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EXHIBIT 10.31  

 
 

SECURITY AGREEMENT
  DATED AS OF            , 2002
  
    between
  
    IFR SYSTEMS, INC.
  
    AND
  
    AEROFLEX INCORPORATED

 AS SECURED PARTY    

 
 
 

TABLE OF CONTENTS    
  

	 
	 	 
	 	Page

	Section 1.	 	DEFINED TERMS	 	1
	Section 2.	 	GRANT OF SECURITY	 	2
	Section 3.	 	AUTHORIZATION	 	4
	Section 4.	 	GRANTOR REMAINS LIABLE	 	4
	Section 5.	 	REPRESENTATIONS AND WARRANTIES	 	4
	Section 6.	 	PERFECTION AND MAINTENANCE OF SECURITY INTERESTS AND LIENS	 	5
	Section 7.	 	FINANCING STATEMENTS	 	6
	Section 8.	 	FILING COSTS	 	6
	Section 9.	 	SCHEDULE OF COLLATERAL	 	6
	Section 10.	 	EQUIPMENT AND INVENTORY	 	6
	Section 11.	 	ACCOUNTS	 	7
	Section 12.	 	LEASED REAL PROPERTY	 	7
	Section 13.	 	GENERAL COVENANTS	 	8
	Section 14.	 	SECURED PARTY APPOINTED ATTORNEY-IN-FACT	 	8
	Section 15.	 	SECURED PARTY MAY PERFORM	 	9
	Section 16.	 	SECURED PARTY'S DUTIES	 	9
	Section 17.	 	REMEDIES	 	9
	Section 18.	 	EXERCISE OF REMEDIES	 	10
	Section 19.	 	LICENSE	 	10
	Section 20.	 	INJUNCTIVE RELIEF	 	10
	Section 21.	 	INTERPRETATION AND INCONSISTENCIES; MERGER.	 	10
	Section 22.	 	EXPENSES	 	10
	Section 23.	 	AMENDMENTS, ETC.	 	10
	Section 24.	 	NOTICES	 	10
	Section 25.	 	CONTINUING SECURITY INTEREST; TERMINATION	 	10
	Section 26.	 	SEVERABILITY; NO STRICT CONSTRUCTION	 	11
	Section 27.	 	GOVERNING LAW	 	11
	Section 28.	 	CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.	 	11
	

EXHIBITS
	

EXHIBIT A	
 	

—    Form of Landlord Agreement (with Mortgagee Provisions)
	EXHIBIT B	 	—    Form of Bailee Letter

i

  

 
 

SECURITY AGREEMENT    
  

        This SECURITY AGREEMENT ("AGREEMENT"), dated as of            , 2002 is made by IFR SYSTEMS, INC., a Delaware corporation
(together with its successors
and assigns, including a debtor-in-possession on behalf of IFR SYSTEMS, INC., "GRANTOR"), in favor of AEROFLEX INCORPORATED (the "SECURED PARTY"). 

 
 

PRELIMINARY STATEMENT    
  

        Grantor has entered into a certain Note of even date herewith between Grantor and the Secured Party (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "NOTE"), providing for the making of a loan the "LOAN") to or for the benefit of Grantor. It is a condition precedent to the making of the Loan under the Note
that Grantor shall have granted the security interest contemplated by this Agreement. 

        NOW,
THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows: 

        Section
1. DEFINED TERMS. Unless otherwise defined herein, terms defined in the Note are used herein as therein defined, and the following terms shall have the following meanings (such
meanings being equally applicable to both the singular and the plural forms of the terms defined): 

        "AGREEMENT"
shall mean this Security Agreement, as the same may from time to time be amended, restated, modified or supplemented, and shall refer to this Agreement as the same may be in
effect at the time such reference becomes operative. 

        "COLLATERAL"
shall mean all property and rights in property now owned or hereafter at any time acquired by Grantor in or upon which a Lien is granted in favor of the
Secured Party by Grantor or a
Subsidiary of Grantor under this Agreement, including, without limitation, the property described in SECTION 2. 

        "UCC"
shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; PROVIDED, HOWEVER, in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection or priority of the Secured Party's security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of definitions related to such provisions. 

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        Section
2. GRANT OF SECURITY. To secure the prompt and complete payment, observance and performance of the Obligations, Grantor hereby assigns and pledges to Secured Party, a security
interest in all of Grantor's right, title and interest in and to the following, whether now owned or existing or hereafter arising or acquired and wheresoever located: 

        ACCOUNTS:
All "accounts" as such term is defined in Section 9-102 of the UCC, whether now owned or hereafter acquired or arising; Grantor intends that the term
"accounts", as used herein, be construed in its broadest sense, and such term shall include, without limitation, all present and future accounts, accounts receivable and other rights of Grantor to
payment of a monetary obligation (except those evidenced by instruments or chattel paper), whether now existing or hereafter arising and wherever arising, and whether or not they have been earned by
performance (collectively, "ACCOUNTS'); 

        INVENTORY:
All "inventory" as defined in Section 9-102 of the UCC, whether now owned or hereafter acquired or arising; Grantor intends that the term "inventory", as
used herein, be construed in its broadest sense, and such term shall include, without limitation, all goods or fixtures now owned or hereafter acquired by Grantor (wherever located, whether in the
possession of Grantor or of a bailee or other person for sale, storage, transit, processing, use or otherwise and whether consisting of whole goods, spare parts, components, supplies, materials, or
consigned, returned or repossessed goods) which are held for sale or lease, which are to be furnished (or have been furnished) under any contract of service or which are raw materials, work in process
or materials used or consumed in Grantor's business (collectively, "INVENTORY"); 

        EQUIPMENT:
All "equipment" as such term is defined in Section 9-102 of the UCC, whether now owned or hereafter acquired or arising; Grantor intends that the term
"equipment", as used herein, be construed in its broadest sense, and such term shall include, without limitation, all machinery, all manufacturing, distribution, selling, data processing and office
equipment, all furniture, furnishings, appliances, fixtures and trade fixtures, tools, tooling, molds, dies, vehicles, vessels, trucks, buses, motor
vehicles and all other goods of every type and description (other than Inventory), in each instance whether now owned or hereafter acquired by Grantor and wherever located (collectively, "EQUIPMENT"); 

        GENERAL
INTANGIBLES: All "general intangibles" as defined in Section 9-102 of the UCC, whether now owned or hereafter acquired or arising; Grantor intends that the
term "general intangibles", as used herein, be construed in its broadest sense, and such term shall include, without limitation, all rights, interests, choses in action, causes of actions, claims,
payment intangibles (as defined in Section 9-102 of the UCC) and all other intangible property of Grantor of every kind and nature (other than Accounts), in each instance whether
now owned or hereafter acquired by Grantor and however and whenever arising, including, without limitation, all corporate and other business records; all loans, royalties, and other obligations
receivable; customer lists, credit files, correspondence, and advertising materials; firm sale orders, other contracts and contract rights; all interests in partnerships and joint ventures; all tax
refunds and tax refund claims; all right, title and interest under leases, subleases, licenses and concessions and other agreements relating to real or personal property; all payments due or made to
Grantor in connection with any requisition, confiscation, condemnation, seizure or forfeiture of any property by any person or Governmental Authority; all credits with and other claims against
carriers and shippers; all rights to indemnification; all patents, and patent applications (including all reissues, divisions, continuations and extensions); all service marks and service mark
applications; all trade secrets and inventions; all copyrights and copyright applications (including all computer software and related documentation); all rights and interests in and to trademarks,
trademark registrations and applications therefor, trade names, corporate names, brand names, slogans, all goodwill associated with the foregoing; all license agreements and franchise agreements, all
reversionary interests in pension and profit sharing plans and reversionary, beneficial and residual interest in trusts; all proceeds of insurance of which Grantor is beneficiary; and all 

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guaranties, liens, security interests and other security held by or granted to Grantor; and all other intangible property, whether or not similar to the foregoing; PROVIDED, that in no event shall
the Grantor be deemed to have granted a security interest hereunder in excess of 65% of the capital stock of any foreign incorporated Subsidiary of the Grantor; 

