Document:

Exhibit
10.10

 

TRANSFER AGENT INSTRUCTIONS

 

SUPERGEN, INC.

 

June
   , 2003

 

 

Mellon Investor Services LLC

235 Montgomery Street

23rd Floor

San Francisco, California  94104

Attention:  Sharon Magidson

 

Ladies and Gentlemen:

 

Reference is made to that certain Securities
Purchase Agreement, dated as of date hereof (the “Agreement”), by and among SuperGen, Inc., a Delaware
corporation (the “Company”), and
the investors named on the Schedule of Buyers attached thereto (collectively,
the “Holders”), pursuant to which
the Company is issuing to the Holders senior convertible notes (the “Notes”), which are convertible into shares
of common stock of the Company, par value $.001 per share (the “Common Stock”).

 

This letter shall serve as our irrevocable
authorization and direction to you (provided that you are the transfer agent of
the Company at such time) to issue shares of Common Stock upon conversion of
the Notes (the “Conversion Shares”)
to or upon the order of a Holder from time to time upon delivery to you of a properly
completed and duly executed Conversion Notice, in the form attached hereto as Exhibit I,
which has been acknowledged by the Company as indicated by the signature of a
duly authorized officer of the Company thereon.

 

You acknowledge and agree that so long as you
have previously received (a) written confirmation from the Company (or its
outside legal counsel) that either (i) a registration statement covering
resales of the Conversion Shares has been declared effective by the Securities
and Exchange Commission (the “SEC”)
under the Securities Act of 1933, as amended (the “1933 Act”), or (ii) that sales of the Conversion Shares may be
made in conformity with Rule 144 under the 1933 Act and (b) if applicable, a
copy of such registration statement, then within two (2) business days of your
receipt of the Conversion Notice (provided that any receipt after 1:00 p.m.
pacific time will be considered received on the following business day), you
shall issue the certificates representing the Conversion Shares, and such
certificates shall not bear any legend restricting transfer of the Conversion
Shares thereby and should not be subject to any stop-transfer restriction; provided,
further, however, that if such Conversion Shares are not registered for
resale under the 1933 Act or able to be sold under Rule 144, then, the
certificates for such Conversion Shares shall bear the following legend:

 

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL, IN
A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144
OR RULE 144A UNDER SAID ACT. 
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

 

A form of written confirmation from counsel
to the Company that a registration statement covering resales of the Conversion
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit II.

 

Please be advised that the Holders are
relying upon this letter as an inducement to enter into the Agreement and,
accordingly, each Holder is a third party beneficiary to these instructions.

 

2

 

Please execute this letter in the space
indicated to acknowledge your agreement to act in accordance with these
instructions.  Should you have any
questions concerning this matter, please contact Joseph Rubinfeld at (925)
560-0100, or Junling Ma at (650) 493-9300 at Wilson Sonsini Goodrich &
Rosati, PC, our outside legal counsel.

 

 

	
   

  	
  Very truly yours,

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SUPERGEN, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Joseph Rubinfeld

  	
   

  
	
   

  	
   

  	
  Title:

  	
  President/Chief Executive
  Officer

  
						

 

THE FOREGOING INSTRUCTIONS ARE

ACKNOWLEDGED AND AGREED TO

 

this
       day of June, 2003

 

MELLON
INVESTOR SERVICES LLC

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  
	
  Enclosures

  
	
   

  
	
  cc:

  	
  Smithfield Fiduciary LLC

  	
   

  
	
   

  	
  Omicron Master Trust

  	
   

  
	
   

  	
  Mainfield Enterprises Inc.

  	
   

  
	
   

  	
  Cranshire Capital L.P.

  	
   

  
	
   

  	
  OTAPE LLC

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Eleazer N. Klein, Esq.

  	
   

  
						

 

3

 

EXHIBIT I

 

SUPERGEN, INC.

CONVERSION NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO
CONVERT THIS NOTE INTO COMMON STOCK

 

Reference is
made to the Senior Exchangeable Convertible Note (the “Note”) issued to the undersigned by
SuperGen, Inc. (the “Company”).  In accordance with and pursuant to the Note,
the undersigned hereby elects to convert the Conversion Amount (as defined in
the Note) of the Note indicated below into shares of common stock, par value
$.001 per share, of the Company (the “Company
Common Stock”) as of the date specified below.

 

	
   

  	
  Date of
  Conversion:

  
	
   

  	
   

  
	
   

  	
  Aggregate
  Conversion Amount to be converted:

  
	
   

  	
   

  
	
  Please
  confirm the following information:

  
	
   

  	
   

  
	
   

  	
  Conversion
  Price:

  
	
   

  	
   

  
	
   

  	
  Number of
  shares of Company Common Stock to be issued:

  

 

 

Please issue the Company Common
Stock into which the Note is being converted in the following name and to the
following address:

 

	
   

  	
  Issue to:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile
  Number:

  
	
   

  	
   

  
	
   

  	
  Authorization:

  
	
   

  
	
   

  	
  By:

  
	
   

  	
   

  	
  Title:

  
	
  Dated:

  
	
   

  	
   

  
	
   

  	
  Account
  Number:

  
	
   

  	
  (if
  electronic book entry transfer)

  
	
   

  	
   

  
	
   

  	
  Transaction
  Code Number:

  
	
   

  	
  (if
  electronic book entry transfer)

  
				

 

4

 

ACKNOWLEDGMENT

 

The Company
hereby acknowledges this Conversion Notice and hereby directs Mellon Investor
Services LLC to issue the above indicated number of shares of Company Common
Stock in accordance with the Transfer Agent Instructions dated June
   , 2003 from the Company and acknowledged and agreed to by
Mellon Investor Services LLC.

 

	
   

  	
  SUPERGEN, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
						

 

5

 

EXHIBIT II

 

FORM OF NOTICE
OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

Mellon Investor Services LLC

235 Montgomery Street

23rd Floor

San Francisco, California  94104

Attention:  Sharon Magidson

 

Re:          SuperGen,
Inc.

 

Ladies and Gentlemen:

 

We are counsel to SuperGen, Inc., a Delaware
corporation (the “Company”), and
have represented the Company in connection with that certain Securities
Purchase Agreement (the “Purchase Agreement”)
entered into by and among the Company and the buyers named therein (collectively,
the “Holders”) pursuant to which
on June    , 2003 the Company issued to the Holders senior
exchangeable convertible notes (the “Notes”)
convertible into shares of the Company’s common stock, par value $.001 per
share (the “Company Common Stock”).  Pursuant to the Purchase Agreement, the
Company also has entered into a Registration Rights Agreement with the Holders
(the “Registration Rights Agreement”)
pursuant to which the Company agreed, among other things, to register the
resale of the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Company Common Stock issuable upon
conversion of the Notes and the Interest Shares issued or issuable under the
Notes under the Securities Act of 1933, as amended (the “1933 Act”).  In connection with the Company’s obligations under the
Registration Rights Agreement, on
                    ,
2003, the Company filed a Registration Statement on Form S-3 (File No.
333-                         )
(the “Registration Statement”) with
the Securities and Exchange Commission (the “SEC”)
relating to the Registrable Securities which names each of the Holders as a
selling stockholder thereunder.

 

In connection with the foregoing, we advise
you that a member of the SEC’s staff has advised us by telephone that the SEC
has entered an order declaring the Registration Statement effective under the
1933 Act at [ENTER TIME OF EFFECTIVENESS]
on [ENTER DATE OF EFFECTIVENESS],
and we have no knowledge, after telephonic inquiry of a member of the SEC’s
staff, that as of [time] on [date] any stop order suspending its effectiveness
has been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC, and the Registrable Securities are available for resale
under the 1933 Act pursuant to the Registration Statement.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  [ISSUER’S COUNSEL]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  

 

6

 

	
  CC:

  	
  SMITHFIELD FIDUCIARY LLC

  
	
   

  	
  OMICRON MASTER TRUST

  
	
   

  	
  MAINFIELD
  ENTERPRISES INC.

  
	
   

  	
  CRANSHIRE CAPITAL L.P.

  
	
   

  	
  OTATO L.P.

  
	
   

  	
   

  

 

7Exhibit
10.12

 

 

 

FINANCING
AGREEMENT

 

The CIT
Group/Business Credit, Inc.

(as
Lender)

And

HCC
Industries Inc.

And

Glasseal
Products, Inc.

And

Sealtron,
Inc.

And

Hermetic
Seal Corporation

(as
Borrowers)

 

Dated:  June 18, 2003

 

 

TABLE OF CONTENTS

 

 

	
  SECTION 1. Definitions

  
	
   

  
	
  SECTION 2. Conditions
  Precedent

  
	
   

  
	
  SECTION 3. Revolving Loans

  
	
   

  
	
  SECTION 4. Reserved

  
	
   

  
	
  SECTION 5. Reserved

  
	
   

  
	
  SECTION 6. Collateral

  
	
   

  
	
  SECTION
  7. Representations, Warranties and Covenants

  
	
   

  
	
  SECTION 8.
  Interest, Fees and Expenses

  
	
   

  
	
  SECTION
  9. Powers

  
	
   

  
	
  SECTION 10.
  Events of Default and Remedies

  
	
   

  
	
  SECTION 11. Termination

  
	
   

  
	
  SECTION
  12. Suretyship Waivers and Consents

  
	
   

  
	
  SECTION 13. Miscellaneous

  
	
   

  

 

 

 

	
  SCHEDULES 

  
	
   

  	
   

  
	
  Schedule 1 -
  Collateral Information

  	
   

  
	
   

  	
   

  
	
  Schedule
  2(i) - Litigation Summary

  	
   

  
	
   

  	
   

  
	
  Schedule
  7.10 - Existing Commercial Tort Claims

  	
   

  
	
   

  	
   

  
	
  Schedule of
  Permitted Encumbrances

  	
   

  

 

-i-

 

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

 

SECTION
1.  Definitions

 

Accounts shall mean all of each of the Companies’ now existing
and future:  (a) accounts (as defined
in the UCC), and any and all other receivables (whether or not specifically
listed on schedules furnished to CIT), including, without limitation, all accounts
created by, or arising from, all of each of the Companies’ sales, leases,
rentals of goods or renditions of services to its customers, including but not
limited to, those accounts arising under any of each of the Companies’ trade
names or styles, or through any of each of the Companies’ divisions; (b) any
and all instruments, documents, chattel paper (including electronic chattel
paper) (all as defined in the UCC); (c) unpaid seller’s or lessor’s rights
(including rescission, replevin, reclamation, repossession and stoppage in
transit) relating to the foregoing or arising therefrom; (d) rights to any goods
represented by any of the foregoing, including rights to returned, reclaimed or
repossessed goods; (e) reserves and credit balances
arising in connection with or pursuant hereto; (f) guarantees,
supporting obligations, payment intangibles and letter of credit rights (all as
defined in the UCC); (g) insurance policies or rights
relating to any of the foregoing; (h) general intangibles pertaining to
any and all of the foregoing (including all rights to payment, including those
arising in connection with bank and non-bank credit cards), and including books
and records and any electronic media and software thereto ; (i) notes,
deposits or property of account debtors securing the obligations of any such
account debtors to any Company; and (j) cash and non-cash proceeds
(as defined in the UCC) of any and all of the foregoing.

