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Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
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<SEC-DOCUMENT>0001021408-01-509842.txt : 20020410
<SEC-HEADER>0001021408-01-509842.hdr.sgml : 20020410
ACCESSION NUMBER:		0001021408-01-509842
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20010929
FILED AS OF DATE:		20011113

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			KEY TRONIC CORP
		CENTRAL INDEX KEY:			0000719733
		STANDARD INDUSTRIAL CLASSIFICATION:	COMPUTER PERIPHERAL EQUIPMENT, NEC [3577]
		IRS NUMBER:				910849125
		STATE OF INCORPORATION:			WA
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-11559
		FILM NUMBER:		1782466

	BUSINESS ADDRESS:	
		STREET 1:		P O BOX 14687
		CITY:			SPOKANE
		STATE:			WA
		ZIP:			99216
		BUSINESS PHONE:		5099288000

	MAIL ADDRESS:	
		STREET 1:		P O BOX 14687
		CITY:			SPOKANE
		STATE:			WA
		ZIP:			99214
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>d10q.htm
<DESCRIPTION>FORM 10-Q FOR QUARTER ENDED 09/29/2001
<TEXT>
<HTML><HEAD>
<TITLE>FORM 10-Q FOR QUARTER ENDED 09/29/2001</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF"><HR>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
<td nowrap><font size="2">
<a href="#toc"><font face="Times New Roman, Times, serif">TABLE OF CONTENTS</font></a></font>&nbsp;&nbsp;</td>
<td>&nbsp;</td> </tr> </table> <p align=center><font size=2 face="Times New Roman"><b>SECURITIES AND EXCHANGE COMMISSION<br> Washington, D.C. 20549</b></font></p> <p align="center"><b><font size=2 face="Times New Roman">FORM 10&#150;Q</font></b></p>
<p align=center><b><font size=2 face="Times New Roman">QUARTERLY REPORT UNDER SECTION 13 or 15(d)<br> OF THE SECURITIES EXCHANGE ACT OF 1934</font></b></p>
<table width="100%" cellpadding="2" cellspacing="0" border="0">
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<td valign="top" align="left"> <font size=2 face="Times New Roman">For Quarter Ended September 29, 2001</font> </td>
<td valign="top" align="center"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman"> Commission File Number</font> </td> </tr>
<tr>
<td valign="top" align="left"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top" align="center"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">Number 0&#150;11559 </font> </td> </tr> </table> <p align="center"><font size=2 face="Times New Roman"><b>KEY TRONIC CORPORATION</b></font></p>
<table width="100%" cellpadding="2" cellspacing="0" border="0">
<tr>
<td valign="top" align="left"> <font size=2 face="Times New Roman">Washington</font> </td>
<td valign="top" align="center"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">91&#150;0849125</font> </td> </tr>
<tr>
<td valign="top" align="left"> <font size=2 face="Times New Roman">(State of Incorporation)</font> </td>
<td valign="top" align="center"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman"> (I.R.S. Employer</font> </td> </tr>
<tr>
<td valign="top" align="left"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top" align="center"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">Identification No.)</font> </td> </tr> </table> <p></p> <hr noshade align="center" width="25%" size="1"> <p align="center"><font size=2 face="Times New Roman">North 4424
Sullivan<br> Spokane, Washington 99216<br> (509) 928&#150;8000</font></p> <p><font size=2 face="Times New Roman">Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes <font face="Wingdings">x</font> No
<font face="Wingdings">o</font>.</font></p> <p><font size=2 face="Times New Roman">At October 26, 2001, 9, 672,580 shares of Common Stock, no par value (the only class of common stock), were outstanding.</font></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table>
<HR> <p align="center"><font size=2 face="Times New Roman">
<a name="toc"></a><b>KEY TRONIC CORPORATION</b></font></p> <p align="center"><b><font size=2 face="Times New Roman">Index</font></b></p>
<table width="100%" cellpadding="2" cellspacing="0" border="0">
<tr>
<td valign="top" align="left"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top" align="center"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="bottom" align="center"> <font size=2 face="Times New Roman">Page No.</font> </td> </tr>
<tr>
<td colspan="2" valign="bottom" align="left"> <font size=2 face="Times New Roman">PART I. FINANCIAL INFORMATION: </font> </td>
<td valign="top" align="center"> <font size=3 face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="bottom" align="center"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top" align="center"> <font size=3 face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">Item 1.</font> </td>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">Financial Statements:</font> </td>
<td valign="top" align="center"> <font size=3 face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="top" align="center"> <font size="3" face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">
<a href="#a221tx">Consolidated Balance Sheets &#150; September 29, 2001 (Unaudited)<br> and June 30, 2001</a></font> </td>
<td valign="bottom" align="center"> <font size=2 face="Times New Roman">3-4</font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="center"> <font size="3" face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">
<a href="#b221tx">Consolidated Statements of Income (Unaudited)<br> First Quarters Ended September 29, 2001<br> and September 30, 2000</a></font> </td>
<td valign="bottom" align="center"> <font size=2 face="Times New Roman">5</font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="center"> <font size="3" face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">
<a href="#c221tx">Consolidated Statements of Cash Flows (Unaudited)<br> First Quarters Ended September 29, 2001<br> and September 30, 2000</a></font> </td>
<td valign="bottom" align="center"> <font size=2 face="Times New Roman">6</font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="center"> <font size="3" face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">
<a href="#d221tx">Notes to Consolidated Financial Statements</a></font> </td>
<td valign="bottom" align="center"> <font size=2 face="Times New Roman">7-8</font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="center"> <font size="3" face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="top" align="left"> <font size=2 face="Times New Roman">Item 2.</font> </td>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">
<a href="#e221tx">Management&#146;s Discussion and Analysis of<br> Financial Condition and Results of Operations</a></font> </td>
<td valign="bottom" align="center"> <font size=2 face="Times New Roman">9-11</font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="center"> <font size="3" face="Times New Roman"> </font> </td> </tr>
<tr>
<td colspan="2" valign="bottom" align="left"> <font size=2 face="Times New Roman">PART II. OTHER INFORMATION:</font> </td>
<td valign="bottom" align="center"> <font size=3 face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="center"> <font size="3" face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">Item 1.</font> </td>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">
<a href="#f221tx">Legal Proceedings</a></font> </td>
<td valign="bottom" align="center"> <font size=2 face="Times New Roman">12</font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="center"> <font size="3" face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">Item 4.</font> </td>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">
<a href="#g221tx">Submission of Matters to a Vote of Security Holders</a></font> </td>
<td valign="bottom" align="center"> <font size=2 face="Times New Roman">12</font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="center"> <font size="3" face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">Item 5.</font> </td>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">
<a href="#h221tx">Other Events</a></font> </td>
<td valign="bottom" align="center"> <font size=2 face="Times New Roman">12</font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="center"> <font size="3" face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">Item 6.</font> </td>
<td valign="bottom" align="left"> <font size=2 face="Times New Roman">
<a href="#i221tx">Exhibits and Reports on Form 8&#150;K</a></font> </td>
<td valign="bottom" align="center"> <font size=2 face="Times New Roman">12</font> </td> </tr>
<tr>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="left"> <font size="3" face="Times New Roman"> </font> </td>
<td valign="bottom" align="center"> <font size="3" face="Times New Roman"> </font> </td> </tr>
<tr>
<td colspan="2" valign="bottom" align="left"> <font size=2 face="Times New Roman">
<a href="#j221tx">SIGNATURES</a></font> </td>
<td valign="bottom" align="center"> <font size=2 face="Times New Roman">13</font> </td> </tr> </table> <p></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p>
<HR> <p align="center"><font size=2 face="Times New Roman"><b>KEY TRONIC CORPORATION AND SUBSIDIARIES<br>
<a name="a221tx"></a>CONSOLIDATED BALANCE SHEETS<br> (in thousands) </b></font></p>
<table cellpadding="0" cellspacing="0" border="0" align="center" width="100%">
<tr valign="bottom">
<td align="left" width="72%">&nbsp; </td>
<td colspan="2" align="center"> <b><font size=2 face="Times New Roman">September 29, 2001</font> </b></td>
<td align="center" width="1%"><b></b> </td>
<td colspan="2" align="center"> <b><font size=2 face="Times New Roman">June 30, 2001</font> </b></td> </tr>
<tr valign="bottom">
<td bgcolor="white" align="left" width="72%">&nbsp;</td>
<td colspan="2" bgcolor="white" align="center"> <hr noshade align="right" width="100%" size="1"> </td>
<td bgcolor="white" align="center" width="1%"><b></b></td>
<td bgcolor="white" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr>
<tr valign="bottom">
<td bgcolor="white" align="left" width="72%">&nbsp; </td>
<td colspan="2" bgcolor="white" align="center"> <center> <b><font size=2 face="Times New Roman">(Unaudited)</font> </b> </center> </td>
<td bgcolor="white" align="center" width="1%"><b></b> </td>
<td bgcolor="white" align="center" width="2%"><b></b> </td>
<td bgcolor="white" align="center" width="9%"><b></b> </td> </tr>
<tr>
<td valign="top" align="left" width="72%">&nbsp; </td>
<td valign="top" align="center" width="4%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%">&nbsp; </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="72%"> <font size=2 face="Times New Roman">ASSETS</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="4%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%">&nbsp; </td> </tr>
<tr>
<td valign="top" align="left" width="72%">&nbsp; </td>
<td valign="top" align="center" width="4%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%">&nbsp; </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="72%"> <font size=2 face="Times New Roman">Current assets:</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="4%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%">&nbsp; </td> </tr>
<tr>
<td valign="top" align="left" width="72%">&nbsp; </td>
<td valign="top" align="center" width="4%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%">&nbsp; </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="72%"> <font size=2 face="Times New Roman">Cash and cash equivalents</font> </td>
<td valign="top" bgcolor="#99ccff" width="4%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">713</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" width="2%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">2,137</font></div> </td> </tr>
<tr valign="bottom">
<td align="left" width="72%"> <font size=2 face="Times New Roman">Trade receivables, less allowance for doubtful<br> &nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;accounts of $618 and $633</font> </td>
<td align="center" width="4%">&nbsp; </td>
<td align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">23,529</font></div> </td>
<td align="center" width="1%">&nbsp; </td>
<td align="center" width="2%">&nbsp; </td>
<td align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">21,674</font></div> </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="72%"> <font size=2 face="Times New Roman">Inventories</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="4%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">24,964</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">20,601</font></div> </td> </tr>
<tr>
<td valign="top" align="left" width="72%"> <font size=2 face="Times New Roman">Real estate held for sale</font> </td>
<td valign="top" align="center" width="4%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">1,661</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">1,697</font></div> </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="72%"> <font size=2 face="Times New Roman">Deferred income tax asset, net</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="4%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">945</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">771</font></div> </td> </tr>
<tr>
<td valign="top" align="left" width="72%"> <font size=2 face="Times New Roman">Other</font> </td>
<td valign="top" align="center" width="4%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> 6,029</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman"> 5,670</font></div> </td> </tr>
<tr>
<td valign="top" align="left" width="72%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="72%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="4%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%">&nbsp; </td> </tr>
<tr>
<td valign="top" align="left" width="72%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;Total current assets</font> </td>
<td valign="top" align="center" width="4%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">57,841</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman"> 52,550</font></div> </td> </tr>
<tr>
<td valign="top" align="left" width="72%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="72%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="4%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%">&nbsp; </td> </tr>
<tr>
<td valign="top" align="left" width="72%"> <font size=2 face="Times New Roman">Property, plant and equipment &#150; at cost</font> </td>
<td valign="top" align="center" width="4%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">91,395</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">99,228</font></div> </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="72%"> <font size=2 face="Times New Roman">&nbsp;Less accumulated depreciation</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="4%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> 75,389</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman"> 82,559</font></div> </td> </tr>
<tr>
<td valign="top" align="left" width="72%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr>
<tr>
<td valign="top" align="left" width="72%">&nbsp; </td>
<td valign="top" align="center" width="4%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%">&nbsp; </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="72%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;Total property, plant and equipment</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="4%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> 16,006</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman"> 16,669</font></div> </td> </tr>
<tr>
<td valign="top" align="left" width="72%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr>
<tr>
<td valign="top" align="left" width="72%">&nbsp; </td>
<td valign="top" align="center" width="4%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%">&nbsp; </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="72%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="4%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%">&nbsp; </td> </tr>
<tr>
<td valign="top" align="left" width="72%"> <font size=2 face="Times New Roman">Other assets:</font> </td>
<td valign="top" align="center" width="4%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%">&nbsp; </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="72%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="4%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%">&nbsp; </td> </tr>
<tr>
<td valign="top" align="left" width="72%"> <font size=2 face="Times New Roman">Deferred income tax asset, net</font> </td>
<td valign="top" align="center" width="4%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">4,006</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">3,746</font></div> </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="72%"> <font size=2 face="Times New Roman">Other (net of accumulated amortization of $1,229 and $1,168)</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="4%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">1,284</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">513</font></div> </td> </tr>
<tr>
<td valign="top" align="left" width="72%"> <font size=2 face="Times New Roman">Goodwill (net of accumulated amortization of $927 and $895)</font> </td>
<td valign="top" align="center" width="4%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> 861</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman"> 893</font></div> </td> </tr>
<tr>
<td valign="top" align="left" width="72%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="72%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" width="4%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">79,998</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" width="2%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">74,371</font></div> </td> </tr>
<tr bgcolor="#FFFFFF">
<td valign="top" align="left" width="72%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="2"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="2"> </td> </tr> </table> <p><font size=2 face="Times New Roman">See accompanying notes to consolidated financial statements.</font></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
<td colspan="2" nowrap> <center> <font size="2" face="Times New Roman, Times, serif">3 </font> </center> </td> </tr>
<tr>
<td width="15%" nowrap><font size="2">
<a href="#toc"><font face="Times New Roman">[RETURN TO TABLE OF CONTENTS]</font></a></font>&nbsp;&nbsp;</td>
<td width="85%">&nbsp;</td> </tr>
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p>
<HR> <p align="center"><font size=2 face="Times New Roman"><b>KEY TRONIC CORPORATION AND SUBSIDIARIES<br> CONSOLIDATED BALANCE SHEETS<br> (continued, in thousands) </b></font></p>
<table width="100%" cellpadding="0" cellspacing="0" border="0" align="center">
<tr>
<td valign="top" align="left" width="67%">&nbsp; </td>
<td colspan="3" valign="top" align="center"> <b><font size=2 face="Times New Roman">September 29, 2001</font></b></td>
<td valign="top" align="center" width="2%"><b></b> </td>
<td valign="top" align="center" colspan="2"> <b><font size=2 face="Times New Roman">June 30, 2001</font></b></td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="white" align="left" width="67%">&nbsp;</td>
<td colspan="3" valign="top" bgcolor="white" align="center"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" bgcolor="white" align="center" width="2%">&nbsp;</td>
<td valign="top" bgcolor="white" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" bgcolor="white" align="center" width="1%">&nbsp;</td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="white" align="left" width="67%">&nbsp; </td>
<td colspan="3" valign="top" bgcolor="white" align="center"> <b><font size=2 face="Times New Roman">(Unaudited)</font> </b></td>
<td valign="top" bgcolor="white" align="center" width="2%"><b></b> </td>
<td valign="top" bgcolor="white" align="center" width="2%"><b></b> </td>
<td valign="top" bgcolor="white" align="center" width="9%"><b></b> </td>
<td valign="top" bgcolor="white" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%">&nbsp; </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%">&nbsp; </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="67%"> <font size=2 face="Times New Roman">LIABILITIES AND SHAREHOLDERS&#146; EQUITY</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%">&nbsp; </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%">&nbsp; </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="67%"> <font size=2 face="Times New Roman">Current liabilities:</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%">&nbsp; </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%">&nbsp; </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" height="21" width="67%"> <font size=2 face="Times New Roman">Current portion of long&#150;term obligations</font> </td>
<td valign="top" bgcolor="#99ccff" height="21" width="5%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" bgcolor="#99ccff" align="center" height="21" width="12%"> <div align="right"><font size=2 face="Times New Roman"> 150</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" height="21" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" height="21" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" height="21" width="2%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" bgcolor="#99ccff" align="center" height="21" width="9%"> <div align="right"><font size=2 face="Times New Roman"> 150</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" height="21" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" height="21" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%"> <font size=2 face="Times New Roman">Accounts payable</font> </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">24,041</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">21,385</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="67%"> <font size=2 face="Times New Roman">Accrued compensation and vacation</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">3,144</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">2,615</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%"> <font size=2 face="Times New Roman">Accrued taxes other than income taxes</font> </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">747</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">973</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="67%"> <font size=2 face="Times New Roman">Deferred sales proceeds</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">2,708</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">2,894</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%"> <font size=2 face="Times New Roman">Interest payable</font> </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">64</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">69</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="67%"> <font size=2 face="Times New Roman">Other</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> 1,756</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman"> 1,578</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%">&nbsp; </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%">&nbsp; </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="67%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;Total current liabilities</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> 32,610</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman"> 29,664</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%">&nbsp; </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%">&nbsp; </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="67%"> <font size=2 face="Times New Roman">Long&#150;term obligations, less current portion</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> 13,297</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman"> 9,389 </font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%" height="21">&nbsp; </td>
<td valign="top" align="center" width="5%" height="21">&nbsp; </td>
<td valign="top" align="center" width="12%" height="21">&nbsp; </td>
<td valign="top" align="center" width="1%" height="21">&nbsp; </td>
<td valign="top" align="center" width="2%" height="21">&nbsp; </td>
<td valign="top" align="center" width="2%" height="21">&nbsp; </td>
<td valign="top" align="center" width="9%" height="21">&nbsp; </td>
<td valign="top" align="center" width="1%" height="21"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%" height="21">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="67%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%"> <font size=2 face="Times New Roman">Commitments and contingencies (Note 2)</font> </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%">&nbsp; </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="67%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%"> <font size=2 face="Times New Roman">Shareholders&#146; equity:</font> </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%">&nbsp; </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="67%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr valign="bottom">
<td align="left" width="67%"> <font size=2 face="Times New Roman">Common stock, no par value, authorized</font> </td>
<td align="center" width="5%">&nbsp; </td>
<td align="center" width="12%">&nbsp; </td>
<td align="center" width="1%">&nbsp; </td>
<td align="center" width="2%">&nbsp; </td>
<td align="center" width="2%">&nbsp; </td>
<td align="center" width="9%">&nbsp; </td>
<td align="center" width="1%"> <div align="left"></div> </td>
<td align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr valign="bottom">
<td bgcolor="#99ccff" align="left" width="67%"> <font size=2 face="Times New Roman">25,000 shares; issued and outstanding</font> </td>
<td bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td bgcolor="#99ccff" align="center" width="9%">&nbsp; </td>
<td bgcolor="#99ccff" align="center" width="1%"> <div align="left"></div> </td>
<td bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr valign="bottom">
<td align="left" width="67%"> <font size=2 face="Times New Roman">9,673 and 9,673 shares</font> </td>
<td align="center" width="5%">&nbsp; </td>
<td align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">38,393</font></div> </td>
<td align="center" width="1%">&nbsp; </td>
<td align="center" width="2%">&nbsp; </td>
<td align="center" width="2%">&nbsp; </td>
<td align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">38,393</font></div> </td>
<td align="center" width="1%"> <div align="left"></div> </td>
<td align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr valign="bottom">
<td bgcolor="#99ccff" align="left" width="67%"> <font size=2 face="Times New Roman">Accumulated deficit</font> </td>
<td bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">(4,302</font></div> </td>
<td bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td bgcolor="#99ccff" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">(3,320</font></div> </td>
<td bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr valign="bottom">
<td align="left" width="67%"> <font size=2 face="Times New Roman">Accumulated other comprehensive income</font> </td>
<td align="center" width="5%">&nbsp; </td>
<td align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> 0</font></div> </td>
<td align="center" width="1%">&nbsp; </td>
<td align="center" width="2%">&nbsp; </td>
<td align="center" width="2%">&nbsp; </td>
<td align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman"> 245</font></div> </td>
<td align="center" width="1%"> <div align="left"></div> </td>
<td align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr bgcolor="#FFFFFF">
<td valign="top" align="left" width="67%">&nbsp;</td>
<td valign="top" colspan="2" align="center"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" colspan="2" align="center"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="67%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;Total shareholders&#146; equity</font> </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> 34,091</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman"> 35,318</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr bgcolor="#FFFFFF">
<td valign="top" align="left" width="67%">&nbsp;</td>
<td valign="top" colspan="2" align="center"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" colspan="2" align="center"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="67%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="9%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%">&nbsp; </td>
<td valign="top" align="left" width="5%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">79,998</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" width="2%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" align="center" width="9%"> <div align="right"><font size=2 face="Times New Roman">74,371</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="67%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="2"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="2"> </td>
<td valign="top" align="center" width="1%"> <div align="left"></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr> </table> <p><font size=2 face="Times New Roman">See accompanying notes to consolidated financial statements.</font></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
<td colspan="2" nowrap> <center> <font size="2" face="Times New Roman, Times, serif">4 </font> </center> </td> </tr>
<tr>
<td width="15%" nowrap><font size="2">
<a href="#toc"><font face="Times New Roman, Times, serif">[RETURN TO TABLE OF CONTENTS]</font></a></font>&nbsp;&nbsp;</td>
<td width="85%">&nbsp;</td> </tr>
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p>
<HR> <p align="center"><font size=2 face="Times New Roman"><b>KEY TRONIC CORPORATION AND SUBSIDIARIES<br>
<a name="b221tx"></a>CONSOLIDATED STATEMENTS OF INCOME<br> (Unaudited)</b></font></p>
<table width="100%" cellpadding="0" cellspacing="0" border="0" align="center">
<tr>
<td valign="top" align="left" width="62%">&nbsp; </td>
<td colspan="6" valign="top" align="center"> <b><font size=2 face="Times New Roman">First Quarters Ended</font> </b></td>
<td width="1%" valign="top" align="center">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="white" align="left" width="62%">&nbsp; </td>
<td colspan="3" valign="top" bgcolor="white" align="center"> <b><font size=2 face="Times New Roman">September 29, 2001</font> </b></td>
<td valign="top" bgcolor="white" align="center" width="0%"><b></b> </td>
<td colspan="2" valign="top" bgcolor="white" align="center"> <b><font size=2 face="Times New Roman">September 30, 2000</font> </b></td>
<td width="1%" valign="top" bgcolor="white" align="center">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%">&nbsp;</td>
<td colspan="2" valign="top" align="center"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%"><b></b></td>
<td valign="top" align="center" width="0%"><b></b></td>
<td colspan="2" valign="top" align="center"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%">&nbsp; </td>
<td colspan="6" valign="top" align="center"> <b><font size=2 face="Times New Roman">(in thousands, except per share amounts)</font> </b></td>
<td width="1%" valign="top" align="center">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%">&nbsp;</td>
<td valign="top" align="center" width="5%">&nbsp;</td>
<td valign="top" align="center" width="11%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="3%">&nbsp;</td>
<td valign="top" align="center" width="13%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%"> <font size=2 face="Times New Roman">Net sales</font> </td>
<td valign="top" width="5%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" align="center" width="11%"> <div align="right"><font size=2 face="Times New Roman">34,627</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" width="3%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">51,214</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="62%"> <font size=2 face="Times New Roman">Cost of sales </font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="11%"> <div align="right"><font size=2 face="Times New Roman"> 32,495</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="3%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">45,910</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%"> <font size=2 face="Times New Roman">Gross profit </font> </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="11%"> <div align="right"><font size=2 face="Times New Roman">2,132</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="3%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">5,304</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="62%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="11%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="3%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%"> <font size=2 face="Times New Roman">Operating expenses:</font> </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="11%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="3%">&nbsp; </td>