        LAB
PROCESSING AND ENGINEERING INFORMATION: All rights and interests in and to processes, lab journals, and notebooks, data, trade secrets, know-how, product formulae and
information, manufacturing, engineering and other drawings and manuals, technology, blueprints, research and development reports, agency agreements, technical information, technical assistance,
engineering data, design and engineering specifications, and similar materials recording or evidencing expertise used in or employed by Grantor (including any license for the foregoing); 

        CONTRACT
RIGHTS: All rights and interests in and to any pending or executory contracts, requests for quotations, invitations for bid, agreements, leases and arrangements of which Grantor
is a party to or in which Grantor has an interest; including, without limitation, all right and interest to receive monies due, or to become due, under that certain Stock Sale and Purchase Agreement
dated as of February 5, 1998 made by and among the Grantor, IFR Systems Limited, and The General Electric Corporation p.l.c., as "Seller"; 

        CHATTEL
PAPER, INSTRUMENTS AND DOCUMENTS: All "chattel paper" (as defined in Section 9-102 of the UCC), leases, documents (as defined in
Section 9-102 of the UCC) and all other instruments (as defined in Section 9-102 of the UCC) (the "PLEDGED DEBT") and all payments thereunder and instruments and
other property from time to time delivered in respect thereof or in exchange therefor, and all bills of sale, bills of lading, warehouse receipts and other documents of title, in each instance whether
now owned or hereafter acquired by Grantor; 

        INTEREST
AND CURRENCY CONTRACTS: Any and all interest rate, commodity or currency exchange agreements or derivative agreements, including without limitation, cap, collar, floor, forward
or similar agreements or other rate, currency or price protection arrangements; and 

        INVESTMENT
RELATED PROPERTY: All "investment property" (as defined in Section 9-102 of the UCC), whether now owned or hereafter acquired or arising and all "deposit
accounts" (as defined in Section 9-102 of the UCC); Grantor intends that the term "investment property" and "deposit accounts" be construed in its broadest sense, and such term
shall include, without limitation, all stocks, bonds, and debt and equity securities, whether or not certificated, securities accounts, securities entitlements and all deposit accounts (general or
special) with any bank or other financial institution, including, without limitation, any deposits or other sums at any time credited by or due to Grantor from the Secured Party with the same rights
therein as if the deposits or other sums were credited by or due from the Secured Party; PROVIDED, that in no event shall the Grantor be deemed to have granted a security interest hereunder in excess
of 65% of the capital stock of any foreign incorporated Subsidiary of the Grantor; 

        OTHER
PROPERTY: All property or interests in property now owned or hereafter acquired by Grantor which now may be owned or hereafter may come into the possession, custody or control of
Secured Party or any agent or affiliate of the Secured Party in any way and for any purpose (whether for safekeeping, deposit, custody, pledge, transmission, collection or otherwise); and all rights
and interests of Grantor, now existing or hereafter arising and however and wherever arising, in respect of any and all (a) notes, drafts, letters of credit, stocks, bonds, and debt and equity
securities, whether or not certificated, investment property (as defined in Section 9-102 of the UCC) and warrants, options, puts and calls and other rights to acquire or otherwise
relating to the same; PROVIDED, that in no event shall the Grantor be deemed to have granted a security interest hereunder in excess of 65% of the capital stock of any foreign incorporated Subsidiary
of the Grantor; (b) letters of credit rights (as defined in Section 9-102 of the UCC) (c) money; (d) proceeds of loans, including, without limitation, the Loan
made under the Note; (e) insurance proceeds and books and records relating to any of the 

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property covered by this Agreement; and (f) all "proceeds" and "supporting obligations" (each as defined in Section 9-102 of the UCC), together, in each instance, with all
accessions and additions thereto, substitutions therefor, and replacements, proceeds and products thereof. 

        Section
3. AUTHORIZATION. Grantor hereby authorizes Secured Party to retain and each affiliate of Secured Party, to pay or deliver to Secured Party, without any necessity on Secured
Party's part to resort to other security or sources of reimbursement for the Obligations, at any time following the
occurrence and during the continuance of any Event of Default, and without further notice to Grantor (such notice being expressly waived), any of the deposits referred to in SECTION 2 (whether general
or special, time or demand, provisional or final) or other sums or property held by such Person, for application against any portion of the Obligations, irrespective of whether any demand has been
made or whether such portion of the Obligations is mature. Secured Party will promptly notify Grantor of Secured Party's receipt of such funds or other property for application against the
Obligations, but failure to do so will not affect the validity or enforceability thereof. Secured Party may give notice of the above grant of security interest and assignment of the aforesaid deposits
and other sums, and Grantor hereby irrevocably appoints Secured Party as its attorney to collect any and all such deposits or other sums; PROVIDED, that the Secured Party agrees not to exercise such
powers as attorney-in-fact unless an Event of Default has occurred and is continuing. 

        Section
4. GRANTOR REMAINS LIABLE. Anything herein to the contrary notwithstanding, (a) Grantor shall remain solely liable under the contracts and agreements included in the
Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured
Party of any of its rights hereunder shall not release Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) Secured Party shall
not have any responsibility, obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall Secured Party be required or obligated, in any
manner, to (i) perform or fulfill any of the obligations or duties of Grantor thereunder, (ii) make any payment, or make any inquiry as to the nature or sufficiency of any payment
received by Grantor or the sufficiency of any performance by any party under any such contract or agreement or (iii) present or file any claim, or take any action to collect or enforce any
claim for payment assigned hereunder. 

        Section
5. REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants, as of the date of this Agreement and as of each date hereafter (except for changes permitted or contemplated
by this Agreement) until termination of this Agreement pursuant to SECTION 25: 

        (a)  The
correct corporate name of Grantor is set forth in the first paragraph of this Agreement. Grantor has exclusive possession and control of its Equipment and Inventory,
except for such Inventory and Equipment which is (i) temporarily in transit between such locations, or (ii) temporarily stored with third parties or held by third parties for processing,
storage, engineering, evaluation, repairs or sale. The chief place of business and chief executive office of Grantor are located at the address of Grantor set forth below the Grantor's signature on
the Note. The Grantor is a corporation organized under Delaware corporate law. None of the Accounts are evidenced by a promissory note or other instrument except for such notes and other instruments
delivered to Secured Party as Pledged Debt. 

        (b)  Grantor
is the legal and beneficial owner of the Collateral free and clear of all Liens other than those Liens permitted under the Note. 

        (c)  Grantor
currently conducts business under the name IFR Systems, Inc. and, in certain areas and for certain operations, the trade names which have been described
to the Secured Party. The Grantor uses no trade names or fictitious names, except as set forth on Schedule 5(c) hereto. 

        (d)  This
Agreement creates in favor of Secured Party a legal, valid and enforceable security interest in the Collateral. When financing statements have been filed in the
appropriate offices against 

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Grantor, Secured Party will have a fully perfected lien on, and security interest in, the Collateral in which a security interest may be perfected by such filing, subject only to Permitted Existing
Liens. 

        (e)  No
authorization, approval or other action by, and no notice to or filing with, any Governmental Authority that has not already been taken or made and which is in full
force and effect is required (i) for the grant by Grantor of the security interest in the Collateral granted hereby; (ii) for the execution, delivery or performance of this Agreement by
Grantor; or (iii) for the exercise by Secured Party of any of its rights or remedies hereunder. 

        (f)    The
Pledged Debt issued by any affiliate of Grantor, and to the best of Grantor's knowledge, all other Pledged Debt, has been duly authorized, issued and delivered, and
is the legal, valid, binding and enforceable obligation of the respective issuer thereof. 