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

Anniversary Date  shall mean the date occurring
two (2) years from the Closing Date and the same date in every year
thereafter.

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

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

Borrowing Base shall mean, as to any Company, the sum of
(a) eighty-five percent (85%) of such Company’s aggregate outstanding
Eligible Accounts Receivable, provided, however, that if the then Dilution
Percentage is greater than four percent (4%), then the rate of advance
herein shall be reduced by one percent for each one percent (1%) that the
Dilution Percentage exceeds four (4) percent, (b) any applicable
Availability Reserves.

1

 

Borrowing Period  shall mean any period during which Revolving Loans
will be available to the Companies.

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

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

Chase Bank Rate Loans shall mean any loans or advances pursuant to this
Financing Agreement made or maintained at a rate of interest based upon the
Chase Bank Rate.

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

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

Collection Days shall mean one (1) Business Day to provide for
the deposit, clearance and collection of checks or other instruments
representing the proceeds of Collateral, the amount of which has been credited
to the Companies’ Revolving Loan Account, and for which interest may be charged
on the aggregate amount of such deposits, at the rate provided for in
Paragraph 8.1 of Section 8 of this Financing Agreement.

Commercial Tort Claim  means
a claim arising in tort and as more specifically defined in the UCC.

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

Consolidated Balance Sheet  shall
mean a consolidated or compiled, as applicable, balance sheet for the Companies
and the consolidated subsidiaries of each, eliminating all inter-company
transactions and prepared in accordance with GAAP.

Consolidating Balance Sheet  shall
mean a Consolidated Balance Sheet plus individual balance sheets for the
Companies and the subsidiaries of each, showing all elimination of inter-company
transactions, including a balance sheet for each of the Companies exclusively,
all prepared in accordance with GAAP.

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

 

2

 

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

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

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

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

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

Early Termination Date  shall
mean the date on which the Companies or any one of them terminates this
Financing Agreement or the Revolving Line of Credit which date is prior to an
Anniversary Date.  Notice of
termination, as aforesaid, by any of Company shall be deemed notice by the
Companies for purposes hereof.

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

EBIT shall mean, in any period, all earnings of the
Companies for said period before all interest and tax obligations of the
Companies for said period, determined in accordance with GAAP on a consistent
basis with the latest audited financial statements of the Companies, but
excluding the effect of extraordinary or non-reoccurring gains or losses for
such period.

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

 

3

 

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

Equipment  shall mean all of each Companies’ present
and hereafter acquired equipment (as defined in the UCC) including, without
limitation, all machinery, equipment, furnishings and fixtures, and all
additions, substitutions and replacements thereof, wherever located, together
with all attachments, components, parts, equipment and accessories installed
thereon or affixed thereto and all proceeds thereof of whatever sort.

ERISA shall mean the Employee Retirement Income Security
Act or 1974, as amended from time to time and the rules and regulations
promulgated thereunder from time to time.

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

 

4

 

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

Executive Officers shall mean the Chairman, President, Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer, Executive Vice
President(s), Senior Vice President(s), Treasurer, Controller and Secretary of
each Company.

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

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

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

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

Guaranties shall mean the guaranty documents executed and
delivered by the Guarantors guaranteeing the Obligations.

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

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

 

5

 

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

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

Interest Period shall mean:

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

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

 

provided  that, the foregoing provisions
relating to Interest Periods are subject to the following:

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

(ii)  any Interest Period that
begins on the last Working Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month, at the end of such
Interest Period) shall end on the last Working 
Day of a calendar month; and

(iii)  for purposes of determining
the availability of Interest Periods, such Interest Periods shall be deemed
available if (x) JP Morgan Chase Bank quotes an applicable rate or CIT
determines LIBOR, as provided in the definition of LIBOR, (y) the LIBOR
determined by JP Morgan Chase Bank or CIT will adequately and fairly reflect
the cost of maintaining or funding its loans bearing interest at LIBOR, for
such Interest Period, and (z) such Interest Period will end on or before
the last day of the term of this Agreement. 
If a requested Interest Period shall be unavailable in accordance with
the foregoing sentence, the Company shall continue to pay interest on the
Obligations at the applicable per annum rate based upon the Chase Bank Rate.

Inventory shall mean all of each of the Companies’ present and
hereafter acquired inventory (as defined in the UCC) and including, without
limitation, all merchandise, inventory and goods, and all additions, substitutions
and replacements thereof, wherever located, together with all goods and
materials used or usable in manufacturing, processing, packaging or shipping
same in all 

 

6

 

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

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

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

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

LIBOR Loan shall mean any loans made pursuant to this Agreement
which are made or maintained at a rate of interest based upon LIBOR, provided
that (i) no Default or Event of Default has occurred hereunder, which has
not been waived in writing by CIT, and (ii) no LIBOR Loan shall be made
with an Interest Period that ends after the end of the term of this Agreement.

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

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

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

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

 

7

 

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

Obligations  shall mean all loans, advances and
extensions of credit made or to be made by CIT to the Companies, or any one of
them, or to others for the Companies’ account (including, without limitation,
all Revolving Loans; any and all indebtedness and obligations which may at any
time be owing by the Companies, or any one of them, to CIT howsoever arising,
whether now in existence or incurred by the Companies, or any one of them, from
time to time hereafter; whether principal, interest, fees, costs, expenses or
otherwise; whether secured by pledge, lien upon or security interest in any of
the Companies’ Collateral, assets or property or the assets or property of any
other person, firm, entity or corporation; whether such indebtedness is
absolute or contingent, joint or several, matured or unmatured, direct or
indirect and whether the Companies, or any one of them, are liable to CIT for
such indebtedness as principal, surety, endorser, guarantor or otherwise.  Obligations shall also include indebtedness
owing to CIT by the Companies, or any one of them, under any Loan Document or
under any other agreement or arrangement now or hereafter entered into between
the Companies and CIT; indebtedness or obligations incurred by, or imposed on,
CIT as a result of environmental claims arising out of the Companies’
operations, premises or waste disposal practices or sites in accordance with
paragraph 7.7 hereof; the Companies’ liability to CIT as maker or endorser
of any promissory note or other instrument for the payment of money; any
Company’s liability to CIT under any instrument of guaranty or indemnity, or
arising under any guaranty, endorsement or undertaking which CIT may make or
issue to others for the Companies’ account, CIT’s acceptance of drafts or CIT’s
endorsement of notes or other instruments for the Companies’ account and
benefit; and any and all indebtedness, liabilities or obligations of every
kind, nature and description owing by any Company to any affiliate of CIT.

Other Collateral shall mean all of each of the Companies’ now owned
and hereafter acquired lockbox, blocked account and any other deposit accounts
maintained with any bank or financial institutions into which the proceeds of
Collateral are or may be deposited; all Investment Property; all Commercial
Tort Claims; all cash and other monies and property in the possession or
control of CIT; all books, records, ledger cards, disks and related data
processing software at any time evidencing or containing information relating
to any of the Collateral described herein or otherwise necessary or helpful in
the collection thereof or realization thereon; and all cash and non-cash
proceeds of the foregoing.

Out-of-Pocket Expenses shall mean all of CIT’s present and
future expenses incurred relative to this Financing Agreement or any other Loan
Documents, whether incurred heretofore or hereafter, which expenses shall
include, without being limited to:  the
cost of record searches, all costs and expenses incurred by CIT in opening bank
accounts, depositing checks, receiving and transferring funds, and wire
transfer charges, any charges imposed on CIT due to returned items and
“insufficient funds” of deposited checks and CIT’s 

 

8

 

standard fees relating
thereto, and CIT’s travel, lodging and similar expenses of CIT’s  personnel in connection with inspecting and
monitoring the Collateral from time to time hereunder, any applicable counsel
fees and disbursements, fees and taxes relative to the filing of financing
statements and all expenses, costs and fees, including attorneys’ fees, set
forth in Paragraph 10.3 of Section 10 of this Financing Agreement.

Overadvances shall mean the amount by which (a) the sum of
all outstanding Revolving Loans and advances made hereunder exceed (b) the
Borrowing Base.

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

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

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

 

9

 

Permitted Indebtedness  shall
mean:  (a) current Indebtedness
maturing in less than one year and incurred in the ordinary course of business
for raw materials, supplies, equipment, services, Taxes or labor; (b) the
Indebtedness secured by Purchase Money Liens; (c) Subordinated Debt; (d) Indebtedness
arising under this Financing Agreement; (e) deferred Taxes and other expenses
incurred in the ordinary course of business; and (f) other Indebtedness
existing on the date of execution of this Financing Agreement and listed in the
most recent financial statement delivered to CIT or otherwise disclosed to CIT
in writing prior to the Closing Date.

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

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

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

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

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

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

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

Senior Indebtedness shall have the same meaning as provided in the
Indenture.

Taxes shall mean all federal, state, municipal and other
governmental taxes, levies, charges, claims and assessments which are or may be
due by the Companies with respect to their business, operations, Collateral or
otherwise.

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

Total Liabilities shall mean total liabilities determined in accordance
with GAAP, on a basis consistent with the latest audited financial statements
of the Companies.

 

10

 

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

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

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

Working Capital shall mean Current Assets in excess of Current
Liabilities.

Working
Day shall
mean any Business Day on which dealings in foreign currencies and exchanges
between banks may be transacted.

 

SECTION
2.  Conditions Precedent

 

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

 

(a)           Lien
Searches -
CIT shall have received tax, judgment and Uniform Commercial Code searches
satisfactory to CIT for all locations presently occupied or used by each of the
Companies.

(b)           Casualty
Insurance -
Each of the Companies shall have delivered to CIT evidence satisfactory to CIT
that casualty insurance policies listing CIT as additional insured, loss payee
or mortgagee, as the case may be, are in full force and effect, all as set
forth in Paragraph 7.5 of Section 7 of  this Financing Agreement.

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

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

 

11

 

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

(e)           Corporate
Organization -
CIT shall have received (i) a copy of the Certificate of Incorporation of
the Companies and the Guarantors certified by the Secretary of State of the
state of its incorporation, and (ii) a copy of the By-Laws of the
Companies certified by the Secretary or Assistant Secretary thereof, all as
amended through the date hereof.

