<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 Q
(Mark One)
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---- ACT OF 1934
For the quarterly period ended December 28, 1997
[__] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________.
Commission File Number: 0-19717
WPI GROUP, INC.
---------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEW HAMPSHIRE 02-0218767
- ------------------------------------------------------------- --------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
1155 Elm Street, Manchester, New Hampshire 03101
- ------------------------------------------------------------- --------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number including area code: (603) 627-3500
--------------
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 X No
---- ----
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the court.
Yes No
---- ----
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding as of January 22, 1998
----- ----------------------------------
Common Stock, par value $.01 6,010,822 shares
<PAGE>
WPI GROUP, INC.
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
- December 28, 1997 and September 28, 1997
Consolidated Statements of Income 4
- Three months ended December 28, 1997 and December 29, 1996
Consolidated Statements of Cash Flows 5
- Three months ended December 28, 1997 and December 29, 1996
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
</TABLE>
-2-
<PAGE>
WPI GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 28, December 28,
1997 1997
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 678,799 $ 53,032
Accounts receivable - net of allowance for doubtful accounts of
$1,237,000 and $1,215,000, respectively 12,173,012 16,308,375
Accounts receivable - other 249,393 348,995
Inventories 9,895,852 9,915,653
Prepaid expenses and other current assets 1,134,125 1,178,377
Prepaid income taxes 1,193,160 1,193,160
Refundable income taxes 1,816,897 1,228,854
----------- -----------
Total current assets 27,141,238 30,226,446
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation 15,750,851 15,647,575
OTHER ASSETS 34,803,886 34,790,485
----------- -----------
$77,695,975 $80,664,506
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,336,756 $ 6,230,302
Accrued expenses 4,038,977 3,978,451
Accrued income taxes 249,473 610,249
----------- -----------
Total current liabilities 10,625,206 10,819,002
NOTE PAYABLE TO BANK 42,000,000 43,335,000
DEFERRED INCOME TAXES 3,257,914 3,258,481
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
20,000,000 shares, issued and outstanding 5,996,737
and 6,010,822, respectively. 59,967 60,108
Additional paid-in capital 13,992,540 14,074,097
Retained earnings 7,931,562 8,843,208
Cumulative foreign currency translation adjustments (171,214) 274,610
----------- -----------
Total stockholders' equity 21,812,855 23,252,023
----------- -----------
$77,695,975 $80,664,506
=========== ===========
</TABLE>
See notes to financial statements
-3-
<PAGE>
WPI GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 29, December 28,
1996 1997
------------ ------------
<S> <C> <C>
NET SALES $14,108,819 $21,843,614
COST OF GOODS SOLD 8,529,249 13,044,671
----------- -----------
GROSS PROFIT 5,579,570 8,798,943
----------- -----------
OPERATING EXPENSES:
Research and new product development 929,758 1,182,467
Selling, general and administration 3,112,324 5,418,610
----------- -----------
Total operating expenses 4,042,082 6,601,077
----------- -----------
OPERATING INCOME 1,537,488 2,197,866
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (394,691) (848,674)
Other, net 15,454 (8,546)
----------- -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 1,158,251 1,340,646
PROVISION FOR INCOME TAXES 382,000 429,000
----------- -----------
NET INCOME $ 776,251 $ 911,646
=========== ===========
BASIC EARNINGS PER SHARE: $ 0.13 $ 0.15
=========== ===========
DILUTED EARNINGS PER SHARE: $ 0.13 $ 0.15
=========== ===========
Weighted Average Common Shares 5,951,793 6,006,298
Plus: Incremental Shares From Assumed Conversions
Dilutive Potential Stock Options 162,856 247,848
----------- -----------
Adjusted Weighted Average Common Shares 6,114,649 6,254,146
=========== ===========
</TABLE>
See notes to financial statements
-4-
<PAGE>
WPI GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 29, December 28,
1996 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 776,251 $ 911,646
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 664,158 1,238,627
Changes in current assets and liabilities net of assets
acquired:
Accounts receivable 2,212,601 (3,941,883)
Accounts receivable - other 882,803 (97,366)
Inventories (137,014) 169,875
Prepaid expenses, other current assets, and refundable income (290,293) 566,568
taxes
Accounts payable (909,347) (240,864)
Accrued expenses (1,429,487) (168,886)
Accrued income taxes (417,984) 348,445
----------- -----------
Total adjustments 575,437 (2,125,484)
----------- -----------
Net cash provided by (used in) operating activities 1,351,688 (1,213,838)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable (740,000) 1,335,000
Increase (Decrease) in long-term liabilities (2,275) --
Proceeds from issuance of common stock 21,673 33,855
Proceeds from exercise of stock options 11,500 47,844
----------- -----------
Net cash provided by (used in) financial activities (709,102) 1,416,699
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (396,870) (243,651)
Payments of accrued acquisition costs (314,890) --
(Increase) in other assets (239,204) (619,239)
----------- -----------
Net cash used for investing activities (950,964) (862,890)
----------- -----------
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH 196,639 34,262
----------- -----------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (111,739) (625,767)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 206,829 678,799
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 95,090 53,032
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
INFORMATION:
Income taxes paid 362,000 --
Interest paid 340,690 804,558
</TABLE>
See notes to financial statements
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements for the three months ended December 28, 1997 and
December 29,1996 are unaudited and include all adjustments which, in the
opinion of management, are necessary to present fairly the results of
operations for the periods then ended. All such adjustments are of a normal
recurring nature. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
Form 10-K filed with the Securities and Exchange Commission (File No. 0-
19717), which included financial statements for the years ended September
28,1997 and September 29,1996.
The results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations for any
other interim period or for a full fiscal year.
2. INVENTORIES
<TABLE>
<CAPTION>
September 28, December 28,
Inventory consists of: 1997 1997
------------- ------------
<S> <C> <C>
Raw Materials $7,337,866 $6,970,518
Work in Process 1,083,327 1,639,603
Finished Goods 1,474,659 1,305,532
---------- ----------
Total $9,895,852 $9,915,653
========== ==========
</TABLE>
3. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share." This statement modifies disclosure requirements for
companies required to report earnings per shares (EPS) to include
presentations of Basic EPS (which includes no dilution of common stock
equivalents) and, if applicable, Diluted EPS (which reflects the potential
dilution of common stock equivalents).
The Company's EPS for the three months ended December 29, 1996 have been
restated to conform with current year presentation.
-6-
<PAGE>
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis by management is provided to identify
certain significant factors that affected the Company's financial position and
operating results during the periods included in the accompanying financial
statements.
RESULTS OF OPERATIONS
Net sales of $21.8 million for the first quarter of fiscal 1998 increased 54.8%
from sales of $14.1 million for the first quarter of fiscal 1997. The increase
was primarily due to improved sales in our targeted markets as a result of the
acquisition of Husky Computers Limited.
Cost of sales of $13.0 million for the first quarter of fiscal 1998 resulted in
a gross profit of 40.3% compared to costs of $8.5 million and gross profit of
39.5% for the same period of fiscal 1997. The increase in gross profit
percentage was due to the change in product mix. Total gross profit for the
three months increased due to the higher revenues discussed above.
Research and new product development expenses increased to $1.2 million,
compared to $.9 million for the same three month period in fiscal 1997. The
increase was attributed to the acquisition discussed above. Research and new
product development expenses were 5.4% and 6.6% of net sales for the quarters
ended December 28, 1997 and December 29, 1996, respectively.
As a percentage of net sales, selling, general and administration expenditures
were 24.8% and 22.1% for the quarters ended December 28, 1997 and December 29,
1996, respectively. Actual expenditures increased to $5.4 million from $3.1
million for the first quarter of fiscal 1997. The increase was due to increased
selling expenses due to higher revenues.
Income before provision for income taxes of $1.3 million for the three months
ended December 28, 1997 increased 15.8% compared to $1.2 million for the three
months ended December 29, 1996. This increase is primarily due to improved
sales.
The Company's combined federal and state income tax rates, as a percentage of
pre-tax income, were 32% and 33 % for the three months ended December 28, 1997
and December 29,1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $19.4 million at December 28, 1997 compared
to $16.5 million at September 28, 1997.
The Company's management believes it has sufficient working capital to meet its
liquidity needs.
As of December 28, 1997, the Company had no material commitments for capital
expenditures.
-7-
<PAGE>
WPI GROUP, INC.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
10.1 Amended and Restated Commercial Loan Agreement dated
December 26, 1997.
10.2 Revolving Line of Credit Promissory Note dated December
26, 1997.
10.3 Term Note dated December 26, 1997.
10.4 Security Agreement dated December 26, 1997.
10.5 Negative Pledge Agreement dated December 26, 1997.
27 Financial Data Schedule.
B. Reports on Form 8-K
None
-8-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the undersigned
thereunto duly authorized.
WPI GROUP, INC.
(Registrant)
Date: February 6, 1998 By: /s/ Dennis M. Deegan
-------------------------
Dennis M. Deegan
President and
Chief Operating Officer
Date: February 6, 1998 By: /s/ John W. Powers
--------------------------
John W. Powers
Vice President and
Chief Financial Officer
-9-
<PAGE>
Exhibit 10.1
FLEET BANK - NH
AMENDED AND RESTATED COMMERCIAL LOAN AGREEMENT
BORROWERS' NAMES AND ADDRESS:
WPI GROUP, INC. DESCRIPTION OF LOANS:
WPI ELECTRONICS, INC. Revolving Line of Credit
WPI MAGNETEC, INC. Loan: $30,000,000.00
WPI MICRO PALM, INC.
WPI POWER SYSTEMS, INC. Term Loan: $15,000,000.00
WPI TERMIFLEX, INC.
WPI MICRO PROCESSOR SYSTEMS, INC. REVOLVING LINE OF CREDIT
WPI DECISIONKEY, INC. INITIAL CREDIT REVIEW
WPI UK HOLDING, INC. DATE: March 31, 1999
WPI UK HOLDING II, INC.
WPI OYSTER TERMINALS, INC.
WPI HUSKY COMPUTERS, INC.
1155 ELM STREET DATE OF THIS AGREEMENT:
MANCHESTER, NEW HAMPSHIRE 03101 December 26, 1997
- ----------------------------------------------------------------------
THIS AMENDED AND RESTATED COMMERCIAL LOAN AGREEMENT (the "Agreement"), is
made as of the date set forth above, between the above named Borrowers, WPI
GROUP, INC. (the "Parent"), and its wholly owned subsidiaries WPI ELECTRONICS,
INC. ("WPI EI"), WPI MAGNETEC, INC. ("WPI MI"), WPI MICRO PALM, INC. ("WPI
Palm"), WPI POWER SYSTEMS, INC. ("WPI Power"), WPI TERMIFLEX, INC. ("WPI TI"),
WPI MICRO PROCESSOR SYSTEMS, INC. ("WPI Processor"), WPI DECISIONKEY, INC.
("WPI DK"), WPI UK HOLDING, INC. ("WPI UK"), WPI UK HOLDING II, INC. ("WPI UK
II"), and WPI OYSTER TERMINALS, INC. ("WPI OTI"), each a New Hampshire
corporation, (WPI EI, WPI MI, WPI Palm, WPI Power, WPI TI, WPI Processor, WPI
DK, WPI UK, WPI UK II, and WPI OTI, collectively, the "NH Subsidiaries") and WPI
HUSKY COMPUTERS, INC., a Florida corporation ("Husky"), all such corporations
having their principal offices at 1155 Elm Street, Manchester, New Hampshire
03101 (the Parent, the NH Subsidiaries and Husky are hereinafter referred to
individually and collectively as the "BORROWER"), and FLEET BANK - NH, a bank
organized under the laws of the State of New Hampshire with a principal place of
business at Mail Stop NHNA EO2A, 1155 Elm Street, Manchester, New Hampshire
03101 (the "BANK"), and amends and restates the Commercial Loan Agreement dated
October 24, 1995 by and among the Bank, the Parent, WPI EI, WPI MI, WPI PALM,
WPI POWER, and WPI TI, as amended by First Amendment to Commercial Loan
Agreement and Loan Documents dated March
<PAGE>
20, 1996 by and among the Bank and the Parent and certain of the NH
Subsidiaries, Second Amendment to Commercial Loan Agreement and Loan Documents
dated July 12, 1996 by and among the Bank, the Parent, and certain of the NH
Subsidiaries, Third Amendment to Commercial Loan Agreement and Loan Documents
dated February 27, 1997 by and among the Bank, the Parent, the NH Subsidiaries,
and two of Parent's foreign subsidiaries, namely WPI Group (U.K.), a private
unlimited company organized under the laws of England and Wales ("WPI G-UK"),
and WPI Oyster-Termiflex Limited, a corporation organized under the laws of
England and Wales ("WPI OTL"), and Fourth Amendment to Commercial Loan Agreement
and Loan Documents dated as of June 20, 1997 (the "Fourth Amendment"), by and
among the Bank, the Parent, the NH Subsidiaries, WPI G-UK, and WPI OTL (as
amended, the "Original Loan Agreement"). The Original Loan Agreement is hereby
amended and restated as set forth herein.
The BANK has extended to BORROWER pursuant to the Original Loan Agreement,
as amended and restated herein, the revolving line of credit and term loans
described above, at the BORROWER'S request, and may from time to time hereafter
extend other loans to BORROWER (each individually, a "Loan" and, collectively,
the "Loans"). All of the Loans are, together with all other debts, liabilities
and obligations of BORROWER to the BANK, direct or indirect, absolute or
contingent, now existing or hereafter arising, hereinafter sometimes
collectively referred to as the "Obligations". Each Loan is or shall be
evidenced by a promissory note of near or even date herewith (individually a
"Note" and collectively the "Notes"). In consideration for the release of WPI
G-UK and WPI OTL as parties to the Original Loan Agreement and co-borrowers of
the Loans, as well as the release of the Borrowers under the Original Loan
Agreement from their undertakings in the Fourth Amendment respecting joinder to
the Original Loan Agreement of Husky Computers Limited and Husky GmbH and the
pledge of 100% of the capital stock/equity interests in the Foreign Subsidiaries
and Husky GmbH, each Loan to the BORROWER and all of the other Obligations of
the BORROWER are and shall be secured pursuant to (a) a security agreement by
and between the BORROWER and the BANK of near or even date herewith (the
"Security Agreement") whereby the BANK is granted a first security interest in
all of the assets and other property interests of BORROWER, (b) a stock pledge
agreement by and between the Parent, WPI UK, and WPI UK II and the BANK of near
or even date herewith (the "Pledge Agreement"), pledging to the BANK all of the
shares of stock of the NH Subsidiaries and Husky, and 66% of the shares of
capital stock of WPI G-UK, WPI OTL and WPI Husky Computers Limited, a
corporation organized under the laws of the United Kingdom and a wholly-owned
subsidiary of the Parent (collectively, the "Foreign Subsidiaries"), and
encumbering the remainder of the shares of the Foreign Subsidiaries with a
negative pledge covenant to the BANK, (c) a negative pledge agreement of near or
even date ("Negative Pledge Agreement") by and between the Parent, WPI UK, and
WPI UK II and the BANK respecting all of the assets of the Foreign Subsidiaries,
and (d) certain other Loan Documents (as hereinafter defined). In connection
with the Loans, the BORROWER may execute certain other documents, certificates
and agreements, all of which are, together with this Agreement, the Notes, the
Security Agreement, the Pledge Agreement, and the Negative Pledge Agreement, as
all of the same may be hereafter amended, modified, revised, renewed, or
extended, sometimes collectively referred to herein as the "Loan Documents".
The collateral herein described for the Loans, and any other collateral for the
Loans granted or pledged to the BANK pursuant to the other Loan Documents is
herein collectively referred to as the "Collateral."
<PAGE>
Each Loan, whether now existing or hereafter arising, is made upon and
subject to the terms and conditions set forth in the Note evidencing such Loan,
the other Loan Documents, and this Agreement. The terms, conditions,
representations, warranties, and covenants set forth in this Agreement are in
addition to, and not in limitation of, the terms, conditions, representations,
warranties, and covenants set forth in the other Loan Documents. In the event
of any conflict between the terms, conditions, representations, warranties and
covenants contained in the Loan Documents, the term, condition, representation,
warranty, or covenant which confers the greatest benefit upon the BANK shall
control. The determination as to which term, condition, representation,
warranty, or covenant is more beneficial shall be made by the BANK in its sole
discretion and shall be binding upon the BORROWER. Where there is more than one
BORROWER or guarantor hereunder, all of the terms, conditions, representations,
warranties, and covenants set forth herein and in the other Loan Documents shall
apply to, be binding upon, and be deemed to be made by each BORROWER and
guarantor, jointly, severally, separately, and individually.
IN CONSIDERATION OF the Loans made or to be made by BANK to the BORROWER,
and of all other Obligations of the BORROWER to the BANK, BORROWER and BANK
hereby agree as follows:
I. REVOLVING LINE OF CREDIT LOAN. The Revolving Line of Credit Loan first
described above (the "Revolving Line of Credit Loan") made available by the BANK
to the BORROWER shall be upon and subject to the terms and conditions set forth
in the Note evidencing the Revolving Line of Credit Loan, the other Loan
Documents, and this Agreement.
A. Maximum Available Amount. The aggregate maximum principal amount
------------------------
available to the BORROWER under the Revolving Line of Credit Loan shall be up to
THIRTY MILLION DOLLARS ($30,000,000.00).
B. Advances. The Revolving Line of Credit Loan shall be disbursed,
--------
advanced, re-advanced, and repaid as provided in the Note evidencing the
Revolving Line of Credit Loan and this Agreement. The Parent, for and on
behalf of each BORROWER, may request advances and re-advances be made to the
BORROWER orally or in writing from time to time in accordance with such
procedures as BANK may reasonably impose in an amount such that the aggregate
amounts outstanding under the Revolving Line of Credit Loan do not exceed the
maximum available amount as determined under Paragraph A of this Section I
above. Notwithstanding any other provision of this Agreement, no advances or
re-advances shall be made by BANK to the BORROWER at any time an Event of
Default (as hereinafter defined) exists under this Agreement or the Loan
Documents, or any condition exists which, if not cured, would with the passage
of time or the giving of notice, or both, constitute such an Event of Default.
At the time of each advance and re-advance under the Revolving Line of Credit
Loan the BORROWER shall immediately become indebted to the BANK for the amount
thereof. Each such advance or re-advance may be credited by the BANK to any
deposit account of any BORROWER with the BANK, be paid to any BORROWER, or
applied to any Obligation. Each BORROWER hereby acknowledges and agrees that
the Parent shall have sole and exclusive authority to request
<PAGE>
advances and re-advances under the Revolving Line of Credit Loan, and the
interest rate to apply with respect thereto (as hereinafter provided), for each
BORROWER, and that that Bank shall be entitled to rely upon such authority.