<td valign="top" align="center" width="13%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="62%"> <font size=2 face="Times New Roman">Research, development and engineering</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="11%"> <div align="right"><font size=2 face="Times New Roman">558</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="3%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">814</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%"> <font size=2 face="Times New Roman">Selling</font> </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="11%"> <div align="right"><font size=2 face="Times New Roman">721</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="3%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">1,534</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="62%"> <font size=2 face="Times New Roman">General and administrative </font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="11%"> <div align="right"><font size=2 face="Times New Roman"> 1,745</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="3%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman"> 2,135</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%">&nbsp; </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="11%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="3%">&nbsp; </td>
<td valign="top" align="center" width="13%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="62%"> <font size=2 face="Times New Roman">Operating income (loss)</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="11%"> <div align="right"><font size=2 face="Times New Roman">(892</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="3%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">821</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%"> <font size=2 face="Times New Roman">Interest expense </font> </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="11%"> <div align="right"><font size=2 face="Times New Roman">341</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="3%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">566</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="62%"> <font size=2 face="Times New Roman">Other income</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="11%"> <div align="right"><font size=2 face="Times New Roman"> (29</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="3%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman"> (57</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%">&nbsp; </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="11%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="3%">&nbsp; </td>
<td valign="top" align="center" width="13%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="62%"> <font size=2 face="Times New Roman">Income(loss) before income tax provision (benefit)</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="11%"> <div align="right"><font size=2 face="Times New Roman">(1,204</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="3%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">312</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%"> <font size=2 face="Times New Roman">Income tax provision (benefit)</font> </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="11%"> <div align="right"><font size=2 face="Times New Roman"> (222</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="3%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman"> 106</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr bgcolor="#FFFFFF">
<td valign="top" align="left" width="62%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="62%"> <font size=2 face="Times New Roman">Net income (loss) </font> </td>
<td valign="top" bgcolor="#99ccff" width="5%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" bgcolor="#99ccff" align="center" width="11%"> <div align="right"><font size=2 face="Times New Roman"> (982</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" width="3%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman"> 206</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="2"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="2"> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%">&nbsp; </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="11%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="3%">&nbsp; </td>
<td valign="top" align="center" width="13%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="62%"> <font size=2 face="Times New Roman">Earnings per share:</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="11%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="3%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="62%">&nbsp; </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="11%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="3%">&nbsp; </td>
<td valign="top" align="center" width="13%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="4%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="62%"> <font size=2 face="Times New Roman">Earnings per common share - basic and diluted</font> </td>
<td valign="top" bgcolor="#99ccff" width="5%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" bgcolor="#99ccff" align="center" width="11%"> <div align="right"><font size=2 face="Times New Roman"> (.10</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" width="3%"> <font size=2 face="Times New Roman">$</font></td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman"> .02</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="4%">&nbsp;</td> </tr> </table> <p><font size=2 face="Times New Roman">See accompanying notes to consolidated financial statements.</font></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
<td colspan="2" nowrap> <center> <font size="2" face="Times New Roman, Times, serif">5 </font> </center> </td> </tr>
<tr>
<td width="15%" nowrap><font size="2" face="Times New Roman">
<a href="#toc">[RETURN TO TABLE OF CONTENTS]</a></font>&nbsp;&nbsp;</td>
<td width="85%">&nbsp;</td> </tr>
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p> <HR> <p align="center"><font size=2 face="Times New Roman"><b>KEY TRONIC CORPORATION AND SUBSIDIARIES<br>
<a name="c221tx"></a>CONSOLIDATED STATEMENTS OF CASH FLOWS<br> (Unaudited)</b></font></p>
<table width="100%" cellpadding="0" cellspacing="0" border="0" align="center">
<tr>
<td valign="top" align="left" width="69%">&nbsp; </td>
<td valign="top" align="center" colspan="6"> <b><font size=2 face="Times New Roman">First Quarters Ended</font> </b></td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="white" align="left" width="69%">&nbsp; </td>
<td colspan="3" valign="top" bgcolor="white" align="center"> <b><font size=2 face="Times New Roman">September 29, 2001</font> </b></td>
<td valign="top" bgcolor="white" align="center" width="0%"><b></b> </td>
<td colspan="2" valign="top" bgcolor="white" align="center"> <b><font size=2 face="Times New Roman">September 30, 2000</font> </b></td>
<td width="1%" valign="top" bgcolor="white" align="center">&nbsp;</td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp;</td>
<td colspan="2" valign="top" align="center"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%"><b></b></td>
<td valign="top" align="center" width="0%"><b></b></td>
<td colspan="2" valign="top" align="center"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp; </td>
<td valign="top" align="center" colspan="6"> <b><font size=2 face="Times New Roman">(in thousands)</font> </b></td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="69%"> <font size=2 face="Times New Roman">Increase (decrease) in cash and cash equivalents:</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp;</td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" align="center" width="12%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" align="center" width="13%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=3 face="Times New Roman"> </font> <font size=2 face="Times New Roman">Cash flows from operating activities:</font> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;Net income (loss)</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%"> <div align="right"><font size=2 face="Times New Roman">$</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> (982</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%"> <div align="right"><font size=2 face="Times New Roman">$</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman"> 206</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=2 face="Times New Roman">Adjustments to reconcile net income (loss) to<br> &nbsp;cash used in operating activities:</font> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Depreciation and amortization</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">1,224</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">1,573</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Provision for obsolete inventory</font> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">0</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">250</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Provision for doubtful receivables</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">30</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">198</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Provision for warranty</font> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">0</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">50</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;(Loss) gain on disposal of assets</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">1</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">(4</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Deferred income taxes</font> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">(434</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">0</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="69%"> <font size=2 face="Times New Roman">Changes in operating assets and liabilities: </font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Trade receivables</font> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">(1,885</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">(10,166</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Inventories</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">(4,363</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">(1,986</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Other assets</font> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">(851</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">(2,396</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Accrued compensation and vacation</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">529</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">692</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Deferred sales proceeds</font> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">(186</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">0</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Other liabilities</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> (53</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman"> (383</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=2 face="Times New Roman">Cash used in operating activities</font> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> (4,314</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">(5,207</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" colspan="2" align="center" bgcolor="#FFFFFF"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="center" width="0%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" colspan="2" align="center" bgcolor="#FFFFFF"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%" bgcolor="#99ccff"> <font size=2 face="Times New Roman">Cash flows from investing activities:</font> </td>
<td valign="top" align="center" width="2%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="12%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="1%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="0%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="2%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="13%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="1%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Proceeds from sale of property and equipment</font> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">0</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">4</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%" bgcolor="#99ccff"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Purchase of property and equipment</font> </td>
<td valign="top" align="center" width="2%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="12%" bgcolor="#99ccff"> <div align="right"><font size=2 face="Times New Roman"> (334</font></div> </td>
<td valign="top" align="center" width="1%" bgcolor="#99ccff"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" width="0%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="2%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="13%" bgcolor="#99ccff"> <div align="right"><font size=2 face="Times New Roman"> (179</font></div> </td>
<td valign="top" align="center" width="1%" bgcolor="#99ccff"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" colspan="2" align="center" bgcolor="#FFFFFF"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="center" width="0%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" colspan="2" align="center" bgcolor="#FFFFFF"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=2 face="Times New Roman">Cash used in investing activities</font> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> (334</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman"> (175</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="69%"> <font size=2 face="Times New Roman">Cash flows from financing activities:</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Payment of financing costs</font> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">(440</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">0</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Proceeds from issuance of common stock</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">0</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">79</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Borrowings under revolving credit agreement</font> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">33,041</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">6,023</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="69%"> <font size=2 face="Times New Roman"> &nbsp;&nbsp;Repayment of revolving credit agreement</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman"> (29,132 </font> </div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="0%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman"> (563</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%"> <font size=2 face="Times New Roman">Cash provided by financing activities</font></td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">3,469</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">5,539</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%" bgcolor="#99ccff"> <font size=2 face="Times New Roman">Accumulated foreign currency translation adjustment</font> </td>
<td valign="top" align="center" width="2%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="12%" bgcolor="#99ccff"> <div align="right"><font size=2 face="Times New Roman"> (245</font></div> </td>
<td valign="top" align="center" width="1%" bgcolor="#99ccff"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" width="0%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="2%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="13%" bgcolor="#99ccff"> <div align="right"><font size=2 face="Times New Roman"> 0</font></div> </td>
<td valign="top" align="center" width="1%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="center" width="2%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="center" width="12%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="center" width="1%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="center" width="0%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="center" width="2%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="center" width="13%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="center" width="1%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr valign="bottom">
<td width="69%" align="left"> <font size=2 face="Times New Roman">Net increase(decrease) in cash and cash equivalents</font> </td>
<td width="2%" align="center">&nbsp; </td>
<td width="12%" align="center"> <div align="right"><font size=2 face="Times New Roman"> (1,424</font></div> </td>
<td width="1%" align="center"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td width="0%" align="center">&nbsp; </td>
<td width="2%" align="center">&nbsp; </td>
<td width="13%" align="center"> <div align="right"><font size=2 face="Times New Roman"> 157</font></div> </td>
<td width="1%" align="center">&nbsp; </td>
<td width="0%" bgcolor="#FFFFFF" align="center">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="13%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr valign="bottom">
<td width="69%" bgcolor="#99ccff" align="left"> <font size=2 face="Times New Roman">Cash and cash equivalents, beginning of period</font> </td>
<td width="2%" bgcolor="#99ccff" align="center">&nbsp; </td>
<td width="12%" bgcolor="#99ccff" align="center"> <div align="right"><font size=2 face="Times New Roman"> 2,137</font></div> </td>
<td width="1%" bgcolor="#99ccff" align="center">&nbsp; </td>
<td width="0%" bgcolor="#99ccff" align="center">&nbsp; </td>
<td width="2%" bgcolor="#99ccff" align="center">&nbsp; </td>
<td width="13%" bgcolor="#99ccff" align="center"> <div align="right"><font size=2 face="Times New Roman"> 1,013</font></div> </td>
<td width="1%" bgcolor="#99ccff" align="center">&nbsp; </td>
<td width="0%" bgcolor="#FFFFFF" align="center">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr>
<tr valign="bottom">
<td width="69%" align="left"> <font size=2 face="Times New Roman">Cash and cash equivalents, end of period</font> </td>
<td width="2%" align="center"> <div align="right"><font size=2 face="Times New Roman">$</font></div> </td>
<td width="12%" align="center"> <div align="right"><font size=2 face="Times New Roman"> 713</font></div> </td>
<td width="1%" align="center">&nbsp; </td>
<td width="0%" align="center">&nbsp; </td>
<td width="2%" align="center"> <div align="right"><font size=2 face="Times New Roman">$</font></div> </td>
<td width="13%" align="center"> <div align="right"><font size=2 face="Times New Roman">1,170</font></div> </td>
<td width="1%" align="center">&nbsp; </td>
<td width="0%" align="center" bgcolor="#FFFFFF">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="69%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="2"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="2"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="0%">&nbsp;</td> </tr> </table> <p><font size=2 face="Times New Roman">See accompanying notes to consolidated financial statements. </font></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
<td colspan="2" nowrap> <center> <font size="2" face="Times New Roman, Times, serif">6 </font> </center> </td> </tr>
<tr>
<td width="15%" nowrap><font size="2">
<a href="#toc"><font face="Times New Roman, Times, serif">[RETURN TO TABLE OF CONTENTS]</font></a></font>&nbsp;&nbsp;</td>
<td width="85%">&nbsp;</td> </tr>
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p>
<HR> <p align="center"><font size=2 face="Times New Roman"><b>KEY TRONIC CORPORATION AND SUBSIDIARIES<br> </b></font><b><font size=2 face="Times New Roman">
<a name="d221tx"></a>NOTES TO FINANCIAL STATEMENTS<br> </font></b><b><font size=2 face="Times New Roman">(Unaudited)</font></b></p> <p><font size=2 face="Times New Roman">The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments of a normal and recurring nature necessary for a fair presentation of results of operations for such periods. The results of operations for any interim period are not necessarily indicative of results for the full
year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company&#146;s annual report for the year ended June 30, 2001.</font></p> <p><font size=2 face="Times New Roman">1.
INVENTORIES</font></p>
<table width="100%" cellpadding="0" cellspacing="0" border="0" align="center">
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="2%">&nbsp; </td>
<td valign="top" align="center" width="61%">&nbsp; </td>
<td colspan="2" valign="top" align="center"> <b><font size=2 face="Times New Roman">September 29, 2001</font> </b></td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" colspan="2"><b><font size=2 face="Times New Roman">June 30, 2001</font></b></td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%" bgcolor="#FFFFFF">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="2%">&nbsp;</td>
<td valign="top" align="center" width="61%">&nbsp;</td>
<td colspan="2" valign="top" align="center"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td colspan="2" valign="top" align="center"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%" bgcolor="#FFFFFF">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="2%">&nbsp; </td>
<td valign="top" align="center" width="61%">&nbsp; </td>
<td valign="top" align="center" colspan="7"> <b><font size=2 face="Times New Roman">(in thousands)</font> </b> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#FFFFFF" align="left" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" height="17" width="61%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" height="17" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" height="17" width="13%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" height="17" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" height="17" width="1%">&nbsp;</td>
<td valign="top" bgcolor="#99ccff" align="center" height="17" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" height="17" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" height="17" width="12%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" height="17" width="1%">&nbsp;</td>
<td valign="top" bgcolor="#FFFFFF" align="center" height="17" width="1%">&nbsp; </td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="2%">&nbsp; </td>
<td valign="top" align="center" width="61%"> <div align="left"><font size=2 face="Times New Roman">Finished goods</font></div> </td>
<td valign="top" align="center" width="5%"> <div align="left"><font size=2 face="Times New Roman">$</font></div> </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">7,726</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%"> <div align="right"><font size=2 face="Times New Roman">$</font></div> </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">8,589</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%" bgcolor="#FFFFFF">&nbsp; </td> </tr>
<tr>
<td valign="top" bgcolor="#FFFFFF" align="left" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="61%"> <div align="left"><font size=2 face="Times New Roman">Work&#150;in&#150;process</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">2,645</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp;</td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">2,088</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp;</td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp; </td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="2%">&nbsp; </td>
<td valign="top" align="center" width="61%"> <div align="left"><font size=2 face="Times New Roman">Raw materials and supplies</font></div> </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">17,288</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">12,636</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%" bgcolor="#FFFFFF">&nbsp; </td> </tr>
<tr>
<td valign="top" bgcolor="#FFFFFF" align="left" width="2%" height="2">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="61%" height="2"> <div align="left"><font size=2 face="Times New Roman">Reserve for obsolescence</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%" height="2">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="13%" height="2"> <div align="right"><font size=2 face="Times New Roman">(2,695</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%" height="2"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%" height="2">&nbsp;</td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%" height="2">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%" height="2">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="12%" height="2"> <div align="right"><font size=2 face="Times New Roman">(2,712</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%" height="2"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%" height="2">&nbsp; </td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="2%">&nbsp;</td>
<td valign="top" align="center" width="61%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="left" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%" bgcolor="#FFFFFF">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="2%">&nbsp; </td>
<td valign="top" align="center" width="61%">&nbsp; </td>
<td valign="top" align="center" width="5%"> <div align="left"><font size=2 face="Times New Roman">$</font></div> </td>
<td valign="top" align="center" width="13%"> <div align="right"><font size=2 face="Times New Roman">24,964</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%"> <div align="right"><font size=2 face="Times New Roman">$</font></div> </td>
<td valign="top" align="center" width="12%"> <div align="right"><font size=2 face="Times New Roman">20,601</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%" bgcolor="#FFFFFF">&nbsp; </td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="2%">&nbsp;</td>
<td valign="top" align="center" width="61%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="2"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="2"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="1%" bgcolor="#FFFFFF">&nbsp;</td> </tr> </table> <p><font size=2 face="Times New Roman">2. COMMITMENTS</font></p> <p><font size=2 face="Times New Roman"> The amount of firm commitments to contractors and
suppliers for capital expenditures was approximately $60,000 at September 29, 2001.</font></p> <p><font size=2 face="Times New Roman">3. LONG-TERM OBLIGATIONS</font></p> <p><font size=2 face="Times New Roman"> Long-term obligations consist
of:</font></p>
<table width="100%" cellpadding="0" cellspacing="0" border="0" align="center">
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" height="25" width="3%">&nbsp; </td>
<td valign="top" align="center" height="25" width="58%">&nbsp; </td>
<td colspan="2" valign="bottom" align="center" height="25"> <b><font size=2 face="Times New Roman">September 29, 2001</font></b></td>
<td valign="top" align="center" height="25" width="1%">&nbsp;</td>
<td valign="top" align="center" height="25" width="2%">&nbsp; </td>
<td colspan="2" valign="bottom" align="center" height="25"> <b><font size=2 face="Times New Roman">June 30, 2001</font></b></td>
<td valign="top" align="center" height="25" width="2%">&nbsp;</td>
<td valign="top" align="center" height="25" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="3%">&nbsp;</td>
<td valign="top" align="center" width="58%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="3%">&nbsp; </td>
<td valign="top" align="center" width="58%">&nbsp; </td>
<td colspan="7" valign="top" align="center"> <b><font size=2 face="Times New Roman">(in thousands)</font></b></td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#FFFFFF" align="left" width="3%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="58%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="8%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="10%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="10%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" height="21" width="3%">&nbsp; </td>
<td valign="top" align="center" height="21" width="58%"> <div align="left"><font size=2 face="Times New Roman">Revolving line</font></div> </td>
<td valign="top" align="center" height="21" width="8%"> <div align="left"><font size=2 face="Times New Roman">$</font></div> </td>
<td valign="top" align="center" height="21" width="10%"> <div align="right"><font size=2 face="Times New Roman">12,017</font></div> </td>
<td valign="top" align="center" height="21" width="1%">&nbsp; </td>
<td valign="top" align="center" height="21" width="2%">&nbsp; </td>
<td valign="top" align="center" height="21" width="5%"> <div align="left"><font size=2 face="Times New Roman">$</font></div> </td>
<td valign="top" align="center" height="21" width="10%"> <div align="right"><font size=2 face="Times New Roman">8,109</font></div> </td>
<td valign="top" align="center" height="21" width="2%">&nbsp; </td>
<td valign="top" align="center" height="21" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#FFFFFF" align="left" width="3%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="58%"> <div align="left"><font size=2 face="Times New Roman">Deferred compensation obligation</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="8%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="10%"> <div align="right"><font size=2 face="Times New Roman">729</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="10%"> <div align="right"><font size=2 face="Times New Roman">729</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="3%">&nbsp; </td>
<td valign="top" align="center" width="58%"> <div align="left"><font size=2 face="Times New Roman">Deferred sales proceeds</font></div> </td>
<td valign="top" align="center" width="8%">&nbsp; </td>
<td valign="top" align="center" width="10%"> <div align="right"><font size=2 face="Times New Roman"> 701</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="10%"> <div align="right"><font size=2 face="Times New Roman"> 701</font></div> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#FFFFFF" align="left" width="3%">&nbsp;</td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="58%">&nbsp;</td>
<td valign="top" bgcolor="#FFFFFF" align="center" colspan="2"> <hr noshade align="center" width="100%" size="1"> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="2%">&nbsp;</td>
<td valign="top" bgcolor="#FFFFFF" align="center" colspan="2"> <hr noshade align="left" width="100%" size="1"> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="2%">&nbsp;</td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#FFFFFF" align="left" width="3%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="58%"> <div align="left"><font size=2 face="Times New Roman"> &nbsp;&nbsp;Total long term obligations</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="8%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="10%"> <div align="right"><font size=2 face="Times New Roman">13,447</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="10%"> <div align="right"><font size=2 face="Times New Roman">9,539</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="2%">&nbsp; </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" bgcolor="#FFFFFF" align="left" width="3%">&nbsp; </td>
<td valign="top" align="center" width="58%"> <div align="left"><font size=2 face="Times New Roman">Less current portion</font></div> </td>
<td valign="top" align="center" width="8%">&nbsp; </td>
<td valign="top" align="center" width="10%"> <div align="right"><font size=2 face="Times New Roman"> (150</font></div> </td>
<td valign="top" align="center" width="1%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" align="center" width="2%">&nbsp; </td>
<td valign="top" align="center" width="5%">&nbsp; </td>
<td valign="top" align="center" width="10%"> <div align="right"><font size=2 face="Times New Roman"> (150</font></div> </td>
<td valign="top" align="center" width="2%"> <div align="left"><font size=2 face="Times New Roman">)</font></div> </td>
<td valign="top" bgcolor="#FFFFFF" align="center" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="3%">&nbsp;</td>
<td valign="top" align="center" width="58%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="center" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="left" width="100%" size="1"> </td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="3%">&nbsp; </td>
<td valign="top" align="center" width="58%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="8%" bgcolor="#99ccff"> <div align="left"><font size=2 face="Times New Roman">$</font></div> </td>
<td valign="top" align="center" width="10%" bgcolor="#99ccff"> <div align="right"><font size=2 face="Times New Roman">13,297</font></div> </td>
<td valign="top" align="center" width="1%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="2%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" width="5%" bgcolor="#99ccff"> <div align="left"><font size=2 face="Times New Roman">$</font></div> </td>
<td valign="top" align="center" width="10%" bgcolor="#99ccff"> <div align="right"><font size=2 face="Times New Roman">9,389</font></div> </td>
<td valign="top" align="center" width="2%" bgcolor="#99ccff">&nbsp; </td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" bgcolor="#FFFFFF" width="3%">&nbsp;</td>
<td valign="top" align="center" width="58%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="center" width="100%" size="2"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" align="center" colspan="2"> <hr noshade align="center" width="100%" size="2"> </td>
<td valign="top" align="center" width="2%">&nbsp;</td>
<td valign="top" align="center" bgcolor="#FFFFFF" width="1%">&nbsp;</td> </tr> </table> <p><font size=2 face="Times New Roman"> On August 24, 2001, the Company obtained a new revolving credit facility with CIT Group/Business Credit, Inc. for up to
$25 million and paid off the GECC revolving loan. The Company recorded fees and penalties of $132,000 in conjunction with the refinancing. The new revolving loan is secured by the assets of the Company. For the first year of the financing agreement