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

(g)           Reserved

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

(i)            Legal
Restraints/Litigation — Except as provided in Schedule 2(i), as of the Closing Date, there
shall be no:  (x) litigation,
investigation or proceeding (judicial or administrative) pending or threatened
against the Companies, or any one of them or the Guarantors or their assets, by
any agency, division or department of any county, city, state or federal
government arising out of this Financing Agreement; (y) injunction, writ
or restraining order restraining or prohibiting the financing arrangements
contemplated under this Financing Agreement; or (z) suit, action,
investigation or proceeding (judicial or administrative) pending against the
Companies, or any one of them, or the Guarantors or their assets, which, in the
opinion of CIT, if adversely determined, could have a material adverse effect
on the business, operation, assets, financial condition or Collateral of the Companies,
or any one of them, and/or the Guarantors.

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

(k)           Cash
Budget Projections - CIT shall have received, reviewed and been satisfied with a
twelve (12) month cash budget projection prepared by each Company on the
form provided by CIT.

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

 

12

 

collateral for the
Obligations of the Companies not less than 100% of the issued and outstanding
stock of the Companies (but not the Parent) and not less than 100% of the stock
of all subsidiaries of the Companies and, (ii) deliver to CIT the stock
certificates evidencing such stock together with duly executed stock powers
(undated and in-blank) with respect thereto, all in form and substance
satisfactory to CIT.

(m)          Additional
Documents -
Each of the Companies shall have executed and delivered to CIT, in form and
substance satisfactory to CIT, the Companies and their respective counsel, all
Loan Documents reasonably necessary to consummate the lending arrangement
contemplated between the Companies and CIT.

(n)           Disbursement
Authorization
- The Companies shall have delivered to CIT all information necessary for
CIT to issue wire transfer instructions on behalf of each of the Companies for
the initial and subsequent loans and/or advances to be made under this
Financing Agreement including, but not limited to, disbursement authorizations
in form acceptable to CIT.

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

(p)           Depository
Accounts -
Each of the Companies shall have established a system of lockbox and bank
accounts with respect to the collection of Accounts and the deposit of proceeds
of Collateral as shall be acceptable to CIT in all respects.  Such accounts shall be subject to three
party agreements (between the Companies, CIT and the depository bank), which
shall be in form and substance satisfactory to CIT.

(q)           Schedules - The Companies or their counsel
shall provide CIT with schedules of: 
(a) any of the Companies’ and their subsidiaries
(i) Trademarks, (ii) Patents, and (iii) Copyrights, as
applicable and all in such detail as to provide appropriate recording
information with respect thereto, (b) any tradenames, (c) monthly
rental payments for any leased premises or any other premises where any
Collateral may be stored or processed, and (d) Permitted Encumbrances, all
of the foregoing in form and substance satisfactory to CIT.

(r)           CIT
Commitment Letter — Each of the Companies shall have fully complied, to the reasonable
satisfaction of CIT, with all of the terms and conditions of the CIT Commitment
Letter.

Upon the execution of
this Financing Agreement and the initial disbursement of loans hereunder, all
of the above Conditions Precedent shall have been deemed satisfied except as
otherwise set forth hereinabove or as the Companies and CIT shall otherwise
agree in writing.

 

13

 

2.2          Conditions
to Each Extension of Credit

 

Except to the extent expressly set forth in this
Financing Agreement, the agreement of CIT to make any extension of credit
requested to be made by it to any of the Companies on any date (including
without limitation, the initial extension of credit) is subject to the
satisfaction of the following conditions precedent:

 

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

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

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

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

 

SECTION
3.  Revolving Loans

 

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

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

 

14

 

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

3.3          Each Company hereby represents and
warrants that:  each Trade Account
Receivable of such Company is based on an actual and bona fide sale and
delivery of Inventory or rendition of services to customers, made by such
Company in the ordinary course of its business; the Inventory being sold, and
the Trade Accounts Receivable created, are the exclusive property of such
Company and are not and shall not be subject to any lien, consignment
arrangement, encumbrance, security interest or financing statement whatsoever,
other than the Permitted Encumbrances; the invoices evidencing such Trade
Accounts Receivable are in the name of such Company; and the customers of such
Company have accepted the Inventory or services, owe and are obligated to pay
the full amounts stated in the invoices according to their terms, without
dispute, offset, defense, counterclaim or contra, except for disputes and other
matters arising in the ordinary course of business with respect to which such
Company has complied with the notification requirements of Paragraph 3.5
hereof.  Each Company confirms to CIT
that any and all Taxes or fees relating to its business, its sales, the
Accounts or Inventory relating thereto, are its sole responsibility and that
same will be paid by such Company when due, subject to Paragraph 7.6 of Section 7
of this Financing Agreement, and that none of said Taxes or fees represent a
lien on or claim against the Accounts. 
Each Company hereby further represents and warrants that it shall not
acquire any Inventory on a consignment basis, nor co-mingle its Inventory with
any of its customers or any other person, including pursuant to any bill and
hold sale or otherwise, and that its Inventory is marketable to its customers
in the ordinary course of business of such Company, except as it may otherwise report
in writing to CIT pursuant to Paragraph 3.5 hereof from time to time.  Each Company also warrants and represents
that it is a duly and validly existing corporation and is qualified in all
states where the failure to so qualify would have an adverse effect on the
business of such Company or the ability of such Company to enforce collection
of Accounts due from customers residing in that state.  Each Company agrees to maintain such books
and records regarding Accounts and Inventory as CIT may reasonably require and
agrees that the books and records of such Company will reflect CIT’s interest
in the Accounts and Inventory.  All of
the books and records of each Company will be available to CIT at normal
business hours, including any records handled or maintained for such Company by
any other company or entity.

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

 

15

 

held by the Companies in
trust for CIT, separate from the Companies’ own property and funds, and
promptly turned over to CIT with proper assignments or endorsements by deposit
to the lockbox Depository Accounts.  The
Companies shall: (i) indicate on all of their invoices that funds should be
delivered to and deposited in a Depository Account; (ii) direct all of their
account debtors to deposit any and all proceeds of Collateral into the lockbox
Depository Accounts; (iii) irrevocably authorize and direct any banks which
maintain the Companies’ initial receipt of cash, checks and other items to
promptly wire transfer all available funds to a Depository Account; and (iv)
advise all such banks of CIT’s security interest in such funds.  The Company shall provide CIT with prior
written notice of any and all deposit accounts opened or to be opened
subsequent to the Closing Date.  Subject
to Collection Days, all amounts received by CIT in payment of Accounts will be
credited to the Revolving Loan Account when CIT is advised by its bank of its
receipt of “collected funds” at CIT’s lockbox in New York, New York on the
Business Day of such advice if advised no later than 10:00 a.m. PST or on the
next succeeding Business Day if so advised after 10:00 a.m. PST.  No checks, drafts or other instrument received
by CIT shall constitute final payment to CIT unless and until such instruments
have actually been collected.

(b)           The Companies shall establish and
maintain, at their expense, deposit accounts with such banks as are acceptable
to CIT (the “Blocked Accounts”) into which the Companies shall promptly cause
to be deposited:  (i) all proceeds
of Collateral received by the Companies, including all amounts payable to the
Companies from credit card issuers and credit card processors, and
(ii) all amounts on deposit in deposit accounts used by the Companies at
each of their locations, all as further provided in Paragraph 3.4(a)
above.  The banks at which the Blocked
Accounts are established shall enter into an agreement, in form and substance
satisfactory to CIT (the “Blocked Account Agreements”), providing that all
cash, checks and items received or deposited in the Blocked Accounts are the
property of CIT, that the depository bank has no lien upon, or right of set off
against, the Blocked Accounts and any 
cash, checks, items, wires or other funds from time to time on deposit
therein, except as otherwise provided in the Blocked Account Agreements, and
that automatically, on a daily basis  the depository bank will wire, or
otherwise transfer, in  immediately
available funds, all funds received or deposited into the Blocked Accounts to
such bank account as CIT may from time to time designate for such purpose.  During any Non-Borrowing Period, and
provided no Default shall exist or have occurred, CIT shall instruct the
depository banks at which the Blocked Accounts are maintained to transfer the
funds on deposit in the Blocked Accounts to such operating bank accounts of the
Companies as the Companies may specify in writing to CIT until such time as CIT
shall notify the depository bank otherwise. 
The Companies hereby confirm and agree that all amounts deposited in
such Blocked Accounts and any other funds received and collected by CIT,
whether as proceeds of Inventory or other Collateral or otherwise, shall be the
property of CIT.

 

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

 

16

 

duplicates to be
immediately forwarded to CIT) upon accepting returns or granting
allowances.  Upon the occurrence of an
Event of Default (which is not waived in writing by CIT) and on notice from
CIT, each Company agrees that all returned, reclaimed or repossessed
merchandise or goods shall be set aside by such Company, marked with CIT’s name
(as secured party) and held by such Company for CIT’s account.

3.6          (a) Subject to (b) below, CIT
shall maintain a Revolving Loan Account on its books  in which each of the Companies will be charged with all loans and
advances made by CIT to it or for its account, and with any other Obligations,
including any and all costs, expenses and reasonable attorney’s fees which CIT
may incur in connection with the exercise by or for CIT of any of the rights or
powers herein conferred upon CIT, or in the prosecution or defense of any
action or proceeding to enforce or protect any rights of CIT in connection with
this Financing Agreement, the other Loan Documents or the Collateral assigned
hereunder, or any Obligations owing by such Company.  The Companies will be credited with all amounts received by CIT
from the Companies or from others for the Companies’ account, including, as
above set forth, all amounts received by CIT in payment of Accounts, and such
amounts will be applied to payment of the Obligations as set forth herein.  In no event shall prior recourse to any
Accounts or other security granted to or by a Company be a prerequisite to
CIT’s right to demand payment of any Obligation.  Further, it is understood that CIT shall have no obligation
whatsoever to perform in any respect any of the Companies’ contracts or
obligations relating to the Accounts.