C. Review. The Revolving Line of Credit Loan shall be subject to review
------
and, at the sole option and discretion of the BANK, renewal on the Revolving
Line of Credit Initial Review Date set forth on the first page of this
Agreement, and, if renewed, thereafter on each subsequent anniversary of the
Revolving Line of Credit Initial Review Date (the Revolving Line of Credit
Initial Review Date, and each anniversary thereof to which the Revolving Line of
Credit Loan is renewed and extended, being a "Review Date"). IF THE REVOLVING
LINE OF CREDIT LOAN IS NOT RENEWED BY THE BANK AS AFORESAID ON ANY REVIEW DATE,
THE ENTIRE AMOUNT OF OUTSTANDING PRINCIPAL, ACCRUED INTEREST AND OTHER CHARGES
PAYABLE THEREUNDER SHALL BE DUE AND PAYABLE BY BORROWER ON SUCH REVIEW DATE WITH
RESPECT TO WHICH THE REVOLVING LINE OF CREDIT LOAN IS NOT RENEWED. BORROWER
ACKNOWLEDGES AND AGREES THAT THE BANK HAS NO OBLIGATION OR COMMITMENT TO RENEW
THE REVOLVING LINE OF CREDIT LOAN ON ANY REVIEW DATE. NOTWITHSTANDING THE
FOREGOING, OR ANY PROVISION OF THE NOTE, ANY OF THE LOAN DOCUMENTS OR HEREIN TO
THE CONTRARY, THE REVOLVING LINE OF CREDIT LOAN SHALL BE A DEMAND OBLIGATION OF
BORROWER TO THE EXTENT THAT THE AMOUNT OUTSTANDING THEREUNDER AT ANY TIME
EXCEEDS THE MAXIMUM AVAILABLE AMOUNT UNDER THE REVOLVING LINE OF CREDIT LOAN AS
DETERMINED UNDER PARAGRAPH A OF THIS SECTION I ABOVE, BUT ONLY TO THE EXTENT OF
THE AMOUNT OUTSTANDING IN EXCESS OF THE MAXIMUM AVAILABLE AMOUNT.
D. Repayment of Principal. The BORROWER shall make payments of principal
----------------------
on the Revolving Line of Credit Loan such that the outstanding principal balance
thereunder at no time exceeds the maximum available amount thereunder as
determined under Paragraph A of this Section I above. On the Review Date as to
which the Revolving Line of Credit Loan is not renewed, BORROWER shall pay in
full all outstanding principal and accrued and unpaid interest under the
Revolving Line of Credit Loan.
E. Interest. The Revolving Line of Credit Loan shall bear interest in
--------
accordance with the following provisions:
(a) Prime Rate. The principal balance outstanding from time to time
----------
under the Revolving Line of Credit Loan, net of amounts subject to a Eurodollar
based rate of interest as provided hereinbelow, shall bear interest at a
variable annual rate equal to the Prime Rate. The "Prime Rate" shall be the rate
published by The Wall Street Journal from time to time under the category "Prime
-----------------------
Rate: The Base Rate on Corporate Loans posted by at least 75% of the Nation's 30
Largest Banks" (the lowest of the rates so published if more than one rate is
published under this category at any given time) or such other comparable index
rate selected by the Bank in its sole discretion if The Wall Street Journal
-----------------------
ceases to publish such rate. The BORROWER acknowledges that the Prime Rate is
used for reference purposes only as an index and is not
<PAGE>
necessarily the lowest interest rate charged by the BANK on commercial loans.
Each time the Prime Rate changes the interest rate under the Revolving Line of
Credit Loan shall change contemporaneously with such change in the Prime Rate.
Interest shall be calculated and charged daily on the basis of actual days
elapsed over a three hundred sixty (360) day banking year and shall be payable
monthly in arrears.
(b) Eurodollar Based Rate. The BORROWER may elect from time to time,
---------------------
provided no Event of Default has occurred and is continuing, to have amounts
advanced under the Revolving Line of Credit Loan bear interest for a period of
one (1) month, two (2) months, three (3) months or six (6) months each (an
"interest period") at a fixed annual rate equal to the Eurodollar rate (as
hereinafter defined) plus one and six hundred twenty-five hundredths percent
----
(1.625%) (the "Eurodollar Based Rate"). The BORROWER (i) may only elect the
Eurodollar Based Rate with respect to a new or outstanding advance in an amount
of not less than One Million Dollars ($1,000,000.00) and in increments above
such amount of not less than One Hundred Thousand Dollars ($100,000.00), (ii)
may not elect more than four (4) outstanding Eurodollar Advances (as hereinafter
defined) at any time, and (iii) may not elect an interest period extending
beyond the next Review Date. The BORROWER shall notify BANK in writing by 10:00
a.m. (Eastern Time) at least two (2) Banking Days (as hereinafter defined) in
advance of the date upon which the BORROWER desires to convert an existing
advance or have a new advance subject to the Eurodollar Based Rate. The
BORROWER's notice to BANK as aforesaid shall specify the amount of the new or
existing advance under the Revolving Line of Credit Loan that BORROWER desires
to bear interest at the Eurodollar Based Rate, the interest period selected, and
the date upon which such advance is requested to be converted or made (which
must be a Banking Day). Any amounts outstanding under the Revolving Line of
Credit Loan as to which BORROWER has elected a Eurodollar Based Rate shall
hereinafter be referred to as a "Eurodollar Advance". All amounts outstanding
under the Revolving Line of Credit Loan which are not subject to the Eurodollar
Based Rate shall bear interest at a variable annual rate equal to the Prime Rate
as provided hereinabove. Notwithstanding the foregoing provisions, the BORROWER
may not convert existing advances to Eurodollar Advances at any time either an
Event of Default exists under this Agreement or the Loan Documents, or any
condition exists which, if not cured, would with the passage of time or the
giving of notice, or both, constitute such an Event of Default. Interest on
each Eurodollar Advance shall be calculated and charged daily on the basis of
actual days elapsed over a three hundred sixty (360) day banking year and shall
be payable monthly in arrears.
(c) Definition of Banking Day. For purposes hereof, a "Banking Day" means
-------------------------
a day upon which banks are open for business to the general public in Nashua,
New Hampshire, and upon which dealings are carried on and banks are open for
business in the London interbank market.
(d) Definition of Eurodollar Rate. For purposes hereof, the term
-----------------------------
"Eurodollar rate" shall mean the interest rate per annum (rounded upward, if
necessary, to the nearest 1/32 of one percent) as determined by the BANK on the
basis of the offered rates in the interbank Eurodollar market for deposits in
U.S. dollars for a one (1) month, two (2) months, three (3) months or six (6)
months period, as the case may be, which appear on the Telerate page 3750 as of
11:00 a.m. London time on the day that is two (2) Banking Days preceding the
first day of such Eurodollar
<PAGE>
Advance. If such rate does not appear on the Telerate System on any applicable
interest determination date, the Eurodollar rate shall be the rate (rounded
upward as described above, if necessary) for deposits in U.S. dollars for a
period substantially equal to the interest period for the Eurodollar Advance on
the Reuters Page "LIBO" (or such other page as may replace the LIBO Page on that
service for the purpose of displaying such rates), as of 11:00 a.m. (London
time), on the day that is two (2) Banking Days prior to the first day of such
Eurodollar Advance. If both the Telerate and Reuters system are unavailable,
then the rate for that date will be determined on the basis of the offered rates
for deposits in U.S. dollars for a period of time comparable to the interest
period for such Eurodollar Advance which are offered by four major banks in the
London interbank market at approximately 11:00 a.m. London time, on the day that
is two (2) Banking Days preceding the first day of such Eurodollar Advance. The
principal London office of each of the four major London banks will be requested
to provide a quotation of its U.S. dollar deposit offered rate. If at least two
such quotations are provided, the rate for that date will be the arithmetic mean
of the quotations. If fewer than two quotations are provided as requested, the
rate for that date will be determined on the basis of the rates quoted for loans
in U.S. dollars to leading European banks for a period of time comparable to the
interest period for such Eurodollar Advance offered by major banks in New York
City at approximately 11:00 a.m. New York City time, on the day that is two
Banking Days preceding the first day of such Eurodollar Advance. In the event
that the Bank is unable to obtain any such quotation as provided above, it will
be deemed that the Eurodollar rate for such Eurodollar Advance cannot be
determined. In the event that the Board of Governors of the Federal Reserve
System shall impose a Reserve Percentage on the BANK with respect to Eurodollar
deposits of the BANK, then for any period during which such Reserve Percentage
shall apply, the Eurodollar rate shall be equal to the amount determined above
divided by an amount equal to one (1) minus the Reserve Percentage actually
maintained by the BANK. For purposes hereof, "Reserve Percentage" means the rate
(expressed as a decimal) at which the BANK is required to maintain reserves
under Regulation D of the Board of Governors of the Federal Reserve System
against Eurodollar liabilities outstanding.
(e) Effect of Regulatory Change. In the event that any Regulatory Change
---------------------------
(as hereinafter defined) shall:
(i) change the basis of taxation of the amounts payable to the BANK
in respect of any Eurodollar Advance (other than taxes imposed on
the overall net income of the BANK);
(ii) impose or modify any reserve, compulsory loan assessment, special
deposit or similar requirement relating to any extensions of
credit or other assets of, or any deposits with or other
liabilities of, any office of the BANK in respect of any
Eurodollar Advance (including any of such deposits referred to
hereinabove in the definition of "Eurodollar rate"); or
(iii) impose any other conditions affecting Eurodollar Advances;
and the result of any of the foregoing shall be to increase the BANK's costs of
making or maintaining any Eurodollar Advances, or to reduce any amount
receivable by the BANK
<PAGE>
hereunder in respect of any Eurodollar Advances, in each case only to the extent
that such additional amounts are not included in the Eurodollar rate applicable
to such Eurodollar Advance, then the BORROWER and BANK shall thereafter attempt
to negotiate in good faith, within thirty (30) days of the day on which the
BORROWER receives the notice referred to hereinbelow, an adjustment payable
hereunder that will adequately compensate the BANK in light of these
circumstances. If the BORROWER and the BANK are unable to agree to such
adjustment within thirty (30) days of the date on which the BORROWER receives
such notice, then commencing as of the date of such notice applicable to such
Eurodollar Advance, the BORROWER shall pay on demand to the BANK and from time
to time as specified by the BANK, such additional amounts as shall be sufficient
to compensate the BANK for such increased cost or reduced amount receivable.
Such amounts may include amounts that arise by reason of such a Regulatory
Change for not more than thirty (30) days before receipt by the BORROWER of such
notice. If the BANK becomes entitled to claim any additional amounts pursuant
hereto, it shall promptly notify the BORROWER of the event by reason of which it
has become so entitled. A certificate setting forth in reasonable detail the
computation of any additional amounts payable pursuant hereto submitted by the
BANK to the BORROWER shall be delivered to the BORROWER promptly after the
initial incurrence of such additional amounts and shall be conclusive in the
absence of manifest error. The covenants contained in this Section (e) shall
survive for sixty (60) days following the termination of this Agreement and the
payment of the Note or for such longer period as the BANK is contesting the
validity or applicability of any law, regulation or condition as provided
hereinbelow. No failure on the part of the BANK to demand compensation hereunder
on any one occasion shall constitute a waiver of its rights to demand
compensation on any other occasion.
(f) Definition of Regulatory Change. For purposes hereof, the term
-------------------------------
"Regulatory Change" shall mean, with respect to the BANK, any change after the
date of this Agreement in federal, state or foreign law or regulation (including
without limitation Regulation D of the Board of Governors of the Federal Reserve
System), including without limitation the issuance of any final regulations or
guidelines, or the adoption or making after such date of any interpretation,
directive or request applying to a class of lenders including BANK of or under
any federal, state or foreign law or regulations (whether or not having the
force of law and whether or not failure to comply therewith would be unlawful)
by any court or governmental or monetary authority charged with the
interpretation thereof.
(g) Limitations on Eurodollar Advances; Illegality. Anything herein to the
----------------------------------------------
contrary notwithstanding, if, on or prior to the determination of an interest
rate for any Eurodollar Advance, the BANK shall determine (which determination
shall be conclusive absent manifest error) that:
(i) by reason of any event affecting United States money markets or
the London interbank market, quotations of interest rates for the
relevant deposits are not being provided in the relevant amounts
or for the relevant maturities for purposes of determining the
rate of interest for Eurodollar Advances under this Agreement; or
<PAGE>
(ii) the rates of interest referred to in the definition of "Eurodollar
rate" hereinabove on the basis of which the rate of interest on
any Eurodollar Advances for such period is determined, do not
accurately reflect the cost to the BANK of making or maintaining
such Eurodollar Advances for such period;
then the BANK shall give the BORROWER prompt notice thereof (and shall
thereafter give the BORROWER prompt notice of the cessation, if any, of such
condition), and so long as such condition remains in effect, the BANK shall be
under no obligation to make Eurodollar Advances. Notwithstanding any other
provision herein, if any Regulatory Change shall make it unlawful for the BANK
to make or maintain Eurodollar Advances as contemplated by this Agreement, (i)
the BANK's commitment hereunder to make Eurodollar Advances or continue
Eurodollar Advances as such shall thereupon terminate, and (ii) all advances
then outstanding under the Loan as Eurodollar Advances, if any, shall be
converted automatically to Prime Rate advances on the respective last days of
the then current period with respect to such Eurodollar Advances or within such
earlier period as required by law. If any such conversion of a Eurodollar
Advance occurs on a day which is not the last day of the then current period
with respect thereto, the BORROWER shall pay to the BANK such amounts, if any,
as may be required hereinbelow with respect to prepayments of Eurodollar
Advances.
(h) Prepayment: Indemnification. Subject to the BORROWER's indemnification
---------------------------
obligations hereinafter set forth, the BORROWER may prepay the entire
outstanding amount of any Eurodollar Advance at any time. The BORROWER shall
pay to the BANK, upon the request of BANK, such amount or amounts as shall
compensate the BANK for any loss (including, in the case of Eurodollar Advances,
loss of profit), cost or expense incurred by the BANK (as reasonably determined
by the BANK) as a result of: (A) any payment or prepayment (whether voluntarily
or after acceleration and demand by the BANK pursuant to its rights hereunder)
or conversion of any Eurodollar Advance held by the BANK on a date other than
the last day of the term for such Eurodollar Advance; or (B) any failure by the
BORROWER to borrow, convert into or continue a Eurodollar Advance on the date
for such borrowing, conversion, or continuation specified in the relevant
request by BORROWER for such Eurodollar Advance or otherwise; such compensation
to include, without limitation, an amount equal to: (Y) any loss or expense
suffered by the BANK during the period from the date of receipt of such early
payment or prepayment or the date of such conversion or failure to borrow,
convert or continue to the last day of the term for such Eurodollar Advance, if
the rate of interest obtainable by the BANK upon the redeployment of an amount
of funds equal to the Eurodollar Advance so paid, prepaid or converted or as to
which such failure to borrow, convert or continue applies is less than the rate
of interest applicable to such Eurodollar Advances for such term; and (Z) any
loss or expense suffered by the BANK in liquidating Eurodollar deposits prior to
maturity which the BANK is unable to redeploy and which correspond to the
Eurodollar Advances so paid, prepaid or converted or as to which such failure to
borrow, convert or continue applies. The determination by the BANK of the
amount of any such loss or expense, then set forth in a written notice to the
BORROWER, containing the BANK's calculation thereof in reasonable detail, shall
be presumed correct in the absence of manifest error.
F. Purposes. Amounts advanced under the Revolving Line of Credit Loan
--------
shall be used
<PAGE>
solely for financing (i) BORROWER's ordinary working capital requirements, and
(ii) Permitted Acquisitions (as hereinafter described). In no event shall
amounts advanced under the Revolving Line of Credit Loan be used to provide
loans, financing or funding to or on behalf of BORROWER's affiliates other than
another BORROWER.
G. Revolving Line of Credit Management. BORROWER desires to use its loan
-----------------------------------
account which indicates the BORROWER's current Indebtedness under the Revolving
Line of Credit Loan (the "Loan Account") and its demand deposit account with the
BANK (the "Demand Deposit Account") to manage BORROWER's funds and to maintain a
desired target balance in BORROWER's Demand Deposit Account. In furtherance
thereof, BORROWER intends to deliver to the BANK, in accordance with such
instructions as BANK may from time to time provide, all checks, drafts, cash and
other remittances in payment by debtors of BORROWER's accounts receivable
("Accounts"). All such checks, drafts, and other items shall be endorsed to the
BANK for deposit to the BORROWER's Demand Deposit Account or as the BANK may
otherwise specify from time to time. BORROWER hereby designates and appoints
the BANK as BORROWER's attorney-in-fact to endorse all remittances in whatever
form received for deposit in BORROWER's name to the Demand Deposit Account.
BANK shall not be obligated to (but may in its sole discretion) endorse and
deposit remittances which are not in the proper name of BORROWER. All such
remittances rejected for deposit by BANK may be returned to BORROWER and
BORROWER shall receive no credit therefor. BANK shall have the right to date
any undated remittances and to reject any postdated remittances or any
remittances older than six (6) months. BANK may deposit any remittance
notwithstanding any legend thereon. Checks and other drafts drawn in foreign
currency shall be handled on an individual collection basis only, and BANK
assumes no risk or responsibility for any loss which any party, including
BORROWER, may suffer by virtue of fluctuations in exchange rates. Customary
charges for such collections will be debited to the Demand Deposit Account.
BORROWER shall from time to time inform the BANK of the target balance which
BORROWER desires to maintain in its Demand Deposit Account, which shall in no
event be less than any minimum balance (if any) required under this Agreement.
To maintain the desired target balance in BORROWER's Demand Deposit Account,
BORROWER hereby instructs, authorizes, and directs BANK to charge BORROWER's
Demand Deposit Account to make payments to reduce the debit balance of
BORROWER's Loan Account and to make payment of BORROWER's other obligations to
the BANK, and to make advances under the Revolving Line of Credit Loan
increasing the debit balance in BORROWER's Loan Account and credit the same to
BORROWER's Demand Deposit Account. Notwithstanding the foregoing, BORROWER's
obligations to pay each Loan are the general obligations of the BORROWER and
shall not be deemed to be obligations to be satisfied solely from funds in the
Demand Deposit Account or by advances under the Revolving Line of Credit Loan.