with CIT, a margin of 0.75% will be applicable as an adder to the prime rate (6.00%) as well as a unused line fee of .5%. The agreement specifies four different levels of margin between 0.25% and 1.00% depending on the Company&#146;s earnings before
interest, taxes, depreciation, and amortization. The agreement contains financial covenants that relate to maximum capital expenditures, minimum earnings before interest expense, income tax, depreciation, and amortization, and minimum tangible net
worth. The agreement is for a term of three years beginning on August 24, 2001 and ending on August 23, 2004. In addition to the financial covenants, the credit agreement restricts investments, disposition of assets, and the payment of
dividends.</font></p> <p><font size=2 face="Times New Roman">4. SUPPLEMENTAL CASH FLOW INFORMATION</font></p>
<table width="100%" cellpadding="2" cellspacing="0" border="0" align="center">
<tr>
<td valign="top" align="left" width="1%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="left" width="64%">&nbsp; </td>
<td colspan="5" valign="top" align="center"> <b><font size=2 face="Times New Roman">First Quarters Ended</font> </b> </td> </tr>
<tr>
<td valign="top" align="left" width="1%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="left" width="64%">&nbsp; </td>
<td colspan="2" valign="top" align="center"> <b><font size=2 face="Times New Roman">September 29, 2001</font></b></td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td colspan="2" valign="top" align="center"> <b><font size=2 face="Times New Roman">September 30, 2000</font></b></td> </tr>
<tr>
<td valign="top" align="left" width="1%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="left" width="64%">&nbsp;</td>
<td colspan="2" valign="top" align="center"> <hr noshade align="right" width="100%" size="1"> </td>
<td valign="top" align="center" width="1%">&nbsp;</td>
<td colspan="2" valign="top" align="center"> <hr noshade align="right" width="100%" size="1"> </td> </tr>
<tr>
<td valign="top" align="left" width="1%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="left" width="64%">&nbsp; </td>
<td colspan="5" valign="top" align="center"> <b><font size=2 face="Times New Roman">(in thousands)</font> </b></td> </tr>
<tr>
<td valign="top" bgcolor="#FFFFFF" align="left" width="1%" height="23">&nbsp;</td>
<td valign="top" bgcolor="#99ccff" align="left" width="64%" height="23">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%" height="23">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="10%" height="23">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%" height="23">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%" height="23">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="10%" height="23">&nbsp; </td> </tr>
<tr>
<td valign="top" align="left" width="1%" bgcolor="#FFFFFF">&nbsp;</td>
<td valign="top" align="left" width="64%"> <font size=2 face="Times New Roman">Interest payments</font> </td>
<td valign="top" align="center" width="5%"> <div align="left"><font size=2 face="Times New Roman">$</font></div> </td>
<td valign="top" align="center" width="10%"> <div align="right"><font size=2 face="Times New Roman">346</font></div> </td>
<td valign="top" align="center" width="1%">&nbsp; </td>
<td valign="top" align="center" width="5%"> <div align="left"><font size=2 face="Times New Roman">$</font></div> </td>
<td valign="top" align="center" width="10%"> <div align="right"><font size=2 face="Times New Roman">574</font></div> </td> </tr>
<tr>
<td valign="top" bgcolor="#FFFFFF" align="left" width="1%">&nbsp;</td>
<td valign="top" bgcolor="#99ccff" align="left" width="64%"> <font size=2 face="Times New Roman">Income tax payments</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="10%"> <div align="right"><font size=2 face="Times New Roman">106</font></div> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="1%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="5%">&nbsp; </td>
<td valign="top" bgcolor="#99ccff" align="center" width="10%"> <div align="right"><font size=2 face="Times New Roman">136</font></div> </td> </tr> </table> <p>&nbsp;</p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
<td colspan="2" nowrap> <center> <font size="2" face="Times New Roman, Times, serif">7 </font> </center> </td> </tr>
<tr>
<td width="15%" nowrap><font size="2">
<a href="#toc"><font face="Times New Roman, Times, serif">[RETURN TO TABLE OF CONTENTS]</font></a></font>&nbsp;&nbsp;</td>
<td width="85%">&nbsp;</td> </tr>
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p>
<HR> <p><font size=2 face="Times New Roman">5. INCOME TAXES</font></p> <p><font size=2 face="Times New Roman"> The income tax benefit for the first quarter of fiscal year 2002 was ($222,000) versus a provision $106,000 for
the first fiscal quarter of the prior year. The ($222,000) benefit for the first quarter fiscal year 2002 is the result of tax provisions of $212,000 on the earnings of foreign subsidiaries and an income tax benefit of $(434,000) on the domestic
losses of the Company. The $106,000 provision for the first quarter of fiscal 2001 was net of $(43,000) in tax benefits on the losses of foreign operations. The Company has tax loss carryforwards of approximately $48.8 million, which expire in
varying amounts in the years 2006 through 2021</font></p> <p><font size=2 face="Times New Roman">6. EARNINGS PER SHARE</font></p> <p><font size=2 face="Times New Roman"> Basic EPS is computed by dividing income available to common shareholders (the
numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Diluted EPS is computed by dividing income available to common shareholders by the weighted-average number of common shares and common share
equivalents outstanding during the period. Key Tronic uses the Treasury Stock Method required by the standard in calculating the dilutive effect of common stock equivalents.</font></p> <p><font size=2 face="Times New Roman"> Because of the dilutive
nature of outstanding options and warrants, the current quarter&#146;s loss creates an antidilutive effect. Therefore the weighted average diluted shares equals the basic weighted average shares.</font></p> <p><font size=2 face="Times New Roman">
There were no adjustments to the income available to common shareholders for the first quarters ended September 29, 2001 and September 30, 2000. The following table presents the Company&#146;s calculations of weighted average shares outstanding
(number of shares):</font></p>
<table width="100%" cellpadding="0" cellspacing="0" border="0">
<tr>
<td valign="top" align="left" width="37%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="18%"><b><font size=2 face="Times New Roman">Weighted Avg. Shares</font></b></td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="27%"><b><font size=2 face="Times New Roman">Adjustment for Potential</font></b></td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="18%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="37%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="18%"> <hr noshade align="center" width="100%" size="1"> </td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="27%"> <hr noshade align="center" width="100%" size="1"> </td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="18%">&nbsp; </td> </tr>
<tr>
<td valign="top" align="left" width="37%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="18%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="27%"><b><font size=2 face="Times New Roman">Common shares</font></b></td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="18%"><b><font size=2 face="Times New Roman">Total</font></b></td> </tr>
<tr>
<td valign="top" align="left" width="37%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="18%">&nbsp;</td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="27%"> <hr noshade align="center" width="100%" size="1"> </td>
<td valign="top" align="center" width="0%">&nbsp;</td>
<td valign="top" align="center" width="18%"> <hr noshade align="center" width="100%" size="1"> </td> </tr>
<tr bgcolor="#FFFFFF">
<td valign="top" align="left" width="37%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="18%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="27%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="18%">&nbsp; </td> </tr>
<tr bgcolor="#99CCFF">
<td valign="top" align="left" width="37%"> <font size=2 face="Times New Roman"><u>For the Quarter Ended</u></font> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="18%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="27%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="18%">&nbsp; </td> </tr>
<tr bgcolor="#FFFFFF">
<td valign="top" align="left" width="37%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="18%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="27%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="18%">&nbsp; </td> </tr>
<tr bgcolor="#99CCFF">
<td valign="top" align="left" width="37%"> <font size=2 face="Times New Roman">September 29, 2001</font> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="18%"> <font size=2 face="Times New Roman">9,672,580</font> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="27%"> <font size=2 face="Times New Roman">Antidulutive</font> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="18%"> <font size=2 face="Times New Roman">9,672,580</font> </td> </tr>
<tr bgcolor="#FFFFFF">
<td valign="top" align="left" width="37%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="18%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="27%">&nbsp; </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="18%">&nbsp; </td> </tr>
<tr bgcolor="#99CCFF">
<td valign="top" align="left" width="37%"> <font size=2 face="Times New Roman">September 30, 2000</font> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="18%"> <font size=2 face="Times New Roman">9,655,171</font> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="27%"> <font size=2 face="Times New Roman">293,139</font> </td>
<td valign="top" align="center" width="0%">&nbsp; </td>
<td valign="top" align="center" width="18%"> <font size=2 face="Times New Roman">9,948,310</font> </td> </tr> </table> <p><font size=2 face="Times New Roman">7. COMMITMENTS AND CONTINGENCIES</font></p> <p><font size=2 face="Times New Roman">
<u>Litigation</u> The Company currently has eleven lawsuits by computer keyboard users which are in state or federal courts in New York. These suits allege that specific keyboard products manufactured by the Company were sold with manufacturing,
design and warning defects which caused or contributed to injury. The alleged injuries are not specifically identified but are referred to as repetitive stress injuries (RSI) or cumulative trauma disorders (CTD). These suits seek compensatory
damages and some seek punitive damages. It is more likely than not that compensatory damages, if awarded, will be covered by insurance; however, the likelihood that punitive damages, if awarded, will be covered by insurance is remote. A total of 127
lawsuits have been dismissed in California, Connecticut, Florida, Illinois, Kansas, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, New York, Pennsylvania and Texas.</font></p> <hr noshade align="center" width="100%" size="1"> <p><font
size=2 face="Times New Roman"><b>FORWARD-LOOKING STATEMENTS</b></font></p> <p><font size=2 face="Times New Roman">This Quarterly Report contains forward-looking statements in addition to historical information. Forward-looking statements are subject
to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Risks and uncertainties that might cause such differences include, but are not limited to those outlined
in &quot;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations&#151;Risks and Uncertainties That May Affect Future Results.&quot; Readers are cautioned not to place undue reliance on forward-looking statements,
which reflect management&#146;s opinions only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to forward-looking statements. Readers should carefully review the risk factors
described in other documents the Company files from time to time with the Securities and Exchange Commission, including Quarterly Reports on Form 10-Q.</font></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
<td colspan="2" nowrap> <center> <font size="2" face="Times New Roman, Times, serif">8 </font> </center> </td> </tr>
<tr>
<td width="15%" nowrap><font size="2">
<a href="#toc"><font face="Times New Roman, Times, serif">[RETURN TO TABLE OF CONTENTS]</font></a></font>&nbsp;&nbsp;</td>
<td width="85%">&nbsp;</td> </tr>
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p>
<HR> <p><font size=2 face="Times New Roman"><b>
<a name="e221tx"></a>Item 2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</b></font></p> <p><u><font size=2 face="Times New Roman">CAPITAL RESOURCES AND LIQUIDITY</font></u></p> <p><font size=2
face="Times New Roman"> Operating activities used $4.3 million of cash during the first quarter of fiscal year 2002 versus $5.2 million during the same period of the prior year. This change in cash for operating activities is due primarily to the
Company&#146;s increase in accounts payable offset by the increase in inventory levels due to a build up of fabricated parts for a specific Electronic Manufacturing Services (EMS) customer. In previous filings, EMS was designated as Contract Design
and Manufacturing (CDM).</font></p> <p><font size=2 face="Times New Roman"> During the first quarter of fiscal year 2002, the Company spent $0.3 million on capital additions versus $0.2 million spent in capital additions in the same period in the
previous fiscal year. The Company anticipates capital expenditures of approximately $1.4 million through the remainder of the current fiscal year ending June 29, 2002. Actual capital expenditures may vary from anticipated expenditures depending upon
future results of operations. See risks and uncertainties that may affect future results, pages 10-11. Capital expenditures are expected to be financed with internally generated funds.</font></p> <p><font size=2 face="Times New Roman"> On August 24,
2001, the Company obtained a new revolving credit facility with CIT Group/Business Credit, Inc. for up to $25 million and paid off the GECC revolving loan. The Company recorded fees and costs of $132,000 in conjunction with the refinancing. The new
revolving loan is secured by the assets of the Company. For the first year of the financing agreement with CIT, a margin of 0.75% will be applicable as an adder to the prime rate (6.00%) as well as a unused line fee of .5%. The agreement specifies
four different levels of margin between 0.25% and 1.00% depending on the Company&#146;s earnings before interest, taxes, depreciation, and amortization. The agreement contains financial covenants that relate to maximum capital expenditures, minimum
earnings before interest expense, income tax, depreciation, and amortization, and minimum tangible net worth. The agreement is for a term of three years beginning on August 24, 2001 and ending on August 23, 2004. In addition to the financial
covenants, the credit agreement restricts investments, disposition of assets, and the payment of dividends.</font></p> <p><font size=2 face="Times New Roman"> Real estate held for sale is carried at the lower of cost or net realizable value. In
September of 1997, the Company entered into a five year operating lease with a local firm for property owned by the Company which is located in Cheney, Washington. Monthly lease payments received by the Company are $21,000. The lease terms include
an option to buy the property upon notice at any time during the term of the lease. </font></p> <p><font size=2 face="Times New Roman"> The Company believes that funds available under the revolving credit facility and internally generated funds can
satisfy cash requirements for a period in excess of 12 months.</font></p> <p><font size=2 face="Times New Roman"><u>QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</u></font></p> <p><font size=2 face="Times New Roman"> The Company is
subject to the risk of fluctuating interest rates in the normal course of business. The Company&#146;s major market risk relates to its secured debt. A portion of the Company&#146;s accounts receivable and inventories are used as collateral for its
revolving debt. The interest rates applicable to the Company&#146;s revolving loan fluctuate with the JP Morgan Chase Bank prime rate.</font></p> <p><font size=2 face="Times New Roman"> The Company does not enter into derivative transactions or
leveraged swap agreements.</font></p> <p><font size=2 face="Times New Roman"> Although the Company has international operations, the functional currency for all active subsidiaries, is the U.S. dollar. The Company imports for its own use raw
materials that are used in its manufacturing operations. Such purchases are denominated in U.S. dollars and are paid under normal trade terms.</font></p> <p><u><font size=2 face="Times New Roman">NET SALES</font></u></p> <p><font size=2
face="Times New Roman"> Net sales for the fiscal 2002 first quarter ended September 29, 2001 were $34.6 million compared to $51.2 million for the first quarter of the previous year. The decrease is due to a significant decrease of orders from one
significant customer as well as continuing decline in keyboard sales.</font></p> <p><font size=2 face="Times New Roman"> EMS revenue accounted for 85.5% of total revenue in the first quarter of fiscal year 2002 versus 75.1% of total revenue in the
first quarter of fiscal year 2001. The increase in EMS revenue as a percentage of sales is a direct result of the Company&#146;s strategy to grow this part of its business.</font></p> <p><font size=2 face="Times New Roman"> Keyboard and other sales
were 14.5% of total revenue in the first quarter of fiscal year 2002 versus 24.9% of total revenue in the first quarter of fiscal year 2001. The decrease is due primarily to decreased customer orders for keyboards. </font></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
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<HR> <p><u><font size=2 face="Times New Roman">COST OF SALES</font></u></p> <p><font size=2 face="Times New Roman"> Cost of sales were 93.8% of revenue in the first quarter of fiscal year 2002, compared to 89.6% for the
first quarter of fiscal year 2001. The cost of sales percentage increased due to lower sales, resulting in excess capacity in operations. During the first quarter of fiscal year 2002, management placed additional emphasis on material cost reductions
through negotiations with major suppliers.</font></p> <p><u><font size=2 face="Times New Roman">RESEARCH, DEVELOPMENT AND ENGINEERING</font></u></p> <p><font size=2 face="Times New Roman"> Research, development and engineering (RD&amp;E) expenses
were $0.6 million in the first quarter of fiscal year 2002 and $0.8 million for the same period of fiscal year 2001. As a percentage of sales, RD&amp;E expenditures were 1.6% in the first quarter of fiscal year 2002 and 2001.</font></p> <p><font
size=2 face="Times New Roman"><u>SELLING EXPENSES</u></font></p> <p><font size=2 face="Times New Roman"> Selling expenses were $0.7 million in the first quarter of fiscal year 2002 compared to $1.5 million in the first quarter of fiscal year 2001.
Selling expenses as a percentage of revenue were 2.1% for the quarter compared to 3.0% in the same quarter of fiscal year 2001. These decreases can be attributed to reduced distribution keyboard sales, which resulted in lower costs for volume
incentive rebates and cooperative advertising.</font></p> <p><u><font size=2 face="Times New Roman">GENERAL AND ADMINISTRATIVE</font></u></p> <p><font size=2 face="Times New Roman"> General and administrative (G&amp;A) expenses were $1.7 million in
the first quarter of fiscal 2002 compared to $2.1 million in the first quarter of fiscal 2001. As a percentage of revenue, G&amp;A expenses were 5.0% in the first quarter of fiscal 2002 versus 4.2% in the same quarter of the prior year. The
percentage increase is due to lower revenues in the first quarter of fiscal 2002. During the first quarter of fiscal 2002, the Company ceased all significant operations in Ireland, and therefore reversed the cumulative translation adjustment of
$245,000 previously recorded. Without this one-time adjustment, G&amp;A expenses would have remained fairly constant for the period.</font></p> <p><u><font size=2 face="Times New Roman">INTEREST</font></u></p> <p><font size=2 face="Times New Roman">
Interest expense was $341,000 in the first quarter of fiscal 2002 compared to $566,000 for the first quarter of fiscal year 2001. This decrease resulted primarily from a lower debt amount outstanding during the quarter and lower interest rates being
charged from the prior year.</font></p> <p><u><font size=2 face="Times New Roman">INCOME TAXES</font></u></p> <p><font size=2 face="Times New Roman"> The income tax benefit for the first quarter of fiscal year 2002 was $(222,000) versus a provision
$106,000 for the first fiscal quarter of the prior year. The $(222,000) benefit for the first quarter fiscal year 2002 is the result of tax provisions of $212,000 on the earnings of foreign subsidiaries and an income tax benefit of $(434,000) on the
domestic losses of the Company. The $106,000 provision for the first quarter of fiscal 2001 was net of $(43,000) in tax benefits on the losses of foreign operations. The Company has tax loss carryforwards of approximately $48.8 million, which expire
in varying amounts in the years 2006 through 2021.</font></p> <p><u><font size=2 face="Times New Roman">ESOP</font></u></p> <p><font size=2 face="Times New Roman"> No contributions to the Employee Stock Ownership Plan (ESOP) were made during the
first quarter of fiscal years 2002 and 2001.</font></p> <p><font size=2 face="Times New Roman"><u>BACKLOG</u></font></p> <p><font size=2 face="Times New Roman"> The Company&#146;s backlog at the end of first fiscal quarter of fiscal year 2002 was
$49.3 million compared to $81.5 million at the end of fiscal year 2001 and $23.6 million at the end of the first quarter of fiscal year 2001. The decrease in the backlog from fiscal year end is attributable to orders shipped in the first quarter of
fiscal year 2002 that had been held up in the fourth quarter.</font></p> <p><u><font size=2 face="Times New Roman">RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE RESULTS</font></u></p> <p><font size=2 face="Times New Roman"> The following risks and
uncertainties could affect the Company&#146;s actual results and could cause results to differ materially from past results or those contemplated by the Company&#146;s forward-looking statements. When used herein, the words "expects", "believes",
"anticipates" and similar expressions are intended to identify forward-looking statements.</font></p> <p><u><font size=2 face="Times New Roman">Potential Fluctuations in Quarterly Results</font></u><font size=2> <font face="Times New Roman">The
Company&#146;s quarterly operating results have varied in the past and may vary in the future due to a variety of factors, including changes in overall demand for computer products, success of customers&#146; programs, timing </font></font></p>
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<HR> <p><font size="2" face="Times New Roman">of new programs, new product introductions or technological advances by the Company, its customers and its competitors and changes in pricing policies by the Company, its
customers and its competitors. For example, the Company relies on customers&#146; forecasts to plan its business. If those forecasts are overly optimistic, the Company&#146;s revenues and profits may fall short of expectations. Conversely, if those
forecasts are too conservative, the Company could have an unexpected increase in revenues and profits.</font></p> <p><font face="Times New Roman" size="2"><u>Competition</u> The EMS and keyboard industries are intensely competitive. Competitors may
offer customers lower prices on certain high volume programs. This could result in price reductions, reduced margins and loss of market share, all of which would materially and adversely affect the Company&#146;s business, operating results and
financial condition. In addition, competitors can copy the Company&#146;s non-proprietary designs after the Company has invested in development of products for customers, thereby enabling such competitors to offer lower prices on such products due
to savings in development costs.</font></p> <p><font face="Times New Roman" size="2"><u>Concentration of Major Customers</u> At present, the Company&#146;s customer base is highly concentrated, and there can be no assurance that its customer base
will not become more concentrated. Three of the Company&#146;s EMS customers accounted for 39%, 27%, and 5% of net sales during fiscal 2001. In 2000, these same customers accounted for 38%, 13% and 9% of the Company&#146;s net sales. There can be no
assurance that the Company&#146;s principal customers will continue to purchase products from the Company at current levels. Moreover, the Company typically does not enter into long-term volume purchase contracts with its customers, and the
Company&#146;s customers have certain rights to extend or delay the shipment of their orders. The loss of one or more of the Company&#146;s major customers or the reduction, delay or cancellation of orders from such customers could materially and
adversely affect the Company&#146;s business, operating results and financial condition.</font></p> <p><font face="Times New Roman" size="2"><u>Dependence on Key Personnel</u> The Company&#146;s future success depends in large part on the continued
service of its key technical, marketing and management personnel and on its ability to continue to attract and retain qualified employees. The competition for such personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The loss of key employees could have a material adverse effect on the Company&#146;s business, operating results and financial condition.</font></p> <p><font face="Times New Roman"
size="2"><u>Litigation</u> The Company currently has eleven lawsuits by computer keyboard users which are in state or federal courts in New York. These suits allege that specific keyboard products manufactured by the Company were sold with
manufacturing, design and warning defects which caused or contributed to injury. The alleged injuries are not specifically identified but are referred to as repetitive stress injuries (RSI) or cumulative trauma disorders (CTD). These suits seek
compensatory damages and some seek punitive damages. It is more likely than not that compensatory damages, if awarded, will be covered by insurance; however, the likelihood that punitive damages, if awarded, will be covered by insurance is remote. A
total of 127 lawsuits have been dismissed in California, Connecticut, Florida, Illinois, Kansas, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, New York, Pennsylvania and Texas.</font></p> <p><font face="Times New Roman"
size="2"><u>Technological Change and New Product Risk</u> The market for the Company&#146;s products is characterized by rapidly changing technology, evolving industry standards, frequent new product introductions and relatively short product life
cycles. The introduction of products embodying new technologies or the emergence of new industry standards can render existing products obsolete or unmarketable. The Company&#146;s success will depend upon its ability to enhance its existing
products and to develop and introduce, on a timely and cost-effective basis, new products that keep pace with technological developments and emerging industry standards and address evolving and increasingly sophisticated customer requirements.
Failure to do so could substantially harm the Company&#146;s competitive position. There can be no assurance that the Company will be successful in identifying, developing, manufacturing and marketing products that respond to technological change,
emerging industry standards or evolving customer requirements.</font></p> <p><font face="Times New Roman" size="2"><u>Dilution and Stock Price Volatility</u> As of September 29, 2001, there were outstanding options and warrants for the purchase of
approximately 2,000,000 shares of common stock of the Company (Common Stock), of which options and warrants for approximately 1,600,000 shares were vested and exercisable. Holders of the Common Stock will suffer immediate and substantial dilution to
the extent outstanding options and warrants to purchase the Common Stock are exercised. The stock price of the Company may be subject to wide fluctuations and possible rapid increases or declines over a short time period. These fluctuations may be
due to factors specific to the Company such as variations in quarterly operating results or changes in analysts&#146; earnings estimates, or to factors relating to the computer industry or to the securities markets in general, which, in recent
years, have experienced significant price fluctuations. These fluctuations often have been unrelated to the operating performance of the specific companies whose stocks are traded.</font></p>
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<HR> <p><font size=2 face="Times New Roman"><b>PART II. OTHER INFORMATION:</b></font></p> <p><font size=2 face="Times New Roman">
<a name="f221tx"></a>Item 1. Legal Proceedings</font></p> <p><font size=2 face="Times New Roman"> None</font></p> <p><font size=2 face="Times New Roman">
<a name="g221tx"></a>Item 4. Submission of Matters to a Vote of Security Holders</font></p> <p><font size=2 face="Times New Roman"> None</font></p> <p><font size=2 face="Times New Roman">
<a name="h221tx"></a>Item 5. Other Events</font></p> <p><font size=2 face="Times New Roman">
<a name="i221tx"></a>Item 6. Exhibits and Reports on Form 8&#150;K</font></p> <p><font size=2 face="Times New Roman"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) &nbsp;Exhibits</font></p> <p><font size=2
face="Times New Roman"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10&nbsp;&nbsp;Secured financing agreement with CIT Group/Business Credit, Inc.</font></p> <p><font size=2 face="Times New Roman">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) &nbsp;Reports on Form 8&#150;K</font></p> <p><font size=2 face="Times New Roman">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None</font></p>
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<a name="j221tx"></a>SIGNATURES</b></font></p> <p><font size=2 face="Times New Roman"> Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.</font></p> <p align="center"><font size=2 face="Times New Roman"><b>KEY TRONIC CORPORATION</b></font></p>
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<td valign="top" align="center" width="31%"> <div align="left"><font size=2 face="Times New Roman">/s/ Jack W. Oehlke</font> <font size=3 face="Times New Roman"> </font> </div> </td>
<td valign="top" align="center" width="0%"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top" align="center" width="38%"> <div align="left"><font size=2 face="Times New Roman">November 13, 2001</font> </div> </td> </tr>
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<td valign="top" align="center" width="31%">&nbsp;</td>
<td valign="top" align="center" width="31%"> <div align="left"><font size=2 face="Times New Roman">Jack W. Oehlke</font> </div> </td>
<td valign="top" align="center" width="0%"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top" align="center" width="38%"> <div align="left"><font size=2 face="Times New Roman">Date:</font> </div> </td> </tr>
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<td valign="top" align="center" width="31%"> <div align="left"><font size=2 face="Times New Roman">(Director, President and</font> </div> </td>
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<td valign="top" align="center" width="31%"> <div align="left"><font size=2 face="Times New Roman"> Chief Executive Officer)</font> </div> </td>
<td valign="top" align="center" width="0%"> <font size=3 face="Times New Roman"> </font> </td>
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<td valign="top" align="center" width="31%"> <div align="left"><font size=2 face="Times New Roman">/s/ Ronald F. Klawitter</font><font size=3 face="Times New Roman"> </font> </div> </td>
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<td valign="top" align="center" width="38%"> <div align="left"><font size=2 face="Times New Roman">November 13, 2001</font> </div> </td> </tr>
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<td valign="top" align="center" width="31%"> <div align="left"><font size=2 face="Times New Roman">Ronald F. Klawitter</font> </div> </td>
<td valign="top" align="center" width="0%"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top" align="center" width="38%"> <div align="left"><font size=2 face="Times New Roman">Date:</font><font size=3 face="Times New Roman"></font> </div> </td> </tr>
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<td valign="top" align="center" width="31%" height="23"> <div align="left"><font size=2 face="Times New Roman">Principal Financial Officer</font> </div> </td>
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<td valign="top" align="center" width="31%"> <div align="left"><font size=2 face="Times New Roman">Principal Accounting Officer</font><font size=3 face="Times New Roman"> </font> </div> </td>
