-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QH+b0SikXnc5/w1sVqoqogWw1A13Zj75vqMU75eSkMUXaxTCG1jnGtH+T5GMGBJS eV8p9JMPLXAokhUQ2ckiJQ== 0000881771-00-000041.txt : 20001225 0000881771-00-000041.hdr.sgml : 20001225 ACCESSION NUMBER: 0000881771-00-000041 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000924 FILED AS OF DATE: 20001222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEXIQ TECHNOLOGIES INC CENTRAL INDEX KEY: 0000881771 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COILS, TRANSFORMERS & OTHER INDUCTORS [3677] IRS NUMBER: 020218767 STATE OF INCORPORATION: NH FISCAL YEAR END: 0928 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-72391 FILM NUMBER: 794623 BUSINESS ADDRESS: STREET 1: 1155 ELM ST CITY: MANCHESTER STATE: NH ZIP: 03101 BUSINESS PHONE: 6036273500 MAIL ADDRESS: STREET 1: 1155 ELM STREET CITY: MANCHESTER STATE: NH ZIP: 03101 FORMER COMPANY: FORMER CONFORMED NAME: WPI GROUP INC DATE OF NAME CHANGE: 19940303 FORMER COMPANY: FORMER CONFORMED NAME: WALKER POWER INC DATE OF NAME CHANGE: 19930328 10-K405 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 24, 2000 OR [ ] 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 NEXIQ TECHNOLOGIES, INC. ------------------------ (formerly WPI GROUP, INC.) -------------------------- (Exact Name of Registrant as Specified in Its Charter) New Hampshire 02-0218767 - -------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1155 Elm Street, Manchester, New Hampshire 03101 - ------------------------------------------ ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number: (603) 627-3500 -------------- Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Common Stock, par value $.01 per share - --------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 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 ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ] As of December 8, 2000, the aggregate market value of the 6,289,178 outstanding shares of voting stock held by non-affiliates of the registrant was $14,150,651. As of December 8, 2000, 7,891,963 shares of the Registrant's Common Stock, par value $.01 per share, were issued and outstanding. Documents Incorporated by Reference ----------------------------------- None. PART I Item 1. Business - ----------------- This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that reflect the Company's current view with respect to future events and financial performance. When used in this report, the words "anticipates," "believes," "expects," "intends," "plans," "future," and similar expressions identify forward-looking statements. The future events described in these statements involve risks and uncertainties, among them risks and uncertainties related to the market acceptance of the Company's products and continuing development of its products, general market conditions and competition. Actual results could differ materially from those projected in the forward-looking statements as a result of factors set forth throughout this document. In particular, there can be no assurance that the strategic initiatives detailed below will be achieved within the times currently contemplated by management, if at all. In addition, there can be no assurance that the net values shown on the Company's financial statements for the discontinued operations will be realized. Further, much of the Company's future growth is dependant on the successful launch of NEXIQ Technologies' e-Technician product. There is no assurance that the product will succeed even after introduction to the market. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements, whether as a result of new information, future events or otherwise. Readers should be advised to read this Form 10-K in its entirety and other reports or documents the Company files from time to time with the Securities and Exchange Commission, particularly the quarterly reports on Form 10-Q and any current reports on Form 8-K, copies of which may be obtained from the Company or from the Securities and Exchange Commission at its website at www.sec.gov. General - ------- In April 1999, the Board of Directors (the "Board") instructed management to begin exploring various strategic alternatives for maximizing stockholder value. As a result, management reviewed the strategic alternatives to strengthen the Company's financial position and to position the Company for future growth. These alternatives included the sale and/or retention of the Company's operating businesses in various combinations. Management reported on the various alternatives to the Board at numerous board meetings and ultimately, the Board approved certain strategic initiatives to enhance stockholder value. The Board authorized a series of initiatives designed to reposition the Company as a provider of vehicle diagnostic equipment and software solutions. Accordingly, the Company divested and exited its handheld computer and terminals business, its power conversion business and its instrument and solenoid businesses. The Company's strategic goal is to continue and expand its leadership position in the development, manufacture and marketing of remote diagnostic services ("telematics"), as well as diagnostic and repair hardware and software for the automotive, heavy-duty vehicle, construction and agricultural equipment market, through its wholly owned subsidiary, WPI Micro Processor Systems, Inc. (d/b/a NEXIQ Technologies). Accordingly, the Company's non core businesses are reflected as "discontinued operations" throughout this annual report. As of November 2000, the Company completed its divestiture and exit of its non core business strategy. At the Company's annual shareholder meeting on November 2, 2000, the Company's shareholders approved a number of proposals including changing the Company's name from WPI Group, Inc. to NEXIQ Technologies, Inc. ("NEXIQ" or the "Company"). References to "NEXIQ Technologies" in this report shall include only the Company's Vehicle Diagnostic Equipment and Software business and are identified as "continuing operations." References to "the Company" or "NEXIQ" shall include both continuing operations and discontinued operations. Historically, NEXIQ designed, manufactured and marketed high value-added products for a wide range of applications through two operating groups: Information Solutions and Industrial Technology. The Information Solutions Group produced three distinct product lines: vehicle diagnostic equipment and software, rugged handheld computers and rugged handheld terminals. During fiscal 2000, the Company exited and divested the handheld computer and terminal businesses. The businesses that formerly comprised the Information Solutions Group and the handheld computer and terminals businesses are reflected as discontinued operations. 2 The Industrial Technology Group produced four distinct product lines: industrial power conversion systems, electronic ballasts, precision solenoids and precision instruments. In December 1999, the Company sold the industrial power conversion systems and the electronic ballasts businesses. In November 2000, the Company completed the sale of its precision solenoid and precision instruments businesses. Accordingly, each are reflected as discontinued operations in the financial statements. The Company was incorporated in New Hampshire in 1948 and its corporate headquarters are located at 1155 Elm Street, Manchester, New Hampshire 03101. The telephone number is (603) 627-3500. Products NEXIQ - Continuing Operations NEXIQ Technologies provides its transportation customers a line of diagnostic hardware and software solutions for monitoring the functions of critical vehicle components and for making parameter changes as required. The products range from devices or system-specific application cartridges to complete personal computers (PC) and Internet-based solutions for in-field diagnosis of vehicle failures. In 1988, NEXIQ introduced the Pro-Link 9000 scan tool for the automotive and heavy-duty vehicle diagnostic and repair markets. This product has been extremely successful and has been, over its 12-year history, the tool of choice, with more original equipment manufacturers ("OEM") endorsements than any other tool of its type in the industry. NEXIQ has continuously updated the Pro-Link 9000 using the latest developments in hardware and software technology. This effort continues to further enhance the tool and keep the design current. Today, over 120,000 Pro-Link 9000 applications have been sold, mainly for use in the heavy-duty vehicle market, with a significant number also employed in the automotive sector. From this base business, NEXIQ has continued to expand its product offerings and today provides a broad range of test and development solutions for heavy-duty vehicle applications, and diagnostic application development. Application coverage includes both the hardware and software to test many types of electronic control modules ("ECMs") for engines, transmissions, braking systems, instrument clusters, passenger safety systems and others. NEXIQ's other product offerings include exhaust emission analyzers, smoke meters and various handheld electronic system testers. In 1998, NEXIQ introduced two new products of significant strategic importance for the Company and the heavy-duty vehicle industry. These products are known as the MagicKey "PDM" (parallel data module) and the "SDM" (serial data module). These devices act as a bridge between the vehicle datastream and a standard PC or laptop. In use, they are connected to either the PC's parallel or serial data port and the vehicle's diagnostic connector. Using either NEXIQ's unique software, which combines proprietary OEM data with NEXIQ's own in-house software, or OEM developed software, the vehicle's on-board systems can be thoroughly analyzed. Data captured and interpreted by these devices is presented to the service technician to facilitate the repair or adjustment of the vehicle. NEXIQ's newest product, e-Technician, is an Internet-based, wireless telematics application that allows component manufacturers, OEM's and fleet managers to access and control their mobile assets from any location. e-Technician is capable of monitoring hundreds of data points on a vehicle's electronic data bus via the Internet. It provides remote monitoring of a vehicle's sensors and provides real-time analysis for compontent manufacturers, OEM's, fleet managers and leasing companies. The Company believes that e-Technician will play an essential role in future vehicle service, maintenance and telematics services, bringing advanced business value to transport logistic operations across many industries. With e-Technician, companies will perform diagnostic services remotely, including the reprogramming of on-board computers to enter new configurations and calibration data. e-Technician will also link to other business applications, such as trip and maintenance scheduling applications, and to still other applications measuring vehicle and fleet profitability. e-Technician is scheduled for launch in May/June 2001. The Company has numerous demonstration units currently in field trials. 3 Customers NEXIQ - Continuing Operations For fiscal 2000, 1999 and 1998, a distributor of certain NEXIQ Technologies' products represented approximately 36%, 51% and 60%, respectively, of NEXIQ Technologies' net sales. Another customer represented approximately 16% of NEXIQ Technologies' net sales in fiscal 1999. Company - Including Continuing and Discontinued Operations For fiscal 2000 and 1999, one customer represented 10% or more of NEXIQ's net sales. for Fiscal 1998, no customer represented 10% or more of NEXIQ's net sales. Sales and Marketing NEXIQ - Continuing Operations The sale of vehicle diagnostic equipment and software is carried out by a group of 24 sales and marketing employees. NEXIQ Technologies' products are distributed through a number of traditional channels as well as through NEXIQ Technologies' own direct telemarketing operation. NEXIQ Technologies also sells its products through a number of independent distributors located in North America. NEXIQ Technologies' automotive products are sold through several independent warehouse distributors and through NEXIQ Technologies' direct sales catalog. NEXIQ Technologies offers a full range of pre- and post-sales support. Pre-sales support is provided primarily by NEXIQ Technologies sales engineers. Post-sales support is primarily provided through the 1-800 hot line. Together, these organizations ensure the successful application of NEXIQ Technologies' technology and the satisfaction of its clients. Company - Including Continuing and Discontinued Operations NEXIQ's marketing efforts are directed at identifying emerging markets for its products. NEXIQ's cooperative marketing efforts and design capabilities often result in long-term customer relationships and have contributed to a stable customer base. Further, such cooperative efforts enable NEXIQ to identify new product opportunities and participate in new product specifications as they are determined. Other marketing efforts include market research, lead generation, production and distribution of NEXIQ's product literature, trade shows and advertising. Manufacturing and Raw Materials Each of NEXIQ's businesses (both continuing and discontinued operations) manufactures nearly 100% of their products. NEXIQ businesses generally operate their manufacturing facilities one shift per day, five days per week. NEXIQ's businesses use many different raw materials in their manufacturing processes. However, none of NEXIQ's businesses are dependent on any one or several raw materials used in their manufacturing. NEXIQ's businesses have multiple sources for each raw material used in the manufacture of their products and are not dependent on any one or group of its vendors for their raw material purchases. Backlog NEXIQ manufactures its products against orders from customers. Backlog is comprised of orders for products that generally have scheduled shipment dates within 12 months. Some orders in NEXIQ's backlog may be canceled under certain conditions, although cancellation rarely occurs. NEXIQ - Continuing Operations As of September 24, 2000, NEXIQ Technologies had a backlog of approximately $800,000, compared with a total backlog of approximately $500,000 at September 26, 1999. Management believes that most of NEXIQ Technologies' backlog at September 24, 2000 will be shipped in the 12 months following that date. Because many of its contracts are performed within short time periods after receipt of an order, NEXIQ Technologies does not believe that the level of its backlog is a meaningful predictor of its future results. 4 Company - Including Continuing and Discontinued Operations As of September 24, 2000, NEXIQ had a backlog of approximately $8.2 million, compared with a total backlog of approximately $20.3 million at September 26, 1999. Management believes that most of NEXIQ's backlog at September 24, 2000 will be shipped in the 12 months following that date. Because many of its contracts are performed within short time periods after receipt of an order, NEXIQ does not believe that the level of its backlog is a meaningful predictor of its future results. Product Development NEXIQ - Continuing Operations In its 20-year history NEXIQ Technologies has established widespread recognition for new product innovation and has introduced a number of " first-to-market" products that have not only contributed significantly to sales but have also helped shape the vehicle diagnostic and repair industry in North America. In addition, NEXIQ Technologies develops both hardware and software products based on existing products and technologies for specific customer needs. NEXIQ Technologies' new product development is focused on the development of its e-Technician vehicle diagnostic platform and Internet-based diagnostic service as well as its facility based tools. NEXIQ Technologies charged to operations approximately $3.4 million, $2.1 million and $1.5 million for new product development in fiscal 2000, 1999 and 1998, respectively. Expenditures on new product development represented approximately 25.6%, 16.9% and 10.4% of net revenues in fiscal 2000, 1999 and 1998, respectively. Company - Including Continuing and Discontinued Operations NEXIQ believes that its commitment to product development is a critical element of its strategy aimed at exploiting niche markets for each group's products. NEXIQ's product development activities are focused on the design of products identified by both its customers and its sales and marketing groups. A key element of NEXIQ's product development activities is the expansion of product offerings based on its existing technologies. NEXIQ charged to operations approximately $5.3 million, $7.7 million and $5.1 million for product development in fiscal 2000, 1999 and 1998, respectively. Expenditures on new product development represented approximately 11.3%, 8.4% and 5.4% of net revenues in fiscal 2000, 1999 and 1998, respectively. Patents and Proprietary Information NEXIQ (including continuing and discontinued operations) have a number of United States and foreign patents on certain products. NEXIQ's businesses also rely on trade secrets, in-house expertise and technological advancement to maintain their competitive positions. NEXIQ does not believe patent protection to be significant to any of its current businesses. However, NEXIQ considers its patents to be a strong deterrent against unauthorized copying of its products and key product attributes. NEXIQ believes in vigorously protecting its rights under its patents. Similarly, each of NEXIQ's businesses has certain registered trademarks, none of which is considered significant to current operations. Competition Although NEXIQ believes it is one of the leading manufacturers and distributors of certain of its products, the industries in which NEXIQ competes are highly competitive. NEXIQ competes with a relatively small number of full-line national manufacturers and a much larger number of regional manufacturers and manufacturers with limited product lines. NEXIQ believes that competition is largely based on, among other things, price, quality, breadth of product lines, distribution capabilities (including quick delivery times) and customer service. Certain of NEXIQ's competitors are larger and have greater financial, technical and marketing resources than the Company. In certain circumstances, due primarily to factors such as freight rates, quick delivery times and customer preference for local suppliers, certain manufacturers and suppliers may have a competitive advantage over NEXIQ in a given geographic region. 5 NEXIQ - Continuing Operations Currently, NEXIQ Technologies' diagnostic systems and related software are sold primarily to the transportation industry. The major competitive factors in this market include product features, portability, product knowledge and customer service. NEXIQ Technologies has a number of competitors in certain segments of the transportation market. Management believes that NEXIQ Technologies competes effectively in these markets by offering innovative, rugged and portable products and by providing excellent customer service. At the present time, management does not believe that there are any products which are competitive with e-Technician telematics services (command and control applications). There can be no assurance, however, that products competitive with e- Technician are not in the process of development or will not be introduced in the future. However, management believes that NEXIQ Technologies has a number of key strengths that give it an advantage over companies wishing to introduce a product competitive with e-Technician. These strengths include access to and understanding of non-proprietary and proprietary original equipment manufacturer data streams, an in-depth knowledge and expertise in on-board/off-board communication protocols, an in-depth knowledge and expertise in the diagnosis and reprogramming of electronic control units, and well-established links with other key players in the heavy-duty diagnostic industry which management believes will assist in the deployment and market penetration of e-Technician. Competition - Discontinued Operations Precision Solenoids NEXIQ has several established competitors in the market for solenoids, some of which are larger and some of which are smaller than the discontinued Precision Solenoid operation. NEXIQ believes that, in these markets, it competes favorably against its competitors by offering high-quality, dependable products, superior engineering expertise and innovative, custom-tailored solutions. Precision Instruments NEXIQ has several established competitors in the market for avionics, inertial sensors and digital and analog meters. Some of these competitors are larger and some are smaller than the discontinued Precision Instruments operation. NEXIQ believes that it competes favorably against its competitors in these markets by offering vertical integration, high-quality dependable products, superior engineering expertise and a high level of customer support. Employees NEXIQ - Continuing Operations As of December 8, 2000 NEXIQ employed approximately 77 people, 15 of whom work in manufacturing, 23 of whom work in sales and marketing, 29 of whom work in engineering and product development and 10 of whom work in administration. None of the NEXIQ's employees are represented by a union, and management believes that NEXIQ's employee relations are good. Company - Including Continuing and Discontinued Operations As of December 8, 2000, NEXIQ employed approximately 84 people, 15 of whom work in manufacturing, 16 of whom work in administration, 29 of whom work in product development and 24 of whom work in sales and marketing. None of the Company's employees are represented by a union, and management believes that the Company's employee relations are good. Item 2. Property - ---------------- Properties The Company leases approximately 22,000 square feet of modern manufacturing and engineering facilities in Sterling Heights, Michigan, to produce diagnostic tools. The Company leases approximately 4,600 square feet of office space in Manchester, New Hampshire, which houses its corporate offices. NEXIQ believes that its existing space is adequate for its current needs. 6 Regulatory Matters The Company is subject to regulation under various and changing federal, state, local and foreign laws and regulations relating to the environment and to employee safety and health. These environmental laws and regulations govern the generation, storage, transportation, disposal and emission of various substances. Permits are required for operation of the Company's business and these permits are subject to renewal, modification and, in certain circumstances, revocation. The Company believes that it is in substantial compliance with such laws and permitting requirements. The Company is also subject to regulation under various and changing federal, state, local and foreign laws and regulations that allow regulatory authorities to compel (or seek reimbursement for) cleanup of environmental contamination at its own sites and at facilities where its waste is or has been disposed. The Company expects to incur on going capital and operating costs to maintain compliance with currently applicable environmental laws and regulations. The Company does not expect such costs, in the aggregate, to be material to its financial condition, results of operations or liquidity. Item 3. Legal Proceedings - ------------------------- The Company is not a party to any litigation that in management's opinion would have a material adverse effect upon the Company's financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ Not applicable. Part II Item 5. Market for Registrant's Common Stock and Related - -------------------------------------------------------- Stockholder Matters - ------------------- The NEXIQ Technology, Inc.'s common stock is traded on the OTC Bulletin Board under the symbol NEXQ (formerly WPI Group, Inc. OTCBB: WPIC.) Set forth below for each quarter of its last two fiscal years indicated is the high and low sale prices for the Company's common stock. 2000 1999 Fiscal Quarter High Low High Low - ---------------------------------------------------------------- First $3 1/2 $1 5/16 $7 7/8 $4 Second 2 11/16 1 1/8 4 5/8 3 7/16 Third 2 1/16 1 4 1/8 3 Fourth 2 1/8 1 3/8 4 1/8 2 13/16 The number of shareholders of record on December 8, 2000 was approximately 2,400. No dividends have been paid on the common stock to date, and the Company does not expect to pay cash dividends in the foreseeable future. In addition, the Company is prohibited from paying cash dividends pursuant to the terms of its credit facility with its lenders. 7 Item 6. Selected Financial Data - -------------------------------
Financial Highlights Year Ended September 24, September 26, September 27, September 28, September 29, (in thousands, 2000 1999 1998 1997 1996 except per share ------------- ------------- ------------- ------------- ------------ data) Statement of Income Data: Net Sales $ 13,352 $ 12,289 $ 14,514 $ 11,364 $ 8,661 Gross Profit 7,920 7,427 8,075 6,136 4,147 Operating income (loss) from continuing operations (4,528) (3,367) (12) 4 (1,521) Loss from continuing operations (8,978) (3,975) (165) (48) (908) Income (loss) from discontinued operations, net of income taxes (5,150) (29,230) 2,651 1,164 3,429 Cumulative effect of change in accounting principle - (2,822) - - - Net income (loss) (14,128) (36,027) 2,486 1,116 2,521 ============= ============= ============= ============ =========== Diluted income (loss) per share: Continuing operations $ (1.43) $ (0.66) $ (0.03) $ (0.01) $ (0.15) Discontinued operations (0.82) (4.83) 0.43 0.19 0.57 Accounting change - (0.47) - - - Net income (loss) $ (2.25) $ (5.96) 0.40 0.18 0.42 ============= ============= ============ ============ =========== Adjusted Weighted Average Shares 6,290 6,044 6,195 6,163 6,001 Balance Sheet Data: Working Capital (deficit) $ (13,854) $ (11,837) $ 21,327 $ 16,967 $ 12,156 Total Assets 13,058 64,557 110,123 78,501 50,675 Long-Term Debt - - 62,639 42,000 18,650 Stockholders' Equity (deficit) (21,466) (10,974) 25,243 21,813 20,549 ============= ============= ============ ============= ===========
Item 7. Management's Discussion and Analysis of Financial - --------------------------------------------------------- Condition and Results of Operations - ----------------------------------- RESULTS OF OPERATIONS FISCAL 2000 COMPARED TO FISCAL 1999 Net sales increased 9.2% to $13.4 million in 2000 from $12.3 million in 1999. The increase was primarily due to increase in sales by NEXIQ to its primary target markets. Gross profit in 2000 increased 6.6% to $7.9 million from $7.4 million in 1999. As a percentage of sales, gross profit decreased to 59.3% from 60.7% in 1999. The increase in gross profit was the result of the increase in sales during 2000. The decrease in gross profit as a percentage of sales was due primarily to change in product mix. Research and new product development expenses increased 65.3% to $3.4 million in 2000 from $2.1 million in 1999. As a percentage of sales, research and new product development expenses increased to 25.6% in 2000 from 16.9% in 1999. The increase was attributed to the continued development of E-Technician, a web-based remote diagnostic platform. 8 Selling, general and administration expenses decreased 12.5% to $7.2 million in 2000 compared to $8.2 million in 1999. As a percentage of sales, selling, general and administration expenses decreased to 53.9% from 67.2% in 1999. The changes in selling, general and administration expenses in 2000 are primarily attributed to a reduction in executive and administrative personnel. During fiscal 2000 and 1999, the Company entered into various severance agreements with certain former executives. In connection with the agreements, the Company recorded a restructuring charge of $1.8 million and $510,000 in 2000 and 1999, respectfully, consisting primarily of the continuation of payroll and benefits payments subsequent to termination. The Company's operating loss in 2000 of $4.5 million compared to $3.4 million in 1999. The increase in the Company's operating loss was due to the increase in research and new product development costs, and the restructuring and non-recurring costs discussed above. Other income (expense) was ($4.4) million compared to ($608,000) in 1999. The increase was due primarily to higher interest expense and $1.1 million of fees incurred in connection with the execution of a forbearance agreement related to the Company's bank debt. The Company recognized a loss on disposal of discontinued operations of ($5.2) million in 2000. The loss was primarily attributable to a higher than anticipated loss on the sales of its rugged handheld computer and terminal businesses and subsequent sale of its instruments and solenoid businesses. FISCAL 1999 COMPARED TO FISCAL 1998 Net sales decreased 15.7% to $12.3 million in 1999 from $14.5 million in 1998. The decrease was primarily due to decrease in sales by NEXIQ Technologies to its principal distributor. During 1999, sales to the primary distributor decreased from $8.8 million in 1998 to $6.3 million in 1999. Gross profit in 1999 decreased 8.0% to $7.4 million from $8.1 million in 1998. As a percentage of sales, gross profit increased to 60.7% from 55.6% in 1998. The decline in gross profit was the result of the decrease in sales during 1999. The increase in gross profit as a percentage of sales was due primarily to change in product mix. Research and new product development expenses increased 37.3% to $2.1 million in 1999 from $1.5 million in 1998. As a percentage of sales, research and new product development expenses increased to 16.9% in 1999 from 10.4% in 1998. The increase was due in part to the change in the Company's accounting method for deferred product enhancement costs. Selling, general and administration expenses increased 24.9% to $8.2 million in 1999 compared to $6.6 million in 1998. As a percentage of sales, selling, general and administration expenses increased to 67.2% from 45.3% in 1998. The increase in selling, general and administration expenses was due primarily to increases in corporate expenses. The Company's operating loss in 1999 of $3.4 million compared to $12,000 in 1998. The increase in the Company's operating loss was due primarily to lower sales and high operating expenses as discussed above. Other income (expense) increased to ($0.6 million) in 1999 from ($0.2 million) in 1998. The increase was due primarily to an increase in interest expense on debt. The Company's loss from discontinued operations in 1999 was $8.8 million compared to income from discontinued operations of $2.7 million in 1998. The loss was the result of the increased costs and operating expenses as a result of the acquisition of Instruments in August 1998, lower sales in the Company's rugged handheld computer and terminal, power conversions and electronic ballasts businesses and higher interest expense from additional borrowings and higher interest rates. 9 LIQUIDITY AND CAPITAL RESOURCES As of September 24, 2000, the Company had a working capital deficit of $13.9 million compared to $11.8 million as of September 26, 1999. Net cash provided by (used in) operations was ($1.3 million) in 2000 compared to $1.8 million in 1999. As of September 24, 2000, the Company had no material commitments for capital expenditures. On July 31, 2000, the Company entered into a Convertible Note Agreement with Sunrise Capital Partners, L.P., a private investment fund ("Sunrise") and certain other participants, which include certain members of the Company's management and certain members of the Allard-Nazarian Group. The Convertible Note Agreement provides for a series of investment transactions: the Term A Financing, Term B Financing and the Term C Financing as follows: Term A Financing On July 31, 2000, the Company completed the Term A Financing. Under the Term A Financing, the Company issued the following securities in exchange for $12,570,000 and notes with outstanding principal of $1,546,000 ($1,500,000 of carrying value) in cash received from Sunrise and certain members of management: - 1,834,000 shares of common stock. The fair value of the common stock issued was approximately $2,751,000. - Warrants to purchase 1,613,000 shares of common stock at $1.75, exercisable at any time at the option of the holder. The warrants expire five years from the date of issuance. The fair value of the warrants was approximately $871,000. - $14,117,000 principal value of Term A Convertible Notes. The Term A Convertible Notes, which mature in three years, bear interest at an annual rate of 10.75%, payable in cash or in additional notes at the option of the Company. The Term A Convertible Notes are convertible at the option of the holder or the Company, under certain conditions, at $1.75 per share. Term B Financing In November 2000, the Company completed the Term B Financing under the Convertible Note Agreement discussed in Note 4. Under the terms of the Term B Financing, the Company received $5,000,000 in cash in exchange for the following securities: - Warrants to purchase 571,000 shaers of common stock at $1.75, exercisable at any time at the option of the holder. The warrants expire in five years. The fair value of the warrants was approximately $309,000. - $5,000,000 principal value of Term B Convertible Notes. The Term B Convertible Notes, which mature on July 31, 2003, bear interest at an annual rate of 10.75% payable in cash or in additional notes at the option of the Company. The Term B Convertible Notes are convertible at the option of the holder or the Company, under certain conditions at $1.75 per share. Term C Financing Through January 31, 2001, Sunrise has the option to participate in up to $5,000,000 in additional financing which would include Term C Convertible Notes (with terms identical to the Term B Convertible Notes) and additional warrants to purchase shares of common stock totaling 20% of the number of shares of common stock issuable upon conversion of the Term C Convertible Notes. On August 9, 2000, the Company amended its credit facility agreement with a syndication of banks. The terms of the modified agreement provide a $6,500,000 revolving line of credit and term notes which expire on July 31, 2001. As of September 24, 2000, there were $18,276,000 of borrowings outstanding under the agreement, consisting of $1,143,000 under the line of credit and $17,133,000 of term notes. Interest on all borrowings is payable monthly at prime (9.5% at September 24, 2000) plus 1.25% through December 31, 2000 and prime plus 1.75% thereafter. The Company intends to utilize the proceeds from the financing transactions under the Convertible Note Agreement to fund operations and repay a portion of the amounts outstanding under the credit facility. The Company anticipates the need to either amend the existing credit facility or obtain additional financing to repay the remaining amounts outstanding under the credit facility when it expires in July 2001. 10 There can be no assurance that the Company will be successful in obtaining additional financing or amending the credit facility. If the Company is unsuccessful, the cash from operations and the financing transactions under the Convertible Note Agreement may not be sufficient to cover the short-term or long-term liquidity requirements. INFLATION The Company does not believe that inflation has had a significant impact on its results of operations in the last three years. 11 Item 8. Financial Statements and Supplementary Data - --------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO NEXIQ Technologies, Inc.: We have audited the accompanying consolidated balance sheets of NEXIQ Technologies, Inc. (formerly WPI Group, Inc.) (a New Hampshire corporation) and subsidiaries as of September 24, 2000 and September 26, 1999 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended September 24, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NEXIQ Technologies, Inc. and subsidiaries as of September 24, 2000 and September 26, 1999 and the results of their operations and their cash flows for each of the three years in the period ended September 24, 2000 in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has a significant working capital deficit and the current bank debt agreement expires July 31, 2001, which unless extended or otherwise modified, raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Arthur Andersen LLP Boston, Massachusetts December 18, 2000 12 NEXIQ TECHNOLOGIES, INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 24, 2000 and September 26, 1999 2000 1999 - ----------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 102,156 $ 1,086,708 Accounts receivable - net of allowance for doubtful accounts of $300,000 and $171,000 in 2000 and 1999, respectively 1,206,472 2,027,808 Inventories 441,151 461,893 Prepaid expenses and other current assets 258,780 339,685 Refundable income taxes 105,551 220,205 Prepaid income taxes 97,425 2,655,419 Net assets of discontinued operations 6,391,000 54,200,000 - ------------------------------------------------------------------------------- Total current assets 8,602,535 60,991,718 =============================================================================== Property, Plant and Equipment, at cost, less accumulated depreciation 889,991 1,668,473 Other Assets 3,565,037 1,896,868 - ------------------------------------------------------------------------------- $ 13,057,563 $ 64,557,059 =============================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Notes payable $ 18,276,246 $ 69,155,487 Accounts payable 1,391,700 1,499,103 Accrued expenses 2,788,878 2,173,763 ------------------------------------------------------------------------------- Total current liabilities 22,456,824 72,828,353 - ------------------------------------------------------------------------------- Convertible Notes Payable 10,978,369 - - ------------------------------------------------------------------------------- Other Long-Term Liability 944,238 - - ------------------------------------------------------------------------------- Deferred Income Taxes 144,537 2,702,987 - ------------------------------------------------------------------------------- Commitments Stockholders' Equity (Deficit) Common stock, $.01 par value; authorized 20,000,000 shares; Issued and outstanding 7,891,963 and 6,050,398 shares in 2000 and 1999, respectively 78,920 60,504 Additional paid-in capital 18,191,200 14,574,134 Accumulated deficit (39,736,525) (25,608,919) - ------------------------------------------------------------------------------- Total stockholders' equity (deficit) (21,466,405) (10,974,281) - ----------------------------------------------------------------------------- $ 13,057,563 $ 64,557,059 ===============================================================================
