-----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, N9cEarVq5TJ5kKRG0SJAwFmE2OylFnhDtFjE04HxY06uGVxWPpoZnBmLQc7hMzSo LTO0S1fN1OFyr6ARcwIu4g== 0000927016-98-000372.txt : 19980206 0000927016-98-000372.hdr.sgml : 19980206 ACCESSION NUMBER: 0000927016-98-000372 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971228 FILED AS OF DATE: 19980205 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WPI GROUP 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-Q SEC ACT: SEC FILE NUMBER: 000-19717 FILM NUMBER: 98522156 BUSINESS ADDRESS: STREET 1: 1155 ELM ST CITY: MANCHESTER STATE: NH ZIP: 03101 BUSINESS PHONE: 6034563111 FORMER COMPANY: FORMER CONFORMED NAME: WALKER POWER INC DATE OF NAME CHANGE: 19930328 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 Q (Mark One) [XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - ---- ACT OF 1934 For the quarterly period ended December 28, 1997 [__] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________. Commission File Number: 0-19717 WPI GROUP, INC. --------------- (Exact name of registrant as specified in its charter) NEW HAMPSHIRE 02-0218767 - ------------------------------------------------------------- -------------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 1155 Elm Street, Manchester, New Hampshire 03101 - ------------------------------------------------------------- -------------------------------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (603) 627-3500 -------------- - -------------------------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Applicable only to issuers involved in bankruptcy proceedings during the preceding five years: Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by the court. Yes No ---- ---- Applicable only to corporate issuers: State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Class Outstanding as of January 22, 1998 ----- ---------------------------------- Common Stock, par value $.01 6,010,822 shares WPI GROUP, INC. INDEX -----
Page No. -------- PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets 3 - December 28, 1997 and September 28, 1997 Consolidated Statements of Income 4 - Three months ended December 28, 1997 and December 29, 1996 Consolidated Statements of Cash Flows 5 - Three months ended December 28, 1997 and December 29, 1996 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 7 Condition and Results of Operations PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 8 SIGNATURES 9
-2- WPI GROUP, INC. CONSOLIDATED BALANCE SHEETS
September 28, December 28, 1997 1997 ------------- ------------ (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 678,799 $ 53,032 Accounts receivable - net of allowance for doubtful accounts of $1,237,000 and $1,215,000, respectively 12,173,012 16,308,375 Accounts receivable - other 249,393 348,995 Inventories 9,895,852 9,915,653 Prepaid expenses and other current assets 1,134,125 1,178,377 Prepaid income taxes 1,193,160 1,193,160 Refundable income taxes 1,816,897 1,228,854 ----------- ----------- Total current assets 27,141,238 30,226,446 PROPERTY, PLANT AND EQUIPMENT at cost, less accumulated depreciation 15,750,851 15,647,575 OTHER ASSETS 34,803,886 34,790,485 ----------- ----------- $77,695,975 $80,664,506 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 6,336,756 $ 6,230,302 Accrued expenses 4,038,977 3,978,451 Accrued income taxes 249,473 610,249 ----------- ----------- Total current liabilities 10,625,206 10,819,002 NOTE PAYABLE TO BANK 42,000,000 43,335,000 DEFERRED INCOME TAXES 3,257,914 3,258,481 COMMITMENTS STOCKHOLDERS' EQUITY: Common stock, $.01 par value; authorized 20,000,000 shares, issued and outstanding 5,996,737 and 6,010,822, respectively. 59,967 60,108 Additional paid-in capital 13,992,540 14,074,097 Retained earnings 7,931,562 8,843,208 Cumulative foreign currency translation adjustments (171,214) 274,610 ----------- ----------- Total stockholders' equity 21,812,855 23,252,023 ----------- ----------- $77,695,975 $80,664,506 =========== ===========
See notes to financial statements -3- WPI GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended December 29, December 28, 1996 1997 ------------ ------------ NET SALES $14,108,819 $21,843,614 COST OF GOODS SOLD 8,529,249 13,044,671 ----------- ----------- GROSS PROFIT 5,579,570 8,798,943 ----------- ----------- OPERATING EXPENSES: Research and new product development 929,758 1,182,467 Selling, general and administration 3,112,324 5,418,610 ----------- ----------- Total operating expenses 4,042,082 6,601,077 ----------- ----------- OPERATING INCOME 1,537,488 2,197,866 ----------- ----------- OTHER INCOME (EXPENSE): Interest expense (394,691) (848,674) Other, net 15,454 (8,546) ----------- ----------- INCOME BEFORE PROVISION FOR INCOME TAXES 1,158,251 1,340,646 PROVISION FOR INCOME TAXES 382,000 429,000 ----------- ----------- NET INCOME $ 776,251 $ 911,646 =========== =========== BASIC EARNINGS PER SHARE: $ 0.13 $ 0.15 =========== =========== DILUTED EARNINGS PER SHARE: $ 0.13 $ 0.15 =========== =========== Weighted Average Common Shares 5,951,793 6,006,298 Plus: Incremental Shares From Assumed Conversions Dilutive Potential Stock Options 162,856 247,848 ----------- ----------- Adjusted Weighted Average Common Shares 6,114,649 6,254,146 =========== ===========
See notes to financial statements -4- WPI GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended December 29, December 28, 1996 1997 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 776,251 $ 911,646 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 664,158 1,238,627 Changes in current assets and liabilities net of assets acquired: Accounts receivable 2,212,601 (3,941,883) Accounts receivable - other 882,803 (97,366) Inventories (137,014) 169,875 Prepaid expenses, other current assets, and refundable income (290,293) 566,568 taxes Accounts payable (909,347) (240,864) Accrued expenses (1,429,487) (168,886) Accrued income taxes (417,984) 348,445 ----------- ----------- Total adjustments 575,437 (2,125,484) ----------- ----------- Net cash provided by (used in) operating activities 1,351,688 (1,213,838) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (Decrease) in notes payable (740,000) 1,335,000 Increase (Decrease) in long-term liabilities (2,275) -- Proceeds from issuance of common stock 21,673 33,855 Proceeds from exercise of stock options 11,500 47,844 ----------- ----------- Net cash provided by (used in) financial activities (709,102) 1,416,699 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (396,870) (243,651) Payments of accrued acquisition costs (314,890) -- (Increase) in other assets (239,204) (619,239) ----------- ----------- Net cash used for investing activities (950,964) (862,890) ----------- ----------- EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH 196,639 34,262 ----------- ----------- NET (DECREASE) IN CASH AND CASH EQUIVALENTS (111,739) (625,767) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 206,829 678,799 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 95,090 53,032 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION: Income taxes paid 362,000 -- Interest paid 340,690 804,558
See notes to financial statements -5- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The financial statements for the three months ended December 28, 1997 and December 29,1996 are unaudited and include all adjustments which, in the opinion of management, are necessary to present fairly the results of operations for the periods then ended. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K filed with the Securities and Exchange Commission (File No. 0- 19717), which included financial statements for the years ended September 28,1997 and September 29,1996. The results of the Company's operations for any interim period are not necessarily indicative of the results of the Company's operations for any other interim period or for a full fiscal year. 2. INVENTORIES
September 28, December 28, Inventory consists of: 1997 1997 ------------- ------------ Raw Materials $7,337,866 $6,970,518 Work in Process 1,083,327 1,639,603 Finished Goods 1,474,659 1,305,532 ---------- ---------- Total $9,895,852 $9,915,653 ========== ==========
3. EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share." This statement modifies disclosure requirements for companies required to report earnings per shares (EPS) to include presentations of Basic EPS (which includes no dilution of common stock equivalents) and, if applicable, Diluted EPS (which reflects the potential dilution of common stock equivalents). The Company's EPS for the three months ended December 29, 1996 have been restated to conform with current year presentation. -6- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis by management is provided to identify certain significant factors that affected the Company's financial position and operating results during the periods included in the accompanying financial statements. RESULTS OF OPERATIONS Net sales of $21.8 million for the first quarter of fiscal 1998 increased 54.8% from sales of $14.1 million for the first quarter of fiscal 1997. The increase was primarily due to improved sales in our targeted markets as a result of the acquisition of Husky Computers Limited. Cost of sales of $13.0 million for the first quarter of fiscal 1998 resulted in a gross profit of 40.3% compared to costs of $8.5 million and gross profit of 39.5% for the same period of fiscal 1997. The increase in gross profit percentage was due to the change in product mix. Total gross profit for the three months increased due to the higher revenues discussed above. Research and new product development expenses increased to $1.2 million, compared to $.9 million for the same three month period in fiscal 1997. The increase was attributed to the acquisition discussed above. Research and new product development expenses were 5.4% and 6.6% of net sales for the quarters ended December 28, 1997 and December 29, 1996, respectively. As a percentage of net sales, selling, general and administration expenditures were 24.8% and 22.1% for the quarters ended December 28, 1997 and December 29, 1996, respectively. Actual expenditures increased to $5.4 million from $3.1 million for the first quarter of fiscal 1997. The increase was due to increased selling expenses due to higher revenues. Income before provision for income taxes of $1.3 million for the three months ended December 28, 1997 increased 15.8% compared to $1.2 million for the three months ended December 29, 1996. This increase is primarily due to improved sales. The Company's combined federal and state income tax rates, as a percentage of pre-tax income, were 32% and 33 % for the three months ended December 28, 1997 and December 29,1996, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of $19.4 million at December 28, 1997 compared to $16.5 million at September 28, 1997. The Company's management believes it has sufficient working capital to meet its liquidity needs. As of December 28, 1997, the Company had no material commitments for capital expenditures. -7- WPI GROUP, INC. PART II - Other Information Item 6. Exhibits and Reports on Form 8-K A. Exhibits 10.1 Amended and Restated Commercial Loan Agreement dated December 26, 1997. 10.2 Revolving Line of Credit Promissory Note dated December 26, 1997. 10.3 Term Note dated December 26, 1997. 10.4 Security Agreement dated December 26, 1997. 10.5 Negative Pledge Agreement dated December 26, 1997. 27 Financial Data Schedule. B. Reports on Form 8-K None -8- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized. WPI GROUP, INC. (Registrant) Date: February 6, 1998 By: /s/ Dennis M. Deegan ------------------------- Dennis M. Deegan President and Chief Operating Officer Date: February 6, 1998 By: /s/ John W. Powers -------------------------- John W. Powers Vice President and Chief Financial Officer -9- EX-10.1 2 AMENDED AND RESTATED COMMERCIAL LOAN AGREE. Exhibit 10.1 FLEET BANK - NH AMENDED AND RESTATED COMMERCIAL LOAN AGREEMENT BORROWERS' NAMES AND ADDRESS: WPI GROUP, INC. DESCRIPTION OF LOANS: WPI ELECTRONICS, INC. Revolving Line of Credit WPI MAGNETEC, INC. Loan: $30,000,000.00 WPI MICRO PALM, INC. WPI POWER SYSTEMS, INC. Term Loan: $15,000,000.00 WPI TERMIFLEX, INC. WPI MICRO PROCESSOR SYSTEMS, INC. REVOLVING LINE OF CREDIT WPI DECISIONKEY, INC. INITIAL CREDIT REVIEW WPI UK HOLDING, INC. DATE: March 31, 1999 WPI UK HOLDING II, INC. WPI OYSTER TERMINALS, INC. WPI HUSKY COMPUTERS, INC. 1155 ELM STREET DATE OF THIS AGREEMENT: MANCHESTER, NEW HAMPSHIRE 03101 December 26, 1997 - ---------------------------------------------------------------------- THIS AMENDED AND RESTATED COMMERCIAL LOAN AGREEMENT (the "Agreement"), is made as of the date set forth above, between the above named Borrowers, WPI GROUP, INC. (the "Parent"), and its wholly owned subsidiaries WPI ELECTRONICS, INC. ("WPI EI"), WPI MAGNETEC, INC. ("WPI MI"), WPI MICRO PALM, INC. ("WPI Palm"), WPI POWER SYSTEMS, INC. ("WPI Power"), WPI TERMIFLEX, INC. ("WPI TI"), WPI MICRO PROCESSOR SYSTEMS, INC. ("WPI Processor"), WPI DECISIONKEY, INC. ("WPI DK"), WPI UK HOLDING, INC. ("WPI UK"), WPI UK HOLDING II, INC. ("WPI UK II"), and WPI OYSTER TERMINALS, INC. ("WPI OTI"), each a New Hampshire corporation, (WPI EI, WPI MI, WPI Palm, WPI Power, WPI TI, WPI Processor, WPI DK, WPI UK, WPI UK II, and WPI OTI, collectively, the "NH Subsidiaries") and WPI HUSKY COMPUTERS, INC., a Florida corporation ("Husky"), all such corporations having their principal offices at 1155 Elm Street, Manchester, New Hampshire 03101 (the Parent, the NH Subsidiaries and Husky are hereinafter referred to individually and collectively as the "BORROWER"), and FLEET BANK - NH, a bank organized under the laws of the State of New Hampshire with a principal place of business at Mail Stop NHNA EO2A, 1155 Elm Street, Manchester, New Hampshire 03101 (the "BANK"), and amends and restates the Commercial Loan Agreement dated October 24, 1995 by and among the Bank, the Parent, WPI EI, WPI MI, WPI PALM, WPI POWER, and WPI TI, as amended by First Amendment to Commercial Loan Agreement and Loan Documents dated March 20, 1996 by and among the Bank and the Parent and certain of the NH Subsidiaries, Second Amendment to Commercial Loan Agreement and Loan Documents dated July 12, 1996 by and among the Bank, the Parent, and certain of the NH Subsidiaries, Third Amendment to Commercial Loan Agreement and Loan Documents dated February 27, 1997 by and among the Bank, the Parent, the NH Subsidiaries, and two of Parent's foreign subsidiaries, namely WPI Group (U.K.), a private unlimited company organized under the laws of England and Wales ("WPI G-UK"), and WPI Oyster-Termiflex Limited, a corporation organized under the laws of England and Wales ("WPI OTL"), and Fourth Amendment to Commercial Loan Agreement and Loan Documents dated as of June 20, 1997 (the "Fourth Amendment"), by and among the Bank, the Parent, the NH Subsidiaries, WPI G-UK, and WPI OTL (as amended, the "Original Loan Agreement"). The Original Loan Agreement is hereby amended and restated as set forth herein. The BANK has extended to BORROWER pursuant to the Original Loan Agreement, as amended and restated herein, the revolving line of credit and term loans described above, at the BORROWER'S request, and may from time to time hereafter extend other loans to BORROWER (each individually, a "Loan" and, collectively, the "Loans"). All of the Loans are, together with all other debts, liabilities and obligations of BORROWER to the BANK, direct or indirect, absolute or contingent, now existing or hereafter arising, hereinafter sometimes collectively referred to as the "Obligations". Each Loan is or shall be evidenced by a promissory note of near or even date herewith (individually a "Note" and collectively the "Notes"). In consideration for the release of WPI G-UK and WPI OTL as parties to the Original Loan Agreement and co-borrowers of the Loans, as well as the release of the Borrowers under the Original Loan Agreement from their undertakings in the Fourth Amendment respecting joinder to the Original Loan Agreement of Husky Computers Limited and Husky GmbH and the pledge of 100% of the capital stock/equity interests in the Foreign Subsidiaries and Husky GmbH, each Loan to the BORROWER and all of the other Obligations of the BORROWER are and shall be secured pursuant to (a) a security agreement by and between the BORROWER and the BANK of near or even date herewith (the "Security Agreement") whereby the BANK is granted a first security interest in all of the assets and other property interests of BORROWER, (b) a stock pledge