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<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>dex10.htm
<DESCRIPTION>SECURED FINANCING AGREEMENT
<TEXT>
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<TITLE>SECURED FINANCING AGREEMENT</TITLE>
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<td width="85%">&nbsp;</td> </tr> </table> <p align="right"><font face="Times New Roman" size="2"><b>EXHIBIT 10</b></font></p> <p align="right"><font size=2 face="Times New Roman"><b>EXECUTION COPY</b></font></p> <p align="center"><b><u><font size=2
face="Times New Roman">FINANCING AGREEMENT</font></u></b></p> <p align="center">&nbsp;</p> <p align="center"><b><font size=2 face="Times New Roman">The CIT Group/Business Credit, Inc.</font></b></p> <p align="center"><b><font size=2
face="Times New Roman">(as Lender)</font></b></p> <p align="center">&nbsp;</p> <p align="center"><b><font size=2 face="Times New Roman">And</font></b></p> <p align="center"><b><font size=2 face="Times New Roman">Key Tronic Corporation</font></b></p>
<p align="center"><b><font size=2 face="Times New Roman">(as Borrower)</font></b></p> <p align="center">&nbsp;</p> <p align="center"><b><font size=2 face="Times New Roman">Dated: August 22, 2001</font></b></p>
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<a href="#a221exa">SECTION 1. Definitions</a></font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">3</font> </td> </tr>
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<a href="#b221exa">SECTION 2. Conditions Precedent</a></font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">15</font> </td> </tr>
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<a href="#c221exa">SECTION 3. Revolving Loans</a></font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">19</font> </td> </tr>
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<a href="#d221exa">SECTION 4. Intentionally Omitted</a></font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">23</font> </td> </tr>
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<a href="#e221exa">SECTION 5. Letters of Credit</a></font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">23</font> </td> </tr>
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<td valign="top" align="center">&nbsp;</td> </tr>
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<a href="#f221exa">SECTION 6. Collateral</a></font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">25</font> </td> </tr>
<tr>
<td valign="top" align="left">&nbsp;</td>
<td valign="top" align="center">&nbsp;</td> </tr>
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<a href="#g221exa">SECTION 7. Representations, Warranties and Covenants</a></font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">28</font> </td> </tr>
<tr>
<td valign="top" align="left">&nbsp;</td>
<td valign="top" align="center">&nbsp;</td> </tr>
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<a href="#h221exa">SECTION 8. Interest, Fees and Expenses</a></font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">38</font> </td> </tr>
<tr>
<td valign="top" align="left">&nbsp;</td>
<td valign="top" align="center">&nbsp;</td> </tr>
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<a href="#i221exa">SECTION 9. Powers</a></font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">41</font> </td> </tr>
<tr>
<td valign="top" align="left">&nbsp;</td>
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<a href="#j221exa">SECTION 10. Events of Default and Remedies</a></font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">42</font> </td> </tr>
<tr>
<td valign="top" align="left">&nbsp;</td>
<td valign="top" align="center">&nbsp;</td> </tr>
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<a href="#k221exa">SECTION 11. Termination</a></font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">45</font> </td> </tr>
<tr>
<td valign="top" align="left">&nbsp;</td>
<td valign="top" align="center">&nbsp;</td> </tr>
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<a href="#l221exa">SECTION 12. Miscellaneous</a></font> </td>
<td valign="top" align="center"> <font size=2 face="Times New Roman">46</font> </td> </tr> </table> <p></p>
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<HR> <p><u><font size=2 face="Times New Roman"><b>EXHIBITS</b></font></u></p> <p><font size=2 face="Times New Roman">Exhibit A &#150; Calculation of EBITDA and Tangible Net Worth</font></p> <p><u><font size=2
face="Times New Roman"><b>SCHEDULES</b></font></u></p> <p><font size=2 face="Times New Roman">Schedule 1 - Collateral Information</font></p>
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<HR> <p><font size="2" face="Times New Roman"><b>THE CIT GROUP/BUSINESS CREDIT, INC.,</b> a New York corporation (hereinafter &quot;CIT&quot;), with offices located at 300 S. Grand Ave., 3rd Floor Los Angeles, California
90071-3112, is pleased to confirm the terms and conditions under which CIT shall make revolving loans and other financial accommodations to Key Tronic Corporation, a Washington corporation with a principal place of business at 4424 N. Sullivan Road,
Spokane, Washington 99216 (herein the &quot;Company&quot;).</font></p> <p><font size="2" face="Times New Roman"><b>
<a name="a221exa"></a>SECTION 1.&nbsp;&nbsp;<u>Definitions</u></b></font></p> <p><font size="2" face="Times New Roman"><u><b>Accounts</b></u> shall mean all of the Company&#146;s 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 the Company&#146;s sales, leases, rentals of goods or renditions of
services to its customers, including but not limited to, those accounts arising under any of the Company&#146;s trade names or styles, or through any of the Company&#146;s divisions; (b) any and all instruments, documents, chattel paper (including
electronic chattel paper) (all as defined in the UCC); (c) unpaid seller&#146; or lessor&#146; 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 the Company,
and (j) cash and non&#150;cash proceeds (as defined in the UCC) of any and all of the foregoing.</font></p> <p><font size="2" face="Times New Roman"><u><b>Administrative Management Fee</b></u><b> </b>shall mean the sum of $50,000.00 which shall be
paid to CIT in accordance with Section 8, paragraph 8.8 hereof to offset the expenses and costs (excluding Out-of-Pocket Expenses and auditor fees) of CIT in connection with administration, record keeping, analyzing and evaluating the
Collateral.</font></p> <p><font size="2" face="Times New Roman"><u><b>Anniversary Date</b></u><b> </b>shall mean the date occurring three (3) years from the Closing Date and each yearly anniversary thereafter.</font></p> <p><font size="2"
face="Times New Roman"><u><b>Applicable Margin</b></u><b> </b>shall be the amount set forth below corresponding to the applicable level, <u>provided</u> that from the Closing Date through the end of the first year from the Closing Date, the
Applicable Margin shall be the Applicable Margin corresponding to level II below:</font></p>
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<tr>
<td valign="top" align="left" width="7%">&nbsp;</td>
<td valign="top" align="center" width="16%"> <font size=2 face="Times New Roman">Level</font> </td>
<td valign="top" align="center" width="42%"> <font size=2 face="Times New Roman">EBITDA</font> </td>
<td valign="top" align="center" width="35%"> <font size=2 face="Times New Roman">Applicable Margin</font> </td> </tr>
<tr>
<td valign="top" bgcolor="#99ccff" align="left" width="7%">&nbsp;</td>
<td valign="top" bgcolor="#99ccff" align="center" width="16%"> <font size=2 face="Times New Roman">I</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="42%"> <font size=2 face="Times New Roman">&lt;$1</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="35%"> <font size=2 face="Times New Roman">1.00%</font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%">&nbsp;</td>
<td valign="top" align="center" width="16%"> <font size=2 face="Times New Roman">II</font> </td>
<td valign="top" align="center" width="42%"> <font size=2 face="Times New Roman">$1 &lt; X &lt; $3,000,000</font> </td>
<td valign="top" align="center" width="35%"> <font size=2 face="Times New Roman">0.75%</font> </td> </tr>
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<td valign="top" bgcolor="#99ccff" align="left" width="7%">&nbsp;</td>
<td valign="top" bgcolor="#99ccff" align="center" width="16%"> <font size=2 face="Times New Roman">III</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="42%"> <font size=2 face="Times New Roman">$3,000,000 &lt;X &lt; $8,000,000</font> </td>
<td valign="top" bgcolor="#99ccff" align="center" width="35%"> <font size=2 face="Times New Roman">0.50%</font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%">&nbsp;</td>
<td valign="top" align="center" width="16%"> <font size=2 face="Times New Roman">IV</font> </td>
<td valign="top" align="center" width="42%"> <font size=2 face="Times New Roman">$8,000,000</font> </td>
<td valign="top" align="center" width="35%"> <font size=2 face="Times New Roman">0.25%</font> </td> </tr> </table> <p></p>
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<HR> <p><u><font size="2" face="Times New Roman"><b>Availability</b></font></u><font size="2" face="Times New Roman"> shall mean at any time the amount by which: (a) the Borrowing Base exceeds (b) the outstanding aggregate
amount of all Obligations, including without limitation, all Obligations with respect to Revolving Loans, but excluding the Letters of Credit. </font></p> <p><font face="Times New Roman"><u><font size=2><b>Availability Reserve</b></font></u><font
size=2> shall mean the sum of: (a) (i) three (3) months rental payments or similar charges for any of the Company&#146;s leased premises or other Collateral locations for which the Company has not delivered to CIT a landlord&#146;s waiver in form
and substance reasonably satisfactory to CIT, plus (ii) three (3) months estimated payments plus any other fees or charges owing by the Company to any applicable warehousemen or third party processor who may be in possession of Eligible Inventory
(as determined by CIT in its reasonable business judgement), provided that any of the foregoing amounts shall be adjusted from time to time hereafter upon (x) delivery to CIT of any such acceptable waiver, (y) the opening or closing of a Collateral
location and/or (z) any change in the amount of rental, storage or processor payments or similar charges; (b) any reserve which CIT may reasonably require from time to time pursuant to this Financing Agreement, including without limitation, for
Letters of Credit pursuant to Paragraph 5.1 of Section 5 hereof and for accounts payable to Qualcomm Inc. in existence on the Closing Date; and (c) such other reserves as CIT deems necessary in its reasonable judgment as a result of (x) negative
forecasts and/or trends in the Company&#146;s business, industry, prospects, profits, operations or financial condition or (y) other issues, circumstances or facts that could otherwise negatively impact the Company, its business, prospects, profits,
operations, industry, financial condition or assets.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Borrowing Base</b></font></u><b><font size=2> </font></b><font size=2>shall mean the lesser of (1) the sum of (a) eighty five
percent (85%) of the Company&#146;s aggregate outstanding Eligible Accounts Receivable (except that advances to the Company based on Eligible Accounts from Qualcomm Inc. shall not exceed fifty percent (50%) of the net amount of such Accounts (after
deducting the contra portion) provided that in no event shall Revolving Loans to the Company based on Qualcomm Accounts exceed $750,000 at any one time) less Dilution Reserves, if any, <u>plus</u> (b) the lesser of (i) eighty percent (80%) of the
aggregate value of the Company&#146;s Eligible Inventory, valued at the orderly liquidation value as established by an appraiser chosen by CIT, (ii) thirty two percent (32%) of the Company&#146;s Eligible Inventory, valued at the lower of cost or
market, on a first in, first out basis or (iii) the Inventory Loan Cap, <u>less</u> (c) any applicable Availability Reserves and (2) the amount of cash collections of Accounts for the prior forty five (45) Business Days, <u>less</u> any applicable
Availability Reserves.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Business Day</b></font></u><font size=2> shall mean any day on which CIT and JP Morgan Chase Bank are open for business.</font></font></p> <p><font
face="Times New Roman"><u><font size=2><b>Capital Expenditures</b></font></u><font size=2> shall mean, for any period, the aggregate expenditures of the Company during such period on account of, property, plant, equipment or similar fixed assets
that, in conformity with GAAP, are required to be reflected in the balance sheet of the Company.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Capital Improvements</b></font></u><font size=2> shall mean operating Equipment and
facilities (other than land) acquired or installed for use in the Company&#146;s business operations.</font></font></p>
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<HR> <p><u><font size=2 face="Times New Roman"><b>Capital Lease</b></font></u><font size="2" face="Times New Roman"> shall mean any lease of property (whether real, personal or mixed) which, in conformity with GAAP, is
accounted for as a capital lease or a Capital Expenditure in the balance sheet of the Company.</font></p> <p><font face="Times New Roman"><u><font size=2><b>Closing Date</b></font></u><font size=2> shall mean the date that this Financing Agreement
has been duly executed by the parties hereto and delivered to CIT.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Collateral</b></font></u><font size=2> shall mean all present and future Accounts, Equipment, Inventory,
Documents of Title, General Intangibles, Real Estate, Pledged Stock of the Company&#146;s subsidiaries and Other Collateral.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Collection Days</b></font></u><b><font size=2>
</font></b><font size=2>shall mean two (2) Business Days 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 Company&#146;s
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.</font></font></p> <p><font face="Times New Roman"><u><font
size=2><b>Commitment Fee</b></font></u><font size=2> shall mean a fee equal to $125,000 to induce CIT to issue the Commitment Letter.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Commitment Letter</b></font></u><font size=2>
shall mean the Commitment Letter, dated August 1, 2001<u>,</u> issued by CIT to, and accepted by, the Company.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Consolidated Balance Sheet</b></font></u><b><font size=2>
</font></b><font size=2>shall mean a consolidated or compiled, as applicable, balance sheet for the Company and its consolidated subsidiaries, eliminating all inter-company transactions and prepared in accordance with GAAP.</font></font></p>
<p><font face="Times New Roman"><u><font size=2><b>Consolidating Balance Sheet</b></font></u><font size=2> shall mean a Consolidated Balance Sheet plus individual balance sheets for the Company and its consolidated subsidiaries, showing all
eliminations of inter&#150;company transactions, including a balance sheet for the Company exclusively, all prepared in accordance with GAAP.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Copyrights</b></font></u><b><font
size=2> </font></b><font size=2>shall mean all 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.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Current Assets</b></font></u><font size=2> shall mean those
assets of the Company which, in accordance with GAAP, are classified as current.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Current Liabilities</b></font></u><font size=2> shall mean those liabilities of the Company which,
in accordance with GAAP, are classified as &quot;current&quot;, provided however, that, notwithstanding GAAP, the Revolving Loans and the current portion of Permitted Indebtedness shall be considered &quot;current
liabilities&quot;.</font></font></p>
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<HR> <p><u><font size="2" face="Times New Roman"><b>Default</b></font></u><font size="2" face="Times New Roman"> 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.</font></p> <p><font face="Times New Roman"><u><font size=2><b>Default Rate of Interest</b></font></u><font size=2> shall mean a rate of interest per annum on any
Obligations hereunder, equal to the sum of: (a) two percent (2%) and (b) the otherwise then applicable interest rate, which CIT shall be entitled to charge the Company on all Obligations due CIT by the Company, as further set forth in Paragraph 10.2
of Section 10 of this Financing Agreement.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Depository Accounts</b></font></u><font size=2> shall mean the collection accounts, which are subject to CIT&#146;s instructions, as
specified in Paragraph 3.4 of Section 3 of this Financing Agreement.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Dilution</b></font></u><font size=2> shall mean with respect to Company, as of any date of determination, a
percentage, based upon the experience of the immediately prior 90 days, that is the result of dividing the Dollar Equivalent amount of (a) bad debt write-downs, discounts, advertising allowances, credits, or other dilutive items with respect to the
Accounts of the Company during such period, by (b) sales of the Company during such period.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Dilution Reserve</b></font></u><font size=2> shall mean, as of any date of
determination, an amount sufficient to reduce the advance rate against Eligible Accounts Receivable by one percentage point for each percentage point by which Dilution is in excess of 4%.</font></font></p> <p><font face="Times New Roman"><u><font
size=2><b>Documentation Fee</b></font></u><font size=2> shall mean subsequent to the Closing Date, CIT&#146;s standard fees relating to any and all modifications, waivers, releases, amendments or additional collateral with respect to this Financing
Agreement, the Collateral and/or the Obligations.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Documents of Title</b></font></u><font size=2> shall mean all 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&#150;cash proceeds of the
foregoing.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Dollar Equivalent</b></font></u><font size=2> shall mean, at any time, (a) as to any amount denominated in Dollars, the amount thereof at such time, and (b) as to any
amount denominated in a currency other than Dollars, the equivalent amount in Dollars as determined by CIT at such time in its reasonable business judgment.</font></font></p> <p><font face="Times New Roman"><u><font
size=2><b>Dollars</b></font></u><font size=2> or<b> <u>$</u> </b>means lawful currency of the United States of America.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Early Termination Date</b></font></u><font size=2> shall
mean the date on which the Company terminates this Financing Agreement or the Revolving Line of Credit which date is prior to an Anniversary Date.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Early Termination
Fee</b></font></u><font size=2> shall: (a) mean the fee CIT is entitled to charge the Company in the event the Company 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 Revolving Line of Credit by (x) two percent (2%) if the Early Termination Date occurs on or before one (1) year from the Closing Date, </font></font></p>
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<HR> <p><font face="Times New Roman"><font size=2>(y) one and one half percent (1.5%) if the Early Termination Date occurs after one (1) year from the Closing Date but on or before two (2) years from the Closing Date; and
(z) one percent (1%) if the Early Termination Date occurs after two (2) years from the Closing Date but prior to an Anniversary Date.</font></font></p> <p><u><font size="2" face="Times New Roman"><b>EBITDA</b></font></u><font size="2"
face="Times New Roman"> shall mean, in any period, all earnings of the Company for said period before all interest, tax obligations, depreciation and amortization of the Company for said period, determined in accordance with GAAP on a consistent
basis with the latest audited financial statements of the Company, <u>including</u> non-cash charges associated with the amortization of capitalized manufacturing variances booked prior to the Closing Date and <u>excluding</u> the effect of
extraordinary or non-reoccurring gains or losses for such period.</font></p> <p><font size="2" face="Times New Roman"><u><b>Eligible Accounts Receivable</b></u> shall mean the gross amount of the Company&#146;s</font> <font size="2"
face="Times New Roman">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 business judgment, <u>less</u>, 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 the Company has complied with the Assignment of Claims Act of 1940 or any other applicable statute, rules or regulation, to CIT&#146;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 to foreign subsidiaries of the following United States corporations: Flextronix, Hewlett Packard, Lexmark International, Clorox and Unisys or other
foreign subsidiaries of United States corporations approved by CIT in its sole discretion, <u>provided</u> such Accounts do not exceed the lesser of 30% of all Eligible Accounts Receivable and $5,000,000 in the aggregate at any one time; (iii)
Accounts that remain unpaid more than ninety (90) days from invoice date; (iv) contra Accounts (excluding (x) Lexmark International, Cognitive, Clorox, Lexmark International Technology, S.A. and Axiohm so long as such account debtors have executed
CIT&#146;s agreement referenced in Section 2.1(bb) herein, provided such Accounts do not exceed the Maximum Contra Exposure in the aggregate at any one time and (y) Qualcomm Inc. to the extent permitted in the Borrowing Base; (v) sales to any
subsidiary, or to any company affiliated with the Company in any way; (vi)bill and hold (deferred shipment) (except to the extent CIT receives a bill and hold letter acceptable to CIT) 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 (unless backed by a letter of credit assigned to and in form and substance acceptable 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; (ix) pre-billed receivables and receivables arising from progress billing; (x) an amount
representing, historically, returns, discounts, claims, credits, allowances and</font></p>
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<HR> <p><font size="2" face="Times New Roman">applicable terms; (xi) sales to an account debtor whose Accounts represent an amount greater than 20% of the Company&#146;s Accounts, to the extent of such excess (except that
with respect to Clorox such Accounts shall be ineligible only to the extent they exceed 30% of the Company&#146;s Accounts); (xii) sales not payable in United States currency; (xiii) engineering services related Accounts and tooling services related
Accounts; and (xiv) any other reasons deemed necessary by CIT in its reasonable business judgment, including without limitation, for distribution customers that have excess inventory on hand (as determined by CIT in its sole discretion) those which
are customary either in the commercial finance industry or in the lending practices of CIT.</font></p> <p><font size="2" face="Times New Roman"><u><b>Eligible Inventory</b></u><b> </b>shall mean the gross amount of the Company&#146;s keyboard
finished goods Inventory that is subject to a valid, exclusive, first priority and fully perfected security interest in favor of CIT and which conforms to the warranties contained herein and which, at all times, continues to be acceptable to CIT in
the exercise of its reasonable business judgment, <u>less</u>, without duplication, any (a) work&#150;in&#150;process, (b) supplies (other than raw materials), (c) Inventory not present in the United States of America, (d) Inventory returned or
rejected by the Company&#146;s customers (other than goods that are undamaged and resalable in the normal course of business) and goods to be returned to the Company&#146;s suppliers, (e) Inventory in transit to third parties (other than the
Company&#146;s agents or warehouses), or in the possession of a warehouseman, bailee, third party processor, or other third party, unless such warehouseman, bailee or third party has executed a notice of security interest agreement (in form and
substance satisfactory to CIT) and CIT shall have a first priority perfected security interest in such Inventory, and (f) less any reserves required by CIT in its reasonable discretion, including without limitation for special order goods, customer
specific Inventory, discontinued, slow-moving and obsolete Inventory, market value declines, bill and hold (deferred shipment), consignment sales, shrinkage and any applicable customs, freight, duties and Taxes.</font></p> <p><font size="2"
face="Times New Roman"><u><b>Equipment</b></u> shall mean all 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.</font></p> <p><font size="2"
face="Times New Roman"><u><b>ERISA</b></u> shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and the rules and regulations promulgated thereunder from time to time.</font></p> <p><font size="2"
face="Times New Roman"><u><b>Event(s) of Default</b></u> shall have the meaning provided for in Section 10 of this Financing Agreement.</font></p> <p><font size="2" face="Times New Roman"><u><b>Executive Officers</b></u> shall mean the President,
Vice President(s) Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Treasurer, Controller and Secretary of the Company.</font></p> <p><font size="2" face="Times New Roman"><u><b>Fiscal Quarter</b></u> shall mean, with
respect to the Company, each three (3) month period in conformity with the Company&#146;s current accounting practice ending on or about September 30, December 31, March 31 and June 30 of each Fiscal Year.</font></p>
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<HR> <p><font face="Times New Roman"><u><font size=2><b>Fiscal Year</b></font></u><font size=2> shall mean each twelve (12) month period in conformity with the Company&#146;s current accounting practice commencing on or
about July 1 of each year and ending on or about the following June 30.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Fixed Charge Coverage Ratio</b></font></u><font size=2> shall mean, for the relevant period, the ratio
determined by dividing (x) EBITDA minus cash Capital Expenditures by (y) the sum of (a) all scheduled interest obligations paid and (b) the amount of scheduled principal repaid on Indebtedness for borrowed money.</font></font></p> <p><font
face="Times New Roman"><u><font size=2><b>GAAP</b></font></u><font size=2> 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 Company modifies its accounting principles and procedures as applied as of the Closing Date, the Company shall provide such statements of reconciliation as shall be in form and substance acceptable to
CIT.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>General Intangibles</b></font></u><font size=2> shall mean all 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 customer lists, distribution agreements, supply agreements, blue prints, 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&#150;cash proceeds thereof, including, without limitation, the proceeds or royalties
of any licensing agreements between the Company and any licensee of any of the Company&#146;s General Intangibles.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Guaranties</b></font></u><font size=2> shall mean the guaranty
documents executed and delivered by the Guarantors guaranteeing the Obligations.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Guarantors</b></font></u><font size=2> shall mean (i) Key Tronic Juarez, SA de CV and (ii) Key
Tronic Reynosa, SA de CV.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Indebtedness</b></font></u><font size=2> 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.</font></font></p>
<p><font face="Times New Roman"><u><font size=2><b>Insurance Proceeds</b></font></u><font size=2> shall mean proceeds or payments from an insurance carrier with respect to any loss, casualty or damage to Collateral. </font></font></p>
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<HR> <p><font face="Times New Roman"><u><font size=2><b>Inventory</b></font></u><font size=2> shall mean all of the Company&#146;s 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
stages of production from raw materials through work&#150;in&#150;process to finished goods &#150; and all proceeds thereof of whatever sort.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Inventory Loan Cap</b></font></u><font
size=2> shall mean the amount of $2,500,000.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Investment Property</b></font></u><font size=2> shall mean all now owned and hereafter acquired investment property (as defined in the
UCC) and all proceeds thereof.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Issuing Bank</b></font></u><b><font size=2> </font></b><font size=2>shall mean the bank issuing Letters of Credit for the Company.</font></font></p>
<p><font face="Times New Roman"><u><font size=2><b>JP Morgan Chase Bank Rate</b></font></u><font size=2> shall mean the rate of interest per annum announced by JP Morgan 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 JP Morgan Chase Bank to its borrowers).</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Letters of Credit</b></font></u><font
size=2> shall mean all letters of credit issued with the assistance of CIT in accordance with Section 5 hereof by the Issuing Bank for or on behalf of the Company.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Letter of Credit
Guaranty</b></font></u><font size=2> shall mean the guaranty delivered by CIT to the Issuing Bank of the Company&#146;s reimbursement obligations under the Issuing Bank&#146;s reimbursement agreement, application for Letter of Credit or other like
document.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Letter of Credit Guaranty Fee</b></font></u><font size=2> shall mean the fee CIT may charge the Company under Paragraph 8.3 of Section 8 of this Financing Agreement for:
(a) issuing a Letter of Credit Guaranty, and/or (b) otherwise aiding the Company in obtaining Letters of Credit, all pursuant to Section 5 hereof.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Letter of Credit
Sub-Line</b></font></u><b><font size=2> </font></b><font size=2>shall mean the commitment of CIT to assist the Company in obtaining Letters of Credit, pursuant to Section 5 hereof, in an aggregate amount of $2,000,000.</font></font></p> <p><font
face="Times New Roman"><u><font size=2><b>Line of Credit</b></font></u><b><font size=2> </font></b><font size=2>shall mean the aggregate commitment of CIT to (a) make Revolving Loans pursuant to Section 3 of this Financing Agreement and (b) assist
the Company in opening Letters of Credit pursuant to Section 5 of this Financing Agreement, in an aggregate amount not to exceed $25,000,000.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Line of Credit Fee</b></font></u><font
size=2> 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 (x) the average daily balance
of Revolving Loans and (y) the average daily balance of Letters of Credit outstanding for said month, by one half of one percent (0.5%) per annum for the number of days in said month. </font></font></p>
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<HR> <p><font size="2" face="Times New Roman"><u><b>Loan Documents</b></u> shall mean this Financing Agreement, the Promissory Notes, the mortgages and/or deeds of trust, the Guaranties, the pledge 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.</font></p> <p><font
size="2" face="Times New Roman"><u><b>Maximum Contra Exposure</b></u> shall mean $3,200,000. For the purpose of calculating the contra exposure of Lexmark International, the receivable due to Key Tronic Juarez, S.A. de CV from Lexmark Mexico shall
be netted against the Company&#146;s payable due to Lexmark International.</font></p> <p><font size="2" face="Times New Roman"><u><b>Obligations</b></u> shall mean all loans, advances and extensions of credit made or to be made by CIT to the Company
or to others for the Company&#146;s account (including, without limitation, all Revolving Loans and Letter of Credit Guaranties); any and all indebtedness and obligations which may at any time be owing by the Company to CIT howsoever arising,
whether now in existence or incurred by the Company 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 Company&#146;s 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 Company is liable to CIT
for such indebtedness as principal, surety, endorser, guarantor or otherwise. Obligations shall also include indebtedness owing to CIT by the Company under any Loan Document or under any other agreement or arrangement now or hereafter entered into
between the Company and CIT; indebtedness or obligations incurred by, or imposed on, CIT as a result of environmental claims arising out of the Company&#146;s operations, premises or waste disposal practices or sites in accordance with paragraph 7.7