        Section
6. PERFECTION AND MAINTENANCE OF SECURITY INTERESTS AND LIENS. Grantor agrees that until all of the Obligations (other than contingent indemnity Obligations) have been fully
satisfied and the Note has been paid in full, Secured Party's security interests in and Liens on and against the Collateral and all proceeds and products thereof shall continue in full force and
effect. Grantor shall perform any and all steps reasonably requested by Secured Party to perfect, maintain and protect Secured Party's security interests in and Liens on and against the Collateral
granted or purported to be granted hereby or to enable Secured Party to exercise its rights and remedies hereunder with respect to any Collateral, including, without limitation, (a) executing,
authorizing and filing financing or continuation statements, or amendments thereof, in form and substance reasonably satisfactory to Secured Party, (b) delivering to Secured Party all
certificates, notes and other instruments (including, without limitation, all letters of credit on which Grantor is named as a beneficiary) representing or evidencing Collateral, which certificates,
notes and other instruments have been duly endorsed or are accompanied by duly executed instruments of transfer or assignment, including, but not limited to, note powers, all in form and substance
satisfactory to Secured Party, (c) at the reasonable direction of Secured Party, deliver to Secured Party warehouse receipts covering that portion of the Collateral, if any, located in
warehouses and for which warehouse receipts are issued, (d) after the occurrence and during the continuance of an Event of Default, transferring Inventory and Equipment to warehouses designated
by Secured Party or taking such other steps as are deemed necessary by Secured Party to maintain Secured Party's control of the Inventory and Equipment, (e) marking conspicuously each document,
contract, chattel paper and all records pertaining to the Collateral with a legend, in form and substance satisfactory to Secured Party, indicating that such document, contract, chattel paper, or
Collateral is subject to the security interest granted hereby, (f) using its best efforts to obtain waivers of Liens and access agreements in substantially the form of EXHIBIT A hereto (or such
other form as may be agreed to by the Secured Party) from landlords and mortgagees with respect to Grantor's leased premises as of the Closing Date and to obtain waivers of Liens and access agreements
in substantially the form of EXHIBIT B (or such other form as may be agreed to by Secured Party) from the appropriate person with respect to any of the Inventory temporarily stored with third parties
or held by third parties for storage, processing, engineering, repair
or sale as of the Closing Date, (g) obtaining waivers of Liens and access agreements in substantially the form of EXHIBIT A hereto (or such other form as may be agreed to by Secured Party) from
landlords and mortgagees with respect to all leases executed by the Grantor after the Closing Date and obtaining waivers of Liens and access agreements in substantially the form of EXHIBIT B hereto
(or such other form as may be agreed to by Secured Party) from the appropriate Person with respect to all arrangements pursuant to which Inventory will be temporarily stored with third parties or held
by third parties for storage, processing, engineering, repair or sale after the Closing Date, and (h) executing and delivering all further instruments and documents, and taking all further
action, as Secured Party may reasonably request. Within ninety (90) days after the Closing Date, Grantor will remove all Inventory from any public warehouse facilities with respect to which
Grantor shall not have obtained from the 

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applicable bailee, either before or after the Closing Date, a waiver of Liens and access agreement in substantially the form of EXHIBIT B hereto. 

        Section
7. FINANCING STATEMENTS. To the extent permitted by applicable law, Grantor hereby authorizes Secured Party to file one or more financing or continuation statements and
amendments thereto, in any jurisdictions and with any filing offices as the Secured Party may determine, in its sole discretion, are necessary or advisable to perfect the security interest granted to
the Secured Party in connection herewith. Such financing statements may describe the collateral in the same manner as described in any security agreement or pledge agreement entered into by the
parties in connection herewith or may contain an indication or description of collateral that describes such property in any other manner as the Secured Party may determine, in its sole discretion, is
necessary, advisable or prudent to ensure the perfection of the security interest in the collateral granted to the Secured Party in connection herewith, including, without limitation, describing such
property as "all assets" or "all personal property," whether now owned or existing or hereafter arising or acquired and wheresoever located, and Secured Party agrees to notify Grantor when such a
filing has been made. Grantor agrees that a carbon, photographic, photostatic, or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. If any
Inventory or Equipment is in the possession or control of any warehouseman or Grantor's agents or processors, Grantor shall, upon Secured Party's request, notify such warehouseman, agent or processor
of Secured Party's security interest in such Inventory and Equipment and, upon Secured Party's request, instruct them to hold all such Inventory or Equipment for Secured Party's account and subject to
Secured Party's instructions. 

        Section
8. FILING COSTS. Grantor shall pay the costs of, or incidental to, all recordings or filings of all financing statements, including, without limitation, any filing expenses
incurred by Secured Party pursuant to SECTION 7. 

        Section
9. SCHEDULE OF COLLATERAL. Grantor shall furnish to Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may reasonably request, all in reasonable detail. 

        Section
10. EQUIPMENT AND INVENTORY. Grantor covenants and agrees with Secured Party that from the date of this Agreement and until termination of this Agreement pursuant to SECTION 25,
Grantor shall: 

        (a)  Keep
the Equipment and Inventory (other than Equipment or Inventory sold or disposed of as permitted by the Note) at the places specified on Schedule 10(a),
except for Equipment and Inventory (i) temporarily in transit between such locations or (ii) temporarily stored with the third parties or held by third parties for storage, processing,
engineering, evaluation, repair or sale and deliver written notice to Secured Party at least thirty (30) days prior to establishing any other location at which or third party with which it
reasonably expects to maintain Inventory and/or Equipment in which location or with which third party all action required by this Agreement shall have been taken with respect to all such Equipment and
Inventory; 

        (b)  Maintain
or cause to be maintained in good repair, working order and condition, excepting ordinary wear and tear and damage due to casualty, all of the Equipment, and
make or cause to be made all appropriate repairs, renewals and replacements thereof, as quickly as practicable after the occurrence of any loss or damage thereto which are necessary or desirable to
such end; and 

        (c)  Comply
with the terms of the Note with respect to such Equipment and Inventory and to maintain insurance in such amounts as is customary in Grantor's industry. 

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        Section
11. ACCOUNTS. Grantor covenants and agrees with Secured Party that from and after the date of this Agreement and until termination of this Agreement pursuant to SECTION 25,
Grantor shall: 

        (a)  Keep
its chief place of business and chief executive office and the office where it keeps its records concerning the Accounts at its address set forth below the
Grantor's signature on the Note, and keep the offices where it keeps all originals of all chattel paper which evidence Accounts at the locations therefor specified in Schedule 11(a) or, upon
thirty (30) days' prior written notice to Secured Party, at such other locations within the United States in a jurisdiction where all actions required by SECTION 6 shall have been taken with
respect to the Accounts. Grantor will hold and preserve such records (in accordance with Grantor's usual document retention practices) and chattel paper and will permit representatives of Secured
Party at any time during normal business hours to inspect and make abstracts from such records and chattel paper; and 

        (b)  In
any suit, proceeding or action brought by Secured Party under any Account comprising part of the Collateral, Grantor will save, indemnify and keep the Secured Party
harmless from and against all expenses, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder, arising out of a breach by Grantor of any obligation or arising out of any other agreement, indebtedness or liability at any time owing to
or in favor of the Secured Party from Grantor, and all such obligations of Grantor shall be and shall remain enforceable against and only against Grantor and shall not be enforceable against the
Secured Party. 

        (c)  When
Grantor or any of its Subsidiaries (or any affiliates, shareholders, directors, officers, employees, agents or those Persons acting for or in concert with Grantor
or a Subsidiary of Grantor) shall receive or come into the possession or control of any monies, checks, notes, drafts or any other payment relating to, or proceeds of, Grantor's Accounts or other
property constituting Collateral hereunder (individually, a "PAYMENT ITEM", and, collectively, "PAYMENT ITEMS"), then, except as otherwise permitted in a writing signed by the Secured Party, Grantor
shall, or shall cause such Subsidiary or such other Person to, deposit the same in kind in precisely the form in which such Payment Item was received (with all Payment Items endorsed if necessary for
collection) into an Account pledged by this Agreement. The Grantor further agrees that it will not, during the term of this Agreement, without the written consent of the Secured Party, transfer any
funds from an Account pledged by this Agreement to any deposit account that is not pledged by this Agreement. All of the Grantor's Accounts are set forth on Schedule 11(c). 

        Section
12. LEASED REAL PROPERTY. Grantor covenants and agrees with Secured Party that from and after the date of this Agreement and until termination of this Agreement pursuant to
SECTION 25, that: 

        (a)  Promptly
following, but not later than ninety (90) days after, the close of each fiscal year Grantor will furnish to Secured Party a report certified to be true
and correct by Grantor containing a list of each of the Grantor's leased premises; the name or names of all owners; rentals being paid; and whether Grantor has obtained waivers of Liens and access
agreements from landlords and mortgagees with respect to such premises in accordance with SECTION 6; and 

        (b)  Grantor
agrees that, from and after the occurrence of an Event of Default, Secured Party may, but need not, make any payment or perform any act hereinbefore required of
Grantor with respect to the Grantor's leased premises in any form and manner deemed expedient. All money paid for any of the purposes herein authorized and all other moneys advanced by Secured Party
to protect the lien hereof shall be additional Obligations secured hereby and shall become immediately due and payable without notice and shall bear interest thereon at the default interest rate as
provided in the Note until paid to Secured Party in full. 

