWEVER, that grants of
Incentive  Stock Options shall be made only to persons who are, on the effective
date of the grant,  employees of the Company or any  Subsidiary.  Stock  Options

                                       5
<PAGE>

granted  pursuant to this Section 5(a) shall be subject to the  following  terms
and conditions and the terms and conditions of Section 12 and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as
the Committee shall deem desirable.

              (i) EXERCISE  PRICE.  The  exercise  price per share for the Stock
         covered by a Stock Option  granted  pursuant to this Section 5(a) shall
         be  determined  by the  Committee at the time of grant but shall be not
         less than one hundred  percent  (100%) of the Fair Market  Value on the
         date of grant.  If an  employee  owns or is deemed to own (by reason of
         the attribution rules applicable under Section 424(d) of the Code) more
         than ten percent  (10%) of the combined  voting power of all classes of
         stock of the Company or any  Subsidiary  or parent  corporation  and an
         Incentive  Stock Option is granted to such  employee,  the option price
         shall be not less  than one  hundred  ten  percent  (110%)  of the Fair
         Market Value on the grant date.

              (ii) OPTION TERM.  The term of each Stock Option shall be fixed by
         the Committee but no Incentive  Stock Option shall be exercisable  more
         than ten  (10)  years  after  the date the  option  is  granted.  If an
         employee owns or is deemed to own (by reason of the  attribution  rules
         of  Section  424(d) of the Code)  more  than ten  percent  (10%) of the
         combined  voting  power of all  classes of stock of the  Company or any
         Subsidiary  or parent  corporation  and an  Incentive  Stock  Option is
         granted to such employee, the term of such option shall be no more than
         five (5) years from the date of grant.

              (iii) EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Stock Options shall
         become vested and exercisable at such time or times,  whether or not in
         installments,  as shall be  determined by the Committee at or after the
         grant date. The Committee may at any time accelerate the exercisability
         of all or any portion of any Stock Option.  An optionee  shall have the
         rights of a stockholder only as to shares acquired upon the exercise of
         a Stock Option and not as to unexercised Stock Options.

             (iv)  METHOD OF EXERCISE. Stock Options may be exercised in whole
        or in part, by delivering written notice of exercise to the Company,
        specifyingthe number of shares to be purchased.  Payment of the purchase
        price may be made by one or more of the following methods:

         (A)      In cash, by certified or bank check or other instrument
acceptable to the Committee;

           (B) If permitted by the Committee, in its discretion,  in the form of
"mature"  shares of Stock (as  defined  in the  Financial  Accounting  Standards
Board's  Emerging  Issues Task Force Issue 84-18  ("Issue  84-18")) that are not
then subject to  restrictions  under any Company plan. Such  surrendered  shares
shall be valued at Fair Market Value on the exercise date; or

                                       6
<PAGE>

         (C) If permitted by the Committee,  in its discretion,  by the optionee
delivering  to the Company a properly  executed  exercise  notice  together with
irrevocable  instructions to a broker to promptly deliver to the Company cash or
a check  payable  and  acceptable  to the  Company  to pay the  purchase  price;
PROVIDED that in the event the optionee  chooses to pay the purchase price as so
provided,  the optionee and the broker  shall  comply with such  procedures  and
enter into such  agreements of indemnity  and other  agreements as the Committee
shall prescribe as a condition of such payment  procedure.  The Company need not
act upon such  exercise  notice until the Company  receives  full payment of the
exercise price; or

         (D) If permitted by the Committee,  in its discretion,  by reducing the
number of option shares otherwise  issuable to the optionee upon exercise of the
option by a number of shares of Stock  having a Fair Market  Value equal to such
aggregate  exercise price (it being  understood  that this  alternative  will be
available only if the optionee holds  sufficient  "mature"  shares as defined in
Issue 84-18);

         (E) By any other means (including, without limitation, by delivery of a
promissory  note of the optionee  payable on such terms as are  specified by the
Committee) which the Committee determines are consistent with the purpose of the
Plan and with applicable laws and regulations.

The  delivery  of  certificates  representing  shares  of Stock to be  purchased
pursuant to the exercise of a Stock Option will be contingent  upon receipt from
the  Optionee  (or a  purchaser  acting  in his  stead  in  accordance  with the
provisions of the Stock  Option) by the Company of the full  purchase  price for
such shares and the fulfillment of any other requirements contained in the Stock
Option or applicable provisions of laws.