See notes to consolidated financial statements. 13 NEXIQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 24, 2000, September 26, 1999 - ---------------------------------------------------------- and September 27, 1998 - ---------------------- 2000 1999 1998 - ------------------------------------------------------------------------------- Continuing operations: Net Sales $ 13,351,876 $ 12,228,976 $ 14,513,904 Cost of Sales 5,431,631 4,801,990 6,438,888 - ------------------------------------------------------------------------------- Gross Profit 7,920,245 7,426,986 8,075,016 - ------------------------------------------------------------------------------- Operating Expenses: Research and development 3,416,930 2,067,352 1,506,001 Selling, general and administration 7,191,489 8,216,789 6,581,082 Restructuring costs 1,840,000 510,000 - - ------------------------------------------------------------------------------- Total operating expenses 12,448,419 10,794,141 8,087,083 - ------------------------------------------------------------------------------- Operating Loss (4,528,174) (3,367,155) (12,067) Other Income (Expense): Interest expense (3,351,370) (620,213) (234,896) Bank forbearance fees and expense (1,099,500) - - Other income 1,438 12,373 595 - ------------------------------------------------------------------------------- Loss before provision (benefit) for income taxes (8,977,606) $ (3,974,995) (246,368) Benefit for income taxes - - (81,090) Loss from continuing operations $ (8,977,606) $ (3,974,995) $ (165,278) Discontinued Operations: Income (loss) from discontinued operations (net of applicable income taxes of $1,306,000 in 1998) - (8,849,821) 2,651,760 Estimated loss from disposal of discontinued operations (including applicable income taxes of $180,000 in 2000) (5,150,000) (20,380,000) - - -------------------------------------------------------------------------------- Income (loss) from discontinued operations (5,150,000) (29,229,821) 2,651,760 - -------------------------------------------------------------------------------- Income (loss) before cumulative effect of change in accounting principle (14,127,606) (33,204,816) 2,486,482 Cumulative effect of change in accounting principle, net of applicable income tax benefit of $1,000,000 - (2,822,147) - - -------------------------------------------------------------------------------- Net Income (Loss) $ (14,127,606) $ (36,026,293) $ 2,486,482 ================================================================================ Earnings (Loss) Per Share - Continuing Operations (see Note 2) $ (1.43) $ (0.66) $ (0.03) ================================================================================ Net income (loss) per share (See Note 2) $ (2.25) $ (5.96) $ 0.40 ================================================================================
See notes to consolidated financial statements. 14 NEXIQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended September 24, 2000, September 26, 1999 and September 27, - ---------------------------------------------------------------------------- 1998 - ---- Retained Foreign Common Stock Additional Earnings Currency $.01 Par Value Paid-in (Accumulated Translation Comprehensive - -------------------------------------------------------------------------------------------------------------------- Shares Amount Capital Deficit) Adjustment Total Income - -------------------------------------------------------------------------------------------------------------------- Balance September 28, 1997 5,996,737 $59,967 $13,992,540 $ 7,931,562 $ (171,214) $ 21,812,855 $ - Employee stock 7,582 76 50,226 - - 50,302 - purchase plan Stock bonus plan 3,135 31 25,744 - - 25,775 - Exercise of stock 20,750 208 79,261 - - 79,469 - options Income tax benefit from stock options exercised - - 22,000 - - 22,000 - Foreign currency translation - - - - 765,627 765,627 765,627 Net income - - - 2,486,482 - 2,486,482 2,486,482 - ----------------------------------------------------------------------------------------------------------------------- Comprehensive income $ 3,252,109 ------------- Balance September 27, 1998 6,028,204 $60,282 $14,169,771 $ 10,418,044 $ 594,413 $ 25,242,510 $ - Employee stock 6,803 68 27,317 - - 27,385 - purchase plan Stock bonus plan 2,225 22 9,990 - - 10,012 - Exercise of stock 13,166 132 28,388 - - 28,520 - options Non-employee compensation stock options and warrants - - 337,768 - - 337,768 - Income tax benefit from stock options exercised - - 900 - - 900 - Foreign currency translation - - - - (594,413) (594,413) (594,413) Net (loss) - - - (36,026,963) - (36,026,963) (36,026,963) - ----------------------------------------------------------------------------------------------------------------------- Comprehensive income $ (36,621,376) ------------- Balance September 26, 1999 6,050,398 $60,504 $14,574,134 $(25,608,919) $ - $(10,974,281) $ - Sale of Common stock 1,833,905 18,339 2,732,518 - - 2,750,857 - Sale of warrants to purchase common stock - - 871,212 - - 871,212 - Employee stock 7,485 75 12,911 - - 12,986 - purchase plan Stock bonus plan 175 2 425 - - 427 - Net (loss) - - - (14,127,606) - (14,127,606) (14,127,606) - ------------------------------------------------------------------------------------------------------------------------ Comprehensive loss $(14,127,606) ------------- Balance September 24, 2000 7,891,963 $78,920 $18,191,200 $(39,736,525) $ - $(21,466,405) =========================================================================================================================
See notes to consolidated financial statements. 15 NEXIQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 24, 2000, September 26, 1999 and - -------------------------------------------------------------- September 27, 1998 - ------------------- 2000 1999 1998 - ----------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net Income (loss) $(14,127,606) $(36,026,963) $ 2,486,482 - ----------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,142,058 5,352,969 5,424,802 Loss from disposal of discontinued operations 5,150,000 20,380,000 - Cumulative effect of change in accounting principle - 2,822,147 - Write-off of software development costs - - 1,312,283 Write-off of property and equipment - 523,531 - Non-cash interest expense - 1,221,371 - Deferred income taxes - 236,052 (1,173,110) Non-cash compensation and expenses - 46,000 25,775 Changes in current assets and liabilities, net of effects of acquisitions: Accounts receivable 6,114,729 3,525,293 (5,982,700) Inventories (81,436) (3,149,380) 825,685 Other current assets 104,530 577,773 940,689 Accounts payable (2,131,219) 6,054,951 66,926 Accrued expenses 1,289,144 824,623 632,823 Accrued income taxes 210,596 (616,223) 1,016,789 - ----------------------------------------------------------------------------------------------- Total adjustments 12,798,402 37,799,107 3,089,962 - ----------------------------------------------------------------------------------------------- Net cash provided by (used in) (1,329,204) 1,772,144 5,576,444 operating activities - ----------------------------------------------------------------------------------------------- Cash Flows From Investing Activities Proceeds from sale of discontinued businesses 39,198,151 - - Additions to property, plant and (587,928) (2,934,982) (1,934,052) equipment Proceeds from sales of property, - - 1,462,894 plant and equipment Additions to other assets - (67,000) (2,611,857) Acquisitions, net of cash acquired - - (23,495,000) Payments of accrued acquisition (151,945) (720,140) (362,152) costs - ----------------------------------------------------------------------------------------------- Net cash provided by (used in) 38,458,278 (3,722,122) (26,940,167) investing activities - ----------------------------------------------------------------------------------------------- Cash Flows From Financing Activities Proceeds from debt, net of debt issuance costs 7,536,663 3,266,523 62,893,343 Payments of debt (49,285,771) (465,748) (42,270,664) Issuance of common stock 2,764,270 37,397 50,302 Sale of warrants to purchase common stock 871,212 - - Proceeds from exercise of stock - 28,520 79,469 options Tax benefit on exercise of non- - 900 22,000 statutory options - ---------------------------------------------------------------------------------------------- Net cash provided by (used in) (38,113,626) 2,867,592 20,774,450 financing activities - ---------------------------------------------------------------------------------------------- Effect of Foreign Currency Translation on Cash - 9,576 69,992 - ---------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and (984,552) 927,190 (519,281) Cash Equivalents Cash and Cash Equivalents, Beginning 1,086,708 159,518 678,799 of Year - ---------------------------------------------------------------------------------------------- Cash and Cash Equivalents, End of $ 102,156 $ 1,086,708 $ 159,518 Year ============================================================================================== Supplemental Disclosure of Cash Flow Information Income taxes paid (refunded) $ (114,198) $ 340,558 $ 68,839 Interest paid 7,338,975 5,831,090 3,599,679 - ---------------------------------------------------------------------------------------------- Supplemental Disclosure of Non-Cash Investing Activities Summary of entities acquired: Fair value of assets acquired $ - $ - $ 28,478,663 Cash paid - - (23,495,000) - ---------------------------------------------------------------------------------------------- Liabilities assumed $ - $ - $ 4,983,663 ==============================================================================================
See notes to consolidated financial statements. 16 1. Business and Discontinued Operations - ---------------------------------------- Business - Presently, NEXIQ Technologies, Inc. (formerly WPI Group, Inc.) (the "Company") through its subsidiary WPI Micro Processor Systems, Inc. (d/b/a "NEXIQ Technologies") designs, manufactures and markets diagnostic hardware and software for heavy-duty vehiclesand is developing new capabilities for wireless telematics services for the transportation and logistics market. Prior to 2000, the Company operated through two segments, the Industrial Technology Group (consisting of WPI Electronics, WPI Power Systems, WPI Instruments and WPI Magnetec) and the Information Solutions Group (consisting of WPI Oyster Termiflex/MicroPalm, WPI DecisionKey, WPI Husky Technology and NEXIQ Technologies (formerly WPI Micro Processor Systems, Inc.) The Industrial Technology Group segment provides highly engineered electrical and electronic equipment, electromechanical devices and precision electromechanical instruments. The Information Solutions Group segment is a provider of rugged handheld computers and terminals, as well as vehicle diagnostic systems. Discontinued Operations - During its fiscal 1999, the Company adopted and implemented a restructuring plan intended to focus on its NEXIQ Techologies business unit. In connection therewith the Company decided to divest itself of its Industrial Technology Group segment and a substantial portion of its Information Solutions Group. As a result of this decision, the following transactions were completed: 1. In December 1999,the Company sold its industrial power conversion systems and electronic ballast businesses (WPI Power Systems and WPI Electronics) to a private group of investors for approximately $9.3 million in cash. In November 2000, the Company completed the sale of its instruments and solenoid businesses (WPI Instruments and WPI Magnetec) to private group of investors for approximately $6.1 million in cash and a $1 million promissory note. See Note 12. 2. During fiscal 2000, the Company completed the sale of its rugged handheld computer and terminal business units (WPI Husky Technology and WPI Oyster Termiflex/MicroPalm) in various transactions for approximately $35.1 million plus the assumption of certain liabilities. Also during its fiscal 1999, the Company decided to terminate the software development operations of its expert systems business (WPI DecisionKey). As a result of these actions, the Company's remaining and continuing operations consist solely of NEXIQ Technologies. All other businesses are presented as discontinued operations in the statements of operations in accordance with Accounting Principles Board ("APB") Opinion No. 30. Accordingly, the sales, costs and expenses of these discontinued operations have been excluded from the respective captions in the consolidated statements of operations in all years presented and have been reported as income (loss) from discontinued operations, net of applicable income taxes. The net assets of the discontinued operations have been classified as such on the accompanying balance sheet as of September 24, 2000 and September 26, 1999 as discontinued operations. In fiscal 1999, the Company recorded an estimated loss on disposal of discontinued operations of approximately $20.4 million which includes an estimated loss on the sale of its Industrial Technology Group and its rugged handheld computer and terminal business operations and estimated loss on future results of operations through the estimated date of disposal, including allocated interest expense. In fiscal 2000, the Company recorded an additional loss of $5.2 million as result of higher than anticipated losses on the sale of its business units, higher than anticipated operating losses from discontinued operations prior to their sale and allocated interest expense. The Company allocated approximately $3.0 million of interest expense to discontinued operations in 2000. 17 A summary of the operating results of the discontinued business is as follows:
1999 1998 ------------ ----------- Sales $79,779,825 $80,382,052 Costs and 80,846,942 72,945,412 operating expenses ------------ ----------- Operating income (loss) from discontinued operations (1,067,117) 7,436,640 Interest expense allocation (based on relative net assets) and other income expense (7,782,704) (3,478,790) ----------- ----------- Income (loss) from discontinued operations before income taxes (8,849,821) 3,957,850 Provision for - 1,306,090 income taxes ----------- ----------- Income (loss) from discontinued operations $ (8,849,821) $ 2,651,760 ============ ===========
Going Concern - As described in Note 4, the Company's current bank credit facility expires July 31, 2001. The Company's continuation as a going concern is dependent upon its ability to comply with terms of its debt agreements and to obtain additional financing or refinancing as may be required. The Company can make no assurances that it will be successful in these efforts. If the Company is unsuccessful it would be unable to meet its remaining short-term liquidity requirements, including debt service, normal working capital and other cash requirements, which would have a material adverse effect on the Company's on- going operations and would adversely affect the solvency of the Company. These factors among others may raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustment that might result from the outcome of this uncertainty. 2. Summary of Significant Accounting Policies - --------------------------------------------- Basis of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Fiscal Year-end - The Company operates on a 52- to 53- week fiscal year ending on the last Sunday in September. Revenue Recognition - Sales are recorded when products are shipped or when services are performed. The Company provides for estimated warranty costs at the time of shipment. Arrangements to deliver software or software systems that require significant production, modification or customization are accounted for on a percentage- of- completion basis. Revenue is recognized in the proportion that the cost of milestones achieved bear to the total estimated costs of the project at completion. Losses, if any, are provided for in the period in which the loss is determined. Management Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents - For the purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Fair Value of Financial Instruments - The carrying amounts reported on the consolidated balance sheet for cash, receivables, payables, accrued expenses and debt approximate fair value. Concentration of Credit Risk - The Company's exposure to concentrations of credit risk relates primarily to trade accounts receivable. The Company controls credit risk by performing ongoing credit evaluations of its customers' financial condition. Management is not aware of any specific concentrations that could cause a severe impact to its operations. Inventories - Inventories are stated at the lower of cost (principally first-in, first-out method) or market and include materials, labor and manufacturing overhead. 18 Inventories consist of: 2000 1999 ---------- ---------- Raw materials $ 281,199 $ 315,071 Work-in-process 40,422 27,340 Finished goods 119,530 119,482 ========== ========== $ 441,151 $ 461,893 Property, Plant and Equipment - Property, plant and equipment are recorded at cost. Expenditures for maintenance, repairs and renewals are charged to expense as incurred whereas major betterments are capitalized as additions to property, plant and equipment. The provision for depreciation and amortization has been calculated using the straight-line method over the assets' estimated useful lives. The components of property, plant and equipment and their estimated useful lives are as follows: Useful Life 2000 1999 ------------ --------- ---------- Leasehold 3 - 7 $ 128,994 $ 308,700 improvements Machinery and equipment 7 106,847 106,847 Tooling and dies 5 173,356 173,356 Office equipment 5 - 7 1,354,438 2,144,605 ---------- ---------- 1,763,635 2,733,508 Less: accumulated (873,644) (1,065,035) depreciation ----------- ---------- $ 889,991 $1,668,473 ========== ========== Goodwill and Other Intangibles - The excess of the purchase price over the fair value of net assets acquired in an acquisition is included in other assets in the accompanying consolidated balance sheets and is being amortized over 15 years on a straight-line basis. The Company periodically evaluates the existence of goodwill impairment on the basis of whether the goodwill is fully recoverable from projected undiscounted net cash flows of the related business unit. Goodwill and other intangibles (net of accumulated amortization) was approximately $1,700,972 and $1,871,372 at the end of 2000 and 1999, respectively. Amortization included in continuing operations amounted to approximately $170,000 in 2000, 1999 and 1998. Change in Accounting Principle - Deferred Product Enhancement Costs - Deferred product enhancement costs represent incremental direct costs specifically identified with the adaptation and enhancement of existing commercial products to meet the needs of specifically identified customers or markets. Such costs were amortized on a straight-line basis over the estimated economic useful lives of the related products which did not exceed five years. As of September 28, 1998, in accordance with Statement of Position 98-5, "Reporting on the Cost of Start-up Activities," the Company changed its method of accounting for deferred product enhancement costs to expense these costs as incurred. As a result, the Company recognized a cumulative affect of a change in accounting principle of $2,822,000, net of income tax benefit of $1,000,000. Long-Lived Assets - In accordance with Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of," the Company evaluates the recoverability of its carrying value of the Company's long-lived assets and certain intangible assets based on estimated undiscounted cash flows to be generated from each of such assets compared to the original estimates used in measuring the assets. To the extent impairment is identified, the Company reduces the carrying value of such impaired assets. 19 Income Taxes - In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and tax basis of assets and liabilities calculated using enacted tax rates in effect for the year in which the differences are expected to reverse. Earnings Per Share - The Company calculates basic earnings per share and, if applicable, fully diluted earnings per share in accordance with SFAS No. 128, "Earnings Per Share." Options to purchase approximately 891,000 shares, 837,000 shares and 144,000 shares of common stock were outstanding during 2000, 1999 and 1998, respectively, but were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive. The computations of basic and diluted earnings (loss) per common share for 2000, 1999 and 1998 is as follows: 2000 1999 1998 ------------ ---------- ------------ Earnings (loss) per share - basic Continuing operations $ (1.43) $ (0.66) $ (0.03) Discontinued operations (0.82) (4.83) 0.44 Effect of accounting change - (0.47) - ------------ ---------- ------------ Net income (loss) $ (2.25) $ (5.96) $ 0.41 ------------ ---------- ------------ Earnings (loss) per share - diluted Continuing operations $ (1.43) $ (0.66) $ (0.03) Discontinued operations (0.82) (4.83) 0.43 Effect of accounting change - (0.47) - ------------ ---------- ------------ Net income (loss) $ (2.25) $ (5.96) $ 0.40 ------------ ---------- ------------ Weighted average common shares 6,290,290 6,043,634 6,015,192 Effective of dilutive - - 179,574 options ------------ --------- ------------ Adjusted weighted average common shares 6,290,290 6,043,634 6,194,766 ============= ========= ============ Foreign Currency Translation - Prior to September 24, 2000, assets and liabilities of the Company's foreign operations were translated at year-end exchange rates. Net sales and expenses were translated at the average rates prevailing during the year. Balance sheet translation gains and losses are reflected as a separate component of stockholders' equity. The foreign currency translation as of September 26, 1999 has been included in the net assets of discontinued operations. Foreign currency gains and losses arising from transactions are reflected in net income (loss). During 1999 and 1998, the Company recognized net foreign exchange gains (losses) of approximately $33,000 and ($247,000), primarily resulting from intercompany transactions with foreign subsidiaries. The foreign exchange gains (losses) have been recorded in the consolidated statements of operations in discontinued operations. Recent Accounting Pronouncements - In 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The statement establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, the accounting treatment of changes in fair value is based on the nature of the hedge. SFAS No. 133 is effective for the Company's fiscal year ending September 2001. The Company is currently evaluating the impact of SFAS No. 133 on its consolidated financial statements and related disclosures. Reclassifications - Certain prior-year amounts have been reclassified to conform with current-year presentation. 20 3. Other Assets - ---------------- Other assets consist of: 2000 1999 ---------------- -------------- Goodwill and other intangibles $ 2,552,215 $ 2,552,215 Debt issuance costs 1,973,605 - Security deposits 31,217 25,496 ---------------- -------------- 4,557,037 2,577,711 Less: accumulated (992,000) (680,843) amortization ---------------- -------------- $ 3,565,037 $ 1,896,868 ---------------- -------------- 4. Notes Payable and Long-Term Debt - ------------------------------------- Notes payable and long-term debt consist of the following as of September 24, 2000 and September 26, 1999: 2000 1999 -------------- -------------- Notes Payable - current: Notes Payable to bank $ 18,276,246 $ 67,356,366 ANG Note agreements - 1,599,121 Other notes payable - 200,000 -------------- -------------- Total Notes Payable current $ 18,276,246 $ 69,155,487 ============== ============== Long-term debt: Convertible Notes Payable 10,978,369 - -------------- ------------- Total Notes Payable and $ 29,254,615 $ 69,155,487 long-term debt ============== ============= Notes Payable to Bank On August 9, 2000, the Company amended its credit facility agreement with a syndication of banks. The terms of the modified agreement provide a $6,500,000 revolving line of credit and term notes which expire on July 31, 2001. As of September 24, 2000, borrowings under the agreement totaled $18,276,000, consisting of $1,143,000 under the revolving line of credit and $17,133,000 of term notes. Interest on all borrowings is payable monthly at prime (9.5% at September 24,2000) plus 1.25% through December 31, 2000 and prime plus 1.75% thereafter. In connection with the amendment, the Company paid an amendment fee totaling $280,000 payable as follows: $50,000 on September 30, 2000; $60,000 on December 24, 2000; $70,000 on April 30, 2001, and $100,000 on July 31, 2001. A portion of the amendment fee is subject to waiver if the outstanding balance of the term notes is less than $16,000,000 at September 30, 2000 and $7,000,000 thereafter, or if all borrowings under the credit facility have been paid in full prior to July 31, 2001. In addition, the amendment provides for the potential waiver of accrued default interest as of September 24, 2000 (approximately $253,000) as follows: - 50% upon receipt of proceeds from the issuance of Term B Convertible Notes, which was completed in November 2000 (See Note 12) - 50% if all borrowings under the credit facility have been paid in full prior to July 31, 2001 Convertible Note Agreement On July 31, 2000, the Company entered into a Convertible Note Agreement with Sunrise Capital Partners, L.P., a private investment fund ("Sunrise") and certain other participants, which included certain members of the Company's management and certain members of the Allard-Nazarian Group, Inc. The Convertible Note Agreement provides for a series of investment transactions: the Term A Financing, Term B Financing and the Term C Financing, as follows: Term A Financing On July 31, 2000, the Company completed the Term A Financing. Under the Term A Financing, the Company issued the following securities in exchange for $12,570,000 and notes outstanding principal of $1,546,000 ($1,500,000 of carrying value) in cash received from Sunrise and the other participants: 21 - 1,833,905 shares of common stock. The fair value of the common stock issued was approximately $2,751,000. - Warrants to purchase 1,613,355 shares of common stock at $1.75, exercisable at any time at the option of the holder. The warrants expire five years from the date of issuance. The fair value of the warrants was approximately $871,000. - $14,116,875 principal value of Term A Convertible Notes. The Term A Convertible Notes, which mature in three years, bear interest at an annual rate of 10.75%, payable in cash or in additional notes at the option of the Company. The Term A Convertible Notes are convertible at the option of the holder or the Company, under certain conditions, at $1.75 per share. The value assigned to the notes at the date of issuance was $10,448,000, net of a discount of $3,669,000. In connection with the Term A Financing, the Company paid approximately $1,693,000 consisting of closing costs of $282,000 (paid in additional Term A Notes) and other professional fees. The discounted carrying amount of the Term A Convertible Notes as of September 24, 2000 was $10,978,000. Term B Financing Under the terms of the Convertible Note Agreement, Sunrise is committed to participate in the Term B Financing, subject to the Company satisfying certain conditions detailed in the Convertible Note Agreement, within 120 days of the Term A Financing. The Company completed the Term B Financing in November 2000. See Note 12 for discussion of the Term B Financing. Term C Financing Through January 31, 2001, Sunrise has the option to participate in up to $5,000,000 of additional financing, which would include Term C Convertible Notes (with identical terms as the Term B Convertible Notes) and additional warrants to purchase shares of common stock totaling 20% of the number of shares of common stock issuable upon conversion of the Term C Convertible Notes. ANG Note Agreements On August 3, 1998, the Company issued $2,750,000 in promissory notes (the "ANG Notes") to certian members of the Allard-Nazarian Group (the "ANG Noteholders") in connection with the acquisition of certain assets and technology of ANG Instruments. The notes were recorded at an 8.25% discount rate that represented a net present value of $2,353,533. In connection with the Convertible Note Agreement discussed above, the ANG Noteholders exchanged all of the outstanding ANG Notes ($1,546,000 of principal with a carrying value of approximately $1,500,000). 5. Accrued Expenses Accrued expenses consist of: 2000 1999 -------------- --------------- Interest $ 587,403 $ 1,446,893 Payroll and related amounts 469,599 258,374 Bank Fees and debt issue costs 620,000 - Deferred gain from swap termination 437,367 - Severance costs 305,200 148,269 Other taxes 159,000 - Warranty 120,000 120,000 Acquisition related - 151,945 Other 249,309 48,282 -------------- --------------- $ 2,788,878 $ 2,173,763 ============== =============== 22 6. Income Taxes - ----------------
The components of federal and state income taxes provisions are as follows: 2000 1999 1998 ------------ ------------ -------------- Current Federal $ - $ - $ (78,000) State - - (3,000) ------------ ------------ --------------- - - (81,000) ------------ ------------ --------------- Deferred Federal - - - State - - - ------------ ------------ --------------- $ - $ - $ (81,000) ============ ============ ===============
A reconciliation for continuing operations of income taxes at the federal statutory rate of 34% to income taxes at the Company's effective tax rate is as follows:
2000 1999 1998 -------------- ------------- ----------- Income tax at 34% of income before provision for income taxes $ (3,052,000) $ (1,351,000) $ (84,000) State income tax benefit (net of effect of federal tax) - (184,000) (4,000) Change in valuation allowance 3,052,000 1,535,000 - Other - - 7,000 -------------- ------------ ----------- $ - $ - $ (81,000) ============== ============ ===========