hereof; the Company&#146;s liability to CIT as maker or endorser of any promissory note or other instrument for the payment of money; the Company&#146;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 Company&#146;s account, including any Letter of Credit Guaranty or other accommodation extended by CIT with respect to applications for Letters of Credit, CIT&#146;s acceptance
of drafts or CIT&#146;s endorsement of notes or other instruments for the Company&#146;s account and benefit.</font></p> <p><font size="2" face="Times New Roman"><u><b>Operating Cash Flow</b></u><b> </b>shall mean EBITDA less Capital Expenditures,
determined in accordance with GAAP consistently applied. For the purpose of this definition only, Capital Expenditures shall only include cash capital expenditures.</font></p> <p><font size="2" face="Times New Roman"><u><b>Operating
Leases</b></u><b> </b>shall mean all leases of property (whether real, personal or mixed) other than Capital Leases.</font></p> <p><font size="2" face="Times New Roman"><u><b>Other Collateral</b></u> shall mean all 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 other deposit accounts and all Investment Property; 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 </font></p>
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<HR> <p><font size="2" face="Times New Roman">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. </font></p> <p><font size="2" face="Times New Roman"><u><b>Out&#150;of&#150;Pocket Expenses</b></u> shall mean all of CIT&#146;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 &quot;insufficient funds&quot; of deposited checks and CIT&#146;s standard fees relating thereto, any amounts paid by, incurred by or charged to, CIT by the Issuing Bank
under a Letter of Credit Guaranty or the Company&#146;s reimbursement agreement, application for Letters of Credit or other like document which pertain either directly or indirectly to such Letters of Credit, and CIT&#146;s standard fees relating to
the Letters of Credit and any drafts thereunder, travel, lodging and similar expenses of CIT&#146;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, all expenses, costs and fees set forth in Paragraph 10.3 of Section 10 of this Financing Agreement, and title insurance premiums, real estate survey costs, costs of preparing and
recording mortgages/deeds of trust against the Real Estate.</font></p> <p><font size="2" face="Times New Roman"><u><b>Overadvance Rate</b></u> shall mean a rate equal to one-half of one percent (1/2%) per annum in excess of the then applicable
contract rate of interest determined in accordance with Section 8, Paragraph 8.1(a) of this Financing Agreement.</font></p> <p><font size="2" face="Times New Roman"><u><b>Overadvances</b></u> shall mean the amount by which (a) the sum of all
outstanding Revolving Loans, Letters of Credit and advances made hereunder exceed (b) the Borrowing Base.</font></p> <p><font size="2" face="Times New Roman"><u><b>Patents</b></u> shall mean all of the Company&#146;s 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 Company, and
all income, royalties, cash and non-cash proceeds thereof.</font></p> <p><font size="2" face="Times New Roman"><u><b>Permitted Encumbrances</b></u> 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 (except liens for Taxes not yet due), 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 Company in accordance with GAAP; (e) deposits made (and the liens thereon) in the ordinary course of business of the Company (including, without limitation, security deposits for leases, indemnity
bonds, surety bonds and appeal bonds) in connection with workers&#146; compensation, </font></p>
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<HR> <p><font size="2" face="Times New Roman">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 the Company of its business or 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 Company; (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 Company 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.</font></p> <p><font face="Times New Roman"><u><font size=2><b>Permitted
Indebtedness</b></font></u><font size=2> 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) Indebtedness arising under the Letters of Credit and this Financing Agreement; (d) deferred Taxes and other expenses incurred in the ordinary course of business; (e) Subordinated Debt 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.</font></font></p> <p><font
face="Times New Roman"><u><font size=2><b>Purchase Money Liens</b></font></u><b><font size=2> </font></b><font size=2>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 in any Fiscal
Year.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Real Estate</b></font></u><b><font size=2> </font></b><font size=2>shall mean the Company&#146;s fee and/or leasehold interests in the real property, including any such real
property which has been, or will be, encumbered, mortgaged, pledged or assigned to CIT or its designee.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Revolving Line of Credit</b></font></u><b><font size=2> </font></b><font
size=2>shall mean the aggregate commitment of CIT to make loans and advances pursuant to Section 3 of this Financing Agreement and issue Letters of Credit Guaranties pursuant to Section 5 hereof to the Company, in the aggregate amount of
$25,000,000.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Revolving Loan Account</b></font></u><font size=2> shall mean the account on CIT&#146;s books, in the Company&#146;s name, in which the Company will be charged with
all Obligations under this Financing Agreement.</font></font></p> <p><font face="Times New Roman"><u><font size=2><b>Revolving Loans</b></font></u><font size=2> shall mean the loans and advances made, from time to time, to or for the account of the
Company by CIT pursuant to Section 3 of this Financing Agreement.</font></font></p>
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<HR> <p><font size="2" face="Times New Roman"><u><b>Subordinated Debt</b></u> shall mean the debt due a Subordinating Creditor (and the note(s) evidencing such) which has been subordinated, by a Subordination Agreement, to
the prior payment and satisfaction of the Obligations of the Company to CIT.</font></p> <p><font size="2" face="Times New Roman"><u><b>Subordinating Creditor</b></u> shall mean any party hereafter executing a Subordination Agreement.</font></p>
<p><font size="2" face="Times New Roman"><u><b>Subordination Agreement</b></u> shall mean the agreement (in form and substance satisfactory to CIT) among the Company, a Subordinating Creditor and CIT pursuant to which Subordinated Debt is
subordinated to the prior payment and satisfaction of the Company&#146;s Obligations to CIT.</font></p> <p><font size="2" face="Times New Roman"><u><b>Tangible Net Worth</b></u> shall mean, as at any date for any Person, the sum for such Person and
its subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP, consistently applied), of the following:</font></p>
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<td valign="top" align="left" width="4%"> <font size=2 face="Times New Roman">(a) </font> </td>
<td valign="top" width="93%"> <font size=2 face="Times New Roman">the amount of capital stock, <u>plus</u></font> </td> </tr>
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<td valign="top" align="left" width="3%">&nbsp;</td>
<td valign="top" align="left" width="4%">&nbsp;</td>
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<td valign="top" align="left" width="4%"> <font size=2 face="Times New Roman">(b) </font> </td>
<td valign="top" width="93%"> <font size=2 face="Times New Roman">the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit) and Subordinated Debt, <u>minus</u></font>
</td> </tr>
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<td valign="top" align="left" width="3%">&nbsp;</td>
<td valign="top" align="left" width="4%">&nbsp;</td>
<td valign="top" width="93%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="3%">&nbsp;</td>
<td valign="top" align="left" width="4%"> <font size=2 face="Times New Roman">(c) </font> </td>
<td valign="top" width="93%"> <font size=2 face="Times New Roman">the sum of the following: the cost of treasury shares and the book value of all assets which should be classified as intangibles (without duplication of deductions in respect of items
already deducted in arriving at surplus and retained earnings) including, without limitation, goodwill, minority interests, research and development costs, trademarks, trade names, copyrights, patents and franchises, unamortized debt discount and
expense, all reserves and any write-up in the book value of assets resulting from a revaluation of such assets subsequent to June 30, 2001; <u>provided, however</u> that intangibles shall not include deferred tax assets.</font> </td> </tr> </table>
<p><font size="2" face="Times New Roman"><u><b>Taxes</b></u> shall mean all federal, state, municipal and other governmental taxes, levies, charges, claims and assessments which are or may be due by the Company with respect to its business,
operations, Collateral or otherwise.</font></p> <p><font size="2" face="Times New Roman"><u><b>Trade Accounts Receivable</b></u><b> </b>shall mean that portion of the Company&#146;s Accounts which arises from the sale of Inventory or the rendition
of services in the ordinary course of the Company&#146;s business.</font></p> <p><font size="2" face="Times New Roman"><u><b>Trademarks</b></u> 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.</font></p> <p><font size="2" face="Times New Roman"><u><b>UCC</b></u> shall mean the Uniform Commercial Code as the same may be amended and in effect from time to
time in the state of California. </font></p>
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<HR> <p><u><font size="2" face="Times New Roman"><b>Working Capital</b></font></u><b><font size="2" face="Times New Roman"> </font></b><font size="2" face="Times New Roman">shall mean Current Assets in excess of Current
Liabilities.</font></p> <p><font face="Times New Roman"><u><font size=2><b>Working Day</b></font></u><font size=2> shall mean any Business Day on which dealings in foreign currencies and exchanges between banks may be transacted.</font></font></p>
<p><font size="2" face="Times New Roman"><b>
<a name="b221exa"></a>SECTION 2.&nbsp;&nbsp;Conditions Precedent</b></font></p> <p><font size="2" face="Times New Roman">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:</font></p>
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<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(a)&nbsp;</b></font></td>
<td width="90%" valign="top"><font size="2" face="Times New Roman"><b>&nbsp;<u>Lien Searches</u></b> &#150; CIT shall have received tax, judgment and Uniform Commercial Code searches satisfactory to CIT for all locations presently occupied or used
by the Company.</font></td> </tr>
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<td width="90%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
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<td width="4%">&nbsp;</td>
<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(b)&nbsp;&nbsp;</b></font></td>
<td width="90%" valign="top"><font size="2" face="Times New Roman"><b><u>Casualty Insurance</u> </b>&#150; The Company 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.</font></td> </tr>
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<td width="6%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td width="90%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
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<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(c)&nbsp;</b></font></td>
<td width="90%" valign="top"><font size="2" face="Times New Roman"><b><u>UCC Filings</u></b> &#150; 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.</font></td> </tr>
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<td width="6%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td width="90%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
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<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(d)&nbsp;&nbsp;</b></font></td>
<td width="90%" valign="top"><font size="2" face="Times New Roman"><b><u>Board Resolution</u></b> &#150; CIT shall have received a copy of the resolutions of the Board of Directors of each of the Company 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 Company and the Guarantors (as the case
may be) as of the date hereof, together with a certificate of the Secretary or Assistant Secretary of the Company and the Guarantors (as the case may be) as to the incumbency and signature of the officers of the Company and/or the Guarantor
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.</font></td> </tr>
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<td width="90%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
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<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(e)&nbsp;</b></font></td>
<td width="90%" valign="top"><font size="2" face="Times New Roman"><b>&nbsp;<u>Corporate Organization</u></b> &#150; CIT shall have received (i) a copy of the Certificate of Incorporation with respect to each of the Company and the Guarantors, each
certified by the Secretary of State of the respective state of its incorporation, and (ii) a copy of the By&#150;Laws of the Company certified by the Secretary or Assistant Secretary thereof, all as amended through the date hereof.</font></td> </tr>
</table> <p></p>
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<HR>
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<td width="92%" valign="top"><font size="2" face="Times New Roman"><b><u>Officer&#146;s Certificate</u> </b>&#150; CIT shall have received an executed Officer&#146;s Certificate of the Company, 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) the Company is in compliance with all of the terms and provisions set forth herein; and (iii)no Default or
Event of Default has occurred</font></td> </tr>
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<td width="92%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
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<td width="4%" valign="top"><font size="2" face="Times New Roman"><b>(g)&nbsp;&nbsp;</b></font></td>
<td width="92%" valign="top"><font size="2" face="Times New Roman"><b><u>Opinions</u></b> &#150; Counsel for the Company and the Guarantors shall have delivered to CIT opinions satisfactory to CIT opining, <i>inter alia</i>, that, subject to the (i)
filing, priority and remedies provisions of the Uniform Commercial Code, including without limitation, the perfection and priority of CIT&#146;s security interest in Inventory shipped from Key Tronic Shanghai Computer Peripherals, (ii) the
provisions of the Bankruptcy Code, insolvency statutes or other like laws, (iii)the equity powers of a court of law and (iv) such other matters as may be agreed upon with CIT: this Financing Agreement, the Guaranties and all other Loan Documents of
the Company and the Guarantors are (A) valid, binding and enforceable according to their terms, (B) are duly authorized, executed and delivered, and (C) do not violate any terms, provisions, representations or covenants in the charter or
by&#150;laws (or their equivalent) of the Company or the Guarantors or, to the best knowledge of such counsel, of any loan agreement, mortgage, deed of trust, note, security or pledge agreement, indenture or other contract to which the Company or
the Guarantors are signatories or by which the Company or the Guarantors or their assets are bound. </font></td> </tr>
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<td width="92%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
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<td width="4%" valign="top"><font size="2" face="Times New Roman"><b>(h)&nbsp;</b></font></td>
<td width="92%" valign="top"><font size="2" face="Times New Roman"><b><u>Absence of Default</u> </b>&#150; 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 Company, the Guarantors or the Company&#146;s other subsidiaries.</font></td> </tr>
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<td width="4%" valign="top"><font size="2" face="Times New Roman"><b>(i)&nbsp;&nbsp;</b></font></td>
<td width="92%" valign="top"><font size="2" face="Times New Roman"><b><u>Legal Restraints/Litigation</u> </b>&#150; As of the Closing Date, there shall be no: (x) litigation, investigation or proceeding (judicial or administrative) pending or
threatened against the Company or the Guarantors or the Company&#146;s other subsidiaries or their respective 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 Company or the
Guarantors or the Company&#146;s other subsidiaries or their respective 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
Company and/or the Guarantors.</font></td> </tr>
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<td width="92%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
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<td width="4%" valign="top"><font size="2" face="Times New Roman"><b>(j)&nbsp;</b></font></td>
<td width="92%" valign="top"><font size="2" face="Times New Roman"><b>&nbsp;<u>Intentionally Deleted</u></b>.</font></td> </tr>
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<td width="92%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
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<td width="4%" valign="top"><font size="2" face="Times New Roman"><b>(k)&nbsp;&nbsp;</b></font></td>
<td width="92%" valign="top"><font size="2" face="Times New Roman"><b><u>Pledge Agreement</u> </b>The Company shall (i) execute and deliver to CIT a pledge and security agreement pledging to CIT as additional collateral for the Obligations of the
Company not less than 100% of the stock of all domestic subsidiaries of the Company and 65% of the stock of all foreign subsidiaries of the Company and, (ii) deliver to CIT the stock certificates evidencing such </font></td> </tr> </table> <p></p>
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<HR> <p><font size=2 face="Times New Roman">stock together with duly executed stock powers (undated and in-blank) with respect thereto, all in form and substance satisfactory to CIT.</font></p> <p><font size=2
face="Times New Roman"> <b>(l)&nbsp;&nbsp;<u>Cash Budget Projections</u></b> - CIT shall have received, reviewed and been satisfied with a twelve (12) month cash budget projection prepared by the Company.</font></p> <p><font size=2
face="Times New Roman"> <b>(m)&nbsp;&nbsp;<u>Deeds of Trust</u></b>. The Company shall have executed and delivered to CIT, an agent of CIT or to a title insurance company acceptable to CIT, such mortgages and/or deeds of trust as CIT may reasonably
require to obtain first liens on the Real Estate.</font></p> <p><font size=2 face="Times New Roman"> <b>(n)&nbsp;&nbsp;<u>Additional Documents</u></b> &#150; The Company shall have executed and delivered to CIT all Loan Documents as are requested by
CIT to consummate the lending arrangement contemplated between the Company and CIT.</font></p> <p><font size=2 face="Times New Roman"> <b>(o)&nbsp;&nbsp;<u>Disbursement Authorization</u> </b>- The Company shall have delivered to CIT all information
necessary for CIT to issue wire transfer instructions on behalf of the Company 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.</font></p> <p><font size=2 face="Times New Roman"> <b>(p)&nbsp;&nbsp;<u>Examination &amp; Verification</u> </b>- CIT shall have completed, to its satisfaction , an examination and verification of the Accounts, Inventory, financial
statements, books and records of the Company which examination shall indicate that, after giving effect to all Revolving Loans, advances and extensions of credit to be made at closing, the Company shall have an opening additional Availability of at
least $4,000,000 plus an amount sufficient to pay all past due taxes and to reduce trade payables and other debts and obligations current in accordance with the Company&#146;s usual business practices, as evidenced by a Borrowing Base certificate
delivered by the Company 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 Company&#146;s business and consistent with its past practice.</font></p> <p><font size=2 face="Times New Roman"> <b>(q)&nbsp;&nbsp;<u>Depository Accounts</u></b> - The Company 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 Company, CIT and the
depository bank), which shall be in form and substance satisfactory to CIT.</font></p> <p><font size=2 face="Times New Roman"> <b>(r)&nbsp;&nbsp;<u>Existing Revolving Credit Agreement</u></b> - The Company&#146;s existing credit agreement with
General Electric Capital Corporation (the &amp;quotExisting Lender&amp;quot) shall be: (i)terminated; (ii)all loans and obligations of the Company and/or the Guarantors thereunder shall be paid or satisfied in full, including through utilization of
the proceeds of the initial Revolving Loans to be made under this Financing Agreement; and (iii)all liens or security interests in favor of the Existing Lender on</font></p>
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<HR> <p><font size=2 face="Times New Roman">the Collateral and otherwise in connection therewith shall be terminated and/or released upon such payment.</font></p> <p><font size=2 face="Times New Roman">
<b>(v)&nbsp;&nbsp;&nbsp;&nbsp;<u>Mortgages/Deeds of Trust</u></b> &#150; The Company shall have executed and delivered to CIT, an agent of CIT or to a title insurance company acceptable to CIT, such mortgages and/or deeds of trust as CIT may
reasonably require to obtain first liens on the Real Estate.</font></p> <p><font size=2 face="Times New Roman"> <b>(w)&nbsp;&nbsp;&nbsp;<u>Title Insurance Policies</u> </b>&#150; CIT shall have received, in respect of each mortgage or deed of trust,
a mortgagee&#146;s title policy or marked&#150;up unconditional binder for such insurance. Each such policy shall (i)be in an amount satisfactory to CIT; (ii)insure that the mortgage or deed of trust insured thereby creates a valid first lien on the
property covered by such mortgage or deed of trust, free and clear of all defects and encumbrances except those acceptable to CIT; (iii)name CIT as the insured thereunder; and (iv)contain such endorsements and effective coverage as CIT may
reasonably request, including, without limitation, the revolving line of credit endorsement. CIT shall also have received evidence that all premiums in respect of such policies have been paid and that all charges for mortgage recording taxes, if
any, shall have been paid.</font></p> <p><font size=2 face="Times New Roman"> <b>(x)&nbsp;&nbsp;&nbsp;&nbsp;<u>Intentionally Deleted.</u></b></font></p> <p><font size=2 face="Times New Roman"> <b>(y)&nbsp;&nbsp;&nbsp;&nbsp;<u>Intellectual
Property</u></b> The Company or its counsel shall provide CIT with schedules of: (a)any of the Company&#146;s and its 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 Liens, all of the foregoing in form and
substance satisfactory to CIT. CIT shall have received an intellectual property security agreement executed by the Company and Guarantors, if applicable, in form and substance satisfactory to CIT and together with all documents necessary to record
such security interest with the Patent and Trademark Office or the United States Copyright Office, as applicable, or any successor office or agency thereto.</font></p> <p><font size=2 face="Times New Roman"> <b>(z)&nbsp;&nbsp;&nbsp;&nbsp;<u>CIT
Commitment Letter</u></b> - The Company shall have fully complied, to the reasonable satisfaction of CIT, with all of the terms and conditions of the CIT Commitment Letter.</font></p> <p><font size=2 face="Times New Roman">
<b>(aa)&nbsp;&nbsp;<u>Clorox Agreement</u> </b>CIT shall have received and found satisfactory Clorox&#146;s agreement and purchase order with the Company.</font></p> <p><font size=2 face="Times New Roman"> <b>(bb)&nbsp;&nbsp;<u>Account Debtor
Agreements</u> </b>CIT shall have received and found satisfactory fully executed tri-party agreements with each of Clorox, Axiohm, Lexmark International, Lexmark International Technology, S.A. and Cognitive in the form requested by CIT.</font></p>
<p><font size=2 face="Times New Roman"> <b>(cc)&nbsp;&nbsp;<u>Production Schedule</u></b> CIT shall have found satisfactory the Company&#146;s 90 day production schedule. </font></p>
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<HR> <p><font size=2 face="Times New Roman">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 Company and CIT shall otherwise agree in writing.</font></p> <p><font size=2 face="Times New Roman"><b>2.2&nbsp;&nbsp;<u></u><u>Conditions to Each Extension of Credit</u></b></font></p> <p><font size=2
face="Times New Roman">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 the Company on any date (including without limitation, the initial
extension of credit) is subject to the satisfaction of the following conditions precedent:</font></p> <p><font size=2 face="Times New Roman"> <b>(a)&nbsp;&nbsp;<u></u><u>Representations and Warranties</u> </b>- Each of the representations and
warranties made by the Company 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.</font></p> <p><font size=2 face="Times New Roman">
<b>(b)&nbsp;&nbsp;<u></u><u>No Default</u></b> - 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.</font></p> <p><font size=2
face="Times New Roman"> <b>(c)&nbsp;&nbsp;<u>Borrowing Base</u></b> - Except as may be otherwise agreed to from time to time by CIT and the Company in writing, after giving effect to the extension of credit requested to be made by the Company on
such date, the aggregate outstanding balance of the Revolving Loans and outstanding Letters of Credit owing by the Company will not exceed the lesser of (i) the Revolving Line of Credit or (ii) the Borrowing Base.</font></p> <p><font size=2
face="Times New Roman"> <b>(d)&nbsp;&nbsp;<u>No Adverse Change</u></b> No material adverse change shall have occurred in the financial condition, business, prospects, profits, operations or assets of the Company, the Guarantors or the Company&#146;s
other subsidiaries.</font></p> <p><font size=2 face="Times New Roman">Each borrowing by the Company hereunder shall constitute a representation and warranty by the Company 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 Company and CIT shall otherwise agree herein or in a separate writing.</font></p> <p><font size=2 color=black
face="Times New Roman"><b>
<a name="c221exa"></a>SECTION 3.&nbsp;&nbsp;<u>Revolving Loans</u></b></font></p> <p><font size=2 face="Times New Roman"><b>3.1</b>&nbsp;&nbsp;CIT agrees, subject to the terms and conditions of this Financing Agreement, from time to time (but
subject to CIT&#146;s right, in its discretion, to make &amp;quotOveradvances&amp;quot), to make loans and advances to the Company on a revolving basis (<i>i.e.,</i> subject to the limitations set forth herein, the Company may borrow, repay and
re&#150;borrow Revolving Loans). Such requests for loans and advances shall be in amounts not to exceed the lesser of (a) the Availability or (b) the Revolving Line of Credit. All requests for loans and advances must be received by an officer of CIT
no later than 10:30 a.m., Los Angeles time, of the Business Day on which any such Loans and advances are</font></p>
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<HR> <p><font size=2 face="Times New Roman">required. Should CIT for any reason honor requests for Overadvances, any such Overadvances shall be made in CIT&#146;s sole discretion and subject to any additional terms CIT
deems necessary. </font></p> <p><font size=2 face="Times New Roman"><b>3.2</b>&nbsp;&nbsp;In furtherance of the continuing assignment and security interest in the Company&#146;s Accounts and Inventory, the Company will, upon the creation of Accounts
and purchase or acquisition of Inventory, execute and deliver to CIT in such form and manner as CIT may reasonably require, solely for CIT&#146;s convenience in maintaining records of Collateral, such confirmatory schedules of Accounts and Inventory
as CIT may reasonably request, including, without limitation, (a) weekly schedules of Accounts (b) separate weekly agings of tooling services Accounts and engineering services Accounts (beginning 90 days after the Closing Date) (c) weekly and
monthly schedules of Inventory (d) monthly sales through put reports to verify that customers are not stocking Inventory and (e) daily sales journal reports which separate engineering and tooling services Accounts from all other Accounts, all in
form and substance satisfactory to CIT, and such other appropriate reports designating, identifying and describing the Accounts and Inventory as CIT may reasonably request, and provided further that CIT may request any such information more
frequently, from time to time, upon its reasonable prior request. In addition, upon CIT&#146;s request, the Company shall provide CIT with copies of agreements with, or purchase orders from, the Company&#146;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. The Company hereby authorizes CIT to
regard the Company&#146;s printed name or rubber stamp signature on assignment schedules or invoices as the equivalent of a manual signature by one of the Company&#146;s authorized officers or agents.</font></p> <p><font size=2
face="Times New Roman"><b>3.3</b>&nbsp;&nbsp;The Company hereby represents and warrants that: each Trade Account Receivable is based on an actual and bona fide sale and delivery of Inventory or rendition of services to its customers, by the Company
in the ordinary course of its business; the Inventory being sold, and the Trade Accounts Receivable created, are the exclusive property of the 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 the Company; and the customers of the 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 the Company has complied with the notification requirements of Paragraph 3.5 of this Section 3. The 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 the 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. The 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</font></p>
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<HR> <p><font size=2 face="Times New Roman">hold sale or otherwise, and that its Inventory is marketable to its customers in the ordinary course of business of the Company, except as it may otherwise report in writing to
CIT pursuant to Paragraph 3.5 hereof from time to time. The 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 the Company or the ability of the Company to enforce collection of Accounts due from customers residing in that state. The 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 the Company will reflect CIT&#146;s interest in the Accounts and Inventory. All of the books and records of the Company will be available to CIT at normal business hours, including any records handled or
maintained for the Company by any other company or entity.</font></p> <p><font size=2 face="Times New Roman"><b>3.4</b>&nbsp;&nbsp;(a) &nbsp;Until CIT has advised the Company to the contrary after the occurrence of an Event of Default, the Company,
at its expense, will enforce, collect and receive all amounts owing on the Accounts in the ordinary course of its business and any proceeds it so receives shall be subject to the terms hereof, and held on behalf of and in trust for CIT. Such
privilege shall terminate at the election of CIT upon the occurrence of an Event of Default. Any checks, cash, credit card sales and receipts, notes or other instruments or property received by the Company with respect to any Collateral, including
Accounts, shall be held by the Company in trust for CIT, separate from the Company&#146;s own property and funds, and promptly turned over to CIT with proper assignments or endorsements by deposit to the Depository Accounts. The Company shall: (i)
indicate on all of its invoices that funds should be delivered to and deposited in a Depository Account; (ii) direct all of its account debtors to deposit any and all proceeds of Collateral into the Depository Accounts; (iii)irrevocably authorize
and direct any banks which maintain the Company&#146;s 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&#146;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 &quot;collected funds&quot; at CIT&#146;s bank account in New York, New York on the Business Day of such advise if advised no later than 1:00 p.m. EST or on the next
succeeding Business Day if so advised after 1:00 PM EST. No checks, drafts or other instrument received by CIT shall constitute final payment to CIT unless and until such instruments have actually been collected.</font></p>
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<td width="91%" valign="top"><font size=2 face="Times New Roman">&nbsp;The Company shall establish and maintain, in its name and at its expense, deposit accounts with such banks as are acceptable to CIT (the &quot;Blocked Accounts&quot;) into which
the Company shall promptly cause to be deposited: (i) all proceeds of Collateral received by the Company, including all amounts payable to the Company from credit card issuers and credit card processors, and (ii) all amounts on deposit in Depository
Accounts used by the Company at each of its 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
&quot;Blocked Account Agreements&quot;), 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</font></td> </tr> </table> <p></p>