              (v)  NON-TRANSFERABILITY  OF OPTIONS.  Except as otherwise  may be
         provided in this Section 5(a)(v) or in an option agreement governing an
         Option  granted under the Plan,  no Stock Option shall be  transferable
         other than by will or by the laws of descent and distribution,  and all
         Stock Options shall be  exercisable,  during the  optionee's  lifetime,
         only  by  the  optionee.  The  Committee  may,  however,  in  its  sole
         discretion,  permit  transferability  or assignment of a  Non-Qualified
         Stock  Option  if  such  transfer  or   assignment   is,  in  its  sole
         determination,  for valid estate planning purposes and such transfer or
         assignment  is  permitted  under  the  Code and Rule  16b-3  under  the
         Exchange  Act.  For purposes of this  Section  5(a)(v),  a transfer for
         valid estate planning purposes  includes,  but is not limited to: (a) a
         transfer to a revocable  inter-vivos  trust as to which the participant
         is both the settlor and trustee,  (b) a transfer  for no  consideration
         to:  (i) any member of the  participant's  Immediate  Family,  (ii) any
         trust solely for the benefit of members of the participant's  Immediate

                                       7
<PAGE>

         Family,  (iii) any  partnership  whose only partners are members of the
         participant's   Immediate   Family,   or  (iv)  any  limited  liability
         corporation or corporate entity whose only members or equity owners are
         members of the  Participant's  Immediate  Family.  For purposes of this
         Section 5(a)(v),  "IMMEDIATE  FAMILY" includes,  but is not necessarily
         limited to, a Participant's parents,  spouse,  children,  grandchildren
         and  great-grandchildren.  Nothing  contained in this  Section  5(a)(v)
         shall be construed to require the Committee to give its approval to any
         transfer or  assignment  of any  Non-Qualified  Stock Option or portion
         thereof,  and  approval to transfer or assign any  Non-Qualified  Stock
         Option or  portion  thereof  does not mean that such  approval  will be
         given with respect to any other  Non-Qualified  Stock Option or portion
         thereof.  The transferee or assignee of any Non-Qualified  Stock Option
         shall be subject to all of the terms and conditions  applicable to such
         Non-Qualified  Stock  Option  immediately  prior  to  the  transfer  or
         assignment  and shall be subject to any  conditions  prescribed  by the
         Committee with respect to such Non-Qualified Stock Option.

              (vi)  ANNUAL  LIMIT ON  INCENTIVE  STOCK  OPTIONS.  To the  extent
         required for "incentive  stock option"  treatment  under Section 422 of
         the Code, the aggregate Fair Market Value (determined as of the time of
         grant) of the Stock  with  respect  to which  incentive  stock  options
         granted  under  this  Plan and any  other  plan of the  Company  or its
         Subsidiaries  become  exercisable  for the  first  time by an  optionee
         during any calendar year shall not exceed $100,000. Notwithstanding the
         foregoing,   to  the  extent  that  the  aggregate  Fair  Market  Value
         (determined as of the time of grant) of the Stock with respect to which
         Incentive  Stock Options  granted under this Plan and any other plan of
         the Company or its Subsidiaries  become  exercisable for the first time
         by an optionee  during any calendar  year exceeds  $100,000 said excess
         shall be treated as a Non-Qualified Stock Option.

              (vii) FORM OF SETTLEMENT. Shares of Stock issued upon exercise of
         a Stock Option shall be free of all restrictions under the Plan,
         except as otherwise provided in this Plan.

         (b) RELOAD OPTIONS. At the discretion of the Committee, Options granted
under Section 5(a) may include a so-called "reload" feature pursuant to which an
optionee  exercising  an option (the  "ORIGINAL  OPTION")  by the  delivery of a
number of shares of Stock in accordance  with Section  5(a)(iv)(B)  hereof would
automatically  be granted an additional  Option (with an exercise price equal to
the Fair Market Value of the Stock on the date the additional  Option is granted
and with the same expiration date as the original  Option being  exercised,  and
with such other terms as the  Committee  may provide) to purchase that number of
shares of Stock equal to the number  delivered to exercise the Original  Option;

                                       8
<PAGE>

provided,  however, that the grant of such additional Option shall be subject to
the  availability  of shares of Stock under the Plan at the time of the exercise
of the Original Option.

         SECTION 6. CONDITIONED STOCK AWARDS.