BORROWER acknowledges and agrees that the target balance is only a desired goal
based upon estimates and that the BANK shall have no responsibility for
variances from the target balance as long as all charges, advances and credits
are made in good faith. All credits against BORROWER's indebtedness indicated
in the Loan Account shall be conditional upon final payment to the BANK of the
items giving rise to such credits. The amount of any item credited against
BORROWER's Loan Account which is not paid or which is charged back against the
BANK for any reason may be charged as a debit to the Loan Account or may be
charged back against the Demand Deposit Account of BORROWER, and shall be an
obligation of the
<PAGE>
BORROWER to the BANK in each instance whether or not the item so charged back or
not paid is returned. Any item received in payment towards BORROWER's
outstanding indebtedness reflected in the Loan Account which requires clearance
or payment shall be considered to be applied immediately for purposes of
determining the maximum available amount under BORROWER's Revolving Line of
Credit under Section I(A) of this Agreement, but shall not be considered to have
been credited to the Loan Account until two (2) business days after receipt by
the BANK of such item for purposes of interest accruing on the outstanding
indebtedness indicated by the Loan Account. Notwithstanding any other provision
hereof, no advances shall be made by BANK to BORROWER's Demand Deposit Account
at any time an Event of Default exists under this Agreement or the Loan
Documents, or any condition exists which, if not cured, would with the passage
of time or the giving of notice, or both, constitute such an Event of Default.
Except in the case of BANK's gross negligence, willful misconduct, or failure to
act in good faith, BANK shall not be liable for any act done or omitted by it in
good faith, or for any mistake in fact or law, or for anything it may do or
refrain from doing in connection with or as required by this Section I(G). In
addition, BORROWER will reimburse and indemnify BANK for any damages, losses,
liabilities, claims, costs, or expenses, of any kind whatsoever and however
caused, including, but not limited to, reasonable attorneys' fees, paid,
suffered or incurred by BANK as a result of any third party claim against BANK
arising out of or in connection with BANK's performance of the services
contemplated by this Section I(G) to be provided by BANK, except to the extent
the same results from the gross negligence, willful misconduct, or failure to
act in good faith by BANK.
II. TERM LOAN. The Term Loan first described above (the "Term Loan") shall
bear interest and have a term as set forth in the promissory note evidencing
such Loan (the "Term Note"), shall be issued subject to the terms and conditions
of this Agreement and the other Loan Documents, and shall be secured by the
Collateral provided for Loans pursuant to the Loan Documents.
III. FEES. In addition to such other fees as are provided in this Agreement
and in the other Loan Documents, BORROWER agrees to pay the BANK the periodic
fees set forth on Schedule A attached hereto with respect to the maintenance of
----------
each Loan.
IV. PAYMENTS. All payments made by the BORROWER of principal and interest
on the Loans, and other sums and charges payable under the Loan Documents, shall
be made to the BANK in accordance with the terms of the respective Loan
Documents in immediately available, lawful United States of America currency at
its office set forth above, or by the debiting by the BANK of the demand deposit
account(s) in the name of the BORROWER at the BANK, or in such other reasonable
manner as may be designated by the BANK in writing to the BORROWER, and in any
event shall be made in immediately available funds. The BORROWER authorizes the
BANK automatically to debit the BORROWER's demand deposit account as described
above.
V. CONTINUING REPRESENTATIONS AND WARRANTIES. The BORROWER warrants and
represents to the BANK that so long as any of the Obligations are outstanding:
<PAGE>
A. Good Standing. BORROWER, if other than a natural person, is duly
-------------
organized, validly existing, and in good standing under the laws of its state of
organization. BORROWER has the power to own its properties and to carry on its
business as now being conducted.
B. Authority. BORROWER has full power and authority to enter into this
---------
Agreement and to borrow under the Loan Documents, to execute and deliver the
Loan Documents and to incur the obligations provided for herein and in the other
Loan Documents, all of which have been duly authorized by all proper and
necessary corporate or other action. The persons executing the Loan Documents
on behalf of the BORROWER have been duly authorized to do so.
C. Binding Agreement. This Agreement and the other Loan Documents
-----------------
constitute the valid and legally binding obligations of the BORROWER,
enforceable in accordance with their respective terms.
D. Litigation. There are no suits or proceedings of any kind or nature
----------
pending or, to the knowledge of the BORROWER, threatened against or affecting
the BORROWER or its assets which, if adversely determined, would have a material
adverse effect on the financial condition or business of the BORROWER and which
have not been disclosed in writing to the BANK.
E. Conflicting Agreements; Consents. There is no charter, bylaw,
--------------------------------
preference stock, or trust provision of the BORROWER, and no provision(s) of any
existing mortgage, indenture, contract or agreement binding on the BORROWER or
affecting its property, which would conflict with, have a material adverse
effect upon, or in any way prevent the execution, delivery, or performance of
the terms of this Agreement or the Loan Documents. The BORROWER is not required
to obtain any order, consent, approval or authorization of any person, entity,
or governmental authority in connection with or as a condition to the execution,
delivery, and performance of this Agreement or the Loan Documents.
F. Financial Condition. The financial statements delivered to the BANK
-------------------
by the BORROWER have been and shall be prepared in accordance with generally
accepted accounting principles, consistently applied; are and will be complete
and correct; and fairly present the financial condition and results of the
BORROWER for the reported periods. Other than those liabilities disclosed in
writing to the BANK, there are no liabilities, direct or indirect, fixed or
contingent, of the BORROWER which are not reflected in the financial statements
or in the notes thereto which would be required to be disclosed therein, and
there has been no material adverse change in the financial condition or
operations of the BORROWER since the date of such financial statements.
G. Taxes. BORROWER has filed all federal, state and local tax returns
-----
required to be filed by it and has paid all taxes shown by such returns to be
due and payable on or before the due dates thereof.
H. Solvency. The present fair salable value of the BORROWER's assets
--------
is greater than the amount required to pay its total liabilities; and the amount
of the BORROWER's capital is adequate in view of the type of business in which
it is engaged.
<PAGE>
I. Full Disclosure. None of the information with respect to the
---------------
BORROWER which has been furnished to the BANK in connection with the
transactions contemplated hereby is false or misleading with respect to any
material fact, or omits to state any material fact necessary in order to make
the statements therein not misleading.
J. Employee Benefit Plans. The BORROWER has not incurred any material
----------------------
accumulated funding deficiency within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), has not incurred any material
liability to the Pension Benefit Guaranty Corporation established under ERISA
(or any successor thereto) in connection with any profit sharing, group
insurance, bonus, deferred compensation, percentage compensation, stock option,
severance pay, insurance, pension or retirement plan or other oral or written
agreement or commitment relating to employment or fringe benefits or perquisites
for employees, officers or directors of the BORROWER (an "Employee Benefit
Plan"), and no Employee Benefit Plan which is subject to ERISA had, as of its
latest valuation date, accrued benefits (whether or not vested) the present
value of which exceeded the value of the assets of such Employee Benefit Plan,
based upon actuarial assumptions utilized for such Plan.
K. Location of Records. All of the books and records or true and
-------------------
complete copies thereof relating to the accounts and contracts of the BORROWER
are and will be kept at BORROWER's principal place of business located at the
address first set forth above (the "Premises").
L. Compliance with Laws. To the best of BORROWER's knowledge, after due
--------------------
inquiry, the BORROWER is in compliance in all material respects with all laws
and governmental rules and regulations applicable to its businesses, properties
and assets.
M. Employees. To the best of BORROWER's knowledge, after due inquiry,
---------
the BORROWER has complied in all material respects with all laws relating to the
employment of labor, including any provisions thereof relating to ERISA, wages,
hours, collective bargaining, the payment of social security and similar taxes,
equal employment opportunity, employment discrimination and occupational safety
and health, and is not liable for any arrears of wages or any taxes or penalties
for failure to comply with any of the foregoing.
VI. AFFIRMATIVE COVENANTS. Until payment in full of all indebtedness under
the Loans and the other Obligations, the BORROWER hereby agrees that, unless the
BANK shall otherwise consent in writing, it will:
A. Prompt Payment. Pay promptly, subject to any applicable cure or
--------------
grace period, when due all amounts due and owing to One BANK.
B. Use of Proceeds. Use the proceeds of the Loans only for business
---------------
purposes and will furnish the BANK with such evidence as it may reasonably
require with respect to such use.
<PAGE>
C. Financial Statements. Furnish the BANK with such financial
--------------------
statements and reports of BORROWER as are described on Schedule A attached
----------
hereto. All such statements shall be prepared on a consistent basis in a format
reasonably acceptable to the BANK.
D. Maintenance of Existence. Take all necessary action to maintain
------------------------
BORROWER's legal existence.
E. Maintenance of Business. Do or cause to be done all things
-----------------------
necessary to maintain and preserve BORROWER's business.
F. Maintenance of Insurance. Keep all of BORROWER's properties
------------------------
adequately insured against loss or damage by fire and such other casualties and
hazards as the BANK may specify from time to time; maintain adequate Workman's
Compensation Insurance under applicable laws and Comprehensive General Public
Liability Insurance; and maintain adequate insurance covering such other risks
as customary for businesses of BORROWER's size and type. All insurance required
hereunder shall be effected by valid and enforceable policies issued by insurers
of recognized responsibility authorized to transact business within the State of
New Hampshire. For the purposes of this Paragraph, an insurance policy shall be
deemed to be "adequate" if it provides coverage against such risks and in such
amounts as is customarily carried by owners of businesses and properties similar
to those of BORROWER.
G. Inspection by the BANK. Upon prior reasonable notice (other than in
----------------------
emergencies when no notice shall be required) and during normal business hours,
permit any person designated by the BANK to inspect any of its books, records,
and accounts (and including the making of copies thereof and extracts therefrom)
during normal business hours.
H. Prompt Payment of Taxes. Accrue its tax liability (including
-----------------------
withholdings for employee taxes and social security) in accordance with usual
accounting practice and pay or discharge (or cause to be paid or discharged) as
they become due all taxes, assessments, and government charges upon its
property, operations, income and products (as well as all claims for labor,
materials or supplies), which, if unpaid might become a lien upon any of its
property; provided, that the BORROWER shall, prior to payment thereof, have the
right to contest such taxes, assessments and charges in good faith by
appropriate proceedings so long as the BANK's interests are protected by bond,
letter of credit, escrowed funds or other appropriate security.
I. Notification of Default Under This and Other Loan or Financing
--------------------------------------------------------------
Arrangements. Promptly notify the BANK in writing of the occurrence of any
- ------------
Event of Default under this Agreement or any other loan or financing
arrangement.
J. Notification of Litigation. Promptly notify the BANK in writing of
--------------------------
any litigation that has been instituted or is pending or threatened which might
have a material adverse effect on its continued operations or financial
condition.
K. Notification of Governmental Action. Promptly notify the BANK in
-----------------------------------
writing of any governmental investigation or proceeding that has been instituted
or is pending or threatened,
<PAGE>
including without limitation, matters relating to the federal or state tax
returns of the BORROWER, compliance with the Occupational Safety and Health Act,
or proceedings by the Treasury Department, Labor Department, or Pension Benefit
Guaranty Corporation with respect to matters affecting employee welfare, benefit
or retirement programs.
L. Maintenance of Records. Keep adequate records and books of account,
----------------------
in which complete entries will be made in a manner reasonably acceptable to the
BANK and consistently applied, reflecting all financial transactions of the
BORROWER.
M. Compliance With Laws. Comply in all material respects with all
--------------------
applicable laws, rules, regulations, and orders, such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments, and governmental charges imposed upon it or upon its property;
provided, however, that BORROWER shall be entitled to contest the same in good
faith so long as such action, in the BANK's sole opinion, does not have an
adverse effect upon the BANK's rights hereunder.
N. Accounts and Deposits. Maintain its primary operating and deposit
---------------------
accounts with the BANK.
O. Notification of Material Adverse Chances. Promptly notify the BANK
----------------------------------------
in writing of any conditions or circumstances which might have a material
adverse effect on BORROWER's continued operations or financial condition.
P. Additional Financial and Other Covenants. Comply with the
----------------------------------------
additional financial and other covenants set forth on Schedule A attached
----------
hereto.
VII. NEGATIVE COVENANTS. Until payment in full of all indebtedness under the
Loans and the other Obligations, the BORROWER will not, without the express
prior written consent of the BANK:
A. Additional Indebtedness. Incur indebtedness for borrowed money (or
-----------------------
issue or sell any of its bonds, debentures, notes or similar obligations), or
enter into capital leases, except: (1) borrowings under the Loans; (2) other
Obligations to the BANK; (3) borrowings used to prepay in full the Obligations;
(4) ordinary trade account payables incurred in the regular course of business;
and (5) indebtedness due from one BORROWER to another.
B. Guaranties, Endorsements, and Contingent Liabilities. Guarantee,
----------------------------------------------------
endorse or otherwise become absolutely or contingently liable for the
obligations of any other person, partnership, corporation or other entity.
C. Liens and Mortgages. Incur, create, assume or suffer to exist any
-------------------
mortgage, pledge, lien, attachment, security interest, charge or other
encumbrance of any nature whatsoever on any of the BORROWER's assets, now or
hereafter owned, other than: (1) security interests or liens that may be granted
to the BANK; (2) deposits under Workmen's Compensation, Unemployment Insurance
and Social Security laws; and (3) liens imposed by law, such as carriers,
<PAGE>
warehousemen's or mechanic's liens incurred in good faith in the ordinary course
of business, and which do not in the aggregate have a material adverse effect on
the BORROWER'S financial condition or its assets.
D. Capital Structure; Acquisition of Stock. Alter or amend the
---------------------------------------
BORROWER's capital structure (other than in connection with a Permitted
Acquisition or Permitted Divestiture as described below) or purchase, redeem or
otherwise acquire value for any of its outstanding capital stock, other than
purchases by Parent of its capital stock in the open market which (i)
individually and in the aggregate do not result in a violation by the BORROWER
of its financial covenants under this Agreement and (ii) are in compliance with
the requirements of federal and state securities laws.
E. Dividends and Distributions. Declare or pay dividends, or make any
---------------------------
other payment or distribution on account of BORROWER's capital stock.
F. Reorganizations and Acquisitions. Liquidate, merge, or consolidate
--------------------------------
into or with any other person or entity, or acquire all or substantially all of
the assets, capital stock, or other ownership interests of any person or entity
other than an acquisition of assets, capital stock, or other ownership interests
of a person or entity (an "Acquired Party") which acquisition meets the
following conditions (a "Permitted Acquisition"):
(i) the BORROWER shall provide reasonably satisfactory information
and analysis to the BANK at least ten (10) days prior to
completion of the acquisition concerning the Acquired Party and
the effect of the acquisition upon the financial condition and
operations of the BORROWER; and
(ii) immediately prior to such acquisition and after giving effect
thereto, no Event of Default shall exist, including, but not
limited to, any violation of BORROWER's financial covenants
existing prior to or resulting from the acquisition.
The BORROWER's principal financial officer shall certify as to the BORROWER's
compliance with the conditions set forth hereinabove at least ten (10) days
prior complete the acquisition.
G. Sale or Disposition of Assets. Sell, lease, transfer or otherwise
-----------------------------
dispose of the assets or properties of the BORROWER, except in the ordinary
course of business, or the capital stock of any subsidiary of the Parent, other
than a divestiture of assets, capital stock, or other ownership interests of any
BORROWER which meets the following conditions (a "Permitted Divestiture"):
(i) the BORROWER shall provide reasonably satisfactory information
and analysis to the BANK at least ten (10) days prior to
completion of the divestiture concerning the effect of the
divestiture upon the financial condition and operations of the
BORROWER; and
<PAGE>
(ii) immediately prior to such divestiture and after giving effect
thereto, no Event of Default shall exist, including, but not
limited to, any violation of BORROWER's financial covenants
existing prior to or resulting from the divestiture.
The BORROWER's principal financial officer shall certify as to the BORROWER's
compliance with the conditions set forth hereinabove at least ten (10) days
prior to completion of the divestiture.
H. Ownership; Management. Change the current ownership by Parent of any
---------------------
other BORROWER (other than pursuant to a Permitted Divestiture), or replace
Michael H. Foster as the Chairman and Chief Executive Officer of the Parent.
I. Covenant to Third Parties Regarding Liens and Mortgages. Provide any
-------------------------------------------------------
covenant to, or enter into any agreement with, any third party identical to,
substantially similar to, or of the general nature of the covenant provided by
the BORROWER to the BANK in Section VII(C) hereinabove.
VIII. CONDITIONS PRECEDENT TO MAKING OF LOANS. The obligation of the BANK
to make any Loan and make disbursements of the proceeds of the same to the
BORROWER is subject to the satisfaction by the BORROWER or its representatives
of the following conditions precedent with respect to such Loan: (1) the
BORROWER has executed and delivered all of the Loan Documents deemed appropriate
and necessary by the BANK, in form and substance satisfactory to the BANK; (2)
the BORROWER's warranties and representations as contained herein and in the
Loan Documents shall be accurate and complete and the BANK has received
satisfactory evidence of the same, including, at BANK's option, an opinion of
BORROWER's legal counsel to that effect; and (3) the BORROWER shall not be in
default under any of the covenants, warranties, representations, terms, or
conditions contained in this Agreement or in the Loan Documents as of the date
of entering into such Loan and as of the date of each disbursement thereunder.
IX. EVENTS OF DEFAULT; ACCELERATION. The occurrence of any one or more of
the following events shall constitute a default under this Agreement, each of
the other Loan Documents, and the Obligations (collectively, "Events of
Default"): (1) if any statement, representation or warranty made by the BORROWER
in this Agreement or in any of the other Loan Documents, or in connection with
any of the same, or if any financial statement, report, schedule, or certificate
furnished by the BORROWER or any of its officers or accountants to the BANK,
shall prove to have been false or misleading when made, or subsequently becomes
false or misleading, in any material respect (as determined in the BANK's sole
discretion); (2) default by the BORROWER in payment on its due date of any
principal or interest called for under any of the Loans or the Loan Documents,
or of other amounts due under any other of the Obligations, or other event of
default under the Loan Documents or the other Obligations, provided such default
is not cured within any applicable grace period thereunder; (3) default by the
BORROWER in the performance or observance of any of the provisions, terms,
conditions, warranties of covenants of this Agreement, the Loan Documents, or
any other of the Obligations; (4) the dissolution, termination of existence,
merger or consolidation of the BORROWER or a sale of
<PAGE>
BORROWER's business not in the ordinary course of business; (5) the BORROWER
shall (a) apply for or consent to the appointment of a receiver, trustee or
liquidated of it or any of its property, (b) make a general assignment for the
benefit of creditors, (c) be adjudicated as bankrupt or insolvent, (d) file a
voluntary petition in bankruptcy, or a petition or an answer seeking
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation under any law or statute, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such law
or statute, or (e) offer or enter into any composition, extension or arrangement
seeking relief or extension of its debts; (6) proceedings shall be commenced or
an order, judgment or decree shall be entered, without the application, approval
or consent of the BORROWER, in or by any court of competent jurisdiction,
relating to the bankruptcy, dissolution, liquidation, reorganization or the
appointment of a receiver, trustee or liquidator of the BORROWER of all or a
substantial part of its assets, and such proceedings, order, judgment or decree
shall continue undischarged or unstayed for a period of sixty (60) days; (7)
BORROWER's inability to pay its debts as they mature or other act of insolvency,
however defined and determined by the BANK in its sole discretion; or (8) a
judgment for the payment of money shall be rendered against the BORROWER and the
same shall remain undischarged for a period of thirty (30) days, during which
period execution shall not be effectively stayed.