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<HR> <p><font size="2" face="Times New Roman">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. The Company hereby confirms and agrees 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.</font></p> <p><font size="2" face="Times New Roman"><b>3.5&nbsp;&nbsp;</b>The
Company agrees to notify CIT: (a) of any matters affecting the value, enforceability or collectibility 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 and monthly 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 are material, as a whole, to the Accounts and/or the Inventory. The Company agrees to issue credit memoranda promptly (with duplicates to CIT upon request after the occurrence of an Event of Default) 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, the Company agrees that all returned, reclaimed or repossessed merchandise or goods shall be set aside by the Company,
marked with CIT&#146;s name (as secured party) and held by the Company for CIT&#146;s account. </font></p> <p><font size="2" face="Times New Roman"><b>3.6</b>&nbsp;&nbsp;CIT shall maintain a Revolving Loan Account on its books in which the Company
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&#146;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 the Company. The Company will be credited with all amounts received by CIT from the Company or from others for the Company&#146;s 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 the Company be a prerequisite to CIT&#146;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 Company&#146;s contracts or obligations relating to the Accounts.</font></p> <p><font size="2"
face="Times New Roman"><b>3.7&nbsp;&nbsp;</b>After the end of each month, CIT shall promptly send the Company a statement showing the accounting for the charges, loans, advances and other transactions occurring between CIT and the Company during
that month. The monthly statements shall be deemed correct and binding upon the Company and shall constitute an account stated between the Company and CIT unless CIT receives a written statement of the exceptions within thirty (30) days of the date
of the monthly statement.</font></p>
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<HR> <p><font size=2 face="Times New Roman"><b>3.8</b>&nbsp;&nbsp;&nbsp;In the event that any requested advance exceeds Availability or that (a) the sum of (i) the outstanding balance of Revolving Loans and (ii)
outstanding balance of Letters of Credit 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&#146;s demand therefor.</font></p> <p><font
size=2 face="Times New Roman"><b>
<a name="d221exa"></a>SECTION 4. Intentionally Omitted</b></font></p> <p><font size=2 face="Times New Roman"><b>
<a name="e221exa"></a>SECTION 5. <u>Letters of Credit</u></b></font></p> <p><font size=2 face="Times New Roman">In order to assist the Company in establishing or opening Letters of Credit with an Issuing Bank, the Company has requested CIT to join
in the applications for such Letters of Credit, and/or guarantee payment or performance of such Letters of Credit and any drafts or acceptances thereunder through the issuance of the Letters of Credit Guaranty, thereby lending CIT&#146;s credit to
the Company and CIT has agreed to do so. These arrangements shall be handled by CIT subject to the terms and conditions set forth below.</font></p> <p><font size=2 face="Times New Roman"><b>5.1</b>&nbsp;&nbsp;Within the Revolving Line of Credit and
Availability, CIT shall assist the Company in obtaining Letter(s) of Credit in an amount not to exceed the outstanding amount of the Letter of Credit Sub-Line. CIT&#146;s assistance for amounts in excess of the limitation set forth herein shall at
all times and in all respects be in CIT&#146;s sole discretion. It is understood that the term, form and purpose of each Letter of Credit and all documentation in connection therewith, and any amendments, modifications or extensions thereof, must be
mutually acceptable to CIT, the Issuing Bank and the Company, provided that Letters of Credit shall not be used for the purchase of domestic Inventory or to secure present or future debt of domestic Inventory suppliers. Any and all outstanding
Letters of Credit shall be reserved dollar for dollar from Availability as an Availability Reserve. </font></p> <p><font size=2 face="Times New Roman"><b>5.2</b>&nbsp;&nbsp;CIT shall have the right, without notice to the Company, to charge the
Company&#146;s Revolving Loan Account with the amount of any and all indebtedness, liability or obligation of any kind incurred by CIT under the Letters of Credit Guaranty at the earlier of (a) payment by CIT under the Letters of Credit Guaranty; or
(b) the occurrence of an Event of Default. Any amount charged to Company&#146;s Revolving Loan Account shall be deemed a Revolving Loan hereunder and shall incur interest at the rate provided in Paragraph 8.1 of Section 8 of this Financing
Agreement; provided, however, that if a Letter of Credit terminates and has not been drawn, any such amount shall be credited to Company&#146;s Revolving Loan Account.</font></p> <p><font size=2 face="Times New Roman"><b>5.3</b>&nbsp;&nbsp;The
Company unconditionally indemnifies CIT and holds CIT harmless from any and all loss, claim or liability incurred by CIT arising from any transactions or occurrences relating to Letters of Credit established or opened for the Company&#146;s account,
the collateral relating thereto and any drafts or acceptances thereunder, and all Obligations thereunder, including any such loss or claim due to any errors, omissions, negligence, misconduct or action taken by any Issuing Bank, other than for any
such loss, claim or liability arising out of the gross negligence or willful misconduct by CIT under the Letters of Credit Guaranty. This indemnity shall survive termination of this Financing Agreement. The Company agrees that any charges incurred
by CIT for the Company account by the</font></p>
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<HR> <p><font size=2 face="Times New Roman">Issuing Bank shall be conclusive on CIT and may be charged to the Company&#146;s Revolving Loan Account.</font></p> <p><font size=2
face="Times New Roman"><b>5.4&nbsp;</b>&nbsp;CIT shall not be responsible for: (a) the existence, character, quality, quantity, condition, packing, value or delivery of the goods purporting to be represented by any documents; (b) any difference or
variation in the character, quality, quantity, condition, packing, value or delivery of the goods from that expressed in the documents; (c) the validity, sufficiency or genuineness of any documents or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (d) the time, place, manner or order in which shipment is made; partial or incomplete shipment, or failure or omission to ship any or all of the
goods referred to in the Letters of Credit or documents; (e) any deviation from instructions; (f) delay, default, or fraud by the shipper and/or anyone else in connection with the goods or the shipping thereof; or (g) any breach of contract between
the shipper or vendors and the Company.</font></p> <p><font size=2 face="Times New Roman"><b>5.5</b>&nbsp;&nbsp;The Company agrees that any action taken by CIT, if taken in good faith, or any action taken by any Issuing Bank, under or in connection
with the Letters of Credit, the Letter of Credit Guarantees, the drafts or acceptances, or the Collateral, shall be binding on the Company and shall not result in any liability whatsoever of CIT to the Company. In furtherance thereof, CIT shall have
the full right and authority: (a) clear and resolve any questions of non&#150;compliance of documents; (b) give any instructions as to acceptance or rejection of any documents or goods; (c) execute any and all steamship or airways guaranties (and
applications therefore), indemnities or delivery orders; (d) grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents; and (e) agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letters of Credit, drafts or acceptances; all in CIT&#146;s sole name. The Issuing Bank shall be entitled to comply with and honor any and all such
documents or instruments executed by or received solely from CIT, all without any notice to or any consent from the Company. Notwithstanding any prior course of conduct or dealing with respect to the foregoing including amendments and non-compliance
with documents and/or the Company&#146;s instructions with respect thereto, CIT may exercise its rights hereunder in its sole and reasonable business judgement. In addition, without CIT&#146;s express consent and endorsement in writing, the Company
agrees: (a) not to execute any and all applications for steamship or airway guaranties, indemnities or delivery orders; to grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances or
documents; or to agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letters of Credit, drafts or acceptances; and (b) after the occurrence of an Event
of Default which is not cured within any applicable grace period, if any, or waived by CIT, not to (i) clear and resolve any questions of non&#150;compliance of documents, or (ii) give any instructions as to acceptances or rejection of any documents
or goods.</font></p> <p><font size=2 face="Times New Roman"><b>5.6</b>&nbsp;&nbsp;The Company agrees that: (a) any necessary import, export or other licenses or certificates for the import or handling of the Collateral will have been promptly
procured; (b) all</font></p>
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<HR> <p><font size=2 face="Times New Roman">foreign and domestic governmental laws and regulations in regard to the shipment and importation of the Collateral, or the financing thereof will have been promptly and fully
complied with; and (c) any certificates in that regard that CIT may at any time request will be promptly furnished. In connection herewith, the Company warrants and represents that all shipments made under any such Letters of Credit are in
accordance with the laws and regulations of the countries in which the shipments originate and terminate, and are not prohibited by any such laws and regulations. The Company assumes all risk, liability and responsibility for, and agrees to pay and
discharge, all present and future local, state, federal or foreign Taxes, duties, or levies. Any embargo, restriction, laws, customs or regulations of any country, state, city, or other political subdivision, where the Collateral is or may be
located, or wherein payments are to be made, or wherein drafts may be drawn, negotiated, accepted, or paid, shall be solely the Company&#146;s risk, liability and responsibility.</font></p> <p><font size=2
face="Times New Roman"><b>5.7&nbsp;</b>&nbsp;Upon any payments made to the Issuing Bank under the Letter of Credit Guaranty, CIT shall acquire by subrogation, any rights, remedies, duties or obligations granted or undertaken by the Company to the
Issuing Bank in any application for Letters of Credit, any standing agreement relating to Letters of Credit or otherwise, all of which shall be deemed to have been granted to CIT and apply in all respects to CIT and shall be in addition to any
rights, remedies, duties or obligations contained herein.</font></p> <p><font size=2 face="Times New Roman"><b>
<a name="f221exa"></a>SECTION 6&nbsp;&nbsp;<u>Collateral</u></b></font></p> <p><font size=2 face="Times New Roman"><b>6.1&nbsp;</b>&nbsp;As security for the prompt payment in full of all Obligations, the Company hereby pledges and grants to CIT a
continuing general lien upon, and security interest in, all of its:</font></p>
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<td width="7%"><b><font size=2 face="Times New Roman">(a)</font></b></td>
<td width="88%"><font size=2 face="Times New Roman">Accounts;</font></td> </tr>
<tr>
<td width="5%">&nbsp;</td>
<td width="7%"><b><font size=2 face="Times New Roman">(b)</font></b></td>
<td width="88%"><font size=2 face="Times New Roman">Inventory;</font></td> </tr>
<tr>
<td width="5%">&nbsp;</td>
<td width="7%"><b><font size=2 face="Times New Roman">(c)</font></b></td>
<td width="88%"><font size=2 face="Times New Roman">General Intangibles;</font></td> </tr>
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<td width="5%">&nbsp;</td>
<td width="7%"><b><font size=2 face="Times New Roman">(d)</font></b></td>
<td width="88%"><font size=2 face="Times New Roman">Documents of Title;</font></td> </tr>
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<td width="5%">&nbsp;</td>
<td width="7%"><b><font size=2 face="Times New Roman">(e)</font></b></td>
<td width="88%"><font size=2 face="Times New Roman">Other Collateral; </font></td> </tr>
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<td width="7%"><b><font size=2 face="Times New Roman">(f)</font></b></td>
<td width="88%"><font size=2 face="Times New Roman">Equipment; and</font></td> </tr>
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<td width="7%"><b><font size=2 face="Times New Roman">(g)</font></b></td>
<td width="88%"><font size=2 face="Times New Roman">Real Estate.</font></td> </tr> </table> <p><font size=2 face="Times New Roman"><b>6.2</b>&nbsp;&nbsp;The security interests granted hereunder shall extend and attach to:</font></p> <p><font size=2
face="Times New Roman"> <b>(a)</b>&nbsp;&nbsp;All Collateral which is owned by the Company or in which the Company has any interest, whether held by the Company or others for its account, and, if any Collateral is Equipment, whether the
Company&#146;s interest in such Equipment is as owner, finance lessee or conditional vendee;</font></p> <p><font size=2 face="Times New Roman"> <b>(b)</b>&nbsp;&nbsp;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</font></p>
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<HR> <p><font size=2 face="Times New Roman"><b>(c)</b>&nbsp;&nbsp;All Inventory and any portion thereof which may be returned, rejected, reclaimed or repossessed by either CIT or the Company from the Company&#146;s
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 Company, or to the sale, promotion or shipment
thereof.</font></p> <p><font size=2 face="Times New Roman"><b>6.3</b>&nbsp;&nbsp;The Company agrees to safeguard, protect and hold all Inventory for CIT&#146;s account and make no disposition thereof except in the ordinary course of its business of
the Company, as herein provided. The Company represents and warrants that Inventory will be sold and shipped by the Company to its customers only in the ordinary course of the Company&#146;s business, and then only on open account and on terms
currently being extended by the Company to its customers, provided that, absent the prior written consent of CIT, the Company 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&#150;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. The 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&#146;s perfection status in any and all of the General Intangibles, including, without limitations, any
Patents, Trademarks, Copyrights or licenses with respect thereto, the Company hereby irrevocably grants CIT a royalty free license to sell, or otherwise dispose of or transfer, in accordance with Paragraph 10.3 of Section 10 of this Financing
Agreement, and the applicable terms hereof, any of the Inventory upon the occurrence of an Event of Default which has not been waived in writing by CIT.</font></p> <p><font size=2 face="Times New Roman"><b>6.4</b>&nbsp;&nbsp;The 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. The Company also agrees to safeguard, protect and hold all Equipment in accordance with the terms hereof and subject to CIT&#146;s security interest. Absent CIT&#146;s prior written consent, any
sale, exchange or other disposition of any Equipment shall be made by the Company in the ordinary course of business and as set forth herein. The Company may, in the ordinary course of its business, sell, exchange or otherwise dispose of obsolete or
surplus Equipment provided, however, that: (a) the then value of the Equipment so disposed of in any Fiscal Year does not exceed $250,000 in the aggregate; and (b) the proceeds of any such sales or dispositions shall be held in trust by the Company
for CIT and shall be immediately delivered to CIT by deposit to the Depository Account, except that the Company may retain and use such proceeds to purchase forthwith replacement Equipment which the Company determines in its reasonable judgment to
have a collateral value at least equal to the Equipment so disposed of or sold; provided, however, that the aforesaid right shall automatically cease upon the occurrence of a Default or an Event of Default</font></p>
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<HR> <p><font size=2 face="Times New Roman">which is not waived in writing by CIT. 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&#150;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. </font></p>
<p><font size=2 face="Times New Roman"><b>6.5</b>&nbsp;&nbsp;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 Account 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.</font></p> <p><font size=2 face="Times New Roman"><b>6.6&nbsp;&nbsp;</b>Notwithstanding CIT&#146;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&#146;s rights hereunder.</font></p> <p><font size=2
face="Times New Roman"><b>6.7</b>&nbsp;&nbsp;Any balances to the credit of the Company and any other property or assets of the Company 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 Company, 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.</font></p> <p><font size=2 face="Times New Roman"><b>6.8&nbsp;</b>&nbsp;The Company possesses all General Intangibles and
rights thereto necessary to conduct its business as conducted as of the Closing Date and the 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. The 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 the Company and its subsidiaries as CIT shall require to obtain valid first liens thereon. In furtherance of the foregoing, the Company shall provide timely notice to CIT of any additional Patents, Trademarks,
tradenames, service marks, Copyrights, brand names, trade names, logos and other trade designations acquired or applied for subsequent to the Closing Date and the Company shall execute such documentation as CIT may reasonably require to obtain and
perfect its lien thereon. The</font></p>
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<HR> <p><font size=2 face="Times New Roman"> 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. The 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&#146;s lien and perfection in any General Intangibles.</font></p> <p><font size=2 face="Times New Roman"><b>6.9&nbsp;</b>&nbsp;This Financing Agreement and the obligation of the
Company to perform all of its covenants and obligations hereunder are further secured by mortgage(s), deed(s) of trust or assignment(s) on the Real Estate.</font></p> <p><font size=2 face="Times New Roman"><b>
<a name="g221exa"></a>SECTION 7. &nbsp;&nbsp;Representations, Warranties and Covenants</b></font></p> <p><font size=2 face="Times New Roman"><b>7.1</b>&nbsp;&nbsp;The Company hereby warrants, represents and covenants that: (a) the fair value of the
Total Assets exceeds the book value of the Total Liabilities; (b) the Company is generally able to pay its debts as they become due and payable; (c) the Company does not have unreasonably small capital to carry on its business as it is currently
conducted absent extraordinary and unforeseen circumstances. The Company further warrants and represents that: (i) Schedule 1 hereto correctly and completely sets forth the Company&#146;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, the Company is, or will be, at the time additional Collateral is acquired by it, the absolute owner of the 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) the Company will, at its expense, forever warrant and, at CIT&#146;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) the 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 the Company; and (vi) the Equipment is and will only be used by the Company in its business and will not be held for sale or lease, or removed from its premises, or otherwise disposed of by the
Company except as otherwise permitted in this Financing Agreement; (d) that all Inventory produced and shipped by Key Tronic Shanghai Computer Peripherals (other than Inventory purchased by Hewlett Packard) is owned by </font></p>
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<HR> <p><font size=2 face="Times New Roman">the Company and (e) since the Company was not able to obtain a letter agreement with Qualcomm Inc. referenced in Section 2.1 (bb) above, the Company has represented and continues
to represent that it will not incur any new accounts payable to Qualcomm Inc. until such letter agreement has been executed by Qualcomm and delivered to CIT in form and substance satisfactory to CIT.</font></p> <p><font size=2
face="Times New Roman"><b>7.2</b>&nbsp;&nbsp;The 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. The Company agrees that
CIT or its agents may enter upon the Company&#146;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. The Company shall pay all costs associated with any such audits at the rate of $750 per day per auditor plus reasonable Out-of-Pocket Expenses. The 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. The 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.</font></p> <p><font size=2 face="Times New Roman"><b>7.3&nbsp;</b>&nbsp;The Company
agrees to execute and deliver to CIT, from time to time, solely for CIT&#146;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. The Company&#146;s failure, however, to promptly give CIT such statements, or schedules shall not affect, diminish, modify or otherwise limit CIT&#146;s security interests in the Collateral. The Company further agrees to provide CIT, on
request, with an appraisal of the Inventory which appraisal shall be at the Company&#146;s expense and otherwise acceptable to CIT. Notwithstanding the foregoing, (i) so long as there exists no Event of Default, the Company shall only be required to
provide CIT with an annual desktop appraisal on the Eligible Inventory and (ii) so long as there exists no Event of Default and the Company maintains at all times not less than $4,000,000 in Availability, after the first anniversary date the Company
shall not be required to provide CIT with the otherwise applicable appraisal of the Eligible Inventory. </font></p> <p><font size=2 face="Times New Roman"><b>7.4&nbsp;&nbsp;</b>The 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 Company to file (including pursuant to the applicable terms of the UCC)
from time to time any financing statements, continuations or amendments covering the Collateral. The 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. The
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&#146;s agents and employees; (c)
keeping Collateral records; (d) transferring proceeds of Collateral to CIT&#146;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.</font></p>
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<HR> <p><font size=2 face="Times New Roman"><b>7.5&nbsp;&nbsp;(a)</b>&nbsp;&nbsp; The Company agrees to maintain insurance on the Real Estate, Equipment and Inventory 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 Real Estate, 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&#150;contributory "mortgagee", "lender" or "secured party" clause and are to contain such other provisions as CIT may require to fully
protect CIT&#146;s interest in the Real Estate, 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&#146;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 the Company&#146;s request, or if the Company fails to maintain such insurance, CIT may arrange
for such insurance, but at the Company&#146;s expense and without any responsibility on CIT&#146;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 Company,
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.</font></p>
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<td width="93%" valign="top"><font size=2 face="Times New Roman"><b>(i)&nbsp;</b>&nbsp;In the event of any loss or damage by fire or other casualty, insurance proceeds relating to Inventory shall first reduce the Company&#146;s Revolving Loan, then
any other Obligations. 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;</font></td> </tr>
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<td width="93%" valign="top"><font size=2 face="Times New Roman"><b>(ii)&nbsp;</b>&nbsp;In the event any part of the Company&#146;s Real Estate or 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 Company&#146;s 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;</font></td> </tr>
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<td width="93%" valign="top"><font size=2 face="Times New Roman"><b>(iii)</b>&nbsp;&nbsp;Absent the occurrence of an Event of Default, and provided that (x) the Company has sufficient business interruption insurance to replace the lost profits of
any of the Company&#146;s facilities, and (y) the Insurance Proceeds are in excess of $100,000.00, the Company may elect (by delivering written notice to CIT) to replace, repair or restore such Real Estate or Equipment to substantially the
equivalent condition prior to such fire or other casualty as set forth herein. If the Company does not, or cannot, elect to use the Insurance Proceeds as set forth above, the Company may use up to 50% of such proceeds for working capital purposes
and CIT may, subject to the rights of any holders of Permitted Encumbrances holding claims senior to CIT, apply the remainder of the</font></td> </tr> </table> <p></p>
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<HR> <p><font size=2 face="Times New Roman"> Insurance Proceeds to the payment of the Obligations in such manner and in such order as CIT may reasonably elect; and </font></p> <p><font size=2 face="Times New Roman">
<b>(iv)</b>&nbsp;&nbsp;If the Company elects to use the Insurance Proceeds for the repair, replacement or restoration of any Real Estate and/or Equipment, and there is then no Event of Default (x) Insurance Proceeds for any loss in excess of
$100,000.00 on Equipment and/or Real Estate will be applied to the reduction of the Revolving Loans and (y) CIT may set up an Availability Reserve in an amount equal to said Insurance Proceeds. The Availability Reserve will be reduced
dollar&#150;for&#150;dollar upon receipt of non&#150;cancelable executed purchase orders, delivery receipts or contracts for the replacement, repair or restoration of Equipment and/or the Real Estate and disbursements in connection therewith. Prior
to the commencement of any material restoration, repair or replacement of Real Estate, the Company shall provide CIT with a restoration plan and a total budget certified by an independent third party experienced in construction costing. If there are
insufficient Insurance Proceeds to cover the cost of restoration as so determined, the Company shall be responsible for the amount of any such insufficiency, prior to the commencement of restoration and shall demonstrate evidence of such before the
Availability Reserve will be reduced. Completion of restoration shall be evidenced by a final, unqualified certification of the design architect employed, if any; an unconditional Certificate of Occupancy, if applicable; such other certification as
may be required by law; or if none of the above is applicable, a written good faith determination of completion by the Company (herein collectively the &quot;Completion&quot;). Upon Completion, any remaining Availability Reserve as established
hereunder will be automatically released.</font></p> <p><font size=2 face="Times New Roman"> <b>(c)&nbsp;</b>&nbsp;In the event the Company fails to provide CIT with timely evidence, acceptable to CIT, of its maintenance of insurance coverage
required pursuant to paragraph 7.5(a) above, CIT may purchase, at the Company&#146;s expense, insurance to protect CIT&#146;s interests in the Collateral. The insurance acquired by CIT may, but need not, protect the Company&#146;s interest in the
Collateral, and therefore such insurance may not pay claims which the Company may have with respect to the Collateral or pay any claim which may be made against the Company in connection with the Collateral. In the event CIT purchases, obtains or
acquires insurance covering all or any portion of the Collateral, the Company shall be responsible for all of the applicable costs of such insurance, including premiums, interest (at the applicable JP Morgan Chase Bank Rate for Revolving Loans set
forth in paragraph 8.1 of Section 8 hereof), fees and any other charges with respect thereto, until the effective date of the cancellation or the expiration of such insurance. CIT may charge all of such premiums, fees, costs, interest and other
charges to the Company&#146;s Revolving Loan Account. The Company hereby acknowledges that the costs of the premiums of any insurance acquired by CIT may exceed the costs of insurance which the Company may be able to purchase on its own. In the
event that CIT purchases such insurance, CIT will notify the Company of said purchase within thirty (30) days of the date of such purchase. If, within thirty (30) days of the date of such notice, the Company provides CIT with proof that the Company
had the insurance coverage required pursuant to 7.5(a) above (in form and substance satisfactory to CIT) as of the date on which CIT purchased insurance and the Company continued at all times to have such insurance, then CIT agrees to cancel the
insurance purchased by CIT and credit the Company&#146;s Revolving Loan Account with the amount of all costs, interest and other</font></p>
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<HR> <p><font size=2 face="Times New Roman"> charges associated with any insurance purchased by CIT, including with any amounts previously charged to the Revolving Loan Account.</font></p> <p><font size=2
face="Times New Roman"><b>7.6&nbsp;</b>&nbsp;The Company agrees to pay, when due, all Taxes, including sales taxes, assessments, claims and other charges lawfully levied or assessed upon the Company or the Collateral unless such Taxes are being
diligently contested in good faith by the 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&#146;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 the
Company shall immediately pay such tax and remove the lien of record. If the Company fails to do so promptly, then at CIT&#146;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 Company&#146;s behalf, and the amount thereof shall be an
Obligation secured hereby and due on demand.</font></p> <p><font size=2 face="Times New Roman"><b>7.7&nbsp;</b>&nbsp;The 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 the Company, provided that the Company may contest any acts, rules,
regulations, orders and directions of such bodies or officials in any reasonable manner which will not, in CIT&#146;s reasonable opinion, materially and adversely effect CIT&#146;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 the 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) the Company promptly commences and diligently pursues a cure of such breach, and (iii) such failure is cured within (30) days
following the Company&#146;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.</font></p> <p><font size=2 face="Times New Roman"><b>7.8</b>&nbsp;&nbsp;Until termination of this Financing Agreement and payment
and satisfaction of all Obligations due hereunder, the Company agrees that, unless CIT shall have otherwise consented in writing, the Company will furnish to CIT: (a) within ninety (90) days after the end of each Fiscal Year of the Company, an
audited Consolidated Balance Sheet, with a 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 the Company and its consolidated subsidiaries for
such year, audited by independent public accountants selected by the Company and satisfactory to CIT; (b) within forty </font></p>
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<HR> <p><font size=2 face="Times New Roman">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,
cash flow and surplus of the Company and its consolidated subsidiaries, certified by an authorized financial or accounting officer of the Company; (c) within thirty (30) days after the end of each month a Consolidated Balance Sheet as at the end of
such period and statements of profit and loss, cash flow and surplus of the Company and all subsidiaries for such period, certified by an authorized financial or accounting officer of the Company; and (d) from time to time, such further information
regarding the business affairs and financial condition of the Company and its consolidated subsidiaries as CIT may reasonably request, including, without limitation (i) the accountant&#146;s management practice letter and (ii) annual cash flow
projections in form satisfactory to CIT. Each financial statement which the Company is required to submit hereunder must be accompanied by an officer&#146;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) the Company&#146;s financial condition at the end of the particular accounting period, as well as the Company&#146;s operating results