         (a) NATURE OF CONDITIONED  STOCK AWARD. The Committee in its discretion
may grant  Conditioned  Stock Awards to any Eligible Person. A Conditioned Stock
Award  is an Award  entitling  the  recipient  to  acquire,  at no cost or for a
purchase  price  determined  by the  Committee,  shares of Stock subject to such
restrictions  and conditions as the Committee may determine at the time of grant
("CONDITIONED  STOCK").  Conditions may be based on continuing employment and/or
achievement of pre-established  performance goals and objectives. In addition, a
Conditioned  Stock Award may be granted to an employee by the  Committee in lieu
of a cash bonus due to such employee pursuant to any other plan of the Company.

         (b)  ACCEPTANCE OF AWARD.  A  participant  who is granted a Conditioned
Stock  Award  shall  have no  rights  with  respect  to such  Award  unless  the
participant  shall  have  accepted  the Award  within  sixty  (60) days (or such
shorter date as the  Committee  may specify)  following the award date by making
payment  to the  Company,  if  required,  by  certified  or bank  check or other
instrument or form of payment  acceptable to the Committee in an amount equal to
the specified  purchase price, if any, of the shares covered by the Award and by
executing and delivering to the Company a written instrument that sets forth the
terms and  conditions  of the  Conditioned  Stock in such form as the  Committee
shall determine.

         (c) RIGHTS AS A SHAREHOLDER.  Upon complying with Section 6(b) above, a
participant  shall  have all the  rights of a  stockholder  with  respect to the
Conditioned   Stock,   including   voting  and  dividend   rights,   subject  to
non-transferability  restrictions  and Company  repurchase or forfeiture  rights
described  in this Section 6 and subject to such other  conditions  contained in
the written instrument  evidencing the Conditioned  Award.  Unless the Committee
shall otherwise determine,  certificates  evidencing shares of Conditioned Stock
shall remain in the  possession  of the Company  until such shares are vested as
provided in Section 6(e) below.

         (d)  RESTRICTIONS.  Shares  of  Conditioned  Stock  may  not  be  sold,
assigned, transferred,  pledged or otherwise encumbered or disposed of except as
specifically  provided herein.  In the event of termination of employment by (or
termination  of services with) the Company and its  Subsidiaries  for any reason
(including  death,  Disability,  Normal  Retirement and for Cause),  the Company
shall have the right, at the discretion of the Committee,  to repurchase  shares
of Conditioned  Stock with respect to which  conditions have not lapsed at their
purchase  price,  or to  require  forfeiture  of such  shares to the  Company if
acquired  at  no  cost,  from  the  participant  or  the   participant's   legal
representative. The Company must exercise such right of repurchase or forfeiture

                                       9
<PAGE>

within  ninety (90) days  following  such  termination  of employment or service
(unless  otherwise   specified,   in  the  written  instrument   evidencing  the
Conditioned Award).

         (e) VESTING OF CONDITIONED STOCK. The Committee at the time of grant
shall  specify  the date or  dates  and/or  the  attainment  of  pre-established
performance   goals,    objectives   and   other   conditions   on   which   the
non-transferability  of  the  Conditioned  Stock  and  the  Company's  right  of
repurchase  or forfeiture  shall lapse.  Subsequent to such date or dates and/or
the attainment of such  preestablished  performance goals,  objectives and other
conditions,  the shares on which all restrictions have lapsed shall no longer be
Conditioned  Stock and shall be deemed  "vested."  The Committee at any time may
accelerate  such date or dates and  otherwise  waive or,  subject to Section 12,
amend any conditions of the Award.

         (f)  WAIVER,  DEFERRAL  AND  REINVESTMENT  OF  DIVIDENDS.  The  written
instrument  evidencing  the  Conditioned  Stock  Award may require or permit the
immediate  payment,  waiver,  deferral or  investment  of dividends  paid on the
Restricted Stock.

         SECTION 7. UNRESTRICTED STOCK AWARDS.

         (a) GRANT OR SALE OF UNRESTRICTED STOCK. The Committee in its
discretion may grant or sell to any Eligible Person shares of Stock free of any
restrictions under the Plan ("UNRESTRICTED  STOCK") which in the case of a grant
shall be without the payment of a purchase  price and, in the case of a sale, at
a purchase price determined by the Committee.  Shares of Unrestricted  Stock may
be granted or sold as  described  in the  preceding  sentence in respect of past
services or other valid consideration.

         (b) RESTRICTIONS ON TRANSFERS. The right to receive unrestricted Stock
may not be sold, assigned, transferred, pledged or otherwise encumbered, other
than by will or the laws of descent and distribution.