Upon the occurrence of any Event of Default, the BANK's commitment to make
further Loans or any advance thereunder, under the Loan Documents or any other
agreement with the BORROWER shall immediately cease and terminate and, at the
election of the BANK, all of the Obligations of the BORROWER to the BANK, either
under this Agreement, the Loan Documents, or otherwise, will immediately become
due and payable without further demand, notice or protest, all of which are
hereby expressly waived. Thereafter, the BANK may proceed to protect and
enforce its rights, at law, in equity, or otherwise, against the BORROWER, under
this Agreement, under any Loan Documents, under any other agreement between the
BORROWER and the BANK, or under any agreement between any guarantor or endorser
of the BORROWER's Obligations to the BANK.
X. BANK'S RIGHTS TO ASSIGN, PLEDGE AND PARTICIPATE LOANS.
A. Right to Pledge Notes. BANK may at any time pledge all or any
---------------------
portion of its rights under the Loan Documents, including any portion of either
of the Notes to any of the twelve (12) Federal Reserve Banks organized under
Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or
enforcement thereof shall release BANK from its obligations under any of the
Loan Documents.
B. Assignment of Loans. BANK shall have the unrestricted right at any
-------------------
time or from time to time, and without BORROWER's consent, to assign all or any
portion of its right and obligations hereunder to one or more banks or other
financial institutions (each, an "Assignee"), and BORROWER agrees that it shall
execute, or cause to be executed, such documents, including without limitation,
amendments to this Agreement and to any other documents, instruments and
agreements executed in connection herewith as BANK shall deem necessary to
effect the foregoing. In addition, at the request of BANK and any such
Assignee, BORROWER shall issue one or more new promissory notes, as applicable,
to any such Assignee and, if BANK
<PAGE>
has retained any of its rights and obligations hereunder following such
assignment, to BANK, which new promissory notes shall be issued in replacement
of, but not in discharge of, the liability evidenced by the promissory note held
by BANK prior to such assignment and shall reflect the amount of the respective
commitments and loans held by such Assignee and BANK after giving effect to such
assignment. Upon the execution and delivery of appropriate assignment
documentation, amendments and any other documentation required by BANK in
connection with such assignment, and the payment by Assignee of the purchase
price agreed to by BANK, and such Assignee, such Assignee shall be a party to
this Agreement and shall have all of the rights and obligations of BANK
hereunder (and under any and all other guaranties, documents, instruments and
agreements executed in connection herewith) to the extent that such rights and
obligations have been assigned by BANK pursuant to the assignment documentation
between BANK and such Assignee, and BANK shall be released from its obligations
hereunder and thereunder to a corresponding extent.
C. Participation of Loans. BANK shall have the unrestricted right at
----------------------
any time and from time to time, and without the consent of or notice to
BORROWER, to grant to one or more banks or other financial institutions (each, a
"Participant") participating interests in BANK's obligations to lend hereunder
and/or any or all of the loans held by BANK hereunder. In the event of any such
grant by BANK of a participating interest to a Participant, whether or not upon
notice to BORROWER, BANK shall remain responsible for the performance of its
obligations hereunder and BORROWER shall continue to deal solely and directly
with BANK in connection with BANK's rights and obligations hereunder.
D. Information to Assignees and Participants. BANK may furnish any
-----------------------------------------
information concerning BORROWER in its possession from time to time to
prospective Assignees and Participants, provided that BANK shall require any
such prospective Assignee or Participant to agree in writing to maintain the
confidentiality of such information.
XI. MISCELLANEOUS PROVISIONS.
A. Entire Agreement; Waivers. This Agreement, the Schedules hereto, and
-------------------------
the other Loan Documents together constitute the entire agreement between the
BORROWER and the BANK and no covenant, term, condition or other provision
thereof nor any default in connection therewith may be waived except by an
instrument in writing, signed by the BANK and delivered to the BORROWER. The
BANK's failure to exercise or enforce any of its rights, powers or privileges
this Agreement or the other Loan Documents shall not operate as a waiver
thereof. In the event of any conflict between the terms, covenants, conditions
and restrictions contained in the Loan Documents, the term, covenant, condition
or restriction which confers the greatest benefit upon the BANK shall control.
The determination as to which term, covenant, condition or restriction is more
beneficial shall be made by the BANK in its sole discretion.
B. Remedies Cumulative. All remedies provided under this Agreement and
-------------------
the other Loan Documents or afforded by law shall be cumulative and available to
the BANK until all of the BORROWER's Obligations to the BANK have been paid in
full.
<PAGE>
C. Survival of Covenants. All covenants, agreements, representations
---------------------
and warranties made in this Agreement and in the Loan Documents shall be deemed
to be material and to have been relied on by the BANK, notwithstanding any
investigation made by the BANK or in its behalf, and shall survive the execution
and delivery of its Agreement and the Loan Documents. All such covenants,
agreements, representations and warranties shall bind and inure to the benefit
of the BORROWER's and the BANK's successors and assigns, whether so expressed or
not.
D. Governing Law; Jurisdiction. This Agreement and the other Loan
---------------------------
Documents shall be construed and their provisions interpreted under and in
accordance with the laws of the State of New Hampshire. The BORROWER, to the
extent they may legally do so, hereby consent to the jurisdiction of the courts
of the State of New Hampshire and the United States District Court for the State
of New Hampshire for the purpose of any suit, action or other proceeding arising
out of any of their obligations hereunder or with respect to the transactions
contemplated hereby, and expressly waive any and all objections they may have to
venue In any such courts.
E. Assurance of Execution and Delivery of Additional Instruments. The
-------------------------------------------------------------
BORROWER agrees to execute and deliver, or to cause to be executed and
delivered, to the BANK all such further instruments, and to do or cause to be
done all such further acts and things, as the BANK may reasonably request or as
may be necessary or desirable to effect further the purposes of this Agreement
and the other Loan Documents, but such shall not, in any event, be required to
provide collateral for this unsecured loan.
F. Waivers and Assents. The BORROWER hereby waives, to the fullest
-------------------
extent by law, demand, notice, protest, notice of acceptance of this Agreement
and the other Loan Documents, notice of Loans made, credit extended, or other
action taken in reliance hereon and all other demands and notices of any
description with respect to the Loan Documents. The BORROWER assents to any
extension or postponement of the time of payment or any other indulgence, to the
of any party or person primarily or secondarily liable, to the acceptance of
partial payments thereon and the settlement, compromising or adjusting of any
thereof, all in such manner and at such time or times as the BANK may deem
advisable.
G. Successors and Assigns. This Agreement and the Loan Documents shall
----------------------
be binding upon and inure to the benefit of the BANK, the BORROWER and their
respective successors and assigns; provided, however, the rights and obligations
of the BORROWER are not assignable, delegable or transferable without the
consent of the BANK.
H. Payment of Bank's Expenses. The BORROWER hereby covenants and
--------------------------
agrees that it shall pay to the BANK, on demand, any and all reasonable out-of-
pocket expenses, including reasonable attorneys' fees, court costs, sheriffs'
fees, and other expenses incurred or paid by the BANK in protecting and
enforcing its rights under this Agreement, the other Loan Documents and the
other Obligations, including the costs of preparation of this Agreement and the
Loan Documents, and any amendments, modifications, consents or waivers in
respect thereof, and all filing, auditing, accounting, and appraisal fees, if
applicable.
<PAGE>
I. The Bank's Right to Offset. The BORROWER hereby grants to the BANK a
--------------------------
lien, continuing security interest, and right of setoff as security for all
liabilities and obligations to BANK, whether now existing or hereafter arising,
upon, in and against all deposits, credits, collateral and property, now or
hereafter in the possession, custody, safekeeping or control of BANK or any
entity under the control of Fleet Financial Group, Inc., or in transit to any of
them. At any time, without demand or notice, BANK may set off the same or any
part thereof and apply to same to any liability or obligation of BORROWER even
though unmatured and regardless of the adequacy of any other collateral securing
the Loans. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR
REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE LOANS, PRIOR TO
EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER
PROPERTY OF THE BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY
WAIVED.
J. Notices. All notices, requests, demands and other communications
-------
provided for hereunder shall be in writing (including telegraphic communication)
and shall be either mailed by registered or certified mail, return receipt
requested, postage prepaid, or delivered by overnight courier service, to the
applicable party at its address set forth at the beginning of this Agreement or
such other address as provided to the other parties by notice as herein
provided, and shall be effective on the date of the first attempted delivery
thereof by the U.S. Postal Service or overnight courier service, as shown on
the registered or certified mail return receipt or courier log.
K. Savings Clause. Any provision of this Agreement or any of the other
--------------
Loan Documents which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or thereof
or affecting the validity or enforceability of such provision in any other
jurisdiction.
L. Term of this Agreement. This Agreement shall remain in full force and
----------------------
effect until all of the Obligations have been paid in full and all of the terms,
conditions and covenants under the Loan Documents have been performed.
M. Usury. All agreements between BORROWER and BANK are hereby expressly
-----
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to BANK for the use or the
forbearance of the indebtedness evidenced by either of the Notes exceed the
maximum permissible under applicable law. As used herein, the term "applicable
law" shall mean the law in effect as of the date hereof provided, however that
in the event there is a change in the law which results in a higher permissible
rate of interest, then the Notes shall be governed by such new law as of its
effective date. In this regard, it is expressly agreed that it is the intent of
BORROWER and BANK in the execution, delivery and acceptance of this Agreement
and the Notes to contract in strict compliance with the laws of the State of New
Hampshire from time to time in effect. If, under or from any circumstances
whatsoever, fulfillment of any provision hereof or of any of the Notes or other
Loan Documents at the time of
<PAGE>
performance of such provision shall be due, shall involve transcending the limit
of such validity prescribed by applicable law, then the obligation to be
fulfilled shall automatically be reduced to the limits of such validity, and if
under or from circumstances whatsoever BANK should ever receive as interest an
amount which would exceed the highest lawful rate, such amount which would be
excessive interest shall be applied to the reduction of the principal balance
evidenced by the applicable Note and not to the payment of interest. This
provision shall control every other provision of the Notes and all other Loan
Documents.
N. Lost Note or other Loan Document. Upon receipt of an affidavit of an
--------------------------------
officer of BANK as to the loss, theft, destruction or mutilation of any Note or
any other Loan Document which is not of public record, and, in the case of any
such loss, theft, destruction or mutilation, upon surrender and cancellation of
such Note or other Loan Document, BORROWER will issue, in lieu thereof, a
replacement Note or other Loan Document in the same principal amount thereof and
otherwise of like tenor.
O. Waiver of Trial by Jury. BORROWER AND BANK MUTUALLY HEREBY KNOWINGLY,
-----------------------
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION
HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR BANK TO ENTER INTO THIS AGREEMENT AND MAKE THE LOANS.
IN WITNESS WHEREOF, the BANK and the BORROWER have executed this Agreement
all as of the day and year first above written.
WITNESS: BANK:
FLEET BANK - NH
/s/Elizabeth M. Fogelgren
/s/ Curtis W. Little, Jr. By: /s/ Elizabeth M. Fogelgren
- ------------------------- ---------------------------
Elizabeth M. Fogelgren
Assistant Vice President
<PAGE>
FLEET BANK - NH
COMMERCIAL LOAN AGREEMENT
SCHEDULE A
----------
ADDITIONAL TERMS AND CONDITIONS
I. Fees Payable by BORROWER:
------------------------
Loan Restructuring Fee: $25,000 payable to BANK at Closing.
Unused Revolving Line of Credit Commitment Fee: 0.2% per annum of daily average
of unadvanced amounts under Revolving Line of Credit Loan (based upon the
maximum available amount under Section I. A. of the Loan Agreement),
determined and payable quarterly in arrears.
II. Description of Financial Statements and Reports to be Delivered:
---------------------------------------------------------------
A. Annual consolidated and consolidating financial statements of
BORROWER within ninety (90) days after the end of each fiscal year, including
balance sheets and statements of income, retained earnings and surplus, and a
statement of cash flow, together with supporting schedules, setting forth in
each case comparative figures for the preceding fiscal year, and in each case
audited by and with an unqualified opinion of a "big six" independent certified
public accounting firm.
B. Annual reports on Form 10-K and quarterly reports on Form 10-Q of the
Parent as and when filed with the United States Securities and Exchange
Commission.
C. Annual budgets and financial projections on a quarterly basis as
prepared by BORROWER for each fiscal year of BORROWER within thirty (30) days of
the beginning of each fiscal year.
D. Monthly management prepared consolidated financial statements of
BORROWER within twenty (20) days after the end of each calendar month, including
balance sheets and statements of income, retained earnings and surplus, and a
statement of cash flow, together with supporting schedules.
E. Letters to management issued to BORROWER by its independent certified
public accounting firm in connection with its audit of the BORROWER for each
fiscal year with respect to which any such letters are issued, as and when such
letters are received by the BORROWER.
III. Description of Additional Financial and other Covenants:
--------------------------------------------------------
A. BORROWER shall have on a consolidated basis a minimum Net Worth (as
hereinafter defined) equal to at least Twenty-one Million Dollars
($21,000,000.00) as at September 30, 1997
<PAGE>
and at all times thereafter through September 29, 1998, and equal to least
Twenty-five Million Dollars ($25,000,000.00) as at September 30, 1998 and at all
times thereafter. "Net Worth " means total assets minus total liabilities, all
as determined in accordance with generally accepted accounting principles from
BORROWER's financial statements delivered to the Bank in accordance with the
covenants of BORROWER hereinabove (the "Financial Statements").
B. BORROWER shall have on a consolidated basis a ratio of Funded Debt (as
hereinafter defined) to EBITDA (as hereinafter defined) of not greater than (i)
4.5.0:1 as at September 30, 1997; and (ii) 3.0:1 as at September 30, 1998 and as
at each fiscal quarter end thereafter. "Funded Debt " means the aggregate
interest bearing indebtedness of the BORROWER as of the applicable date of
determination, all as determined in accordance with generally accepted
accounting principles from BORROWER's Financial Statements. "EBITDA" means
earnings for the twelve-month period ending on the applicable date of
determination, before reduction for interest, taxes, depreciation, and
amortization expense for such period, all as determined in accordance with
generally accepted accounting principles from BORROWER's Financial Statements.
C. The BORROWER shall maintain EBITDA of not less than $3,000,000 for the
three (3) months ended December 31, 1997; $6,500,000 for the six (6) months
ended March 31, 1998; and $10,000,000 for the nine (9) months ended June 30,
1998, and at each fiscal quarter end thereafter, all as shown on BORROWER's
Financial Statements.
D. BORROWER shall have on a consolidated basis a ratio of EBIT (as
hereinafter defined) to Interest Expense (as hereinafter defined) of not less
than 3.0:1 as at each fiscal quarter end of BORROWER. "EBIT" means earnings for
the twelve (12) month period prior to the date of determination, before
reduction for Interest Expense and taxes, all as determined in accordance with
generally accepted accounting principles from BORROWER's Financial Statements.
"Interest Expense" means the aggregate interest on all indebtedness and capital
leases of the BORROWER payable during the twelve (12) month period prior to the
date of determination, all as determined in accordance with generally accepted
accounting principles from BORROWER's Financial Statements.
E. BORROWER shall not make capital expenditures in any fiscal year in an
aggregate amount exceeding $2,500,000.00, commencing with the fiscal year ending
September 30, 1998.
F. BORROWER shall have a ratio of EBITDA to Debt Service (as hereinafter
defined) of not less than 2.0:1 as of each fiscal quarter end of BORROWER
commencing September 30, 1997. As used herein, "Debt Service" means the
aggregate interest on the Revolving Line of Credit Loan and principal and
interest on all other Loans under the Loan Agreement due and payable during the
twelve (12) month period ending on the date of determination, all as determined
in accordance with GAAP from BORROWER's Financial Statements.
G. BORROWER shall report and certify to Bank its compliance with the
financial covenants hereinabove within forty-five (45) days of each fiscal
quarter end on the form attached hereto as Exhibit A.
---------
<PAGE>
BORROWER:
WPI GROUP, INC.,
WPI POWER SYSTEMS, INC.,
WPI MAGNETEC, INC.,
WPI ELECTRONICS, INC.,
WPI TERMIFLEX, INC.,
WPI MICRO PALM, INC.,
WPI MICRO PROCESSOR SYSTEMS, INC.
WPI DECISIONKEY, INC.,
WPI UK HOLDING, INC.,
WPI UK HOLDING II, INC.,
WPI OYSTER TERMINALS, INC., and
WPI HUSKY COMPUTERS, INC.
/s/ Elizabeth M. Fogelgren
/s/ Curtis W. Little, Jr. By: /s/ John W. Powers
- ---------------------------- --------------------------------------
John W. Powers, for, on behalf of, and
as Duly Authorized Officer or Agent of
each of the above-named corporations
<PAGE>
FLEET BANK - NH
COMMERCIAL LOAN AGREEMENT
SCHEDULE A
EXHIBIT A
COMPLIANCE CERTIFICATE
Fleet Bank - NH
650 Elm Street
Manchester, New Hampshire 03101
ATTENTION: Mark L. Young, Senior Vice President
Ladies and Gentlemen:
Pursuant to the provisions of a certain Amended and Restated Commercial Loan
Agreement dated as of December 26, 1997 (the "Loan Agreement"), by and between
WPI GROUP, INC., WPI ELECTRONICS, INC., WPI MAGNETEC, INC., WPI MICRO PALM,
INC., WPI POWER SYSTEMS, INC., WPI TERMIFLEX, INC., WPI MICRO PROCESSOR SYSTEMS,
INC., WPI DECISIONKEY, INC., WPI UK HOLDING, INC., WPI UK HOLDING II, INC., and
WPI OYSTER TERMINALS, INC., each a New Hampshire corporation, and HUSKY
COMPUTERS, INC., a Florida corporation (collectively, the "BORROWER"), and FLEET
BANK - NH, a bank organized under the laws of the State of New Hampshire with a
principal place of business at 1155 Elm Street, Manchester, New Hampshire (the
"BANK"), the undersigned hereby certifies as follows:
1. That the financial statements and reports (the Financial Statements.) of
the BORROWER delivered to the Bank with this certificate are true and accurate
in all material respects for the periods covered therein and as of the date
thereof, and there have been no material changes since the date of such
Financial Statements to the date hereof.