agreement by and between the Parent, WPI UK, and WPI UK II and the BANK of near or even date herewith (the "Pledge Agreement"), pledging to the BANK all of the shares of stock of the NH Subsidiaries and Husky, and 66% of the shares of capital stock of WPI G-UK, WPI OTL and WPI Husky Computers Limited, a corporation organized under the laws of the United Kingdom and a wholly-owned subsidiary of the Parent (collectively, the "Foreign Subsidiaries"), and encumbering the remainder of the shares of the Foreign Subsidiaries with a negative pledge covenant to the BANK, (c) a negative pledge agreement of near or even date ("Negative Pledge Agreement") by and between the Parent, WPI UK, and WPI UK II and the BANK respecting all of the assets of the Foreign Subsidiaries, and (d) certain other Loan Documents (as hereinafter defined). In connection with the Loans, the BORROWER may execute certain other documents, certificates and agreements, all of which are, together with this Agreement, the Notes, the Security Agreement, the Pledge Agreement, and the Negative Pledge Agreement, as all of the same may be hereafter amended, modified, revised, renewed, or extended, sometimes collectively referred to herein as the "Loan Documents". The collateral herein described for the Loans, and any other collateral for the Loans granted or pledged to the BANK pursuant to the other Loan Documents is herein collectively referred to as the "Collateral." Each Loan, whether now existing or hereafter arising, is made upon and subject to the terms and conditions set forth in the Note evidencing such Loan, the other Loan Documents, and this Agreement. The terms, conditions, representations, warranties, and covenants set forth in this Agreement are in addition to, and not in limitation of, the terms, conditions, representations, warranties, and covenants set forth in the other Loan Documents. In the event of any conflict between the terms, conditions, representations, warranties and covenants contained in the Loan Documents, the term, condition, representation, warranty, or covenant which confers the greatest benefit upon the BANK shall control. The determination as to which term, condition, representation, warranty, or covenant is more beneficial shall be made by the BANK in its sole discretion and shall be binding upon the BORROWER. Where there is more than one BORROWER or guarantor hereunder, all of the terms, conditions, representations, warranties, and covenants set forth herein and in the other Loan Documents shall apply to, be binding upon, and be deemed to be made by each BORROWER and guarantor, jointly, severally, separately, and individually. IN CONSIDERATION OF the Loans made or to be made by BANK to the BORROWER, and of all other Obligations of the BORROWER to the BANK, BORROWER and BANK hereby agree as follows: I. REVOLVING LINE OF CREDIT LOAN. The Revolving Line of Credit Loan first described above (the "Revolving Line of Credit Loan") made available by the BANK to the BORROWER shall be upon and subject to the terms and conditions set forth in the Note evidencing the Revolving Line of Credit Loan, the other Loan Documents, and this Agreement. A. Maximum Available Amount. The aggregate maximum principal amount ------------------------ available to the BORROWER under the Revolving Line of Credit Loan shall be up to THIRTY MILLION DOLLARS ($30,000,000.00). B. Advances. The Revolving Line of Credit Loan shall be disbursed, -------- advanced, re-advanced, and repaid as provided in the Note evidencing the Revolving Line of Credit Loan and this Agreement. The Parent, for and on behalf of each BORROWER, may request advances and re-advances be made to the BORROWER orally or in writing from time to time in accordance with such procedures as BANK may reasonably impose in an amount such that the aggregate amounts outstanding under the Revolving Line of Credit Loan do not exceed the maximum available amount as determined under Paragraph A of this Section I above. Notwithstanding any other provision of this Agreement, no advances or re-advances shall be made by BANK to the BORROWER at any time an Event of Default (as hereinafter defined) exists under this Agreement or the Loan Documents, or any condition exists which, if not cured, would with the passage of time or the giving of notice, or both, constitute such an Event of Default. At the time of each advance and re-advance under the Revolving Line of Credit Loan the BORROWER shall immediately become indebted to the BANK for the amount thereof. Each such advance or re-advance may be credited by the BANK to any deposit account of any BORROWER with the BANK, be paid to any BORROWER, or applied to any Obligation. Each BORROWER hereby acknowledges and agrees that the Parent shall have sole and exclusive authority to request advances and re-advances under the Revolving Line of Credit Loan, and the interest rate to apply with respect thereto (as hereinafter provided), for each BORROWER, and that that Bank shall be entitled to rely upon such authority. C. Review. The Revolving Line of Credit Loan shall be subject to review ------ and, at the sole option and discretion of the BANK, renewal on the Revolving Line of Credit Initial Review Date set forth on the first page of this Agreement, and, if renewed, thereafter on each subsequent anniversary of the Revolving Line of Credit Initial Review Date (the Revolving Line of Credit Initial Review Date, and each anniversary thereof to which the Revolving Line of Credit Loan is renewed and extended, being a "Review Date"). IF THE REVOLVING LINE OF CREDIT LOAN IS NOT RENEWED BY THE BANK AS AFORESAID ON ANY REVIEW DATE, THE ENTIRE AMOUNT OF OUTSTANDING PRINCIPAL, ACCRUED INTEREST AND OTHER CHARGES PAYABLE THEREUNDER SHALL BE DUE AND PAYABLE BY BORROWER ON SUCH REVIEW DATE WITH RESPECT TO WHICH THE REVOLVING LINE OF CREDIT LOAN IS NOT RENEWED. BORROWER ACKNOWLEDGES AND AGREES THAT THE BANK HAS NO OBLIGATION OR COMMITMENT TO RENEW THE REVOLVING LINE OF CREDIT LOAN ON ANY REVIEW DATE. NOTWITHSTANDING THE FOREGOING, OR ANY PROVISION OF THE NOTE, ANY OF THE LOAN DOCUMENTS OR HEREIN TO THE CONTRARY, THE REVOLVING LINE OF CREDIT LOAN SHALL BE A DEMAND OBLIGATION OF BORROWER TO THE EXTENT THAT THE AMOUNT OUTSTANDING THEREUNDER AT ANY TIME EXCEEDS THE MAXIMUM AVAILABLE AMOUNT UNDER THE REVOLVING LINE OF CREDIT LOAN AS DETERMINED UNDER PARAGRAPH A OF THIS SECTION I ABOVE, BUT ONLY TO THE EXTENT OF THE AMOUNT OUTSTANDING IN EXCESS OF THE MAXIMUM AVAILABLE AMOUNT. D. Repayment of Principal. The BORROWER shall make payments of principal ---------------------- on the Revolving Line of Credit Loan such that the outstanding principal balance thereunder at no time exceeds the maximum available amount thereunder as determined under Paragraph A of this Section I above. On the Review Date as to which the Revolving Line of Credit Loan is not renewed, BORROWER shall pay in full all outstanding principal and accrued and unpaid interest under the Revolving Line of Credit Loan. E. Interest. The Revolving Line of Credit Loan shall bear interest in -------- accordance with the following provisions: (a) Prime Rate. The principal balance outstanding from time to time ---------- under the Revolving Line of Credit Loan, net of amounts subject to a Eurodollar based rate of interest as provided hereinbelow, shall bear interest at a variable annual rate equal to the Prime Rate. The "Prime Rate" shall be the rate published by The Wall Street Journal from time to time under the category "Prime ----------------------- Rate: The Base Rate on Corporate Loans posted by at least 75% of the Nation's 30 Largest Banks" (the lowest of the rates so published if more than one rate is published under this category at any given time) or such other comparable index rate selected by the Bank in its sole discretion if The Wall Street Journal ----------------------- ceases to publish such rate. The BORROWER acknowledges that the Prime Rate is used for reference purposes only as an index and is not necessarily the lowest interest rate charged by the BANK on commercial loans. Each time the Prime Rate changes the interest rate under the Revolving Line of Credit Loan shall change contemporaneously with such change in the Prime Rate. Interest shall be calculated and charged daily on the basis of actual days elapsed over a three hundred sixty (360) day banking year and shall be payable monthly in arrears. (b) Eurodollar Based Rate. The BORROWER may elect from time to time, --------------------- provided no Event of Default has occurred and is continuing, to have amounts advanced under the Revolving Line of Credit Loan bear interest for a period of one (1) month, two (2) months, three (3) months or six (6) months each (an "interest period") at a fixed annual rate equal to the Eurodollar rate (as hereinafter defined) plus one and six hundred twenty-five hundredths percent ---- (1.625%) (the "Eurodollar Based Rate"). The BORROWER (i) may only elect the Eurodollar Based Rate with respect to a new or outstanding advance in an amount of not less than One Million Dollars ($1,000,000.00) and in increments above such amount of not less than One Hundred Thousand Dollars ($100,000.00), (ii) may not elect more than four (4) outstanding Eurodollar Advances (as hereinafter defined) at any time, and (iii) may not elect an interest period extending beyond the next Review Date. The BORROWER shall notify BANK in writing by 10:00 a.m. (Eastern Time) at least two (2) Banking Days (as hereinafter defined) in advance of the date upon which the BORROWER desires to convert an existing advance or have a new advance subject to the Eurodollar Based Rate. The BORROWER's notice to BANK as aforesaid shall specify the amount of the new or existing advance under the Revolving Line of Credit Loan that BORROWER desires to bear interest at the Eurodollar Based Rate, the interest period selected, and the date upon which such advance is requested to be converted or made (which must be a Banking Day). Any amounts outstanding under the Revolving Line of Credit Loan as to which BORROWER has elected a Eurodollar Based Rate shall hereinafter be referred to as a "Eurodollar Advance". All amounts outstanding under the Revolving Line of Credit Loan which are not subject to the Eurodollar Based Rate shall bear interest at a variable annual rate equal to the Prime Rate as provided hereinabove. Notwithstanding the foregoing provisions, the BORROWER may not convert existing advances to Eurodollar Advances at any time either an Event of Default exists under this Agreement or the Loan Documents, or any condition exists which, if not cured, would with the passage of time or the giving of notice, or both, constitute such an Event of Default. Interest on each Eurodollar Advance shall be calculated and charged daily on the basis of actual days elapsed over a three hundred sixty (360) day banking year and shall be payable monthly in arrears. (c) Definition of Banking Day. For purposes hereof, a "Banking Day" means ------------------------- a day upon which banks are open for business to the general public in Nashua, New Hampshire, and upon which dealings are carried on and banks are open for business in the London interbank market. (d) Definition of Eurodollar Rate. For purposes hereof, the term ----------------------------- "Eurodollar rate" shall mean the interest rate per annum (rounded upward, if necessary, to the nearest 1/32 of one percent) as determined by the BANK on the basis of the offered rates in the interbank Eurodollar market for deposits in U.S. dollars for a one (1) month, two (2) months, three (3) months or six (6) months period, as the case may be, which appear on the Telerate page 3750 as of 11:00 a.m. London time on the day that is two (2) Banking Days preceding the first day of such Eurodollar Advance. If such rate does not appear on the Telerate System on any applicable interest determination date, the Eurodollar rate shall be the rate (rounded upward as described above, if necessary) for deposits in U.S. dollars for a period substantially equal to the interest period for the Eurodollar Advance on the Reuters Page "LIBO" (or such other page as may replace the LIBO Page on that service for the purpose of displaying such rates), as of 11:00 a.m. (London time), on the day that is two (2) Banking Days prior to the first day of such Eurodollar Advance. If both the Telerate and Reuters system are unavailable, then the rate for that date will be determined on the basis of the offered rates for deposits in U.S. dollars for a period of time comparable to the interest period for such Eurodollar Advance which are offered by four major banks in the London interbank market at approximately 11:00 a.m. London time, on the day that is two (2) Banking Days preceding the first day of such Eurodollar Advance. The principal London office of each of the four major London banks will be requested to provide a quotation of its U.S. dollar deposit offered rate. If at least two such quotations are provided, the rate for that date will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that date will be determined on the basis of the rates quoted for loans in U.S. dollars to leading European banks for a period of time comparable to the interest period for such Eurodollar Advance offered by major banks in New York City at approximately 11:00 a.m. New York City time, on the day that is two Banking Days preceding the first day of such Eurodollar Advance. In the event that the Bank is unable to obtain any such quotation as provided above, it will be deemed that the Eurodollar rate for such Eurodollar Advance cannot be determined. In the event that the Board of Governors of the Federal Reserve System shall impose a Reserve Percentage on the BANK with respect to Eurodollar deposits of the BANK, then for any period during which such Reserve Percentage shall apply, the Eurodollar rate shall be equal to the amount determined above divided by an amount equal to one (1) minus the Reserve Percentage actually maintained by the BANK. For purposes hereof, "Reserve Percentage" means the rate (expressed as a decimal) at which the BANK is required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System against Eurodollar liabilities outstanding. (e) Effect of Regulatory Change. In the event that any Regulatory Change --------------------------- (as hereinafter defined) shall: (i) change the basis of taxation of the amounts payable to the BANK in respect of any Eurodollar Advance (other than taxes imposed on the overall net income of the BANK); (ii) impose or modify any reserve, compulsory loan assessment, special deposit or similar requirement relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, any office of the BANK in respect of any Eurodollar Advance (including any of such deposits referred to hereinabove in the definition of "Eurodollar rate"); or (iii) impose any other conditions affecting Eurodollar Advances; and the result of any of the foregoing shall be to increase the BANK's costs of making or maintaining any Eurodollar Advances, or to reduce any amount receivable by the BANK hereunder in respect of any Eurodollar Advances, in each case only to the extent that such additional amounts are not included in the Eurodollar rate applicable to such Eurodollar Advance, then the BORROWER and BANK shall thereafter attempt to negotiate in good faith, within thirty (30) days of the day on which the BORROWER receives the notice referred to hereinbelow, an adjustment payable hereunder that will adequately compensate the BANK in light of these circumstances. If the BORROWER and the BANK are unable to agree to such adjustment within thirty (30) days of the date on which the BORROWER receives such notice, then commencing as of the date of such notice applicable to such Eurodollar Advance, the BORROWER shall pay on demand to the BANK and from time to time as specified by the BANK, such additional amounts as shall be sufficient to compensate the BANK for such increased cost or reduced amount receivable. Such amounts may include amounts that arise by reason of such a Regulatory Change for not more than thirty (30) days before receipt by the BORROWER of such notice. If the BANK becomes entitled to claim any additional amounts pursuant hereto, it shall promptly notify the BORROWER of the event by reason of which it has become so entitled. A certificate setting forth in reasonable detail the computation of any additional amounts payable pursuant hereto submitted by the BANK to the BORROWER shall be delivered to the BORROWER promptly after the initial incurrence of such