         SECTION 8. TERMINATION AND RESCISSION OF STOCK OPTIONS.

         Unless otherwise provided in the applicable agreement pursuant to which
the Award was granted,

         (a) STOCK OPTIONS:

               (i)  TERMINATION  BY DEATH.  If any  participant's  employment or
          directorship  with the  Company  and its  Subsidiaries  terminates  by
          reason  of death,  any  Stock  Option  owned by such  participant  may
          thereafter  be  exercised  to the  extent  exercisable  at the date of
          death, by the legal representative or legatee of the participant,  for

                                       10
<PAGE>

          a period of one year from the date of death,  or until the  expiration
          of the stated term of the Stock Option, if earlier.

             (ii) TERMINATION BY REASON OF DISABILITY OR NORMAL RETIREMENT.

                  (A) Any Stock Option held by a participant whose employment or
         directorship  with the Company and its  Subsidiaries  has terminated by
         reason of Disability may thereafter be exercised,  to the extent it was
         exercisable at the time of such  termination,  for a period of 180 days
         from the date of such  termination  of  employment or  directorship  or
         until the expiration of the stated term of the Option, if earlier.

                  (B) Any Stock Option held by a participant whose employment or
         directorship  with the Company and its  Subsidiaries  has terminated by
         reason of Normal Retirement may thereafter be exercised,  to the extent
         it was  exercisable  at the time of such  termination,  for a period of
         three (3) months from the date of such  termination  of  employment  or
         directorship  or until the expiration of the stated term of the Option,
         if earlier.

                  (C) The Committee  shall have sole authority and discretion to
         determine  whether a participant's  employment or directorship has been
         terminated by reason of Disability or Normal Retirement.

                  (D) Except as otherwise  provided by the Committee at the time
         of grant,  the death of a participant  during a period provided in this
         Section  9(a)(ii)  for the exercise of a Stock Option shall extend such
         period for one year from the date of death,  subject to  termination on
         the expiration of the stated term of the Option, if earlier.

             (iii)  TERMINATION  VOLUNTARILY OR FOR CAUSE. If any  participant's
         employment or directorship  with the Company and its  Subsidiaries  has
         been  terminated by the optionee  voluntarily  (other than by reason of
         Normal  Retirement)  or by the Company or any of its  Subsidiaries  for
         Cause,  any Stock  Option held by such  participant  shall  immediately

                                       11
<PAGE>

         terminate at the end of the last day of the  optionee's  employment  or
         directorship  and shall  thereafter  be of no further force and effect.
         The Committee  shall have sole  authority  and  discretion to determine
         whether a participant's  employment or directorship has been terminated
         by  the  optionee   voluntarily  or  by  the  Company  or  any  of  its
         Subsidiaries for Cause.

             (iv) TERMINATION WITHOUT CAUSE. Unless otherwise determined by the
         Committee, if a participant's employment or directorship with the
         Company and its subsidiaries is terminated by the Company or any of its
         Subsidiaries without cause, any Stock Option held by such participant
         may thereafter be exercised, to the extent it was exercisable on the
         date of termination of employment or directorship, for three (3) months
         from the last day of the  optionee's  employment or  directorship  (or
         such longer  period as the  Committee  shall  specify at any time,  it
         being understood that any Incentive  Options that are not exercised by
         such   terminated   optionee   within  three  (3)  months  after  such
         termination shall thereafter become Nonqualified Options) or until the
         expiration of the stated term of the Option, if earlier.