2. That during the periods set forth in the Financial Statements, the
BORROWER was in compliance with the Financial Covenants set forth in Section III
of Schedule A of the Loan Agreement, and, specifically, that as of the ending
date of the period covered by the Financial Statements, the BORROWER had a:
(a) Net Worth of $_________________ (Requirement: $21,000,000.00 or greater);
[Subject to increase per Loan Agreement]
(b) Ratio of Funded Debt to EBITDA of _______:_______ (Requirement: not
greater than 3.0:1);
<PAGE>
(c) EBITDA of $______________ (Requirement: not less than $3,500,000)
[subject to increase per Loan Agreement]
(d) Ratio of EBIT to Interest Expense of ______:______ (Requirement: not
less than 3.0:1);
(e) Capital expenditures of $____________________ (Requirement: not to exceed
$2,500,000.00); and
(f) Ratio of EBITDA to Debt Service of ______:______ (Requirement: not less
than 2.0:1).
3. The representations and warranties contained in the Loan Agreement are
otherwise true and correct in all material respects on and as of the date hereof
as if made on and as of such date and all covenants contained in the Loan
Agreement have been and continue to be met.
Terms defined in the Loan Agreement and not otherwise expressly defined herein
are used herein with the meanings so defined in the Loan Agreement.
IN WITNESS WHEREOF, the undersigned has executed this certificate on this
_____ day of _________________, 199___.
WPI GROUP, INC.,
WPI POWER SYSTEMS, INC.,
WPI MAGNETEC, INC.,
WPI ELECTRONICS, INC.,
WPI TERMIFLEX, INC.,
WPI MICRO PALM, INC.,
WPI MICRO PROCESSOR SYSTEMS, INC.,
WPI DECISIONKEY, INC.,
WPI UK HOLDING, INC.,
WPI UK HOLDING II, INC.,
WPI OYSTER TERMINALS, INC., and
WPI HUSKY COMPUTERS, INC.
By:
- ----------------------------- ---------------------------------------
Witness As Duly Authorized Officer or Agent of
each of the above-named corporations
<PAGE>
Exhibit 10.2
REVOLVING LINE OF CREDIT PROMISSORY NOTE
----------------------------------------
$30,000,000.00 U.S. Manchester, New Hampshire
December 26, 1997
FOR VALUE RECEIVED, the undersigned, WPI GROUP, INC., WPI ELECTRONICS,
INC., WPI MAGNETEC, INC., WPI MICRO PALM, INC., WPI POWER SYSTEMS, INC., WPI
TERMIFLEX, INC., WPI MICRO PROCESSOR SYSTEMS, INC., WPI DECISIONKEY, INC., WPI
UK HOLDING, INC., WPI UK HOLDING, II, INC., and WPI OYSTER TERMINALS, INC., each
a New Hampshire corporation, and WPI HUSKY COMPUTERS, INC, a Florida
corporation, all such corporations having executive offices at 1155 Elm Street
Manchester, New Hampshire 03101 (all of such corporations are hereinafter
referred to individually and collectively as the "Borrower"), hereby promise,
jointly and severally, to pay to the order of FLEET BANK - NH, a bank organized
under the laws of the State of New Hampshire with an address of Mail Stop NHNA
E02A, 1155 Elm Street, Manchester, New Hampshire 03101 (the "Bank"), at such
address, or such other place or places as the holder hereof may designate in
writing from time to time hereafter, the maximum principal sum of THIRTY MILLION
DOLLARS ($30,000,000.00), or so much thereof as may be advanced or readvanced by
the Bank to the Borrower from time to time hereafter (such amounts defined as
the "Debit Balance" below), together with interest as provided for hereinbelow,
in lawful money of the United States in immediately available funds, all as
provided hereinbelow.
The Borrower's "Debit Balance" shall mean the debit balance in an account
on the books of the Bank, maintained in the form of a ledger card, computer
records or otherwise in accordance with the Bank's customary practice and
appropriate accounting procedures wherein there shall be recorded the principal
amount of all advances and readvances made by the Bank to the Borrower, all
principal payments made by the Borrower to the Bank hereunder, and all other
appropriate debits and credits to principal. The Bank shall render to the
Borrower a statement of account with respect thereto on a monthly basis. The
statement shall be considered correct and be considered accepted by the
Borrower, and shall conclusively bind the Borrower, unless Borrower notifies the
Bank to the contrary within thirty (30) days after the date of Borrower's
receipt of the statement.
The Bank agrees to lend to the Borrower, and the Borrower may borrow, up to
the maximum principal sum provided for in this Note in accordance with and
subject to the terms, conditions, and limitations of this Note and the Amended
and Restated Commercial Loan Agreement dated as of December 26, 1997, as the
same may be amended from time to time hereafter (the "Loan Agreement"). The
holder of this Note is entitled to all of the benefits and rights, and is
subject to all of the obligations, of the Bank under the Loan Agreement.
However, neither this reference to the Loan Agreement nor any provision thereof
shall impair the absolute and unconditional obligation of the Borrower to pay
the principal and interest of this Note as
<PAGE>
herein provided. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Loan Agreement.
The Borrower agrees that the Bank may deliver all advances under this Note
by direct deposit to any demand account of the Borrower with the Bank or in such
other reasonable manner as may be designated in writing by the Bank to the
Borrower, and that all such advances shall represent binding obligations of the
Borrower.
The Borrower acknowledges that this Note is to evidence the Borrower's
obligation to pay its Debit Balance, plus interest and any other applicable
charges as determined from time to time, and that it shall continue to do so
despite the occurrence of intervals when no Debit Balance exists because the
Borrower has paid the previously existing Debit Balance in full.
Interest shall be calculated and charged daily, based on the actual days
elapsed over a three hundred sixty (360) day banking year, on the Debit Balance
outstanding from time to time at an annual variable rate equal to the Prime
Rate. The "Prime Rate" shall be the rate published by The Wall Street Journal
-----------------------
from time to time under the category "Prime Rate: The Base Rate on Corporate
Loans posted by at least 75% of the Nation's 30 Largest Banks" (the lowest of
the rates so published if more than one rate is published under this category at
any given time) or such other comparable index rate selected by the Bank in its
sole discretion if The Wall Street Journal ceases to publish such rate. The
-----------------------
BORROWER acknowledges that the Prime Rate is used for reference purposes only as
an index and is not necessarily the lowest interest rate charged by the BANK on
commercial loans. Each time the Prime Rate changes the interest rate hereunder
shall change contemporaneously with such change in the Prime Rate.
Notwithstanding the foregoing, the Borrower may elect from time to time a fixed
rate of interest equal to the Eurodollar Based Rate to apply to outstanding
principal hereunder, all in accordance with, and subject to the limitations of,
the provisions of the Loan Agreement.
Outstanding principal hereunder shall be paid in accordance with the terms
and conditions of the Loan Agreement. Accrued interest only on the outstanding
Debit Balance hereunder shall be payable monthly in arrears commencing thirty
(30) days from the date hereof (or on any day within 30 days of the date hereof
agreed to by the Borrower and the Bank to provide for a convenient payment date)
and continuing on the same date of each month thereafter through and until the
Review Date as to which the Bank does not renew the Revolving Line of Credit
Loan, whereupon all outstanding principal and accrued and unpaid interest
hereunder shall be due and payable in full.
The Borrower may prepay this Note in whole or in part at any time;
provided, however, that such prepayment shall be subject to the terms and
conditions of the Loan Agreement and the charges provided thereunder payable by
Borrower to Bank. In the event that any such prepayment shall be made by the
Borrower, the amount thereof shall be applied first to accrued interest and
thereafter to principal.
At the option of the Bank, this Note shall become immediately due and
payable in full, without further demand or notice, if any installment of
principal or interest is not paid when due hereunder or upon the occurrence of
any other Event of Default under the terms hereof, of the Loan Agreement, or of
any other Loan Document.
<PAGE>
The holder may impose upon the Borrower a delinquency charge of five
percent (5%) of the amount of the principal and/or interest not paid on or
before the tenth (10th) day after such installment is due. The entire principal
balance hereof shall after maturity, whether by demand, acceleration or
otherwise, or following the occurrence of an Event of Default, until the Event
of Default has been cured or waived by the Bank, bear interest at the contract
rate of this Note plus an additional five percent (5%) per annum.
The Borrower grants to Bank the right to set off and apply, upon the
occurrence of an Event of Default and without demand or notice of any nature,
all, or any portion of, deposits, credits and other property now or hereafter
due from the holder to the Borrower, against the indebtedness evidenced by this
Note. This Note is secured by the Collateral granted in the Loan Agreement and
the other Loan Documents.
The Borrower agrees to pay on demand all reasonable out-of-pocket costs of
collection hereof, including reasonable attorneys' fees, whether or not any
action is instituted by the holder in its discretion.
No delay or omission on the part of the holder in exercising any right,
privilege or remedy shall impair such right, privilege or remedy or be construed
as a waiver thereof or of any other right, privilege or remedy. No waiver of
any right, privilege or remedy under this Note shall be effective unless made in
writing and signed by the holder. Under no circumstances shall an effective
waiver of any right, privilege or remedy on any one occasion constitute or be
construed as a bar to the exercise of or a waiver of such right, privilege or
remedy on any future occasion.
The acceptance by the holder hereof of any payment after any default
hereunder shall not operate to extend the time of payment of any amount then
remaining unpaid hereunder or constitute a waiver of any rights of the holder
hereof under this Note.
All rights and remedies of the holder, whether granted herein or otherwise,
shall be cumulative and may be exercised singularly or concurrently.
The Borrower hereby waives, to the fullest extent permitted by law,
presentment, notice, and protest. Borrower assents to any extension of the time
of payment or any other indulgence.
This Note and the provisions, hereof shall be binding upon the Borrower and
the Borrower's successors, legal representatives and assigns and shall inure to
the benefit of and shall bind the holder and the holder's successors, legal
representatives and assigns.
The word "holder" as used herein shall mean the payee or endorsee of this
Note who is in possession of it, or the bearer, if this Note is at the time
payable to the bearer.
<PAGE>
This Note may not be amended, changed or modified in any respect except by
a written document which has been executed by each party. This Note constitutes
a New Hampshire contract to be governed by the laws of such state and to be paid
and performed therein.
This Note is executed and delivered in replacement of, but not in novation
or discharge of, the Revolving Line of Credit Promissory Note of WPI Group,
Inc., WPI Electronics, Inc., WPI Magnetec, Inc., WPI Micro Palm, Inc., WPI Power
Systems, Inc., WPI Termiflex, Inc., WPI Micro Processor Systems, Inc., WPI
DecisionKey, Inc., WPI UK Holding, Inc., WPI UK Holding, II, Inc., WPI Oyster
Terminals, Inc., WPI Group (U.K.), and WPI Oyster Terminals Limited, payable to
the order of the Bank in the principal amount of Thirty Million Dollars
($30,000,000.00) dated February 27, 1997 (the "Prior Note"). All references to
the Prior Note in any Loan Document shall be deemed to refer to this Note which
evidences the indebtedness evidenced by the Prior Note.
BORROWER AND THE BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER
LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE
OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE
BANK TO ACCEPT THIS NOTE AND MAKE THE LOAN.
Executed and delivered as of the day and year first above written.
WPI GROUP, INC.,
WPI POWER SYSTEMS, INC.,
WPI MAGNETEC, INC.,
WPI ELECTRONICS, INC.,
WPI TERMIFLEX, INC.,
WPI MICRO PALM, INC.,
WPI MICRO PROCESSOR SYSTEMS, INC.
WPI DECISIONKEY, INC.,
WPI UK HOLDING, INC.,
WPI UK HOLDING II, INC.,
WPI OYSTER TERMINALS, INC., and
WPI HUSKY COMPUTERS, INC.
/s/ Elizabeth M. Fogelgren
/s/ Curtis W. Little, Jr. By: /s/ John W. Powers
- ---------------------------- --------------------------------------
Witness John W. Powers, for, on behalf of, and
as Duly Authorized Officer or Agent of
each of the above-named corporations
<PAGE>
Exhibit 10.3
TERM NOTE
---------
$15,000,000.00 U.S. Manchester, New Hampshire
December 26, 1997
1. Promise To Pay.
--------------
FOR VALUE RECEIVED, WPI GROUP, INC., WPI ELECTRONICS, INC., WPI MAGNETEC,
INC., WPI MICRO PALM, INC., WPI POWER SYSTEMS, INC., WPI TERMIFLEX, INC., WPI
MICRO PROCESSOR SYSTEMS, INC., and WPI DECISIONKEY, INC., WPI UK HOLDING, INC.,
WPI UK HOLDING II, INC., and WPI OYSTER TERMINALS, INC., each a New Hampshire
corporation, and WPI HUSKY COMPUTERS, INC., a Florida corporation, all such
corporations having executive offices at 1155 Elm Street Manchester, New
Hampshire 03101 (all of such corporations are hereinafter referred to
individually and collectively as the "Borrower"), jointly and severally promise
to pay to the order of FLEET BANK-NH, a bank organized under the laws of New
Hampshire, having an address at 1155 Elm Street, Manchester, New Hampshire,
("Lender"), the principal sum of Fifteen Million and 00/100 ($15,000,000.00)
DOLLARS, with interest thereon, or on the amount thereof from time to time
outstanding, to be computed, as hereinafter provided, until such principal sum
shall be fully paid. Interest and principal shall be payable in installments as
set forth in Section 4 below. The total principal sum, or the amount thereof
outstanding, together with any accrued but unpaid interest, shall be due and
payable in full on March 31, 2002 ("Maturity Date").
2. Loan Agreement.
--------------
This Note is issued pursuant to the terms, provisions and conditions of an
agreement captioned "Amended and Restated Commercial Loan Agreement" dated as of
December 26, 1997 between Borrower and Lender, as the same may be amended from
time to time hereafter (the "Loan Agreement"), and evidences the Term Loan made
pursuant thereto (herein, the "Loan"). Capitalized terms used herein which are
not otherwise specifically defined shall have the same meaning herein as in the
Loan Agreement.
3. Interest Rate.
-------------
Principal amounts outstanding under the Loan shall bear interest at the
LIBOR Interest Rate, subject to the conditions and limitations provided for in
this Note, during the period from the date hereof up to and including the
Maturity Date.
4. Payment of Interest and Principal.
---------------------------------
4.1. Payment and Calculation of Interest. All interest shall be: (a)
-----------------------------------
payable in arrears commencing January 1, 1998 and continuing on the same day of
each month thereafter until the principal together with all interest and other
charges payable with respect to the Loan shall be
<PAGE>
fully paid; and (b) calculated on the basis of a 360 day year and the actual
number of days elapsed. Interest at the LIBOR Interest Rate shall be computed
from and including the first day of the applicable Interest Period to, but
excluding, the last day thereof.
4.2. Principal. Principal shall be repaid in quarterly installments of
---------
$750,000, commencing on October 1, 1998 and continuing on the first day of each
January, April, July and October thereafter. The entire principal balance shall
be due and payable in full upon Maturity.
4.3. Prepayment. The Loan or any portion thereof may be prepaid in full
----------
or in part at any time upon fifteen (15) days' prior written notice to the
holder of this Note, provided that with respect to LIBOR Rate Advances, any
prepayment, whether partial or in full, shall be subject to a make-whole
provision and payment of a Yield Maintenance Fee as provided below. Any
partial prepayment of principal shall first be applied to any installment of
principal then due and shall then be applied to the principal installments due
in the reverse order of maturity, and no such partial prepayment shall relieve
Borrower of the obligation to pay each subsequent installment of principal when
due.
4.4. Maturity. At Maturity all accrued interest, principal and other
--------
charges due with respect to the Loan shall be due and payable in full and the
principal balance and such other charges, but not unpaid interest, shall
continue to bear interest at the Default Rate until so paid.
4.5. Method of Payment; Date of Credit. All payments of interest,
---------------------------------
principal and fees shall be made in lawful money of the United States in
immediately available funds: (a) by direct charge to an account of Borrower
maintained with Lender (or the then holder of this Note), (b) by wire transfer
to Lender, (c) by check payable to Lender and delivered to Lender at 1155 Elm
Street, Manchester, New Hampshire, or (d) to such other bank or address as the
holder of this Note may designate in a written notice to Borrower. Payments
shall be credited on the Business Day on which immediately available funds are
received prior to one o'clock P.M. Eastern Time; payments received after one
o'clock P.M. Eastern Time shall be credited to the Loan on the next Business
Day. Payments which are by check, which Lender may at its option accept or
reject, or which are not in the form of immediately available funds shall not be
credited to the Loan until such funds become immediately available to Lender,
and, with respect to payments by check, such credit shall be provisional until
the item is finally paid by the payor bank.
4.6. Billings. Lender may submit monthly billings reflecting payments
--------
due; however, any changes in the interest rate which occur between the date of
-------
billing and the due date may be reflected in the billing for a subsequent month.
Neither the failure of Lender to submit a billing nor any error in any such
billing shall excuse Borrower from the obligation to make full payment of all
Borrower's payment obligations when due.
4.7. Default Rate. Lender shall have the option of imposing, and Borrower
------------
shall pay upon billing therefor, an interest rate which is five percent (5%) per
annum above the interest rate otherwise payable ("Default Rate"): (a) while any
monetary Default exists and is continuing, during that period between the due
date and the date of payment; (b) following any Event of Default, unless and
until the Event of Default is waived by Lender; and (c) after Maturity.
4.8. Late Charges. Borrower shall pay, upon billing therefor, a "Late
------------
Charge" equal to five percent (5%) of the amount of any payment of principal,
other than principal due at Maturity,
<PAGE>
interest, or both, which is not paid within ten (10) days of the due date
thereof. Late charges are: (a) payable in addition to, and not in limitation of,
the Default Rate, (b) intended to compensate Lender for administrative and
processing costs incident to late payments, (c) are not interest, and (d) shall
not be subject to refund or rebate or credited against any other amount due.
4.9. Calculation of Yield Maintenance Fee.
------------------------------------
(i) The Yield Maintenance Fee shall be calculated separately for each
installment of principal due prior to the Maturity Date, as well as the entire
balance of principal due at the Maturity Date (including any effective extension
thereof) all in accordance with the following:
(A) If the Treasury Rate is greater than the applicable LIBOR Interest
Rate, there shall be no Yield Maintenance Fee payable for such installment
or balance.
(B) If the Treasury Rate is less than the applicable LIBOR Interest
Rate, the Yield Maintenance Fee shall equal the aggregate of all Present
Values, computed separately for each installment or balance having a
separate due date, of the product of:
1. the amount of each installment or balance so prepaid,
multiplied by
2. the amount by which the LIBOR Interest Rate, expressed as a
percentage, exceeds the Treasury Rate, expressed as a percentage,
computed separately for each installment or balance having a different
maturity date, and
3. which product in turn shall be multiplied by a fraction,
computed separately for each installment or balance having a different
due date, the numerator of which is the number of days from the date
of prepayment to the due date of the installment or balance and the
denominator of which is 360.
(ii) Neither all nor any portion of the principal which bears interest at
the LIBOR Interest Rate may or shall be prepaid prior to the last day of the
applicable Interest Period, except upon fifteen (15) days' prior written notice
to Lender and the payment to Lender of a Yield Maintenance Fee computed in
accordance with clause (i) above.