additional amounts and shall be conclusive in the absence of manifest error. The covenants contained in this Section (e) shall survive for sixty (60) days following the termination of this Agreement and the payment of the Note or for such longer period as the BANK is contesting the validity or applicability of any law, regulation or condition as provided hereinbelow. No failure on the part of the BANK to demand compensation hereunder on any one occasion shall constitute a waiver of its rights to demand compensation on any other occasion. (f) Definition of Regulatory Change. For purposes hereof, the term ------------------------------- "Regulatory Change" shall mean, with respect to the BANK, any change after the date of this Agreement in federal, state or foreign law or regulation (including without limitation Regulation D of the Board of Governors of the Federal Reserve System), including without limitation the issuance of any final regulations or guidelines, or the adoption or making after such date of any interpretation, directive or request applying to a class of lenders including BANK of or under any federal, state or foreign law or regulations (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any court or governmental or monetary authority charged with the interpretation thereof. (g) Limitations on Eurodollar Advances; Illegality. Anything herein to the ---------------------------------------------- contrary notwithstanding, if, on or prior to the determination of an interest rate for any Eurodollar Advance, the BANK shall determine (which determination shall be conclusive absent manifest error) that: (i) by reason of any event affecting United States money markets or the London interbank market, quotations of interest rates for the relevant deposits are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for Eurodollar Advances under this Agreement; or (ii) the rates of interest referred to in the definition of "Eurodollar rate" hereinabove on the basis of which the rate of interest on any Eurodollar Advances for such period is determined, do not accurately reflect the cost to the BANK of making or maintaining such Eurodollar Advances for such period; then the BANK shall give the BORROWER prompt notice thereof (and shall thereafter give the BORROWER prompt notice of the cessation, if any, of such condition), and so long as such condition remains in effect, the BANK shall be under no obligation to make Eurodollar Advances. Notwithstanding any other provision herein, if any Regulatory Change shall make it unlawful for the BANK to make or maintain Eurodollar Advances as contemplated by this Agreement, (i) the BANK's commitment hereunder to make Eurodollar Advances or continue Eurodollar Advances as such shall thereupon terminate, and (ii) all advances then outstanding under the Loan as Eurodollar Advances, if any, shall be converted automatically to Prime Rate advances on the respective last days of the then current period with respect to such Eurodollar Advances or within such earlier period as required by law. If any such conversion of a Eurodollar Advance occurs on a day which is not the last day of the then current period with respect thereto, the BORROWER shall pay to the BANK such amounts, if any, as may be required hereinbelow with respect to prepayments of Eurodollar Advances. (h) Prepayment: Indemnification. Subject to the BORROWER's indemnification --------------------------- obligations hereinafter set forth, the BORROWER may prepay the entire outstanding amount of any Eurodollar Advance at any time. The BORROWER shall pay to the BANK, upon the request of BANK, such amount or amounts as shall compensate the BANK for any loss (including, in the case of Eurodollar Advances, loss of profit), cost or expense incurred by the BANK (as reasonably determined by the BANK) as a result of: (A) any payment or prepayment (whether voluntarily or after acceleration and demand by the BANK pursuant to its rights hereunder) or conversion of any Eurodollar Advance held by the BANK on a date other than the last day of the term for such Eurodollar Advance; or (B) any failure by the BORROWER to borrow, convert into or continue a Eurodollar Advance on the date for such borrowing, conversion, or continuation specified in the relevant request by BORROWER for such Eurodollar Advance or otherwise; such compensation to include, without limitation, an amount equal to: (Y) any loss or expense suffered by the BANK during the period from the date of receipt of such early payment or prepayment or the date of such conversion or failure to borrow, convert or continue to the last day of the term for such Eurodollar Advance, if the rate of interest obtainable by the BANK upon the redeployment of an amount of funds equal to the Eurodollar Advance so paid, prepaid or converted or as to which such failure to borrow, convert or continue applies is less than the rate of interest applicable to such Eurodollar Advances for such term; and (Z) any loss or expense suffered by the BANK in liquidating Eurodollar deposits prior to maturity which the BANK is unable to redeploy and which correspond to the Eurodollar Advances so paid, prepaid or converted or as to which such failure to borrow, convert or continue applies. The determination by the BANK of the amount of any such loss or expense, then set forth in a written notice to the BORROWER, containing the BANK's calculation thereof in reasonable detail, shall be presumed correct in the absence of manifest error. F. Purposes. Amounts advanced under the Revolving Line of Credit Loan -------- shall be used solely for financing (i) BORROWER's ordinary working capital requirements, and (ii) Permitted Acquisitions (as hereinafter described). In no event shall amounts advanced under the Revolving Line of Credit Loan be used to provide loans, financing or funding to or on behalf of BORROWER's affiliates other than another BORROWER. G. Revolving Line of Credit Management. BORROWER desires to use its loan ----------------------------------- account which indicates the BORROWER's current Indebtedness under the Revolving Line of Credit Loan (the "Loan Account") and its demand deposit account with the BANK (the "Demand Deposit Account") to manage BORROWER's funds and to maintain a desired target balance in BORROWER's Demand Deposit Account. In furtherance thereof, BORROWER intends to deliver to the BANK, in accordance with such instructions as BANK may from time to time provide, all checks, drafts, cash and other remittances in payment by debtors of BORROWER's accounts receivable ("Accounts"). All such checks, drafts, and other items shall be endorsed to the BANK for deposit to the BORROWER's Demand Deposit Account or as the BANK may otherwise specify from time to time. BORROWER hereby designates and appoints the BANK as BORROWER's attorney-in-fact to endorse all remittances in whatever form received for deposit in BORROWER's name to the Demand Deposit Account. BANK shall not be obligated to (but may in its sole discretion) endorse and deposit remittances which are not in the proper name of BORROWER. All such remittances rejected for deposit by BANK may be returned to BORROWER and BORROWER shall receive no credit therefor. BANK shall have the right to date any undated remittances and to reject any postdated remittances or any remittances older than six (6) months. BANK may deposit any remittance notwithstanding any legend thereon. Checks and other drafts drawn in foreign currency shall be handled on an individual collection basis only, and BANK assumes no risk or responsibility for any loss which any party, including BORROWER, may suffer by virtue of fluctuations in exchange rates. Customary charges for such collections will be debited to the Demand Deposit Account. BORROWER shall from time to time inform the BANK of the target balance which BORROWER desires to maintain in its Demand Deposit Account, which shall in no event be less than any minimum balance (if any) required under this Agreement. To maintain the desired target balance in BORROWER's Demand Deposit Account, BORROWER hereby instructs, authorizes, and directs BANK to charge BORROWER's Demand Deposit Account to make payments to reduce the debit balance of BORROWER's Loan Account and to make payment of BORROWER's other obligations to the BANK, and to make advances under the Revolving Line of Credit Loan increasing the debit balance in BORROWER's Loan Account and credit the same to BORROWER's Demand Deposit Account. Notwithstanding the foregoing, BORROWER's obligations to pay each Loan are the general obligations of the BORROWER and shall not be deemed to be obligations to be satisfied solely from funds in the Demand Deposit Account or by advances under the Revolving Line of Credit Loan. BORROWER acknowledges and agrees that the target balance is only a desired goal based upon estimates and that the BANK shall have no responsibility for variances from the target balance as long as all charges, advances and credits are made in good faith. All credits against BORROWER's indebtedness indicated in the Loan Account shall be conditional upon final payment to the BANK of the items giving rise to such credits. The amount of any item credited against BORROWER's Loan Account which is not paid or which is charged back against the BANK for any reason may be charged as a debit to the Loan Account or may be charged back against the Demand Deposit Account of BORROWER, and shall be an obligation of the BORROWER to the BANK in each instance whether or not the item so charged back or not paid is returned. Any item received in payment towards BORROWER's outstanding indebtedness reflected in the Loan Account which requires clearance or payment shall be considered to be applied immediately for purposes of determining the maximum available amount under BORROWER's Revolving Line of Credit under Section I(A) of this Agreement, but shall not be considered to have been credited to the Loan Account until two (2) business days after receipt by the BANK of such item for purposes of interest accruing on the outstanding indebtedness indicated by the Loan Account. Notwithstanding any other provision hereof, no advances shall be made by BANK to BORROWER's Demand Deposit Account at any time an Event of Default exists under this Agreement or the Loan Documents, or any condition exists which, if not cured, would with the passage of time or the giving of notice, or both, constitute such an Event of Default. Except in the case of BANK's gross negligence, willful misconduct, or failure to act in good faith, BANK shall not be liable for any act done or omitted by it in good faith, or for any mistake in fact or law, or for anything it may do or refrain from doing in connection with or as required by this Section I(G). In addition, BORROWER will reimburse and indemnify BANK for any damages, losses, liabilities, claims, costs, or expenses, of any kind whatsoever and however caused, including, but not limited to, reasonable attorneys' fees, paid, suffered or incurred by BANK as a result of any third party claim against BANK arising out of or in connection with BANK's performance of the services contemplated by this Section I(G) to be provided by BANK, except to the extent the same results from the gross negligence, willful misconduct, or failure to act in good faith by BANK. II. TERM LOAN. The Term Loan first described above (the "Term Loan") shall bear interest and have a term as set forth in the promissory note evidencing such Loan (the "Term Note"), shall be issued subject to the terms and conditions of this Agreement and the other Loan Documents, and shall be secured by the Collateral provided for Loans pursuant to the Loan Documents. III. FEES. In addition to such other fees as are provided in this Agreement and in the other Loan Documents, BORROWER agrees to pay the BANK the periodic fees set forth on Schedule A attached hereto with respect to the maintenance of ---------- each Loan. IV. PAYMENTS. All payments made by the BORROWER of principal and interest on the Loans, and other sums and charges payable under the Loan Documents, shall be made to the BANK in accordance with the terms of the respective Loan Documents in immediately available, lawful United States of America currency at its office set forth above, or by the debiting by the BANK of the demand deposit account(s) in the name of the BORROWER at the BANK, or in such other reasonable manner as may be designated by the BANK in writing to the BORROWER, and in any event shall be made in immediately available funds. The BORROWER authorizes the BANK automatically to debit the BORROWER's demand deposit account as described above. V. CONTINUING REPRESENTATIONS AND WARRANTIES. The BORROWER warrants and represents to the BANK that so long as any of the Obligations are outstanding: A. Good Standing. BORROWER, if other than a natural person, is duly ------------- organized, validly existing, and in good standing under the laws of its state of organization. BORROWER has the power to own its properties and to carry on its business as now being conducted. B. Authority. BORROWER has full power and authority to enter into this --------- Agreement and to borrow under the Loan Documents, to execute and deliver the Loan Documents and to incur the obligations provided for herein and in the other Loan Documents, all of which have been duly authorized by all proper and necessary corporate or other action. The persons executing the Loan Documents on behalf of the BORROWER have been duly authorized to do so. C. Binding Agreement. This Agreement and the other Loan Documents ----------------- constitute the valid and legally binding obligations of the BORROWER, enforceable in accordance with their respective terms. D. Litigation. There are no suits or proceedings of any kind or nature ---------- pending or, to the knowledge of the BORROWER, threatened against or affecting the BORROWER or its assets which, if adversely determined, would have a material adverse effect on the financial condition or business of the BORROWER and which have not been disclosed in writing to the BANK. E. Conflicting Agreements; Consents. There is no charter, bylaw, -------------------------------- preference stock, or trust provision of the BORROWER, and no provision(s) of any existing mortgage, indenture, contract or agreement binding on the BORROWER or affecting its property, which would conflict with, have a material adverse effect upon, or in any way prevent the execution, delivery, or performance of the terms of this Agreement or the Loan Documents. The BORROWER is not required to obtain any order, consent, approval or authorization of any person, entity, or governmental authority in connection with or as a condition to the execution, delivery, and performance of this Agreement or the Loan Documents. F. Financial Condition. The financial statements delivered to the BANK ------------------- by the BORROWER have been and shall be prepared in accordance with generally accepted accounting principles, consistently applied; are and will be complete and correct; and fairly present the financial condition and results of the BORROWER for the reported periods. Other than those liabilities disclosed in writing to the BANK, there are no liabilities, direct or indirect, fixed or contingent, of the BORROWER which are not reflected in the financial statements or in the notes thereto which would be required to be disclosed therein, and there has been no material adverse change in the financial condition or operations of the BORROWER since the date of such financial statements. G. Taxes. BORROWER has filed all federal, state and local tax returns ----- required to be filed by it and has paid all taxes shown by such returns to be due and payable on or before the due dates thereof. H. Solvency. The present fair salable value of the BORROWER's assets -------- is greater than the amount required to pay its total liabilities; and the amount of the BORROWER's capital is adequate in view of the type of business in which it is engaged. I. Full Disclosure. None of the information with respect to the --------------- BORROWER which has been furnished to the BANK in connection with the transactions contemplated hereby is false or misleading with respect to any material fact, or omits to state any material fact necessary in order to make the statements therein not misleading. J. Employee Benefit Plans. The BORROWER has not incurred any material ---------------------- accumulated funding deficiency within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), has not