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        (c)  Grantor
agrees that it will not amend any lease in a manner that adversely affects the interests of the Secured Party without Secured Party's prior written consent. 

        Section
13. GENERAL COVENANTS. Grantor covenants and agrees with Secured Party that from and after the date of this Agreement and until termination of this Agreement pursuant to SECTION
25, Grantor shall: 

        (a)  Keep
and maintain at Grantor's own cost and expense satisfactory and complete records of Grantor's Collateral in a manner consistent with Grantor's current business
practice, including, without limitation, a record of all payments received and all credits granted with respect to such Collateral. Grantor shall, for Secured Party's further security, deliver and
turn over to Secured Party or Secured Party's designated representatives at any time following the occurrence and during the continuation of an Event of Default, any such books and records (including,
without limitation, any and all computer tapes, programs and source and object codes relating to such Collateral in which Grantor has an interest or any part or parts thereof); 

        (b)  Grantor
shall not change its name, identity, corporate structure, sole place of business, chief executive office or jurisdiction of organization, other than the merger
with Testco Acquisition Corp. pursuant to a merger agreement of even date, unless it shall have notified the Secured Party in writing at least thirty (30) days prior to any such change,
identifying such new proposed name, identity, corporate structure, sole place of business, chief executive office or jurisdiction of organization and providing such other information in connection
therewith as the Secured Party may reasonably request; and 

        (c)  Grantor
will not create, permit or suffer to exist, and will defend the Collateral against, and take such other action as is necessary to remove, any Lien on such
Collateral other than Liens listed on Schedule 5(b), and will defend the right, title and interest of Secured Party in and to Grantor's rights to such Collateral, including, without limitation,
the proceeds and products thereof, against the claims and demands of all Persons whatsoever. 

        Section
14. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby irrevocably appoints and constitutes Secured Party as Grantor's
attorney-in-fact, with full authority in the place and stead of Grantor and in the name of Grantor or otherwise, from time to time in Secured Party's discretion, to take any
action and to execute any instrument which Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, (a) following the
occurrence and during the continuance of an Event of Default, to: 

          (i)  obtain
and adjust insurance required to be paid to the Secured Party pursuant to the Note; 

        (ii)  ask,
demand, collect, sue for, recover, compromise, receive and give aquittance and receipts for moneys due and to become due under or in respect of any of the
Collateral; 

        (iii)  receive,
endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with CLAUSE (i) or (ii) above; and 

        (iv)  file
any claims or take any action or institute any proceedings which Secured Party may deem necessary or desirable for the collection of any of the Collateral, or
otherwise to enforce the rights of Secured Party with respect to any of the Collateral; and (b) at any time, to: 

        (v)  obtain
access to records maintained for Grantor by computer services companies and other service companies or bureaus; 

        (vi)  send
requests under Grantor's, the Secured Party's or a fictitious name to Grantor's customers or account debtors for verification of Accounts provided that the Secured
Party gives the Grantor notice prior to initiating any such verifications; and 

8

 

      (vii)  do
all other things reasonably necessary to carry out this Agreement. 

        Section
15. SECURED PARTY MAY PERFORM. If Grantor fails to perform any agreement contained herein or in the Note, Secured Party may, upon three days' prior notice to the Grantor,
perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Grantor under SECTION 22. 

        Section
16. SECURED PARTY'S DUTIES. The powers conferred on Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise
any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall not have any duty as to any
Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially
equal to that which Secured Party accords its own property, it being understood that Secured Party shall be under no obligation to take any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral, but may do so at its option, and all reasonable expenses incurred in connection therewith shall be for the sole account of Grantor and shall be added to
the Obligations. 

        Section
17. REMEDIES. If any Event of Default shall have occurred and be continuing: 

    (a)(i)  Secured
Party shall have, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party
upon default under the UCC (whether or not the UCC applies to the affected Collateral) and further, Secured Party may, without notice, demand or legal process of any kind (except as may be required by
law), all of which Grantor waives, at any time or times, (x) enter Grantor's owned or leased premises and take physical possession of the Collateral and maintain such possession on Grantor's
owned or leased premises, at no cost to Secured Party, or remove the Collateral, or any part thereof, to such other place(s) as Secured Party may desire, (y) require Grantor to, and Grantor
hereby agrees that it will at its expense and upon request of Secured Party forthwith, assemble all or any part of the Collateral as directed by Secured Party and make it available to Secured Party at
a place to be designated by Secured Party which is reasonably convenient to Secured Party and (z) without notice except as specified below, sell, lease, assign, grant an option or options to
purchase or otherwise dispose of the Collateral or any part thereof at public or private sale, at any exchange, broker's board or at any of the offices of Secured Party or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable. Grantor agrees that, to the extent notice of sale shall be required by law, at least ten
(10) days' notice to Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification and that Secured Party may
purchase all or any portion of the Collateral at such sale. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so
adjourned; 

        (ii)  Secured
Party shall apply all cash proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the
Collateral (after payment of any amounts payable to Secured Party pursuant to SECTION 22), against all or any part of the Obligations in such order as may be required by the Note or, to the extent not
specified therein, as is determined by the Secured Party. Any surplus of such cash or cash proceeds held by Secured Party and remaining after payment in full of all the Obligations shall be paid over
to Grantor or to whomsoever may be lawfully entitled to receive such surplus; 

        (b)  Grantor
waives all claims, damages and demands against Secured Party arising out of the repossession, retention or sale of any of the Collateral or any part or parts
thereof, except any such 

9

 

claims, damages and awards arising out of the gross negligence or willful misconduct of Secured Party, as determined in a final non-appealed judgment of a court of competent jurisdiction;
and 

        (c)  The
rights and remedies provided under this Agreement are cumulative and may be exercised singly or concurrently and are not exclusive of any rights and remedies
provided by law or equity. 

        Section
18. EXERCISE OF REMEDIES. In connection with the exercise of its remedies pursuant to SECTION 17, Secured Party may, (a) exchange, enforce, waive or release any portion of
the Collateral and any other security for the Obligations; (b) apply such Collateral or security and direct the order or manner of sale thereof as Secured Party may, from time to time,
determine; and (c) settle, compromise,
collect or otherwise liquidate any such Collateral or security in any manner following the occurrence of an Event of Default, without affecting or impairing Secured Party's right to take any other
further action with respect to any Collateral or security or any part thereof. 

        Section
19. LICENSE. Secured Party is hereby granted a license or other right to use, following the occurrence and during the continuance of an Event of Default, without charge,
(a) Grantor's labels, patents, copyrights, trade secrets, trade names, trademarks, service marks, customer lists and advertising matter, or any property of a similar nature, as it pertains to
the Collateral, in completing production of, advertising for sale, and selling any Collateral, provided that Secured Party uses quality standards at least substantially equivalent to those of Grantor
for the manufacture, advertising, sale and distribution of Grantor's products and services and (b) Grantor's rights under all licenses and all franchise agreements shall inure to Secured
Party's benefit. 

        Section
20. INJUNCTIVE RELIEF. Grantor recognizes that in the event Grantor fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, any remedy
of law may prove to be inadequate relief to the Secured Party; therefore, Grantor agrees that the Secured Party, if Secured Party so determines and requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving actual damages. 

        Section 21.
INTERPRETATION AND INCONSISTENCIES; MERGER. 

        (a)  The
rights and duties created by this Agreement shall, in all cases, be interpreted consistently with, and shall be in addition to (and not in lieu of), the rights and
duties created by the Note. In the event that any provision of this Agreement shall be inconsistent with any provision of the Note, such provision of the Note shall govern. 

        (b)  Except
as provided in subsection (a) above, this Agreement represents the final agreement of the Grantor and the Secured Party with respect to the matters
contained herein and may not be contradicted by evidence of prior or contemporaneous agreements, or subsequent oral agreements, between the Grantor and the Secured Party. 