The approximate income tax effect of temporary differences comprising the deferred tax assets and liabilities are as follows: 2000 1999 ---------------- ----------------- Deferred tax assets and valuation allowance: Goodwill $ 6,460,000 $ 7,440,000 Deferred enhancement and software costs 944,000 1,095,000 Severance liability 478,000 - Inventory related 76,000 344,000 Bad debt reserve 120,000 365,000 Warranty reserve 49,000 178,000 Payroll related 98,000 106,000 Stock warrants 113,000 - Other 106,000 252,000 Tax loss carryforward 1,870,000 2,786,000 Valuation allowance (9,101,000) (10,226,000) ---------------- ---------------- 1,213,000 2,340,000 ---------------- ---------------- Deferred tax liabilities: Fixed asset differences 362,000 654,000 DISC deferral 885,000 996,000 Goodwill - 791,000 Other 14,000 (53,000) ---------------- --------------- 1,261,000 2,388,000 ---------------- --------------- Net deferred liabilities $ 48,000 $ 48,000 ================ =============== 23 For income tax purposes, the Company had available, at September 24, 2000, net operating loss ("NOL") carryforwards for regular income tax purposes of approximately $5.5 million. 7. Common Stock - --------------- A) Stock Option Plans The Company has stock option plans for selected officers, key employees and directors. Under these plans, options may be granted at a price equal to at least the fair market value at the date of the grant. Options granted under the plans are 22 exercisable at various dates as specified in the underlying option agreement. The options automatically expire upon termination of employment with the Company. A summary of stock option activity for each of the three years in the period ended September 24, 2000, is as follows: Shares Under Weighted-Average Option Exercise Price ---------------- ----------------- Outstanding, September 28, 1997 529,696 $ 5.38 Exercised (20,750) 3.83 Terminated (38,000) 7.36 Granted 296,000 9.60 ----------------- ------------------ Outstanding, September 27, 1998 766,946 6.95 Exercised (2,500) 2.88 Terminated (133,666) 7.96 Granted 266,700 5.18 ----------------- ------------------- Outstanding, September 26, 1999 897,480 6.31 Exercised - - Terminated (431,000) 6.01 Granted 425,000 1.54 ----------------- ------------------- Outstanding, September 26, 2000 891,480 $ 4.18 ================= =================== The following is a summary of options outstanding and exercisable at September 24, 2000:
Options Outstanding Options Exercisable - ----------------------------------------------------------------------------------------------------- Number Weighted Average Number Range of Outstanding Remaining Weighted Average Exercisable Weighted Average Exercise Prices at 9/24/00 Contractual Life Exercise Price at 9/24/00 Exercise Price - ----------------------------------------------------------------------------------------------------- $1.44 to $2.99 425,000 9.4 years $ 1.54 210,419 $ 1.49 $3.00 to $5.99 146,200 8.2 5.10 115,403 5.33 $6.00 to $8.99 297,280 6.6 6.97 287,281 6.98 $9.00 to $11.13 23,000 6.7 11.13 15,336 11.13 ----------- ------------- 891,480 8.2 4.18 628,439 4.94 =========== =============
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company has elected to continue to apply APB Opinion No. 25 "Accounting for Stock Issued" to account for its stock- based compensation plans. Had compensation for the stock option plans been determined using the fair value at the grant dates for awards under those plans, consistent with the guidelines of SFAS No. 123, the Company's net income (loss) and net income (loss) per share would have been increased (decreased) to the pro forma amounts listed below: 2000 1999 1998 ------------- ------------- -------------- Pro forma net loss from continuing operations $ (8,691,282) $ (4,456,989) $ (689,675) Pro forma diluted net (loss) per share $ (1.38) $ (0.74) $ (0.11) 24 Consistent with SFAS No. 123, pro forma net income and earnings per share have not been calculated for options granted prior to September 24, 1995. Pro forma compensation cost may not be representative of that to be expected in future years. The weighted average fair value of options granted was $.77, $2.35 and $4.68 for options granted during 2000, 1999 and 1998, respectively. The values were estimated on the date of grant using the Black-Sholes option pricing model with the following weighted average assumptions used for grants in 2000, 1999 and 1998, respectively: risk-free interest rates ranging from 4.0% to 6.6%, expected dividend yield of 0% for the periods, expected options lives of five years and expected volatilities ranging from 46.7% to 49.2%. B) NEXIQ Employee Stock Purchase Plan The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors on June 1, 1997. The Purchase Plan is a qualified stock purchase plan under the Internal Revenue Code covering all employees of the Company, except employees who are owners of 5% of the Company's stock. Eligible employees can purchase shares on a quarterly basis on December 15, March 15, June 15 and September 15. The minimum purchase amount is 10 shares per quarter to a maximum of 400 shares per year. The purchase price of the shares is 93% of the average of the closing prices of the common stock during the period of five trading days ending on the purchase date. An aggregate of 30,000 shares was reserved for issuance under the Purchase Plan. Shares purchased under the Company's Purchase Plan were 7,485 shares, 6,803 shares and 7,582 shares in 2000, 1999 and 1998, respectively. C) NEXIQ Stock Bonus Award Plan The Company's Stock Bonus Award Plan (the "Bonus Plan") was adopted by the Board of Directors on June 1, 1997. All employees of the Company, except employees who are owners of 5% or more of the Company's stock, are eligible to participate in the Bonus Plan. The Bonus Plan allows for the award of shares of the Company's common stock. Awards under the Bonus Plan are made at the discretion of the Chief Executive Officer to employees who have demonstrated outstanding performance and commitment in their employment with the Company. An aggregate of 20,000 shares was reserved for issuance under the Bonus Plan. Shares awarded under the Company's Bonus Plan were 175 shares, 2,225 shares and 3,135 shares in 2000, 1999 and 1998, respectively. The compensation expense related to these awards is not significant. 8. Employee Benefits A) NEXIQ 401k Plan The Company has a Profit Sharing 401(k) Plan for the benefit of eligible United States employees, whereby the Company matches a portion of the employees' contributions to the plan. During 2000, the Company matched 50% of the first 5% of employees' contributions. The Company's expense included in continuing operations relating to this plan amounted to approximately $82,000, $70,000 and $51,000 in 2000, 1999 and 1998, respectively. 9. Significant Customers For Fiscal 2000, 1999 and 1998, a distributor with rights to sell certain NEXIQ product represented approximately 36%, 51% and 60%, respectively, of NEXIQ's net sales. Another customer represented approximately 16% of NEXIQ's net sales for fiscal 1999. 10. Commitments The Company leases certain buildings, office space and equipment under various lease agreements that expire at various dates over the next four years. As of September 24, 2000, the aggregate future minimum lease commitments under operating and capital leases obligations are as follows: 25 Operating Fiscal Year Leases ----------- ------------ 2001 $ 332,000 2002 332,000 2003 199,000 2004 103,000 2005 - ------------ Total minimum lease payments $ 996,000 ============ Total rental expense included in continuing operations charged to operations for 2000, 1999 and 1998 totaled approximately $287,000, $332,000 and $317,000, respectively. During fiscal 2000, the Company entered into a severance agreement with a former executive officer, which provides for payments and benefits totaling approximately $294,000 per year for a five-year period commencing January 1, 2000 which, was charged to operations during fiscal 2000. The Company has a Change in Control Plan, which entitles two current officers and one key employee upon a change of control event as defined in the plan to a lump-sum severance benefit equal to nine to eighteen months of base salary, plus bonus, if the two current officers or the key employee is terminated without cause within one year of the change in control. 11. Restructuring Costs - ------------------------ During 2000, the Company entered into a severance agreement with certain former executives and officers. In connection with the agreements, the Company recorded a restructuring charge of $1,840,000, consisting primarily of the continuation of payroll and benefits subsequent to termination. Of the total restructuring charge, $602,000 was paid during fiscal 2000. The remaining $1,238,000 will be paid over a five-year period ending December 2004 in connection with the terms of a former executive's severance agreement. During 1999, the Company entered into a severance agreement with a former executive. In connection with the agreement, the Company recorded a restructuring charge of $510,000, consisting primarily of the continuation of payroll and benefits subsequent to termination. During 2000 and 1999, the Company paid approximately $148,000 and $362,000, respectively, of the charges. 12. Subsequent Events - --------------------- At the Company's annual shareholder meeting on November 2, 2000, the Company's shareholders approved a number of proposals. The shareholders approved the following amendments to the Company's Article of Incorporation: - Change the Company's name from WPI Group, Inc. to NEXIQ Technologies, Inc. - Increase the number of shares of common stock that Company is authorized to issue from 20 million to 75 million. - Authorize the issuance of 20 million shares of preferred stock. - Increase the number of shares available for issuance under the Company's 1997 Equity Incentive Plan from 750,000 to 3,500,000 and to increase the limit on the number of stock-based awards that can be granted to any one person during any year from 200,000 to 500,000. In November 2000, the Company completed the sale of WPI Instruments, Inc. and WPI Magnetec, Inc. to an investor group led by WPI Instruments management for approximately $6.1 million in cash and a $1.0 promissory note, subject to final purchase price adjustments. The proceeds from the sale were applied to the outstanding bank debt and reduce outstanding bank term loans by $5.0 million. 26 In November 2000, the Company completed the Term B Financing under the Convertible Note Agreement discussed in Note 4. Under the terms of the Term B Financing, the Company received $5,000,000 in cash in exchange for the following securities: - Warrants to purchase approximately 571,000 shares of common stock at $1.75, exercisable at any time at the option of the holder. The warrants expire in five years. The fair value of the warrants was approximately $309,000. - $5,000,000 principal value of Term B Convertible Notes. The Term B Convertible Notes, which mature July 31, 2003, bear interest at an annual rate of 10.75% payable in cash or in additional notes at the option of the Company. The Term B Convertible Notes are convertible at the option of the holder or the Company, under certain conditions, at $1.75 per share. 13. Business Segment and Geographical Information - -------------------------------------------------- The Company operates in one industry: vehicle diagnostic equipment and software. 14. Selected Quarterly Financial Information (Unaudited) - ----------------------------------------------------------- Selected quarterly financial information for the years ended September 24, 2000 and September 26, 1999 is as follows: (in thousands, except earnings per share) First Second Third Fourth Quarter Quarter Quarter Quarter -------- ------- ------- ------- 2000 - ----- Net sales $ 3,573 $ 3,588 $ 3,574 $ 2,617 Gross profit 2,139 2,166 2,165 1,450 Loss from continuing operations (2,952) (1,554) (1,608) (2,864) Loss from discontinued operations - (1,560) (615) (2,975) Net loss (2,952) (3,114) (2,223) (5,839) Earnings (loss) per share Continuing operations (0.49) (0.26) (0.27) (0.41) Discontinued operations - (0.26) (0.10) (0.42) Net loss (0.49) (0.52) (0.37) (0.83) 1999 - ----- Net sales $ 3,110 $ 3,278 $ 2,169 $ 3,222 Gross profit 1,993 2,055 1,516 1,863 Loss from continuing operations (283) (612) (1,553) (1,527) Loss from discontinued operations (275) (905) (1,695) (26,354) Change in accounting principle (2,822) - - - Net loss (3,380) (1,517) (3,248) (27,881) Earnings (loss) per share Continuing operations (0.05) (0.10) (0.26) (0.25) Discontinued operations (0.04) (0.15) (0.28) (4.36) Change in accounting principle (0.47) - - - Net loss (0.56) (0.25) (0.54) (4.61) Item 9. Changes in and Disagreements with Accountants on - -------------------------------------------------------- Accounting and Financial Disclosure - ----------------------------------- None 27 Part III Item 10. Directors and Executive Officers of the Registrant - ----------------------------------------------------------- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Officer or Name Age Director Since Position with the Company - ----- --- -------------- ------------------------- John R. Allard 35 1998 Chairman of the Board and Chief Executive Officer Paul G. Giovacchini 43 1990 Director Irwin A. Gold 43 2000 Director Joseph A. Julian Jr. 33 2000 Director David A. Preiser 43 2000 Director John W. Powers 43 1997 Vice President, Chief Financial Officer Michael D. Stewart 32 2000 Director Bernard H. Tenenbaum 45 1994 Director John R. Allard has been Chairman of the Company since July 2000, a director of the Company since August 1998 and President and Chief Executive Officer of the Company since December 1999. From February 1999 to December 1999, Mr. Allard served as President and Chief Operating Officer of the Company. Mr. Allard was Senior Vice President, Business Development from August 1998 to February 1999. Mr. Allard is also a Director and Senior Partner of Allard Nazarian Group, Inc., where he served as Chief Executive Officer from December 1992 to August 1998. Paul G. Giovacchini has been a director of the Company since September 1990. Mr. Giovacchini has been a Senior Investment Manager for Signal Capital Corporation, a Massachusetts-based investment firm, since August 1990. Since 1995, Mr. Giovacchini has also been a partner of Seacoast Capital Partners, L.P., a private equity investment partnership which focuses on investing in small, growing companies. Irwin A. Gold has been a director of the Company since July 2000. Mr. Gold is a Senior Managing Director and member of the Board of Directors of Houlihan Lokey Howard & Zukin, ("Houlihan Lokey"), an affiliate of Sunrise Capital Partners, L.P. ("Sunrise"). Mr. Gold is a principal of Sunrise and has been national co-director of Houlihan Lokey's Financial Restructuring Group since 1988. Mr. Gold is also a director of Cole National Corporation. Joseph A. Julian, Jr. has been a director of the Company since July 2000. Mr. Julian is currently a principal of Sunrise. Mr. Julian has worked for the Financial Restructuring Group of Houlihan Lokey since 1989. David A. Preiser has been a director of the Company since July 2000. Mr. Preiser is currently the Managing Partner of Sunrise. Mr. Preiser has worked for the Financial Restructuring Group of Houlihan Lokey since 1991. Mr. Preiser is also a director of Jos A. Bank Clothiers and NVR Inc. John W. Powers has been Vice President, Chief Financial Officer of the Company since February 1997. From August 1993 to February 1997, Mr. Powers was the Chief Financial Officer of Janco Companies, a manufacturer of medical and electronic products. Prior to August 1993, Mr. Powers was a certified public accountant with a national and regional public accounting firm. 28 Michael D. Stewart has been a director of the Company since July 2000. Mr. Stewart is currently a principal of Sunrise. Mr. Stewart has worked for the Financial Restructuring Group of Houlihan Lokey since 1990. Bernard H. Tenenbaum has been a director of the Company since 1989. Since April 1997, Mr. Tenenbaum has been President of the Children's Leisure Products Group of The Jordan Company, a leveraged buyout firm based in New York. From 1993 to 1997, Mr. Tenenbaum was Vice President, Corporate Development, of Russ Berrie & Company, a global impulse-gift company. Mr. Tenenbaum was also the founding Director of the George Rothman Institute for Entrepreneurial Studies at Fairleigh Dickinson University in New Jersey. He also served as the Associate Director of the Sol C. Snider Entrepreneurial Center of the Wharton School at the University of Pennsylvania. In addition to his career in business development and advanced business studies, Mr. Tenenbaum has served as a business consultant for AT&T, IBM CIGNA Corporation and the Philadelphia Phillies. Pursuant to the Convertible Note Agreement with Sunrise (see Note 4 to the consolidated financial statements), for so long as any of the promissory notes purchased by Sunrise remain outstanding, the Company has agreed to nominate for election to the Company's Board of Directors a majority of nominees designated by Sunrise. Accordingly, in connection with the Convertible Note transaction, four Board members resigned and were replaced by four nominees designated by Sunrise who were elected by the remaining Board members: David A. Presier, Joseph A. Julian Jr., Michael D. Stewart and Irwin N. Gold. Item 11. Executive Compensation - ------------------------------- EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation for services in all capacities to the Company for the fiscal years ended September 24, 2000, September 26, 1999 and September 27, 1998 of those persons who were at September 24, 2000 (i) the Chief Executive Officer and (ii) each of the four most highly compensated executive officers of the Company other than the Chief Executive Officer, (with the Chief Executive Officer, collectively, the "Named Officers"). Summary Compensation Table
Long Term Compensation Annual Compensation (1) Securities Underlying All Other Name and Principal Position Year Salary($) Bonus($) Options Compensation - --------------------------- ------ ---------- -------- --------------------- ------------ John Allard 2000 300,040 - 200,000 15,091 Chairman and CEO 1999 272,921 - 25,000 9,234 1998 - - 20,000 - Michael Foster (2) 2000 138,133 - - 5,321 Former Chairman and CEO 1999 509,648 - 186,000 73,651 1998 400,036 - - 23,855 John Powers 2000 178,263 50,000 50,000 9,783 Vice President, CFO 1999 168,222 - 7,200 10,803 1998 135,522 - 5,000 10,848
(1) Excludes perquisites and other personal benefits, the aggregate annual amount of which was less than the lesser of $50,000 or 10% of the total of annual salary and bonus reported. (2) Mr. Foster retired as Chairman and Chief Executive Officer as of December 21, 1999. 29 Option Grants in Last Fiscal Year (Individual Grants) The following table contains information concerning the grant of stock options under the Company's 1995 Stock Option Plan and the 1997 Equity Incentive Plan to the Named Officers during the Company's last fiscal year.
Number of % of Total Securities Options Granted Underlying to Employees Exercise Expiration Grant Date Name Options Granted In Fiscal 2000 Price($) Date Present Value(3) - ----- ---------------- --------------- -------- ----------- --------------- John Allard 200,000 (1) 47% $1.437 01/26/00 $ 144,580 Chairman and CEO Michael Foster (2) - - - - - Former Chairman, CEO John Powers 50,000 (3) 12% $1.437 01/26/00 $ 36,145 Vice President, CFO
(1) Options granted under the NEXIQ Technologies, Inc. 1997 Equity Incentive Plan at an exercise price equal to the fair market value of the Company's Common Stock on the date of grant. The options granted to Mr. Allard are fully vested. (2) Options granted under the NEXIQ Technologies, Inc. 1997 Equity Incentive Plan at an exercise price equal to the fair market value of the Company's common stock on the date of grant. The options granted to Mr. Powers are fully vested. (3) Mr. Foster retired as Chairman and CEO as of December 21, 1999. (4) The weighted average fair value of options granted to the named officers was $.72. The values were estimated on the date of grant using the Black-Sholes option pricing model with the following weighted average assumptions used: Risk free interest rate of 6.6%, expected dividend yield of 0%, expected option lives of 5 years and expected volatility of 47.4%. Option Exercises and Fiscal Year End Values The following table contains information with respect to aggregate stock options exercised by the Named Officers during fiscal 2000 as well as unexercised options to purchase the Company's Common Stock granted through September 24, 2000 under the Company's 1995 Stock Option Plan or 1997 Equity Incentive Plan to the Named Officers and held by them at that date. Aggregated Options/SAR Exercises in Last Fiscal Year and Fiscal Year End Option Value
Number of Value of Unexercised Unexercised In-the -Money Options at at September 24, 2000 September 24, 2000 Shares Common Stock Common Stock Acquired ------------- ------------- on Value Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable - ----- ----------- ----------- ----------- ------------- ----------- ------------- John Allard - - 155,001 89,999 $ 37,500 $ 18,750 Michael Foster - - 317,280 - - - John Powers - - 44,067 33,333 9,375 4,688 Powers
(1) Based on the difference between the exercise price of each grant and the closing price of the Company's Common Stock as quoted on the OTC Bulletin Board on September 24, 2000, which was $1.71875. The foregoing options were granted under either the 1995 Stock Option Plan (the "1995 Plan") or the 1997 Equity Incentive Plan (the "1997 Plan"). Both plans are administered by the Stock Option/Compensation Committee, which consists of not less than three outside directors. The Committee determines the key employees to whom, and the time or times at which, options will be granted, the number of shares subject to each option and the terms upon which each option may be granted. An aggregate of 550,000 shares of common stock are reserved for issuance under the 1995 Plan and an aggregate of 750,000 shares of common stock 30 are reserved for issuance under the 1997 Plan. Since the adoption of the 1995 Plan on June 6, 1995, options for a total of 550,000 shares of common stock (or all of the shares reserved for issuance) have been granted to selected officers and key employees of the Company. Since the adoption of the 1997 Plan on June 10, 1997, options for a total of 750,000 shares of common stock have been granted to selected officers and key employees of the Company. Change In Control Plan and Severance Agreements The Board of Directors has adopted a Change in Control Plan covering nine officers and key employees, including the Named Executive Officers. The provisions of the Change in Control Plan become effective only upon the occurrence of an event constituting a change in control of the Company. Under the Change in Control Plan, a "Change in Control" shall be deemed to have occurred if any of the following events occur: (i) any "person" (as such term is defined in Section 13 and 14 under the Exchange Act) except for Michael Foster, directly or indirectly, is or becomes the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act) of 25% or more of the Company's Common Stock; (ii) any change occurs in the composition of NEXIQ's Board of Directors resulting in a majority of the present directors not constituting a majority two years from such date, provided that directors who were elected by or on the recommendation of such present majority shall be excluded; or (iii) any other event that would be required to be reported under Item 1 of Form 8-K pursuant to Section 13 or Section 15(d) of the Exchange Act. A change in control shall not be deemed to have occurred if such change in control results from a distressed sale of NEXIQ due to the Company's material default with respect to any applicable debt covenants with its lender. The Change in Control Plan provides that if, within one (1) year after a change of control of WPI, a Named Executive Officer is discharged without Cause (as defined below) or has resigned for reasons relating to a diminution of responsibilities, compensation or benefits or relocation of place of employment, NEXIQ shall pay to such individual a lump sum severance benefit. For purposes of the Change in Control Plan, "Cause" shall mean conviction of certain crimes, willful misconduct or conduct that caused NEXIQ to suffer a substantial loss or damage. Currently, each Named Executive Officer would receive between nine and eighteen months of base salary, plus bonus, depending upon the Named Executive Officer's years of service and status with the Company. At the discretion of the Board of Directors, the vesting of options may be accelerated in the event of a Change in Control. A Named Executive Officer may resign at any time and for any reason within one year of a Change in Control and receive the base salary component only of the lump sum benefit. In addition to being covered by the Change In Control Plan, Mr. Allard has a Severance Agreement with the Company which provides, in relevant part, that if the Company terminates his employment for any reason other than cause, or in connection with a change- in-control, the Company will continue to pay him at his then present salary rate for a period of eighteen months. Mr. Foster has a severance agreement with the Company which provides, in relevant part, for severance and benefits totaling approximately $294,000 per year for the next five years, effective January 1, 2000. The agreement also provides for the full vesting of options held by Mr. Foster. The expiration and option exercise prices remain unchanged. 31 Item 12. Security Ownership of Certain Beneficial Owners and - ----------------------------------------------------------------- Management - ---------- MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial ownership of the common stock as of December 9, 2000 by (i) each person who is known by the Company to beneficially own more than 5% of the outstanding shares of common stock; (ii) each of the Company's directors; and (iii) all directors and officers of the Company as a group: Number of Shares Name and Address Beneficially Owned Percentage Beneficially Owned - ----------------- ------------------- ----------------------------- John R. Allard (1) 464,527 6% 1155 Elm Street Manchester, NH 03101 Paul G. Giovacchini (2) 15,333 * 55 Ferncroft Road Danvers, MA 01923 Irwin N. Gold (3) 14,048,529 69% 685 Third Avenue, 15th Floor New York, NY 10017 Joseph A. Julian Jr.(4) 14,048,529 69% 685 Third Avenue, 15th Floor New York, NY 10017 John W. Powers (5) 79,800 * 1155 Elm Street Manchester, NH 03101 David A. Preiser (6) 14,048,529 69% 685 Third Avenue, 15th Floor New York, NY 10017 Michael D. Stewart (7) 14,048,529 69% 685 Third Avenue, 15th Floor New York, NY 10017 Bernard H.Tenenbaum (8) 18,428 * 767 5th Avenue, 48th Floor New York, NY 10053 Gerald R. Allard (9) 706,770 9% 520 South Collier Boulevard Chalet Number 301 Marco Island, FL 38937 Dimensional Fund 468,300 6% Advisors (10) 1299 Ocean Avenue, 11th Floor Santa Monica, CA 90401 Michael H. Foster (11) 925,937 11% 35 Harbour Green Key Largo, FL 33037 Sunrise Capital 14,048,529 69% Partners, L.P. (12) 685 Third Avenue, 15th Floor New York, NY 10017 All executive 14,626,618 70% officers and directors a group (8 persons) (13)
* Less than one percent 32 (1) Mr. Allard has shared voting power (with Sunrise, see footnote (12)) and sole dispositive power with respect to the 464,527 shares (which figure includes 295,167 shaers of common stock which Mr. Allard has the right to acquire within 60 days pursuant to exercise of stock options, 17,142 shares of common stock which Mr. Allard has the right to acquire within 60 days pursuant to exercise of common stock purchase warrants and 87,429 shares of common stock which Mr. Allard has the right to acquire within 60 days pursuant to the conversion of convertible promissory notes held by him.) (2) Includes 15,333 shares of the Company's common stock which Mr. Giovacchini has the right to acquire within 60 days pursuant to exercise of stock options. (3) Includes 14,048,529 shares of the Company's common stock beneficially owned by Sunrise (see footnote (12)). Mr. Gold may be deemed to share beneficial ownership of the common stock owned by Sunrise by virtue of his status as a principal of Sunrise Advisors, LLC, the managing partner of Sunrise. Mr. Gold disclaims any beneficial ownership in these shares. (4) Includes 14,048,529 shares of the Company's common stock beneficially owned by Sunrise (see footnote (12)). Mr. Julian may be deemed to share beneficial ownership of the common stock owned by Sunrise by virtue of his status as a principal of Sunrise Advisors, LLC, the managing partner of Sunrise. Mr. Julian disclaims any beneficial ownership in these shares. (5) Includes 79,800 shares of the Company's common stock which Mr. Powers has the right to acquire within 60 days pursuant to exercise of stock options. (6) Includes 14,048,529 shares of the Company's common stock beneficially owned by Sunrise (see footnote (12)). Mr. Preiser may be deemed to share beneficial ownership of the common stock owned by Sunrise by virtue of his status as a principal of Sunrise Advisors, LLC, the managing partner of Sunrise. Mr. Preiser disclaims any beneficial ownership in these shares. (7) Includes 14,048,529 shares of the Company's common stock beneficially owned by Sunrise (see footnote (12)). Mr. Stewart may be deemed to share beneficial ownership of the common stock owned by Sunrise by virtue of his status as a principal of Sunrise Advisors, LLC, the managing partner of Sunrise. Mr. Steward disclaims any beneficial ownership in these shares. (8) Includes 15,333 shares of the Company's common stock which Mr. Tenebaum has the right to acquire within 60 days pursuant to exercise of stock options. (9) According to a Schedule 13D filed with the Securities and Exchange Commission (the "Commission") on September 8, 2000, Gerald R. Allard and a subsequent transaction, Mr. Allard, a private investor with an address of 520 South Collier Boulevard, Chalet Number 301, Marco Island, Florida 38937, has shared voting power (with Sunrise, see footnote (12)) and sole dispositive voting power with respect to the 706,770 shares of common stock (which figure includes 36,785 shares of common stock which Mr. Allard has the right to acquire within 60 days pursuant to the exercise of common stock purchase warrants and 187,607 shares of common stock which Mr. Allard has the right to acquire within 60 days pursuant to the conversion of convertible promissory notes held by him). (10) According to a Schedule 13G filed with the Commission on February 3, 2000, Dimensional Fund Advisers, a Commission- registered investment adviser with its principal place of business at 1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401, has sole voting and dispositive power with respect to the 468,300 shares of common stock. (11) Includes 317,280 shares of the Company's common stock which Mr. Foster has the right to acquire within 60 days pursuant to exercise of stock options. Mr. Foster retired as Chairman and Chief Executive Officer of the Company on December 21, 1999. (12) According to a Schedule 13D filed with the Commission on November 17, 2000, Sunrise, a private investment fund with its principal place of business at 685 Third Avenue, 15th Floor, New York, NY 10017, has sole voting and dispositive power with respect to 12,689,187 shares of common stock (which figure includes 1,828,572 shares of common stock which Sunrise has the right to acquire within 60 days pursuant to the exercise of common stock purchase warrants and 9,325,715 shares of common stock which Sunrise has the right to acquire within 60 days pursuant to the conversion of convertible promissory notes held by Sunrise). Sunrise also has shared voting power (but not shared dispositive power) with respect to 1,359,342 shares of common stock not held of record by Sunrise but which are the subject of a stockholders agreement between Sunrise and the owners of such shares. (13) Includes 14,626,618 shares of the Company's Common Stock which certain officers and directors have a right to acquire within 60 days of the date hereof pursuant to the exercise of stock options which are deemed to be outstanding for the purpose of computing the percentage ownership of officers and directors as a group. 33 Item 13. Certain Relationships and Related Transactions - ------------------------------------------------------- Certain Relationships and Related Transactions On July 31, 2000, the Company and its subsidiaries entered into a Convertible Note Agreement with Sunrise Capital Partners, L.P., a private investment fund. David A. Presier, Joseph A. Julian Jr., Michael D. Stewart and Irwin N. Gold, directors of the Company, are affiliated with Sunrise. Pursuant to the Convertible Note Agreement, Sunrise and certain other participants (which include John R. Allard and certain members of the Allard-Nazarian Group, Inc.) agreed to invest up to $24.1 million in convertible promissory notes, common stock of the Company, and warrants to purchase common stock. Sunrise and the other participants will purchase the securities from the Company in three series. The first and second series of securities were purchased on August 9, 2000 and November 16, 2000, respectively. The purchase of the third series of securities is at the option of Sunrise. See Note 4 to the consolidated financial statement for a more complete description of the Sunrise transaction. Prior to the sale of WPI Instruments in November 2000, the Company leased and occupied a building at 850 Perimeter Road, Manchester, New Hampshire (the "Perimeter Road Facility") from 850 Perimeter Road Associates NA, LLC, a New Hampshire limited liability company in which Mr. Allard is a member. The yearly base rental for the Perimeter Road facility, which houses the operations of WPI Instruments, Inc., was approximately $468,000. In management's opinion, the lease rate for this facility is not in excess of the range of fair market rentals in the relevant area. Hinckley, Allen & Snyder, a law firm of which Stephen Carlotti, a former director, is a member, provided legal services to the Company during its 2000 and 1999 fiscal year. Item 14. Exhibits, Financial Statement Schedules and Reports on - ----------------------------------------------------------------- Form 8-K - -------- (a) Documents filed as part of the Report: (1) Financial Statements of the Registrant and Report of Independent Public Accountants Reference is made to the Index of Financial Statements under Item 8 of Part II hereof. (2) Financial Statement Schedule and Auditors' Report Title Schedule ----- --------- Valuation and Qualifying Accounts II All schedules omitted are inapplicable or the information required is shown in the Consolidated Financial Statements or notes thereto. The auditors' report of Arthur Andersen LLP with respect to the Financial Statement Schedule is located on page 39 of this Report. (3) Exhibits: Incorporated by reference to the Exhibit Index at the end of this report. (b) The Registrant has filed the following reports on Form 8-K during quarter ended September 24, 2000: On August 16, 2000, the Registrant filed a Current Report on Form 8-K dated as of August 9, 2000 announcing the Company had entered into a Convertible Note Agreement with Sunrise Capital Partners, L.P. 34 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO NEXIQ TECHNOLOGIES, INC. We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheets as of September 24, 2000 and September 26, 1999 and the related statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended September 24, 2000 of NEXIQ Technologies, Inc. included in this Form 10-K, and have issued our report thereon dated December 18, 2000. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14(a) of the index is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state, in all material respects, the supplemental financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Boston, Massachusetts December 18, 2000 35 SCHEDULE II NEXIQ TECHNOLOGIES, INC. VALUATION AND QUALIFYING ACCOUNTS For the years ended September 24, 2000, September 26, 1999 and September 27, 1998