incurred any material liability to the Pension Benefit Guaranty Corporation established under ERISA (or any successor thereto) in connection with any profit sharing, group insurance, bonus, deferred compensation, percentage compensation, stock option, severance pay, insurance, pension or retirement plan or other oral or written agreement or commitment relating to employment or fringe benefits or perquisites for employees, officers or directors of the BORROWER (an "Employee Benefit Plan"), and no Employee Benefit Plan which is subject to ERISA had, as of its latest valuation date, accrued benefits (whether or not vested) the present value of which exceeded the value of the assets of such Employee Benefit Plan, based upon actuarial assumptions utilized for such Plan. K. Location of Records. All of the books and records or true and ------------------- complete copies thereof relating to the accounts and contracts of the BORROWER are and will be kept at BORROWER's principal place of business located at the address first set forth above (the "Premises"). L. Compliance with Laws. To the best of BORROWER's knowledge, after due -------------------- inquiry, the BORROWER is in compliance in all material respects with all laws and governmental rules and regulations applicable to its businesses, properties and assets. M. Employees. To the best of BORROWER's knowledge, after due inquiry, --------- the BORROWER has complied in all material respects with all laws relating to the employment of labor, including any provisions thereof relating to ERISA, wages, hours, collective bargaining, the payment of social security and similar taxes, equal employment opportunity, employment discrimination and occupational safety and health, and is not liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. VI. AFFIRMATIVE COVENANTS. Until payment in full of all indebtedness under the Loans and the other Obligations, the BORROWER hereby agrees that, unless the BANK shall otherwise consent in writing, it will: A. Prompt Payment. Pay promptly, subject to any applicable cure or -------------- grace period, when due all amounts due and owing to One BANK. B. Use of Proceeds. Use the proceeds of the Loans only for business --------------- purposes and will furnish the BANK with such evidence as it may reasonably require with respect to such use. C. Financial Statements. Furnish the BANK with such financial -------------------- statements and reports of BORROWER as are described on Schedule A attached ---------- hereto. All such statements shall be prepared on a consistent basis in a format reasonably acceptable to the BANK. D. Maintenance of Existence. Take all necessary action to maintain ------------------------ BORROWER's legal existence. E. Maintenance of Business. Do or cause to be done all things ----------------------- necessary to maintain and preserve BORROWER's business. F. Maintenance of Insurance. Keep all of BORROWER's properties ------------------------ adequately insured against loss or damage by fire and such other casualties and hazards as the BANK may specify from time to time; maintain adequate Workman's Compensation Insurance under applicable laws and Comprehensive General Public Liability Insurance; and maintain adequate insurance covering such other risks as customary for businesses of BORROWER's size and type. All insurance required hereunder shall be effected by valid and enforceable policies issued by insurers of recognized responsibility authorized to transact business within the State of New Hampshire. For the purposes of this Paragraph, an insurance policy shall be deemed to be "adequate" if it provides coverage against such risks and in such amounts as is customarily carried by owners of businesses and properties similar to those of BORROWER. G. Inspection by the BANK. Upon prior reasonable notice (other than in ---------------------- emergencies when no notice shall be required) and during normal business hours, permit any person designated by the BANK to inspect any of its books, records, and accounts (and including the making of copies thereof and extracts therefrom) during normal business hours. H. Prompt Payment of Taxes. Accrue its tax liability (including ----------------------- withholdings for employee taxes and social security) in accordance with usual accounting practice and pay or discharge (or cause to be paid or discharged) as they become due all taxes, assessments, and government charges upon its property, operations, income and products (as well as all claims for labor, materials or supplies), which, if unpaid might become a lien upon any of its property; provided, that the BORROWER shall, prior to payment thereof, have the right to contest such taxes, assessments and charges in good faith by appropriate proceedings so long as the BANK's interests are protected by bond, letter of credit, escrowed funds or other appropriate security. I. Notification of Default Under This and Other Loan or Financing -------------------------------------------------------------- Arrangements. Promptly notify the BANK in writing of the occurrence of any - ------------ Event of Default under this Agreement or any other loan or financing arrangement. J. Notification of Litigation. Promptly notify the BANK in writing of -------------------------- any litigation that has been instituted or is pending or threatened which might have a material adverse effect on its continued operations or financial condition. K. Notification of Governmental Action. Promptly notify the BANK in ----------------------------------- writing of any governmental investigation or proceeding that has been instituted or is pending or threatened, including without limitation, matters relating to the federal or state tax returns of the BORROWER, compliance with the Occupational Safety and Health Act, or proceedings by the Treasury Department, Labor Department, or Pension Benefit Guaranty Corporation with respect to matters affecting employee welfare, benefit or retirement programs. L. Maintenance of Records. Keep adequate records and books of account, ---------------------- in which complete entries will be made in a manner reasonably acceptable to the BANK and consistently applied, reflecting all financial transactions of the BORROWER. M. Compliance With Laws. Comply in all material respects with all -------------------- applicable laws, rules, regulations, and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments, and governmental charges imposed upon it or upon its property; provided, however, that BORROWER shall be entitled to contest the same in good faith so long as such action, in the BANK's sole opinion, does not have an adverse effect upon the BANK's rights hereunder. N. Accounts and Deposits. Maintain its primary operating and deposit --------------------- accounts with the BANK. O. Notification of Material Adverse Chances. Promptly notify the BANK ---------------------------------------- in writing of any conditions or circumstances which might have a material adverse effect on BORROWER's continued operations or financial condition. P. Additional Financial and Other Covenants. Comply with the ---------------------------------------- additional financial and other covenants set forth on Schedule A attached ---------- hereto. VII. NEGATIVE COVENANTS. Until payment in full of all indebtedness under the Loans and the other Obligations, the BORROWER will not, without the express prior written consent of the BANK: A. Additional Indebtedness. Incur indebtedness for borrowed money (or ----------------------- issue or sell any of its bonds, debentures, notes or similar obligations), or enter into capital leases, except: (1) borrowings under the Loans; (2) other Obligations to the BANK; (3) borrowings used to prepay in full the Obligations; (4) ordinary trade account payables incurred in the regular course of business; and (5) indebtedness due from one BORROWER to another. B. Guaranties, Endorsements, and Contingent Liabilities. Guarantee, ---------------------------------------------------- endorse or otherwise become absolutely or contingently liable for the obligations of any other person, partnership, corporation or other entity. C. Liens and Mortgages. Incur, create, assume or suffer to exist any ------------------- mortgage, pledge, lien, attachment, security interest, charge or other encumbrance of any nature whatsoever on any of the BORROWER's assets, now or hereafter owned, other than: (1) security interests or liens that may be granted to the BANK; (2) deposits under Workmen's Compensation, Unemployment Insurance and Social Security laws; and (3) liens imposed by law, such as carriers, warehousemen's or mechanic's liens incurred in good faith in the ordinary course of business, and which do not in the aggregate have a material adverse effect on the BORROWER'S financial condition or its assets. D. Capital Structure; Acquisition of Stock. Alter or amend the --------------------------------------- BORROWER's capital structure (other than in connection with a Permitted Acquisition or Permitted Divestiture as described below) or purchase, redeem or otherwise acquire value for any of its outstanding capital stock, other than purchases by Parent of its capital stock in the open market which (i) individually and in the aggregate do not result in a violation by the BORROWER of its financial covenants under this Agreement and (ii) are in compliance with the requirements of federal and state securities laws. E. Dividends and Distributions. Declare or pay dividends, or make any --------------------------- other payment or distribution on account of BORROWER's capital stock. F. Reorganizations and Acquisitions. Liquidate, merge, or consolidate -------------------------------- into or with any other person or entity, or acquire all or substantially all of the assets, capital stock, or other ownership interests of any person or entity other than an acquisition of assets, capital stock, or other ownership interests of a person or entity (an "Acquired Party") which acquisition meets the following conditions (a "Permitted Acquisition"): (i) the BORROWER shall provide reasonably satisfactory information and analysis to the BANK at least ten (10) days prior to completion of the acquisition concerning the Acquired Party and the effect of the acquisition upon the financial condition and operations of the BORROWER; and (ii) immediately prior to such acquisition and after giving effect thereto, no Event of Default shall exist, including, but not limited to, any violation of BORROWER's financial covenants existing prior to or resulting from the acquisition. The BORROWER's principal financial officer shall certify as to the BORROWER's compliance with the conditions set forth hereinabove at least ten (10) days prior complete the acquisition. G. Sale or Disposition of Assets. Sell, lease, transfer or otherwise ----------------------------- dispose of the assets or properties of the BORROWER, except in the ordinary course of business, or the capital stock of any subsidiary of the Parent, other than a divestiture of assets, capital stock, or other ownership interests of any BORROWER which meets the following conditions (a "Permitted Divestiture"): (i) the BORROWER shall provide reasonably satisfactory information and analysis to the BANK at least ten (10) days prior to completion of the divestiture concerning the effect of the divestiture upon the financial condition and operations of the BORROWER; and (ii) immediately prior to such divestiture and after giving effect thereto, no Event of Default shall exist, including, but not limited to, any violation of BORROWER's financial covenants existing prior to or resulting from the divestiture. The BORROWER's principal financial officer shall certify as to the BORROWER's compliance with the conditions set forth hereinabove at least ten (10) days prior to completion of the divestiture. H. Ownership; Management. Change the current ownership by Parent of any --------------------- other BORROWER (other than pursuant to a Permitted Divestiture), or replace Michael H. Foster as the Chairman and Chief Executive Officer of the Parent. I. Covenant to Third Parties Regarding Liens and Mortgages. Provide any ------------------------------------------------------- covenant to, or enter into any agreement with, any third party identical to, substantially similar to, or of the general nature of the covenant provided by the BORROWER to the BANK in Section VII(C) hereinabove. VIII. CONDITIONS PRECEDENT TO MAKING OF LOANS. The obligation of the BANK to make any Loan and make disbursements of the proceeds of the same to the BORROWER is subject to the satisfaction by the BORROWER or its representatives of the following conditions precedent with respect to such Loan: (1) the BORROWER has executed and delivered all of the Loan Documents deemed appropriate and necessary by the BANK, in form and substance satisfactory to the BANK; (2) the BORROWER's warranties and representations as contained herein and in the Loan Documents shall be accurate and complete and the BANK has received satisfactory evidence of the same, including, at BANK's option, an opinion of BORROWER's legal counsel to that effect; and (3) the BORROWER shall not be in default under any of the covenants, warranties, representations, terms, or conditions contained in this Agreement or in the Loan Documents as of the date of entering into such Loan and as of the date of each disbursement thereunder. IX. EVENTS OF DEFAULT; ACCELERATION. The occurrence of any one or more of the following events shall constitute a default under this Agreement, each of the other Loan Documents, and the Obligations (collectively, "Events of Default"): (1) if any statement, representation or warranty made by the BORROWER in this Agreement or in any of the other Loan Documents, or in connection with any of the same, or if any financial statement, report, schedule, or certificate furnished by the BORROWER or any of its officers or accountants to the BANK, shall prove to have been false or misleading when made, or subsequently becomes false or misleading, in any material respect (as determined in the BANK's sole discretion); (2) default by the BORROWER in payment on its due date of any principal or interest called for under any of the Loans or the Loan Documents, or of other amounts due under any other of the Obligations, or other event of default under the Loan Documents or the other Obligations, provided such default is not cured within any applicable grace period thereunder; (3) default by the BORROWER in the performance or observance of any of the provisions, terms, conditions, warranties of covenants of this Agreement, the Loan Documents, or any other of the Obligations; (4) the dissolution, termination of existence, merger or consolidation of the BORROWER or a sale of BORROWER's business not in the ordinary course of business; (5) the BORROWER shall (a) apply for or consent to the appointment of a receiver, trustee or liquidated of it or any of its property, (b) make a general assignment for the benefit of creditors, (c) be adjudicated as bankrupt or insolvent, (d) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation under any law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or statute, or (e) offer or enter into any composition, extension or arrangement seeking relief or extension of its debts; (6) proceedings shall be commenced or an order, judgment or decree shall be entered, without the application, approval or consent of the BORROWER, in or by any court of competent jurisdiction, relating to the bankruptcy, dissolution, liquidation, reorganization or the appointment of a receiver, trustee or liquidator of the BORROWER of all or a substantial part of its assets, and such proceedings, order, judgment or decree shall continue undischarged or unstayed for a period of sixty (60) days; (7) BORROWER's inability to pay its debts as they mature or other act of insolvency, however defined and determined by the BANK in its sole discretion; or (8) a judgment for the payment of money shall be rendered against the BORROWER and the same shall remain undischarged for a period of thirty (30) days, during which period execution shall not be effectively stayed. Upon the occurrence of any Event of Default, the BANK's commitment to make further Loans or any advance thereunder, under the Loan Documents or any other agreement with the BORROWER shall immediately cease and terminate and, at the election of the BANK, all of the Obligations of the BORROWER to the BANK, either under