        Section
22. EXPENSES. Grantor will upon demand pay to Secured Party the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of
any experts and agents. 

        Section
23. AMENDMENTS, ETC. No amendment or waiver of any provision of this Agreement nor consent to any departure by Grantor herefrom shall in any event be effective unless the same
shall be in writing and signed by Secured Party and Grantor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 

        Section
24. NOTICES. All notices and other communications provided for hereunder shall be delivered in the manner set forth in of the Note. 

        Section
25. CONTINUING SECURITY INTEREST; TERMINATION. 

        (a)  Except
as provided in SECTION 25(b), this Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect
until the later of the payment or 

10

 

satisfaction in full of the Obligations (other than contingent indemnity obligations) and the payment in full of the Note, (ii) be binding upon Grantor, its successors and assigns and
(iii) except to the extent that the rights of any transferor or assignor are limited by the terms of the Note, inure, together with the rights and remedies of Secured Party hereunder, to the
benefit of Secured Party. Nothing set forth herein or in the Note is intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Agreement or the
Note or any Collateral. Grantor's successors and assigns shall include, without limitation, a receiver, trustee or debtor-in-possession thereof or therefor. 

        (b)  Upon
the payment in full in cash of the Obligations (other than contingent indemnity obligations) and the payment in full of the Note, this Agreement and the security
interest granted hereby shall terminate and all rights to the Collateral shall revert to Grantor. Upon any such termination of security interest, Grantor shall be entitled to the return, upon its
request and at its expense, of such of the Collateral held by Secured Party as shall not have been sold or otherwise applied pursuant to the terms hereof and Secured Party will, at Grantor's expense,
execute and deliver to Grantor such other documents as Grantor shall reasonably request to evidence such termination. In connection with any sales of assets permitted under the Note, the Secured Party
will release and terminate the liens and security interests granted under this Agreement with respect to such assets. 

        Section
26. SEVERABILITY; NO STRICT CONSTRUCTION. (a) It is the parties' intention that this Agreement be interpreted in such a way that it is valid and effective under applicable law.
However, if one or more of the provisions of this Agreement shall for any reason be found to be invalid or unenforceable, the remaining provisions of this Agreement shall be unimpaired. 

        (b)  The
parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement. 

        Section
27. GOVERNING LAW. THE SECURED PARTY ACCEPTS THIS AGREEMENT, ON BEHALF OF ITSELF, AT NEW YORK, NEW YORK BY ACKNOWLEDGING AND AGREEING
TO IT THERE. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. WITHOUT LIMITING THE FOREGOING, ANY DISPUTE BETWEEN THE
GRANTOR AND THE SECURED PARTY, ANY LENDER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT, AND WHETHER ARISING
IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OR CHOICE OF LAWS OR ANY OTHER LAW
THAT WOULD MAKE THE LAWS OF ANY OTHER JURISDICTION OTHER THAN THE STATE OF NEW YORK APPLICABLE THERETO. 

        Section 28.
CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL. 

        (a)  EXCLUSIVE
JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES BETWEEN THEM ARISING OUT OF, CONNECTED WITH, RELATED
TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR
FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH OF THE
PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO 

11

 

THIS SUBSECTION ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. 

        (b)  OTHER
JURISDICTIONS. GRANTOR AGREES THAT THE SECURED PARTY SHALL HAVE THE RIGHT TO PROCEED AGAINST GRANTOR OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH
PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER THE GRANTOR OR (2) REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF SUCH PERSON. GRANTOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. GRANTOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A
PROCEEDING DESCRIBED IN THIS SUBSECTION. 

        (c)  WAIVER
OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM
IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 

        (d)  WAIVER
OF BOND. GRANTOR WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER,
PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT. 

        (e)  ADVICE
OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF THIS SECTION 28,
WITH ITS COUNSEL. 

12

 

        IN
WITNESS WHEREOF, Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. 

	 	 	IFR SYSTEMS, INC.
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	Name:

Title:	 	 
	

 	
 	

AEROFLEX INCORPORATED,

as SECURED PARTY
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	Name:

Title:	 	 

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SCHEDULE 5(c)
  TRADE NAMES    
  

14

 
 
 

SCHEDULE 10(a)
  LOCATIONS OF EQUIPMENT AND INVENTORY    
  

15

 
 
 

SCHEDULE 11(a)
  LOCATIONS OF OFFICES, BOOKS AND RECORDS    
  

16

 
 
 

SCHEDULE 11(c) ACCOUNTS    
  

	

	BANK	ACCOUNT NUMBER	LOCATION
	

	

 	

 	

 
	

	

 	

 	

 
	

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SECURITY AGREEMENT DATED AS OF , 2002 between IFR SYSTEMS, INC. AND AEROFLEX INCORPORATED AS SECURED PARTY

TABLE OF CONTENTS

SECURITY AGREEMENT

PRELIMINARY STATEMENT

SCHEDULE 5(c) TRADE NAMES

SCHEDULE 10(a) LOCATIONS OF EQUIPMENT AND INVENTORY

SCHEDULE 11(a) LOCATIONS OF OFFICES, BOOKS AND RECORDS

SCHEDULE 11(c) ACCOUNTSQuickLinks
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EXHIBIT 10.32
  PROMISSORY NOTE    
  

        THIS PROMISSORY NOTE (THIS "NOTE"), HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD,
ASSIGNED OR TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAW OR (ii) THE BORROWER
(AS DEFINED BELOW) RECEIVES AN OPINION OF COUNSEL TO THE BORROWER OR OTHER COUNSEL REASONABLY SATISFACTORY TO THE BORROWER TO THE EFFECT THAT SUCH NOTE MAY BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS. 

	$48,800,000.00	 	New York, New York

            , 2002

        Section
1.    Principal, General.    FOR VALUE RECEIVED, the undersigned, IFR Systems, Inc. a Delaware corporation (the "Borrower"), does hereby
unconditionally promise to pay to the order of Aeroflex Incorporated, a Delaware corporation (the "Lender"), the principal sum of FORTY-EIGHT MILLION EIGHT HUNDRED THOUSAND DOLLARS ($48,800,000.00)
(the "Principal"), together with interest on the outstanding principal amount of this Note at a rate equal to the Prime Rate plus two percent (Prime Rate + 2%), payable as provided
below, until the entire principal amount hereof shall become due and payable on March 31, 2005, to the extent not previously paid in accordance herewith. 

        Section
2.    Payments. 

        (a)  Principal.    The
Principal shall be payable in twelve (12) consecutive quarterly installments in accordance with the terms of this Note and on the
dates (each a "Principal Repayment Date") and in the amounts as set forth below: 

	Repayment Date
 
	 	Payment Due

	June 30, 2002, September 30, 2002, December 31, 2002, March 31, 2003, June 30, 2003, September 30, 2003, December 31, 2003 and March 31, 2004	 	$	4,066,666.67
	June 30, 2004, September 30, 2004, December 31, 2004 and March 31, 2005	 	$	4,066,666.66

        (b)  Interest.    The
Borrower agrees to pay interest on the unpaid principal amount of this Note which shall be payable quarterly on the last day of June,
September, December and March of each year (each an "Interest Repayment Date" and together with each corresponding Principal Repayment Date, a "Repayment Date") (which first interest payment shall be
for the period from and including [            ], 2002, through and including  [June 30],
2002). Interest shall be calculated on the basis of a three hundred sixty (360) day year and actual
days elapsed. After an Event of Default interest shall be payable at a rate equal to the Prime Rate plus 5% per annum. 

        (c)  Mandatory
Prepayments.    On the first Business Day after the date of the receipt thereof by the Borrower or any of its Subsidiaries, an amount equal to 100%
of the cash proceeds of (i) contributions received by the Borrower of proceeds of the issuance of equity securities, (ii) the issuance or sale of equity securities by the Borrower or any
of its Subsidiaries (net of underwriting discounts and commissions) and (iii) the incurrence of Indebtedness by the Borrower or any of its Subsidiaries (net of underwriting discounts and
commissions), in each case, shall be applied as a mandatory repayment of Principal and accrued interest on the amount of such Principal and shall be applied to payments due in inverse order of
maturity. Notwithstanding the foregoing, the provisions of Sections 2(c)(i) and (ii) shall not apply to the net proceeds received from the exercise of stock options granted to directors,
officers and employees of the relevant entity. 