             (v)  COVENANT NOT TO COMPETE AND  CANCELLATION  AND  RESCISSION  OF
         OPTIONS.  As a condition for acceptance of Stock Options,  participants
         shall  agree  that  during  the one (1)  year  period  following  their
         termination   of  employment   for  any  reason   (excluding  any  such
         termination by the Company  without cause) the  participant  shall not,
         directly or indirectly,  work for or render any services to any person,
         firm or  business  located  within a 150 mile  radius of the  Company's
         office in Naugatuck,  Connecticut which offers products and/or services
         competitive  to the  products  and/or  services  of  participant.  Upon
         termination, in order to ascertain if future employment would be deemed
         to be in non-compliance with this covenant, a participant should notify
         the Company as to participant's  future employer and make a request for
         approval to retain  participant's  rights with respect to Stock Options
         on the basis of  demonstrating  that participant is not entering into a
         competitive situation.  If a non-competitive  situation is demonstrated
         to  the  Company's  satisfaction,  then  such  approval  shall  not  be
         unreasonably withheld. In the event participant fails to comply with or
         otherwise breaches this covenant in any way, during the two year period
         following any such termination,  the Company may notify  participant in
         writing of the  rescission  of any  options  exercised  by  participant
         within nine (9) months prior to any such  termination of  participant's
         employment. Within ten (10) days after receiving such a notice from the
         Company,  the  participant  shall  pay  to the  Company  in  cash,  the
         aggregate amount of any gain resulting from the exercise by participant
         of such  rescinded  options  and the  subsequent  sales  of the  shares
         received  on the  exercise  or,  if no such  sale of  said  shares  has
         occurred,  upon the Company's demand, return the shares received on the
         exercise of such rescinded options against the refund by the Company of
         the exercise price therefor.

         (b) OTHER AWARDS. All Awards other than Stock Options granted under the
Plan shall contain such terms and conditions  with respect to its termination as
the Committee, in its discretion, may from time to time determine.

         SECTION 9. TAX WITHHOLDING.

         (a) PAYMENT BY PARTICIPANT.  Each participant  shall, no later than the

                                       12
<PAGE>

Date as of which the value of an Award or of any Stock or other amounts received
thereunder  first becomes  includable in the gross income of the participant for
Federal  income  tax  purposes,   pay  to  the  Company,  or  make  arrangements
satisfactory to the Committee  regarding payment of any Federal,  state or local
taxes of any kind  required by law to be withheld  with  respect to such income.
The Company and its Subsidiaries shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
participant.

         (b) PAYMENT IN SHARES. A participant may elect, with the consent of the
Committee, in its discretion, to have such tax-withholding obligation satisfied,
in whole or in part, by authorizing the Company to withhold from shares of Stock
to be issued  pursuant  to an Award a number of shares  with an  aggregate  Fair
Market Value (as of the date the withholding is effected) that would satisfy the
withholding  amount due with respect to such Award.  If shares are withheld from
an Award in order to satisfy said  withholding tax or payroll tax  requirements,
only the number of Shares  with an  aggregate  Fair  Market  Value  equal to the
minimum withholding amount due shall be so withheld.

         SECTION 10. TRANSFER, LEAVE OF ABSENCE, ETC.

         For purposes of the Plan,  the  following  events shall not be deemed a
termination of employment:

         (a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another;

         (b) an approved leave of absence for military  service or sickness,  or
for any other  purpose  approved  by the  Company,  if the  employee's  right to
re-employment  is  guaranteed  either by a statute or by  contract  or under the
policy  pursuant to which the leave of absence  was granted or if the  Committee
otherwise so provides in writing.

        SECTION 11. AMENDMENTS AND TERMINATION.

         The  Board  may at any  time  amend  or  discontinue  the  Plan and the
Committee  may at any time amend or cancel  any  outstanding  Award (or  provide
substitute  Awards at the same or reduced  exercise or purchase price or with no
exercise  or  purchase  price,   but  such  price,  if  any,  must  satisfy  the
requirements  which would apply to the  substitute  or amended  Award if it were
then initially granted under this Plan) for the purpose of satisfying changes in
law or for any other lawful purpose,  but no such action shall adversely  affect
rights under any outstanding  Award without the holder's  consent.  However,  no
such  amendment,  unless approved by the  stockholders of the Company,  shall be

                                       13
<PAGE>

effective  if it would  cause the Plan to fail to satisfy  the  incentive  stock
option requirements of the Code, or cause transactions under the Plan to fail to
satisfy the requirements of Rule 16b-3 or any successor rule under the Act as in
effect on the date of such amendment.

         SECTION 12. STATUS OF PLAN.

         With  respect to the portion of any Award which has not been  exercised
and any  payments  in cash,  Stock  or other  consideration  not  received  by a
participant,  a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards.  In its sole  discretion,  the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards  hereunder,
provided that the existence of such trusts or other  arrangements  is consistent
with the provision of the foregoing sentence.

         SECTION 13. CHANGE OF CONTROL PROVISIONS.