Additions ------------------------------------------- Balance at Charged to beginning costs and Charged to Balance at of period Expense Acquisitions other accounts Deductions end of period ---------- ----------- ------------- --------------- ---------- -------------- 2000 Allowance for doubtful accounts $ 542,709 $ 204,812 $ - $ - $ 385,021 (1) $ 362,500 Acquisition 151,945 - - - 151,945 (2) - reserves Restructuring reserves 148,269 1,840,000 - - 749,831 (3) 1,238,438 1999 Allowance for doubtful accounts $1,283,000 $ 164,668 $ - $ - $ 904,959 (1) $ 542,709 Acquisition reserves 872,085 - - - 720,140 (2) 151,945 Restructuring reserves - 510,000 - - 361,731 (3) 148,269 1998 Allowance for doubtful accounts $1,237,000 $ 49,164 $ 75,728 $ 6,170 $ 85,062 (1) $1,238,000 Acquisition reserves 286,226 - 948,011 - 362,152 (2) 872,085
- ------------------------------------- (1) Accounts deemed uncollectible, net of recoveries (2) Acquisition costs paid/charges incurred (3) Restructuring costs paid/charges incurred 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf of the undersigned, thereunto duly authorized. NEXIQ TECHNOLOGIES, INC. December 21, 2000 By: /s/John R. Allard ----------------- Chairman and CEO Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature Title Date - ----------- ------- ---- /s/John R. Allard Chairman of the Board and December 21, 2000 John R. Allard Chief Executive Officer (Principal Executive Officer) /s/ John W. Powers Vice President and December 21, 2000 John W. Powers Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Paul G. Giovacchini Director December 21, 2000 Paul G. Giovacchini /s/Irwin N. Gold Director December 21, 2000 Irwin N. Gold /s/Joseph A. Julian, Jr. Director December 21, 2000 Joseph A. Julian, Jr. /s/David A. Preiser Director December 21, 2000 David A. Preiser /s/ Michael D. Stewart Director December 21, 2000 Michael D. Stewart /s/Bernard H. Tenenbaum Director December 21, 2000 Bernard H. Tenenbaum 37 EXHIBIT INDEX Certain of the following exhibits, designated with an asterisk (*) are filed herewith. The exhibits not designated have been previously filed with the Commission and are incorporated herein by reference to the documents indicated following the descriptions of such exhibits. Page No. Exhibit No. Description Of Paper Filing - ----------- ----------- --------------- 3.1 Amended and Restated Articles of Incorporation of the Company are incorporated by reference to Exhibit 3.1 to the Registrant's Report on Form 10- KSB for the year ended September 29, 1996. 3.2 Bylaws of the Company are incorporated by reference to Exhibit 3.2 of the Registrant's Registration Statement on Form S-4 filed with the Commission on February 22, 1994, Registration No. 33- 75656. 10.1 Asset Purchase Agreement, dated September 28, 1993 among WPI Group, Inc. and Magnetec Corporation and Tridex Corporation, previously filed and incorporated by reference to Registrant's report on Form 10-KSB for the year ended September 26, 1993. 10.2 Agreement and Plan of Merger, dated as of January 27, 1994, by and between WPI Group, Inc. and Termiflex Corporation, previously filed and incorporated by reference to Exhibit 28.11 of Registrant's report on Form 8-K filed on September 30, 1994. 10.3 Agreement and Plan of Merger, dated August 31, 1994, by and between WPI Group, Inc. and Micro Palm Computers, Inc., previously filed and incorporated by reference to Exhibit 28.11 of Registrant's report on Form 8-K filed on September 30, 1994. 10.4 Stock Purchase Agreement, dated November 7, 1995 between WPI Group, Inc. and IVHS Technologies, Inc., previously filed and incorporated by reference to Exhibit 28.13 of Registrant's report on Form 8- K, dated November 10, 1995. 10.5 Share Purchase Agreement dated July 16, 1996 by and between WPI Group (U.K.) and D.R. Watkins and others, previously filed and incorporated by reference to Exhibit 28.15 in Registrant's Report on Form 8-K, dated July 16, 1996. 10.6 Agreement for the sale and purchase of the share capital of Husky Computers Limited, Husky Computers, Inc. and Husky Computers GmbH, previously filed and incorporated by reference to Exhibit 4.12 in Registrant's report on Form 8-K dated June 25, 1997. 38 Page No. Exhibit No. Description Of Paper Filing - ----------- ----------- --------------- 10.7 Asset Purchase Agreement dated as of July 31, 1998 by and among WPI Instruments, Inc., Allard-Nazarian Group, Inc., Modutec, Inc., A & M Instruments, Inc., and others, previously filed and incorporated by reference to Exhibit 10.24 in Registrant's report on Form 8-K dated August 3, 1998. 10.8 Inertial Products Purchase Agreement dated July 30, 1998 by and among Allard- Nazarian Group, Inc. and Lucas Automation and Control Engineering, Inc. previously filed and incorporated by reference to Exhibit 10.8 in Registrant's report on Form 10-K dated September 27, 1998. 10.9 Walker Power, Inc. Employee Stock Purchase Plan and Bonus Award Plan adopted May 7, 1992, previously filed and incorporated by reference to Exhibit 28.1 of Registrant's Registration on Form S-8 filed on June 1, 1992, Registration No. 33-48285. 10.10 Termiflex Corporation 1981 Employee Incentive Stock Option Plan, previously filed and incorporated by reference to Exhibit 10.1 of the Termiflex Registration Statement No. 2- 85910-B on Form S-8. 10.11 The 1992 Stock Option Plan for Directors of Micro Palm Computers, Inc., previously filed and incorporated by reference to Exhibit 99.4 of the Registrant's Registration Statement on Form S-8 filed February 28, 1996, Registration No. 333-1696. 10.12 WPI Group, Inc. Change in Control Plan adopted December 15, 1995, previously filed and incorporated by reference to Exhibit 10.8 to the Registrant's Report on Form 10-KSB for the year ended September 29, 1996. 10.13 WPI Group, Inc. 1995 Stock Option Plan, adopted June 6, 1995, previously filed and incorporated by reference to Exhibit 10.10 of Registrant's report on Form 10- KSB for the year ended September 24, 1995. 10.14 WPI Group, Inc. 1997 Employee Stock Purchase Plan and Bonus Award Plan, each adopted on February 12, 1997, previously filed and incorporated by reference to Exhibit 99 to the Registrant's Registration on Form S-8 filed June 3, 1997 Registration No. 333-28335. 10.15 WPI Group, Inc. 1997 Equity Incentive Plan, adopted June 10, 1997, as amended on December 12, 1997, previously filed and incorporated by reference to Exhibit A of the Registrant's Proxy Statement dated January 9, 1998. 10.16 Noncompetition agreement, dated January 17, 1994, by and between WPI Group, Inc. and William E. Fletcher, previously filed and incorporated by reference to Exhibit 10.7 of the Registrant's report on Form 10-KSB for the year ended September 25, 1996. 10.17 Lease agreement, dated October 7, 1994, by and between WPI Group, Inc. and State Mutual Life Assurance Company of America, previously filed and incorporated by reference to Exhibit 10.9 of the Registrant's report on Form 10-KSB for the year ended September 24, 1995. 39 Page No. Exhibit No. Description Of Paper Filing - ----------- ----------- --------------- 10.18 Lease agreement dated September 10, 1986 as amended on September 10, 1986, September 1, 1991 and January 1, 1998 by and between 850 Perimeter Rd/NA, LLC (formerly NA Realty) and WPI Instruments, Inc. previously filed and incorporated by reference to Exhibit 10.43 of the Registrant's report on Form 10-K dated September 27, 1998. 10.19 Commercial Loan Agreement, dated October 24, 1995, previously filed and incorporated by reference to Exhibit 4.9 of the Registrant's Report on Form 10- KSB for the year ended September 24, 1995. 10.20 First Amendment dated March 20, 1996 to Commercial Loan Agreement dated October 24, 1995, previously filed and incorporated by reference to Exhibit 4.4 of the Registrant's Report on Form 10- KSB for the year ended September 29, 1996. 10.21 Second Amendment dated July 12, 1996 to Commercial Loan Agreement dated October 24, 1995, previously filed and incorporated by reference to Exhibit 4.6 of the Registrant's Report on Form 10- KSB for the year ended September 29, 1996. 10.22 Third Amendment dated February 27, 1997 to Commercial Loan Agreement dated October 24, 1995 is incorporated by reference to Registrant's report on Form 10-Q for the period ended March 30, 1997. 10.23 Revolving Line of Credit Promissory Note dated February 27, 1997, replacement to Revolving Line of Credit Promissory Note dated July 12, 1996, previously filed and incorporated by reference to Exhibit 4.1 of the Registrant's Report on Form 8- K for the period ended March 30, 1997. 10.24 Fourth Amendment dated June 20, 1997 to Commercial Loan Agreement dated October 24, 1997, previously filed and incorporated by reference to Exhibit 4.13 in Registrant's Report on Form 8-K dated June 25, 1996. 10.25 Promissory Note dated June 20, 1997, previously filed and incorporated by reference to Exhibit 4.14 in Registrant's Report on Form 8-K dated June 25, 1997. 10.26 Stock Pledge and Security Agreement dated June 20, 1997, previously filed and incorporated by reference to Exhibit 4.15 in Registrant's Report on Form 8-K dated June 25, 1997. 10.27 Credit Agreement dated August 3, 1998 by and among Fleet Bank-NH and the Registrant previously filed and incorporated by reference to Exhibit 10.26 in Registrant's report on Form 10- K dated September 27, 1998. 10.28 First Amendment dated October 30, 1998 to Credit Agreement dated August 3, 1998 previously filed and incorporated by reference to Exhibit 10.27 in Registrant's report on Form 10-K dated September 27, 1998. 40 Page No. Exhibit No. Description Of Paper Filing - ----------- ----------- --------------- 10.29 Second Amendment dated December 27, 1998 to Credit Agreement dated August 3, 1998 previously filed and incorporated by reference to Exhibit 10.41 of the Registrant's report on Form 10-K dated September 27, 1998. 10.30 Revolving Noted dated October 30, 1998 in the principal amount of $3,333,333.33 previously filed and incorporated by reference to Exhibit 10.28 of the Registrant's report on Form 10-K dated September 27, 1998. 10.31 Revolving Noted dated October 30, 1998 in the principal amount of $4,000,000 previously filed and incorporated by reference to Exhibit 10.29 of the Registrant's report on Form 10-K dated September 27, 1998. 10.32 Revolving Noted dated October 30, 1998 in the principal amount of $2,666,666.67 previously filed and incorporated by reference to Exhibit 10.30 of the Registrant's report on Form 10-K dated September 27, 1998. 10.33 Revolving Noted dated October 30, 1998 in the principal amount of $4,000,000 previously filed and incorporated by reference to Exhibit 10.31 of the Registrant's report on Form 10-K dated September 27, 1998. 10.34 Revolving Noted dated October 30, 1998 in the principal amount of $6,000,000 previously filed and incorporated by reference to Exhibit 10.32 of the Registrant's report on Form 10-K dated September 27, 1998. 10.35 Term A Note dated October 30, 1998 in the principal amount of $5,000,000 previously filed and incorporated by reference to Exhibit 10.33 of the Registrant's report on Form 10-K dated September 27, 1998. 10.36 Term A Note dated October 30, 1998 in the principal amount of $6,000,000 previously filed and incorporated by reference to Exhibit 10.34 of the Registrant's report on Form 10-K dated September 27, 1998. 10.37 Term A Note dated October 30, 1998 in the principal amount of $4,000,000 previously filed and incorporated by reference to Exhibit 10.35 of the Registrant's report on Form 10-K dated September 27, 1998. 10.38 Term A Note dated October 30, 1998 in the principal amount of $6,000,000 previously filed and incorporated by reference to Exhibit 10.36 of the Registrant's report on Form 10-K dated September 27, 1998. 10.39 Term A Note dated October 30, 1998 in the principal amount of $9,000,000 previously filed and incorporated by reference to Exhibit 10.37 of the Registrant's report on Form 10-K dated September 27, 1998. 10.40 Term B Note dated October 30, 1998 in the principal amount of $4,166,666.67 previously filed and incorporated by reference to Exhibit 10.38 of the Registrant's report on Form 10-K dated September 27, 1998. 41 Page No. Exhibit No. Description Of Paper Filing - ----------- ----------- --------------- 10.41 Term B Note dated October 30, 1998 in the principal amount of $5,000,000 previously filed and incorporated by reference to Exhibit 10.39 of the Registrant's report on Form 10-K dated September 27, 1998. 10.42 Term B Note dated October 30, 1998 in the principal amount of $15,833,333.33 previously filed and incorporated by reference to Exhibit 10.40 of the Registrant's report on Form 10-K dated September 27, 1998. 10.43 Waiver dated as of December 27, 1998 previously filed and incorporated by reference to Exhibit 10.42 of the Registrant's report on Form 10-K dated September 27, 1998. 10.44 Asset Purchase Agreement, dated December 22, 1999 among Warner Power, LLC and Warner Power Conversion, LLC and WPI Power Systems, Inc. and WPI Electronics, Inc. and WPI Group, Inc., previously filed and incorporated by reference to Exhibit 10.24 of Registrant's Report on Form 8-K, dated January 4, 2000. 10.45 Non-Competition Agreement, dated December 22, 1999 among WPI Group, Inc. and WPI Electronics, Inc. and WPI Poster Systems, Inc. and Warner Power, LLC, previously filed and incorporated by reference to Exhibit 10.24 of Registrant's Report on Form 8-K, dated January 4, 2000. 10.46 Purchase and Sale Agreement, dated December 22, 1999 among WPI Group, Inc. and 40 Depot Street, LLC, previously filed and incorporated by reference to Exhibit 10.24 of Registrant's Report on Form 8-K, dated January 4, 2000. 10.47 Terminal Products Manufacturing Agreement, dated December 22, 1999 among Warner Power, LLC and WPI Group, Inc and WPI Oyster Termiflex, Inc., previously filed and incorporated by reference to Exhibit 10.24 of Registrant's Report on Form 8-K, dated January 4, 2000. 10.48 Services Agreement, dated December 22, 1999 among WPI Group, Inc. and Warner Power, LLC and Warner Power Conversion, LLC previously filed and incorporated by reference to Registrant's Report on Form 8-K, dated January 4, 2000. 10.49 Third Amendment to Credit Agreement dated as of August 16, 1999, previously filed and incorporated by reference to Exhibit 10.49 of Registrant's Report on Form 10-K, dated September 26, 1999. 10.50 Limited Waiver dated as of August 16, 1999,previously filed and incorporated by reference to Exhibit 10.50 of Registrant's Report on Form 10-K, dated September 26, 1999. 10.51 Common Stock Purchase Warrant dated as of August 16, 1999 for 20,670 shares of WPI Group, Inc. Common Stock to FSC Corp., previously filed and incorporated by reference to Exhibit 10.51 of Registrant's Report on Form 10-K, dated September 26, 1999. 10.52 Common Stock Purchase Warrant dated as of August 16, 1999 for 24,800 shares of WPI Group, Inc. Common Stock to Bank of NH, filed and incorporated by reference to Exhibit 10.52 of Registrant's Report on Form 10-K, dated September 26, 1999. NH, 42 Page No. Exhibit No. Description Of Paper Filing - ----------- ----------- --------------- 10.53 Common Stock Purchase Warrant dated as of August 16, 1999 for 37,200 shares of WPI Group, Inc. Common Stock to Fleet Bank - NH, previously filed and incorporated by reference to Exhibit 10.53of Registrant's Report on Form 10-K, dated September 26, 1999. 10.54 Common Stock Purchase Warrant dated as of August 16, 1999 for 16,530 shares of WPI Group, Inc. Common Stock to Key Bank, previously filed and incorporated by reference to Exhibit 10.54 of Registrant's Report on Form 10-K, dated September 26, 1999. 10.55 Common Stock Purchase Warrant dated as of August 16, 1999 for 24,800 shares of WPI Group, Inc. Common Stock to Sovereign Bank, previously filed and incorporated by reference to Exhibit 10.55 of Registrant's Report on Form 10-K, dated September 26, 1999. 10.56 Registration Rights Agreement dated as of August 16, 1999. 10.57 Sale and Purchase Agreement dated February 22,2000 among WPI Group (UK), WPI Group, Inc. and Dynatech Nominees Limited previously filed and incorporated by reference to Exhibit 10.24 of Registrant's Report on Form 8-K dated February 29, 2000. 10.58 Business Sale Agreement dated February 22, 2000 among WPI Oyster Termiflex Limited and Dynatech Corporation Limited previously filed and incorporated by reference to Exhibit 10.25 of Registrant's Report on Form 8-K, dated February 29, 2000. 10.59 Asset Purchase Agreement dated February 11, 2000 dated February 11, 2000 among Itronix Corporation, WPI Husky Technology, Inc. and WPI Group, Inc. previously filed and incorporated by reference to Exhibit 10.26 of Registrant's Report on Form 8-K, dated February 29, 2000. 10.60 Forbearance Agreement dated January 24, 2000 previously filed and incorporated by reference to Exhibit 10.1 of the Registrant's Report on Form 10-Q for the period ended March 26, 2000. 10.61 Bill of Sale and Assumption Agreement dated June 8, 2000 among WPI Termiflex, Inc. and Warner Power, LLC previously filed and incorporated by reference to Exhibit 10.24 of Registrant's Report on Form 8-K, dated June 21, 2000. 10.62 Forbearance Agreement dated March 31, 2000 previously filed and incorporated by reference to Exhibit 10.1 of Registrant's Report on Form 10-Q for the period ended June 25, 2000. 10.63 Forbearance Agreement dated May 3, 2000 previously filed and incorporated by reference to Exhibit 10.2 of the Registrant's Report on Form 10-Q for the period ended June 25, 2000. 10.64 Convertible Note Agreement dated as of July 31, 2000 previously filed and incorporated by reference to Exhibit 2.1 of Registrant's Report on Form 8-K, dated August 16, 2000. 10.65 Asset Purchase Agreement dated October 13, 2000 dated October 13, 2000 among WPI Instruments, Inc., WPI Magnetec, Inc., Crompton Modutec (Barbados) Limited and Jewell Instruments, LLC previously filed and incorporated by reference to Exhibit 10.24 of Registrant's Report on Form 8-K, dated November 28, 2000. * 10.66 Forbearance Agreement dated June 30, 2000. * 10.67 Forbearance Agreement dated July 31, 2000. * 10.68 Loan Modification Agreement dated August 9, 2000. * 10.69 Form of Term A Note. * 10.70 Form of Term B Note. * 10.71 Form of Warrant. * 21 List of subsidiaries of the Registrant as of September 24, 2000. * 23 Consent of Arthur Andersen LLP. * 27 Financial Data Schedule. 43 EX-10 2 0002.txt EXHIBIT 10.66 as of June 30, 2000 Fleet National Bank Bank of New Hampshire 1155 Elm Street 333 State Street Manchester, NH 03101 Portsmouth, NH 03801 Attn: Daniel D. Butler, Attn: David D. McGraw, Vice President Vice President Sovereign Bank Key Corporate Capital 50 Rowes Wharf-Suite 430 One Canal Plaza-Sixth Boston, MA 02110 Floor Attn: Joseph Becker, Portland, ME 04101 Vice President Attn: Mark Kleinhaut, Vice President Re: Third Amendment to Forbearance Agreement and Credit Agreement -------------------------------------------------------------- Gentlemen: Reference is made to that Forbearance Agreement made as of the 24th day of January, 2000, as amended (as amended, the "Agreement") by and between, on one hand, WPI GROUP, INC., WPI ELECTRONICS, INC., WPI MAGNETEC, INC., WPI MICRO PALM, INC., WPI POWER SYSTEMS, INC., WPI TERMIFLEX, INC. f/k/a WPI Termiflex, Inc., WPI MICRO PROCESSOR SYSTEMS, INC., WPI DECISIONKEY, INC., WPI UK HOLDING II, INC., WPI OYSTER TERMINALS, INC., WPI INSTRUMENTS, INC., each a New Hampshire corporation, WPI HUSKY TECHNOLOGY, INC. f/k/a WPI Husky Computers, Inc., a Florida corporation (collectively, the "Borrowers"), FLEET NATIONAL BANK f/k/a Fleet Bank-NH, KEY CORPORATE CAPITAL INC., SOVEREIGN BANK, BANK OF NEW HAMPSHIRE, FLEET NATIONAL BANK f/k/a BankBoston, N.A. (each, individually, a Lender, and collectively, the "Lenders"), and FLEET NATIONAL BANK f/k/a Fleet Bank-NH, as Agent for the Lenders (the "Agent"), and the Credit Agreement dated as of August 3, 1998 among the Borrowers, the Agent, and the Lenders. All capitalized terms used herein that are not otherwise specifically defined herein shall have the meanings given such terms in the Forbearance Agreement. The Borrowers have requested that Lenders extend the Forbearance Period under the Agreement, and the Lenders have agreed to do so, on the terms and subject to the conditions hereof. 1. Acknowledgment of Obligations. (a) By Borrowers. Each Borrower hereby acknowledges that it is unconditionally liable to the Lenders for the full and immediate payment of each of the obligations set forth at Schedule A hereto and incorporated herein by reference, plus all reasonable attorneys' fees and costs of collection incurred or that may be incurred in connection with such obligations by the Agent or the Lenders, and Borrowers are unconditionally liable to Lenders to pay and perform each of the other liabilities and obligations that may now or hereafter arise under the various documents executed or delivered by any Borrower evidencing or relating to such obligations (collectively, the "Loan Documents") (hereinafter all such obligations are referred to as the "Obligations"), and that no Borrower has any defenses, counterclaims or set-offs with respect to the full and immediate payment of any or all Obligations. To the best of their knowledge and without providing any opinion as to any legal issue, each Borrower hereby acknowledges and agrees that all of the Obligations, and each of them, are secured by valid and perfected, first priority liens and security interests in all of the Collateral enforceable against the Borrowers in accordance with their terms, provided, however, that each Borrower covenants and agrees that, to the extent that the Obligations are not secured by valid and perfected, first priority liens and security interests in all of the Collateral enforceable against the Borrowers in accordance with their terms, the Borrowers shall at their expense and upon Agent's request, duly execute and deliver, or cause to be duly executed or delivered, to Agent such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of the Agent to cause such Obligations to be secured by valid and perfected, first priority liens and security interests in all of the Collateral enforceable against the Borrowers in accordance with their terms. (b) No Further Commitments by Lender. The Borrowers further acknowledge that the Agent and Lenders have no existing commitments, obligations or agreements to advance credits or loans or make other financial accommodations to the Borrowers except as may be specifically set forth in the Forbearance Agreement, as modified by this Amendment. 2. Amendment--Extension of Forbearance Period. Section 5(a) (Forbearance and Subordinated Indebtedness) of the Forbearance Agreement is hereby amended to replace the date "May 3, 2000" as it appears therein with the date "July 31, 2000" in lieu thereof. 3. Line of Credit Reserve. The Borrowers agree that they did not satisfy the conditions precedent to require the release of the $100,000 2000 Reserve established under Section 4 of the Second Amendment to Forbearance Agreement and Credit Agreement dated as of May 3, 2000 (the "Second Amendment"), and that the 2000 Reserve therefore has not been released. The Borrowers have requested, and the Agent and the Lenders have agreed that, notwithstanding such failure, if the Sunrise Transaction Date (as defined below) has occurred on or before the first to occur of: (a) the Forbearance Termination Date; or (b) July 31, 2000, the 2000 Reserve shall be released (but the Agent and the Lenders shall have no obligation to make the 2000 Reserve available for loans unless the Borrowers have satisfied all other conditions precedent to obtaining such loans). If on the other hand, the Sunrise Transaction Date has not occurred by the first to occur of the events specified in clauses (a) and (b) of this paragraph, then the Agent may apply the 2000 Reserve toward the Obligations - 2 - as set forth in the Credit Agreement. The term "Sunrise Transaction Date" as used herein, shall mean the date on which the Borrowers have both: (a) reduced the Lenders' aggregate outstandings, on a permanent basis, to less than or equal to $17,500,000; and (b) obtained a commitment from Sunrise Capital Partners LLC to loan an additional $2,500,000 to the Borrowers to enable the Borrowers to reduce the Lenders' aggregate outstandings, on a permanent basis, to less than or equal to $15,000,000, on terms satisfactory to the Agent and the Lenders. 4. Amendment Fee. The Borrowers acknowledge and agree that, as consideration for the Agent's and Lenders' agreements and commitments hereunder, the Borrowers shall pay an amendment fee of $100,000 (the "Third Amendment Fee") to the Agent, for distribution pro rata to the Lenders in accordance with the amount of their Commitments, which Third Amendment Fee shall be fully earned by the Agent and the Lenders as of the execution of this Amendment, and shall be payable in three installments, as follows: (a) $25,000, on July 14, 2000; (b) $25,000, on July 21, 2000; and (c) $50,000, on July 31, 2000. In the event that the Sunrise Transaction Date occurs, then the Agent and the Lenders shall be deemed to have waived payment of those installments under clause (a), (b), or (c) hereof that are scheduled to first become due on or after the Sunrise Transaction Date. 5. Certain Default Interest. In the event that the Sunrise Transaction Date occurs on or prior to July 31, 2000, then the Agent and the Lenders shall be deemed to have waived, effective as of the date of such reduction, the incremental interest attributable to increasing the applicable rate to the Default Rate that accrued, but is presently unpaid, from and after February 24, 2000 through and including the Sunrise Transaction Date. Nothing herein shall constitute a waiver or release of the Agent's or Lenders' rights to retain any payment, including any interest payment, that has already been made. If the Sunrise Transaction Date does not occur on or prior to July 31, 2000, the Loans shall continue to accrue interest at the Default Rate. 6. Release of Claims. As of the date of the execution of this Amendment, each Borrower hereby releases, waives, and forever relinquishes all claims, demands, obligations, liabilities and causes of action of whatever kind or nature, whether known or unknown, which it has, may have, or might assert against Agent or any Lender and/or their respective parents, affiliates, participants, officers, directors, employees, agents, attorneys, accountants, consultants, successors and assigns, directly or indirectly, arising out of, based upon, or in any manner connected with (i) any transaction, event, circumstance, action, failure to act or occurrence of any sort or type, whether known or unknown, which occurred, existed, was taken or permitted prior to the execution of this Agreement with respect to the Obligations, the Loan Documents and/or the administration thereof or the obligations created thereby; (ii) any discussions, commitments, negotiations, conversations or communications with respect to the refinancing, restructuring or collection of any Obligations; or (iii) any thing or matter related to any of the foregoing. The inclusion of this paragraph in this Amendment, and the execution of this Amendment by the Agent and the Lenders, does not constitute an acknowledgment or admission by the Agent or any Lender of liability for any matter, or a precedent upon which liability may be asserted. - 3 - 7. Conditions Precedent. The obligation of the Lenders to enter into this Amendment is subject to satisfaction of the condition precedent that the Borrowers shall execute and deliver, or cause to be executed and delivered to Lender, the following on or before the date hereof: i. This Amendment, executed by all Borrowers, together with all schedules and exhibits hereto; ii. Payment of $25,000, to reimburse the Agent for its reasonable consultant's fees and reasonable attorneys' fees. iii. evidence that the execution, delivery and performance of this Amendment and the Forbearance Agreement by the Borrowers have been duly authorized by all necessary corporate action, including incumbency certificates of each Borrower, with authorizing resolutions and certified copies of articles of organization and by-laws, all in a form satisfactory to the Agent and all Lenders and their counsel; iv. evidence of insurance coverage required by Section 14(e)(iv) of the Forbearance Agreement; v. evidence of payment of all outstanding property taxes; and vi. an opinion of counsel satisfactory to the Agent and the Lenders that this Amendment and the Forbearance Agreement represents the legal, valid, and binding obligation of the Borrowers, enforceable against them in accordance with its terms. 8. Confirmation of Representations and Warranties. Each representation and warranty contained in the Amendment and the other Loan Documents remains accurate, complete and not misleading in any material respect on the date of this Amendment, except for representations and warranties that explicitly relate to an earlier date. Each Borrower acknowledges and agrees that it is unconditionally liable for the full, prompt and complete performance and payment of all Obligations arising under the Loan Documents or otherwise, without defenses, counterclaims or setoffs of any kind or nature. The Agent and the Lenders, by entering into this Amendment, do not waive any rights and remedies they may have under the Loan Documents or otherwise, including, without limitation, arising or resulting from any existing Default or Event of Default, and all of such rights and remedies are hereby expressly reserved. 9. Authority. Each Borrower represents and warrants that it is a corporation duly organized and in good standing under the laws of its state or other jurisdiction of incorporation and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on the financial condition, results of operation or businesses of such Borrower or the rights of the Agent and Lenders hereunder or under any of the other Loan Documents. Each Borrower represents and warrants that the execution, delivery and performance of this Amendment is within the corporate powers of such Borrower, has been duly authorized and are not in contravention of law or the terms of the certificates of incorporation, by-laws, or other organizational documentation of - 4 - such Borrower, or any indenture, agreement or undertaking to which such Borrower is a party or by which such Borrower or its property are bound. Each Borrower represents and warrants that this Amendment constitutes the legal, valid and binding obligation of the Borrowers enforceable in accordance with its terms. 10. Miscellaneous. This Amendment shall be deemed to be a Loan Document. This Amendment supersedes all prior correspondence and discussions relating to the subject matter hereof. This Amendment shall be governed and construed under the laws of the State of New Hampshire and is subject to all the rights and waivers, including the waiver of jury trial, set forth in the Loan Documents. Except as expressly set forth herein, each Borrower confirms that the Loan Documents have not been amended or modified and, as amended hereby, continue in full force and effect. 11. Counterparts. This Agreement may be executed in counterparts each of which shall be an original and all of which taken together shall constitute one and the same document. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] - 5 - Executed as an instrument under seal by the parties or their respective duly authorized officers as of the date first written above. BORROWERS: WPI GROUP, INC. WPI POWER SYSTEMS, INC., WPI MAGNETEC, INC. WPI ELECTRONICS, INC., WPI TERMIFLEX, INC. f/k/a WPI Oyster 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., WPI HUSKY TECHNOLOGY, INC., and WPI INSTRUMENTS, INC. ____________________________ By: _______________________________ Witness John Allard, for, on behalf of, and as Duly Authorized Officer or Agent of each of the above- named entities - 6 - AGENT AND LENDER: FLEET NATIONAL BANK f/k/a Fleet Bank-NH, as Agent and as a Lender ____________________________ By: Witness ___________________________________ Name:__________________________ Title:________________________________ OTHER LENDERS: KEY CORPORATE CAPITAL INC. ____________________________ By: Witness ___________________________________ Name:___________________________ Title:________________________________ SOVEREIGN BANK ____________________________ By: Witness ___________________________________ Name:___________________________ Title:______________________________ BANK OF NEW HAMPSHIRE ____________________________ By: Witness ___________________________________ Name:___________________________ Title:________________________________ FLEET NATIONAL BANK f/k/a BANKBOSTON, N.A. ____________________________ By: Witness ___________________________________ Name:___________________________ Title:________________________________ - 7 - SCHEDULE A (Schedule of Obligations)* Loans Unpaid Unpaid Late Incremental Principal Interest Charges interest as of July (other than as of attributable to 6, 2000 the July 6, increasing the incremental 2000 applicable rate interest to the Default attributable Rate from and to after August increasing 22, 1999, as of the July 6, 2000 applicable rate to the Default Rate from and after August 22, 1999) as of July 6, 2000 Revolving Loans $4,812,138.06 $86,155.47 $1,597.58 $33,716.33 Swing Line Loans $0.00 $2,450,50 $65.68 $1,024.35 Term Loan A $11,809,445.76 $223,598.31 $4,446.72 $89,750.25 Term Loan B $10,823,324.38 $212,820.89 $4,232.75 $82,255.72 * Plus any attorneys' fees or other expenses subject to reimbursement by the Borrowers, whether incurred before or after the date hereof, and any subsequently accruing interest, costs, fees, or charges, and all figures are subject to adjustments to the Agent's or any Lender's records with respect to such Obligations, including, without limitation, adjustments for uncollected checks and misdirected credits. - 8 - EXHIBIT 10.67 as of July 31, 2000 Fleet National Bank Bank of New Hampshire 1155 Elm Street 333 State Street Manchester, NH 03101 Portsmouth, NH 03801 Attn: Daniel D. Butler, Attn: David D. McGraw, Vice President Vice President Sovereign Bank Key Corporate Capital 50 Rowes Wharf-Suite 430 One Canal Plaza-Sixth Boston, MA 02110 Floor Attn: Joseph Becker, Portland, ME 04101 Vice President Attn: Mark Kleinhaut, Vice President Re: Fourth Amendment to Forbearance Agreement and Credit Agreement --------------------------------------------------------------- Gentlemen: Reference is made to that Forbearance Agreement made as of the 24th day of January, 2000, as amended (as amended, the "Agreement") by and between, on one hand, WPI GROUP, INC., WPI ELECTRONICS, INC., WPI MAGNETEC, INC., WPI MICRO PALM, INC., WPI POWER SYSTEMS, INC., WPI TERMIFLEX, INC. f/k/a WPI Termiflex, Inc., WPI MICRO PROCESSOR SYSTEMS, INC., WPI DECISIONKEY, INC., WPI UK HOLDING II, INC., WPI OYSTER TERMINALS, INC., WPI INSTRUMENTS, INC., each a New Hampshire corporation, WPI HUSKY TECHNOLOGY, INC. f/k/a WPI Husky Computers, Inc., a Florida corporation (collectively, the "Borrowers"), FLEET NATIONAL BANK f/k/a Fleet Bank-NH, KEY CORPORATE CAPITAL INC., SOVEREIGN BANK, BANK OF NEW HAMPSHIRE, FLEET NATIONAL BANK f/k/a BankBoston, N.A. (each, individually, a Lender, and collectively, the "Lenders"), and FLEET NATIONAL BANK f/k/a Fleet Bank-NH, as Agent for the Lenders (the "Agent"), and the Credit Agreement dated as of August 3, 1998 among the Borrowers, the Agent, and the Lenders, as amended. All capitalized terms used herein that are not otherwise specifically defined herein shall have the meanings given such terms in the Forbearance Agreement. The Borrowers have requested that Lenders extend the Forbearance Period under the Agreement, and the Lenders have agreed to do so, on the terms and subject to the conditions hereof. 1. Acknowledgment of Obligations. (a) By Borrowers. Each Borrower hereby acknowledges that it is unconditionally liable to the Lenders for the full and immediate payment of each of the obligations set forth at Schedule A hereto and incorporated herein by reference, plus all reasonable attorneys' fees and costs of collection incurred or that may be incurred in connection with such obligations by the Agent or the Lenders, and Borrowers are unconditionally liable to Lenders to pay and perform each of the other liabilities and obligations that may now or hereafter arise under the various documents executed or delivered by any Borrower evidencing or relating to such obligations (collectively, the "Loan Documents") (hereinafter all such obligations are referred to as the "Obligations"), and that no Borrower has any defenses, counterclaims or set-offs with respect to the full and immediate payment of any or all Obligations. To the best of their knowledge and without providing any opinion as to any legal issue, each Borrower hereby acknowledges and agrees that all of the Obligations, and each of them, are secured by valid and perfected, first priority liens and security interests in all of the Collateral enforceable against the Borrowers in accordance with their terms, provided, however, that each Borrower covenants and agrees that, to the extent that the Obligations are not secured by valid and perfected, first priority liens and security interests in all of the Collateral enforceable against the Borrowers in accordance with their terms, the Borrowers shall at their expense and upon Agent's request, duly execute and deliver, or cause to be duly executed or delivered, to Agent such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of the Agent to cause such Obligations to be secured by valid and perfected, first priority liens and security interests in all of the Collateral enforceable against the Borrowers in accordance with their terms. (b) No Further Commitments by Lender. The Borrowers further acknowledge that the Agent and Lenders have no existing commitments, obligations or agreements to advance credits or loans or make other financial accommodations to the Borrowers except as may be specifically set forth in the Forbearance Agreement, as modified by this Amendment. 2. Amendment--Extension of Forbearance Period. Section 5(a) (Forbearance and Subordinated Indebtedness) of the Forbearance Agreement is hereby amended to replace the date "July 31, 2000" as it appears therein with the date "August 7, 2000" in lieu thereof. 3. Line of Credit Reserves. The Borrowers agree that they did not satisfy the conditions precedent to require the release of the $100,000 2000 Reserve established under Section 4 of the Second Amendment to Forbearance Agreement and Credit Agreement dated as of May 3, 2000 (the "Second Amendment"), nor did the Borrower satisfy the conditions precedent to require the release of the $122,994.00 reserve established under that certain letter agreement dated as of June 8, 2000 (the "Termiflex Reserve"), and that neither the 2000 Reserve nor the Termiflex Reserve has been released. The Borrowers have requested, and the Agent and the Lenders have agreed that, notwithstanding such failure, if the Sunrise Transaction Date (as defined below) has occurred on or before the first to occur of: (a) the Forbearance Termination Date; or (b) August __, 2000, the 2000 Reserve and the Termiflex Reserve shall be released (but the Agent and the Lenders shall have no obligation to make the 2000 Reserve or the Termiflex Reserve available for loans unless the Borrowers have satisfied - 2 - all other conditions precedent to obtaining such loans). If on the other hand, the Sunrise Transaction Date has not occurred by the first to occur of the events specified in clauses (a) and (b) of this paragraph, then the Agent may apply the 2000 Reserve and the Termiflex Reserve toward the Obligations as set forth in the Credit Agreement. The term "Sunrise Transaction Date" as used herein, shall mean the date on which the Borrowers have both: (a) reduced the Lenders' aggregate outstandings, on a permanent basis, to less than or equal to $17,500,000; and (b) obtained a commitment from Sunrise Capital Partners LLC to loan an additional $2,500,000 to the Borrowers to enable the Borrowers to reduce the Lenders' aggregate outstandings, on a permanent basis, to less than or equal to $15,000,000, on terms satisfactory to the Agent and the Lenders. 4. Certain Default Interest. In the event that the Sunrise Transaction Date occurs on or prior to August 7, 2000, then the Agent and the Lenders shall be deemed to have waived, effective as of the date of such reduction, the incremental interest attributable to increasing the applicable rate to the Default Rate that accrued, but is presently unpaid, from and after February 24, 2000 through and including the Sunrise Transaction Date. Nothing herein shall constitute a waiver or release of the Agent's or Lenders' rights to retain any payment, including any interest payment, that has already been made. If the Sunrise Transaction Date does not occur on or prior to August 7, 2000, the Loans shall continue to accrue interest at the Default Rate. 5. Release of Claims. As of the date of the execution of this Amendment, each Borrower hereby releases, waives, and forever relinquishes all claims, demands, obligations, liabilities and causes of action of whatever kind or nature, whether known or unknown, which it has, may have, or might assert against Agent or any Lender and/or their respective parents, affiliates, participants, officers, directors, employees, agents, attorneys, accountants, consultants, successors and assigns, directly or indirectly, arising out of, based upon, or in any manner connected with (i) any transaction, event, circumstance, action, failure to act or occurrence of any sort or type, whether known or unknown, which occurred, existed, was taken or permitted prior to the execution of this Agreement with respect to the Obligations, the Loan Documents and/or the administration thereof or the obligations created thereby; (ii) any discussions, commitments, negotiations, conversations or communications with respect to the refinancing, restructuring or collection of any Obligations; or (iii) any thing or matter related to any of the foregoing. The inclusion of this paragraph in this Amendment, and the execution of this Amendment by the Agent and the Lenders, does not constitute an acknowledgment or admission by the Agent or any Lender of liability for any matter, or a precedent upon which liability may be asserted. 6. Conditions Precedent. The obligation of the Lenders to enter into this Amendment is subject to satisfaction of the condition precedent that the Borrowers shall execute and deliver, or cause to be executed and delivered to Lender, the following on or before the date hereof: i. This Amendment, executed by all Borrowers, together with all schedules and exhibits hereto; ii. evidence that the execution, delivery and performance of this Amendment and the Forbearance Agreement by the Borrowers have been duly authorized by all necessary corporate action, including incumbency certificates of each Borrower, with authorizing resolutions and certified copies of articles of organization and by-laws, all in a form satisfactory to the Agent and all Lenders and their counsel; and - 3 - iii. an opinion of counsel satisfactory to the Agent and the Lenders that this Amendment and the Forbearance Agreement represents the legal, valid, and binding obligation of the Borrowers, enforceable against them in accordance with its terms. 7. Confirmation of Representations and Warranties. Each representation and warranty contained in the Amendment and the other Loan Documents remains accurate, complete and not misleading in any material respect on the date of this Amendment, except for representations and warranties that explicitly relate to an earlier date. Each Borrower acknowledges and agrees that it is unconditionally liable for the full, prompt and complete performance and payment of all Obligations arising under the Loan Documents or otherwise, without defenses, counterclaims or setoffs of any kind or nature. The Agent and the Lenders, by entering into this Amendment, do not waive any rights and remedies they may have under the Loan Documents or otherwise, including, without limitation, arising or resulting from any existing Default or Event of Default, and all of such rights and remedies are hereby expressly reserved. 8. Authority. Each Borrower represents and warrants that it is a corporation duly organized and in good standing under the laws of its state or other jurisdiction of incorporation and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on the financial condition, results of operation or businesses of such Borrower or the rights of the Agent and Lenders hereunder or under any of the other Loan Documents. Each Borrower represents and warrants that the execution, delivery and performance of this Amendment is within the corporate powers of such Borrower, has been duly authorized and are not in contravention of law or the terms of the certificates of incorporation, by-laws, or other organizational documentation of such Borrower, or any indenture, agreement or undertaking to which such Borrower is a party or by which such Borrower or its property are bound. Each Borrower represents and warrants that this Amendment constitutes the legal, valid and binding obligation of the Borrowers enforceable in accordance with its terms. 9. Miscellaneous. This Amendment shall be deemed to be a Loan Document. This Amendment supersedes all prior correspondence and discussions relating to the subject matter hereof. This Amendment shall be governed and construed under the laws of the State of New Hampshire and is subject to all the rights and waivers, including the waiver of jury trial, set forth in the Loan Documents. Except as expressly set forth herein, each Borrower confirms that the Loan Documents have not been amended or modified and, as amended hereby, continue in full force and effect. 10. Counterparts. This Agreement may be executed in counterparts each of which shall be an original and all of which taken together shall constitute one and the same document. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] - 4 - Executed as an instrument under seal by the parties or their respective duly authorized officers as of the date first written above. BORROWERS: WPI GROUP, INC. WPI POWER SYSTEMS, INC., WPI MAGNETEC, INC. WPI ELECTRONICS, INC., WPI TERMIFLEX, INC. f/k/a WPI Oyster 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., WPI HUSKY TECHNOLOGY, INC., and WPI INSTRUMENTS, INC. ____________________________ By: _______________________________ Witness John Allard, for, on behalf of, and as Duly Authorized Officer or Agent of each of the above- named entities - 5 - AGENT AND LENDER: FLEET NATIONAL BANK f/k/a Fleet Bank-NH, as Agent and as a Lender ____________________________ By: Witness ___________________________________ Name:___________________________ Title:________________________________ OTHER LENDERS: KEY CORPORATE CAPITAL INC. ____________________________ By: Witness ___________________________________ Name:___________________________ Title:________________________________ SOVEREIGN BANK ____________________________ By: Witness ___________________________________ Name:___________________________ Title:________________________________ BANK OF NEW HAMPSHIRE ____________________________ By: Witness ___________________________________ Name:___________________________ Title:________________________________ FLEET NATIONAL BANK f/k/a BANKBOSTON, N.A. ____________________________ By: Witness ___________________________________ Name:___________________________ Title:________________________________ - 6 - SCHEDULE A (Schedule of Obligations)* Loans Unpaid Unpaid Late Incremental Principal Interest Charges interest as of July (other than as of attributable to __, 2000 the July __, increasing the incremental 2000 applicable rate interest to the Default attributable Rate from and to after August increasing 22, 1999, as of the July __, 2000 applicable rate to the Default Rate from and after August 22, 1999) as of July __, 2000 Revolving Loans Swing Line Loans Term Loan A Term Loan B * Plus any attorneys' fees or other expenses subject to reimbursement by the Borrowers, whether incurred before or after the date hereof, and any subsequently accruing interest, costs, fees, or charges, and all figures are subject to adjustments to the Agent's or any Lender's records with respect to such Obligations, including, without limitation, adjustments for uncollected checks and misdirected credits. - 7 - EXHIBIT 10.68 LOAN MODIFICATION AGREEMENT AGREEMENT made as of this 9th day of August, 2000 by and between, on one hand, WPI GROUP, INC., a New Hampshire corporation with its chief executive office at 1155 Elm Street, Manchester, New Hampshire 03101, WPI ELECTRONICS, INC., a New Hampshire corporation with its chief executive office at 1155 Elm Street, Manchester, New Hampshire 03101, WPI MAGNETEC, INC., a New Hampshire corporation with its chief executive office at 1155 Elm Street, Manchester, New Hampshire 03101, WPI MICRO PALM, INC., a New Hampshire corporation with its chief executive office at 1155 Elm Street, Manchester, New Hampshire 03101, WPI POWER SYSTEMS, INC., a New Hampshire corporation with its chief executive office at 1155 Elm Street, Manchester, New Hampshire 03101, WPI TERMIFLEX, INC. f/k/a WPI Oyster Termiflex, Inc., a New Hampshire corporation with its chief executive office at 1155 Elm Street, Manchester, New Hampshire 03101, WPI MICRO PROCESSOR SYSTEMS, INC., a New Hampshire corporation with its chief executive office at 1155 Elm Street, Manchester, New Hampshire 03101, WPI DECISIONKEY, INC., a New Hampshire corporation with its chief executive office at 1155 Elm Street, Manchester, New Hampshire 03101, WPI UK HOLDING, INC., a New Hampshire corporation with its chief executive office at 1155 Elm Street, Manchester, New Hampshire 03101, WPI UK HOLDING II, INC., a New Hampshire corporation with its chief executive office at 1155 Elm Street, Manchester, New Hampshire 03101, WPI OYSTER TERMINALS, INC., a New Hampshire corporation with its chief executive office at 1155 Elm Street, Manchester, New Hampshire 03101, WPI INSTRUMENTS, INC. a New Hampshire corporation with its chief executive office at 1155 Elm Street, Manchester, New Hampshire 03101, and WPI HUSKY TECHNOLOGY, INC. f/k/ a WPI Husky Computers, Inc., a Florida corporation with its chief executive office at 1155 Elm Street, Manchester, New Hampshire 03101 (the "Borrowers"), FLEET NATIONAL BANK, KEY CORPORATE CAPITAL INC., SOVEREIGN BANK, and BANK OF NEW HAMPSHIRE, N.A., successor-in- interest to BANK OF NEW HAMPSHIRE (each, individually, a "Lender," and collectively, the "Lenders"), and FLEET NATIONAL BANK, as Agent for the Lenders (the "Agent"). WHEREAS, each Borrower is an affiliate of each other Borrower and would directly benefit and gain from any accommodation made by the Agent and the Lenders to each other Borrower; WHEREAS, pursuant to that certain Credit Agreement dated as of August 3, 1998, among the Borrowers, the Agent, and the Lenders (as amended, the "Credit Agreement"), the Agent and the Lenders extended certain credit facilities to the Borrowers and, as collateral security therefor, each of the Borrowers has granted to the Agent, for the benefit of the Lenders, liens on and security interests in all or substantially all of its personal property and certain interests in real property; WHEREAS, prior to January 24, 2000, the terms of the Credit Agreement were modified by a First Amendment to Credit Agreement, dated as of October 30, 1998 (the "First Credit Agreement Amendment"), a Second Amendment to Credit Agreement dated as of - 1 - December 27, 1998 (the "Second Credit Agreement Amendment"), and a Third Amendment to Credit Agreement dated as of August 16, 1999 (the "Third Credit Agreement Amendment"); WHEREAS, prior to January 24, 2000, the Borrowers had defaulted with respect to certain obligations owed to the Agent and the Lenders, such that interest on the obligations has accrued at the Default Rate (as defined in the Credit Agreement) since August 24, 1999, and all obligations of the Borrowers to the Lenders became due and payable; WHEREAS, on or about January 24, 2000, the Borrowers, the Agent, and the Lenders entered into a Forbearance Agreement (the "Forbearance Agreement"), under which the Agent and the Lenders agreed to forbear from the exercise of certain rights and remedies in accordance with the terms thereof, and under which the Borrowers, Agent, and Lenders further amended the Credit Agreement in certain respects; WHEREAS, the Forbearance Agreement and the Credit Agreement were amended by an Amendment to Forbearance Agreement and Credit Agreement dated as of March 31, 2000 (the "First Forbearance Agreement Amendment"), by a Second Amendment to Forbearance Agreement and Credit Agreement dated as of May 3, 2000 (the "Second Forbearance Agreement Amendment"), by a Third Amendment to Forbearance Agreement and Credit Agreement dated as of June 30, 2000 (the "Third Forbearance Agreement Amendment"), and by a Fourth Amendment to Forbearance Agreement and Credit Agreement dated as of July 31, 2000 (the "Fourth Forbearance Agreement Amendment"); WHEREAS, the Borrowers have entered into a certain Convertible Note Agreement between Sunrise Capital Partners, L.P. ("Sunrise") and the Borrowers dated as of July 31, 2000, pursuant to which Sunrise will purchase certain securities from the Borrowers, the proceeds of such purchases to be used, in part, to repay certain amounts owing to the Lenders under the Credit Agreement; and WHEREAS, the Borrowers have requested that the Agent and the Lenders waive listed Events of Default and make certain other modifications to the agreements between the Borrowers, the Agent, and the Lender, on the terms and subject to the conditions set forth below; NOW, THEREFORE, based on these premises, and in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrowers, the Agent, and the Lenders hereby agree as follows (capitalized terms shall have the meanings assigned such terms in Section 19 hereof or as defined elsewhere in this Agreement): - 2 - 1. Acknowledgment of Obligations. (a) By Borrowers. Each Borrower hereby acknowledges that it is unconditionally liable to the Lenders for the full and immediate payment of each of the obligations set forth at Schedule A hereto and incorporated herein by reference, plus all reasonable attorneys' fees and costs of collection incurred or that may be incurred in connection with such obligations by the Agent or the Lenders, and Borrowers are unconditionally liable to Lenders to pay and perform each of the other liabilities and obligations that may now or hereafter arise under the various documents executed or delivered by any Borrower evidencing or relating to such obligations (collectively, the "Loan Documents") (hereinafter all such obligations are referred to as the "Obligations"), and that no Borrower has any defenses, counterclaims or set-offs with respect to the full and immediate payment of any or all Obligations. To the best of their knowledge and without providing any opinion as to any legal issue, each Borrower hereby acknowledges and agrees that all of the Obligations, and each of them, are secured by valid and perfected, first priority liens and security interests in all of the Collateral enforceable against the Borrowers in accordance with their terms, provided, however, that each Borrower covenants and agrees that, to the extent that the Obligations are not secured by valid and perfected, first priority liens and security interests in all of the Collateral enforceable against the Borrowers in accordance with their terms, the Borrowers shall at their expense and upon Agent's request, duly execute and deliver, or cause to be duly executed or delivered, to Agent such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of the Agent to cause such Obligations to be secured by valid and perfected, first priority liens and security interests in all of the Collateral enforceable against the Borrowers in accordance with their terms. (b) No Further Commitments by Agent or Lenders. The Borrowers further acknowledge that, except as specified herein, the Agent and the Lenders have no existing commitments, obligations or agreements to extend or make available credits, loans or other financial accommodations to the Borrowers. (c) No LIBOR Loans. The Borrowers hereby confirm that there are presently no LIBOR Loans outstanding and that all outstanding Loans consist of Index Rate Loans. Notwithstanding anything in the Loan Documents or elsewhere to the contrary, , the Borrowers will no longer be permitted to elect that Loans constitute LIBOR Loans and the Agent will refuse to honor such request. 2. Acknowledgement of Events of Default; Limited Waiver. (a) Each of the Borrowers acknowledges that the Specified Events of Default, as defined in the Forbearance Agreement and the Additional Specified Events of Default, as defined in the First Forbearance Agreement Amendment, have occurred and are continuing, and the Borrowers hereby request that the Agent and the Lenders waive, subject to the conditions contained herein, the occurrence of the Specified Events of Default and the Additional Specified Events of Default. - 3 - (b) Effective only upon satisfaction of the conditions precedent set forth in Section 10 hereof, the Agent and the Lenders hereby waive their rights and remedies arising from the Specified Events of Default and the Additional Specified Events of Default. This waiver shall not be deemed or construed to be a consent to any other or future action or as a waiver of any other Event of Default that may exist under the Loan Documents. 3. Amendments. (a) Amendments to Credit Agreement. The following amendments to the Credit Agreement shall become effective only upon satisfaction of the conditions precedent set forth in Section 10 hereof: (i) Borrowing Base. Section 1.1(a) of the Credit Agreement is hereby amended to delete the fourth sentence thereof and to replace it with the following: "The aggregate amount of Revolving Credit Advances shall not exceed at any time the Maximum Amount, less the amount of the Swing Line Loan outstanding at such time ("Borrowing Availability")." (ii) Swing Line Advances. Section 1.1(d) of the Credit Agreement is hereby amended to delete the third sentence thereof and to replace it with the following: "The aggregate amount of Swing Line Advances outstanding shall not exceed at any time the Swing Line Commitment at such time ("Swing Line Availability")." (iii) Mandatory Prepayments. Section 1.2(b) of the Credit Agreement is hereby amended to delete clause (i) thereof in its entirety and to replace it with the following: "(i) If at any time the outstanding balance of the aggregate Revolving Loan exceeds the Maximum Amount less the aggregate outstanding Swing Line Loan at such time, Borrowers shall immediately repay the aggregate outstanding Revolving Credit Advances to the extent required to eliminate such excess." (iv) Eligible Accounts. Section 1.5 of the Credit Agreement shall be deleted in its entirety and replaced with "[Intentionally Omitted]". (v) Eligible Inventory. Section 1.6 of the Credit Agreement shall be deleted in its entirety and replaced with "[Intentionally Omitted]". (vi) Conditions to Each Loan. Sections 2.2(d) and 2.2(e) of the Credit Agreement shall be deleted in their entirety and replaced with the following: - 4 - "(d) After giving effect to any Advances, the outstanding principal amount of the aggregate Revolving Loans would exceed the Maximum Amount less the then outstanding principal amount of the Swing Line Loan; or (e) After giving effect to any Swing Line Advance, (i) the outstanding principal amount of the aggregate Swing Line Loan would exceed the Swing Line Availability; or (ii) the outstanding principal amount of the Swing Line Loan would exceed the Maximum Amount less the outstanding principal amount of the Revolving Loan." (vii) Collateral Reporting. Section 4.1(b) of the Credit Agreement shall be deleted in its entirety and replaced with "[Intentionally Omitted]". (viii) Collateral Reporting-Events of Default. Section 8.1(c) of the Credit Agreement shall be amended to delete the words "Annexes C or D, respectively" and replace them with the words "Annex C". (ix) Commitment Termination Date. The definition of Commitment Termination Date set forth in Annex A to Credit Agreement is hereby amended to read in its entirety as follows: "`Commitment Termination Date' shall mean the earliest of: (a) July 31, 2001; (b) the date of termination of Lenders' obligations to make Advances or permit existing Loans to remain outstanding pursuant to Section 8.2(b); or (c) the date of indefeasible prepayment in full by Borrowers of the Loans and the permanent reduction of the Revolving Loan Commitment and the Swing Line Commitment to zero dollars ($-0-), in accordance with the provisions of Section 1.2(a)." (x) Maximum Amount. The definition of Maximum Amount set forth in Annex A to Credit Agreement is hereby amended to read in its entirety as follows: "`Maximum Amount' shall mean, at any particular time, an amount equal to $6,500,000." (xi) Swing Line Commitment. The definition of "Swing Line Commitment" set forth in Annex A to the Credit Agreement is hereby amended to add the following words immediately before the period therein: ", but it shall equal $200,000 from and after August 9, 2000". (xii) Amortization - Term Loan A. Section 1.1(b)(ii)(A) is hereby amended to strike and delete such section and replace it with the following: - 5 - "(ii)(A) The Borrowers shall repay the unpaid principal amount of the Term Loan A in full and in cash on July 31, 2001." (xiii) Amortization - Term Loan B. Section 1.1(c)(ii) of the Credit Agreement is hereby amended to strike and delete such section and replace it with the following: "(ii) The Borrowers shall repay the unpaid principal amount of the Term Loan B in full and in cash on July 31, 2001." (xiv) Interest Rates. Section 1.4(a) of the Credit Agreement captioned "Interest and Applicable Margins" is hereby amended to read in its entirety as follows: "(a) Borrowers shall pay interest to the Agent, for the ratable benefit of Lenders in accordance with the various Loans being made by each Lender, in arrears on each applicable Interest Payment Date, at the following rates: the Index Rate plus the Applicable Index Margin (as defined below) per annum, based on the Obligations outstanding from time to time. The Applicable Index Margin shall equal: (i) one and one-quarter percent (1.25%), from August 9, 2000 through and including December 31, 2000; and (ii) one and three-quarters percent (1.75%), from and after January 1, 2001. (xv) Financial Covenants. Section 6.10 is hereby deleted in its entirety and replaced with the following: "6.10 Financial Covenants. Borrowers shall not breach or fail to comply with any of the Financial Covenants (the "Financial Covenants") set forth below: (a) Minimum Adjusted EBITDA. The Borrowers shall not permit the sum of (the following sum, the "Adjusted EBITDA"): (I) EBITDA; plus (II) an amount up to $1,000,000, in the aggregate, that is: (A) paid by the Borrowers in settlement of the claims asserted by Dynatech Corporation or its affiliates in connection with the February 22, 2000 Share Sale Agreement, or paid by the Borrowers for related expenses in connection with defending against those claims; and (B) paid by the Borrowers in settlement of the claims asserted in the civil action entitled SPX Corporation v. WPI Micro Processor Systems, Inc., pending in Macomb County (Michigan) Circuit Court, - 6 - Docket No. 99-3852-CK, or paid by the Borrowers for related expenses in connection with defending against those claims for the Borrowers on a consolidated basis to be less than the amounts set forth below for the periods corresponding thereto: Period Minimum Adjusted EBITDA (parenthesis denotes negative) July 1, 2000 through ($1,200,000) September 30, 2000 July 1, 2000 through ($3,400,000) December 31, 2000 July 1, 2000 through ($4,700,000) March 31, 2001 July 1, 2000 through ($5,600,000) June 30, 2001 (b) Minimum Net Worth. The Borrowers on a consolidated basis shall have a Net Worth of at least the amounts set forth below as of the dates corresponding thereto: Date Minimum Net Worth (parenthesis denotes negative) September 30, 2000 ($27,280,000) December 31, 2000 ($32,196,000) March 31, 2001 ($35,631,000) June 30, 2001 ($37,686,000) (xvi) Former Financial Covenants. Exhibit E to the Credit Agreement is each hereby deleted in its entirety and replaced with the following: "Intentionally Omitted." (xvii) Indebtedness. Section 6.3(a) of the Credit Agreement is hereby amended by inserting the following immediately before the period at the end of such section: - 7 - "; and (vii) Indebtedness incurred by the Borrowers under the Sunrise Note Purchase Agreement." (xviii) Capital Structure. Section 6.5 of the Credit Agreement is hereby amended by deleting the word "or" at the end of clause (b) thereof and inserting the following language at the end of such clause: "and Parent may issue shares of Stock, convertible securities and warrants to Sunrise in connection with the Sunrise Note Purchase Agreement, or" (xix) Instruments Division. Section 6.8 of the Credit Agreement is hereby amended as follows: (A) by adding the following to the end of the first sentence thereof: "and (d) the sale of the Instruments Division, if: (I) such sale generates Net Transfer Payments (as defined in the Loan Modification Agreement entered into among the Agent, the Borrowers and the Lenders, dated as of August 9, 2000 (the "Loan Modification Agreement")) equal to or exceeding $7,250,000; (II) such Net Transfer Payments are applied as set forth in Section 8(c) of the Loan Modification Agreement; (III) there are no Events of Default that have occurred and are continuing, or that would arise as a result of such sale; and (IV) the Borrowers obtain the consents of all of other parties whose consent is required to effect such a sale. (B) by adding the words "and clause (d) above" to the second sentence thereof, after the words: "clause (c) above". (xx) Liens. The definition of "Permitted Encumbrances" in Annex A of the Credit Agreement is hereby amended by inserting the following at the end of the first sentence thereof immediately before the period: "and (d) Liens created to secure the obligations of the Borrowers under the Sunrise Note Purchase Agreement, to the extent that such Liens are subordinated in priority pursuant to a written agreement between Sunrise and the Lenders in form and substance satisfactory to Sunrise and the Lenders" (xxi) Definitions. Annex A of the Credit Agreement is hereby amended to add the following definitions: - 8 - "Instruments Division" shall mean all of the stock or assets of any of the Borrowers that reasonably comprise the Borrowers' "instruments division," including, without limitation, the stock in or assets of WPI Instruments, Inc., the stock in or assets of WPI Magnetec, Inc., the stock in or assets of Crompton Modutec (Barbados) Limited, and the assets of WPI Group, Inc. used or useful in connection with the instruments division, but not including any assets or stock of the Borrowers' "MPSI division" or of any other of the Borrowers' divisions. "Sunrise" shall mean Sunrise Capital Partners, L.P., a Delaware limited partnership. "Sunrise Note Purchase Agreement" shall mean that certain Convertible Note Agreement, dated as of July 31, 2000, by and among Sunrise and the Borrowers. (b) Amendments toForbearance Agreement. The following amendments to the Forbearance Agreement shall become effective only upon satisfaction of the conditions precedent set forth in Section 10 hereof: (i) Repayment Schedule. Section 6(c) of the Forbearance Agreement shall be deleted in its entirety. (ii) Covenants. Section 14 (Covenants) of the Forbearance Agreement shall be deleted in its entirety and replace with "Intentionally omitted." (iii) Events of Default. Section 15 (Events of Default) of the Forbearance Agreement shall be deleted in its entirety and replaced with "Intentionally omitted." 