 

        (d)  Voluntary
Prepayments.    Borrower may prepay, at any time, the unpaid principal balance of this Note or any portion thereof, together with all accrued and
unpaid interest on the amount so prepaid. Amounts so prepaid shall be applied first to Borrower's obligations under this Note in respect of interest, and second, to Principal and shall be applied to
payments due in inverse order of maturity. 

        (e)  Method
and Place of Payment.    All payments under this Note shall be made to the Lender not later than 12:00 noon, New York City time, on each Repayment Date
unless such Repayment Date falls on a day that is not a Business Day, then all amounts due on such Repayment Date shall be due on the next succeeding Business Day. All payments shall be in lawful
money of the United States and immediately available funds to the offices of the Lender located at 35 South Service Road, Plainview, NY 11803, or at such other place as the Lender or any holder hereof
may from time to time designate. The Borrower shall not have any right of setoff or counterclaim, and all payments made by the Borrower hereunder shall be made irrespective of, and without any
reduction for, any setoff or counterclaims. 

        Section
3.    Representations and Warranties. 

        In
order to induce the Lender to accept the Note, the Borrower makes the following representations and warranties, which shall survive the execution and delivery of this Note: the
Borrower (a) is a duly organized and validly existing corporation in good standing under the laws of the jurisdiction of its incorporation, (b) has the corporate power and authority to
own its property and assets and to transact the business in which it is engaged or presently proposes to engage and (c) has the corporate power and authority to execute, deliver and carry out
the terms and provisions of this Note and has taken all necessary corporate action to authorize the execution, delivery and performance by it hereof. The Borrower has duly executed and delivered this
Note, and this Note constitutes its legal, valid and binding obligation, enforceable in accordance with its terms. 

        Neither
the execution, delivery or performance by the Borrower of this Note nor compliance by it with the terms and provisions hereof nor the consummation of the transactions
contemplated hereby, (d) will contravene any applicable provision of any law, statute, rule, regulation (including Regulations U, T and X of the Board of Governors of the Federal Reserve
System), order, writ, injunction or decree of any court or governmental instrumentality or (e) will conflict or be inconsistent with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any lien upon any of the property or assets of the
Borrower pursuant to the terms of any indenture, mortgage, deed of trust, agreement or other instrument to which the Borrower is a party or by which it or any of its property or assets is bound or to
which it may be subject (other than this Note or the Security Agreement (as defined below)), or (f) will violate any provision of the Borrower's Certificate of Incorporation or
By-Laws. 

        Section
4.    Affirmative Covenants.    The Borrower covenants and agrees that until the Principal and all other obligations under this Note are paid in full: 

        (a)  the
Borrower will furnish the Lender within nine (9) business days after the end of each quarter and eleven (11) business days after the end of each
fiscal year, the unaudited balance sheet and income statement, or consolidated balance sheet and income statement, if any, of the Borrower and its Subsidiaries as at the end of such period in the form
and substance consistent with the current practice of the Borrower; 

        (b)  (i) the
Borrower shall furnish to the Lender such financial information or documents in the possession of the Borrower or any of its Subsidiaries as the Lender
may reasonably request, (ii) the Borrower shall furnish to the Lender on a monthly basis such management and other periodic reports related to financial information in the form and substance
consistent with the current practice of the 

2

 

Borrower and (iii) will provide the Lender reasonable access to the books and records of the Borrower and any of its Subsidiaries as the Lender may from time to time reasonably request; 

        (c)  the
Borrower and its Subsidiaries shall keep proper books of record and account in conformity with Agreement Accounting Principles and all requirements of applicable
law; 

        (d)  the
Borrower shall, and shall cause each of its Subsidiaries to, comply in all material respects with all applicable laws, rules, statutes, regulations, decrees and
orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of their business and the ownership of their property; 

        (e)  Borrower
will, and will cause each of its Subsidiaries, to keep and maintain all property material to the conduct of its business in good working order and condition,
ordinary wear and tear excepted; and 

        (f)    Borrower
will, and will cause each of its Subsidiaries to, maintain, with financially sound and reputable insurance companies (i) insurance in such amounts (with
no greater risk retention) and against such risks as are customarily maintained by companies of established repute engaged in the same or similar businesses operating in the same or similar locations
and (ii) all insurance required to be maintained by the Security Agreement. The Borrower will furnish to the Lender, information in reasonable detail as to the insurance so maintained. 

        Section
5.    Negative Covenants. 

        (a)  Restrictions
on Fundamental Changes.    Without the Lender's prior written consent, the Borrower will not, and will not permit its Subsidiaries to enter into
any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), discontinue its business or convey, lease, sell, transfer or otherwise dispose
of, in one transaction or series of transactions, all or substantially all of its business or property, whether now or hereafter acquired other than the merger of Borrower with Testco Acquisition
Corp. pursuant to a merger agreement of even date. 

        (b)  Limitation
on Liens.    Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create, incur, assume or permit to exist any Lien on or
with respect to any of its respective property or assets except: 

        (i)    Liens
securing the Obligations; 

        (ii)  Permitted
Existing Liens; 

        (iii)  purchase
money Liens (including the interest of a lessor under a Capitalized Lease and Liens to which any property is subject at the time of the Borrower's acquisition
thereof) securing Permitted Purchase Money Indebtedness; PROVIDED that such Liens shall not apply to any property of the Borrower or its Subsidiaries other than that purchased or subject to such
Capitalized Lease. 

        In
addition, neither the Borrower nor any of its Subsidiaries shall become a party to any agreement, note, indenture or other instrument, or take any other action, which would prohibit
the creation of a Lien on any of its properties or other assets in favor of the Lender as collateral for the Obligations; PROVIDED that any agreement, note, indenture or other instrument in connection
with Permitted Purchase Money Indebtedness (including Capitalized Leases) may prohibit the creation of a Lien in favor of the Lender on the items of property obtained with the proceeds of such
Permitted Purchase Money Indebtedness. 

3

 

        (c)  Limitation
on Borrowing.    Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create, incur, assume or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness, except: 

          (i)  the
Obligations; 

        (ii)  Permitted
Existing Indebtedness; 

        (iii)  Indebtedness
in respect of obligations secured by Customary Permitted Liens; 

        (iv)  Indebtedness
constituting Contingent Obligations; 

        (v)  Indebtedness
arising from intercompany loans from any Subsidiary to the Borrower or any wholly-owned Subsidiary; 

        (vi)  Indebtedness
arising from intercompany loans from the Borrower to any wholly-owned Subsidiary in an aggregate amount not to exceed $10,000,000; 

      (vii)  secured
or unsecured purchase money Indebtedness (including Capitalized Leases) incurred by the Borrower or any of its Subsidiaries after the Closing Date to finance
the acquisition of fixed assets, if (1) at the time of such incurrence, no Event of Default or Unmatured Default has occurred and is continuing or would result from such incurrence,
(2) such Indebtedness has a scheduled maturity and is not due on demand, (3) such Indebtedness does not exceed the lower of the fair market value or the cost of the applicable fixed
assets on the date acquired, (4) such Indebtedness does not exceed $5,000,000 in the aggregate outstanding at any time, and (5) any Lien securing such Indebtedness is permitted under
Section 5(b) (such Indebtedness being referred to herein as "Permitted Purchase Money Indebtedness"); and 

      (viii)  Indebtedness
with respect to surety, appeal and performance bonds obtained by the Borrower or any of its Subsidiaries in the ordinary course of business. 