(b) In order to utilize the collective borrowing
powers of the Companies (collectively the “Collective Borrowers”) in the most
efficient and economical manner, and in order to facilitate the handling of the
accounts of the Collective Borrowers on CIT’s books, the Collective Borrowers
have requested, and CIT has agreed to handle accounts of the Collective
Borrowers on CIT’s books on a combined basis, all in accordance with the
following provisions:  (i) in
lieu of maintaining separate accounts on CIT’s books in the name of each of the
Collective Borrowers, CIT shall maintain one account under the name: HCC
Industries (herein the “Collective Account”). 
Confirmatory assignments of Accounts will continue to be made to CIT by
each of the Collective Borrowers.  Loans
and advances made by CIT to any of the Collective Borrowers will be charged to
the Collective Account indicated above, along with any charges and expenses
under this Financing Agreement.  The
Collective Account will be credited, with all amounts received by CIT from any
of the Collective Borrowers or from others for their account including all
amounts received by CIT in payment of Accounts assigned to CIT as provided in
this Financing Agreement.  Each month
CIT will render to the Collective Borrowers one extract of the combined Collective
Account, which shall be deemed to be an account stated as to each of the
Collective Borrowers and which will be deemed correct and accepted by all of
the Collective Borrowers unless CIT receives a written statement of exceptions
from them within thirty (30) days after such extract has been rendered by
CIT.  It is expressly understood and
agreed by each of the Collective Borrowers that CIT shall have no obligation to
account separately to any of the Collective Borrowers.  Requests for loans and advances may be made
by Parent as agent for  the Collective
Borrowers and CIT is hereby authorized and directed to accept, honor and rely
on such instructions and requests, subject to the limitation and provisions set
forth in this Financing Agreement.  It is
expressly understood and agreed by each of the Collective Borrowers that CIT
shall have no responsibility to inquire into the correctness of the
apportionment, allocation, or disposition of any loans and advances made to any
of the Collective Borrowers or any of CIT’s expenses and charges relating
thereto.  All loans and advances are
made for the Collective

 

17

 

Account.  The Collective Borrowers jointly and
severally unconditionally guarantee to CIT the prompt payment in full of all
loans and advances made and to be made by CIT 
to any of them under this Financing Agreement, as well as all other
Obligations of the Collective Borrowers to CIT 
and hereby expressly confirm in all respects the Guaranties executed by
each of the Collective Borrowers in CIT’s 
favor as more fully set forth therein. 
All Accounts assigned to CIT by any of the Collective Borrowers and any
other collateral security now or hereafter given to CIT  by any of the Collective Borrowers (be it
Accounts or otherwise), shall secure all loans and advances made by CIT  to any of the Collective Borrowers, and
shall be deemed to be pledged to CIT as security for any and all other
Obligations of the Collective Borrowers to CIT as set forth under this
Financing Agreement, the Guaranties, or any other agreements between CIT  and any of the Collective Borrowers.  It is understood that the handling of the
accounts of the Collective Borrowers in a combined fashion, as more fully set
forth herein, is done solely as an accommodation to the Collective Borrowers
and at their request, and that CIT shall incur no liability to the Collective
Borrowers as a result hereof.  To induce
CIT to do so, and in consideration thereof, each of the Collective Borrowers
hereby agrees to indemnify CIT and hold CIT harmless against any and all
liability, expense, loss or claim of damage or injury, made against CIT  by any of the Collective Borrowers or by any
third party whosoever, arising from or incurred solely by reason of the method
of handling the accounts of the Collective Borrowers as herein provided, CIT
relying on any instructions of any of the Collective Borrowers, or any other
action taken by CIT in accordance with this subparagraph (b) of
Paragraph 3.6 of Section 3 of this Financing Agreement.  The foregoing request was made because the
Collective Borrowers are engaged in an integrated operation that requires
financing on a basis permitting the availability of credit from time to time to
each of the Collective Borrowers as required for the continued successful
operation of each of the Collective Borrowers. 
Each of the Collective Borrowers expects to derive benefit, directly or
indirectly, from such availability since the successful operation of each of
the Collective Borrowers is dependent on the continued successful performance
of the functions of the integrated group. 
In addition, the Companies have informed CIT that:

 

(i)            Parent, in order to increase the
efficiency and productivity of each of the other Collective Borrowers, has
centralized in itself a cash management system which entails, in part, central
disbursement and operating accounts in which it provides the working capital
needs of each of the other Collective Borrowers and manages and timely pays the
accounts payable of each of the other Collective Borrowers;

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

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

 

18

 

the continued
successful performance of such integrated operations and in order to best
utilize the collective borrowing powers of each Collective Borrower in the most
effective and cost efficient manner and to avoid adverse effects on the
operating efficiencies of each Collective Borrower and the existing back-office
practices of the Collective Borrowers, each Collective Borrower has requested
that all Revolving Loans and advances be disbursed solely upon the request of
Parent and to bank accounts managed solely by Parent and that Parent will
manage for the benefit of each Collective Borrower the expenditure and usage of
such funds.

3.7          After the end of each month, CIT shall
promptly send the Companies a statement showing the accounting for the charges,
loans, advances and other transactions occurring between CIT and the Companies
during that month.  The monthly
statements shall be deemed correct and binding upon the Companies and shall
constitute an account stated between the Companies and CIT unless CIT receives
a written statement of the exceptions within thirty (30) days of the date
of the monthly statement.

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

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

 

SECTION
4.  Reserved

 

SECTION
5.  Reserved

 

SECTION
6.  Collateral

 

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

(a)           Accounts;

(b)           Inventory;

(c)           General Intangibles;

 

19

 

(d)           Documents of Title;

(e)           Other Collateral; and

(f)            Equipment.

6.2          The security interests granted hereunder shall extend
and attach to:

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

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

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

6.3          Each Company agrees to safeguard, protect
and hold all Inventory for CIT’s account and make no disposition thereof except
in the ordinary course of its business of the Company, as herein provided.  Each Company represents and warrants that
Inventory will be sold and shipped by such Company to its customers only in the
ordinary course of such Company’s business, and then only on open account and
on terms currently being extended by such Company to its customers, provided
that, absent the prior written consent of CIT, the Companies shall not sell
Inventory on a consignment basis nor retain any lien or security interest in
any sold Inventory.  Upon the sale,
exchange, or other disposition of Inventory, as herein provided, the security
interest in the Inventory provided for herein shall, without break in
continuity and without further formality or act, continue in, and attach to,
all proceeds, including any instruments for the payment of money, Trade
Accounts Receivable, documents of title, shipping documents, chattel paper and
all other cash and non-cash proceeds of such sale, exchange or
disposition.  As to any such sale,
exchange or other disposition, CIT shall have all of the rights of an unpaid
seller, including stoppage in transit, replevin, rescission and
reclamation.  Each Company hereby agrees
to immediately forward any and all proceeds of Collateral to the Depository
Account, and to hold any such proceeds (including any notes and instruments),
in trust for CIT pending delivery to CIT. 
Irrespective of CIT’s perfection status in any and all of the General
Intangibles, including, without limitations, any Patents, Trademarks,
Copyrights or licenses with respect thereto, each Company hereby irrevocably
grants CIT a royalty free license to sell, or otherwise dispose or transfer, in
accordance with Paragraph 10.3 of Section 10 of this Financing
Agreement, and the applicable terms hereof, of any of the Inventory upon the
occurrence of an Event of Default which has not been waived in writing by CIT.

 

20

 

6.4          Each Company agrees at its own cost and
expense to keep the Equipment in as good and substantial repair and condition
as the same is now or at the time the lien and security interest granted herein
shall attach thereto, reasonable wear and tear excepted, making any and all
repairs and replacements when and where necessary.  Each Company also agrees to safeguard, protect and hold all
Equipment in accordance with the terms hereof and subject to  CIT’s security interest.  Any sale, exchange or other disposition of
any Equipment shall be made by such Company only with CIT’s prior written
consent  Upon the sale, exchange, or
other disposition of the Equipment, as herein provided, the security interest
provided for herein shall, without break in continuity and without further
formality or act, continue in, and attach to, all proceeds, including any
instruments for the payment of money, Accounts, documents of title, shipping
documents, chattel paper and all other cash and non-cash proceeds of such
sales, exchange or disposition.  As to
any such sale, exchange or other disposition, CIT shall have all of the rights
of an unpaid seller, including stoppage in transit, replevin, rescission and
reclamation.

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

6.6          Notwithstanding CIT’s security interest
in the Collateral and to the extent that the Obligations are now or hereafter
secured by any assets or property other than the Collateral or by the
guarantee, endorsement, assets or property of any other person, CIT shall have
the right in its sole discretion to determine which rights, liens, security
interests or remedies CIT shall at any time pursue, foreclose upon, relinquish,
subordinate, modify or take any other action with respect to, without in any
way modifying or affecting any of them, or any of CIT’s rights hereunder.

6.7          Any balances to the credit of the
Companies and any other property or assets of the Companies in the possession
or control of CIT may be held by CIT as security for any Obligations and
applied in whole or partial satisfaction of such Obligations when due.  The liens and security interests granted
herein, and any other lien or security interest CIT may have in any other
assets of the Companies, shall secure payment and performance of all now
existing and future Obligations.  CIT
may in its discretion charge any or all of the Obligations to the Revolving
Loan Account when due.

6.8          Each Company possesses all General
Intangibles and rights thereto necessary to conduct its business as conducted
as of the Closing Date and each Company shall maintain its rights in, and the
value of,  the foregoing in the ordinary
course of its business, including, without limitation, by making timely payment
with respect to any applicable licensed rights.  Each Company shall deliver to CIT, and/or shall cause the
appropriate party to deliver to CIT, from time to time such pledge or security
agreements with respect to General Intangibles (now or hereafter acquired)  of
such Company and its subsidiaries as CIT shall require to obtain valid first
liens thereon.  In furtherance of the
foregoing, each Company shall provide timely notice to CIT of any additional
Patents, Trademarks, tradenames, service marks, Copyrights, brand names, 

 

21

 

trade names, logos and other trade designations acquired or applied for
subsequent to the Closing Date and each Company shall execute such
documentation as CIT may reasonably require to obtain and perfect its lien
thereon.  Each Company hereby confirms that
it shall deliver, or cause to be delivered, any pledged stock issued subsequent
to the Closing Date to CIT in accordance with the applicable terms of the
Pledge Agreement and prior to such delivery, shall hold any such stock in trust
for CIT.  Each Company hereby
irrevocably grants to CIT a royalty-free, non-exclusive license in the General
Intangibles, including tradenames, Trademarks, Copyrights, Patents, licenses,
and any other proprietary and intellectual property rights and any and all
right, title and interest in any of the foregoing, for the sole purpose, upon
the occurrence of an Event of Default, of the right to:  (i) advertise for sale and sell or
transfer any Inventory bearing any of the General Intangibles, and
(ii) make, assemble, prepare for sale or complete, or cause others to do
so, any applicable raw materials or Inventory bearing any of the General
Intangibles, including use of the Equipment and real estate for the purpose of
completing the manufacture of unfinished goods, raw materials or
work-in-process comprising  Inventory,
and apply the proceeds thereof to the Obligations hereunder, all as further set
forth in this Financing Agreement and irrespective of CIT’s lien and perfection
in any General Intangibles.