(iii) The Yield Maintenance Fee shall be payable in respect of all
prepayments of principal whether voluntary or involuntary including, without
limitation, prepayments made upon acceleration of the Loan, or application of
insurance or eminent domain proceeds.
(iv) Once written notice of intention to prepay is given, the Loan, or the
applicable portion thereof, shall become due and payable in full on the date
specified in the notice of prepayment and the failure to so prepay the Loan on
such date, together with any applicable Yield Maintenance Fee, shall constitute
an Event of Default.
4.10. Make Whole Provision. Borrower shall pay to Lender, immediately
--------------------
upon request and notwithstanding contrary provisions contained in any of the
Loan Documents, such amounts as shall, in the conclusive judgment of Lender (in
the absence of manifest error), compensate Lender for the loss, cost or expense
which it may reasonably incur as a result of (i) any payment or prepayment,
under any circumstances whatsoever, whether voluntary or involuntary, of all or
<PAGE>
any portion of the Loan bearing interest at the LIBOR Interest Rate on a date
other than the last day of the applicable Interest Period, or (ii) the
conversion, for any reason whatsoever, whether voluntary or involuntary, of any
LIBOR Rate Advance to a Variable Rate Advance on a date other that the last day
of the applicable Interest Period. Such amounts payable by Borrower shall be
equal to any administrative costs actually incurred plus any amounts required to
compensate for any loss, cost or expense incurred by reason of the liquidation
or re-employment of deposits or other funds acquired by Lender to fund or
maintain the Loan or any portion thereof while it is bearing interest at the
LIBOR Interest Rate plus, in any event, but without duplication, a Yield
Maintenance Fee.
5. Certain Definitions and Provisions Relating To Interest Rate.
------------------------------------------------------------
5.1. Banking Day. The term "Banking Day" means a day on which banks are
-----------
not required or authorized by law to close in the city in which Lender's
principal office is situated.
5.2. Business Day; Same Calendar Month. The term "Business Day" means any
---------------------------------
Banking Day and, with respect to determining or selecting the LIBOR Interest
Rate, any London Banking Day. If any day on which a payment is due is not a
Business Day, then the payment shall be due on the next day following which is a
Business Day, unless, with respect to a LIBOR Rate Advance, the effect would be
to make the payment due in the next calendar month, in which event such payment
shall be due on the next preceding day which is a Business Day. Further, if
there is no corresponding day for a payment in the given calendar month (i.e.,
there is no "February 30th"), the payment shall be due on the last Business Day
of the calendar month.
5.3. Dollars. The term "Dollars" or "$" means lawful money of the United
-------
States.
5.4. Interest Period. The term "Interest Period" means, with respect to
---------------
each LIBOR Rate Advance, a period of one (1) month. Interest Periods shall
initially be scheduled to commence on the same day of each month (the first
Interest Period to commence on the day that the proceeds of the Loan are
advanced to Borrower), and to end on the numerically corresponding day in the
next succeeding month; Provided, however: (a) if there is no such numerically
-------- -------
corresponding day, such Interest Period shall end on the last Business Day of
the applicable month, (b) if the last day of such an Interest Period would
otherwise occur on a day which is not a Business Day, such Interest Period shall
be extended to the next succeeding Business Day, but (c) if such extension would
otherwise cause such last day to occur in a new calendar month, then such last
day shall occur on the next preceding Business Day. In no event, however, shall
an Interest Period extend beyond the Maturity Date of the Loan.
5.5. LIBOR Interest Rate. The term "LIBOR Interest Rate" means the per
-------------------
annum rate equal to the LIBOR Rate plus 162.5 basis points.
5.6. LIBOR Rate. The term "LIBOR Rate" means, with respect to any LIBOR
----------
Rate Advance, the interest rate per annum (rounded upward, if necessary, to the
nearest 1/32 of one percent), as determined on the basis of the offered rates
for deposits in Dollars for a period of time comparable to the Interest Period
selected or deemed selected by Borrower for such LIBOR Rate Advance which appear
on the Telerate page 3750 as of 11:00 a.m. London time on the day that is two
(2) London Banking Days preceding the first day of such LIBOR Rate Advance. If
such rate does not appear on the Telerate System on any applicable interest
determination date,
<PAGE>
the LIBOR Rate shall be the rate (rounded upward as described above, if
necessary) for deposits in Dollars for a period substantially equal to the
Interest Period on the Reuters Page "LIBO" (or such other page as may replace
the LIBO Page on that service for the purpose of displaying such rates), as of
11:00 a.m. (London time), on the day that is two (2) London Banking Days prior
to the beginning of such Interest Period. If both the Telerate and Reuters
system are unavailable, then the rate for that date will be determined on the
basis of the offered rates for deposits in Dollars for a period of time
comparable to the Interest Period for such LIBOR Rate Advance which are offered
by four major banks in the London interbank market at approximately 11:00 a.m.
London time, on the day that is two (2) London Banking Days preceding the first
day of such LIBOR Rate Advance. The principal London office of each of the four
major London banks will be requested to provide a quotation of its Dollar
deposit offered rate. If at least two such quotations are provided, the rate for
that date will be the arithmetic mean of the quotations. If fewer than two
quotations are provided as requested, the rate for that date will be determined
on the basis of the rates quoted for loans in Dollars to leading European banks
for a period of time comparable to the Interest Period for such LIBOR Rate
Advance offered by major banks in New York City at approximately 11:00 a.m. New
York City time, on the day that is two London Banking Days preceding the first
day of such LIBOR Rate Advance. In the event that the Bank is unable to obtain
any such quotation as provided above, it will be deemed that the LIBOR Rate for
such LIBOR Rate Advance cannot be determined. In the event that the Board of
Governors of the Federal Reserve System shall impose a Reserve Percentage with
respect to LIBOR Rate deposits of the Lender, then for any period during which
such Reserve Percentage shall apply, LIBOR Rate shall be equal to the amount
determined above divided by an amount equal to 1 minus the Reserve Percentage.
5.7. LIBOR Rate Advance. The term "LIBOR Rate Advance" means any
------------------
principal outstanding under this Note which pursuant to this Note bears interest
at the LIBOR Interest Rate.
5.8. London Banking Day. The term "London Banking Day" means any day on
------------------
which dealings in deposits in Dollars are transacted in the London interbank
market.
5.9. Maturity. The term "Maturity" means the Maturity Date, or the
--------
maturity upon acceleration of the Loan, if the Loan has been accelerated by
Lender upon an Event of Default.
5.10. Present Value. The term "Present Value" means the value at the
-------------
applicable maturity discounted to the date of prepayment using the Treasury
Rate.
5.11. Prime Rate. The term "Prime Rate" means the rate published by The
---------- ---
Wall Street Journal from time to time under the category "Prime Rate: The Base
- -------------------
Rate on Corporate Loans posted by at least 75% of the Nation's 30 Largest Banks"
(the lowest of the rates so published if more than one rate is published under
this category at any given time) or such other comparable index rate selected by
the Bank in its sole discretion if The Wall Street Journal ceases to publish
-----------------------
such rate. The Borrowers acknowledge that the Prime Rate is used for reference
purposes only as an index and is not necessarily the lowest interest rate
charged by the Bank on commercial loans.
5.12. Treasury Rate. The term "Treasury Rate" means, as of the date of
-------------
any calculation or determination, the latest published rate for United States
Treasury Notes or Bills (but the rate on Bills issued on a discounted basis
shall be converted to a bond equivalent) as published weekly
<PAGE>
in the Federal Reserve Statistical Release H.15(519) of Selected Interest Rates
in an amount which approximates (as determined by Lender) the amount (i)
approximately comparable to the portion of the Loan to which the Treasury Rate
applies for the Interest Period, or (ii) in the case of a prepayment, the amount
prepaid and with a maturity closest to the original maturity of the installment
which is prepaid in whole or in part.
5.13. Variable Interest Rate. The term "Variable Interest Rate" means a
----------------------
per annum rate equal at all times to the Prime Rate, with changes therein to be
effective simultaneously with any change in the Prime Rate.
5.14. Variable Rate Advance. The term "Variable Rate Advance" means any
---------------------
principal outstanding under this Note which pursuant to this Note bears interest
at the Variable Interest Rate.
6. Additional Provisions Related to Interest Rate Selection.
--------------------------------------------------------
6.1 Increased Costs. If, due to any one or more of: (i) the introduction
---------------
of any applicable law or regulation or any change (other than any change by way
of imposition or increase of reserve requirements already referred to in the
above definition of LIBOR Rate) in the interpretation or application by any
authority charged with the interpretation or application thereof of any law or
regulation; or (ii) the compliance with any guideline or request from any
governmental central bank or other governmental authority (whether or not having
the force of law), there shall be an increase in the cost to Lender of agreeing
to make or making, funding or maintaining LIBOR Rate Advances, including without
limitation changes which affect or would affect the amount of capital or
reserves required or expected to be maintained by Lender, with respect to all or
any portion of the Loan, or any corporation controlling Lender, on account
thereof, then Borrower from time to time shall, upon written demand by Lender,
pay Lender additional amounts sufficient to indemnify Lender against the
increased cost. A certificate as to the amount of the increased cost and the
reason therefor submitted to Borrower by Lender, in the absence of manifest
error, shall be conclusive and binding for all purposes.
6.2. Illegality. Notwithstanding any other provision of this Note, if the
----------
introduction of or change in or in the interpretation of any law, treaty,
statute, regulation or interpretation thereof shall make it unlawful, or any
central bank or government authority shall assert by directive, guideline or
otherwise, that it is unlawful, for Lender to make or maintain LIBOR Rate
Advances at the LIBOR Interest Rate or to continue to maintain the LIBOR Rate
Advances then, on written notice thereof and demand by Lender to Borrower, (a)
the obligation of Lender to make LIBOR Rate Advances and to convert or continue
any Loan Advances at the LIBOR Interest Rate shall terminate and (b) all
principal outstanding under this Note shall bear interest at the Variable
Interest Rate.
6.3. Additional LIBOR Conditions. The utilization of a LIBOR Interest
---------------------------
Rate and the maintenance of Advances at such rate shall be subject to the
following terms and conditions:
(i) Availability. If Lender notifies Borrower that:
------------
(a) dollar deposits in the amount and for the maturity requested are
not available to Lender in the London interbank market at the
rate specified in
<PAGE>
the definition of LIBOR Rate set forth above, or
(b) reasonable means do not exist for Lender to determine the LIBOR
Rate for the amounts and maturity requested,
then the principal which would have born interest at the LIBOR
Interest Rate shall bear interest at the Variable Interest Rate.
(ii) Payments Net of Taxes. All payments and prepayments of principal and
---------------------
interest under this Note shall be made net of any taxes and costs
resulting from having principal outstanding at or computed with
reference to a LIBOR Rate. Without limiting the generality of the
preceding obligation, illustrations of such taxes and costs are taxes,
or the withholding of amounts for taxes, of any nature whatsoever
including income, excise, interest equalization taxes (other than
United States or state income taxes) as well as all levies, imposts,
duties or fees whether now in existence or which become in effect as
the result of a change in or promulgation of any treaty, statute,
regulations, or interpretation thereof or any directive guideline or
otherwise by a central bank or fiscal authority (whether or not having
the force of law) or a change in the basis of, or the time of payment
of, such taxes and other amounts resulting therefrom.
7. Acceleration; Event of Default.
------------------------------
At the option of the holder, this Note and the indebtedness evidenced
hereby shall become immediately due and payable without further notice or
demand, and notwithstanding any prior waiver of any breach or default, or other
indulgence, upon the occurrence at any time of any one or more of the following
events, each of which shall be an "Event of Default" hereunder and under the
Loan Agreement and each other Loan Document: (i) default continuing uncured
beyond the applicable grace period, if any, set forth in the Loan Agreement, in
making any payment of interest, principal, other charges or payments due
hereunder; (ii) any other Event of Default as defined in or as set forth in the
Loan Agreement or any other Loan Document, each as the same may from time to
time hereafter be amended; or (iii) any other event which pursuant to any
express provision of the Loan Agreement, or of any other Loan Document, gives
Lender the right to accelerate the Loan.
8. Certain Waivers, Consents and Agreements.
----------------------------------------
Each and every party liable hereon or for the indebtedness evidenced hereby
whether as maker, endorser, guarantor, surety or otherwise hereby: (a) waives
presentment, demand, protest, suretyship defenses and defenses in the nature
thereof; (b) waives any defenses based upon and specifically assents to any and
all extensions and postponements of the time for payment, changes in terms and
conditions and all other indulgences and forbearances which may be granted by
the holder to any party now or hereafter liable hereunder or for the
indebtedness evidenced hereby; (c) agrees to any substitution, exchange,
release, surrender or other delivery of any security or collateral now or
hereafter held hereunder or in connection with the Loan Agreement, or any of the
other Loan Documents, and to the addition or release of any other party or
person primarily or secondarily liable; (d) agrees that if any security or
collateral given to secure this Note or the indebtedness evidenced hereby or to
secure any of the obligations set forth or
<PAGE>
referred to in the Loan Agreement, or any of the other Loan Documents, shall be
found to be unenforceable in full or to any extent, or if Lender or any other
party shall fail to duly perfect or protect such collateral, the same shall not
relieve or release any party liable hereon or thereon nor vitiate any other
security or collateral given for any obligations evidenced hereby or thereby;
(e) agrees to pay all costs and expenses incurred by Lender or any other holder
of this Note in connection with the indebtedness evidenced hereby, including,
without limitation, all attorneys' fees and costs, for the implementation of the
Loan, the collection of the indebtedness evidenced hereby and the enforcement of
rights and remedies hereunder or under the other Loan Documents, whether or not
suit is instituted; and (f) consents to all of the terms and conditions
contained in this Note, the Loan Agreement, or any one or more of the other Loan
Documents.
9. Delay Not A Bar.
---------------
No delay or omission on the part of the holder in exercising any right
hereunder or any right under any instrument or agreement now or hereafter
executed in connection herewith, or any agreement or instrument which is given
or may be given to secure the indebtedness evidenced hereby or by the Loan
Agreement, or any other agreement now or hereafter executed in connection
herewith or therewith shall operate as a waiver of any such right or of any
other right of such holder, nor shall any delay, omission or waiver on any one
occasion be deemed to be a bar to or waiver of the same or of any other right on
any future occasion.
10. Partial Invalidity.
------------------
The invalidity or unenforceability of any provision hereof, of the Loan
Agreement, of the other Loan Documents, or of any other instrument, agreement or
document now or hereafter executed in connection with the Loan made pursuant
hereto and thereto shall not impair or vitiate any other provision of any of
such instruments, agreements and documents, all of which provisions shall be
enforceable to the fullest extent now or hereafter permitted by law.
11. Compliance With Usury Laws.
--------------------------
All agreements between Borrower and Lender are hereby expressly limited so
that in no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness evidenced hereby or otherwise, shall the amount
paid or agreed to be paid to Lender for the use or the forbearance of the
indebtedness evidenced hereby exceed the maximum permissible under applicable
law. As used herein, the term "applicable law" shall mean the law in effect as
of the date hereof, provided, however, that in the event there is a change in
-------- -------
the law which results in a higher permissible rate of interest, then this Note
shall be governed by such new law as of its effective date. In this regard, it
is expressly agreed that it is the intent of Borrower and Lender in the
execution, delivery and acceptance of this Note to contract in strict compliance
with the laws of the State of New Hampshire from time to time in effect. If,
under or from any circumstances whatsoever, fulfillment of any provision hereof
or of any of the Loan Documents or the Security Documents at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by applicable law, then the obligation to be fulfilled
shall automatically be reduced to the limit of such validity, and if under or
from any circumstances whatsoever Lender should ever receive as interest an
amount which would exceed the highest lawful rate, such amount which would be
excessive interest shall be applied to the reduction of the
<PAGE>
principal balance evidenced hereby and not to the payment of interest. This
provision shall control every other provision of all agreements between Borrower
and Lender.
12. Use of Proceeds.
---------------
All proceeds of the Loan shall be used solely for the purposes more
particularly provided for and limited by the Loan Agreement.
13. Security.
--------
This Note is secured by a first security interes in the Borrower's assets,
a pledge of the capital stock of the Borrower (other than WPI Group, Inc.) and
such other Collateral as may now or hereafter secure the Loan under the Loan
Agreement and the other Loan Documents.
14. Notices.
-------
Any notices given with respect to this Note shall be given in the manner
provided for in the Loan Agreement.
15. Governing Law and Consent to Jurisdiction.
-----------------------------------------
15.1. Substantial Relationship. It is understood and agreed that all of
------------------------
the Loan Documents were negotiated, executed and delivered in the State of New
Hampshire, which State the parties agree has a substantial relationship to the
parties and to the underlying transactions embodied by the Loan Documents.
15.2. Place of Delivery. Borrower agrees to furnish to Lender at Lender's
-----------------
office at 1155 Elm Street, Manchester, New Hampshire all further instruments,
certifications and documents to be furnished hereunder.
15.3. Governing Law. This Note and each of the other Loan Documents shall
-------------
in all respects be governed, construed, applied and enforced in accordance with
the internal laws of the State of New Hampshire without regard to principles of
conflicts of law.
15.4. Consent to Jurisdiction. Borrower hereby consents to personal
-----------------------
jurisdiction in any state or Federal court located within the State of New
Hampshire.
16. Waiver of Jury Trial.
--------------------
BORROWER AND LENDER MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER
LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE
OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR LENDER
TO ACCEPT THIS NOTE AND MAKE THE LOAN.
<PAGE>
17. No Oral Change.
--------------
This Note and the other Loan Documents may only be amended, terminated,
extended or otherwise modified by a writing signed by the party against which
enforcement is sought. In no event shall any oral agreements, promises,
actions, inactions, knowledge, course of conduct, course of dealing, or the like
be effective to amend, terminate, extend or otherwise modify this Note or any of
the other Loan Documents.
18. Rights of the Holder.
--------------------
This Note and the rights and remedies provided for herein may be enforced
by Lender or any subsequent holder hereof. Wherever the context permits each
reference to the term "holder" herein shall mean and refer to Lender or the then
subsequent holder of this Note.
19. Replacement of Prior Term Note.
------------------------------
This Note is executed and delivered in replacement of, but not in novation
or discharge of, the Promissory Note of WPI Group, Inc., WPI Electronics, Inc.,
WPI Magnetec, Inc., WPI Micro Palm, Inc., WPI Power Systems, Inc., WPI
Termiflex, Inc., WPI Micro Processor Systems, Inc., WPI DecisionKey, Inc., WPI
UK Holding, Inc., WPI UK Holding II, Inc., WPI Oyster Terminals, Inc., WPI Group
(U.K.) and WPI Oyster Terminals Limited, payable to the order of the Bank in the
principal amount of Fifteen Million Dollars ($15,000,000.00) dated June 20, 1997
( the "Prior Note"). All references to the Prior Note in any Loan Document
shall be deemed to refer to this Note which evidences the indebtedness
previously evidenced by the Prior Note.