4. Release of Claims. As of the date of the execution of this Agreement, each Borrower hereby releases, waives, and forever relinquishes all claims, demands, obligations, liabilities and causes of action of whatever kind or nature, whether known or unknown, which it has, may have, or might assert against Agent or any Lender and/or their respective parents, affiliates, participants, officers, directors, employees, agents, attorneys, accountants, consultants, successors and assigns, directly or indirectly, arising out of, based upon, or in any manner connected with (i) any transaction, event, circumstance, action, failure to act or occurrence of any sort or type, whether known or unknown, which occurred, existed, was taken or permitted prior to the execution of this Agreement with respect to the Obligations, the Loan Documents and/or the administration thereof or the obligations created thereby; (ii) any discussions, commitments, negotiations, conversations or communications with respect to the refinancing, restructuring or collection of any Obligations; or (iii) any thing or matter related to any of the foregoing. The inclusion of this paragraph in this Agreement, and the execution of this Agreement by the Agent and the Lenders, does not constitute an acknowledgment or admission by the Agent or any Lender of liability for any matter, or a precedent upon which liability may be asserted. - 9 - 5. Loan Documents. This Agreement is intended by the Agent, the Lenders, and the Borrowers, to further modify and amend the Credit Agreement, as it has previously been amended by the First Credit Agreement Amendment, the Second Credit Agreement Amendment, the Third Credit Agreement Amendment, the Forbearance Agreement, the First Forbearance Agreement Amendment, the Second Forbearance Agreement Amendment, the Third Forbearance Agreement Amendment, and the Fourth Forbearance Agreement Amendment, and each of such documents shall remain in effect, except as amended therein or herein, provided, however, that any agreement by the Agent and the Lenders to defer the commencement of enforcement actions is hereby rendered null and void. For reference purposes, wherever the term "Forbearance Termination Date" appears in any of the Loan Documents, it shall mean the Commitment Termination Date. 6. Loans; Fees; Reserves. (a) Revolving Loans. Subject to the terms and conditions of the Loan Documents, each Revolving Lender agrees to make available from time to time until the Commitment Termination Date its Pro Rata Share of advances, under and subject to the terms and conditions of the Credit Agreement. (b) Intentionally omitted. (c) Miscellaneous. All Loans, whenever made, shall be payable on the Commitment Termination Date, and all such Loans and all other Obligations shall be entitled to all benefits and protections and secured by all of the Collateral. Interest shall accrue and be paid in accordance with the Loan Documents, as amended hereby, provided, however, upon the satisfaction of the conditions precedent set forth in Section 10 hereof, interest shall thereafter no longer accrue at the Default Rate, unless an Event of Default (other than a Specified Event of Default or Additional Specified Event of Default) has occurred. (d) Amendment Fee. The Borrowers agree to pay the Agent, for distribution pro rata to the Lenders, an amendment fee of $280,000, which shall be fully earned as of the Lenders' execution hereof, and shall be due and payable as follows: (i) $50,000, on September 30, 2000; (ii) $60,000, on December 24, 2000; (iii) $70,000, on April 30, 2001; and (iv) $100,000, on July 31, 2001, provided, however, that: (I) if there has occurred and is continuing no Event of Default and the aggregate principal outstanding on Term Loan A and Term Loan B is less than $16,000,000 on September 30, 2000, the Lenders shall be deemed on such date to have waived $25,000 of the fee due under clause (i); (II) if there has occurred and is continuing no Event of Default and the aggregate principal outstanding on Term Loan A and Term Loan B is less than $7,000,000 on December 24, - 10 - 2000, the Lenders shall be deemed on such date to have waived $30,000 of the fee due under clause (ii); (III) if there has occurred and is continuing no Event of Default and the aggregate principal outstanding on Term Loan A and Term Loan B is less than $7,000,000 on April 30, 2001, the Lenders shall be deemed on such date to have waived $35,000 of the fee due under clause (iii); and (IV) if, on July 31, 2001, (A) the Borrowers have indefeasibly paid in full and in cash, all Obligations due to the Lenders; and (B) the Lenders' commitments to make further Loans to the Borrowers have terminated, the Lenders shall be deemed on such date to have waived all of the fee due under clause (iv). (e) Effective only upon satisfaction of the conditions precedent set forth in Section 10 hereof the Lenders will release the $100,000 2000 Reserve and the $122,994 reserve under the letter agreement dated as of June 8, 2000, subject to the Borrowers' satisfaction of all other conditions precedent to obtaining Revolving Loans. 7. Sunrise Loan. The Borrowers and Lenders agree that the proceeds from the purchase of securities under the Sunrise Note Purchase Agreement shall be applied as follows: (a) The proceeds from the sale of the "Term A Securities" (as defined in the Sunrise Note Purchase Agreement) shall be applied as follows: (i) First, $1,580,000, to pay earned transaction fees and expenses related to the Sunrise Note Purchase Agreement; (ii) Second, $5,500,000, to reduce permanently the principal amount outstanding on the Term Loans, distributed between Term Loan A and Term Loan B on a pro rata basis (52.18% to Term Loan A in reverse order of maturity and 47.82% to Term Loan B in reverse order of maturity); (iii) Third, an amount equal to then- outstanding principal amount of the Revolving Loansfor the repayment in full of the Revolving Loans, provided that no permanent reduction in the Borrowing Availability shall result therefrom; and (iv) Fourth, any remaining balance after the application in accordance with items (i), (ii), and (iii), for working capital and general corporate purposes. (b) The proceeds from the sale of the "Term B Securities" (as defined in the Sunrise Note Purchase Agreement) shall be applied, when funded, as follows: - 11 - (i) First, $2,000,000, to reduce permanently the principal amount outstanding on the Term Loans, distributed between Term Loan A and Term Loan B on a pro rata basis (52.18% to Term Loan A in reverse order of maturity and 47.82% to Term Loan B in reverse order of maturity); (ii) Second, any remaining balance after the application in accordance with item (i), for the repayment in full of the Revolving Loans, provided that no permanent reduction in the Borrowing Availability shall result therefrom; and (iii) Third, any remaining balance after the application in accordance with items (i) and (ii), for working capital and general corporate purposes. (c) The proceeds from the sale of the "Term C Securities" (as defined in the Sunrise Note Purchase Agreement) shall be applied, when funded, as follows: (i) First, for the repayment in full of the Revolving Loans, provided that no permanent reduction in the Borrowing Availability shall result therefrom; and (ii) Second, any remaining balance after the application in accordance with items (i), for working capital and general corporate purposes (d) Waiver of Default Interest. The term "Total Subject Interest", as used in this paragraph, means the amount of incremental interest attributable to increasing the applicable rate to the Default Rate that accrued from and after February 24, 2000 through and including the date that the conditions precedent set forth in Section 10 hereof have been satisfied. Effective only upon the Agent's receipt of a minimum of $2,000,000 in proceeds from the sale of the "Term B Securities" (as defined in the Sunrise Note Purchase Agreement) , the Agent and the Lenders shall be deemed to have waived fifty percent (50%) of Total Subject Interest. Effective only upon both: (a) the Borrowers indefeasibly paying, on or before July 31, 2001, in full and in cash, all Obligations due to the Lenders; and (b) the Lenders' commitments to make further Loans to the Borrowers terminating, on or before July 31, 2001, the Agent and the Lenders shall be deemed to have waived fifty percent (50%) of the Total Subject Interest. Nothing herein shall constitute a waiver or release of the Agent's or Lenders' rights to retain any payment, including any interest payment, that has already been made. 8. Net Transfer Payments. (a) The term "Net Transfer Payments" means the aggregate amount of all property, including cash or any other consideration, received by any Borrower or any subsidiary thereof directly or indirectly in connection with any disposition of assets, other than sales of inventory in the ordinary course of business, whether at the time of such disposition or after such disposition - 12 - under deferred payment arrangements, including all cash payments received in respect of Investment Property entered into or received in connection with any such disposition, less (i) the amount of any reasonable and customary legal, title, transfer and recording tax expenses, commissions and other expenses payable by any Borrower in connection with such disposition; (ii) any Federal, state and local income or other taxes estimated to be payable by any Borrower as a result of any taxable gain realized from such disposition, but only to the extent that such estimated taxes are in fact paid to the relevant Federal, state, or local governmental authority within 12 months of the date of such disposition; and (iii) any repayments by any Borrower of Indebtedness to the extent such Indebtedness is secured by a Lien on the property being transferred that is permitted under the Credit Agreement, if the holder of such Lien requires that such Indebtedness be repaid as a condition to the disposition of such property. (b) Subject to paragraph 8(c) below, The Borrowers shall cause the Net Transfer Payments of any sale, transfer, lien, incurrence of debt, or conveyance of any property of Borrowers or their Subsidiaries to be applied to the Obligations in such order and in such amounts as the Lenders may determine in their discretion, provided, however, that the Borrowers shall be required to apply Net Transfer Payments in accordance with this Section 8 only to the extent that the Net Transfer Payments from any single or related series of dispositions exceeds $50,000. (c) Notwithstanding anything to the contrary in this Section 8 or in any provision of the Credit Agreement, all Net Transfer Payments received by the Borrowers from the sale of the Borrowers' Instruments Division, shall be applied when received by the Borrowers as follows: (i) First, to the extent that the Net Transfer Payments exceed $8,000,000: (A) 50% of all of such excess shall reduce permanently the principal amount outstanding on the Term Loans, distributed between Term Loan A and Term Loan B on a pro rata basis (52.18% to Term Loan A in reverse order of maturity and 47.82% to Term Loan B in reverse order of maturity); and (B) 50% of all such excess, to the remaining then-outstanding principal balance of the Revolving Loans, for the repayment of the Revolving Loans, provided that no permanent reduction in the Borrowing Availability shall result therefrom; (ii) Second, $5,000,000, to reduce permanently the principal amount outstanding on the Term Loans, distributed between Term Loan A and Term Loan B on a pro rata basis (52.18% to Term Loan A in reverse order of maturity and 47.82% to Term Loan B in reverse order of maturity); - 13 - (iii) Third, any remaining Net Transfer Payments after the application in accordance with items (i) and (ii), in the amount of the remaining then-outstanding principal balance of the Revolving Loans (after taking account of any reduction under item (i)(B)), for the repayment in full of the Revolving Loans, provided that no permanent reduction in the Borrowing Availability shall result therefrom; and (iv) Fourth, any remaining Net Transfer Payments after the application in accordance with items (i), (ii), and (iii), for working capital and general corporate purposes. 9. Surrender of Warrants. Each of the Lenders agree that, in the event that, on or before July 31, 2001, (a) the Borrowers indefeasibly pay in full and in cash, all Obligations due to the Lenders; and (b) the Lenders' commitments to make further Loans to the Borrowers have terminated, then each such Lender shall surrender to the Borrowers for cancellation all of the unexercised Common Stock Purchase Warrants which it received in connection with the execution and delivery of the Third Amendment to the Credit Agreement, dated August 16, 1999. The Lenders hereby agree that they shall not exercise any of their respective rights under such Common Stock Purchase Warrants prior to August 1, 2001. 10. Conditions Precedent. The Agent's and the Lenders' obligation to enter into this Agreement and perform its obligations hereunder are subject to the condition precedent that the Agent and the Lenders shall have received, on or before August 9, 2000, the following documents and other items, duly executed, where appropriate, by authorized representatives of the Borrowers: (a) this Agreement, with completed schedules hereto; (b) a copy of the fully executed Sunrise Note Purchase Agreement and the , in form and substance satisfactory to the Agent; (c) the sum of $5,500,000 plus the then-outstanding principal balance of the Revolving Loans, for application to the Loans as provided in Section 7 hereof; (d) evidence that WPI Group, Inc. has elected, pursuant to Section 1.5(a) of the Sunrise Note Purchase Agreement, to defer the entire Closing Fee (as defined in the Sunrise Note Purchase Agreement) until the Maturity Date; (e) evidence that the execution, delivery and performance of this Agreement by the Borrowers have been duly authorized by all necessary corporate action, including incumbency certificates of each Borrower, with authorizing resolutions and certified copies - 14 - of articles of organization and by-laws, all in a form satisfactory to the Agent and all Lenders and their counsel; and (f) evidence of payment of all outstanding property taxes; (g) for each Obligor, a certificate of legal existence and good standing issued by the State of its incorporation and a certificate of authorization to conduct business from all states listed on the Disclosure Schedule attached hereto as Schedule B pursuant to Section 11.2 hereof; (h) an opinion of counsel satisfactory to the Agent and the Lenders that this Agreement represents the legal, valid, and binding obligation of the Borrowers, enforceable against them in accordance with its terms; and (i) payment of all of the Lender's reasonable attorney's and consultant's fees through the date of execution hereof. 11. Representations and Warranties. In order to induce Agent and the Lenders to enter into this Agreement, each Borrower represents and warrants to the Agent and the Lenders, except as otherwise set forth in any disclosure schedule attached hereto as Schedule B and incorporated herein by reference (the "Disclosure Schedule"), that: 11.1. Financial Condition. All financial statements and information delivered to the Lenders in connection with the Loan Documents, including any related schedules and notes, and any other financial information or statements hereafter furnished in accordance herewith or in accordance with any other Loan Documents, have, to the best of Borrowers' knowledge, been prepared in accordance with GAAP, except as otherwise disclosed therein, subject only in the case of unaudited interim financial statements to normal year-end audit adjustments, and, except as otherwise disclosed therein, are in all respects are true, complete and accurate. 11.2. Organization, Existence, Good Standing. Each Borrower (a) is duly organized, validly existing and in good standing as a corporation under the laws of the state of its incorporation, (b) has obtained all material licenses and permits and has filed all registrations necessary for the lawful operation of its business, (c) has the corporate power and authority and the legal right to own, lease and operate its property and to conduct the business in which it is currently engaged, and (d) is duly qualified to do business and is in good standing as a foreign corporation under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not result in a Material Adverse Effect. The Disclosure Schedule attached as Schedule B lists all states where the Borrowers are qualified as foreign corporations. 11.3. Subsidiaries; Capitalization. The Borrowers do not have any subsidiaries that are not also Borrowers, other than WPI Oyster-Termiflex International Sales Limited, a Barbados corporation, WPI Group (UK), a corporation organized under the laws of England and Wales, WPI Oyster Termiflex Limited, a - 15 - corporation organized under the laws of England and Wales, and Modutec Barbados Limited, a Barbados corporation, (the "Non- Borrower Subsidiaries"). The Disclosure Schedule attached as Schedule B sets forth the authorized capitalization, the number of shares of each class of capital stock issued and outstanding, and the owner of each such share with respect to each Borrower and each subsidiary of any Borrower. 11.4. Corporate Power and Authority. Each of the Borrowers has full corporate power, authority and legal right to execute, deliver and perform its obligations under the Loan Documents to which it is a party and this Agreement. 11.5. Corporate Authorization. Each of the Borrowers has taken all necessary actions to authorize the execution, delivery and performance by it of each Loan Document to which it is a party and to authorize its execution and performance of this Agreement. 11.6. Due Execution. Each of the Loan Documents to which any Borrower is a party and this Agreement has been duly executed and delivered on behalf of such party. 11.7. Legal, Valid, Binding Obligation. Each of the Loan Documents and each agreement, certificate, document, instrument or other paper delivered pursuant thereto, to which any Borrower is a party, and this Agreement, constitutes the legal, valid, and binding obligation of such party enforceable against such party in accordance with its terms. 11.8. No Legal Bar. The execution, delivery and performance by Borrowers of the Loan Documents, and each agreement, certificate, document, instrument or other paper delivered pursuant thereto to which any Borrower is a party, and of this Agreement, do not and will not violate: (a) any provision of the Articles or Certificate of Incorporation or Bylaws; (b) to the Borrowers' knowledge, in any material respect, any existing law, rule or regulation, order, judgment, award or decree of any court, arbitrator or governmental authority, bureau or agency, or (c) any security issued by, such Borrower or of any material mortgage, deed or trust, indenture, lease, contract or other agreement or undertaking to which any Borrower is a party or by which any of its properties may be bound, and will not result in the creation or imposition of any lien (other than in favor of the Agent or any Lender) on any of its properties. 11.9. No Litigation. Except as disclosed in the Disclosure Schedule attached hereto as Schedule B, no litigation, investigation or other proceeding of or before any court, arbitrator or governmental authority is currently pending nor, to the knowledge of any Borrower, threatened against any Borrower or any subsidiary of any Borrower or its properties or revenues. 11.10. Taxes. Except as disclosed in the Disclosure Schedule attached hereto as Schedule B, all federal, state, local and other tax reports and returns which are required to be filed by any Borrower or any subsidiary of any Borrower have been filed, except where extensions have been properly obtained, and each Borrower or any subsidiary of any Borrower has paid or made adequate provision for all taxes, interest and penalties shown to be due and payable on such returns or on any assessments made - 16 - against it or any of its property and all other taxes, fees or other charges imposed on its or any of its property by any governmental authority, including, without limitation, all payroll withholding taxes, have been paid and no tax liens have been filed and no claims are being asserted with respect to any such taxes, fees or other charges. 11.11. Compliance with the IRC and ERISA. To each Borrower's knowledge, all Plans which are pension plans as defined in Section 3(2) of ERISA qualify under Section 401 of the IRC, and all Plans are in compliance with the provisions of the IRC and ERISA, and have been administered in accordance with their terms, except that the Plans are not materially in compliance with the provisions of the IRC and ERISA to the extent described at the Disclosure Schedule attached hereto as Schedule B. 11.12. Lock Boxes. No Borrower or any subsidiary of any Borrower has any lock box accounts other than those described at the Disclosure Schedule attached hereto as Schedule B. 11.13. Other Names. No Borrower has used any corporate or fictitious name other than the names for such Borrower at the beginning of this Agreement, which is the same as the name shown on such Borrower's currently effective Articles or Certificate of Incorporation, or the name(s) set forth on the Disclosure Schedule attached hereto as Schedule B. 11.14. Chief Place of Business; Locations of Property. As of the date hereof (i) the chief executive office of each Borrower is located at the address corresponding to such Borrower in the first paragraph of this Agreement; (ii) the principal place of business of each Borrower is located at the address of its chief executive office; (iii) the books and records of each Borrower, all chattel paper, and all records of accounts receivable are located at its principal place of business; (iv) all other property of any Borrower (except for inventory which is in transit) is located at its principal place of business and no other location whatsoever except any locations specified at the Disclosure Schedule attached hereto as Schedule B; (v) the locations of the chief executive offices, the books and records, all chattel paper, all records of accounts, and all other property of any subsidiary of any Borrower is set forth on the Disclosure Schedule attached hereto as Schedule B; (vi) there are no other persons who have possession or control of Collateral, except if the Agent shall have received an agreement in writing from the person in possession or with control of the Collateral in form and substance satisfactory to the Agent acknowledging the Agent's first priority security interest in the Collateral, waiving security interests and claims by such person against the Collateral and permitting the Agent access to the Collateral so as to exercise the Agent's rights and remedies and otherwise deal with the Collateral; and (vii) there is no other office or place of business at which any Borrower or any subsidiary of any Borrower conducts business. 11.15. Laws Including Environmental and Safety Matters. Each Borrower and each subsidiary of each Borrower is, to the best of the Borrowers' knowledge, in compliance in all respects with all material laws, rules, and regulations, orders of court or other governmental bodies, applicable to it, including, without limitation, all environmental, health, and safety statutes and regulations and specifically the Federal Resource Conservation and Recovery Act, the Federal Comprehensive Environmental - 17 - Response, Compensation and Liability Act, the Federal Clean Water Act, the Clean Air Act, the requirements and regulations of the Nuclear Regulatory Commission, and the Federal Occupational Safety and Health Act. No Borrower or any subsidiary of any Borrower has received written notice to the effect that it is subject to any judicial or administrative proceedings alleging the violation of any applicable law or regulation. No Borrower or any subsidiary of any Borrower has received written notice to the effect that it is the subject of any federal, state or local investigation regarding, among other matters, the release of any Hazardous Material into the environment, the results of which may adversely affect its business operations, prospects, condition (financial or otherwise). No Borrower or any subsidiary of any Borrower has filed any notice under any applicable law indicating past or present treatment, storage, disposal, generation, transportation or reporting a spill or release into the environment of any Hazardous Material. No Borrower or any subsidiary of any Borrower has any known material contingent liabilities in connection with any release of any Hazardous Material into the environment which materially adversely affects any Borrower's or any subsidiary of any Borrower's business operations, prospects, condition (financial or otherwise) or other property. 11.16. Full Disclosure. To the best of the Borrowers' knowledge, neither the Financial Statements delivered to the Lender by any Borrower, the Disclosure Schedule as Schedule B, nor any of the Loan Documents or any list, certificate, written statement, instrument, paper or other information furnished by any Borrower to the Agent or any Lender in connection with the Loan Documents, contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary to make the statements contained therein and herein, in light of the circumstances in which they are made, not misleading. There is no fact known to any Borrower which such Borrower has not disclosed to the Agent or any Lender in writing prior to the date of this Agreement, with respect to the transactions contemplated by the Loan Documents and this Agreement, which materially and adversely affects the condition (financial or otherwise), results of operations, businesses, property or prospects of any Borrower. 12. Covenants. (a) Compliance with Loan Documents. The Borrowers shall, in any and all respects, comply fully and completely with any and all covenants and/or obligations in and under the Loan Documents. (b) Additional Reporting. The Borrowers shall deliver to the Agent, for distribution to the Lenders, as soon as they are available, and in no event later than forty-five (45) days after the end of each fiscal quarter of the Borrowers, financial statements certified as accurate by the senior financial officer(s) of the Borrowers, demonstrating in reasonable detail the Borrowers' compliance (or non-compliance, as the case may be) with the provisions of Section 6.10 of the Credit Agreement for the fiscal quarter most recently ended. 13. Setoff. The Borrowers hereby grant to the Agent and the Lenders, a lien, security interest and right of setoff as security for all liabilities and obligations to the Agent and the - 18 - Lenders, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Agent or any Lender or any entity under the control of FleetBoston Financial Corporation, or in transit to any of them. At any time, without demand or notice, the Agent or any Lender may set off the same or any part thereof and apply the same to any liability or obligation of the Borrowers even though unmatured and regardless of the adequacy of any other collateral securing the loans. ANY AND ALL RIGHTS TO REQUIRE THE AGENT OR ANY LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURE THE LOANS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWERS, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. 14. Miscellaneous Provisions. 14.1. Notices. Except as otherwise specified herein, all notices to or upon the parties hereto shall be in writing (including teletransmissions), shall be given or made to the party to which such notice is required or permitted to be given or made under this Agreement at the address or telecopier number set forth at Schedule C hereto and incorporated herein by reference or at such other address or telecopier number as any party hereto may hereafter specify to the others in writing, and (unless otherwise specified herein) shall be deemed delivered on receipt, if teletransmitted or delivered by hand, or three (3) business days after mailing, if mailed, and all mailed notices shall be by registered or certified mail, postage prepaid. 14.2. No Waiver of Rights; Tolling of Statutes of Limitation. No failure to exercise nor any delay in exercising, on the part of the Agent or any Lender, any right, remedy, power or privilege under this Agreement or the Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, or privilege operate as a waiver of any further or complete exercise thereof. No waiver shall be effective unless in writing. No waiver or condonation of any breach on one occasion shall be deemed a waiver or condonation on any other occasion. In addition, each Borrowers, the Agent and the Lenders hereby agree that, during the pendency of this Agreement, all statutes of limitation and similar laws, rules and equitable theories with respect to the time in which the Agent or any Lender may bring any claim or action against any Borrower shall be tolled and that the passage of such time shall not otherwise operate to the detriment of the Agent or any Lender with respect to such rights. 14.3. Subordination of Certain Claims. Each Borrower hereby subordinates all claims each now has or may in the future acquire against each other Borrower, including, without limitation, all rights and claims of subrogation, reimbursement, indemnity, contribution and like claims and rights, to the prior payment in full and complete performance of all obligations now or in the future owed by any Borrower to the Agent or the Lenders; provided, however, that each Borrower hereby waives (not merely subordinates) all rights and claims of subrogation, reimbursement, indemnity, contribution and like claims and rights as against each other Borrower to the extent, but only to the extent, such rights and claims arise out of or in connection with the liability of such other Borrower for the Obligations but, unless the Agent otherwise agrees, such waiver by such Borrower shall not be effective to the extent that by virtue of such - 19 - waiver Borrower's liability to the Agent and the Lenders under the Loan Documents or otherwise is rendered invalid, avoidable or unenforceable under any applicable state or federal laws dealing with the recovery or avoidance of so-called "fraudulent conveyances" or otherwise. 14.4. Loan Documents. Except as modified herein or in any other instruments or documents executed in connection herewith, (a) all terms and conditions of the Loan Documents shall remain in effect in accordance with their original tenor; and (b) nothing contained herein shall constitute a waiver by the Agent or the Lenders or of any of Agent's or the Lenders' rights and remedies (including, without limitation, any of the Agent's or any Lender's rights or remedies as to, or any obligations owing to the Agent and the Lenders of, any person who may be liable to the Agent and the Lenders on account of any of the Obligations, whether or not such person is a party hereto), all of which rights and remedies are expressly reserved and not waived. Each agreement, covenant, representation and warranty of the Borrowers hereunder, as modified by the Schedules hereto, shall be deemed to be in addition to, and not in substitution for, the agreements, covenants, representations and warranties previously made by the Borrowers. In the event that there shall be any inconsistency between any provisions of this Agreement and a provision set forth in any other Loan Document, the provisions of this Agreement shall govern. 14.5. Time of the Essence. Time is of the essence of each aspect of this Agreement. 14.6. Same Debt. It is the intent of the Borrowers, the Agent, and the Lenders that the agreements and arrangements set forth in this Agreement do not constitute a novation of the Obligations. Rather, this Agreement sets forth, among other things, the arrangements and agreements by which the Agent and the Lenders agree, subject to the terms and conditions contained herein, to forbear from the exercise of their collection rights and remedies for a limited period of time. It is not intended that any new or different financial accommodations be extended to the Borrowers under this Agreement. 14.7. Governing Law. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New Hampshire, without regard to the laws governing conflicts of law. 14.8. Jurisdiction; Waiver of Trial by Jury. (a) For purposes of any action or proceeding involving this Agreement or the Loan Documents or any other agreement or document referred to therein, each Borrower hereby submits to the jurisdiction of all federal and state courts located in the Commonwealth of Massachusetts and consents that any order, process, notice of motion or other application to or by any of said courts or a judge thereof may be served within or without such court's jurisdiction by registered mail or by personal service, provided a reasonable time for appearance is allowed (but not less than the time otherwise afforded by any law or rule), and hereby waive any right to contest the appropriateness of any action brought within such jurisdiction based on lack of personal jurisdiction, improper venue or forum non conveniens. - 20 - (b) THE AGENT, THE LENDERS AND EACH BORROWER MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT THERETO. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS TO ACCEPT THIS AGREEMENT. 14.9. Complete Agreement, Amendments. This Agreement, together with the Loan Documents, contains the entire agreement among the parties with respect to the transactions contemplated hereby, and supersedes all negotiations, presentations, warranties, commitments, offers, contracts and writings prior to the date hereof relating to the subject matters hereof. This Agreement may be amended, modified, waived, discharged or terminated only by a writing signed by the party to be charged with such amendment, modification, waiver, discharge or termination. 