        Section 6.    Events
of Default.    An "Event of Default" under this Note shall exist if any one or more of the following shall occur: 

        (a)  Failure
by Borrower to pay any payment under the Note when due, whether on the date fixed for payment or by acceleration or otherwise; or 

        (b)  If
any representation or warranty made by Borrower in this Note or in the Security Agreement between the Borrower and the Lender dated the date hereof (the "Security
Agreement") shall prove to have been untrue or misleading in any material respect at the time made; or 

        (c)  A
final judgment for the payment of money in excess of $250,000 shall be rendered against Borrower, and such judgment shall remain undischarged for a period of sixty
days from the date of entry thereof unless within such sixty day period such judgment shall be stayed, and appeal taken therefrom and the execution thereon stayed during such appeal; or 

        (d)  If
the Borrower shall default in respect of any evidence of indebtedness or under any agreement under which any notes or other evidence of indebtedness of Borrower are
issued, if the effect thereof is to cause, or permit the holder or holders thereof to cause, such obligation or obligations in an amount in excess of $250,000 in the aggregate to become due prior to
its or their stated maturity or to permit the acceleration thereof; or 

        (e)  If
an Event of Default under the Security Agreement shall occur and any grace period provided for therein shall have expired; or 

        (f)    If
Borrower shall take any action (by any person or persons having the capacity to do the same) to effect a dissolution or liquidation of Borrower; or 

4

 

        (g)  If
Borrower shall make a general assignment for the benefit of creditors or consent to the appointment of a receiver, liquidator, custodian, or similar official of all
or substantially all of its properties, or any such official is placed in control of such properties, or Borrower admits in writing its inability to pay its debts as they mature, or Borrower shall
commence any action or proceeding or take advantage of or file under any federal or state insolvency statute, including, without limitation, the United States Bankruptcy Code, seeking to have an order
for relief entered with respect to it or seeking adjudication as a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution, or other relief with respect to
it or its debts; or 

        (h)  There
shall be commenced against Borrower any action or proceeding of the nature referred to in paragraph (g) above or seeking issuance of a warrant of
attachment, execution, distraint, or similar process against all or any substantial part of the property of Borrower, which results in the entry of an order for relief which remains undismissed,
undischarged or unbonded for a period of sixty days; or 

        (i)    The
Security Agreement shall cease at any time after its execution and delivery and for any reason to create a valid and perfected security interest in and to the
property subject thereto or the validity or priority of such security interest shall be contested by Borrower or any of its affiliates or by any other person; or the Note or the Security Agreement
shall at any time after their execution and delivery for
any reason cease to be in full force and effect or shall be declared null or void, or the validity or enforceability thereof shall be contested by Borrower or any of its affiliates or by any other
person; or 

        (j)    Default
by Borrower in the performance or observance of any covenant or agreement contained herein or in the Security Agreement, PROVIDED, that any failure shall be
continuing for twenty (20) Business Days. 

        Section
7.    Payment of Expenses; Indemnity.    Except for out-of-pocket costs and expenses incurred by each party in connection with the
negotiation, preparation, execution and delivery of this Note and the Security Agreement, the Borrower shall indemnify the Lender, its officers, directors, partners, stockholders, employees,
representatives and agents (each an "Indemnitee") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments,
suits, costs or disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitee in connection with any
investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may at any time (including, without limitation,
at any time following the payment of the Obligations) be imposed on, asserted against or incurred by any Indemnitee as a result of, or arising out of, or in any way related to or by reason of,
(i) performance of this Note and (ii) the exercise by the Lender of its rights and remedies hereunder (but excluding, as to any Indemnitee, any such losses, liabilities, claims, damages,
expenses, obligations, penalties, actions, judgments, suits, costs or disbursements incurred solely by reason of the gross negligence or willful misconduct of such Indemnitee as finally determined by
a court of competent jurisdiction). The Borrower's obligations under this paragraph shall survive the termination of this Note and the payment of the Obligations. 

        Section
8.    No Waiver; Remedies Cumulative.    This Note is secured by the "Collateral", as defined in the Security Agreement, together with all other collateral in
which Borrower now or hereafter grant to Lender a security interest and any supplement, agreement, document or instrument now or at any time hereafter executed and/or delivered in connection with this
Note or the Security Agreement (the foregoing, as the same now exists or may hereafter be amended, modified, supplemented, renewed, extended, restated or replaced, are hereinafter collectively
referred to as the "Financing Agreements"), and is entitled to all of the benefits and rights thereof and of the Financing Agreements. 

5

 

        If
any payment is not made when due hereunder or if any other Event of Default hereunder shall occur for any reason, then and in any such event, in addition to all rights and remedies of
Lender under the Financing Agreements, applicable law or otherwise, all such rights and remedies being cumulative, not exclusive and enforceable alternatively, successively and concurrently, at its
option, Lender may declare any or all of Borrower's Obligations, liabilities and indebtedness owing to Lender under the Financing Agreements, including, without limitation, all amounts owing under
this Note, to be due and payable, whereupon the then unpaid balance hereof together with all interest accrued thereon, shall forthwith become due and payable, together with interest accruing
thereafter at the rate applicable during an Event of Default until the Obligations are paid in full. No failure or delay on the
part of the Lender in exercising any right, power or privilege hereunder and no course of dealing between the parties hereto shall operate as a waiver thereof; nor shall any single or partial exercise
of any right, power or privilege hereunder preclude any other or further exercise thereof of the exercise of any other right, power or privilege hereunder. 

        Borrower
(i) waives diligence, demand, presentment, protest and notice of any kind, (ii) agrees that it will not be necessary for any holder hereof to first institute suit
in order to enforce payment of this Note and (iii) consents to any one or more extensions or postponements of time of payment, release, surrender or substitution of collateral security or
forbearance or other indulgence, without notice or consent. The pleading of any statute of limitations as a defense to any demand against Borrower is expressly hereby waived. 

        Lender
shall not be required to resort to any Collateral for payment, but may proceed against Borrower and any guarantors or endorsers hereof in such order and manner as Lender may
choose. None of the rights of Lender shall be waived or diminished by any failure or delay in the exercise thereof. 

        Section
9.    Amendments.    The provisions of this Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the party to
be charged, nor shall any waiver be applicable except in the specific instance for which it is given. 

        Section
10.    Choice of Law.    This Note shall be governed by and construed, and all rights and obligations hereunder and thereunder determined, in accordance with
the laws of the State of New York without regard to the conflicts of laws principles thereof. 

        Section
11.    Assignability, Severability.    This Note shall be binding upon the successors and assigns of the Borrower and inure to the benefit of the Lender, its
successors, endorsees and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Note without the prior written consent of the Lender. If any term or
provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions shall in no way be affected thereby. 

        Section
12.    Waiver of Jury.    In the event of any litigation with respect to this Note, the Borrower waives the right to a trial by jury and all rights of set off
and rights to interpose counterclaims, consents to the nonexclusive jurisdiction of the Supreme Court of the State of New York located in Nassau County and the United States District Court for the
Eastern District of New York for all purposes in connection with any action or proceeding arising out of or relating to this Note, and further consents that any process or notice of motion or other
application to said courts or judge thereof, or any notice in connection with any proceeding hereunder may be served (i) inside or outside the State of New York by registered or certified mail,
return receipt requested, and service or notice so served shall be deemed complete five (5) days after the same shall have been posted or (ii) in such other manner as may be permissible
under the rules of said courts. Within thirty (30) days after such mailing, Borrower shall
appear in answer to such process or notice of motion or other application to said courts, failing which Borrower shall be deemed in default and judgment may be entered by Lender against Borrower for
the amount of the claim and other relief requested therein. 

6

 

        Section
13.    Notices.    Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or overnight courier service mailed by certified or registered mail or sent by telecopy as follows: 

        (a)  if
to the Borrower, to: IFR Systems, Inc., 10200 West York Street, Wichita, Kansas 67215, Attention: Jeffery Bloomer, telecopy (            ) with copies for
informational purposes only to Foulston & Siefkin L.L.P., Attention: Harvey Sorensen, telecopy (316) 267-6345; and 

        (b)  if
to the Lender, to: Aeroflex Incorporated, 35 South Service Road, Plainview, New York 11803, Attention: Michael Gorin, telecopy (516) 694-4823 with
copies for informational purposes only to Blau, Kramer, Wactler & Lieberman, Attention: Nancy Lieberman, telecopy (516) 822-4824. 

        Any
party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notice and other communications given
to any party hereto in accordance with the provisions of this Note shall be deemed to have been given on the date of receipt. 

        Section
14.    Certain Definitions.    As used in this Note, capitalized terms shall have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined): 

        "Agreement
Account Principles" means generally accepted accounting principles as in effect in the United States as of the date of this Note, as previously applied by the Borrower in
preparing its financial statements. 

        "Business
Day" means, any day that is not a Saturday, Sunday or other day which commercial banks in New York City are authorized or required by law to remain closed. 