during such accounting period, subject to year&#150;end audit adjustments; and (y) during the particular accounting period: (A) there has been no Default or Event of Default under this Financing Agreement, <u>provided, however,</u> 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&#146;s certificate; (B) the Company has not received any notice
of cancellation with respect to its property insurance policies; (C) the Company has 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.</font></p> <p><font size=2 face="Times New Roman"><b>7.9&nbsp;</b>&nbsp;The Company shall deliver to CIT
within 30 days after the Closing Date, guaranties and security agreements executed by the Guarantors, in form and substance acceptable to CIT, guaranteeing all present and future Obligations of the Company.</font></p> <p><font size=2
face="Times New Roman"><b>7.10</b>&nbsp;&nbsp;Until termination of the Financing Agreement and payment and satisfaction of all Obligations hereunder, the Company agrees that, without the prior written consent of CIT, except as otherwise herein
provided, the Company will not:</font></p>
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<td width="7%">&nbsp;</td>
<td width="87%"><font size=2 face="Times New Roman">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 of the Company&#146;s Collateral or any other assets, whether now owned or hereafter acquired, except for the Permitted Encumbrances;</font></td> </tr>
<tr valign="top">
<td width="6%" align="right">&nbsp;</td>
<td width="7%">&nbsp;</td>
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<td width="6%" align="right"><font size=2 face="Times New Roman"><b>(b)</b></font></td>
<td width="7%">&nbsp;</td>
<td width="87%"><font size=2 face="Times New Roman">Incur or create any Indebtedness other than the Permitted Indebtedness;</font></td> </tr>
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<td width="6%" align="right">&nbsp;</td>
<td width="7%">&nbsp;</td>
<td width="87%">&nbsp;</td> </tr>
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<td width="6%" align="right"><font size=2 face="Times New Roman"><b>(c)</b></font></td>
<td width="7%">&nbsp;</td>
<td width="87%"><font size=2 face="Times New Roman">Sell, lease, assign, transfer or otherwise dispose of (i) Collateral, except (x) that so long as no Event of Default exists, the Company may sell its real estate with CIT&#146;s prior written
consent and the Company may retain up to twenty-five percent (25%)</font></td> </tr> </table> <p>
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<HR>
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<tr valign="top">
<td width="6%" align="right">&nbsp;</td>
<td width="7%">&nbsp;</td>
<td width="87%"><font size=2 face="Times New Roman">of the net proceeds of such sale for working capital purposes, so long as (A) the Company&#146;s EBITDA at the time of such sale is one hundred fifteen percent (115%) of the financial covenant
required in Section 7.11(b) for the next applicable measuring date, through and including June 29, 2002 and (B) the Company&#146;s Fixed Charge Coverage Ratio is one hundred fifteen percent (115%) of the financial covenant required in Section
7.11(c) if such sale occurs at any time after June 29, 2002 and regardless of when such sale occurs all remaining proceeds are remitted directly to CIT (and CIT shall use its portion of the proceeds to either, in CIT&#146;s discretion, pay down the
Revolving Loans and create an Availability Reserve with respect to advances on Eligible Inventory equal to 75% of the above referenced net proceeds or institute a permanent reduction of the Revolving Line of Credit equal to the amount of such
Revolving Loan pay down) and (y) as otherwise specifically permitted by this Financing Agreement, or (ii) either all or substantially all of the Company&#146;s assets, which do not constitute Collateral;</font></td> </tr>
<tr valign="top">
<td width="6%" align="right">&nbsp;</td>
<td width="7%">&nbsp;</td>
<td width="87%">&nbsp;</td> </tr>
<tr valign="top">
<td width="6%" align="right"><font size=2 face="Times New Roman"><b>(d)</b></font></td>
<td width="7%">&nbsp;</td>
<td width="87%"><font size=2 face="Times New Roman">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 the Company, except that the Company may change its corporate name or address; provided that: (i) the Company shall give CIT thirty (30) days prior written notice thereof and (ii)
the 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;</font></td> </tr>
<tr valign="top">
<td width="6%" align="right">&nbsp;</td>
<td width="7%">&nbsp;</td>
<td width="87%">&nbsp;</td> </tr>
<tr valign="top">
<td width="6%" align="right"><font size=2 face="Times New Roman"><b>(e)</b></font></td>
<td width="7%">&nbsp;</td>
<td width="87%"><font size=2 face="Times New Roman">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; provided, that the Company may guaranty obligations of its subsidiaries in the ordinary course of its business in an amount not to exceed $100,000 in the aggregate;</font></td> </tr>
<tr valign="top">
<td width="6%" align="right">&nbsp;</td>
<td width="7%">&nbsp;</td>
<td width="87%">&nbsp;</td> </tr>
<tr valign="top">
<td width="6%" align="right"><font size=2 face="Times New Roman"><b>(f)</b></font></td>
<td width="7%">&nbsp;</td>
<td width="87%"><font size=2 face="Times New Roman">&nbsp;&nbsp;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, except that the Company may declare and pay dividends or distributions in the ordinary course of its business provided there is then no existing Default or Event of Default, and provided further that after giving effect to any
such dividend or distribution the Company has at least $4,000,000 in Availability for the thirty (30) day period preceding such distribution or dividend; <u>provided</u> that, (x) before and after giving effect to such payment, no Default or Event
of Default has occurred or would occur hereunder and (y) the Company has sufficient Working Capital to pay its debts as they come due; or</font></td> </tr> </table> <p>
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<td width="85%">&nbsp;</td> </tr>
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p>
<HR>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
<tr valign="top">
<td width="6%" align="right"><font size=2 face="Times New Roman"><b>(g)</b></font></td>
<td width="7%">&nbsp;</td>
<td width="87%"><font size=2 face="Times New Roman">Pay any management, consulting or other similar fees to any person, corporation or other entity affiliated with the Company (except reasonable directors fees in the ordinary course of business) or
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, <u>provided</u>, that so long as no Event of
Default exists or would exist after giving effect to such advance, the Company may make advances to (i) Key Tronic Juarez, S.A. de CV not to exceed an aggregate amount equal to $350,000 plus taxes per week, (ii) Key Tronic Reynosa, S.A. de CV not to
exceed an aggregate amount equal to $250,000 plus taxes per week and (iii) Key Tronic Shanghai Computer Peripherals not to exceed an aggregate amount equal to $250,000 plus taxes per month.</font></td> </tr> </table> <p><font size=2
face="Times New Roman"><b>7.1&nbsp;</b>&nbsp;Until termination of the Financing Agreement and payment and satisfaction in full of all Obligations hereunder, the Company shall do each of the following:</font></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
<tr valign="top">
<td width="6%" align="right"><font size=2 face="Times New Roman"><b>(a)</b></font></td>
<td width="7%">&nbsp;</td>
<td width="87%"><font size=2 face="Times New Roman">maintain at all times a Tangible Net Worth of not less than the amount set forth below, to be measured monthly on the dates set forth below in accordance with the methodology set forth in Exhibit A
hereto:</font></td> </tr> </table> <p>
<table width="100%" cellpadding="2" cellspacing="0" border="0">
<tr>
<td valign="top" align="center" width="5%">&nbsp;</td>
<td valign="top" align="center" width="70%"> <u><font size=2 face="Times New Roman"><b>Period</b></font></u> </td>
<td valign="top" align="center" width="25%"> <u><font size=2 face="Times New Roman"><b>Tangible Net Worth</b></font></u> </td> </tr>
<tr>
<td valign="top" align="left" width="5%">&nbsp;</td>
<td valign="top" align="left" width="70%" bgcolor="#99ccff"> <font size=2 face="Times New Roman">(i) &nbsp;For each month end in September, </font> <font size=2 face="Times New Roman">October and November, 2001</font> </td>
<td valign="top" align="center" width="25%" bgcolor="#99ccff"> <font size=2 face="Times New Roman">$<u>31,797,000</u></font> </td> </tr>
<tr>
<td valign="top" align="left" width="5%">&nbsp;</td>
<td valign="top" align="left" width="70%">&nbsp;</td>
<td valign="top" align="center" width="25%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="5%">&nbsp;</td>
<td valign="top" align="left" width="70%"> <font size=2 face="Times New Roman">(ii) &nbsp;For each month end in December, 2001,</font> <font size=2 face="Times New Roman">January, 2002 and February, 2002</font> </td>
<td valign="top" align="center" width="25%"> <font size=2 face="Times New Roman">$<u>33,320,000</u></font> </td> </tr>
<tr>
<td valign="top" align="left" width="5%">&nbsp;</td>
<td valign="top" align="left" width="70%">&nbsp;</td>
<td valign="top" align="center" width="25%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="5%">&nbsp;</td>
<td valign="top" align="left" width="70%" bgcolor="#99ccff"> <font size=2 face="Times New Roman">(iii)&nbsp; For each month end in March,</font> <font size=2 face="Times New Roman">April and May, 2002</font> </td>
<td valign="top" align="center" width="25%" bgcolor="#99ccff"> <font size=2 face="Times New Roman">$<u>33,888,000</u></font> </td> </tr>
<tr>
<td valign="top" align="left" width="5%">&nbsp;</td>
<td valign="top" align="left" width="70%">&nbsp;</td>
<td valign="top" align="center" width="25%">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="5%">&nbsp;</td>
<td valign="top" align="left" width="70%"> <font size=2 face="Times New Roman">(iv)&nbsp; For the month end in June, 2002</font> <font size=2 face="Times New Roman">and each month thereafter</font> </td>
<td valign="top" align="center" width="25%"> <font size=2 face="Times New Roman">$<u>34,445,000</u></font> </td> </tr> </table> <p></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
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<td width="15%" nowrap><font size="2">
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<td width="85%">&nbsp;</td> </tr>
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p>
<HR>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
<tr valign="top">
<td width="6%" align="right"><font size=2 face="Times New Roman"><b>(b)</b></font></td>
<td width="7%">&nbsp;</td>
<td width="87%"><font size=2 face="Times New Roman">maintain at all times EBITDA of not less than the amount set forth below for the applicable period, to be measured quarterly on a rolling basis for the applicable number of months set forth below
in accordance with the methodology set forth in Exhibit A hereto:</font></td> </tr> </table> <p><font size=2 face="Times New Roman">&nbsp;&nbsp;</font></p>
<table width="100%" cellpadding="2" cellspacing="0" border="0">
<tr>
<td valign="top" align="left" width="7%">&nbsp;</td>
<td valign="top" align="center" width="74%"> <u><font size=2 face="Times New Roman"><b>Period</b></font></u> </td>
<td valign="top" align="center" width="19%"> <u><font size=2 face="Times New Roman"><b>EBITDA</b></font></u> </td> </tr>
<tr>
<td align="left" width="7%">&nbsp;</td>
<td align="left" width="74%" bgcolor="#99ccff"> <font size=2 face="Times New Roman">(i) &nbsp;For the Fiscal Quarter ending September 29, 2001</font> </td>
<td align="center" width="19%" bgcolor="#99ccff"> <font size=2 face="Times New Roman">$<u>708,000</u></font> </td> </tr>
<tr>
<td align="left" width="7%">&nbsp;</td>
<td align="left" width="74%">&nbsp;</td>
<td align="center" width="19%">&nbsp;</td> </tr>
<tr>
<td align="left" width="7%">&nbsp;</td>
<td align="left" width="74%"> <font size=2 face="Times New Roman">(ii)&nbsp; For the two Fiscal Quarters ending December 29, 2001</font> </td>
<td align="center" width="19%"> <font size=2 face="Times New Roman">$<u>2,800,000</u></font> </td> </tr>
<tr>
<td align="left" width="7%">&nbsp;</td>
<td align="left" width="74%">&nbsp;</td>
<td align="center" width="19%">&nbsp;</td> </tr>
<tr>
<td align="left" width="7%">&nbsp;</td>
<td align="left" width="74%" bgcolor="#99ccff"> <font size=2 face="Times New Roman">(iii) &nbsp;For the three Fiscal Quarters ending March 30, 2002</font> </td>
<td align="center" width="19%" bgcolor="#99ccff"> <font size=2 face="Times New Roman">$<u>4,400,000</u></font> </td> </tr>
<tr>
<td align="left" width="7%">&nbsp;</td>
<td align="left" width="74%">&nbsp;</td>
<td align="center" width="19%">&nbsp;</td> </tr>
<tr>
<td align="left" width="7%">&nbsp;</td>
<td align="left" width="74%"> <font size=2 face="Times New Roman">(iv) &nbsp;For the four Fiscal Quarters ending June 29, 2002</font> </td>
<td align="center" width="19%"> <font size=2 face="Times New Roman">$<u>5,900,000</u></font> </td> </tr> </table> <p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
<tr valign="top">
<td width="6%" align="right"><font size=2 face="Times New Roman"><b>(c)</b></font></td>
<td width="7%">&nbsp;</td>
<td width="87%"><font size=2 face="Times New Roman">maintain a Fixed Charge Ratio of not less than 1.10:1 at all times after June 29, 2002, to be measured quarterly beginning September 29, 2002 and on each Fiscal Quarter thereafter.</font></td>
</tr>
<tr valign="top">
<td width="6%" align="right">&nbsp;</td>
<td width="7%">&nbsp;</td>
<td width="87%">&nbsp;</td> </tr>
<tr valign="top">
<td width="6%" align="right"><font size=2 face="Times New Roman"><b>(d)</b></font></td>
<td width="7%">&nbsp;</td>
<td width="87%"><font size=2 face="Times New Roman">Without the prior written consent of CIT, the Company will not: </font></td> </tr> </table> <p>
<table width="100%" cellpadding="2" cellspacing="0" border="0">
<tr>
<td align="left" width="8%">&nbsp;</td>
<td align="left" width="5%" valign="top"><font size=2 face="Times New Roman">(i)</font></td>
<td align="center" width="87%"> <div align="left"><font size=2 face="Times New Roman">enter into any Operating Lease if after giving effect thereto the aggregate face amount of obligations with respect to Operating Leases of the Company during any
Fiscal Year would exceed $6,000,000; or</font></div> </td> </tr>
<tr>
<td align="left" width="8%">&nbsp;</td>
<td align="left" width="5%">&nbsp;</td>
<td align="center" width="87%">&nbsp;</td> </tr>
<tr>
<td align="left" width="8%">&nbsp;</td>
<td align="left" width="5%" valign="top"><font size=2 face="Times New Roman">(ii)</font></td>
<td align="center" width="87%"> <div align="left"><font size=2 face="Times New Roman">contract for, purchase, make expenditures for, lease pursuant to a Capital Lease or otherwise incur obligations with respect to Capital Expenditures (whether
subject to a security interest or otherwise) during any period below in the aggregate amount in excess of the amount set forth for such period:</font></div> </td> </tr> </table> <p>
<table width="100%" cellpadding="2" cellspacing="0" border="0">
<tr>
<td align="right" width="14%"><font size=2 face="Times New Roman">(A)</font></td>
<td align="left" width="8%">&nbsp;</td>
<td width="78%"><font size=2 face="Times New Roman">$3,000,000 for the Fiscal Year ending June 30, 2002;</font></td> </tr>
<tr>
<td align="right" width="14%">&nbsp;</td>
<td align="left" width="8%">&nbsp;</td>
<td width="78%">&nbsp;</td> </tr>
<tr>
<td align="right" width="14%"><font size=2 face="Times New Roman">(B)</font></td>
<td align="left" width="8%">&nbsp;</td>
<td width="78%"><font size=2 face="Times New Roman">$3,000,000 plus fifty percent (50%) of the prior year&#146;s excess Operating Cash Flow for each Fiscal Year ending June 30, 2003 and thereafter;</font></td> </tr> </table> <p><font size=2
face="Times New Roman"><b>7.12</b>&nbsp;&nbsp;The 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&#150;up, (ii) environmental compliance or (iii) environmental testing and the impact of said expenses on the Company&#146;s working capital; and (b) any notices the Company receives from any local, state or federal authority advising the
Company of any environmental liability (real or potential) stemming from the Company&#146;s operations, its premises, its waste disposal practices, or waste disposal sites used by the Company and to provide CIT with copies of all such notices if so
required.</font></p>
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<td width="85%">&nbsp;</td> </tr>
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<HR> <p><font size=2 face="Times New Roman"><b>7.13</b>&nbsp;&nbsp;The Company hereby agrees to indemnify and hold harmless CIT and its officers, directors, employees, attorneys and agents (each an &quot;Indemnified
Party&quot;) from, and holds each of them harmless against, any and all losses, liabilities, obligations, claims, actions, damages, costs and expenses (including attorney&#146;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&#150;up relating to the Real Estate; or any claim or expense which results from the Company&#146;s operations (including, but not limited to, the Company&#146;s
off&#150;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 the Company&#146;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. The 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.</font></p> <p><font size=2 face="Times New Roman"><b>7.14&nbsp;</b>&nbsp;Without the prior written consent of CIT (such consent to be given in CIT&#146;s discretion, reasonably exercised), the Company agrees that it will not enter into
any transaction, including, without limitation, any purchase, sale, lease, loan or exchange of property with any subsidiary or affiliate of the Company, provided that, except as otherwise set forth in this Financing Agreement, the Company may enter
into sale and service transactions in the ordinary course of its business and pursuant to the reasonable requirements of the Company, and upon standard terms and conditions and fair and reasonable terms, no less favorable to the Company than the
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.</font></p>
<p><font size=2 face="Times New Roman"><b>7.15&nbsp;</b>&nbsp;The Company agrees that it will obtain tri party agreements with any account debtor that CIT may reasonably request from time to time in form and substance substantially similar to those
required in Section 2.1(bb) above and otherwise satisfactory to CIT.</font></p> <p><font size=2 face="Times New Roman"><b>7.16</b>&nbsp;&nbsp;The Company agrees that it will provide CIT with copies of UCC financing statements within 60 days of the
Closing Date reflecting that Gelco Corporation has limited the collateral described in any financing statements filed against the Company to equipment leased to the Company by Gelco Corporation and proceeds thereof.</font></p>
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<td width="85%">&nbsp;</td> </tr>
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<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p>
<HR> <p><font size=2 face="Times New Roman"><b>
<a name="h221exa"></a>SECTION 8.&nbsp;&nbsp;Interest, Fees and Expenses</b></font></p> <p><font size=2 face="Times New Roman"><b>8.1&nbsp;&nbsp;(a)&nbsp;&nbsp;</b>Interest on the Revolving Loans shall be payable monthly as of the end of each month,
and shall bear interest at an amount per annum equal to the JP Morgan Chase Bank Rate plus the Applicable Margin on the average of the net balances owing by the Company to CIT in the Revolving Loan Account at the close of each day during such month.
The Applicable Margin shall be calculated quarterly after the date 12 months from the Closing Date, and shall be calculated based on the EBITDA for the prior four quarters. In the event of any change in said JP Morgan Chase Bank Rate, the rate
hereunder shall change, as of the date of such change to maintain the Applicable Margin. The interest rate hereunder shall be calculated based on a 360&#150;day year. CIT shall be entitled to charge the Company&#146;s Revolving Loan Account at the
rate provided for herein when due until all Obligations have been paid in full.</font></p>
<table width="100%" border="0">
<tr>
<td width="2%">&nbsp;</td>
<td width="5%" valign="top"><font size=2 face="Times New Roman"><b>(b)</b>&nbsp;</font></td>
<td width="93%" valign="top"><font size=2 face="Times New Roman">&nbsp;Notwithstanding any provision to the contrary contained in this section 8, in the event that the sum of (i) the outstanding Revolving Loans and (ii) the outstanding Letters of
Credit exceed the lesser of either (x) the maximum aggregate amount available under Sections 3 and 5 of this Financing Agreement or (y) the Revolving Line of Credit: (A) as a result of Revolving Loans advanced by CIT at the request of the Company
(herein &quot;Requested Overadvances&quot;), for any one (1) or more days in any month or (B) for any other reason whatsoever (herein &quot;Other Overadvances&quot;) and such Other Overadvances continue for five (5) or more days in any month, the
average net balance of all Revolving Loans for such month shall bear interest at the Overadvance Rate. 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.</font></td> </tr> </table> <p><font size=2 face="Times New Roman"><b>8.2&nbsp;</b>&nbsp;Intentionally Omitted</font></p> <p><font size=2
face="Times New Roman"><b>8.3&nbsp;</b>&nbsp;In consideration of the Letter of Credit Guaranty of CIT, the Company shall pay CIT the Letter of Credit Guaranty Fee which shall be an amount equal to (a) two percent 2.0%) on the face amount of each
documentary Letter of Credit payable upon issuance thereof and (b) two percent (2.0%) per annum, payable monthly, on the face amount of each standby Letter of Credit less the amount of any and all amounts previously drawn under such standby Letter
of Credit.</font></p> <p><font size=2 face="Times New Roman"><b>8.4</b>&nbsp;&nbsp;Any and all charges, fees, commissions, costs and expenses charged to CIT for the Company&#146;s account by any Issuing Bank in connection with, or arising out of,
Letters of Credit or out of transactions relating thereto will be charged to the Revolving Loan Account in full when charged to, or paid by CIT, or as may be due upon any termination of this Financing Agreement hereof, and when made by any such
Issuing Bank shall be conclusive on CIT.</font></p> <p><font size=2 face="Times New Roman"><b>8.5&nbsp;</b>&nbsp;The Company shall reimburse or pay CIT, as the case may be, for: (a) all Out&#150;of&#150;Pocket Expenses and (b) any applicable
Documentation Fee.</font></p>
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<td width="85%">&nbsp;</td> </tr>
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<HR> <p><font size=2 face="Times New Roman"><b>8.6&nbsp;&nbsp;</b>Upon the last Business Day of each month, commencing on September 30, 2001, the Company 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.</font></p> <p><font size=2 face="Times New Roman"><b>8.7</b>&nbsp;&nbsp;To induce CIT to enter into this Financing
Agreement and to extend to the Company the Revolving Loan and Letters of Credit Guaranties, the Company shall pay to CIT a closing fee in the amount of $250,000 fully due and payable upon execution of this Financing Agreement. The Commitment Fee,
together with a good faith deposit in an amount equal to $50,000, less outside costs and expenses incurred by CIT in connection with the preparation, execution and closing of this credit facility, shall be credited toward the closing fee upon
consummation of this financing transaction on the Closing Date.</font></p> <p><font size=2 face="Times New Roman"><b>8.8&nbsp;</b>&nbsp;On the Closing Date and each anniversary of the Closing Date thereafter, the Company shall pay to CIT the
Administrative Management Fee, which shall be deemed fully earned when paid.</font></p> <p><font size=2 face="Times New Roman"><b>8.9</b>&nbsp;&nbsp;The Company shall pay CIT&#146;s standard charges and fees for CIT&#146;s personnel used by CIT for
reviewing the books and records of the Company and for verifying, testing, protecting, safeguarding, preserving or disposing of all or any part of the Collateral (which fees shall be in addition to the Administrative Management Fee and any
Out-of-Pocket Expenses).</font></p> <p><font size=2 face="Times New Roman"><b>8.10</b>&nbsp;&nbsp;The Company hereby authorizes CIT to charge the Revolving Loan Account with the amount of all payments due hereunder as such payments become due. The
Company confirms that any charges which CIT may so make to the Revolving Loan Account as herein provided will be made as an accommodation to the Company and solely at CIT&#146;s discretion.</font></p> <p><font size=2
face="Times New Roman"><b>8.11</b>&nbsp;&nbsp;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&#146;s or
such participant&#146;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&#146;s policies with respect to capital adequacy) by an amount reasonably deemed by CIT or such participant to be material, then, from time to time, the Company shall pay no later than five (5) days following demand to CIT or such
participant such additional amount or amounts as will compensate CIT or such participant 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 8.11 shall be available to CIT</font></p>
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<HR> <p><font size=2 face="Times New Roman">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 Company shall be conclusive on the Company 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 Company
in whole or in part exceed the amount </font><font size=2 face="Times New Roman">which CIT or such participant actually required to be made whole, the excess, if any, shall be returned to the Company by CIT or such participant.</font></p> <p><font
size=2 face="Times New Roman"><b>8.12.</b>&nbsp;&nbsp;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:</font></p>
<table width="100%" border="0">
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<td width="4%">&nbsp;</td>
<td width="8%" valign="top"><font size="2" face="Times New Roman"><b>(a)</b>&nbsp;&nbsp;</font></td>
<td width="88%" valign="top"><font size="2" face="Times New Roman">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);</font></td> </tr>
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<td width="4%">&nbsp;</td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td width="88%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
<tr>
<td width="4%">&nbsp;</td>
<td width="8%" valign="top"><font size="2" face="Times New Roman"><b>(b)</b>&nbsp;</font></td>
<td width="88%" valign="top"><font size="2" face="Times New Roman">&nbsp;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</font></td> </tr>
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<td width="8%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td width="88%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
<tr>
<td width="4%">&nbsp;</td>
<td width="8%" valign="top"><font size="2" face="Times New Roman"><b>(c)</b>&nbsp;</font></td>
<td width="88%" valign="top"><font size="2" face="Times New Roman">&nbsp;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 Company 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 Company and the calculation thereof
and such certification shall be conclusive upon the Company 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 Company in whole or in part exceed the amount </font></td> </tr> </table> <p></p>
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<HR> <p><font size=2 face="Times New Roman">which CIT or such participant actually required pursuant hereto, the excess, if any, shall be returned to the Company by CIT or such participant.</font></p> <p><font size=2
face="Times New Roman"><b>8.13&nbsp;</b>&nbsp;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.</font></p> <p><font size=2 face="Times New Roman"><b>
<a name="i221exa"></a>SECTION 9.&nbsp;&nbsp;<u>Powers</u></b></font></p> <p><font size=2 face="Times New Roman">The Company hereby constitutes CIT, or any person or agent CIT may designate, as its attorney&#150;in&#150;fact, at the Company&#146;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:</font></p>
<table width="100%" border="0">
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<td width="5%">&nbsp;</td>
<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(a)</b>&nbsp;</font></td>
<td width="89%" valign="top"><font size="2" face="Times New Roman">&nbsp;To receive, take, endorse, sign, assign and deliver, all in the name of CIT or the Company, any and all checks, notes, drafts, and other documents or instruments relating to
the Collateral;</font></td> </tr>
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<td width="5%">&nbsp;</td>
<td width="6%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td width="89%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
<tr>
<td width="5%">&nbsp;</td>
<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(b)</b>&nbsp;</font></td>
<td width="89%" valign="top"><font size="2" face="Times New Roman">To receive, open and dispose of all mail addressed to the Company and to notify postal authorities to change the address for delivery thereof to such address as CIT may
designate;</font></td> </tr>
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<td width="5%">&nbsp;</td>
<td width="6%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td width="89%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
<tr>
<td width="5%">&nbsp;</td>
<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(c)</b>&nbsp;&nbsp;</font></td>
<td width="89%" valign="top"><font size="2" face="Times New Roman">To request from customers indebted on Accounts at any time, in the name of CIT information concerning the amounts owing on the Accounts;</font></td> </tr>
<tr>
<td width="5%">&nbsp;</td>
<td width="6%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td width="89%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
<tr>
<td width="5%">&nbsp;</td>
<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(d)</b>&nbsp;&nbsp;</font></td>
<td width="89%" valign="top"><font size="2" face="Times New Roman">To request from customers indebted on Accounts at any time, in the name of the Company, in the name of a certified public accountant designated by CIT or in the name of CIT&#146;s
designee, information concerning the amounts owing on the Accounts;</font></td> </tr>
<tr>
<td width="5%">&nbsp;</td>
<td width="6%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td width="89%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
<tr>
<td width="5%">&nbsp;</td>
<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(e)</b>&nbsp;&nbsp;</font></td>
<td width="89%" valign="top"><font size="2" face="Times New Roman">To transmit to customers indebted on Accounts notice of CIT&#146;s interest therein and to notify customers indebted on Accounts to make payment directly to CIT for the
Company&#146;s account; and</font></td> </tr>
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<td width="5%">&nbsp;</td>
<td width="6%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td width="89%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
<tr>
<td width="5%">&nbsp;</td>
<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(f)</b>&nbsp;&nbsp;</font></td>
<td width="89%" valign="top"><font size="2" face="Times New Roman">To take or bring, in the name of CIT or the Company, all steps, actions, suits or proceedings deemed by CIT necessary or desirable to enforce or effect collection of the
Accounts.</font></td> </tr> </table> <p><font size=2 face="Times New Roman">Notwithstanding anything hereinabove contained to the contrary, the powers set forth in (b), (c), (e) 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.</font></p> <p><font size=2 face="Times New Roman">The Company hereby authorizes CIT to prepare and file Uniform Commercial Code financing statements covering the
Collateral in the appropriate filing offices in connection with this credit facility and hereby ratifies and confirms any such financing statements that CIT may file.</font></p>
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<HR> <p><font size=2 face="Times New Roman"><b>
<a name="j221exa"></a>SECTION 10.&nbsp;&nbsp;Events of Default and Remedies</b></font></p> <p><font size=2 face="Times New Roman"><b>10.1</b>&nbsp;&nbsp;Notwithstanding anything hereinabove to the contrary, CIT may terminate this Financing Agreement
immediately upon the occurrence of any of the following (each, an &quot;Event of Default&quot;):</font></p>
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<td width="3%">&nbsp;</td>
<td width="4%" valign="top"><font size=2 face="Times New Roman"><b>(a)&nbsp;</b>&nbsp;</font></td>
<td width="93%"><font size=2 face="Times New Roman">cessation of the business of the Company or the calling of a meeting of the creditors of the Company for purposes of compromising the debts and obligations of the Company;</font></td> </tr>
<tr>
<td width="3%">&nbsp;</td>
<td width="4%">&nbsp;</td>
<td width="93%">&nbsp;</td> </tr>
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<td width="3%">&nbsp;</td>
<td width="4%"><font size=2 face="Times New Roman"><b>(b)&nbsp;</b></font></td>