 

SECTION
7.  Representations, Warranties and
Covenants

 

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

7.2          Each Company agrees to maintain books and
records pertaining to the Collateral in accordance with GAAP and in such
additional detail, form and scope as CIT shall reasonably require.  Each Company agrees that CIT or its agents
may enter upon such Company’s premises at any time during normal business
hours, and from time to time in its reasonable business judgement, for the
purpose of inspecting the Collateral and any and all records pertaining
thereto.  Each Company irrevocably authorizes
all accountants and third parties to disclose and deliver directly to CIT, at
such Company’s expense, all financial statements and information, books,
records, work papers, management reports and other information generated by
them or in their 

 

22

 

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

7.3          Each Company agrees to execute and
deliver to CIT, from time to time, solely for CIT’s convenience in maintaining
a record of the Collateral, such written statements, and schedules as CIT may
reasonably require, designating, identifying or describing the Collateral.

7.4          Each Company agrees to comply with the
requirements of all state and federal laws in order to grant to CIT valid and
perfected first security interests in the Collateral, subject only to the
Permitted Encumbrances.  CIT is hereby
authorized by the Companies to file (including pursuant to the applicable terms
of the UCC) from time to time any financing statements, continuations or
amendments covering the Collateral. 
Each Company hereby consents to and ratifies any and all execution
and/or filing of financing statements on or prior to the Closing Date by
CIT.  Each Company agrees to do whatever
CIT may reasonably request, from time to time, by way of:  (a) filing notices of liens, financing
statements, amendments, renewals and continuations thereof;
(b) cooperating with CIT’s agents and employees; (c) keeping
Collateral records; (d) transferring proceeds of Collateral to CIT’s
possession; and (e) performing such further acts as CIT may reasonably
require in order to effect the purposes of this Financing Agreement, including
but not limited to obtaining control agreements with respect to deposit
accounts and/or Investment Property.

7.5          (a)  Each Company agrees to
maintain insurance on its properties under such policies of insurance, with
such insurance companies, in such reasonable amounts and covering such
insurable risks as are at all times reasonably satisfactory to CIT.  All policies covering the Equipment and
Inventory are, subject to the rights of any holders of Permitted Encumbrances
holding claims senior to CIT, to be made payable to CIT, in case of loss, under
a standard non-contributory “mortgagee”, “lender” or “secured party”
clause and are to contain such other provisions as CIT may require to fully
protect CIT’s interest in the Inventory and Equipment and to any payments to be
made under such policies.  All original
policies or true copies thereof are to be delivered to CIT, premium prepaid,
with the loss payable endorsement in CIT’s favor, and shall provide for not
less than thirty (30) days prior written notice to CIT of the exercise of
any right of cancellation.  At any
Company’s request, or if any Company fails to maintain such insurance, CIT may
arrange for such insurance, but at the Companies’ expense and without any
responsibility on CIT’s part for: 
(i) obtaining the insurance, (ii) the solvency of the
insurance companies, (iii) the adequacy of the coverage, or (iv) the
collection of claims.  Upon the
occurrence of an Event of Default which is not waived in writing by CIT, CIT
shall, subject to the rights of any holders of Permitted Encumbrances holding
claims senior to CIT, have the sole right, in the name of CIT or the Companies,
to file claims under any insurance policies, to receive, receipt and give
acquittance for any payments that may be payable thereunder, and to execute any
and all endorsements, receipts, releases, assignments, reassignments or other
documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.

 

23

 

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

(ii)           In the event any part of a Company’s
Equipment is damaged by fire or other casualty and the Insurance Proceeds for
such damage or other casualty is less than or equal to $100,000.00, CIT shall
promptly apply such Proceeds to reduce the Companies’ outstanding balance in
the Revolving Loan Account.  Upon the
occurrence of a Default or Event of default, CIT may apply Insurance Proceeds
to the Obligations in such manner as it may deem advisable in its sole
discretion; and

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

7.6          Each Company agrees to pay, when due, all
Taxes, including sales taxes, assessments, claims and other charges lawfully
levied or assessed upon such Company or the Collateral unless such Taxes are
being diligently contested in good faith by such Company by appropriate
proceedings and adequate reserves are established in accordance with GAAP.  Notwithstanding the foregoing, if any lien
shall be filed or claimed thereunder (a) for Taxes due the United States
of America, or (b) which in CIT’s opinion might create a valid obligation
having priority over the rights granted to CIT herein, exclusive of Real
Estate, such lien shall not be deemed to be a Permitted Encumbrance hereunder
and such Company shall immediately pay such tax and remove the lien of record.  If a Company fails to do so promptly, then
at CIT’s election, CIT may (i) create an Availability Reserve in such
amount as it may deem appropriate in its business judgement, or (ii) upon
the occurrence of a Default or Event of Default, imminent risk of seizure,
filing of any priority lien, forfeiture, or sale of the Collateral, pay Taxes
on the Companies’ behalf, and the amount thereof shall be an Obligation secured
hereby and due on demand.

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

 

24

 

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

7.8          Until termination of this Financing
Agreement and payment and satisfaction of all Obligations due hereunder, the
Companies agree that, unless CIT shall have otherwise consented in writing, the
Companies will furnish to CIT: 
(a) within ninety (90) days after the end of each Fiscal Year,
an audited Consolidated Balance Sheet, with an accompanying Consolidating
Balance Sheet attached thereto, as at the close of such year, and statements of
profit and loss, cash flow and reconciliation of surplus of Parent, the
Companies and all subsidiaries of each for such year, such Consolidated Balance
Sheet to be audited by independent public accountants selected by the Companies
and satisfactory to CIT; (b) within forty-five (45) days after the end of
each Fiscal Quarter a Consolidated Balance Sheet and Consolidating Balance
Sheet as at the end of such period and statements of profit and loss and cash
flow of Parent, the Companies and all subsidiaries of each, certified by an
authorized financial or accounting officer of the Companies; (c) within
thirty (30) days after the end of each month, monthly interim financial
statements consisting of a Consolidated Balance Sheet as at the end of such
period and statements of profit and loss of the Companies and all subsidiaries
for such period, certified by an authorized financial or accounting officer of the
Companies; and (d) from time to time, such further information regarding the
business affairs and financial condition of the Parent, the Companies and/or
any subsidiaries thereof as CIT may reasonably request, including, without
limitation (i) the accountant’s letter of recommendations and
(ii) annual cash flow projections in form satisfactory to CIT.  Each financial statement which the Companies
are required to submit hereunder must be accompanied by an officer’s
certificate, signed by the President, Vice President, Controller, or Treasurer,
pursuant to which any one such officer must certify that:  (x) the financial statement(s) fairly
and accurately represent(s) each Company’s financial condition at the end of
the particular accounting period, as well as each Company’s operating results
during such accounting period, subject to year-end audit adjustments; and
(y) during the particular accounting period:  (A) there has been no Default or Event of Default under this
Financing Agreement, provided, however, that if any such officer has
knowledge that any such Default or Event of Default, has occurred during such
period, the existence of and a detailed description of same shall be set forth
in such officer’s certificate; (B) the Companies’ property insurance
policies remain in effect; (C) the Companies have not received any notice
that could result in a material adverse effect on the value of the Collateral
taken as a whole; and (D) the exhibits attached to such financial
statement(s) constitute detailed calculations showing compliance with all
financial covenants contained in this Financing Agreement.

7.9          Until termination of the Financing
Agreement and payment and satisfaction of all Obligations hereunder, each
Company agrees that, without the prior written consent of CIT, except as
otherwise herein provided, such Company will not:

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

 

25

 

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

(b)                                  Incur or create any Indebtedness other
than the Permitted Indebtedness;

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

(d)                                  Merge, consolidate or otherwise alter or
modify its corporate name, principal place of business, structure, or
existence, re-incorporate or re-organize, or enter into or engage in any
operation or activity materially different from that presently being conducted
by such Company, except that such Company may change its corporate name or
address or merge with or into any other Company (if a Company is the survivor
of such merger); provided in the event of any such name change or merger
that:  (i) such Company shall give
CIT thirty (30) days prior written notice thereof and (ii) such
Company shall execute and deliver, prior to or simultaneously with any such
action, any and all documents and agreements requested by CIT to confirm the
continuation and preservation of all security interests and liens granted to
CIT hereunder;

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

(f)                                    Declare or pay any dividend or
distributions of any kind on, or purchase, acquire, redeem or retire, any of
the capital stock or equity interest, of any class whatsoever, whether now or
hereafter outstanding;

(g)                                 Make any advance or loan to, or any
investment in, any firm, entity, person or corporation, or purchase or acquire
all or substantially all of the stock or assets of any entity, person or
corporation; or

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

7.10        Existing Commercial Tort Claims in which
any of the Companies is a plaintiff or other claimant are listed on Schedule
7.10, attached hereto.  The
Companies agree that in the event any future Commercial Tort Claim should arise
in which any Company is a plaintiff or claimant, to notify CIT in writing and
to take such steps as CIT may deem reasonably necessary in order to perfect
CIT’s security interest in such Commercial Tort Claim.

 

26

 

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

7.12        Such Company hereby agrees to indemnify
and hold harmless CIT and its officers, directors, employees, attorneys and
agents (each an “Indemnified Party”) from, and holds each of them harmless
against, any and all losses, liabilities, obligations, claims, actions,
damages, costs and expenses (including attorney’s fees) and any payments made
by CIT pursuant to any indemnity provided by CIT with respect to or to which
any Indemnified Party could be subject insofar as such losses, liabilities,
obligations, claims, actions, damages, costs, fees or expenses with respect to
the Loan Documents, including without limitation those which may arise from or
relate to:  (a) the Depository
Account, the Blocked Accounts, the lockbox and/or any other depository account
and/or the agreements executed in connection therewith; and (b) any and
all claims or expenses asserted against CIT as a result of any environmental
pollution, hazardous material or environmental clean-up relating to the
real estate; or any claim or expense which results from such Company’s
operations (including, but not limited to, such Company’s, off-site
disposal practices) and use of the real estate, which CIT may sustain or incur
(other than solely as a result of the physical actions of CIT on such Company’s
premises which are determined to constitute gross negligence or willful
misconduct by a court of competent jurisdiction), all whether through the
alleged or actual negligence of such person or otherwise, except and to the
extent that the same results solely and directly from the gross negligence or
willful misconduct of such Indemnified Party as finally determined by a court
of competent jurisdiction.  Each Company
hereby agrees that this indemnity shall survive termination of this Financing
Agreement, as well as payments of Obligations which may be due hereunder.  CIT may, in its sole business judgement,
establish such Availability Reserves with respect thereto as it may deem
advisable under the circumstances and, upon any termination hereof, hold such
reserves as cash reserves for any such contingent liabilities.