this Agreement, the Loan Documents, or otherwise, will immediately become due and payable without further demand, notice or protest, all of which are hereby expressly waived. Thereafter, the BANK may proceed to protect and enforce its rights, at law, in equity, or otherwise, against the BORROWER, under this Agreement, under any Loan Documents, under any other agreement between the BORROWER and the BANK, or under any agreement between any guarantor or endorser of the BORROWER's Obligations to the BANK. X. BANK'S RIGHTS TO ASSIGN, PLEDGE AND PARTICIPATE LOANS. A. Right to Pledge Notes. BANK may at any time pledge all or any --------------------- portion of its rights under the Loan Documents, including any portion of either of the Notes to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release BANK from its obligations under any of the Loan Documents. B. Assignment of Loans. BANK shall have the unrestricted right at any ------------------- time or from time to time, and without BORROWER's consent, to assign all or any portion of its right and obligations hereunder to one or more banks or other financial institutions (each, an "Assignee"), and BORROWER agrees that it shall execute, or cause to be executed, such documents, including without limitation, amendments to this Agreement and to any other documents, instruments and agreements executed in connection herewith as BANK shall deem necessary to effect the foregoing. In addition, at the request of BANK and any such Assignee, BORROWER shall issue one or more new promissory notes, as applicable, to any such Assignee and, if BANK has retained any of its rights and obligations hereunder following such assignment, to BANK, which new promissory notes shall be issued in replacement of, but not in discharge of, the liability evidenced by the promissory note held by BANK prior to such assignment and shall reflect the amount of the respective commitments and loans held by such Assignee and BANK after giving effect to such assignment. Upon the execution and delivery of appropriate assignment documentation, amendments and any other documentation required by BANK in connection with such assignment, and the payment by Assignee of the purchase price agreed to by BANK, and such Assignee, such Assignee shall be a party to this Agreement and shall have all of the rights and obligations of BANK hereunder (and under any and all other guaranties, documents, instruments and agreements executed in connection herewith) to the extent that such rights and obligations have been assigned by BANK pursuant to the assignment documentation between BANK and such Assignee, and BANK shall be released from its obligations hereunder and thereunder to a corresponding extent. C. Participation of Loans. BANK shall have the unrestricted right at ---------------------- any time and from time to time, and without the consent of or notice to BORROWER, to grant to one or more banks or other financial institutions (each, a "Participant") participating interests in BANK's obligations to lend hereunder and/or any or all of the loans held by BANK hereunder. In the event of any such grant by BANK of a participating interest to a Participant, whether or not upon notice to BORROWER, BANK shall remain responsible for the performance of its obligations hereunder and BORROWER shall continue to deal solely and directly with BANK in connection with BANK's rights and obligations hereunder. D. Information to Assignees and Participants. BANK may furnish any ----------------------------------------- information concerning BORROWER in its possession from time to time to prospective Assignees and Participants, provided that BANK shall require any such prospective Assignee or Participant to agree in writing to maintain the confidentiality of such information. XI. MISCELLANEOUS PROVISIONS. A. Entire Agreement; Waivers. This Agreement, the Schedules hereto, and ------------------------- the other Loan Documents together constitute the entire agreement between the BORROWER and the BANK and no covenant, term, condition or other provision thereof nor any default in connection therewith may be waived except by an instrument in writing, signed by the BANK and delivered to the BORROWER. The BANK's failure to exercise or enforce any of its rights, powers or privileges this Agreement or the other Loan Documents shall not operate as a waiver thereof. In the event of any conflict between the terms, covenants, conditions and restrictions contained in the Loan Documents, the term, covenant, condition or restriction which confers the greatest benefit upon the BANK shall control. The determination as to which term, covenant, condition or restriction is more beneficial shall be made by the BANK in its sole discretion. B. Remedies Cumulative. All remedies provided under this Agreement and ------------------- the other Loan Documents or afforded by law shall be cumulative and available to the BANK until all of the BORROWER's Obligations to the BANK have been paid in full. C. Survival of Covenants. All covenants, agreements, representations --------------------- and warranties made in this Agreement and in the Loan Documents shall be deemed to be material and to have been relied on by the BANK, notwithstanding any investigation made by the BANK or in its behalf, and shall survive the execution and delivery of its Agreement and the Loan Documents. All such covenants, agreements, representations and warranties shall bind and inure to the benefit of the BORROWER's and the BANK's successors and assigns, whether so expressed or not. D. Governing Law; Jurisdiction. This Agreement and the other Loan --------------------------- Documents shall be construed and their provisions interpreted under and in accordance with the laws of the State of New Hampshire. The BORROWER, to the extent they may legally do so, hereby consent to the jurisdiction of the courts of the State of New Hampshire and the United States District Court for the State of New Hampshire for the purpose of any suit, action or other proceeding arising out of any of their obligations hereunder or with respect to the transactions contemplated hereby, and expressly waive any and all objections they may have to venue In any such courts. E. Assurance of Execution and Delivery of Additional Instruments. The ------------------------------------------------------------- BORROWER agrees to execute and deliver, or to cause to be executed and delivered, to the BANK all such further instruments, and to do or cause to be done all such further acts and things, as the BANK may reasonably request or as may be necessary or desirable to effect further the purposes of this Agreement and the other Loan Documents, but such shall not, in any event, be required to provide collateral for this unsecured loan. F. Waivers and Assents. The BORROWER hereby waives, to the fullest ------------------- extent by law, demand, notice, protest, notice of acceptance of this Agreement and the other Loan Documents, notice of Loans made, credit extended, or other action taken in reliance hereon and all other demands and notices of any description with respect to the Loan Documents. The BORROWER assents to any extension or postponement of the time of payment or any other indulgence, to the of any party or person primarily or secondarily liable, to the acceptance of partial payments thereon and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as the BANK may deem advisable. G. Successors and Assigns. This Agreement and the Loan Documents shall ---------------------- be binding upon and inure to the benefit of the BANK, the BORROWER and their respective successors and assigns; provided, however, the rights and obligations of the BORROWER are not assignable, delegable or transferable without the consent of the BANK. H. Payment of Bank's Expenses. The BORROWER hereby covenants and -------------------------- agrees that it shall pay to the BANK, on demand, any and all reasonable out-of- pocket expenses, including reasonable attorneys' fees, court costs, sheriffs' fees, and other expenses incurred or paid by the BANK in protecting and enforcing its rights under this Agreement, the other Loan Documents and the other Obligations, including the costs of preparation of this Agreement and the Loan Documents, and any amendments, modifications, consents or waivers in respect thereof, and all filing, auditing, accounting, and appraisal fees, if applicable. I. The Bank's Right to Offset. The BORROWER hereby grants to the BANK a -------------------------- lien, continuing security interest, and right of setoff as security for all liabilities and obligations to BANK, whether now existing or hereafter arising, upon, in and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of BANK or any entity under the control of Fleet Financial Group, Inc., or in transit to any of them. At any time, without demand or notice, BANK may set off the same or any part thereof and apply to same to any liability or obligation of BORROWER even though unmatured and regardless of the adequacy of any other collateral securing the Loans. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE LOANS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. J. Notices. All notices, requests, demands and other communications ------- provided for hereunder shall be in writing (including telegraphic communication) and shall be either mailed by registered or certified mail, return receipt requested, postage prepaid, or delivered by overnight courier service, to the applicable party at its address set forth at the beginning of this Agreement or such other address as provided to the other parties by notice as herein provided, and shall be effective on the date of the first attempted delivery thereof by the U.S. Postal Service or overnight courier service, as shown on the registered or certified mail return receipt or courier log. K. Savings Clause. Any provision of this Agreement or any of the other -------------- Loan Documents which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. L. Term of this Agreement. This Agreement shall remain in full force and ---------------------- effect until all of the Obligations have been paid in full and all of the terms, conditions and covenants under the Loan Documents have been performed. M. Usury. All agreements between BORROWER and BANK are hereby expressly ----- limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to be paid to BANK for the use or the forbearance of the indebtedness evidenced by either of the Notes exceed the maximum permissible under applicable law. As used herein, the term "applicable law" shall mean the law in effect as of the date hereof provided, however that in the event there is a change in the law which results in a higher permissible rate of interest, then the Notes shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of BORROWER and BANK in the execution, delivery and acceptance of this Agreement and the Notes to contract in strict compliance with the laws of the State of New Hampshire from time to time in effect. If, under or from any circumstances whatsoever, fulfillment of any provision hereof or of any of the Notes or other Loan Documents at the time of performance of such provision shall be due, shall involve transcending the limit of such validity prescribed by applicable law, then the obligation to be fulfilled shall automatically be reduced to the limits of such validity, and if under or from circumstances whatsoever BANK should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced by the applicable Note and not to the payment of interest. This provision shall control every other provision of the Notes and all other Loan Documents. N. Lost Note or other Loan Document. Upon receipt of an affidavit of an -------------------------------- officer of BANK as to the loss, theft, destruction or mutilation of any Note or any other Loan Document which is not of public record, and, in the case of any such loss, theft, destruction or mutilation, upon surrender and cancellation of such Note or other Loan Document, BORROWER will issue, in lieu thereof, a replacement Note or other Loan Document in the same principal amount thereof and otherwise of like tenor. O. Waiver of Trial by Jury. BORROWER AND BANK MUTUALLY HEREBY KNOWINGLY, ----------------------- VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO ENTER INTO THIS AGREEMENT AND MAKE THE LOANS. IN WITNESS WHEREOF, the BANK and the BORROWER have executed this Agreement all as of the day and year first above written. WITNESS: BANK: FLEET BANK - NH /s/Elizabeth M. Fogelgren /s/ Curtis W. Little, Jr. By: /s/ Elizabeth M. Fogelgren - ------------------------- --------------------------- Elizabeth M. Fogelgren Assistant Vice President FLEET BANK - NH COMMERCIAL LOAN AGREEMENT SCHEDULE A ---------- ADDITIONAL TERMS AND CONDITIONS I. Fees Payable by BORROWER: ------------------------ Loan Restructuring Fee: $25,000 payable to BANK at Closing. Unused Revolving Line of Credit Commitment Fee: 0.2% per annum of daily average of unadvanced amounts under Revolving Line of Credit Loan (based upon the maximum available amount under Section I. A. of the Loan Agreement), determined and payable quarterly in arrears. II. Description of Financial Statements and Reports to be Delivered: --------------------------------------------------------------- A. Annual consolidated and consolidating financial statements of BORROWER within ninety (90) days after the end of each fiscal year, including balance sheets and statements of income, retained earnings and surplus, and a statement of cash flow, together with supporting schedules, setting forth in each case comparative figures for the preceding fiscal year, and in each case audited by and with an unqualified opinion of a "big six" independent certified public accounting firm. B. Annual reports on Form 10-K and quarterly reports on Form 10-Q of the Parent as and when filed with the United States Securities and Exchange Commission. C. Annual budgets and financial projections on a quarterly basis as prepared by BORROWER for each fiscal year of BORROWER within thirty (30) days of the beginning of each fiscal year. D. Monthly management prepared consolidated financial statements of BORROWER within twenty (20) days after the end of each calendar month, including balance sheets and statements of income, retained earnings and surplus, and a statement of cash flow, together with supporting schedules. E. Letters to management issued to BORROWER by its independent certified public accounting firm in connection with its audit of the BORROWER for each fiscal year with respect to which any such letters are issued, as and when such letters are received by the BORROWER. III. Description of Additional Financial and other Covenants: -------------------------------------------------------- A. BORROWER shall have on a consolidated basis a minimum Net Worth (as hereinafter defined) equal to at least Twenty-one Million Dollars ($21,000,000.00) as at September 30, 1997 and at all times thereafter through September 29, 1998, and equal to least Twenty-five Million Dollars ($25,000,000.00) as at September 30, 1998 and at all times thereafter. "Net Worth " means total assets minus total liabilities, all as determined in accordance with generally accepted accounting principles from BORROWER's financial statements delivered to the Bank in accordance with the covenants of BORROWER hereinabove (the "Financial Statements"). B. BORROWER shall have on a consolidated basis a ratio of Funded Debt (as hereinafter defined) to EBITDA (as hereinafter defined) of not greater than (i) 4.5.0:1 as at September 30, 1997; and (ii) 3.0:1 as at September 30, 1998 and as at each fiscal quarter end thereafter. "Funded Debt " means the aggregate interest bearing indebtedness of the BORROWER as of the applicable date of determination, all as determined in accordance with generally accepted accounting principles from BORROWER's Financial Statements. "EBITDA" means earnings for the twelve-month period ending on the applicable date of determination, before reduction for interest, taxes, depreciation, and amortization expense for such period, all as determined in accordance with generally accepted accounting principles from BORROWER's Financial Statements. C. The BORROWER shall maintain EBITDA of not less than $3,000,000 for the three (3) months ended December 31, 1997; $6,500,000 for the six (6) months ended March 31, 1998; and $10,000,000 for the nine (9) months ended June 30, 1998, and at each fiscal quarter end thereafter, all as shown on