<td width="93%"><font size=2 face="Times New Roman">the failure of the Company to generally meet its debts as they mature;</font></td> </tr>
<tr>
<td width="3%">&nbsp;</td>
<td width="4%" valign="top">&nbsp;</td>
<td width="93%" valign="top">&nbsp;</td> </tr>
<tr>
<td width="3%">&nbsp;</td>
<td width="4%" valign="top"><font size=2 face="Times New Roman"><b>(c)&nbsp;&nbsp;</b></font></td>
<td width="93%" valign="top"><font size=2 face="Times New Roman">(i)<b>&nbsp;&nbsp;</b>the commencement by the Company of any bankruptcy, insolvency, arrangement, reorganization, receivership or similar proceedings under any federal or state law;
(ii) the commencement against the Company, of any bankruptcy, insolvency, arrangement, reorganization, receivership or similar proceeding under any federal or state law by creditors of the Company, 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 the Company shall
take action to authorize or effect any of the actions in any such proceeding; or (iii) the commencement (x) by the Company&#146;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 the Company&#146;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 the Company&#146;s subsidiaries, or any one of them, shall take action to authorize or effect any of the actions in any such proceeding;</font></td> </tr>
<tr>
<td width="3%">&nbsp;</td>
<td width="4%">&nbsp;</td>
<td width="93%">&nbsp;</td> </tr>
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<td width="3%">&nbsp;</td>
<td width="4%" valign="top"><font size=2 face="Times New Roman"><b>(d)</b>&nbsp;&nbsp;</font></td>
<td width="93%" valign="top"><font size=2 face="Times New Roman">breach in a material respect by the Company of any warranty or representation or breach by the Company of any covenant contained herein (other than those referred to in
sub&#150;paragraph (e) below) or in any other written agreement between the Company or CIT, provided that such Default by the 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&#146;s satisfaction for a period of ten (10) days from the date of such breach;</font></td> </tr> </table> <p></p>
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<HR>
<table width="100%" border="0">
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<td width="4%">&nbsp;</td>
<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(e)&nbsp;</b>&nbsp;</font></td>
<td width="90%" valign="top"><font size="2" face="Times New Roman">breach by the 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;</font></td> </tr>
<tr>
<td width="4%">&nbsp;</td>
<td width="6%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td width="90%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
<tr>
<td width="4%">&nbsp;</td>
<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(f)&nbsp;</b></font></td>
<td width="90%" valign="top"><font size="2" face="Times New Roman">&nbsp;failure of the Company to pay principal when due or failure of the Company to pay any other Obligations within five (5) Business Days of the due date thereof, provided that
nothing contained herein shall prohibit CIT from charging such amounts to the Revolving Loan Account on the due date thereof;</font></td> </tr>
<tr>
<td width="4%">&nbsp;</td>
<td width="6%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td width="90%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
<tr>
<td width="4%">&nbsp;</td>
<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(g)</b>&nbsp;</font></td>
<td width="90%" valign="top"><font size="2" face="Times New Roman">&nbsp;the Company shall (i) engage in any &quot;prohibited transaction&quot; as defined in ERISA, (ii) have any &quot;accumulated funding deficiency&quot; as defined in ERISA, (iii)
have any &quot;reportable event&quot; as defined in ERISA, (iv) terminate any &quot;plan&quot;, 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 &quot;plan&quot;, as defined in ERISA, and with respect to this sub&#150;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 the Company to any tax, penalty or other liability material to the business, operations or financial condition of the Company;</font></td> </tr>
<tr>
<td width="4%">&nbsp;</td>
<td width="6%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td width="90%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
<tr>
<td width="4%">&nbsp;</td>
<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(h)&nbsp;</b>&nbsp;</font></td>
<td width="90%" valign="top"><font size="2" face="Times New Roman">without the prior written consent of CIT and, except as permitted in the Subordination Agreement, the Company shall (x) amend or modify the Subordinated Debt, or (y) make any payment
on account of the Subordinated Debt;</font></td> </tr>
<tr>
<td width="4%">&nbsp;</td>
<td width="6%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td width="90%" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
<tr>
<td width="4%">&nbsp;</td>
<td width="6%" valign="top"><font size="2" face="Times New Roman"><b>(i)</b>&nbsp;</font></td>
<td width="90%" valign="top"><font size="2" face="Times New Roman">&nbsp;the occurrence of any default or event of default (after giving effect to any applicable grace or cure periods) under any instrument or agreement (x) evidencing Subordinated
Debt or (y) any other Indebtedness of the Company having a principal amount in excess of $250,000; or</font></td> </tr> </table> <p><font size=2 face="Times New Roman"><b>10.2&nbsp;</b>&nbsp;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 Sections 3, 4 and 5 of this Financing Agreement shall be thereafter in CIThs sole discretion and the obligation of CIT to make Revolving Loans, open Letters
of Credit and provide Letters of Credit Guaranties, shall cease unless such Default is cured to CIT&#146;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 Company the Default Rate of Interest on all then outstanding or thereafter incurred Obligations in lieu of the interest provided for in Section 8 of this Financing
Agreement, provided that, with respect to this clause &quot;(b)&quot; CIT has given the Company written notice of the Event of Default; provided, however, that no notice is required if the Event of Default is the Event listed in Paragraph 10.1(c) of
this Section 10, and (c) CIT may immediately terminate this Financing Agreement upon notice to the Company; provided, however, that upon the occurrence of an Event of Default listed in Paragraph 10.1(c) of this Section 10, this </font></p>
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<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p></p> <HR> <p><font size=2 face="Times New Roman">Financing Agreement shall automatically terminate and all Obligations shall become due and payable, without any action, </font><font size=2 face="Times New Roman">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.</font></p> <p><font size=2 face="Times New Roman"><b>10.3</b>&nbsp;&nbsp;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 Company&#146;s expense, such of the
Company&#146;s personnel, supplies or space at the Company&#146;s 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 Company 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 Company 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&#146;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 Company; (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 Company or CIT, or in the
name of such other party as CIT may designate, either at public or private sale or at any broker&#146;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 Company agrees, at the request of CIT, to assemble the Inventory and Equipment and
to make it available to CIT at premises of the Company or elsewhere and to make available to CIT the premises and facilities of the Company for the purpose of CIT&#146;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. The net cash proceeds resulting from CIT&#146;s
exercise of any of the foregoing rights, (after deducting all charges, costs and expenses, including reasonable attorneys&#146; fees) shall be applied by</font></p>
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<HR> <p><font size=2 face="Times New Roman">CIT to the payment of the Obligations, whether due or to become due, in such order as CIT may elect, and the Company shall remain liable to CIT for any deficiencies, and CIT in
turn agrees to remit to the Company or its 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 Company hereby indemnifies 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 Company, the Company as debtor-in-possession, any secured or unsecured creditors of the Company, any trustee or receiver in bankruptcy, or otherwise), and the Company hereby agrees to so indemnify and hold CIT harmless, absent
CIT&#146;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. Any
applicable mortgage(s), deed(s) of trust or assignment(s) issued to CIT on the Real Estate shall govern the rights and remedies of CIT thereto.</font></p> <p><font size=2 face="Times New Roman"><b>
<a name="k221exa"></a>SECTION 11.&nbsp;&nbsp;<u>Termination</u></b></font></p> <p><font size=2 face="Times New Roman">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 Company 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 Company may terminate this Financing Agreement at any time upon sixty (60) days&#146; prior written notice to CIT, provided that the
Company pays to CIT immediately on demand an Early Termination Fee and/or the Prepayment Premium, if applicable. 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 Company&#146;s 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, including an amount of 110% of the face amount of any outstanding Letters of Credit with an expiry date on, or within thirty (30) days of the effective date of termination of this Financing Agreement. All of CIT&#146;s rights, liens and
security interests shall continue after any termination until all Obligations have been paid and satisfied in full.</font></p>
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<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp; </p>
<HR> <p><font size=2 face="Times New Roman"><b>
<a name="l221exa"></a>SECTION 12.&nbsp;&nbsp;<u>Miscellaneous</u></b></font></p> <p><font size=2 face="Times New Roman"><b>12.1</b>&nbsp;&nbsp;The 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 Company 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.</font></p> <p><font size=2 face="Times New Roman"><b>12.2</b>&nbsp;&nbsp;This Financing Agreement and the Loan Documents executed and delivered in connection therewith constitute the entire agreement between the Company and CIT; supersede
any prior agreements; can be changed only by a writing signed by both the Company and CIT; and shall bind and benefit the Company and CIT and their respective successors and assigns.</font></p> <p><font size=2
face="Times New Roman"><b>12.3</b>&nbsp;&nbsp;In no event shall the Company, 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 Company. This paragraph shall control every other provision hereof, the Loan Documents and of any other agreement made in connection herewith.</font></p> <p><font size=2 face="Times New Roman"><b>12.4</b>&nbsp;&nbsp;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&#146;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.</font></p> <p><font size=2 face="Times New Roman"><b>12.5</b>&nbsp;&nbsp;<b>THE 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. THE 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.</b></font></p> <p><font size="2" face="Times New Roman"><b>12.6</b></font>&nbsp;<font size="2" face="Times New Roman">&nbsp;Except as otherwise herein provided, any notice or other communication required
hereunder shall be in writing (provided that, any electronic communications from the Company with respect to any request, transmission, document, electronic signature, electronic mail or facsimile </font></p> <p></p>
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<td width="85%">&nbsp;</td> </tr>
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<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p>
<HR> <p><font size=2 face="Times New Roman">transmission shall be deemed binding on the Company for purposes of this Financing Agreement, provided further that any such transmission shall not relieve the Company 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:</font></p>
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<tr>
<td width="7%" valign="top" align="left"><font face="Times New Roman" size="2"></font> </td>
<td colspan="3" valign="top" align="left"><font size="2" face="Times New Roman">(A) if to CIT, at:</font> </td> </tr>
<tr>
<td colspan="2" valign="top" align="left"> <font size="2" face="Times New Roman"> </font> </td>
<td colspan="2" valign="top" align="center"><font size="2" face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%">&nbsp;</td>
<td width="8%" valign="top">&nbsp;</td>
<td colspan="2" valign="top">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="7%"> <font size="2" face="Times New Roman"> </font> </td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font> </td>
<td colspan="2" valign="top"><font size="2" face="Times New Roman">The CIT Group/Business Credit, Inc.</font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%"> <font size="2" face="Times New Roman"> </font> </td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font> </td>
<td colspan="2" valign="top"><font size="2" face="Times New Roman">300 S. Grand Ave., 3rd Floor</font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%"> <font size="2" face="Times New Roman"> </font> </td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td colspan="2" valign="top"> <font size="2" face="Times New Roman">Los Angeles, California 90071-3112</font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%"> <font size="2" face="Times New Roman"> </font> </td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td colspan="2" valign="top"> <font size="2" face="Times New Roman">Attn: Regional Credit Manager</font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%"> <font size="2" face="Times New Roman"> </font> </td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td colspan="2" valign="top"> <font size="2" face="Times New Roman">Fax No.: 213/613-2537</font> </td> </tr>
<tr>
<td colspan="2" valign="top" align="left"><font size="2" face="Times New Roman"> </font> </td>
<td colspan="2" valign="top" align="center"><font size="2" face="Times New Roman"> </font> </td> </tr>
<tr>
<td width="7%" valign="top" align="left">&nbsp;</td>
<td colspan="3" valign="top" align="left">&nbsp;</td> </tr>
<tr>
<td width="7%" valign="top" align="left"><font face="Times New Roman" size="2"></font> </td>
<td colspan="3" valign="top" align="left"><font size="2" face="Times New Roman">(B) if to the Company at:</font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%"><font face="Times New Roman" size="2"></font></td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td colspan="2" valign="top"><font face="Times New Roman" size="2"></font></td> </tr>
<tr>
<td valign="top" align="left" width="7%"> <font size="2" face="Times New Roman"> </font> </td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td colspan="2" valign="top"> <font size="2" face="Times New Roman">4424 N. Sullivan Road</font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%"> <font size="2" face="Times New Roman"> </font> </td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td colspan="2" valign="top"> <font size="2" face="Times New Roman">Spokane, Washington 99216</font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%"> <font size="2" face="Times New Roman"> </font> </td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td colspan="2" valign="top"> <font size="2" face="Times New Roman">Attn: Chief Financial Officer</font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%"> <font size="2" face="Times New Roman"> </font> </td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td colspan="2" valign="top"> <font size="2" face="Times New Roman">Fax No.: 509/927-5295</font> </td> </tr>
<tr>
<td colspan="2" valign="top" align="left"><font size="2" face="Times New Roman"> </font> </td>
<td colspan="2" valign="top" align="center"><font size="2" face="Times New Roman"> </font> </td> </tr>
<tr>
<td colspan="4" valign="top" align="left">&nbsp;</td> </tr>
<tr>
<td colspan="4" valign="top" align="left"> <font size="2" face="Times New Roman">With a courtesy copy of any material notice to the Company&#146;s counsel at:</font> </td> </tr>
<tr>
<td colspan="2" valign="top" align="left"> <font size="2" face="Times New Roman"> </font> </td>
<td colspan="2" valign="top" align="center"><font size="2" face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%">&nbsp;</td>
<td width="8%" valign="top">&nbsp;</td>
<td valign="top" colspan="2">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left" width="7%"> <font size="2" face="Times New Roman"> </font> </td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td valign="top" colspan="2"> <font size="2" face="Times New Roman">Key Tronic Corporation</font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%"> <font size="2" face="Times New Roman"> </font> </td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font> </td>
<td colspan="2" valign="top"><font size="2" face="Times New Roman">P.O. Box 14687</font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%"><font face="Times New Roman" size="2"></font></td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td colspan="2" valign="top"><font size="2" face="Times New Roman">Spokane, Washington 99214</font> </td> </tr>
<tr>
<td valign="top" align="left" width="7%"><font face="Times New Roman" size="2"></font></td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font></td>
<td colspan="2" valign="top"><font size="2" face="Times New Roman">Attn: Kathleen L. Nemeth, General counsel</font></td> </tr>
<tr>
<td valign="top" align="left" width="7%"> <font size="2" face="Times New Roman"> </font> </td>
<td width="8%" valign="top"><font face="Times New Roman" size="2"></font> </td>
<td colspan="2" valign="top"><font size="2" face="Times New Roman">Fax No. (509) 927-5249</font></td> </tr>
<tr>
<td align="left" width="7%"> </td>
<td align="center" width="8%"> </td>
<td align="center" width="73%"> </td>
<td align="center" width="12%"> </td> </tr> </table> <p><font size=2 face="Times New Roman">provided, however, that the failure of CIT to provide the Company&#146;s counsel with a copy of such notice shall not invalidate any notice given to the
Company and shall not give the Company any rights, claims or defenses due to the failure of CIT to provide such additional notice.</font></p> <p><b><font size="2" face="Times New Roman">12.7&nbsp;&nbsp;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.
</font></b></p> <p></p>
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<HR> <p><font size=2 face="Times New Roman"><b>IN WITNESS WHEREOF, </b>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. </font></p>
<table width="100%" cellpadding="0" cellspacing="0" border="0">
<tr>
<td valign="top" align="left"> <font size=2 face="Times New Roman"><b>KEY TRONIC CORPORATION</b></font> </td>
<td valign="top"> <b><font size=2 face="Times New Roman">THE CIT GROUP/</font> </b></td> </tr>
<tr>
<td valign="top" align="left"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top"> <b><font size=2 face="Times New Roman">BUSINESS CREDIT, INC.</font> </b></td> </tr>
<tr>
<td valign="top" align="left">&nbsp;</td>
<td valign="top" align="center">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left">&nbsp;</td>
<td valign="top" align="center">&nbsp;</td> </tr>
<tr>
<td valign="top" align="left"> <font size=3 face="Times New Roman"> </font> </td>
<td valign="top" align="center"> <font size=3 face="Times New Roman"> </font> </td> </tr>
<tr>
<td valign="top" align="left"> <font size=2 face="Times New Roman">By: __________________________</font> </td>
<td valign="top"> <font size=2 face="Times New Roman">By: <u> </u></font> </td> </tr>
<tr>
<td valign="top" align="left"> <font size=2 face="Times New Roman">Title:</font> </td>
<td valign="top"> <font size=2 face="Times New Roman">Title:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Vice President</font> </td> </tr> </table> <p></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
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<tr>
<td width="15%" nowrap><font size="2">
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<td width="85%">&nbsp;</td> </tr>
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p>
<HR> <p align="center"><u><font size=2 face="Times New Roman"><b>Schedule 1 - Collateral Information</b></font></u></p> <p><u><font size=2 face="Times New Roman"><b>Exact Company Name in State of
Organization:</b></font></u></p> <p><font size=2 face="Times New Roman">Key Tronic Corporation</font></p> <p><u><font size=2 face="Times New Roman"><b>State of Incorporation or Formation:</b></font></u></p> <p><font size=2
face="Times New Roman">Washington</font></p> <p><u><font size=2 face="Times New Roman"><b>Federal Tax I.D. No. </b></font></u></p> <p><font size=2 face="Times New Roman">91-0849125</font></p> <p><u><font size=2 face="Times New Roman"><b>Chief
Executive Office:</b></font></u></p> <p><font size=2 face="Times New Roman">4424 N. Sullivan Rd.<br> </font><font size=2 face="Times New Roman">Spokane, Washington 99216</font></p> <p><u><font size=2 face="Times New Roman"><b>Collateral
Locations:</b></font></u></p> <p><font size=2 face="Times New Roman">Schedule 1</font></p>
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<td width="15%" nowrap><font size="2">
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<td width="85%">&nbsp;</td> </tr>
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p>
<HR> <p align="center"><font size=2 face="Times New Roman">Exhibit A</font></p> <p><font size=2 face="Times New Roman">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>Tangible Net worth Calculation</u>:</font></p> <p><font
size=2 face="Times New Roman">As of July 28, 2001, the Tangible Net Worth of Key Tronic Corporation was $32,922,632.96, calculated as follows:</font></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
<td width="6%">&nbsp;</td>
<td width="43%" bgcolor="#99ccff"><font size=2 face="Times New Roman">Common Stock:</font></td>
<td width="1%" bgcolor="#99ccff"><font size=2 face="Times New Roman">$</font></td>
<td width="12%" align="right" bgcolor="#99ccff"><font size=2 face="Times New Roman">48,120,637.53</font></td>
<td width="2%" align="left" bgcolor="#99ccff">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%"><font size=2 face="Times New Roman">Treasury Stock:</font></td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right"><font size=2 face="Times New Roman">( 9,727,676.01</font></td>
<td width="2%" align="left"><font size=2 face="Times New Roman">)</font></td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%">&nbsp;</td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right">&nbsp;</td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%" bgcolor="#99ccff"><font size=2 face="Times New Roman">Total Stock:</font></td>
<td width="1%" bgcolor="#99ccff"><font size=2 face="Times New Roman">$</font></td>
<td width="12%" align="right" bgcolor="#99ccff"><font size=2 face="Times New Roman">38,392,961.52</font></td>
<td width="2%" align="left" bgcolor="#99ccff">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%">&nbsp;</td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right">&nbsp;</td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%"><font size=2 face="Times New Roman">Retained Earnings-Current: </font></td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right"><font size=2 face="Times New Roman">(1,374,160.65</font></td>
<td width="2%" align="left"><font size=2 face="Times New Roman">)</font></td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%" bgcolor="#99ccff"><font size=2 face="Times New Roman">Retained Deficit:</font></td>
<td width="1%" bgcolor="#99ccff">&nbsp;</td>
<td width="12%" align="right" bgcolor="#99ccff"><font size=2 face="Times New Roman">(3,319,740.87</font></td>
<td width="2%" align="left" bgcolor="#99ccff"><font size=2 face="Times New Roman">)</font></td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%"><font size=2 face="Times New Roman">Currency Translation: </font></td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right"><font size=2 face="Times New Roman">244,949.44</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%">&nbsp;</td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right">&nbsp;</td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%" bgcolor="#99ccff"><font size=2 face="Times New Roman">Total Retained Deficit:</font></td>
<td width="1%" bgcolor="#99ccff">&nbsp;</td>
<td width="12%" align="right" bgcolor="#99ccff"><font size=2 face="Times New Roman">(4,448,952.08</font></td>
<td width="2%" align="left" bgcolor="#99ccff"><font size=2 face="Times New Roman">)</font></td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%">&nbsp;</td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right">&nbsp;</td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%"><font size=2 face="Times New Roman">Total Shareholders&#146; Equity:</font></td>
<td width="1%"><font size=2 face="Times New Roman">$</font></td>
<td width="12%" align="right"><font size=2 face="Times New Roman">33,944,009.44</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%">&nbsp;</td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right">&nbsp;</td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%" bgcolor="#99ccff"><u><font size=2 face="Times New Roman">LESS</font></u></td>
<td width="1%" bgcolor="#99ccff">&nbsp;</td>
<td width="12%" align="right" bgcolor="#99ccff">&nbsp;</td>
<td width="2%" align="left" bgcolor="#99ccff">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%">&nbsp;</td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right">&nbsp;</td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%"><font size=2 face="Times New Roman">Goodwill: </font></td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right"><font size=2 face="Times New Roman">882,404.11</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%" bgcolor="#99ccff"><font size=2 face="Times New Roman">Refinance Charges:</font></td>
<td width="1%" bgcolor="#99ccff">&nbsp;</td>
<td width="12%" align="right" bgcolor="#99ccff"><font size=2 face="Times New Roman">121,824.02</font></td>
<td width="2%" align="left" bgcolor="#99ccff">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%"><font size=2 face="Times New Roman">Lease Executory Costs:</font></td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right"><font size=2 face="Times New Roman">17,148.35</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%">&nbsp;</td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right">&nbsp;</td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%">&nbsp;</td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right">&nbsp;</td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%" bgcolor="#99ccff"><font size=2 face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Deductions:</font></td>
<td width="1%" bgcolor="#99ccff">&nbsp;</td>
<td width="12%" align="right" bgcolor="#99ccff"><font size=2 face="Times New Roman">1,021,376.48</font></td>
<td width="2%" align="left" bgcolor="#99ccff">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%">&nbsp;</td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right">&nbsp;</td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%">&nbsp;</td>
<td width="1%">&nbsp;</td>
<td width="12%" align="right">&nbsp;</td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr>
<tr>
<td width="6%">&nbsp;</td>
<td width="43%"><font size=2 face="Times New Roman">Total Tangible Net Worth:</font></td>
<td width="1%"><font size=2 face="Times New Roman">$</font></td>
<td width="12%" align="right"><font size=2 face="Times New Roman">32,922,632.96</font></td>
<td width="2%" align="left">&nbsp;</td>
<td width="36%" align="left">&nbsp;</td> </tr> </table> <p></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
<td colspan="2" nowrap> <center> <font size="2" face="Times New Roman, Times, serif">50</font> </center> </td> </tr>
<tr>
<td width="15%" nowrap><font size="2">
<a href="#toc"><font face="Times New Roman, Times, serif">[RETURN TO TABLE OF CONTENTS]</font></a></font>&nbsp;&nbsp;</td>
<td width="85%">&nbsp;</td> </tr>
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table>
<HR> <p align="center"><font face="Times New Roman" size="2">Exhibit A <br> (continued)</font></p> <p><font face="Times New Roman" size="2">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>EBITDA Calculation</u>:</font></p>
<p><font face="Times New Roman" size="2">The year to date EBITDA as of July 28, 2001 for Key Tronic Corporation was ($856,659) calculated as follows:</font></p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
<td width="7%"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="42%" bgcolor="#99ccff"><font size="2" face="Times New Roman">Operating income</font></td>
<td width="0%" bgcolor="#99ccff"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="9%" align="right" bgcolor="#99ccff"><font size="2" face="Times New Roman">($1,252,659</font></td>
<td width="3%" align="left" bgcolor="#99ccff"><font size="2" face="Times New Roman">)</font></td>
<td width="39%" align="left">&nbsp;</td> </tr>
<tr>
<td width="7%">&nbsp;</td>
<td width="42%">&nbsp;</td>
<td width="0%">&nbsp;</td>
<td width="9%" align="right">&nbsp;</td>
<td width="3%" align="left">&nbsp;</td>
<td width="39%" align="left">&nbsp;</td> </tr>
<tr>
<td width="7%">&nbsp;</td>
<td width="42%"><font size="2" face="Times New Roman">Plus:</font></td>
<td width="0%"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="9%" align="right"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="3%" align="left"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="39%" align="left">&nbsp;</td> </tr>
<tr>
<td width="7%">&nbsp;</td>
<td width="42%" bgcolor="#99ccff"><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation</font></td>
<td width="0%" bgcolor="#99ccff"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="9%" align="right" bgcolor="#99ccff"><font size="2" face="Times New Roman">341,000</font></td>
<td width="3%" align="left" bgcolor="#99ccff"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="39%" align="left">&nbsp;</td> </tr>
<tr>
<td width="7%">&nbsp;</td>
<td width="42%"><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization</font></td>
<td width="0%"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="9%" align="right"><font size="2" face="Times New Roman"> 55,000</font></td>
<td width="3%" align="left"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="39%" align="left">&nbsp;</td> </tr>
<tr>
<td width="7%">&nbsp;</td>
<td width="42%" bgcolor="#99ccff"><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of Capitalized</font></td>
<td width="0%" bgcolor="#99ccff"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="9%" align="right" bgcolor="#99ccff"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="3%" align="left" bgcolor="#99ccff"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="39%" align="left">&nbsp;</td> </tr>
<tr>
<td width="7%">&nbsp;</td>
<td width="42%"><font size="2" face="Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Manufacturing Variances</font></td>
<td width="0%"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="9%" align="right"><font size="2" face="Times New Roman">0</font></td>
<td width="3%" align="left"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="39%" align="left">&nbsp;</td> </tr>
<tr>
<td width="7%">&nbsp;</td>
<td width="42%">&nbsp;</td>
<td width="0%">&nbsp;</td>
<td width="9%" align="right">&nbsp;</td>
<td width="3%" align="left">&nbsp;</td>
<td width="39%" align="left">&nbsp;</td> </tr>
<tr>
<td width="7%">&nbsp;</td>
<td width="42%">&nbsp;</td>
<td width="0%">&nbsp;</td>
<td width="9%" align="right">&nbsp;</td>
<td width="3%" align="left">&nbsp;</td>
<td width="39%" align="left">&nbsp;</td> </tr>
<tr>
<td width="7%">&nbsp;</td>
<td width="42%"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="0%"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="9%" align="right"> <hr noshade align="right" width="100%" size="1"> </td>
<td width="3%" align="left"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="39%" align="left">&nbsp;</td> </tr>
<tr>
<td width="7%">&nbsp;</td>
<td width="42%" bgcolor="#99ccff"><font size="2" face="Times New Roman">Total EBITDA</font></td>
<td width="0%" bgcolor="#99ccff"><font size="2" face="Times New Roman">&nbsp;</font></td>
<td width="9%" align="right" bgcolor="#99ccff"><font size="2" face="Times New Roman">($856,659</font></td>
<td width="3%" align="left" bgcolor="#99ccff"><font size="2" face="Times New Roman">)</font></td>
<td width="39%" align="left">&nbsp;</td> </tr> </table> <p>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
<tr>
<td colspan="2" nowrap> <center> <font size="2" face="Times New Roman, Times, serif">51 </font> </center> </td> </tr>
<tr>
<td width="15%" nowrap><font size="2">
<a href="#toc"><font face="Times New Roman, Times, serif">[RETURN TO TABLE OF CONTENTS]</font></a></font>&nbsp;&nbsp;</td>
<td width="85%">&nbsp;</td> </tr>
<tr>
<td colspan="2"> <hr noshade align="right" width="100%" size="1"> </td> </tr> </table> <p>&nbsp;</p>
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