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

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

 

27

 

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

7.15        The Companies shall be permitted to make
regularly scheduled payments of interest on and to repurchase the Subordinated
Debt so long as (a) no event of default has occurred and is continuing at the
time of such payment or the repurchase or would result therefrom, (b) the
Companies have at least $2,000,000 of excess Availability under the Revolving
Line of Credit after giving effect to such repurchase of the Subordinated debt,
(c) the Companies have at least $1,500,000 of excess Availability under the
Revolving Line of Credit after giving effect to such payments of interest on the
Subordinated Debt and (c) if the Companies repurchase Subordinated Debt, such
Companies must repurchase not less than $40,000,000 in face value of the Notes
evidencing the Subordinated Debt.  In
addition, CIT agrees to subordinate its lien on Equipment to a new term lender
provided that the proceeds of such term loan are used to repurchase the Senior
Subordinated Notes and such term lender enters into an Intercreditor Agreement
with CIT in form and substance satisfactory to CIT.

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

 

SECTION
8.  Interest, Fees and Expenses

 

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

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

8.2          On the date one year after the Closing
Date and on the same date of each year thereafter while this Financing
Agreement is in effect, the Companies shall pay to CIT an annual 

 

28

 

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

8.3          During any Borrowing Period, should the
Companies’ average outstanding balance of Revolving Loans for any month, be
less than $2,000,000.00 (“Minimum Borrowing”), the Companies shall pay to CIT
an amount equal to the difference between such average outstanding balance and
the Minimum Borrowing multiplied by the interest rate for Chase Bank Rate Loans
applicable to Revolving Loans on the last day of such month.

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

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

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

8.7          On the Closing Date and each anniversary
of the Closing Date thereafter, the Companies shall pay to CIT an
Administrative Management Fee in the amount of $50,000.00, which fee shall be
deemed fully earned on such date.

8.8          So long as no Event of Default shall have
occurred or be continuing, the Administrative Management Fee shall be deemed
payment of CIT’s standard charges and fees for CIT’s personnel used by CIT for
reviewing the books and records of the Companies and for verifying, testing,
protecting, safeguarding, preserving or disposing of all or any part of the
Collateral.  During any period after an
Event of Default, such fees and charges shall be payable in addition to the
Administrative Management Fee and any Out-of-Pocket Expenses.

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

8.10        In the event that CIT or any participant
hereunder (or any financial institution which may from time to time become a
participant or lender hereunder) shall have determined in the exercise of its
reasonable business judgement that, subsequent to the Closing Date, any change
in applicable law, rule, regulation or guideline regarding capital adequacy, or
any change in the interpretation or administration thereof, or compliance by
CIT or such participant with any new request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on CIT’s or such participant’s capital as a consequence of its
obligations hereunder to a level below that which CIT or such participant could
have achieved but for such adoption, change or compliance (taking into
consideration CIT or such participant’s policies with 

 

29

 

respect to capital
adequacy) by an amount reasonably deemed by CIT or such participant to be
material, then, from time to time, the Companies shall pay no later than
five (5) days following demand to CIT or such participant such additional
amount or amounts as will compensate CIT’s or such participant’s for such
reduction.  In determining such amount
or amounts, CIT or such participant may use any reasonable averaging or
attribution methods.  The protection of
this Paragraph 8.10 shall be available to CIT or such participant
regardless of any possible contention of invalidity or inapplicability with
respect to the applicable law, regulation or condition.  A certificate of CIT or such participant
setting forth such amount or amounts as shall be necessary to compensate CIT or
such participant with respect to this Section 8 and the calculation
thereof when delivered to the Companies shall be conclusive on the Companies
absent manifest error.  Notwithstanding
anything in this paragraph to the contrary, in the event CIT or such
participant has exercised its rights pursuant to this paragraph, and subsequent
thereto determines that the additional amounts paid by the Companies in whole
or in part exceed the amount which CIT or such participant actually required to
be made whole, the excess, if any, shall be returned to the Companies by CIT or
such participant, as applicable.

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

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

(b)           impose, modify or hold applicable any
reserve, special deposit, assessment or similar requirement against assets held
by, or deposits in or for the account of, advances or loans by, or other credit
extended by CIT or such participant by reason of or in respect to this
Financing Agreement and the Loan Documents, including (without limitation)
pursuant to Regulation D of the Board of Governors of the Federal Reserve
System; or

(c)           impose on CIT or such participant any
other condition with respect to this Financing Agreement or any other document,
and the result of any of the foregoing is to increase the cost to CIT or such
participant of making, renewing or maintaining its loans hereunder by an amount
that CIT or such participant deems to be material in the exercise of its
reasonable business judgement or to reduce the amount of any payment (whether
of principal, interest or otherwise) in respect of any of the loans by an
amount that CIT or such participant deems to be material in the exercise of its
reasonable business judgement, then, in any case the Companies shall pay CIT or
such participant, within five (5) days following its demand, such additional
cost or such reduction, as the case may be. 
CIT or such participant shall certify the amount of such additional cost
or reduced amount to the Companies and the calculation thereof and such
certification shall be conclusive upon the Companies absent manifest error.  Notwithstanding anything in this
paragraph to the contrary, in the event CIT or such participant has
exercised its rights pursuant to this paragraph, and subsequent thereto
determine that the additional amounts paid by the Companies in whole or in part
exceed the amount which CIT or such participant

 

 

30

 

actually required
pursuant hereto, the excess, if any, shall be returned to the Companies by CIT
or such participant.

 

8.12        The Company may request LIBOR Loans on
the following terms and conditions:

(a)           The Company may elect, subsequent to the
Closing Date and from time to time thereafter 
(i) to request any loan made hereunder to be a LIBOR Loan as of the date
of such loan or (ii) to convert Chase Bank Rate Loans to LIBOR Loans, and may
elect from time to time to convert LIBOR Loans to Chase Bank Rate Loans by
giving CIT at least three (3) Business Days’ prior irrevocable notice of such
election, provided that any such conversion of LIBOR Loans to Chase Bank Rate
Loans shall only be made, subject to the second following sentence, on the last
day of an Interest Period with respect thereto.  Should the Company elect to convert Chase Bank Rate Loans to
LIBOR Loans, it shall give CIT at least three (3) Business Days’ prior
irrevocable notice of such election.  If
the last day of an Interest Period with respect to a loan that is to be
converted is not a Business Day or Working Day, then such conversion shall be
made on the next succeeding Business Day or Working Day, as the case may be,
and during the period from such last day of an Interest Period to such
succeeding Business Day, as the case may be, such loan shall bear interest as
if it were an Chase Bank Rate Loan.  All
or any part of outstanding Chase Bank Rate Loans then outstanding may be
converted to LIBOR Loans as provided herein, provided that partial conversions
shall be in multiples in an aggregate principal amount of $1,000,000 or more.

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

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

 

31

 

 

8.13

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

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

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

8.14

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

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

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

8.16        If any payment on a LIBOR Loan becomes
due and payable on a day other than a Business Day or Working Day, the maturity
thereof shall be extended to the next succeeding Business Day or Working Day
unless the result of such extension would be to extend such payment into
another calendar month in which event such payment shall be made on the
immediately preceding Business Day or Working Day.

 

32

 

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

8.18        The Company agrees to indemnify and to
hold  CIT (including any participant)
harmless from any loss or expense which 
CIT or such participant may sustain or incur as a consequence of:  (a) Default by the Company in payment of the
principal amount of or interest on any LIBOR Loans, as and when the same shall
be due and payable in accordance with the terms of this Agreement, including,
but not limited to, any such loss or expense arising from interest or fees
payable by  CIT or such participant to
lenders of funds obtained by either of them in order to maintain the LIBOR Loans
hereunder; (b) default by the Company in making a borrowing or conversion after
the Company has given a notice in accordance with Paragraph 8.12 of Section 8
hereof; (c) any prepayment of LIBOR Loans on a day which is not the last day of
the Interest Period applicable thereto, including, without limitation,
prepayments arising as a result of the application of the proceeds of
Collateral to the Revolving Loans; and (d) default by the Company in making any
prepayment after the Company had given notice to CIT thereof.  The determination by CIT of the amount of
any such loss or expense, when set forth in a written notice to the Company,
containing CIT’s calculations thereof in reasonable detail, shall be conclusive
on the Company in the absence of manifest error.  Calculation of all amounts payable under this paragraph with
regard to LIBOR Loans shall be made as though CIT had actually funded the LIBOR
Loans through the purchase of deposits in the relevant market and currency, as
the case may be, bearing interest at the rate applicable to such LIBOR Loans in
an amount equal to the amount of the LIBOR Loans and having a maturity
comparable to the relevant interest period; provided, however, that CIT may
fund each of the LIBOR Loans in any manner CIT sees fit and the foregoing
assumption shall be used only for calculation of amounts payable under this
paragraph.  In addition, notwithstanding
anything to the contrary contained herein, CIT shall apply all proceeds of
Collateral and all other amounts received by it from or on behalf of the
Company (i) initially to the Chase Bank Rate Loans and (ii) subsequently to
LIBOR Loans; provided, however, (x) upon the occurrence of an Event of Default
or (y) in the event the aggregate amount of outstanding LIBOR Rate Loans
exceeds Availability or the applicable maximum levels set forth therefor, CIT
may apply all such amounts received by it to the payment of Obligations in such
manner and in such order as CIT may elect in its reasonable business
judgment.  In the event that any such
amounts are applied to Revolving Loans which are LIBOR Loans, such application
shall be treated as a prepayment of such loans and CIT shall be entitled to
indemnification hereunder.  This
covenant shall survive termination of this Agreement and payment of the
outstanding Obligations.

8.19        Notwithstanding anything to the contrary
in this Agreement, in the event that, by reason of any Regulatory Change (for
purposes hereof “Regulatory Change” shall mean, with respect to CIT, any change
after the date of this Agreement in United States federal, state or foreign law
or regulations (including, without limitation, Regulation D) or the adoption or

 

33

 

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

8.20        For purposes of this Financing Agreement and
Section 8 thereof, any reference to CIT shall include any financial
institution which may become a participant or co-lender subsequent to the
Closing Date.

 

SECTION
9.  Powers

 

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

 

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

(b)           To receive, open and dispose of all mail
addressed to the Companies, or any one of them, and to notify postal
authorities to change the address for delivery thereof to such address as CIT
may designate;

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

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

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

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

 

34

 

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

 

SECTION
10.  Events of Default and Remedies

 

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

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

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

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

(d)                                  breach by any Company of any warranty,
representation or covenant contained herein (other than those referred to in
sub-paragraph (e)  below) or in any other written agreement
between such Company or CIT, provided that such Default by such Company of any
of the warranties, representations or covenants referred in this
clause (d) shall not be deemed to be an Event of Default unless and until
such Default shall remain unremedied to CIT’s satisfaction for a period of
ten (10) days 

 

35

 

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

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

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

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

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

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

(j)                                    if any Guarantor dies or terminates its
respective Guaranty or otherwise fails to perform any of the terms of the
Guaranty, all prior to termination of this Financing Agreement and payment in
full of all Obligations; or

(k)                                any judgment or judgments aggregating in
excess of $100,000.00 or any injunction or attachment is obtained or enforced
against the Company or any Guarantor and which remains unstayed for more than
ten (10) Business Days.