BORROWER's Financial Statements. D. BORROWER shall have on a consolidated basis a ratio of EBIT (as hereinafter defined) to Interest Expense (as hereinafter defined) of not less than 3.0:1 as at each fiscal quarter end of BORROWER. "EBIT" means earnings for the twelve (12) month period prior to the date of determination, before reduction for Interest Expense and taxes, all as determined in accordance with generally accepted accounting principles from BORROWER's Financial Statements. "Interest Expense" means the aggregate interest on all indebtedness and capital leases of the BORROWER payable during the twelve (12) month period prior to the date of determination, all as determined in accordance with generally accepted accounting principles from BORROWER's Financial Statements. E. BORROWER shall not make capital expenditures in any fiscal year in an aggregate amount exceeding $2,500,000.00, commencing with the fiscal year ending September 30, 1998. F. BORROWER shall have a ratio of EBITDA to Debt Service (as hereinafter defined) of not less than 2.0:1 as of each fiscal quarter end of BORROWER commencing September 30, 1997. As used herein, "Debt Service" means the aggregate interest on the Revolving Line of Credit Loan and principal and interest on all other Loans under the Loan Agreement due and payable during the twelve (12) month period ending on the date of determination, all as determined in accordance with GAAP from BORROWER's Financial Statements. G. BORROWER shall report and certify to Bank its compliance with the financial covenants hereinabove within forty-five (45) days of each fiscal quarter end on the form attached hereto as Exhibit A. --------- BORROWER: WPI GROUP, INC., WPI POWER SYSTEMS, INC., WPI MAGNETEC, INC., WPI ELECTRONICS, INC., WPI TERMIFLEX, INC., WPI MICRO PALM, INC., WPI MICRO PROCESSOR SYSTEMS, INC. WPI DECISIONKEY, INC., WPI UK HOLDING, INC., WPI UK HOLDING II, INC., WPI OYSTER TERMINALS, INC., and WPI HUSKY COMPUTERS, INC. /s/ Elizabeth M. Fogelgren /s/ Curtis W. Little, Jr. By: /s/ John W. Powers - ---------------------------- -------------------------------------- John W. Powers, for, on behalf of, and as Duly Authorized Officer or Agent of each of the above-named corporations FLEET BANK - NH COMMERCIAL LOAN AGREEMENT SCHEDULE A EXHIBIT A COMPLIANCE CERTIFICATE Fleet Bank - NH 650 Elm Street Manchester, New Hampshire 03101 ATTENTION: Mark L. Young, Senior Vice President Ladies and Gentlemen: Pursuant to the provisions of a certain Amended and Restated Commercial Loan Agreement dated as of December 26, 1997 (the "Loan Agreement"), by and between WPI GROUP, INC., WPI ELECTRONICS, INC., WPI MAGNETEC, INC., WPI MICRO PALM, INC., WPI POWER SYSTEMS, INC., WPI TERMIFLEX, INC., WPI MICRO PROCESSOR SYSTEMS, INC., WPI DECISIONKEY, INC., WPI UK HOLDING, INC., WPI UK HOLDING II, INC., and WPI OYSTER TERMINALS, INC., each a New Hampshire corporation, and HUSKY COMPUTERS, INC., a Florida corporation (collectively, the "BORROWER"), and FLEET BANK - NH, a bank organized under the laws of the State of New Hampshire with a principal place of business at 1155 Elm Street, Manchester, New Hampshire (the "BANK"), the undersigned hereby certifies as follows: 1. That the financial statements and reports (the Financial Statements.) of the BORROWER delivered to the Bank with this certificate are true and accurate in all material respects for the periods covered therein and as of the date thereof, and there have been no material changes since the date of such Financial Statements to the date hereof. 2. That during the periods set forth in the Financial Statements, the BORROWER was in compliance with the Financial Covenants set forth in Section III of Schedule A of the Loan Agreement, and, specifically, that as of the ending date of the period covered by the Financial Statements, the BORROWER had a: (a) Net Worth of $_________________ (Requirement: $21,000,000.00 or greater); [Subject to increase per Loan Agreement] (b) Ratio of Funded Debt to EBITDA of _______:_______ (Requirement: not greater than 3.0:1); (c) EBITDA of $______________ (Requirement: not less than $3,500,000) [subject to increase per Loan Agreement] (d) Ratio of EBIT to Interest Expense of ______:______ (Requirement: not less than 3.0:1); (e) Capital expenditures of $____________________ (Requirement: not to exceed $2,500,000.00); and (f) Ratio of EBITDA to Debt Service of ______:______ (Requirement: not less than 2.0:1). 3. The representations and warranties contained in the Loan Agreement are otherwise true and correct in all material respects on and as of the date hereof as if made on and as of such date and all covenants contained in the Loan Agreement have been and continue to be met. Terms defined in the Loan Agreement and not otherwise expressly defined herein are used herein with the meanings so defined in the Loan Agreement. IN WITNESS WHEREOF, the undersigned has executed this certificate on this _____ day of _________________, 199___. WPI GROUP, INC., WPI POWER SYSTEMS, INC., WPI MAGNETEC, INC., WPI ELECTRONICS, INC., WPI TERMIFLEX, INC., WPI MICRO PALM, INC., WPI MICRO PROCESSOR SYSTEMS, INC., WPI DECISIONKEY, INC., WPI UK HOLDING, INC., WPI UK HOLDING II, INC., WPI OYSTER TERMINALS, INC., and WPI HUSKY COMPUTERS, INC. By: - ----------------------------- --------------------------------------- Witness As Duly Authorized Officer or Agent of each of the above-named corporations EX-10.2 3 REVOLVING LINE OF CREDIT PROMISSORY NOTE Exhibit 10.2 REVOLVING LINE OF CREDIT PROMISSORY NOTE ---------------------------------------- $30,000,000.00 U.S. Manchester, New Hampshire December 26, 1997 FOR VALUE RECEIVED, the undersigned, WPI GROUP, INC., WPI ELECTRONICS, INC., WPI MAGNETEC, INC., WPI MICRO PALM, INC., WPI POWER SYSTEMS, INC., WPI TERMIFLEX, INC., WPI MICRO PROCESSOR SYSTEMS, INC., WPI DECISIONKEY, INC., WPI UK HOLDING, INC., WPI UK HOLDING, II, INC., and WPI OYSTER TERMINALS, INC., each a New Hampshire corporation, and WPI HUSKY COMPUTERS, INC, a Florida corporation, all such corporations having executive offices at 1155 Elm Street Manchester, New Hampshire 03101 (all of such corporations are hereinafter referred to individually and collectively as the "Borrower"), hereby promise, jointly and severally, to pay to the order of FLEET BANK - NH, a bank organized under the laws of the State of New Hampshire with an address of Mail Stop NHNA E02A, 1155 Elm Street, Manchester, New Hampshire 03101 (the "Bank"), at such address, or such other place or places as the holder hereof may designate in writing from time to time hereafter, the maximum principal sum of THIRTY MILLION DOLLARS ($30,000,000.00), or so much thereof as may be advanced or readvanced by the Bank to the Borrower from time to time hereafter (such amounts defined as the "Debit Balance" below), together with interest as provided for hereinbelow, in lawful money of the United States in immediately available funds, all as provided hereinbelow. The Borrower's "Debit Balance" shall mean the debit balance in an account on the books of the Bank, maintained in the form of a ledger card, computer records or otherwise in accordance with the Bank's customary practice and appropriate accounting procedures wherein there shall be recorded the principal amount of all advances and readvances made by the Bank to the Borrower, all principal payments made by the Borrower to the Bank hereunder, and all other appropriate debits and credits to principal. The Bank shall render to the Borrower a statement of account with respect thereto on a monthly basis. The statement shall be considered correct and be considered accepted by the Borrower, and shall conclusively bind the Borrower, unless Borrower notifies the Bank to the contrary within thirty (30) days after the date of Borrower's receipt of the statement. The Bank agrees to lend to the Borrower, and the Borrower may borrow, up to the maximum principal sum provided for in this Note in accordance with and subject to the terms, conditions, and limitations of this Note and the Amended and Restated Commercial Loan Agreement dated as of December 26, 1997, as the same may be amended from time to time hereafter (the "Loan Agreement"). The holder of this Note is entitled to all of the benefits and rights, and is subject to all of the obligations, of the Bank under the Loan Agreement. However, neither this reference to the Loan Agreement nor any provision thereof shall impair the absolute and unconditional obligation of the Borrower to pay the principal and interest of this Note as herein provided. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement. The Borrower agrees that the Bank may deliver all advances under this Note by direct deposit to any demand account of the Borrower with the Bank or in such other reasonable manner as may be designated in writing by the Bank to the Borrower, and that all such advances shall represent binding obligations of the Borrower. The Borrower acknowledges that this Note is to evidence the Borrower's obligation to pay its Debit Balance, plus interest and any other applicable charges as determined from time to time, and that it shall continue to do so despite the occurrence of intervals when no Debit Balance exists because the Borrower has paid the previously existing Debit Balance in full. Interest shall be calculated and charged daily, based on the actual days elapsed over a three hundred sixty (360) day banking year, on the Debit Balance outstanding from time to time at an annual variable rate equal to the Prime Rate. The "Prime Rate" shall be the rate published by The Wall Street Journal ----------------------- from time to time under the category "Prime Rate: The Base Rate on Corporate Loans posted by at least 75% of the Nation's 30 Largest Banks" (the lowest of the rates so published if more than one rate is published under this category at any given time) or such other comparable index rate selected by the Bank in its sole discretion if The Wall Street Journal ceases to publish such rate. The ----------------------- BORROWER acknowledges that the Prime Rate is used for reference purposes only as an index and is not necessarily the lowest interest rate charged by the BANK on commercial loans. Each time the Prime Rate changes the interest rate hereunder shall change contemporaneously with such change in the Prime Rate. Notwithstanding the foregoing, the Borrower may elect from time to time a fixed rate of interest equal to the Eurodollar Based Rate to apply to outstanding principal hereunder, all in accordance with, and subject to the limitations of, the provisions of the Loan Agreement. Outstanding principal hereunder shall be paid in accordance with the terms and conditions of the Loan Agreement. Accrued interest only on the outstanding Debit Balance hereunder shall be payable monthly in arrears commencing thirty (30) days from the date hereof (or on any day within 30 days of the date hereof agreed to by the Borrower and the Bank to provide for a convenient payment date) and continuing on the same date of each month thereafter through and until the Review Date as to which the Bank does not renew the Revolving Line of Credit Loan, whereupon all outstanding principal and accrued and unpaid interest hereunder shall be due and payable in full. The Borrower may prepay this Note in whole or in part at any time; provided, however, that such prepayment shall be subject to the terms and conditions of the Loan Agreement and the charges provided thereunder payable by Borrower to Bank. In the event that any such prepayment shall be made by the Borrower, the amount thereof shall be applied first to accrued interest and thereafter to principal. At the option of the Bank, this Note shall become immediately due and payable in full, without further demand or notice, if any installment of principal or interest is not paid when due hereunder or upon the occurrence of any other Event of Default under the terms hereof, of the Loan Agreement, or of any other Loan Document. The holder may impose upon the Borrower a delinquency charge of five percent (5%) of the amount of the principal and/or interest not paid on or before the tenth (10th) day after such installment is due. The entire principal balance hereof shall after maturity, whether by demand, acceleration or otherwise, or following the occurrence of an Event of Default, until the Event of Default has been cured or waived by the Bank, bear interest at the contract rate of this Note plus an additional five percent (5%) per annum. The Borrower grants to Bank the right to set off and apply, upon the occurrence of an Event of Default and without demand or notice of any nature, all, or any portion of, deposits, credits and other property now or hereafter due from the holder to the Borrower, against the indebtedness evidenced by this Note. This Note is secured by the Collateral granted in the Loan Agreement and the other Loan Documents. The Borrower agrees to pay on demand all reasonable out-of-pocket costs of collection hereof, including reasonable attorneys' fees, whether or not any action is instituted by the holder in its discretion. No delay or omission on the part of the holder in exercising any right, privilege or remedy shall impair such right, privilege or remedy or be construed as a waiver thereof or of any other right, privilege or remedy. No waiver of any right, privilege or remedy under this Note shall be effective unless made in writing and signed by the holder. Under no circumstances shall an effective waiver of any right, privilege or remedy on any one occasion constitute or be construed as a bar to the exercise of or a waiver of such right, privilege or remedy on any future occasion. The acceptance by the holder hereof of any payment after any default hereunder shall not operate to extend the time of payment of any amount then remaining unpaid hereunder or constitute a waiver of any rights of the holder hereof under this Note. All rights and remedies of the holder, whether granted herein or otherwise, shall be cumulative and may be exercised singularly or concurrently. The Borrower hereby waives, to the fullest extent permitted by law, presentment, notice, and protest. Borrower assents to any extension of the time of payment or any other indulgence. This Note and the provisions, hereof shall be binding upon the Borrower and the Borrower's successors, legal representatives and assigns and shall inure to the benefit of and shall bind the holder and the holder's successors, legal representatives and assigns. The word "holder" as used herein shall mean the payee or endorsee of this Note who is in possession of it, or the bearer, if this Note is at the time payable to the bearer. This Note may not be amended, changed or modified in any respect except by a written document which has been executed by each party. This Note constitutes a New Hampshire contract to be governed by the laws of such state and to be paid and performed therein. This Note is executed and delivered in replacement of, but not in novation or discharge of, the Revolving Line of Credit Promissory Note of WPI Group, Inc., WPI Electronics, Inc., WPI Magnetec, Inc., WPI Micro Palm, Inc., WPI Power Systems, Inc., WPI Termiflex, Inc., WPI Micro Processor Systems, Inc., WPI DecisionKey, Inc., WPI UK Holding, Inc., WPI UK Holding, II, Inc., WPI Oyster Terminals, Inc., WPI Group (U.K.), and WPI Oyster Terminals Limited, payable to the order of the Bank in the principal amount of Thirty Million Dollars ($30,000,000.00) dated February 27, 1997 (the "Prior Note"). All references to the Prior Note in any Loan Document shall be deemed to refer to this Note which evidences the indebtedness evidenced by the Prior Note. BORROWER AND THE BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE BANK TO ACCEPT THIS NOTE AND MAKE THE LOAN. Executed and delivered as of the day and year first above written. WPI GROUP, INC., WPI POWER SYSTEMS, INC., WPI MAGNETEC, INC., WPI ELECTRONICS, INC., WPI TERMIFLEX, INC., WPI MICRO PALM, INC., WPI MICRO PROCESSOR SYSTEMS, INC. WPI DECISIONKEY, INC., WPI UK HOLDING, INC., WPI UK HOLDING II, INC., WPI OYSTER TERMINALS, INC., and WPI HUSKY COMPUTERS, INC. /s/ Elizabeth M. Fogelgren /s/ Curtis W. Little, Jr. By: /s/ John W. Powers - ---------------------------- -------------------------------------- Witness John W. Powers, for, on behalf of, and as Duly Authorized Officer or Agent of each of the above-named corporations EX-10.3 4 TERM NOTE DATED DECEMBER 26, 1997 Exhibit 10.3 TERM NOTE --------- $15,000,000.00 U.S. Manchester, New Hampshire December 26, 1997 1. Promise To Pay. -------------- FOR VALUE RECEIVED, WPI GROUP, INC., WPI ELECTRONICS, INC., WPI MAGNETEC, INC., WPI MICRO PALM, INC., WPI POWER SYSTEMS, INC., WPI TERMIFLEX, INC., WPI MICRO PROCESSOR SYSTEMS, INC., and WPI DECISIONKEY, INC., WPI UK HOLDING, INC., WPI UK HOLDING II, INC., and WPI OYSTER TERMINALS, INC., each a New Hampshire corporation, and WPI HUSKY COMPUTERS, INC., a Florida corporation, all such corporations having executive offices at 1155 Elm Street Manchester, New Hampshire 03101 (all of such corporations are hereinafter referred to individually and collectively as the "Borrower"), jointly and severally promise to pay to the order of FLEET BANK-NH, a bank organized under the laws of New Hampshire, having an address at 1155 Elm Street, Manchester, New Hampshire, ("Lender"), the principal sum of Fifteen Million and 00/100 ($15,000,000.00) DOLLARS, with interest thereon, or on the amount thereof from time to time outstanding, to be computed, as hereinafter provided, until such principal sum shall be fully paid. Interest and principal shall be payable in installments as set forth in Section 4 below. The total principal sum, or the amount thereof outstanding, together with any accrued but unpaid interest, shall be due and payable in full on March 31, 2002 ("Maturity Date"). 