14.10. Expenses. (a) Borrowers shall pay on demand, regardless of whether any Default or Event of Default has occurred or whether any proceeding to enforce any Loan Document has been commenced, all reasonable out-of-pocket expenses (including, without limitation, the reasonable fees and disbursements of counsel or consultants to the Agent and the Lenders and allocable costs of Agent's and any Lender's staff counsel) incurred by the Agent or any Lender and that may be incurred by the Agent or any Lender in connection with (a) the negotiation, preparation, administration, filing or recording of this Agreement, (b) the performance of field examinations at the Borrowers' and Non-Borrower Subsidiaries' domestic and foreign locations; and (c) the collection of the Obligations and any and all other obligations of the Borrowers to the Agent or any Lender whether now existing or hereafter arising, or with the preservation and enforcement of the Agent's or any Lender's rights and remedies in connection with the Loan Documents. This covenant shall survive payment of the Obligations and termination of this Agreement. (b) The Borrowers agree that any such reasonable expenses incurred or to be incurred by any Lender constitute advances by such Lender to the Borrower under the Credit Agreement, and are included within the definition of the term "Obligations." The Borrowers acknowledge and agree that the Agent and each Lender, at any time or from time to time in its sole and absolute discretion, (a) may debit any account of the Borrowers maintained with the Lender, in order to pay such expenses; and (b) may make advances and loans under the Loan Documents to pay such reasonable expenses. 14.11. Severability. Any provision hereof that is prohibited or unenforceable in any jurisdiction shall be, as to such jurisdiction, ineffective to the extent of such prohibition or - 21 - unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 14.12. Interest Limitation. All agreements between the Borrowers, the Agent, and the Lenders 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 the Agent or the Lenders 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 any Loan Document 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 the Borrowers, the Agent, and the Lenders in the execution, delivery and acceptance of this Agreement to contract in strict compliance with the laws of the Commonwealth of Massachusetts 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 at the time of 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 the Agent or any Lender should ever receive as interest and amount which would exceed then highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced hereby and not to the payment of interest. This provision shall control every other provision of all agreements between the Borrowers, the Agent, and the Lenders. 14.13. References to "Lenders". All references to "Lenders" in this Agreement shall mean each and all Lenders (whether the Lender is a natural person or a legal entity, and regardless of the use of the word "it" or similar term to refer to the Lender), except where the context otherwise requires. Each promise, agreement, representation, warranty and covenant made by any Borrower herein is made and given to and for the benefit of each Lender, and all rights of the Lenders hereunder are enjoyed in full by each Lender, except as expressly set forth herein. 14.14. References to "Borrower". All references to "Borrower" in this Agreement shall mean each and all Borrowers (whether the Borrower is a natural person or a legal entity, and regardless of the use of the word "it" or similar term to refer to the Borrower), except where the context otherwise requires. Each promise, agreement, representation, warranty and covenant made by any Borrower herein is made and given by each Borrower, jointly and severally, and all rights of the Borrowers hereunder are enjoyed with respect to each Borrower, except as expressly set forth herein. 14.15. Descriptive Headings. The captions in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof. - 22 - 14.16. Counterparts. This Agreement may be executed by one or more of the parties on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 15. Defined Terms. The capitalized terms in this Agreement shall have the meanings given such terms in the Loan Documents (and this Agreement shall be deemed to constitute a Loan Document), unless assigned a different meaning below: 15.1. "Agreement" - this Agreement, including all schedules and exhibits, as the same may be amended, supplemented or otherwise modified. 15.2. "Bankruptcy Code" - the United States Bankruptcy Code of 1978, as codified at 11 U.S.C. 101 et seq., as amended from time to time. 15.3. "Default" - any event specified in Section 13 of this Agreement, whether or not any requirement for the giving of notice or lapse of time or any other condition has been satisfied. 15.4. "Event of Default" - any event specified in Section 13 of this Agreement, provided that any requirement for the giving of notice or lapse of time or any other condition has been satisfied. 15.5. "Financial Statements" - financial statements of Borrowers prepared on a consistent basis in accordance with GAAP and containing balance sheets, statements of income and retained earnings and statements of cash flow. Financial Statements for a month or quarter shall be certified by the chief executive officer of each Borrower. 15.6. "GAAP" - those generally accepted accounting principles set forth in Statements of the Financial Accounting Standards Board and in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants or which have other substantial authoritative support in the United States and are applicable in the circumstances, as applied on a consistent basis. As used in the preceding sentence "consistent basis" shall mean that the accounting principles observed in the current period are comparable in all material respects to those applied in the preceding period. 15.7. "Hazardous Material" - any hazardous waste, toxic substance hazardous chemical, radioactive material, hazardous material, oil or gasoline, under any applicable federal or state statute, county or municipal law or ordinance, including (without limitation) any substance defined as a "hazardous substance" or "toxic substance" (or comparable term) in the Comprehensive Environmental Response, Compensation and Liability Act, as amended (42 U.S.C. 9601, et seq.), the Hazardous Materials Transportation Act (49 U.S.C. 1802), or the Resource Conservation and Recovery Act (42 U.S.C. 6901, et seq.). - 23 - 15.8. "IRC" - the Internal Revenue Code of 1986, as amended from time to time and including all regulations promulgated thereunder. 15.9. "Plan" - any pension plan, as defined in Section 3(2) of ERISA and any welfare plan, as defined in Section 3(1) of ERISA, which is sponsored, maintained or contributed to by any Borrower or any Commonly Controlled Entity, or in respect of which any Borrower or a Commonly Controlled Entity is an "employer," as such term is defined in Section 3(5) of ERISA. 15.10. "Subordinated Indebtedness" - means Indebtedness of the Borrowers that is subordinated to the prior payment and enforcement of the Obligations in favor of the Agent and the Lenders. 15.11. Other Capitalized Terms. All other capitalized terms used herein not expressly defined in this Agreement shall have the meaning ascribed to them in the Loan Documents. 15.12. Accounting and Banking Terms. All accounting and banking terms not specifically defined herein shall be construed, in the case of accounting terms, in accordance with GAAP consistently applied and, in the case of banking terms, in accordance with general practice among commercial banks. 16. Pledge to Federal Reserve. The Agent or any Lender may at any time pledge all or any portion of its rights under the Loan Documents, including any portion of any note 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 the Agent or any Lender from its obligations under any of the Loan Documents. 17. Participations. Each Lender shall have the unrestricted right at any time and from time to time, and without the consent of or notice to Borrowers, to grant to one or more banks or other financial institutions (each, a "Participant") participating interests in such Lender's obligation to lend under the Loan Documents and/or any or all of the loans held by such Lender hereunder. In the event of any such grant by such Lender of a participating interest to a Participant, whether or not upon notice to Borrowers, the Lender shall remain responsible for the performance of its obligations under the Loan Documents and Borrowers shall continue to deal solely and directly with the Lender in connection with the Lender's rights and obligations hereunder and thereunder. 18. Replacements. Upon receipt of an affidavit of an officer of the Agent or any Lender as to the loss, theft, destruction or mutilation of any note or any other security 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 security document, Borrowers will issue, in lieu thereof, a replacement note or other security document in the same principal amount thereof and otherwise of like tenor. - 24 - 19. Assignment. This Agreement and the Loan Documents shall be binding upon and shall inure to the benefit of the Borrowers, the Agent, and the Lenders and their respective successors and assigns; provided that the Borrowers may not assign or transfer any rights or Obligations hereunder without the Agent's and all the Lenders' prior written consent. Each Lender shall have the unrestricted right at any time or from time to time, and without Borrowers' consent, to assign all or any portion of its rights and obligations hereunder or under any of the Loan Documents to one or more banks or other financial institutions (each, an "Assignee"), and each Borrower agrees that it shall execute, or cause to be executed, such documents, including, without limitation, amendments to this Agreement, the Loan Documents, and to any other documents, instruments and agreements executed in connection therewith as such Lender shall deem necessary to effect the foregoing. In addition, at the request of such Lender and any such Assignee, Borrowers shall issue one or more new promissory notes, as applicable, to any such Assignee and, if such Lender has retained any of its rights and obligations hereunder following such assignment, to such Lender, which new promissory notes shall be issued in replacement of, but not in discharge of, the liability evidenced by the promissory note held by such Lender prior to such assignment and shall reflect the amount of the respective commitments and loans held by such Assignee and such Lender after giving effect to such assignment. Upon the execution and delivery of appropriate assignment documentation, amendments and any other documentation required by such Lender in connection with such assignment, and the payment by Assignee of the purchase price agreed to by such Lender and such Assignee, such Assignee shall be a party to this Agreement and the other Loan Documents and shall have all of the rights and obligations of such Lender 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 such Lender pursuant to the assignment documentation between such Lender and such Assignee, and such Lender shall be released from its obligations hereunder and thereunder to a corresponding extent. 20. Disclosure. Each Borrower hereby authorizes the Agent and each Lender to release and disclose to the Agent's or any Lender's affiliates, any assignee or any potential assignee, and any participant or potential participant, any statements, notices, financial and operating reports, balance sheets, financial statements, consultant's reports, appraisals, and any and all other documents and information relating to the Borrowers, whether or not considered confidential by the Borrowers. In furtherance thereof, each Borrower waives any claims, causes of action, defenses, or set off rights against the Agent and the Lenders or any such party respecting the Agent and the Lenders' delivery of such documents or such information to such parties in their capacities as an affiliate of the Agent or any Lender, an assignee or potential assignee, or as a participant or potential participant. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] - 25 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their respective duly authorized officers as of the date first written above. BORROWERS: WPI GROUP, INC. WPI POWER SYSTEMS, INC., WPI MAGNETEC, INC. WPI ELECTRONICS, INC., WPI TERMIFLEX, INC. f/k/a WPI Oyster 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., WPI HUSKY TECHNOLOGY, INC., f/k/a WPI Husky Computers, Inc., and WPI INSTRUMENTS, INC. ____________________________ By: _______________________________ Witness John W. Powers, for, on behalf of, and as Duly Authorized Officer or Agent of each of the above-named entities AGENT AND LENDER: FLEET NATIONAL BANK, as Agent and as a Lender ____________________________ By: Witness ___________________________________ Name:___________________________ Title:_______________________________ OTHER LENDERS: KEY CORPORATE CAPITAL INC. ____________________________ By: Witness ___________________________________ Name:___________________________ Title:________________________________ - 26 - SOVEREIGN BANK ____________________________ By: Witness ___________________________________ Name:___________________________ Title:________________________________ BANK OF NEW HAMPSHIRE, N.A. ____________________________ By: Witness ___________________________________ Name:___________________________ Title:________________________________ - 27 - SCHEDULE A (Schedule of Obligations)* Loans Unpaid Unpaid Interest Incremental Late Incremental Principal as (other than intest Charges attributable of the incremental attributable as of to increasing August 7,2000 interest to August 7, the attributable to increasing 2000 applicable increasing the the rate to the applicable rate applicable Default Rate to the Default rate to the from and Rate from and Default Rate after after August from and after February 24, 22, 1999) as of August 22,1999 2000, as of August 7, 2000 and through August 7, February 24, 2000 2000 as of August 7, 2000 (see Section 6 (d) above) ** Revolving $4,691,028.43 $138,380.31 $0.00 $3,778.14 $41,628.92 Loans Swing Line Loans $178,315.35 $3,852.53 $0.00 $122.53 $1,240.05 Term Loan A $11,890,445.76 $353,987.53 $0.00 $10,338.69 $109,810.13 Term Loan B $10,823,24.38 $336,918.46 $0.00 $9,840.42 $100,640.54 TOTAL $27,583,113.92 $833,138.83 $0.00 $24,079.78 $253,319.64 * Plus any attorneys' fees or other expenses subject to reimbursement by the Borrowers, whether incurred before or after the date hereof, and any subsequently accruing interest, costs, fees, or charges, and all figures are subject to adjustments to the Agent's or any Lender's records with respect to such Obligations, including, without limitation, adjustments for uncollected checks and misdirected credits. **The amount of Total Subject Interest may be greater than the amounts shown in the table, in the event that the conditions precedent in Section 10 hereof are satisfied after the date shown above. - 28 - SCHEDULE B (Disclosure Schedule) Foreign Qualifications: Borrower State of Incorporation States where Foreign Qualifications Obtained WPI Group, Inc. New Hampshire WPI DecisionKey, Inc. New Hampshire WPI Electronics, Inc. New Hampshire WPI Power Systems, Inc. New Hampshire WPI Husky Technology, Inc. Florida WPI Instruments, Inc. New Hampshire WPI Magnetec, Inc. New Hampshire WPI Micro Palm, Inc. New Hampshire WPI Micro Processor Systems, Inc. New Hampshire Michigan WPI Termiflex, Inc. New Hampshire WPI Oyster Terminals, Inc. New Hampshire WPI UK Holding, Inc. New Hampshire WPI UK Holding II, Inc. New Hampshire WPI Group (U.K.) England and Wales Crompton Modutec (Barbados) Limited Barbados - 29 - Capitalization: Number of Percentage Borrower/Subsidiary Class of Owner of Stock Shares of Shares Stock Owned WPI Group, Inc. Common [publicly 6,056,758 0% held] WPI Instruments, Common WPI Group, 100 100% Inc. Inc. WPI Magnetec, Common WPI Group, 10 100% Inc. Inc. WPI Micro Common WPI Group, 10 100% Processor Inc. Systems, Inc. WPI UK Holding, Common WPI Group, 10 100% Inc. Inc. WPI UK Holding Common WPI Group, 10 100% II, Inc. Inc. WPI Group UK Ordinary WPI UK 3,700,000 100% Holding, Inc. & WPI UK Holding II, Inc. Crompton Modutec Common WPI 80,002 100% (Barbados) Instruments, Limited Inc. WPI Termiflex, Common WPI Group, 10 100% Inc. Inc. WPI Oyster Common WPI Group, 10 100% Terminals, Inc. Inc. WPI Power Common WPI Group, 10 100% Systems, Inc. Inc. WPI DecisionKey, Common WPI Micro 10 100% Inc. Processor Systems, Inc. WPI Electronics, Common WPI Group, 10 100% Inc. Inc. WPI Husky Common WPI Group, 1,000 100% Technology, Inc. Inc. WPI Micro Palm, Common WPI Termiflex, 10 100% Inc. Inc. Micro Processor Common WPI Group UK 100,000 100,000 Systems Ltd. (Formerly WPI Oyster Termiflex Ltd.) - 30 - Litigation: 1. WPI Electronics, Inc. v. SuperVision International, Inc., United States District Court for the District of New Hampshire, Docket No. C-99-426-B. SuperVision International, Inc. ("SuperVision") has filed a counterclaim to this action brought by WPI Electronics, Inc. ("WPI") on September 13, 1999, in which WPI seeks damages from SuperVision for breach of contract arising from SuperVision's cancellation of a contract calling for WPI to supply 170-watt and 270-watt modified standard design ballasts through December 31, 2000, at a price of $1.772 million. SuperVision's counterclaim alleges that WPI breached the agreement with SuperVision by failing to supply ballasts in conformance with the terms of the agreement and in breach of express and implied warranties. SuperVision also alleges common law fraud and statutory unfair business practice claims. WPI seeks the balance of the purchase price plus lost profits in damages from SuperVision, and SuperVision seeks the return of amounts paid to date, consequential damages and lost profits in damages in its counterclaim. The parties are currently engaged in discovery, and a trial is scheduled for March 2001. We are unable to give an opinion as to whether an unfavorable outcome is either probable or remote or as to the amount or range of potential liability should an unfavorable outcome occur. 2. SPX Corporation v. WPI Micro Processor Systems, Inc., Macomb County (Michigan) Circuit Court, Docket No. 99-3852-CK. SPX Corporation ("SPX") filed this action on September 14, 1999, alleging breach of contract by WPI Micro Processor Systems, Inc. ("MPSI") arising out of a distributorship agreement between the parties dated January 22, 1997, whereby SPX agreed to distribute certain MPSI products to certain industries. SPX alleges in its amended complaint that MPSI breached the agreement and tortiously interfered with a customer by attempting to sell MPSI products directly to an SPX customer. SPX also alleged that MPSI has misappropriated certain SPX trade secrets in violation of the Uniform Trade Secrets Act. MPSI has filed a counterclaim against SPX alleging, among other things, breach of contract, including SPX's failure to pay MPSI $243,000 owed on account, and SPX's misappropriation of MPSI's trade secrets. Discovery is ongoing and trial is likely after September 2000. We are unable to give an opinion as to whether an unfavorable outcome is either probable or remote or as to the amount or range of potential liability should an unfavorable outcome occur. 3. On April 24, 2000, Dynatech Corporation et al ("Dynatech") asserted in a letter to WPI that it was entitled to a purchase price adjustment of approximately $4 million under the February 22, 2000, Share Sale Agreement between the parties. On May 3, 2000, WPI stated to Dynatech that a purchase price adjustment under that Agreement should be made in its favor, not Dynatech's, in the amount of $1,535,438. The parties are discussing these issues in an attempt to resolve them. In Dynatech's letter of April 24, 2000, there was insufficient information provided to WPI to enable it to determine the validity of Dynatech's claims. - 31 - Employment Complaints: John Brescia v. WPI Husky Technology, Inc. Equal Employment Opportunity Commission (151A00825) Mr. Brescia, a former employee, filed a disability discrimination charge with the Equal Employment Opportunity Commission. He claims that while employed by WPI Husky he was subjected on a daily basis, from April 1999 to June 6, 1999, to harassment by his supervisor in the form of gestures and comments which made fun of him based upon his disability. The nature of his alleged disability is not specified. He claims that as a result of the harassment he was forced to terminate his employment on June 6, 1999. The Company filed a Response denying any discrimination, but on May 31, 2000, the Equal Employment Opportunity Commission issued a Letter of Determination finding that there is reasonable cause to believe that there was a violation of the Americans With Disabilities Act. It is unclear what evidence the Equal Employment Opportunity Commission relied upon to make that determination. Subsequently, the EEOC issued a statement that efforts to conciliate Mr. Brescia's charge have been unsuccessful and that no further efforts by the EEOC would be made, and that the EEOC has decided not to bring suit against the Company based on this charge and that the file on this matter will be closed. The Equal Employment Opportunity Commission has, however, reserved the right to bring suit at a later date and/or to intervene in a lawsuit by Mr. Brescia against the Company based on this charge, if he chooses to sue. As of this date, no such suit has been filed. - 32 - Taxes: Borrower/ Amount of Liens Subsidiary Jurisdiction Description of Tax Tax WPI Group Inc. Federal Income and United Tax None. None Subsidiaries States FY 1999 - 33 - Lock Boxes: None. - 34 - Other Names: None. - 35 - Locations of Property: Borrower/Subsidiary Address Name/Address of Record Owner WPI Group, Inc. 1155 Elm Street, BCIA New England WPI Micro Processor Manchester, NH 03101 Holdings, Inc. Systems, Inc. c/o Cushman & WPI Instruments, Wakefield Inc. Center of New WPI Magnetec, Inc. Hampshire Tower WPI Termiflex, Inc. 650 Elm St. WPI Husky Manchester, NH 03101 Technology, Inc. WPI Electronics, Inc. WPI Power Systems, Inc. WPI Micro Palm, Inc. WPI UK Holding, Inc. WPI UK Holding II, Inc. WPI Oyster Terminals, Inc. WPI DecisionKey, Inc. WPI Group (U.K.) Micro Processor Systems Ltd. WPI Instruments, 850 Perimeter Road, 850 Perimeter Inc./ Manchester, NH 03109 Road/NA, LLC WPI Magnetec, Inc. 124 Joliette Street Manchester, NH 03102 114 Allard Drive Cohen Building Manchester, NH Realty, LLC North Gate Road Manchester, NH 03104 WPI Micro Processor 6405 Nineteen Mile Ledds Development Systems, Inc. Road Center Sterling Heights, MI 6850 Nineteen Mile 48314-2115 Road Sterling Heights, MI 48314 Crompton Modutec New Industrial Park Barbados Investment (Barbados) Limited Christ Church, & Development Center Barbados Newton Industrial Park Christ Church, Barbados - 36 - Non-Material Non-Compliance of Plans with IRC and ERISA: None. - 37 - SCHEDULE C (Notices) If to Borrowers: WPI Group, Inc. 1155 Elm Street Manchester, NH 03101 Attn: John Allard, President Fax: (603) 627-3150 with copies to: Daniel W. Sklar, Esquire Nixon Peabody 889 Elm Street Manchester, NH 03101 Fax: (603) 628-4040 If to Fleet Bank- NH or to Fleet National Bank: Daniel D. Butler, Vice President Fleet Corporate Administration Mail Stop: RIDE03320A 111 Westminster Street Providence, RI 02903 (Fax: 401-278-6004) with a copy to: Joseph F. Ryan, Esquire Brown, Rudnick, Freed & Gesmer One Financial Center Boston, MA 02111 (Fax: 617-856-8201) If to Bank of New Hampshire, N.A.: Bank of New Hampshire, N.A. 333 State Street Portsmouth, NH 03801 Attn: David D. McGraw, VP (Fax: 603-433-2917) Peoples Heritage Bank One Portland Square P.O. Box 9540 Portland, ME 04112 Attn: Christopher W. Emmons, SVP (Fax: 207-761-8660) - 38 - If to Sovereign Bank: Sovereign Bank 50 Rowes Wharf - Suite 430 Boston, MA 02110 Attn: Joseph Becker, VP (Fax: 617-478-6799) If to Key Corporate Capital, Inc.: Key Corporate Capital, Inc. One Canal Plaza - Sixth Floor Portland, ME 04101 Attn: Mark Kleinhaut, VP (Fax: 207-874-7002) - 39 - EXHIBIT 10.69 THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM. FORM OF TERM A NOTE $14,116,875.00 New York, New York ______, 2000 FOR VALUE RECEIVED, each of the undersigned (each individually a "Borrower" and collectively, the "Borrowers") HEREBY JOINTLY AND SEVERALLY PROMISES TO PAY to the order of SUNRISE CAPITAL PARTNERS, L.P. ("Lender") in lawful money of the United States of America and in immediately available funds, the amount of FOURTEEN MILLION ONE HUNDRED SIXTEEN THOUSAND EIGHT HUNDRED AND SEVENTY FIVE DOLLARS. All capitalized terms used but not otherwise defined herein have the meanings given to them in the Convertible Note Agreement (as hereinafter defined) or in Annex A thereto. This Term A Note is issued pursuant to that certain Convertible Note Agreement dated as of July 31, 2000, by and among the Borrowers and the Lender (including all annexes, exhibits and schedules thereto and as from time to time amended, restated, supplemented or otherwise modified, the "Convertible Note Agreement"), and is entitled to the benefit and security of the Convertible Note Agreement, the Security Agreement and all of the other Note Documents referred to therein. Reference is hereby made to the Convertible Note Agreement for a statement of all of the terms and conditions under which the principal balance of this Note is to be repaid. The principal balance of this Note, the rates of interest applicable thereto and the date and amount of each payment made on account of the principal thereof, shall be recorded by the Lender on its books; provided that the failure of the Lender to make any such recordation shall not affect the obligations of each Borrower to make a payment when due of any amount owing under the Convertible Note Agreement or this Term A Note. The principal amount of the indebtedness evidenced hereby, together with any accrued but unpaid interest and Fees thereon, shall be convertible into Common Stock in accordance with the terms of the Convertible Note Agreement. The principal amount of the indebtedness evidenced hereby shall be payable on the date specified in the Convertible Note Agreement. Interest on the principal amount of the indebtedness evidenced hereby shall be paid until such principal amount is paid in full at such interest rates and at such times, and pursuant to such calculations, as are specified in the Convertible Note Agreement. The terms of the Convertible Note Agreement are hereby incorporated herein by reference. If any payment on this Term A Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of any Event of Default, this Term A Note may, as provided in the Convertible Note Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. Time is of the essence of this Term A Note. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by each Borrower. Except as provided in the Convertible Note Agreement, this Term A Note may not be assigned by Lender to any Person. THIS TERM A NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE. [SIGNATURE PAGE FOLLOWS] 2 IN WITNESS WHEREOF, the undersigned, by their duly authorized representatives, have executed this Term A Note on the day and year first above written. WPI GROUP, INC. WPI MAGNETEC, INC. WPI ELECTRONICS, INC. WPI MICRO PALM, INC. WPI MICRO PROCESSOR SYSTEMS, INC. WPI DECISIONKEY, INC. WPI UK HOLDING, INC. WPI UK HOLDING II, INC. WPI HUSKY TECHNOLOGY, INC. WPI OYSTER TERMINALS, INC. WPI TERMIFLEX, INC. WPI POWER SYSTEMS, INC. WPI INSTRUMENTS, INC. By: Witness ------------------------------ for, on behalf of, and as Duly Authorized Officer or Agent of each of the above-named entities 3 EXHIBIT 10.70 THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM. FORM OF TERM B NOTE $5,000,000.00 New York, New York _______, 2000 FOR VALUE RECEIVED, each of the undersigned (each individually a "Borrower" and collectively, the "Borrowers") HEREBY JOINTLY AND SEVERALLY PROMISES TO PAY to the order of SUNRISE CAPITAL PARTNERS, L.P. ("Lender") in lawful money of the United States of America and in immediately available funds, the amount of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) All capitalized terms used but not otherwise defined herein have the meanings given to them in the Convertible Note Agreement (as hereinafter defined) or in Annex A thereto. This Term B Note is issued pursuant to that certain Convertible Note Agreement dated as of July 31, 2000, by and among the Borrowers and the Lender (including all annexes, exhibits and schedules thereto and as from time to time amended, restated, supplemented or otherwise modified, the "Convertible Note Agreement"), and is entitled to the benefit and security of the Convertible Note Agreement, the Security Agreement and all of the other Note Documents referred to therein. Reference is hereby made to the Convertible Note Agreement for a statement of all of the terms and conditions under which the principal balance of this Note is to be repaid. The principal balance of this Note, the rates of interest applicable thereto and the date and amount of each payment made on account of the principal thereof, shall be recorded by the Lender on its books; provided that the failure of the Lender to make any such recordation shall not affect the obligations of each Borrower to make a payment when due of any amount owing under the Convertible Note Agreement or this Term B Note. The principal amount of the indebtedness evidenced hereby, together with any accrued but unpaid interest and Fees thereon, shall be convertible into Common Stock in accordance with the terms of the Convertible Note Agreement. The principal amount of the indebtedness evidenced hereby shall be payable on the date specified in the Convertible Note Agreement. Interest on the principal amount of the indebtedness evidenced hereby shall be paid until such principal amount is paid in full at such interest rates and at such times, and pursuant to such calculations, as are specified in the Convertible Note Agreement. The terms of the Convertible Note Agreement are hereby incorporated herein by reference. If any payment on this Term B Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon and after the occurrence of any Event of Default, this Term B Note may, as provided in the Convertible Note Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. Time is of the essence of this Term B Note. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by each Borrower. Except as provided in the Convertible Note Agreement, this Term B Note may not be assigned by Lender to any Person. THIS TERM B NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE. [SIGNATURE PAGE FOLLOWS] 2 IN WITNESS WHEREOF, the undersigned, by their duly authorized representatives, have executed this Term B Note on the day and year first above written. WPI GROUP, INC. WPI MAGNETEC, INC. WPI ELECTRONICS, INC. WPI MICRO PALM, INC. WPI MICRO PROCESSOR SYSTEMS, INC. WPI DECISIONKEY, INC. WPI UK HOLDING, INC. WPI UK HOLDING II, INC. WPI HUSKY TECHNOLOGY, INC. WPI OYSTER TERMINALS, INC. WPI TERMIFLEX, INC. WPI POWER SYSTEMS, INC. WPI INSTRUMENTS, INC. By: Witness ------------------------------------ for, on behalf of, and as Duly Authorized Officer or Agent of each of the above-named entities 3 EXHIBIT 10.71 FORM OF WARRANT THIS WARRANT AND THE UNDERLYING SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM. THE SECURITIES REPRESENTED BY THIS WARRANT ARE SUBJECT TO A REGISTRATION RIGHTS AGREEMENT DATED AS OF _________, 2000 (THE "REGISTRATION AGREEMENT"). COPIES OF THE REGISTRATION AGREEMENT ARE ON FILE AT THE OFFICE OF THE SECRETARY OF THE COMPANY. WPI GROUP, INC. COMMON STOCK PURCHASE WARRANT ________, 2000 WPI GROUP, INC., a New Hampshire corporation (the "Company"), hereby certifies that, for value received, Sunrise Capital Partners, L.P., or its assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time after the date hereof (subject to acceleration as hereinafter provided, the "Initial Exerciseability Date") and before 5:00 p.m., Manchester, New Hampshire time, on ________, 2005*footnote 1 (the "Expiration Date"), ________ fully paid and nonassessable shares of Common Stock, par value $0.01 per share, of the Company, at a purchase price per share of $1.75 (such purchase price per share as adjusted from time to time as herein provided is referred to herein as the "Purchase Price"). The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. This Warrant is one of the Common Stock Purchase Warrants originally issued by the Company in connection with that Convertible Note Agreement, dated as of July 31, 2000, between the Company and its subsidiaries, as borrowers, and Sunrise Capital Partners, L.P., as Lender, and the shares of Common Stock issuable upon exercise of the Warrant are subject to that certain Registration Rights Agreement, dated as of the date hereof, by and among the Company, Sunrise Capital Partners, L.P., and each of The John R. Allard *(footnote 1 - Five years from the date of issuance) Revocable Trust of 1993, Lisa A. Dibrigida, Kim A. Socha, The Michael E. Allard Revocable Trust of 1994, Gerald R. Allard, The Samy Nazarian Trust, The David and Angella Nazarian Family Trust, Younes Nazarian and Richard A. Beyer (the "Registration Rights Agreement"), a copy of which agreement is on file at the principal office of the Company. The holder of this Warrant shall be entitled to all of the benefits and bound by all of the applicable obligations of the Registration Rights Agreement, as provided therein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include WPI Group, Inc., and any corporation which shall succeed to, or assume the obligations of, the Company hereunder. (b) The term "Common Stock" includes (i) the Company's Common Stock, par value $0.01 per share, as authorized on the date of the Agreement, (ii) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the holders of which shall have the right, without limitation as to amount per share, either to all or to a share of the balance of current dividends and liquidating distributions after the payment of dividends and distributions on any shares entitled to preference in the payment thereof, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right to so vote may have been suspended by the happening of such a contingency) and (iii) any other securities into which or for which any of the securities described in (i) or (ii) above may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, on the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 5 or otherwise. (d) The term "Warrant" means this Common Stock Purchase Warrant. 1. Exercise of Warrant. 