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed and
delivered as of the date set forth above.
WPI GROUP, INC.,
WPI POWER SYSTEMS, INC.,
WPI MAGNETEC, INC.,
WPI ELECTRONICS, INC.,
WPI TERMIFLEX, INC.,
WPI MICRO PALM, INC.,
WPI MICRO PROCESSOR SYSTEMS, INC.,
WPI DECISIONKEY, INC.,
WPI UK HOLDING, INC.,
WPI UK HOLDING II, INC.,
WPI OYSTER TERMINALS, INC., and
WPI HUSKY COMPUTERS, INC.
/s/ Elizabeth M. Fogelgren By: /s/ John W. Powers
- -------------------------- --------------------------------------
Witness John W. Powers, for, on behalf of, and
as Duly Authorized Officer or Agent of
each of the above-named corporations
<PAGE>
Exhibit 10.4
SECURITY AGREEMENT
------------------
SECURITY AGREEMENT (the "Agreement"), made as of this 26th day of December,
1997, by and between WPI GROUP, INC., WPI ELECTRONICS, INC., WPI MAGNETEC, INC.,
WPI MICRO PALM, INC., WPI POWER SYSTEMS, INC., WPI TERMIFLEX, INC., WPI MICRO
PROCESSOR SYSTEMS, INC., WPI DECISIONKEY, INC., WPI UK HOLDING, INC., WPI UK
HOLDING II, INC., and WPI OYSTER TERMINALS, INC., each a New Hampshire
corporation, and WPI HUSKY COMPUTERS, INC., a Florida corporation, all such
corporations having their principal offices at 1155 Elm Street Manchester, New
Hampshire 03101 (all of the foregoing corporations are hereinafter referred to
individually and collectively as the "Debtor"), and FLEET BANK - NH, a bank
organized under the laws of the State of New Hampshire with an address of Mail
Stop NHNA E02A, 1155 Elm Street, Manchester, New Hampshire 03101 (the "Secured
Party").
WITNESSETH:
----------
WHEREAS, pursuant to an Amended and Restated Commercial Loan Agreement of
even date (the "Loan Agreement") between the Secured Party and the Debtor,
Secured Party has granted to Debtor (i) a certain revolving line of credit in
the principal amount of up to Thirty Million Dollars ($30,000,000.00), and (ii)
a certain term loan in the principal amount of Fifteen Million Dollars
($15,000,000.00) (collectively, the "Loan"), all as set forth and described in
the Loan Agreement; and
WHEREAS, the obligation of the Secured Party to make the Loan to the Debtor
is subject to the condition, among others, that the Debtor shall execute and
deliver this Agreement and grant the security interests hereinafter described.
Terms not otherwise defined herein shall have the meanings ascribed to them in
the Loan Agreement.
NOW, THEREFORE, in consideration of the willingness of the Secured Party to
make the Loan to the Debtor and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Security Interest. As security for the Secured Obligations described
-----------------
in Section 2 hereof, Debtor hereby grants to the Secured Party a first priority
security interest in and lien on all of the property and assets of each Debtor
(other than real estate), including, but not limited to the property of the
types described below (hereinafter referred to collectively as the
"Collateral"):
(a) All equipment, including machinery, motor vehicles, office
equipment, furniture, fixtures, along with all other parts, tools, trade-
ins, repairs, accessories, accessions, modifications, and replacements,
whether now owned or subsequently acquired, constructed, or attached or
added to, or placed in, the foregoing (collectively, the "Equipment");
(b) All inventory, wherever located, including goods, merchandise and
other
<PAGE>
personal property, held for sale or lease or furnished or to be furnished
under a contract of service, or constituting raw materials, work in process
or materials used or consumed in the Debtor's business, or consigned to
others or held by others for return to the Debtor, whether now owned or
subsequently acquired or manufactured and wherever located (collectively,
the "Inventory");
(c) All accounts receivable, including, without limitation, accounts,
contracts, contract rights, chattel paper, instruments, rents, deposits,
general intangibles, and any other obligations of any kind whether now
existing or hereafter arising out of or in connection with the sale or
lease of goods or the rendering of services, and all rights now or
hereafter existing in and to all security agreements, notes, leases,
licenses, franchises, supply agreements, and other contracts securing or
otherwise relating to any such accounts, contracts, contract rights,
chattel paper, instruments, rents, deposits, general intangibles, or
obligations (any and all such accounts, contracts, contract rights, chattel
paper, instruments, rents, deposits, general intangibles, and obligations
being the "Receivables", and any and all such security agreements, notes,
leases, licenses, franchises, supply agreements, and other contracts being
the "Related Contracts");
(d) All general intangibles, including, but not limited to, corporate
names, trade names, trademarks, trade secrets, books and records, customer
lists, catalogs, blue prints and plans, computer programs, tapes and
related electronic data, processing software, and all corporate ledgers;
(e) Any and all additions, accessions, substitutions or replacements
to or for any of the foregoing;
(f) Any and all products and proceeds of any or all of the foregoing,
including, without limitation, cash, cash equivalents, tax refunds and the
proceeds of insurance policies providing coverage against the loss or
destruction of or damage to any of the Collateral, or any indemnity,
warranty, or guarantee payable by reason of loss or damage to or otherwise
with respect to any of the Collateral (whether or not the Secured Party is
the loss payee thereof);
(g) All intercompany accounts, accounts receivable and promissory
notes evidencing any intercompany indebtedness, including without
limitation the promissory notes and obligations listed in Exhibit 1
---------
attached hereto;
(h) All of the Debtor's after-acquired property of the kinds and
types described in paragraphs (a) - (g) herein;
(i) All records and data relating to any of the property described
above, whether in the form of a writing, photograph, microfilm, microfiche,
or electronic media, together with all of the Debtor's right, title, and
interest in and to all computer software required to utilize, create,
maintain and process any of such records or data or electronic media; and
also in (1) all checks, money, securities, bank accounts, deposit accounts, and
other accounts in the possession of or held by the Secured Party whether in the
name of the Debtor or in the name of the Secured Party, and (2) all other
property given by the Debtor to the Secured Party pursuant
<PAGE>
to this Agreement.
2. Secured Obligations. The security interest hereby granted shall secure
-------------------
the following (the "Secured Obligations"):
(a) The Debtor's repayment to the Secured Party of the Loan, together
with interest, late charges, and any other applicable charges thereon or
respecting thereto;
(b) The Debtor's payment or performance of its obligations under the
Loan Agreement and under the other Loan Documents (as defined, described
and identified in the Loan Agreement, hereinafter the "Loan Documents"), as
the same may be amended, modified, extended, renewed, replaced or restated;
(c) The payment of all other sums with interest and charges thereon
advanced in accordance herewith to protect the validity, security, and
priority of this Agreement, the Loan Agreement, or the Loan Documents; and
(d) Any and all other obligations of Debtor to Secured Party of every
kind and description, direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, including without limitation
increases in any of such Secured Obligations.
3. Warranties and Representations of the Debtor. Debtor hereby makes the
--------------------------------------------
following representations and warranties which shall survive the execution and
delivery of this Agreement and shall be continuing representations and
warranties as long as any Secured Obligation remains outstanding:
(a) All representations and warranties made in the Loan Agreement and
the Loan Documents relating to the Debtor and the Collateral are true,
accurate and complete in all material respects;
(b) The Debtor's principal place of business is located at the
address first set forth above, except as such address may be changed upon
prior written notice to the Secured Party; the Debtor's executive offices
and the office where its books and records are kept and are to be kept
concerning the Inventory, Receivables, Related Contracts and other
Collateral are at the same address; and the Debtor has no other places of
business except for manufacturing, sales and service facilities, and
warehouses at the locations listed on Schedule I hereto;
----------
(c) No material authorization, approval or other action by, and no
notice to or filing with, any governmental authority or other person is
required either (i) for the grant by the Debtor of the security interests
granted hereby or for the execution, delivery or performance of this
Agreement by the Debtor, or (ii) for the perfection of or the exercise by
the Secured Party of its respective rights and remedies hereunder, except
the filing of financing statements;
(d) The Debtor has good and marketable title to all of the Collateral
pledged by it hereunder, free and clear of any liens, security interests,
encumbrances or interests or
<PAGE>
claims of any other person or entity, except those set forth on Schedule II
-----------
hereto (the "Permitted Encumbrances"), and there are no sums owed with
respect to the Collateral other than as disclosed on the Debtor's financial
statements delivered to the Secured Party and other than trade payables
incurred in the ordinary course of business since the date of such
financial statements;
(e) Upon the filing of UCC-1 financing statements being delivered at
or prior to the execution hereof, the Secured Party will have a valid,
perfected first security interest in all of the Collateral which may be
perfected by filing of financing statements, subject to the Permitted
Encumbrances;
(f) The Debtor has not performed any acts which might prevent the
Secured Party from enforcing any of the material terms and conditions of
this Agreement or which would limit any of them in any such enforcement;
(g) Schedule III attached hereto sets forth the description and
------------
location of all Collateral not located at the Debtor's principal place of
business, together with a list of the record owners of the real estate on
which any Collateral constituting fixtures is located; and
(h) No effective financing statements or other similar instrument in
effect covering all or any part of the Collateral is on file in any
recording office, except as may have been filed in favor of Secured Party
relating to this Agreement and as filed to perfect the Permitted
Encumbrances.
4. Affirmative Covenants of the Debtor.
-----------------------------------
(a) The Debtor shall promptly notify and provide the Secured Party
with a complete description of the opening of any new places of business,
the closing of any existing places of business, the conduct of business
under any names or through any entities other than those set forth herein,
the relocation of any of the Collateral to any new place of business or any
other act which would affect the financing statements filed by the Secured
Party;
(b) The Debtor shall continuously take all steps that are necessary
or prudent to protect the security interests of the Secured Party in the
Collateral;
(c) The Debtor shall defend the Collateral against the claims and
demands of all persons;
(d) The Debtor shall deliver and pledge to the Secured Party,
endorsed or accompanied by instruments of assignment or transfer
satisfactory to the Secured Party, any instruments, documents, and chattel
paper which the Secured Party may reasonably specify, including without
limitation the promissory notes identified in Exhibit 1 attached hereto;
---------
(e) The Debtor shall comply, in all material respects, with all
governmental regulations applicable to the Collateral or any part thereof
or to the operation of the
<PAGE>
Debtor's business; provided, however, that the Debtor may contest any
governmental regulation in any reasonable manner which shall not in the
reasonable opinion of the Secured Party adversely affect the Secured
Party's rights or the first priority of its security interest in the
Collateral;
(f) The Debtor shall pay promptly when due, all taxes, assessments
and governmental charges or levies imposed upon the Collateral or in
respect of its income or profits therefrom, as well as all claims of any
kind, except that no such charge need be paid if (i) the validity thereof
is being contested in good faith by appropriate proceedings, (ii) such
proceedings do not involve any danger of the sale, forfeiture or loss of
any of the Collateral or any interest therein; and (iii) such charge is
adequately reserved against in accordance with the generally accepted
accounting principles;
(g) The Debtor shall cause the Equipment to be maintained and
preserved in good working order, and shall make all repairs, replacements,
additions, and other improvements necessary to maintain the Equipment in
such condition;
(h) The Debtor shall exercise its best efforts to preserve all
beneficial Related Contracts;
(i) The Debtor shall take all commercially reasonable steps necessary
to collect the Receivables;
(j) The Debtor shall use its best efforts to assure that (i) no
Receivable is or shall be subject to any defense, offset, counterclaim, or
discounts or allowances other than such as customarily arise in the
ordinary course of Debtor's business, (ii) all statements made and all
unpaid balances appearing in the invoices, documents, agreements relating
to each Receivable are and shall be true, genuine, and correct in all
respects, and (iv) no Receivable shall be converted to a note or other
instrument in face amount of $20,000 US or more, or when aggregated with
the unpaid balances of similar notes or instruments exceeds $100,000,
unless the same shall be delivered to the possession of the Secured Party
within ten (10) days of the date of execution of such note or instrument;
(k) The Debtor shall, with respect to any Collateral which consists
of trucks, automobiles, or other motor vehicles, or any other Collateral
required to be titled, deliver all titles thereto to the Secured Party to
be held by the Secured Party and Debtor shall make, execute, and deliver
any and all applications, and take such other action to assure that the
Secured Party is listed of record as the first priority and sole lienholder
on all title certificates;
(l) Debtor shall keep accurate and complete records listing and
describing the Collateral. Secured Party shall have the right at any time
to inspect the Collateral and to audit and make copies of any records or
other writings which relate to the Collateral or the general financial
condition of Debtor. Secured Party may remove such records and writings
for the purpose of having copies made thereof;
(m) The Debtor shall advise the Secured Party promptly, in reasonable
detail, (i) of any lien, security interest, encumbrance, or claim made or
asserted against any of the
<PAGE>
Collateral, (ii) of any material change, substantial loss or depreciation
in the composition of the Collateral, and (iii) of the occurrence of any
other material adverse effect on the aggregate value, enforceability or
collectibility of the Collateral or on the security interests created
hereunder;
(n) The Debtor shall give, execute, deliver and file or record in the
proper governmental offices, any instrument, paper or document, including,
but not limited to, one or more financing statements under the Uniform
Commercial Code, reasonably satisfactory to the Secured Party, or take any
action which the Secured Party may deem necessary or desirable in order to
create, preserve, perfect, extend, continue, modify, terminate or otherwise
effect any security interest granted pursuant hereto, or to enable the
Secured Party to exercise or enforce any of its rights hereunder; and
(o) The Debtor shall keep, and stamp or otherwise mark, any of its
documents, instruments and chattel paper and its books and records relating
to any of the Collateral in such manner as the Secured Party may reasonably
require.
5. Negative Covenants of the Debtor. Except as otherwise provided in the
--------------------------------
Loan Agreement, including without limitation the provisions of Section VII(G) of
the Loan Agreement respecting Permitted Divestitures, or in this Agreement,
without the prior written consent of the Secured Party, the Debtor shall not:
(a) Transfer, sell or assign any of the Collateral other than
Inventory in the ordinary course of business and Equipment which has become
obsolete or is surplus or is being replaced;
(b) Allow or permit any other security interest or lien to attach to
any of the Collateral;
(c) File, authorize, or permit to be filed in any jurisdiction any
financing statement relating to any of the Collateral unless the Secured
Party is named as sole secured party;
(d) Permit any of the Collateral to be levied upon under any legal
process;
(e) Permit anything to be done that may materially impair the value
of any of the Collateral or the security therein intended to be afforded
hereby; or
(f) Use the Collateral in violation of any law or in any manner
inconsistent with any policy of insurance thereon.
6. Fixtures. It is the intention of the parties hereto that none of the
--------
Collateral shall become fixtures. Without limiting the generality of the
foregoing, the Debtor will, if requested by the Secured Party, use reasonable
efforts to obtain waivers of lien, in form satisfactory to the Secured Party,
from each mortgagee or lessor of real property (other than the Secured Party) on
which any fixtures included in the Collateral is or is to be located.
7. Insurance. Debtor shall, at its own expense, maintain insurance
---------
covering the Collateral against such risks, with such insurers, in such form,
and in such amounts as acceptable to Secured
<PAGE>
Party, but in any event, in such amounts and with such coverage as is customary
in Debtor's type of business. All insurance policies shall be written so as to
be payable in the event of loss to Secured Party as lender loss payee and shall
provide for thirty (30) days' written notice to Secured Party of cancellation or
modification. At the request of Secured Party, all insurance policies shall be
furnished to and held by Secured Party. Debtor hereby collaterally assigns to
Secured Party return premiums, dividends and other amounts which may be or
become due upon cancellation of any such policies for any reason whatsoever and
directs the insurers to pay Secured Party any sums so due. Secured Party is
hereby appointed as attorney irrevocable to collect return premiums, dividends
and other amounts due on any insurance policy and the proceeds of such
insurance, to settle any claims with the insurers in the event of loss or
damage, to endorse settlement drafts, and to cancel, assign, or surrender any
insurance policies, provided that Secured Party shall only exercise the
foregoing powers upon the occurrence of an Event of Default (as defined
hereinbelow). If, while any Secured Obligations are outstanding, and so long as
no Event of Default exists, any return premiums, dividends, other amounts or
proceeds are paid to Secured Party under such policies, Secured Party shall pay
over such return premiums, dividends, other amounts and proceeds in whole or in
part to Debtor for the purpose of repairing or replacing the Collateral
destroyed or damaged, any return premiums, dividends, other amounts and proceeds
so paid over by Secured Party to be secured by this Agreement. If an Event of
Default exists, then the Secured Party may apply such return premiums,
dividends, other amounts and proceeds in whole or in part to the payment or
satisfaction of any of the Secured Obligations in whatever order Secured Party
determines.
8. Receivables. After the occurrence of an Event of Default, Debtor agrees
-----------
that Secured Party may a) communicate with account debtors in order to verify
the existence, amount, and terms of any Receivables, and b) notify account
debtors of the security interests established herein and require that payments
on Receivables be made directly to Secured Party, and upon the request of
Secured Party, Debtor shall notify account debtors and indicate on all billings
that payments and returns are to be made directly to Secured Party. In
furtherance of the foregoing, Debtor hereby appoints Secured Party attorney
irrevocable with full power to collect, compromise, endorse, sell, or otherwise
deal with the Receivables or proceeds thereof and to perform the terms of any
contract in order to create Receivables in Secured Party's name or in the name
of Debtor, provided that Secured Party shall only exercise such power following
the occurrence of an Event of Default. This Agreement may be, but need not be,
supplemented by separate assignments of Receivables and contract rights and, if
such assignments are given, the rights and security interests given thereby
shall be in addition to and not in limitation of the rights and security
interests granted by this Agreement.
9. Events of Default. The following events shall be deemed "Events of
-----------------
Default" hereunder:
(a) The occurrence of an Event of Default under the Loan Agreement or
any of the Loan Documents;
(b) Debtor fails to observe or perform any covenant, warranty, or
agreement required to be observed or performed by it under this Agreement
which is not cured within thirty (30) days after notice from Secured Party;
or
(c) Uninsured loss, theft, damage, or destruction of any substantial
portion of any
<PAGE>
of the Collateral which has a material adverse effect on the ability of the
Debtor to make payments of its Secured Obligations or on the adequacy of
the Collateral as security for the Secured Obligations.