2. Loan Agreement. -------------- This Note is issued pursuant to the terms, provisions and conditions of an agreement captioned "Amended and Restated Commercial Loan Agreement" dated as of December 26, 1997 between Borrower and Lender, as the same may be amended from time to time hereafter (the "Loan Agreement"), and evidences the Term Loan made pursuant thereto (herein, the "Loan"). Capitalized terms used herein which are not otherwise specifically defined shall have the same meaning herein as in the Loan Agreement. 3. Interest Rate. ------------- Principal amounts outstanding under the Loan shall bear interest at the LIBOR Interest Rate, subject to the conditions and limitations provided for in this Note, during the period from the date hereof up to and including the Maturity Date. 4. Payment of Interest and Principal. --------------------------------- 4.1. Payment and Calculation of Interest. All interest shall be: (a) ----------------------------------- payable in arrears commencing January 1, 1998 and continuing on the same day of each month thereafter until the principal together with all interest and other charges payable with respect to the Loan shall be fully paid; and (b) calculated on the basis of a 360 day year and the actual number of days elapsed. Interest at the LIBOR Interest Rate shall be computed from and including the first day of the applicable Interest Period to, but excluding, the last day thereof. 4.2. Principal. Principal shall be repaid in quarterly installments of --------- $750,000, commencing on October 1, 1998 and continuing on the first day of each January, April, July and October thereafter. The entire principal balance shall be due and payable in full upon Maturity. 4.3. Prepayment. The Loan or any portion thereof may be prepaid in full ---------- or in part at any time upon fifteen (15) days' prior written notice to the holder of this Note, provided that with respect to LIBOR Rate Advances, any prepayment, whether partial or in full, shall be subject to a make-whole provision and payment of a Yield Maintenance Fee as provided below. Any partial prepayment of principal shall first be applied to any installment of principal then due and shall then be applied to the principal installments due in the reverse order of maturity, and no such partial prepayment shall relieve Borrower of the obligation to pay each subsequent installment of principal when due. 4.4. Maturity. At Maturity all accrued interest, principal and other -------- charges due with respect to the Loan shall be due and payable in full and the principal balance and such other charges, but not unpaid interest, shall continue to bear interest at the Default Rate until so paid. 4.5. Method of Payment; Date of Credit. All payments of interest, --------------------------------- principal and fees shall be made in lawful money of the United States in immediately available funds: (a) by direct charge to an account of Borrower maintained with Lender (or the then holder of this Note), (b) by wire transfer to Lender, (c) by check payable to Lender and delivered to Lender at 1155 Elm Street, Manchester, New Hampshire, or (d) to such other bank or address as the holder of this Note may designate in a written notice to Borrower. Payments shall be credited on the Business Day on which immediately available funds are received prior to one o'clock P.M. Eastern Time; payments received after one o'clock P.M. Eastern Time shall be credited to the Loan on the next Business Day. Payments which are by check, which Lender may at its option accept or reject, or which are not in the form of immediately available funds shall not be credited to the Loan until such funds become immediately available to Lender, and, with respect to payments by check, such credit shall be provisional until the item is finally paid by the payor bank. 4.6. Billings. Lender may submit monthly billings reflecting payments -------- due; however, any changes in the interest rate which occur between the date of ------- billing and the due date may be reflected in the billing for a subsequent month. Neither the failure of Lender to submit a billing nor any error in any such billing shall excuse Borrower from the obligation to make full payment of all Borrower's payment obligations when due. 4.7. Default Rate. Lender shall have the option of imposing, and Borrower ------------ shall pay upon billing therefor, an interest rate which is five percent (5%) per annum above the interest rate otherwise payable ("Default Rate"): (a) while any monetary Default exists and is continuing, during that period between the due date and the date of payment; (b) following any Event of Default, unless and until the Event of Default is waived by Lender; and (c) after Maturity. 4.8. Late Charges. Borrower shall pay, upon billing therefor, a "Late ------------ Charge" equal to five percent (5%) of the amount of any payment of principal, other than principal due at Maturity, interest, or both, which is not paid within ten (10) days of the due date thereof. Late charges are: (a) payable in addition to, and not in limitation of, the Default Rate, (b) intended to compensate Lender for administrative and processing costs incident to late payments, (c) are not interest, and (d) shall not be subject to refund or rebate or credited against any other amount due. 4.9. Calculation of Yield Maintenance Fee. ------------------------------------ (i) The Yield Maintenance Fee shall be calculated separately for each installment of principal due prior to the Maturity Date, as well as the entire balance of principal due at the Maturity Date (including any effective extension thereof) all in accordance with the following: (A) If the Treasury Rate is greater than the applicable LIBOR Interest Rate, there shall be no Yield Maintenance Fee payable for such installment or balance. (B) If the Treasury Rate is less than the applicable LIBOR Interest Rate, the Yield Maintenance Fee shall equal the aggregate of all Present Values, computed separately for each installment or balance having a separate due date, of the product of: 1. the amount of each installment or balance so prepaid, multiplied by 2. the amount by which the LIBOR Interest Rate, expressed as a percentage, exceeds the Treasury Rate, expressed as a percentage, computed separately for each installment or balance having a different maturity date, and 3. which product in turn shall be multiplied by a fraction, computed separately for each installment or balance having a different due date, the numerator of which is the number of days from the date of prepayment to the due date of the installment or balance and the denominator of which is 360. (ii) Neither all nor any portion of the principal which bears interest at the LIBOR Interest Rate may or shall be prepaid prior to the last day of the applicable Interest Period, except upon fifteen (15) days' prior written notice to Lender and the payment to Lender of a Yield Maintenance Fee computed in accordance with clause (i) above. (iii) The Yield Maintenance Fee shall be payable in respect of all prepayments of principal whether voluntary or involuntary including, without limitation, prepayments made upon acceleration of the Loan, or application of insurance or eminent domain proceeds. (iv) Once written notice of intention to prepay is given, the Loan, or the applicable portion thereof, shall become due and payable in full on the date specified in the notice of prepayment and the failure to so prepay the Loan on such date, together with any applicable Yield Maintenance Fee, shall constitute an Event of Default. 4.10. Make Whole Provision. Borrower shall pay to Lender, immediately -------------------- upon request and notwithstanding contrary provisions contained in any of the Loan Documents, such amounts as shall, in the conclusive judgment of Lender (in the absence of manifest error), compensate Lender for the loss, cost or expense which it may reasonably incur as a result of (i) any payment or prepayment, under any circumstances whatsoever, whether voluntary or involuntary, of all or any portion of the Loan bearing interest at the LIBOR Interest Rate on a date other than the last day of the applicable Interest Period, or (ii) the conversion, for any reason whatsoever, whether voluntary or involuntary, of any LIBOR Rate Advance to a Variable Rate Advance on a date other that the last day of the applicable Interest Period. Such amounts payable by Borrower shall be equal to any administrative costs actually incurred plus any amounts required to compensate for any loss, cost or expense incurred by reason of the liquidation or re-employment of deposits or other funds acquired by Lender to fund or maintain the Loan or any portion thereof while it is bearing interest at the LIBOR Interest Rate plus, in any event, but without duplication, a Yield Maintenance Fee. 5. Certain Definitions and Provisions Relating To Interest Rate. ------------------------------------------------------------ 5.1. Banking Day. The term "Banking Day" means a day on which banks are ----------- not required or authorized by law to close in the city in which Lender's principal office is situated. 5.2. Business Day; Same Calendar Month. The term "Business Day" means any --------------------------------- Banking Day and, with respect to determining or selecting the LIBOR Interest Rate, any London Banking Day. If any day on which a payment is due is not a Business Day, then the payment shall be due on the next day following which is a Business Day, unless, with respect to a LIBOR Rate Advance, the effect would be to make the payment due in the next calendar month, in which event such payment shall be due on the next preceding day which is a Business Day. Further, if there is no corresponding day for a payment in the given calendar month (i.e., there is no "February 30th"), the payment shall be due on the last Business Day of the calendar month. 5.3. Dollars. The term "Dollars" or "$" means lawful money of the United ------- States. 5.4. Interest Period. The term "Interest Period" means, with respect to --------------- each LIBOR Rate Advance, a period of one (1) month. Interest Periods shall initially be scheduled to commence on the same day of each month (the first Interest Period to commence on the day that the proceeds of the Loan are advanced to Borrower), and to end on the numerically corresponding day in the next succeeding month; Provided, however: (a) if there is no such numerically -------- ------- corresponding day, such Interest Period shall end on the last Business Day of the applicable month, (b) if the last day of such an Interest Period would otherwise occur on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day, but (c) if such extension would otherwise cause such last day to occur in a new calendar month, then such last day shall occur on the next preceding Business Day. In no event, however, shall an Interest Period extend beyond the Maturity Date of the Loan. 5.5. LIBOR Interest Rate. The term "LIBOR Interest Rate" means the per ------------------- annum rate equal to the LIBOR Rate plus 162.5 basis points. 5.6. LIBOR Rate. The term "LIBOR Rate" means, with respect to any LIBOR ---------- Rate Advance, the interest rate per annum (rounded upward, if necessary, to the nearest 1/32 of one percent), as determined on the basis of the offered rates for deposits in Dollars for a period of time comparable to the Interest Period selected or deemed selected by Borrower for such LIBOR Rate Advance which appear on the Telerate page 3750 as of 11:00 a.m. London time on the day that is two (2) London Banking Days preceding the first day of such LIBOR Rate Advance. If such rate does not appear on the Telerate System on any applicable interest determination date, the LIBOR Rate shall be the rate (rounded upward as described above, if necessary) for deposits in Dollars for a period substantially equal to the Interest Period on the Reuters Page "LIBO" (or such other page as may replace the LIBO Page on that service for the purpose of displaying such rates), as of 11:00 a.m. (London time), on the day that is two (2) London Banking Days prior to the beginning of such Interest Period. If both the Telerate and Reuters system are unavailable, then the rate for that date will be determined on the basis of the offered rates for deposits in Dollars for a period of time comparable to the Interest Period for such LIBOR Rate Advance which are offered by four major banks in the London interbank market at approximately 11:00 a.m. London time, on the day that is two (2) London Banking Days preceding the first day of such LIBOR Rate Advance. The principal London office of each of the four major London banks will be requested to provide a quotation of its Dollar deposit offered rate. If at least two such quotations are provided, the rate for that date will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that date will be determined on the basis of the rates quoted for loans in Dollars to leading European banks for a period of time comparable to the Interest Period for such LIBOR Rate Advance offered by major banks in New York City at approximately 11:00 a.m. New York City time, on the day that is two London Banking Days preceding the first day of such LIBOR Rate Advance. In the event that the Bank is unable to obtain any such quotation as provided above, it will be deemed that the LIBOR Rate for such LIBOR Rate Advance cannot be determined. In the event that the Board of Governors of the Federal Reserve System shall impose a Reserve Percentage with respect to LIBOR Rate deposits of the Lender, then for any period during which such Reserve Percentage shall apply, LIBOR Rate shall be equal to the amount determined above divided by an amount equal to 1 minus the Reserve Percentage. 5.7. LIBOR Rate Advance. The term "LIBOR Rate Advance" means any ------------------ principal outstanding under this Note which pursuant to this Note bears interest at the LIBOR Interest Rate. 5.8. London Banking Day. The term "London Banking Day" means any day on ------------------ which dealings in deposits in Dollars are transacted in the London interbank market. 5.9. Maturity. The term "Maturity" means the Maturity Date, or the -------- maturity upon acceleration of the Loan, if the Loan has been accelerated by Lender upon an Event of Default. 5.10. Present Value. The term "Present Value" means the value at the ------------- applicable maturity discounted to the date of prepayment using the Treasury Rate. 5.11. Prime Rate. The term "Prime Rate" means the rate published by The ---------- --- Wall Street Journal from time to time under the category "Prime Rate: The Base - ------------------- Rate on Corporate Loans posted by at least 75% of the Nation's 30 Largest Banks" (the lowest of the rates so published if more than one rate is published under this category at any given time) or such other comparable index rate selected by the Bank in its sole discretion if The Wall Street Journal ceases to publish ----------------------- such rate. The Borrowers acknowledge that the Prime Rate is used for reference purposes only as an index and is not necessarily the lowest interest rate charged by the Bank on commercial loans. 