10.2        Upon the occurrence of a Default and/or
an Event of Default, at the option of CIT, all loans, advances and extensions
of credit provided for in this Financing Agreement shall be thereafter in CIT’s
sole discretion and the obligation of CIT to make Revolving Loans shall cease unless
such Default is cured to CIT’s satisfaction or Event of Default is waived in
writing by CIT, and at the option of CIT upon the occurrence of an Event of
Default:  (a) all Obligations
shall become immediately due and payable; (b) CIT may charge the Companies the
Default Rate 

 

36

 

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

10.3        Immediately upon the occurrence of any
Event of Default, CIT may, to the extent permitted by law:  (a) remove from any premises where
same may be located any and all books and records, computers, electronic media
and software programs associated with any Collateral (including any electronic
records, contracts and signatures pertaining thereto), documents, instruments,
files and records, and any receptacles or cabinets containing same, relating to
the Accounts, or CIT may use, at the Companies’ expense, such of the Companies’
personnel, supplies or space at the Companies’ places of business or otherwise,
as may be necessary to properly administer and control the Accounts or the
handling of collections and realizations thereon; (b) bring suit, in the
name of the Companies or CIT, and generally shall have all other rights
respecting said Accounts, including without limitation the right to:  accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Companies or CIT; (c) sell,
assign and deliver the Collateral and any returned, reclaimed or repossessed
Inventory, with or without advertisement, at public or private sale, for cash,
on credit or otherwise, at CIT’s sole option and discretion, and CIT may bid or
become a purchaser at any such sale, free from any right of redemption, which
right is hereby expressly waived by the Companies; (d) foreclose the
security interests in the Collateral created herein or by the Loan Documents by
any available judicial procedure, or to take possession of any or all of the
Collateral, including any Inventory, Equipment and/or Other Collateral without
judicial process, and to enter any premises where any Inventory and Equipment
and/or Other Collateral may be located for the purpose of taking possession of
or removing the same; and (e) exercise any other rights and
remedies provided in law, in equity, by contract or otherwise.  CIT shall have the right, without notice or
advertisement, to sell, lease, or otherwise dispose of all or any part of the
Collateral, whether in its then condition or after further preparation or
processing, in the name of the Companies or CIT, or in the name of such other
party as CIT may designate, either at public or private sale or at any broker’s
board, in lots or in bulk, for cash or for credit, with or without warranties
or representations  (including but not
limited to warranties of title, possession, quiet enjoyment and the like), and
upon such other terms and conditions as CIT in its sole discretion may deem
advisable, and CIT shall have the right to purchase at any such sale.  If any Inventory and Equipment shall require
rebuilding, repairing, maintenance or preparation, CIT shall have the right, at
its option, to do such of the aforesaid as is necessary, for the purpose of
putting the Inventory and Equipment in such saleable form as CIT shall deem
appropriate and any such costs shall be deemed an Obligation hereunder.  Any action taken by CIT pursuant to this
paragraph shall not effect commercial reasonableness of the sale.  The Companies agree, at the request of CIT,
to assemble the Inventory and Equipment and to make it available to CIT at
premises of the Companies or elsewhere and to make available to CIT the premises
and facilities of the Companies for the purpose of CIT’s taking possession of,
removing or putting the Inventory and Equipment in saleable form.  If notice of intended disposition of any
Collateral is required by law, it is agreed that ten (10) days notice
shall constitute reasonable notification and full compliance with the law.  

 

37

 

The net cash proceeds resulting from CIT’s exercise of any of the
foregoing rights, (after deducting all charges, costs and expenses, including
reasonable attorneys’ fees) shall be applied by CIT to the payment of the  Obligations, whether due or to become due,
in such order as CIT may elect, and the Companies shall remain liable to CIT
for any deficiencies, and CIT in turn agrees to remit to the Companies or their
successors or assigns, any surplus resulting therefrom.  The enumeration of the foregoing rights is
not intended to be exhaustive and the exercise of any right shall not preclude
the exercise of any other rights, all of which shall be cumulative.  The Companies hereby indemnify CIT and holds
CIT harmless from any and all costs, expenses, claims, liabilities,
Out-of-Pocket Expenses or otherwise, incurred or imposed on CIT by reason of
the exercise of any of its rights, remedies and interests hereunder, including,
without limitation, from any sale or transfer of Collateral, preserving,
maintaining or securing the Collateral, defending its interests in Collateral
(including pursuant to any claims brought by the Companies, the Companies as
debtor-in-possession, any secured or unsecured creditors of the Companies, any
trustee or receiver in bankruptcy, or otherwise), and the Companies hereby
agree to so indemnify and hold CIT harmless, absent CIT’s gross negligence or
willful misconduct as finally determined by a court of competent
jurisdiction.  The foregoing
indemnification shall survive termination of this Financing Agreement until
such time as all Obligations (including the foregoing) have been finally and
indefeasibly paid in full.  In
furtherance thereof CIT, may establish such reserves for Obligations hereunder
(including any contingent Obligations) as it may deem advisable in its
reasonable business judgement.

 

SECTION
11.  Termination

 

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

 

SECTION
12.  Suretyship Waivers and Consents

 

The following
provisions shall apply to the extent that all or any portion of the Obligations
now or hereafter constitute the obligations of any persons other than, or in
addition 

 

38

 

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

 

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

(b)                                  Waiver of Rights and Defenses. 
Each Company hereby waives any rights or defenses it may now or
hereafter have by reason of or that relate to: 
(1) any disability or other defense of any Obligor or other person, (2)
the cessation, from any cause other than full performance, of the obligations
of any Obligor or any other person, (3) the application of the proceeds of any
Obligation by any Obligor or other person, for purposes other than the purposes
represented to such Company by any Obligor or otherwise intended or understood
by such Company or any Obligor, (4) any act or omission by CIT which directly
or indirectly results in or contributes to the release of any Obligor or other
person or any collateral for any Obligation, (5) the unenforceability or
invalidity of any collateral assignment or guaranty with respect to any
Obligation, or the lack of perfection or continuing perfection or lack of
priority of any lien which secures any Obligation, (6) any failure of CIT to
marshal assets in favor of such Company or any other person, (7) any
modification of any Obligation, including any renewal, extension, acceleration
or increase in interest rate, (8) any election of remedies, (9) any Obligation
or other obligation being secured by real property or an estate for years; (10)
any law which provides that the obligation of a surety or guarantor must
neither be larger in amount nor in other respects more burdensome than that of
the principal or which reduces a surety’s or guarantor’s obligation in
proportion to the principal obligation, (11) any failure of CIT to file or
enforce a claim in any bankruptcy or other proceeding with respect to any
person, (12) the election by CIT, in any bankruptcy proceeding of any person,
of the application or non-application of Section 1111(b)(2) of the United
States Bankruptcy Code, (13) any extension of credit or the grant of any lien
under Section 364 of the United States Bankruptcy Code, (14) any use of cash
collateral under Section 363 of the United States Bankruptcy Code, or (15) any
agreement or stipulation with respect to the provision of adequate protection
in any bankruptcy proceeding of any person.

(c)                                  Subrogation. 
Each Company hereby waives (a) any right of subrogation which such
Company may now or hereafter have against any Obligor that relates to any
Obligation, (b) any right to enforce any remedy such Company may now or
hereafter have against any Obligor that relates to any Obligation, and (c) any
right to participate in any collateral now or hereafter assigned to CIT with
respect to any Obligation (and such Company further agrees that, if and to the
extent that 

 

39

 

                                                any waiver set forth in this subsection
is ever held to be unenforceable, all such rights of subrogation, enforcement
and participation shall be junior and subordinate to the right of CIT to obtain
payment and performance of the Obligations and to all rights of CIT in and to
any property which now or hereafter serves as collateral security for any
Obligation).

(d)                                  Obligor Information. 
Each Company warrants and agrees: 
(a) that it has not relied, and will not rely, on any representations or
warranties by CIT to it with respect to the creditworthiness of any Obligor or
the prospects of repayment of any Obligation, (b) that it has established
and/or will establish adequate means of obtaining from each Obligor on a
continuing basis, financial and other information pertaining to the business
operations, if any, and financial condition of each Obligor, (c) that it
assumes full responsibility for keeping informed with respect to each Obligor’s
business operations, if any, and financial condition, and (d) that CIT shall have
no duty to disclose or report to it any information now or hereafter known to
CIT with respect to any Obligor, including without limitation information
relating to any Obligor’s business operations or financial condition.

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

(f)                                    Liens on Real Property. 
In the event that all or any part of the Obligations at any time now or
hereafter are secured by any one or more deeds of trust or mortgages or other
instruments creating or granting liens on any interests in real property, each
Company expressly waives all rights and defenses that such Company may have
because the Obligations are secured by real property.  This means, among other thing: (1) CIT may collect from any Company
without first foreclosing on any real or personal property collateral pledged
by any Obligor, and (2) if CIT forecloses on any real property collateral
pledged by any Obligor: (i) the amount of the Obligations may be reduced only
by the price for which that collateral is sold at the foreclosure sale, even if
the collateral is worth more than the sale price, and (ii) CIT may collect from
any Company even if CIT, by foreclosing on the real property collateral, has
destroyed any right such Company may have to collect from any Obligor.  This is an unconditional and irrevocable
waiver of any rights and defenses any Company may have because the Obligations
are secured by real property.  These
rights and defenses include, but are not limited to, any rights or defenses
based upon California Code of Civil Procedure §§ 580a, 580b, 580d or 726, as
modified or recodified from time to time. 
Each Company waives all rights and defenses arising out of an election
of remedies by CIT, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for any Obligation, has
destroyed such Company’s rights of subrogation and reimbursement against any
Obligor by the operation of California Code of Civil Procedure §580d or
otherwise.

 

40

 

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

 

SECTION
13.  Miscellaneous

 

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

13.2        This Financing Agreement and the Loan
Documents executed and delivered in connection therewith constitute the entire
agreement between the Companies and CIT; 
supersede any prior agreements; can be changed only by a writing signed
by both the Companies and CIT; and shall bind and benefit the Companies and CIT
and their respective successors and assigns.

13.3        In no event shall the Companies, upon
demand by CIT for payment of any Indebtedness relating hereto, by acceleration
of the maturity thereof, or otherwise, be obligated to pay interest and fees in
excess of the amount permitted by law. 
Regardless of any provision herein or in any agreement made in
connection herewith, CIT shall never be entitled to receive, charge or apply,
as interest on any indebtedness relating hereto, any amount in excess of the
maximum amount of interest permissible under applicable law.  If CIT ever receives, collects or applies
any such excess, it shall be deemed a partial repayment of principal and
treated as such; and if principal is paid in full, any remaining excess shall
be refunded to the Companies.  This
paragraph shall control every other provision hereof, the Loan Documents
and of any other agreement made in connection herewith.