         (a) In the  event  of a  Change  of  Control  while  unexercised  Stock
Options,  Conditional Stock Awards, or Stock Awards remain outstanding under the
Plan,  then (i) the time for exercise of all  unexercised  and unexpired  Awards
shall be  automatically  accelerated,  effective as of the effective time of the
Change of Control (or such earlier  date as may be specified by the  Committee),
and (ii) after the effective time of such Change of Control,  unexercised  Stock
Options, Conditional Stock Awards, or Stock Awards, shall remain outstanding and
shall be exercisable for shares of Stock (or  consideration  based upon the Fair
Market Value of Stock) or cash, or if applicable, for shares of such securities,
cash or property (or consideration based upon shares of such securities, cash or
property)  as the holders of shares of Stock  received in  connection  with such
Change of Control.

         (b) "CHANGE OF CONTROL" shall mean the occurrence of any one of the
following events:

              (i) persons  who, as of July 1, 2003,  constituted  the  Company's
         Board (the "INCUMBENT  BOARD") cease for any reason,  including without
         limitation  as a result of a tender  offer,  proxy  contest,  merger or
         similar  transaction,  to  constitute at least a majority of the Board,
         provided that any person becoming a director of the Company  subsequent
         to July 1, 2003 whose  election was  approved by, or who was  nominated
         either with the approval of, at least a majority of the directors  then
         comprising  the Incumbent  Board or who was elected in accordance  with
         rights provided to Abelco Finance LLC and the Indenture Trustee for the
         Debentures  under the Plan of  Reorganization,  shall,  for purposes of

                                       14
<PAGE>

         this Plan,  be considered a member of the  Incumbent  Board,  including
         those persons initially elected as directors as provided in the Plan of
         Reorganization; or

               (ii)  the  stockholders  of  the  Company  approve  a  merger  or
          consolidation  of the  Company  with any  other  corporation  or other
          entity, other than a merger or consolidation which would result in the
          voting securities of the Company outstanding immediately prior thereto
          continuing to represent  (either by remaining  outstanding or by being
          converted  into voting  securities of the surviving  entity) more than
          sixty-five  percent  (65%) of the combined  voting power of the voting
          securities  of  the  Company  or  such  surviving  entity  outstanding
          immediately after such merger or consolidation; or

               (iii) the  stockholders of the Company approve a plan of complete
          liquidation of the Company or an agreement for the sale or disposition
          by the Company of all or substantially all of the Company's assets.

         SECTION 14. GENERAL PROVISIONS.

         (a) NO DISTRIBUTION;  COMPLIANCE WITH LEGAL REQUIREMENTS. The Committee
may require each person  acquiring  shares  pursuant to an Award to represent to
and agree with the Company in writing that such person is  acquiring  the shares
without a view to distribution thereof.

         No  shares  of Stock  shall be issued  pursuant  to an Award  until all
applicable  securities laws and other legal and stock exchange requirements have
been  satisfied.  The  Committee may require the placing of such stop orders and
restrictive   legends  on  certificates   for  Stock  and  Awards  as  it  deems
appropriate.

         (b) DELIVERY OF STOCK  CERTIFICATES.  Delivery of stock certificates to
participants  under this Plan shall be deemed effected for all purposes when the
Company or a stock  transfer  agent of the  Company  shall have  delivered  such
certificates  in the United States mail,  addressed to the  participant,  at the
participant's last known address on file with the Company.

         (c) OTHER  COMPENSATION  ARRANGEMENTS;  NO EMPLOYMENT  RIGHTS.  Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements,  including trusts, subject to stockholder approval if
such  approval  is  required;  and such  arrangements  may be  either  generally
applicable or applicable only in specific cases. The adoption of the Plan or any
Award under the Plan does not confer upon any  employee  any right to  continued
employment with the Company or any Subsidiary.

                                       15
<PAGE>

         (d)  DELEGATION BY  COMMITTEE.  The Committee may delegate to the Chief
Executive Officer of the Company the authority to make decisions relating to the
grant or exercise of Options or other Awards (other than to himself),  including
without  limitation  the  authority  to permit the holder of an award to deliver
Stock in payment of the exercise  price and the  authority to permit a holder of
an Award to satisfy a tax  withholding  obligation by authorizing the Company to
withhold shares from the shares of Stock to be issued pursuant to an Award.

         SECTION 15. EFFECTIVE DATE OF PLAN.

         The Effective Date of the Plan of Reorganization shall be the effective
date of the adoption of this Plan.

         SECTION 16. GOVERNING LAW.

         This  Plan  shall  be  governed  by,  and  construed  and  enforced  in
accordance with, the substantive laws of the State of Delaware without regard to
its principles of conflicts of laws.

                                       16

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