1.1 Full Exercise. This Warrant may be exercised at any time before its expiration in full by the holder hereof by surrender of this Warrant, with the form of subscription at the end hereof duly executed by such holder, to the Company at its principal office, accompanied by 2 payment, in cash or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying (x) the number of shares of Common Stock for which this Warrant is then exercisable by (y) the Purchase Price then in effect. 1.2 Partial Exercise. This Warrant may be exercised at any time before its expiration in part (in lots of 100 shares or, if this Warrant is then exercisable for a lesser amount, in such lesser amount) by surrender of this Warrant and payment of the Purchase Price then in effect in the manner and at the place provided in subsection 1.1, except that the amount payable by the holder on such partial exercise shall be the amount obtained by multiplying (x) the number of shares of Common Stock designated by the holder in the subscription at the end hereof by (y) the Purchase Price then in effect. On any such partial exercise the Company at its expense will forthwith issue and deliver to or upon the order of the holder hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof or as such holder (upon payment by such holder of any applicable transfer taxes) may request, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock for which such Warrant or Warrants may still be exercised. 1.3 Company Acknowledgment. The Company will, at the time of the exercise of this Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.4 Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the holders of the Warrants pursuant to subsection 4.2, such bank or trust company shall have all the powers and duties of a warrant agent appointed pursuant to Section 13 and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 1.5 Net Issue Election/Cashless Exercise. The holder may elect to receive, without the payment by the holder of any additional consideration, shares equal to the value of this Warrant or any portion hereof by the surrender of this Warrant or such portion to the Company, with the net issue election notice annexed hereto duly executed, at the office of the Company. Thereupon, the Company shall issue to the holder such number of fully paid and nonassessable shares of Common Stock as is computed using the following formula: X = Y (A-B) ------- A 3 where X = the number of shares to be issued to the holder pursuant to this Section 1.5. Y = the number of shares covered by this Warrant in respect of which the net issue election is made pursuant to this Section 1.5. A = the fair market value of one share of Common Stock, as determined in accordance with the provisions of this Section 1.5. B = the Purchase Price in effect under this Warrant at the time the net issue election is made pursuant to this Section 1.5. For purposes of this Section 1.5, the "fair market value" per share of the Company's Common Stock shall mean: (1) If the Common Stock is traded on a national securities exchange or admitted to unlisted trading privileges on such an exchange, or is listed on the National Market (the "National Market") of the National Association of Securities Dealers Automated Quotations System (the "NASDAQ"), the fair market value shall be the last reported sale price of the Common Stock on such exchange or on the National Market on the last business day before the effective date of exercise of the net issue election or if no such sale is made on such day, the mean of the closing bid and ask prices for such day on such exchange or on the National Market; (2) If the Common Stock is not so listed or admitted to unlisted trading privileges, the fair market value shall be the mean of the last bid and asked prices reported on the last business day before the date of the election (1) by the NASDAQ or (2) if reports are unavailable under clause (a) above by the National Quotation Bureau Incorporated; and (3) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and ask prices are not reported, the fair market value shall be the price per share which the Company could obtain from a willing buyer for shares sold by the Company from authorized but unissued shares, as such price shall be determined by mutual agreement of the Company and the holder of this Warrant. If the holder of this Warrant and the Company are unable to agree on such fair market value, the holder of this Warrant shall select a pool of three independent and nationally- recognized investment banking firms from which the Company shall select one such firm to appraise the fair market value of the Warrant and to perform the computations involved. The determination of such investment banking firm shall be binding upon the Company, the holder of this Warrant and any other holder of Warrants or Warrant Shares in connection with any transaction occurring at the time of such determination. All expenses of such investment banking firm 4 shall be borne by the Company. In all cases, the determination of fair market value shall be made without consideration of the lack of a liquid public market for the Common Stock and without consideration of any "control premium" or any discount for holding less than a majority or controlling interest of the outstanding Common Stock. 2. Delivery of Stock Certificates, etc. on Exercise. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within ten (10) days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, (a) a certificate or certificates for the number of fully paid and nonassessable shares of Common Stock (or Other Securities) to which such holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then current market value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise pursuant to Section 1 or otherwise, and (b) in case such exercise is in part only, a new Warrant or Warrants of like tenor, as provided in Section 1.2. 3. Adjustment for Dividends in Other Stock, Property, etc.; Reclassification, etc. In case at any time or from time to time, the holders of Common Stock (or Other Securities) in their capacity as such shall have received, or (on or after the record date fixed for the determination of shareholders eligible to receive) shall have become entitled to receive, without payment therefor, (1) other or additional stock or other securities or property (other than cash) by way of dividend, or (2) any cash (excluding cash dividends payable solely out of earnings or earned surplus of the Company), or (a) other or additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, recapitalization, combination of shares or similar corporate rearrangement, other than additional shares of Common Stock (or Other Securities) issued as a stock dividend or in a stock-split (adjustments in respect of which are provided for in Section 5), 5 then, and in each such case, the holder of this Warrant, on the exercise hereof as provided in Section 1, shall be entitled to receive the amount of stock and other securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this Section 3) which such holder would hold on the date of such exercise if on the date hereof he had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and all such other or additional stock and other securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this Section 3) receivable by him as aforesaid during such period, giving effect to all adjustments called for during such period by Sections 4 and 5. 4. Adjustment for Reorganization, Consolidation, Merger, etc. 4.1 Reorganization, Consolidation, Merger, etc. In case at any time or from time to time, the Company shall (a) effect a capital reorganization or reclassification of its capital stock, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other corporation or other business entity under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, the holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Sections 3 and 5. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument mailed or delivered to the holder of this Warrant at the last address of such holder appearing on the books of the Company (a) the obligation to delivery to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase and (b) the obligations of the Company under the Registration Rights Agreement. 2.2 Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of the Warrants after the effective date of such dissolution pursuant to this Section 4 to a bank or trust company having its principal office in Manchester, New Hampshire or New York, New York, as trustee for the holder or holders of the Warrants. 6 2.3 Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 4, this Warrant shall continue in full force and effect, subject to expiration in accordance with Section 18 hereof, and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 6. 5. Anti-Dilution Adjustments. 5.1 General. The Purchase Price shall be subject to adjustment from time to time as hereinafter provided. Upon each adjustment of the Purchase Price, the holder of this Warrant shall hereafter be entitled to purchase, at the Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Purchase Price resulting from such adjustment. 2.4 Issuance of Common Stock. If and whenever after the date hereof the Company shall issue or sell any shares of its Common Stock (except (i) upon exercise of one or more of the Warrants, (ii) upon conversion of any of the Notes issued pursuant to the Convertible Note Agreement; or (iii) shares of Common Stock issued to employees, officers, directors of the Company upon the exercise of options granted under the Company's Employee Stock Option/Purchase Plans (hereinafter defined) not to exceed in the aggregate 3,600,000 shares of Common Stock) without consideration or for a consideration per share less than the greater of the fair market value of the Common Stock and Purchase Price in effect immediately prior to the time of such issue or sale, or shall be deemed under the provisions of this Section 5 to have effected any such issuance or sale, then, concurrently with such issue or sale, the Purchase Price shall be reduced to the price (calculated to the nearest $0.0001) obtained by multiplying the Purchase Price in effect immediately prior to the time of such issue or sale by a fraction (a) the numerator of which shall be the sum of (i) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the Purchase Price immediately prior to such issue or sale plus (ii) the consideration received by the Company upon such issue or sale, and (b) the denominator of which shall be the product of (i) the total number of shares of Common Stock outstanding immediately after such issue or sale, multiplied by (ii) the Purchase Price immediately prior to such issue or sale. 7 As used herein, "Employee Stock Option/Purchase Plans" consist of the Company's 1997 Equity Incentive Plan, 1995 Stock Option Plan, Employee Stock Purchase Plan, Employee Bonus Award Plan, and non qualified options granted to certain Directors of the Company. Notwithstanding the foregoing, no adjustment of the Purchase Price shall be made in an amount less than $0.0001 per share, but any such lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $0.0001 per share or more. 2.5 Option Grants. In the event that at any time, other than the issuance of options pursuant to the Company's Employee Stock Option Plan, the Company shall in any manner grant (directly, by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or securities convertible into or exchangeable for Common Stock (such rights or options being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities"), whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus, in the case of any such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the greater of (x) the fair market value of the shares of Common Stock at the time of such issuance and (y) the Purchase Price in effect immediately prior to the time of the granting of such Options, then the total number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total amount of such Convertible Securities issuable upon the exercise of such Options shall (as of the date of granting such Options) be deemed to be outstanding and to have been issued for such price per share. Except as otherwise provided in subsection 5.5, no further adjustment of the Purchase Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 8 5.4 Convertible Security Grants. In the event that the Company shall in any manner issue (directly, by assumption in a merger or otherwise) or sell any Convertible Securities (other than pursuant to the exercise of Options to purchase such Convertible Securities covered by subsection 5.3), whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less that the greater of (x) the fair market value of the shares of Common Stock at the time of such issuance and (y) the Purchase Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall (as of the date of the issue or sale of such Convertible Securities) be deemed to be outstanding and to have been issued for such price per share. Except as otherwise provided in subsection 5.5, no further adjustment of the Purchase Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. 5.5 Effect of Alteration to Option or Convertible Security Terms. In connection with any change in, or the expiration or termination of, the purchase rights under any Option or the conversion or exchange rights under any Convertible Securities, the following provisions shall apply: (1) If the purchase price provided for in any Option referred to in subsection 5.3, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subsection 5.3 or 5.4, or the rate at which any Convertible Securities referred to in subsection 5.3 or 5.4 are convertible into or exchangeable for Common Stock shall change at any time (other than under or by reason of provisions designed to protect against dilution), then the Purchase Price in effect at the time of such change shall concurrently be increased or decreased to the Purchase Price which would be in effect immediately after such change if (i) the adjustments which were made upon the issuance of such Options or Convertible Securities had been made upon the basis of (and taking into account the total consideration received for) (A) the issuance at that time of the Common Stock, if any, delivered upon the exercise of any such Options or upon the conversion or exchange of any such Convertible Securities before such change, and (B) the issuance at that time of all such Options or Convertible Securities, with terms and provisions reflecting such change, which are still outstanding after such change, and (ii) the Purchase Price as adjusted pursuant to clause (i) preceding had been used as the basis for the adjustments required hereunder in connection with all other issues or sales of Common Stock, Options or Convertible Securities by the Company subsequent to the issuance of such Options or Convertible Securities. 9 (2) On the partial or complete expiration of any Options or termination of any right to convert or exchange Convertible Securities, the Purchase Price then in effect hereunder shall concurrently be increased or decreased to the Purchase Price which would be in effect at the time of such expiration or termination if (i) the adjustments which were made upon the issuance of such Options or Convertible Securities had been made upon the basis of (and taking into account the total consideration received for) (A) the issuance at that time of the Common Stock, if any, delivered upon the exercise of such Options or upon the conversion or exchange of such Convertible Securities before such expiration or termination, and (B) the issuance at that time of only those such Options or Convertible Securities which remain outstanding after such expiration or termination, and (ii) the Purchase Price as adjusted pursuant to clause (i) preceding had been used as the basis for adjustments required hereunder in connection with all other issues or sales of Common Stock, Options or Convertible Securities by the Company subsequent to the issuance of such Options or Convertible Securities. (3) If the purchase price provided for in any Option referred to in subsection 5.3 or the rate at which any Convertible Securities referred to in subsection 5.3 or 5.4 are convertible into or exchangeable for Common Stock shall be reduced at any time under or by reason of provisions with respect thereto designed to protect against dilution, and the event causing such reduction is one that did not also require an adjustment in the Purchase Price under other provisions of this Section 5, then in case of the delivery of shares of Common Stock upon the exercise of any such Option or upon conversion or exchange of any such Convertible Securities, the Purchase Price then in effect hereunder shall concurrently be adjusted to such amount as would have obtained if such Option or Convertible Securities had never been issued and if the adjustments made upon the issuance of such Option or Convertible Securities had been made upon the basis of the issuance of (and taking into account the total consideration received for) the shares of Common Stock delivered as aforesaid (provided that the Purchase Price used in such determination shall be the Purchase Price on the date of issue of such shares); provided that no such adjustment shall be made unless the Purchase Price then in effect would be reduced thereby. (4) No readjustment provision pursuant to paragraphs (a) or (b) above shall have the effect of increasing the Purchase Price by an amount in excess of the adjustment originally made thereto in respect of the issue, sale or grant of such Options or Convertible Securities. 10 2.6 Dividends of Common Stock, Options or Convertible Securities. In the event that the Company shall declare a dividend or make any other distribution upon any stock of the Company payable in Common Stock, Options or Convertible Securities, any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. 2.7 Dilution in Case of Other Securities. In case any Other Securities shall be issued or sold by the Company, or shall become subject to issue upon the conversion or exchange of any stock (or Other Securities) of the Company (or any other issuer of Other Securities or any other person referred to in Section 4) or to subscription, purchase or other acquisition pursuant to any rights or options granted by the Company (or such other issuer or person), for a consideration per share such as to dilute the purchase rights evidenced by this Warrant, the computations, adjustments and readjustments provided for in this Section 5 with respect to the Purchase Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable on the exercise of the Warrants, so as to protect the holders of the Warrants against the effect of such dilution. 2.8 Stock Splits and Reverse Splits. In the event that the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of Warrant Shares purchasable pursuant to this Warrant immediately prior to such subdivision shall be proportionately increased, and conversely, in the event that the outstanding shares of Common Stock of the Company shall at any time be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares purchasable upon the exercise of this Warrant immediately prior to such combination shall be proportionately reduced. Except as provided in this subsection 5.8, no adjustment in the Purchase Price and no change in the number of Warrant Shares purchasable shall be made under this Section 5 as a result of or by reason of any such subdivision or combination. 2.9 Other Dilutive Events. In case any event shall occur as to which the provisions of this Section 5 are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by the Warrants in accordance with the essential intent and principal of this Section, then, in each such case, the Company shall appoint a firm of independent public accountants of recognized national standing (which may be the regular auditors of the Company), which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in this Section 5, necessary to preserve, without dilution, the purchase rights represented by the Warrants. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the holder of the Warrants and shall make the adjustments to the Warrants described in such opinion. 11 2.10 Determination of Consideration Received. For purposes of this Section 5, the amount of consideration received by the Company in connection with the issuance or sale of Common Stock, Options or Convertible Securities shall be determined in accordance with the following: (1) In the event that shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount payable to the Company therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions or discounts paid or allowed by the Company in connection therewith. (2) In the event that any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash payable to the Company shall be deemed to be the fair value of such consideration as reasonably determined by the Board of Directors of the Company, without deduction of any expenses incurred or any underwriting commissions or concessions or discounts paid or allowed by the Company in connection therewith. (3) In the event that any shares of Common Stock, Options or Convertible Securities shall be issued in connection with any merger in which the Company is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value as reasonably determined by the Board of Directors of the Company of such portion of the assets and business of the non-surviving corporation as such Board shall determine to be attributable to such Common Stock, Options or Convertible Securities, as the case may be. (4) In the event that any Common Stock, Options and/or Convertible Securities shall be issued in connection with the issue and sale of other securities or property of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Common Stock, Options or Convertible Securities by the parties thereto, such Common Stock, Options and/or Convertible Securities shall be deemed to have been issued without consideration. 2.11 Record Date as Date of Issue or Sale. In the event that at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 12 2.12 Treasury Stock. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares (other than their cancellation without reissuance) shall be considered an issue or sale of Common Stock for the purposes of this Section 5. 1.1 3. No Dilution or Impairment. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Warrants against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value or stated value of any shares of stock receivable on the exercise of the Warrants above the amount payable therefor on such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the exercise of all Warrants from time to time outstanding, (c) will not issue any capital stock of any class which is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding up, unless the rights of the holders thereof shall be limited to a fixed sum or percentage of par value in respect of participation in dividends and in any such distribution of assets or such stock shall be non voting and not be convertible into shares of Common Stock or other voting stock, and (d) will not transfer all or substantially all of its properties and assets to any other person (corporate or otherwise), or consolidate with or merge into any other person or permit any such person to consolidate with or merge into the Company (if the Company is not the surviving person), unless such other person shall expressly assume in writing and become bound by all the terms of the Warrants. 4. Accountants' Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants, the Company's chief financial officer will compute, or if requested by the holders of Warrants to purchase over 50% of the shares of Common Stock which may be purchased upon exercise of the Warrants the Company at its expense will promptly cause independent certified public accountants of recognized standing selected by the Company at its expense to compute, such adjustment or readjustment in accordance with the terms of the Warrants and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any 13 additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such issue or sale and as adjusted and readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to each holder of a Warrant, and will, on the written request at any time of any holder of a Warrant (such request shall not be made more than once in any Fiscal Quarter), furnish to such holder a like certificate setting forth the Purchase Price at the time in effect and showing how it was calculated. 5. Notices of Record Date, etc. In the event of (1) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right or any declaration of a cash dividend on the Common Stock, or (2) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (3) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, or (4) any proposed issue or grant by the Company of any shares of stock of any class or any other securities, or any right or option to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities (other than the issue of Common Stock on the exercise of the Warrants), then and in each such event the Company will mail or cause to be mailed to each holder of a Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or 14 grant is to be offered or made. Such notice shall be mailed at least twenty (20) days prior to the date specified in such notice on which any such action is to be taken, except with respect to the grant of options under the Company's Employee Stock Option/Purchase Plans in which case such notice shall be given not later than the date of grant. 6. Reservation of Stock, etc. Issuable on Exercise of Warrants. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrants. 7. Registration of Common Stock. If any shares of Common Stock required to be reserved for purposes of exercise of the Warrants require registration with or approval of any governmental authority under any federal or state law (other than the Securities Act) before such shares may be issued upon exercise of the Warrants, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered or approved, as the case may be. The shares of Common Stock issuable upon exercise of this Warrant shall constitute Registrable Securities (as such term is defined in the Registration Rights Agreement). The holder of this Warrant shall be entitled to all the benefits afforded to a holder of any such Registrable Securities under the Registration Rights Agreement and such holder, by acceptance of this Warrant, agrees to be bound by and comply with the terms and conditions of the Registration Rights Agreement applicable to such holder as a holder of such Registrable Securities. 8. Representations and Warranties of the Company. This Warrant is issued and delivered by the Company on the basis of the following: (1) Authorization and Delivery. This Warrant has been duly authorized and executed by the Company and constitutes the valid and binding obligation of the Company enforceable against it in accordance with its terms; (2) Warrant Shares. The shares of Common Stock to be issued pursuant to this Warrant have been duly authorized and reserved for issuance by the Company and, when issued and paid for in accordance with the terms hereof, will be validly issued, fully paid and nonassessable; (3) Rights and Privileges. The rights, preferences, privileges and restrictions granted to or imposed upon such shares of Common Stock and the holders thereof are as set forth herein and in the Company's Articles of Incorporation. (4) No Inconsistency. The execution and delivery of this Warrant are not, and the issuance of the shares of Common Stock upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company's Articles of Incorporation or by-laws, do not and will not 15 contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration with the taking of any action in respect of or by, any federal, state or local government authority or agency or other person. 9. Exchange of Warrants. On surrender for exchange of any Warrant, properly endorsed, to the Company, the Company at its expense will issue and deliver to or on the order of the holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (on payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 10. Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction of any Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 11. Warrant Agent. The Company may, by written notice to each holder of a Warrant, appoint an agent having an office in New York, New York for the purpose of issuing Common Stock (or Other Securities) on the exercise of the Warrants pursuant to Section 1, exchanging Warrants pursuant to Section 11, and replacing Warrants pursuant to Section 12, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 12. Remedies. The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 13. Negotiability, etc. This Warrant is issued upon the following terms, to all of which each holder or owner hereof by the taking hereof consents and agrees: 16 (1) title to this Warrant may be transferred by endorsement (by the holder hereof executing the form of assignment at the end hereof) and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery; and (2) any person in possession of this Warrant properly endorsed for transfer to such person (including endorsed in blank) is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of each such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby. Nothing in this paragraph (b) shall create any liability on the part of the Company beyond any liability or responsibility it has under law. 14. Notices, etc. All notices and other communications from the Company to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the Company. 15. Amendments. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought 16. Governing Law. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. 17. THE COMPANY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF ANY COURT OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE STATE OF NEW YORK FOR PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS WARRANT. THE COMPANY HEREBY WAIVES ANY TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE) AND IN ANY WAY ARISING OUT OF, RELATED TO, OR IN CONNECTION WITH THIS WARRANT AND THE RELATIONSHIP ESTABLISHED HEREUNDER. 18. Miscellaneous. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise 17 affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. 19. Expiration. The right to exercise this Warrant shall expire at 5:00 p.m., New York time, on _________* footnote 2. Notwithstanding the foregoing, this Warrant shall automatically be deemed to be exercised in full pursuant to the provisions of Section 1.5 hereof, without any further action on behalf of the holder, immediately prior to the time this Warrant would otherwise expire pursuant to the preceding sentence. [SIGNATURE PAGE FOLLOWS] *footnote 2 - Five years from the date of issuance 18 IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of the date first written above. WPI GROUP, INC. By: Name: Title: 19 FORM OF SUBSCRIPTION (To be signed only on exercise of Warrant) WPI GROUP, INC. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise this Warrant for, and to purchase thereunder, ________ shares of Common Stock of WPI GROUP, INC. and herewith makes payment of $______ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to __________, federal taxpayer identification number _______, whose address is _____________. Dated: (Signature must conform toname of holder as specified on the face of the Warrant) ________________________ ________________________ (Address) Signed in the presence of: - ------------------------------------- 20 FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto _________, federal taxpayer identification number _________, whose address is ___________, the right represented by the within Warrant to purchase __________ shares of Common Stock of WPI GROUP, INC. to which the within Warrant relates, and appoints ____________ Attorney to transfer such right on the books of WPI GROUP, INC. with full power of substitution in the premises. Dated: (Signature must conform to name of holder as specified on the face of the Warrant) (Address) Signed in the presence of: - ------------------------------- 21 FORM OF NET ELECTION NOTICE (To be signed only on exercise of Warrant) WPI GROUP, INC. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise this Warrant for the ________ shares of Common Stock of WPI GROUP, INC. without payment by the undersigned of any additional consideration, and requests that certificates for a number of shares of Common Stock calculated in accordance with Section 1.5 of the Warrant be issued in the name of, and delivered to __________, federal taxpayer identification number _______, whose address is _____________. Dated: (Signature must conform toname of holder as specified on the face of the Warrant) ________________________ ________________________ (Address) Signed in the presence of: _______________________________ 22 EX-21 3 0003.txt EXHIBIT 21 Subsidiaries of the Registrant Place of Incorporation WPI Electronics, Inc. New Hampshire WPI Instruments, Inc. New Hampshire WPI Magnetec, Inc. New Hampshire WPI Power Systems, Inc. New Hampshire WPI Termiflex, Inc. New Hampshire WPI Termiflex International Sales, Inc. Massachusetts WPI DecisionKey, Inc. New Hampshire WPI Micro Palm, Inc. New Hampshire WPI Micro Processor Systems, Inc. New Hampshire WPI Oyster Termiflex Limited England and Wales WPI Oyster Terminals, Inc. New Hampshire WPI UK Holding, Inc. New Hampshire WPI UK Holding II, Inc. New Hampshire WPI Group (U.K.) England and Wales WPI Group International Sales Limited Barbados WPI Husky Technology, Inc. Florida EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report incorporated by reference in this form 10-K into the Company's previously filed Registration Statements (File Nos. 33-48285, 33-88012, 33- 80912, 33-85137, 333-28335 and 333-1696). ARTHUR ANDERSEN LLP Boston, Massachusetts December 18, 2000 EX-23 4 0004.txt EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statements (File Nos. 33-48285, 33-88012, 33-80912, 33-85137, 333-28335 and 333-1696). ARTHUR ANDERSEN LLP Boston, Massachusetts December 18, 2000 EX-27 5 0005.txt
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF NEXIQ TECHNOLOGIES, INC. FOR THE TWELVE MONTHS ENDED SEPTEMBER 24, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR SEP-24-2000 SEP-24-2000 102,156 0 1,506,472 300,000 441,151 8,602,535 1,763,635 873,644 13,057,563 22,456,824 0 0 0 78,920 (21,545,325) 13,057,563 13,351,876 13,351,876 5,431,631 5,431,631 12,448,419 0 3,351,370 (8,977,606) 0 (8,977,606) (5,150,000) 0 0 (14,127,606) (2.25) (2.25)
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