10. Rights and Remedies of Secured Party on Default. Upon the occurrence
-----------------------------------------------
of any Event of Default, Secured Party shall have, by way of example and not of
limitation, the following rights and remedies:
(a) Secured Party may declare the Secured Obligations, or any of
them, to be immediately due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived;
(b) In addition to all other rights and remedies contained in this
Agreement, the Loan Agreement, and in the Loan Documents, Secured Party may
exercise the rights and remedies accorded Secured Party by the Uniform
Commercial Code or by any other applicable law, all of which rights and
remedies shall be cumulative and non-exclusive to the extent permitted by
law;
(c) Secured Party shall have the right to enter and/or remain upon
the Premises of Debtor, or any other place or places where any of the
Collateral is located and kept, without any obligation to pay rent to
Debtor or others, and remove Collateral therefrom to the premises of the
Secured Party or any agent of Secured Party for such time as Secured Party
may desire in order to maintain, collect, sell and/or prepare the
Collateral for sale, liquidation or collection;
(d) Secured Party may require the Debtor at Debtor's cost to assemble
the Collateral and make it available to Secured Party at a place designated
by Secured Party;
(e) Secured Party may take possession of and use and operate the
Collateral in the manner and for the purposes as set forth in Section 11
hereinbelow;
(f) Secured Party may sell, lease, or otherwise dispose of the
Collateral as set forth in Section 12 hereinbelow;
(g) Secured Party shall have the right to set-off, without notice to
the Debtor, any and all deposits or other sums at any time or times
credited or due from Secured Party to Debtor, whether in a special account
or other account or represented by a certificate of deposit (whether or not
matured); which deposit and other sums shall at all times constitute
additional security for the Secured Obligations;
(h) Secured Party may perform any warranty, covenant or agreement
which Debtor has failed to perform under this Agreement; and
(i) Secured Party may take any other action which Secured Party deems
necessary or desirable to protect the Collateral or the security interests
granted herein.
11. Rights of Secured Party to Use and Operate Collateral. Upon the
-----------------------------------------------------
occurrence of any Event of Default, but subject to the provisions of the Uniform
Commercial Code or other
<PAGE>
applicable law, the Secured Party shall have the right and power to take
possession of all or any part of the Collateral, and to exclude the Debtor and
all persons claiming under the Debtor wholly or partly therefrom, and thereafter
to hold, store, and/or use, operate, manage and control the same. Upon any such
taking of possession, the Secured Party may, from time to time, at the expense
of the Debtor, make all such repairs, replacements, alterations, additions and
improvements to and of the Collateral as the Secured Party may reasonably deem
proper. In any such case, subject as aforesaid, the Secured Party shall have the
right to manage and control the Collateral and to carry on the business and to
exercise all rights and powers of the Debtor in respect thereto as the Secured
Party shall deem best, including the right to enter into any and all such
agreements with respect to the leasing and/or operation of the Collateral or any
part thereof as the Secured Party may see fit; and the Secured Party shall be
entitled to collect and receive all rents, issues, profits, fees, revenues and
other income of the same and every part thereof. Such rents, issues, profits,
fees, revenues and other income shall be applied to pay the expenses of holding
and operating the Collateral and of conducting the business thereof, and of all
maintenance, repairs, replacements, alterations, additions, and improvements,
and to make all payments which the Secured Party may be required or may elect to
make, if any, for taxes, assessments, insurance and other charges upon the
Collateral or any part thereof, and all other payments which the Secured Party
may be required or authorized to make under any provision of this Agreement
(including reasonable legal costs and attorneys' fees). The remainder of such
rents, issues, profits, fees, revenues and other income shall be applied to the
payment of the Secured Obligations in such order of priority as the Secured
Party may determine in its sole discretion and any surplus shall be returned to
the Debtor. Without limiting the generality of the foregoing, the Secured Party
shall have the right to apply for and have a receiver appointed by a court of
competent jurisdiction in any action taken by the Secured Party to enforce its
rights and remedies hereunder in order to manage, protect and preserve the
Collateral and continue the operation of the business of the Debtor and to
collect all revenues and profits thereof and apply the same to the payment of
all expenses and other charges of such receivership including the compensation
of the receiver and to the payment of the Secured Obligations as aforesaid until
a sale or other disposition of such Collateral shall be finally made and
consummated.
12. Rights of Secured Party to Sell Collateral. Upon ten (10) days prior
------------------------------------------
written notice by registered or certified mail by Secured Party to Debtor at the
address of the Debtor set forth above (or at such other address or addresses as
the Debtor shall specify in writing by like notice to the Secured Party) of the
time and place of any intended disposition of Collateral, and following the
occurrence of an Event of Default, then Secured Party shall have the right and
power to sell, assign, lease, or otherwise dispose of the Collateral from any
business premises of the Debtor, either at public auction or private sale, by
liquidation sale or other disposition, or as if the sale was being made in the
ordinary course of Debtor's business, with or without notice to the public that
the said sale or disposition is for the benefit of the Secured Party; provided,
however, that if the Collateral is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized market, then Secured
Party shall have the right and power to dispose of the Collateral without prior
notice to Debtor and Debtor expressly waives any rights to notice under such
circumstances. The notices described above shall be deemed to meet any
requirement hereunder or under any applicable law (including the Uniform
Commercial Code) that reasonable notification be given of the time and place of
such sale or other disposition. After deducting all costs and expenses of
collection, storage, custody, sale or other disposition and delivery (including
reasonable legal costs and attorneys' fees) and all other charges against the
Collateral, the residue of the proceeds of any such sale or disposition shall be
applied to the
<PAGE>
payment of the Secured Obligations in such order of priority as the Secured
Party may determine in its sole discretion and any surplus shall be returned to
the Debtor. In the event the proceeds of any sale, lease or other disposition of
the Collateral hereunder are insufficient to pay all of the Secured Obligations
in full, the Debtor will be liable for the deficiency, together with interest
thereon at the maximum rate provided in the Loan Agreement and the cost and
expenses of collection of such deficiency, including, without limitation,
reasonable fees of attorneys, experts, and agents, expenses and disbursements.
13. Attorney-in-Fact. The Secured Party is hereby appointed the attorney-
----------------
in-fact, with full power of substitution, of the Debtor for the purpose of
carrying out the provisions of this Agreement and taking any action and
executing any instruments (including, without limitation, financing or
continuation statements, conveyances, assignments, and transfers) which the
Secured Party may deem necessary or advisable to accomplish the purposes hereof,
which appointment as attorney-in-fact is coupled with an interest and is
irrevocable, provided the Secured Party shall only exercise the power granted
herein following the occurrence of an Event of Default.
14. Waiver, etc. The Debtor hereby waives presentment, demand, notice,
-----------
protest and, except as is otherwise provided herein, all other demands and
notices in connection with this Agreement or the enforcement of the Secured
Party's rights hereunder or in connection with any Secured Obligations or any
Collateral. The Debtor further consents to and waives notice of the granting of
renewals, extensions of time for payment or other indulgences to the Debtor or
to any account debtor in respect of any Receivable, substitution, release or
surrender of any Collateral, addition or release of persons primarily or
secondarily liable on any Secured Obligation or on any Receivable or other
Collateral, or the acceptance of partial payments on any Secured Obligation or
on any account receivable or other Collateral and/or the settlement or
compromise thereof. No delay or omission on the part of the Secured Party in
exercising any right hereunder shall operate as a waiver of such right or of any
other right hereunder. Any waiver of any such right on any one occasion shall
not be construed as a bar to or waiver of any such right on any such future
occasion.
15. Termination; Assignments, etc. This Agreement and the security
------------------------------
interest in the Collateral created hereby shall terminate when all of the
Secured Obligations have been paid, performed, and finally discharged in full.
In the event of a sale or assignment by the Secured Party of all or any of the
Secured Obligations held by it, such Secured Party may assign or transfer its
rights and interests under this Agreement in whole or in part to the purchaser
or purchasers of such Secured Obligations, whereupon such purchaser or
purchasers shall become vested with all of the powers and rights of such Secured
Party hereunder, and such Secured Party shall thereafter be forever released and
fully discharged from any liability or responsibility hereunder, with respect to
the rights and interests so assigned.
16. Notices. All notices, requests, demands and other communications
-------
provided for hereunder shall be in writing (including telegraphic communication)
and shall be either mailed by certified mail, return receipt requested, or
delivered by overnight courier service, to the applicable party at the addresses
first set forth above, or, as to each party, at such other address as shall be
designated by such parties in a written notice to the other party complying as
to delivery with the terms of this Section. All such notices, requests, demands
and other communication shall be effective on the date of first attempted
delivery.
<PAGE>
17. Miscellaneous.
-------------
(a) The powers conferred on the Secured Party hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon
it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for monies actually
received by it hereunder, the Secured Party shall not have any duty as to
any Collateral or as to the taking of any necessary steps to preserve any
right of it or of the Debtor against other parties pertaining to any
Collateral;
(b) No provision hereof shall be amended except by a writing signed
by the Secured Party and the Debtor;
(c) Any provision of this Agreement which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof;
(d) This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the Secured Party and the Debtor;
(e) No delay, failure to enforce, or single or partial exercise on
the part of the Secured Party in connection with any of its rights
hereunder shall constitute an estoppel or waiver thereof, or preclude other
or further exercises or enforcement thereof and no waiver of any default
hereunder shall be a waiver of any subsequent default;
(f) This Agreement shall be governed as to its validity,
interpretation and effect in accordance with the laws of the State of New
Hampshire, except to the extent the laws of other states in which the
Collateral may be located apply as to perfection of security interests in
such Collateral and realization of the proceeds of such Collateral;
(g) As used herein, the term "Uniform Commercial Code" shall mean the
Uniform Commercial Code as adopted by the State of New Hampshire, except
that with respect to issues of perfection of security interests in
Collateral located in other jurisdictions and realization of the proceeds
of such Collateral while located in such jurisdiction it shall mean the
Uniform Commercial Code as adopted by the jurisdiction in which such
Collateral is located; and
(h) DEBTOR AND SECURED PARTY MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN
CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO ENTER INTO THIS AGREEMENT AND
MAKE THE LOAN.
IN WITNESS WHEREOF, the Debtor and the Secured Party have executed and
delivered this Agreement as of the day and year first above written.
<PAGE>
DEBTOR
------
WPI GROUP, INC.,
WPI POWER SYSTEMS, INC.,
WPI MAGNETEC, INC.,
WPI ELECTRONICS, INC.,
WPI TERMIFLEX, INC.,
WPI MICRO PALM, INC.,
WPI MICRO PROCESSOR SYSTEMS, INC.,
WPI DECISIONKEY, INC.,
WPI UK HOLDING, INC.,
WPI UK HOLDING II, INC.,
WPI OYSTER TERMINALS, INC., and
WPI HUSKY COMPUTERS, INC.
/s/ Elizabeth M. Fogelgren By: /s/ John W. Powers
- -------------------------- -----------------------------------------
Witness John W. Powers, for, on behalf of, and as
Duly Authorized Officer or Agent of each
of the above-named corporations
SECURED PARTY
-------------
FLEET BANK - N H
/s/ Curtis W. Little, Jr. By: /s/ Elizabeth M. Fogelgren
- ------------------------- -------------------------------
Witness Elizabeth M. Fogelgren
Assistant Vice President
<PAGE>
SECURITY AGREEMENT
SCHEDULE I
----------
List of Other Business Locations
--------------------------------
<PAGE>
SECURITY AGREEMENT
SCHEDULE II
-----------
List of Other Liens and Encumbrances, etc.
------------------------------------------
<PAGE>
SECURITY AGREEMENT
SCHEDULE III
------------
Other Collateral Location
-------------------------
<PAGE>
Exhibit 10.5
NEGATIVE PLEDGE AGREEMENT
-------------------------
NEGATIVE PLEDGE AGREEMENT (the "Agreement"), made as of this 26th day of
December, 1997, by and between WPI GROUP, INC., WPI UK HOLDING, INC., WPI UK
HOLDING II, INC., each a New Hampshire corporation with executive offices at
1155 Elm Street, Manchester, New Hampshire 03101 (individually and collectively,
the "Pledgor"), and FLEET BANK - NH, a bank organized under the laws of the
State of New Hampshire with a principal place of business at 1155 Elm Street,
Manchester, New Hampshire 03101(the "Bank").
WITNESSETH:
----------
WHEREAS, pursuant to an Amended and Restated Commercial Loan Agreement of
even date (the "Loan Agreement"), Bank has granted to Pledgor and its Domestic
Subsidiaries (defined below) a revolving line of credit loan in the principal
amount of up to Thirty Million Dollars ($30,000,000.00) and a term loan in the
principal amount of Fifteen Million Dollars ($15,000,000.00) (collectively, the
"Loan"), all as set forth and described in the Loan Agreement; and
WHEREAS, the Pledgor owns all of the capital stock of WPI Group (U.K.), an
unlimited company organized under the laws of the United Kingdom and Wales,
which owns all of the capital stock of WPI Oyster-Termiflex Limited and WPI
Husky Computers Limited, corporations organized under the laws of the United
Kingdom (the foregoing entities are collectively referred to herein as the
"Foreign Subsidiaries");
WHEREAS, pursuant to a Security Agreement of even date (the "Security
Agreement"), Pledgor and the other subsidiaries of WPI Group, Inc., namely WPI
Electronics, Inc., WPI Magnetec, Inc., WPI Micro Palm, Inc., WPI Power Systems,
Inc., WPI Termiflex, Inc., WPI Micro Processor Systems, Inc., and WPI
DecisionKey, Inc., and WPI Oyster Terminals, Inc., each a New Hampshire
corporation, and WPI Husky Computers, Inc., a Florida corporation,
(collectively, the "Domestic Subsidiaries") have granted to Bank a security
interest in all of the assets and properties of the Pledgor and the Domestic
Subsidiaries; and
WHEREAS, the Bank has agreed that for the convenience of the Pledgor's
business operations, the Bank shall not require that the Foreign Subsidiaries be
co-borrower's or guarantors of the Loan, or grant a security interest in their
assets, provided that the Pledgor shall execute and deliver this Agreement
agreeing not to authorize or consent to the transfer or pledge of any of the
assets of the Foreign Subsidiaries. Terms not otherwise defined herein shall
have the meanings ascribed to them in the Loan Agreement.
NOW, THEREFORE, in consideration of the willingness of the Bank to make the
Loan to Pledgor and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE>
1. Warranties and Representations of the Pledgor. Pledgor hereby makes
---------------------------------------------
the following representations and warranties which shall survive the execution
and delivery of this Agreement and shall be continuing representations and
warranties:
(a) The Foreign Subsidiaries are wholly-owned subsidiaries of
Pledgor;
(b) The Foreign Subsidiaries own their assets free and clear of any
leases, liens, security interests, encumbrances or interests or claims of
any other person or entity, except as set forth on the attached Schedule A;
----------
(c) To the best of Pledgor's knowledge, after due inquiry, the
Pledgor has not performed any acts which might prevent the Bank from
enforcing any of the material terms and conditions of this Agreement or
which would limit the enforceability of this Agreement; and
(d) Each of the Foreign Subsidiaries is duly organized, validly
existing, and in good standing under the laws of the jurisdiction it was
incorporated or otherwise formed; has the power to own its properties and
to carry on its business as now being conducted; and has the power to own
its properties and to carry on its business as now being conducted.
2. Covenants of the Pledgor.
------------------------
(a) Subject to the provisions of Section VII(G) of the Loan
Agreement respecting Permitted Divestitures, the Pledgor shall not without
the Bank's prior written consent, which may be granted or withheld in the
Bank's sole discretion, directly or indirectly authorize, consent to or
permit the transfer, sale, assignment, pledge, encumbrance or other
conveyance of any of the assets or other property interests of the Foreign
Subsidiaries, or the granting of a security interest in any such assets
other than sales in the ordinary course of business or sales of equipment
in any fiscal year not having an aggregate value in excess of 100,000
English pounds sterling, it being understood that any such consent or
authorization by any officer or director of the Pledgor who serves as a
director or officer of a Foreign Subsidiary shall constitute the consent or
authorization of Pledgor for purposes of the covenants contained in this
Section 2;
(b) The Pledgor shall not permit any of the assets of the Foreign
Subsidiaries to be levied upon, attached or otherwise encumbered through
legal process, and if so levied upon, attached or otherwise encumbered
shall cause such levy, attachment or other encumbrance to be removed within
thirty (30) days of levy, attachment or other encumbrance; and
(c) The Pledgor shall not directly or indirectly authorize, consent
to or permit any of the Foreign Subsidiaries to provide any covenant to, or
enter into any agreement with, any third party identical to, substantially
similar to, or of the general nature of the covenant provided by the
BORROWER to the BANK in subsection (a) above.
<PAGE>
3. Miscellaneous.
-------------
(a) No provision hereof shall be amended except by a writing signed
by the Bank and the Pledgor;
(b) Any provision of this Agreement which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof;
(c) This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the Bank and the Pledgor;
(d) No delay, failure to enforce, or single or partial exercise on
the part of the Bank in connection with any of its rights hereunder shall
constitute an estoppel or waiver thereof, or preclude other or further
exercises or enforcement thereof and no waiver of any default hereunder
shall be a waiver of any subsequent default;
(e) This Agreement shall be governed as to its validity,
interpretation and effect in accordance with the laws of the State of New
Hampshire; and
(f) PLEDGOR AND BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN
CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO ENTER INTO THIS AGREEMENT AND
MAKE THE LOAN.
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Bank have executed and delivered
this Agreement all as of the day and year first above written.
PLEDGOR
-------
WPI GROUP, INC.
WPI UK HOLDING, INC.,
WPI UK HOLDING II, INC.,
/s/ Elizabeth M. Fogelgren
/s/ Michael Tule By: /s/ John W. Powers
- ------------------------------ ---------------------------------
Witness John W. Powers, for, on behalf of, and as
Duly Authorized Officer or Agent of each
of the above-named corporations
BANK
----
FLEET BANK N-H
/s/ Curtis W. Little, Jr. By: /s/ Elizabeth M. Fogelgren
- ------------------------------ ---------------------------------
Witness Elizabeth M. Fogelgren
Assistant Vice President
<PAGE>
NEGATIVE PLEDGE AGREEMENT
SCHEDULE A
----------
List of Permitted Encumbrances
------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF WPI GROUP, INC., FOR THE THREE MONTHS ENDED DECEMBER 28, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> DEC-28-1997
<CASH> 53,032
<SECURITIES> 0
<RECEIVABLES> 17,523,375
<ALLOWANCES> 1,215,000
<INVENTORY> 9,915,653
<CURRENT-ASSETS> 30,226,446
<PP&E> 18,995,511
<DEPRECIATION> 3,347,936
<TOTAL-ASSETS> 80,664,506
<CURRENT-LIABILITIES> 10,819,002
<BONDS> 0
0
0
<COMMON> 60,108
<OTHER-SE> 23,191,915
<TOTAL-LIABILITY-AND-EQUITY> 80,664,506
<SALES> 21,843,614
<TOTAL-REVENUES> 21,843,614
<CGS> 13,044,671
<TOTAL-COSTS> 13,044,671
<OTHER-EXPENSES> 6,601,077
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 857,220
<INCOME-PRETAX> 1,340,646
<INCOME-TAX> 429,000
<INCOME-CONTINUING> 911,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 911,646
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