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

 

41

 

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

13.6        Except as otherwise herein provided, any
notice or other communication required hereunder shall be in writing (provided
that, any electronic communications from any Company with respect to any
request, transmission, document, electronic signature, electronic mail or
facsimile transmission shall be deemed binding on the Companies for purposes of
this Financing Agreement, provided further that any such transmission shall not
relieve the Companies from any other obligation hereunder to communicate
further in writing), and shall be deemed to have been validly served, given or
delivered when hand delivered or sent by facsimile, or three days after deposit
in the United State mails, with proper first class postage prepaid and addressed
to the party to be notified or to such other address as any party hereto may
designate for itself by like notice, as follows:

(A)                              if to CIT, at:

The
CIT Group/Business Credit, Inc.

300 South Grand Avenue, 3rd Floor

Los Angeles, California 90071

Attn:  Regional Credit Manager

Fax No.:  (213) 613-2501

(B)                                if to the Companies at:

c/o
HCC Industries Inc. 

4232 Temple City Blvd.

Rosemead, California 91770

Attn: President

Fax No.: (626) 582-1186

13.7        THE
VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS  FINANCING AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY THE LAWS OF THE  STATE OF
CALIFORNIA, EXCEPT TO THE EXTENT THAT ANY OTHER LOAN DOCUMENT INCLUDES AN
EXPRESS ELECTION TO BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION.

 

42

 

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

 

	
  COMPANIES:

  	
   

  	
  THE
  CIT GROUP/BUSINESS CREDIT, INC.

  
	
   

  	
   

  	
   

  
	
  HCC
  INDUSTRIES INC.

  	
   

  	
   

  

 

	
  By:

  	
  s/s Richard Ferraid

  	
   

  	
  By:

  	
  s/s    Rebecca J. Martin

  
	
   

  	
  Richard Ferraid, President

  	
   

  	
   

  	
  Rebecca J. Martin

  
	
   

  	
   

  	
   

  	
   

  	
  Title:  Vice President

  
	
  By:

  	
  s/s Christopher Bateman

  	
   

  	
   

  	
   

  
	
   

  	
  Christopher Bateman, Secretary

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GLASSEAL
  PRODUCTS, INC.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  s/s Richard Ferraid

  	
   

  	
   

  	
   

  
	
   

  	
  Richard Ferraid, President

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  s/s Christopher Bateman

  	
   

  	
   

  	
   

  
	
   

  	
  Christopher Bateman, Secretary

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SEALTRON,
  INC.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  s/s Richard Ferraid

  	
   

  	
   

  	
   

  
	
   

  	
  Richard Ferraid, President

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  s/s Christopher Bateman

  	
   

  	
   

  	
   

  
	
   

  	
  Christopher Bateman, Secretary

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  HERMETIC
  SEAL CORPORATION

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  s/s Richard Ferraid

  	
   

  	
   

  	
   

  
	
   

  	
  Richard Ferraid, President

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  s/s Christopher
  Bateman

  	
   

  	
   

  	
   

  
	
   

  	
  Christopher
  Bateman, Secretary

  	
   

  	
   

  	
   

  

 

 

 Schedule 1 

 

Collateral Information

 

 

	
  COMPANY  NAME

  	
   

  	
  STATE OF  INCORPORATION

  	
   

  	
  FEDERAL
  TAX  I.D. NO.

  	
   

  	
  CHIEF
  EXECUTIVE  OFFICE

  	
   

  	
  COLLATERAL
  LOCATION

  
	
  HCC Industries Inc.

  	
   

  	
  Delaware

  	
   

  	
  95-2691666

  	
   

  	
  4232 Temple City Blvd.
  Rosemead, CA 91770

  	
   

  	
  California

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Hermetic Seal
  Corporation

  	
   

  	
  Delaware

  	
   

  	
  95-3443353

  	
   

  	
  4232 Temple City Blvd.
  Rosemead, CA 91770

  	
   

  	
  California

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Glasseal Products, Inc.

  	
   

  	
  New Jersey

  	
   

  	
  22-1909729

  	
   

  	
  485 Oberlin Ave. South
  Lakewood, NJ  08701

  	
   

  	
  New Jersey

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sealtron, Inc.

  	
   

  	
  Delaware

  	
   

  	
  31-1191739

  	
   

  	
  9705 Reading Road
  Cincinnati, OH  45215

  	
   

  	
  Ohio

  

 

1

 

Schedule
2(i)

 

Litigation Summary

 

HCC
Industries Inc.

 

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

 

 

Hermetic
Seal Corporation

 

1.               Montesdeoca vs. Hermetic Seal Corp. (worker
compensation)

 

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

 

 

Glasseal
Products, Inc.

 

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

 

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

 

 

Sealtron,
Inc.

 

        1.     Linville vs.
Sealtron (worker compensation)

 

1

 

Schedule
7.10

 

Existing Commercial Tort Claims

 

 

None.

 

1

 

Schedule
of 

Permitted Encumbrances

 

 

HCC
INDUSTRIES INC.

 

 

Delaware Secretary of State

 

	
  Filing No. & Date

  	
   

  	
  Secured Party

  	
   

  	
  Collateral

  
	
  10988985

  08/20/2001

  	
   

  	
  Wells Fargo Equipment
  Finance Inc.

  	
  

  	
  Specific equipment

  
	
  20989230 

  03/28/2002

  	
   

  	
  Wells Fargo Equipment
  Finance Inc.

  	
   

  	
  Specific equipment

  

 

 

California Secretary of State

 

	
  Filing No. & Date

  	
   

  	
  Secured Party

  	
   

  	
  Collateral

  
	
  0104060440 

  02/07/2001

  	
   

  	
  General Electric
  Capital Corp.

  	
   

  	
  Specific equipment and
  proceeds

  
	
  0105361006 

  02/20/2001

  	
   

  	
  General Electric
  Capital Corp.

  	
   

  	
  Specific equipment and
  proceeds

  
	
  0109660438 

  04/04/2001

  	
   

  	
  General Electric
  Capital Corp.

  	
   

  	
  Specific equipment and
  proceeds

  
	
  0109660449 

  04/04/2001

  	
   

  	
  General Electric
  Capital Corp.

  	
   

  	
  Specific equipment and
  proceeds

  
	
  0109660518 

  04/04/2001

  	
   

  	
  General Electric
  Capital Corp.

  	
   

  	
  Specific equipment and
  proceeds

  
	
  0109660522 

  04/04/2001

  	
   

  	
  General Electric
  Capital Corp.

  	
   

  	
  Specific equipment and
  proceeds

  
	
  010960019 

  04/04/2001

  	
   

  	
  General Electric
  Capital Corp.

  	
   

  	
  Specific equipment and
  proceeds

  

 

 

HCC
MACHINING COMPANY, INC.

 

 

California Secretary of State

 

	
  Filing No. & Date

  	
   

  	
  Secured Party

  	
   

  	
  Collateral

  
	
  0029460660 

  10/10/2000

  	
   

  	
  Methods Machine Tools
  Inc.

  	
   

  	
  Specific equipment

  

 

1

 

 

 

HCC
INDUSTRIES INTERNATIONAL

 

None.

 

HERMETIC
SEAL CORPORATION

 

Delaware Secretary of State

 

	
  Filing No. & Date

  	
   

  	
  Secured Party

  	
   

  	
  Collateral

  
	
  21655418 

  06/05/2002

  	
   

  	
  Comerica Leasing

  	
   

  	
  Specific equipment and
  proceeds

  
	
  21655459 

  06/05/2002

  	
   

  	
  Comerica Leasing

  	
   

  	
  Specific equipment
  lease and proceeds

  

 

 

California Secretary of State

 

	
  Filing No. & Date

  	
   

  	
  Secured Party

  	
   

  	
  Collateral

  
	
  93190295 

  09/17/1993

  	
   

  	
  CIT Group/Equipment
  Financing

  	
   

  	
  Specific equipment

  
	
  9510960526 

  04/14/1995

  	
   

  	
  General Electric
  Capital Corp.

  	
   

  	
  Specific equipment
  lease and proceeds

  
	
  9725560556 

  09/11/1997

  	
   

  	
  Magid Glove and Safety
  Manufacturing Co.

  	
   

  	
  All inventory financed
  by Secured Party

  
	
  9919860104 

  07/07/1999

  	
   

  	
  KeyCorp Leasing

  	
   

  	
  Specific equipment and
  proceeds

  
	
  0001260161 

  01/05/2000

  	
   

  	
  KeyCorp Leasing

  	
   

  	
  Specific equipment and
  proceeds

  
	
  0010160105 

  04/04/2000

  	
   

  	
  KeyCorp Leasing

  	
   

  	
  Specific equipment and
  proceeds

  
	
  0010160114 

  04/04/2000

  	
   

  	
  KeyCorp Leasing

  	
   

  	
  Specific equipment and
  proceeds

  
	
  0030160723 

  10/18/2000

  	
   

  	
  Comerica Leasing

  	
   

  	
  Specific equipment and
  proceeds

  

 

 

Los Angeles County, California

 

	
  Filing No. & Date

  	
   

  	
  Secured Party

  	
   

  	
  Collateral

  
	
  95-1326000

  08/15/95

  	
   

  	
  General Electric
  Capital Corp.

  	
   

  	
  Equipment, fixtures,
  and proceeds

  

 

2

 

 

 

GLASSEAL
PRODUCTS, INC.

 

None.

 

 

 

SEALTRON,
INC.

 

Delaware Secretary of State

 

	
  Filing No. & Date

  	
   

  	
  Secured Party

  	
   

  	
  Collateral

  
	
  21655418 

  06/05/2002

  	
   

  	
  Comerica Leasing

  	
   

  	
  Specific equipment
  lease and proceeds

  
	
  21655459 

  06/5/2002

  	
   

  	
  Comerica Leasing

  	
   

  	
  Specific equipment
  lease and proceeds

  

 

 

California Secretary of State

 

	
  Filing No. & Date

  	
   

  	
  Secured Party

  	
   

  	
  Collateral

  
	
  0001161276 

  01/05/2000

  	
   

  	
  KeyCorp Leasing

  	
   

  	
  Specific equipment and
  proceeds

  
	
  0001260166 

  01/05/2000

  	
   

  	
  KeyCorp Leasing

  	
   

  	
  Specific equipment and
  proceeds

  

 

 

SEALTRON
ACQUISITION CORP.

 

None

 

 

 

3

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