        "Capitalized
Lease" of a Person means any lease of property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement
Accounting Principles. 

        "Capitalized
Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be capitalized on a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles. 

        "Closing
Date" means the date on which the Principal is advanced under this Note. 

        "Contaminant"
means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos,
polychlorinated biphenyls ("PCBs"), or any constituent of any such substance or waste, and includes but is not limited to these terms as defined in Environmental, Health or Safety Requirements of Law. 

        "Contingent
Obligation", as applied to any Person, means any Contractual Obligation, contingent or otherwise, of that Person with respect to any Indebtedness of another or other
obligation or liability of another, including, without limitation, any such Indebtedness, obligation or liability of another directly or indirectly guaranteed, endorsed (otherwise than for collection
or deposit in the ordinary course of business), co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable,
including Contractual Obligations (contingent or otherwise) arising through any agreement to purchase, repurchase, or otherwise acquire such Indebtedness, obligation or liability or any security
therefor, or to provide funds for the payment or discharge thereof (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level
of income, or other financial condition, or to make payment other than for value received. 

7

 

        "Contractual
Obligation", as applied to any Person, means any provision of any equity or debt securities issued by that Person or any indenture, mortgage, deed of trust, security
agreement, pledge agreement, guaranty, contract, undertaking, agreement or instrument, in any case in writing, to which that Person is a party or by which it or any of its properties is bound, or to
which it or any of its properties is subject. 

        "Customary
Permitted Liens" means: 

        (i)    Liens
(other than Environmental Liens and Liens in favor of the IRS or the PBGC) with respect to the payment of taxes, assessments or governmental charges in all cases
which are not yet due or (if foreclosure, distraint, sale or other similar proceedings shall not have been commenced or any such proceeding after being commenced is stayed) which are being contested
in good faith by appropriate proceedings properly instituted and diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance
with Agreement Accounting Principles; 

        (ii)  statutory
Liens of landlords and Liens of suppliers, mechanics, carriers, materialmen, warehousemen or workmen and other similar Liens imposed by law created in the
ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings properly instituted and diligently conducted and with respect to which
adequate reserves or other appropriate provisions are being maintained in accordance with Agreement Accounting Principles; 

        (iii)  Liens
(other than Environmental Liens and Liens in favor of the IRS or the PBGC) incurred or deposits made in the ordinary course of business in connection with
worker's compensation, unemployment insurance or other types of social security benefits or to secure the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed
money), surety, appeal and performance bonds; PROVIDED that (A) all such Liens do not in the aggregate materially detract from the value of the Borrower's or such Subsidiary's assets or
property taken as a whole or materially impair the use thereof in the operation of the businesses taken as a whole, and (B) all Liens securing bonds to stay judgments or in connection with
appeals do not secure at any time an aggregate amount exceeding $1,000,000; 

        (iv)  Liens
arising with respect to zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility easements, building
restrictions and other similar charges or encumbrances on the use of real property which do not in any case materially detract from the value of the property subject thereto or interfere with the
ordinary conduct of the business of the Borrower or any of its Subsidiaries; 

        (v)  Liens
of attachment or judgment with respect to judgments, writs or warrants of attachment, or similar process against the Borrower or any of its Subsidiaries which do
not constitute an Event of Default hereunder or under the Note; and 

        (vi)  any
interest or title of the lessor in the property subject to any operating lease entered into by the Borrower or any of its Subsidiaries in the ordinary course of
business. 

        "Environmental,
Health or Safety Requirements of Law" means all Requirements of Law derived from or relating to federal, state and local laws or regulations relating to or addressing
pollution or protection of the environment, or protection of worker health or safety, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 ET SEQ., the Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 ET SEQ., and the
Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 ET SEQ., in each case including any amendments thereto, any successor statutes, and any regulations or guidance promulgated
thereunder, and any state or local equivalent thereof. 

8

 

        "Environmental
Lien" means a lien in favor of any Governmental Authority for (a) any liability under Environmental, Health or Safety Requirements of Law, or (b) damages
arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environment. 

        "Events
of Default" has the definition assigned to it in Section 6 of this Note. 

        "Governmental
Authority" means any nation or government, any federal, state, local or other political subdivision thereof and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government. 

        "Indebtedness"
of any Person means, without duplication, such Person's (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of
property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (c) obligations, whether or not assumed,
secured by Liens or payable out of the proceeds or production from property or assets now or hereafter owned or acquired by such Person, (d) obligations which are evidenced by notes,
acceptances or other instruments, (e) Capitalized Lease Obligations, (f) Contingent Obligations, (g) obligations with respect to letters of credit and (h) Off Balance Sheet
Liabilities. 

        "IRS"
means the Internal Revenue Service and any Person succeeding to the functions thereof. 

        "Lien"
means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, capitalized lease or other title retention agreement). 

        "Obligations"
means the Principal, the interest, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Lender, of any kind or nature, present or
future, arising under this Note or the Security Agreement whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising by reason of an
extension of credit, loan, guaranty, indemnification, or in any other manner, whether direct or indirect (including those acquired
by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees,
attorneys' fees and disbursements, paralegals' fees (in each case whether or not allowed), and any other sum chargeable to the Borrower under this Note or the Security Agreement. 

        "Off
Balance Sheet Liabilities" of a Person means (a) any repurchase obligation or liability of such Person or any of its Subsidiaries with respect to accounts or notes receivable
sold by such Person or any of its Subsidiaries, (b) any liability under any sale and leaseback transactions which do not create a liability on the consolidated balance sheet of such Person,
(c) any liability under any financing lease or so-called "synthetic" lease transaction, or (d) any obligations arising with respect to any other transaction which is the
functional equivalent of or takes the place of borrowing but which does not constitute a liability on the consolidated balance sheets of such Person and its Subsidiaries. 

        "PBGC"
means the Pension Benefit Guaranty Corporation, or any successor thereto. 

        "Permitted
Existing Indebtedness" means the Indebtedness of the Borrower and its Subsidiaries identified as such on Schedule 5(c). 

        "Permitted
Existing Liens" means the Liens on the assets of the Borrower and its Subsidiaries identified as such on Schedule 5(b) to this Note. 

        "Permitted
Purchase Money Indebtedness" has the definition assigned to it under Section 5(c). 

        "Person"
means any individual, corporation, firm, enterprise, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability
company or other entity 

9

 

of any kind, or any government or political subdivision or any agency, department or instrumentality thereof. 

        "Prime
Rate" means the rate of interest per annum publicly announced from time to time by JP Morgan Chase Bank as its prime rate in effect at its principal office in New York City; as in
effect on the day prior to each Principal Repayment Date. If such date is not a Business Day, then on the closest preceding Business Day to such Repayment Date. 

        "Release"
means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment,
including the movement of Contaminants through or in the air, soil, surface water or groundwater. 

        "Requirements
of Law" means, as to any Person, the charter and by-laws or other organizational or governing documents of such Person, and any law, rule or regulation, or
determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property
is subject including, without limitation, the Securities Act of 1933, the Securities Exchange Act of 1934, Regulations G, T, U and X, ERISA, the Fair Labor Standards Act, the Worker Adjustment and
Retraining Notification Act, Americans with Disabilities Act of 1990, and any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or permit or environmental,
labor, employment, occupational safety or health law, rule or regulation, including Environmental, Health or Safety Requirements of Law. 

        "Subsidiary"
of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled,
directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, joint venture or
similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all
references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. 

        "Unmatured
Default" means an event which, but for the lapse of time or the giving of notice, or both, would constitute an Event of Default. 

        Whenever
used herein, the terms "Borrower" and "Lender" shall be deemed to include their respective successors and assigns. 

10

 

	 	 	IFR SYSTEMS, INC.
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	Name:

Title:	 	 

11

 
 
 

SCHEDULE 5(B)
  PERMITTED EXISTING LIENS    
  

12

 
 
 

SCHEDULE 5(C)
  PERMITTED EXISTING INDEBTEDNESS    
  

13

QuickLinks

EXHIBIT 10.32 PROMISSORY NOTE

SCHEDULE 5(B) PERMITTED EXISTING LIENS

SCHEDULE 5(C) PERMITTED EXISTING INDEBTEDNESS

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