5.12. Treasury Rate. The term "Treasury Rate" means, as of the date of ------------- any calculation or determination, the latest published rate for United States Treasury Notes or Bills (but the rate on Bills issued on a discounted basis shall be converted to a bond equivalent) as published weekly in the Federal Reserve Statistical Release H.15(519) of Selected Interest Rates in an amount which approximates (as determined by Lender) the amount (i) approximately comparable to the portion of the Loan to which the Treasury Rate applies for the Interest Period, or (ii) in the case of a prepayment, the amount prepaid and with a maturity closest to the original maturity of the installment which is prepaid in whole or in part. 5.13. Variable Interest Rate. The term "Variable Interest Rate" means a ---------------------- per annum rate equal at all times to the Prime Rate, with changes therein to be effective simultaneously with any change in the Prime Rate. 5.14. Variable Rate Advance. The term "Variable Rate Advance" means any --------------------- principal outstanding under this Note which pursuant to this Note bears interest at the Variable Interest Rate. 6. Additional Provisions Related to Interest Rate Selection. -------------------------------------------------------- 6.1 Increased Costs. If, due to any one or more of: (i) the introduction --------------- of any applicable law or regulation or any change (other than any change by way of imposition or increase of reserve requirements already referred to in the above definition of LIBOR Rate) in the interpretation or application by any authority charged with the interpretation or application thereof of any law or regulation; or (ii) the compliance with any guideline or request from any governmental central bank or other governmental authority (whether or not having the force of law), there shall be an increase in the cost to Lender of agreeing to make or making, funding or maintaining LIBOR Rate Advances, including without limitation changes which affect or would affect the amount of capital or reserves required or expected to be maintained by Lender, with respect to all or any portion of the Loan, or any corporation controlling Lender, on account thereof, then Borrower from time to time shall, upon written demand by Lender, pay Lender additional amounts sufficient to indemnify Lender against the increased cost. A certificate as to the amount of the increased cost and the reason therefor submitted to Borrower by Lender, in the absence of manifest error, shall be conclusive and binding for all purposes. 6.2. Illegality. Notwithstanding any other provision of this Note, if the ---------- introduction of or change in or in the interpretation of any law, treaty, statute, regulation or interpretation thereof shall make it unlawful, or any central bank or government authority shall assert by directive, guideline or otherwise, that it is unlawful, for Lender to make or maintain LIBOR Rate Advances at the LIBOR Interest Rate or to continue to maintain the LIBOR Rate Advances then, on written notice thereof and demand by Lender to Borrower, (a) the obligation of Lender to make LIBOR Rate Advances and to convert or continue any Loan Advances at the LIBOR Interest Rate shall terminate and (b) all principal outstanding under this Note shall bear interest at the Variable Interest Rate. 6.3. Additional LIBOR Conditions. The utilization of a LIBOR Interest --------------------------- Rate and the maintenance of Advances at such rate shall be subject to the following terms and conditions: (i) Availability. If Lender notifies Borrower that: ------------ (a) dollar deposits in the amount and for the maturity requested are not available to Lender in the London interbank market at the rate specified in the definition of LIBOR Rate set forth above, or (b) reasonable means do not exist for Lender to determine the LIBOR Rate for the amounts and maturity requested, then the principal which would have born interest at the LIBOR Interest Rate shall bear interest at the Variable Interest Rate. (ii) Payments Net of Taxes. All payments and prepayments of principal and --------------------- interest under this Note shall be made net of any taxes and costs resulting from having principal outstanding at or computed with reference to a LIBOR Rate. Without limiting the generality of the preceding obligation, illustrations of such taxes and costs are taxes, or the withholding of amounts for taxes, of any nature whatsoever including income, excise, interest equalization taxes (other than United States or state income taxes) as well as all levies, imposts, duties or fees whether now in existence or which become in effect as the result of a change in or promulgation of any treaty, statute, regulations, or interpretation thereof or any directive guideline or otherwise by a central bank or fiscal authority (whether or not having the force of law) or a change in the basis of, or the time of payment of, such taxes and other amounts resulting therefrom. 7. Acceleration; Event of Default. ------------------------------ At the option of the holder, this Note and the indebtedness evidenced hereby shall become immediately due and payable without further notice or demand, and notwithstanding any prior waiver of any breach or default, or other indulgence, upon the occurrence at any time of any one or more of the following events, each of which shall be an "Event of Default" hereunder and under the Loan Agreement and each other Loan Document: (i) default continuing uncured beyond the applicable grace period, if any, set forth in the Loan Agreement, in making any payment of interest, principal, other charges or payments due hereunder; (ii) any other Event of Default as defined in or as set forth in the Loan Agreement or any other Loan Document, each as the same may from time to time hereafter be amended; or (iii) any other event which pursuant to any express provision of the Loan Agreement, or of any other Loan Document, gives Lender the right to accelerate the Loan. 8. Certain Waivers, Consents and Agreements. ---------------------------------------- Each and every party liable hereon or for the indebtedness evidenced hereby whether as maker, endorser, guarantor, surety or otherwise hereby: (a) waives presentment, demand, protest, suretyship defenses and defenses in the nature thereof; (b) waives any defenses based upon and specifically assents to any and all extensions and postponements of the time for payment, changes in terms and conditions and all other indulgences and forbearances which may be granted by the holder to any party now or hereafter liable hereunder or for the indebtedness evidenced hereby; (c) agrees to any substitution, exchange, release, surrender or other delivery of any security or collateral now or hereafter held hereunder or in connection with the Loan Agreement, or any of the other Loan Documents, and to the addition or release of any other party or person primarily or secondarily liable; (d) agrees that if any security or collateral given to secure this Note or the indebtedness evidenced hereby or to secure any of the obligations set forth or referred to in the Loan Agreement, or any of the other Loan Documents, shall be found to be unenforceable in full or to any extent, or if Lender or any other party shall fail to duly perfect or protect such collateral, the same shall not relieve or release any party liable hereon or thereon nor vitiate any other security or collateral given for any obligations evidenced hereby or thereby; (e) agrees to pay all costs and expenses incurred by Lender or any other holder of this Note in connection with the indebtedness evidenced hereby, including, without limitation, all attorneys' fees and costs, for the implementation of the Loan, the collection of the indebtedness evidenced hereby and the enforcement of rights and remedies hereunder or under the other Loan Documents, whether or not suit is instituted; and (f) consents to all of the terms and conditions contained in this Note, the Loan Agreement, or any one or more of the other Loan Documents. 9. Delay Not A Bar. --------------- No delay or omission on the part of the holder in exercising any right hereunder or any right under any instrument or agreement now or hereafter executed in connection herewith, or any agreement or instrument which is given or may be given to secure the indebtedness evidenced hereby or by the Loan Agreement, or any other agreement now or hereafter executed in connection herewith or therewith shall operate as a waiver of any such right or of any other right of such holder, nor shall any delay, omission or waiver on any one occasion be deemed to be a bar to or waiver of the same or of any other right on any future occasion. 10. Partial Invalidity. ------------------ The invalidity or unenforceability of any provision hereof, of the Loan Agreement, of the other Loan Documents, or of any other instrument, agreement or document now or hereafter executed in connection with the Loan made pursuant hereto and thereto shall not impair or vitiate any other provision of any of such instruments, agreements and documents, all of which provisions shall be enforceable to the fullest extent now or hereafter permitted by law. 11. Compliance With Usury Laws. -------------------------- All agreements between Borrower and Lender are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to be paid to Lender for the use or the forbearance of the indebtedness evidenced hereby exceed the maximum permissible under applicable law. As used herein, the term "applicable law" shall mean the law in effect as of the date hereof, provided, however, that in the event there is a change in -------- ------- the law which results in a higher permissible rate of interest, then this Note shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of Borrower and Lender in the execution, delivery and acceptance of this Note to contract in strict compliance with the laws of the State of New Hampshire from time to time in effect. If, under or from any circumstances whatsoever, fulfillment of any provision hereof or of any of the Loan Documents or the Security Documents at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by applicable law, then the obligation to be fulfilled shall automatically be reduced to the limit of such validity, and if under or from any circumstances whatsoever Lender should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced hereby and not to the payment of interest. This provision shall control every other provision of all agreements between Borrower and Lender. 12. Use of Proceeds. --------------- All proceeds of the Loan shall be used solely for the purposes more particularly provided for and limited by the Loan Agreement. 13. Security. -------- This Note is secured by a first security interes in the Borrower's assets, a pledge of the capital stock of the Borrower (other than WPI Group, Inc.) and such other Collateral as may now or hereafter secure the Loan under the Loan Agreement and the other Loan Documents. 14. Notices. ------- Any notices given with respect to this Note shall be given in the manner provided for in the Loan Agreement. 15. Governing Law and Consent to Jurisdiction. ----------------------------------------- 15.1. Substantial Relationship. It is understood and agreed that all of ------------------------ the Loan Documents were negotiated, executed and delivered in the State of New Hampshire, which State the parties agree has a substantial relationship to the parties and to the underlying transactions embodied by the Loan Documents. 15.2. Place of Delivery. Borrower agrees to furnish to Lender at Lender's ----------------- office at 1155 Elm Street, Manchester, New Hampshire all further instruments, certifications and documents to be furnished hereunder. 15.3. Governing Law. This Note and each of the other Loan Documents shall ------------- in all respects be governed, construed, applied and enforced in accordance with the internal laws of the State of New Hampshire without regard to principles of conflicts of law. 15.4. Consent to Jurisdiction. Borrower hereby consents to personal ----------------------- jurisdiction in any state or Federal court located within the State of New Hampshire. 16. Waiver of Jury Trial. -------------------- BORROWER AND LENDER MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR LENDER TO ACCEPT THIS NOTE AND MAKE THE LOAN. 17. No Oral Change. -------------- This Note and the other Loan Documents may only be amended, terminated, extended or otherwise modified by a writing signed by the party against which enforcement is sought. In no event shall any oral agreements, promises, actions, inactions, knowledge, course of conduct, course of dealing, or the like be effective to amend, terminate, extend or otherwise modify this Note or any of the other Loan Documents. 18. Rights of the Holder. -------------------- This Note and the rights and remedies provided for herein may be enforced by Lender or any subsequent holder hereof. Wherever the context permits each reference to the term "holder" herein shall mean and refer to Lender or the then subsequent holder of this Note. 19. Replacement of Prior Term Note. ------------------------------ This Note is executed and delivered in replacement of, but not in novation or discharge of, the Promissory Note of WPI Group, Inc., WPI Electronics, Inc., WPI Magnetec, Inc., WPI Micro Palm, Inc., WPI Power Systems, Inc., WPI Termiflex, Inc., WPI Micro Processor Systems, Inc., WPI DecisionKey, Inc., WPI UK Holding, Inc., WPI UK Holding II, Inc., WPI Oyster Terminals, Inc., WPI Group (U.K.) and WPI Oyster Terminals Limited, payable to the order of the Bank in the principal amount of Fifteen Million Dollars ($15,000,000.00) dated June 20, 1997 ( the "Prior Note"). All references to the Prior Note in any Loan Document shall be deemed to refer to this Note which evidences the indebtedness previously evidenced by the Prior Note. IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed and delivered as of the date set forth above. WPI GROUP, INC., WPI POWER SYSTEMS, INC., WPI MAGNETEC, INC., WPI ELECTRONICS, INC., WPI TERMIFLEX, INC., WPI MICRO PALM, INC., WPI MICRO PROCESSOR SYSTEMS, INC., WPI DECISIONKEY, INC., WPI UK HOLDING, INC., WPI UK HOLDING II, INC., WPI OYSTER TERMINALS, INC., and WPI HUSKY COMPUTERS, INC. /s/ Elizabeth M. Fogelgren By: /s/ John W. Powers - -------------------------- -------------------------------------- Witness John W. Powers, for, on behalf of, and as Duly Authorized Officer or Agent of each of the above-named corporations EX-10.4 5 SECURITY AGREEMENT DATED DECEMBER 26, 1997 Exhibit 10.4 SECURITY AGREEMENT ------------------ SECURITY AGREEMENT (the "Agreement"), made as of this 26th day of December, 1997, by and between WPI GROUP, INC., WPI ELECTRONICS, INC., WPI MAGNETEC, INC., WPI MICRO PALM, INC., WPI POWER SYSTEMS, INC., WPI TERMIFLEX, INC., WPI MICRO PROCESSOR SYSTEMS, INC., WPI DECISIONKEY, INC., WPI UK HOLDING, INC., WPI UK HOLDING II, INC., and WPI OYSTER TERMINALS, INC., each a New Hampshire corporation, and WPI HUSKY COMPUTERS, INC., a Florida corporation, all such corporations having their principal offices at 1155 Elm Street Manchester, New Hampshire 03101 (all of the foregoing corporations are hereinafter referred to individually and collectively as the "Debtor"), and FLEET BANK - NH, a bank organized under the laws of the State of New Hampshire with an address of Mail Stop NHNA E02A, 1155 Elm Street, Manchester, New Hampshire 03101 (the "Secured Party"). WITNESSETH: ---------- WHEREAS, pursuant to an Amended and Restated Commercial Loan Agreement of even date (the "Loan Agreement") between the Secured Party and the Debtor, Secured Party has granted to Debtor (i) a certain revolving line of credit in the principal amount of up to Thirty Million Dollars ($30,000,000.00), and (ii) a certain term loan in the principal amount of Fifteen Million Dollars ($15,000,000.00) (collectively, the "Loan"), all as set forth and described in the Loan Agreement; and WHEREAS, the obligation of the Secured Party to make the Loan to the Debtor is subject to the condition, among others, that the Debtor shall execute and deliver this Agreement and grant the security interests hereinafter described. Terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement. NOW, THEREFORE, in consideration of the willingness of the Secured Party to make the Loan to the Debtor and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Security Interest. As security for the Secured Obligations described ----------------- in Section 2 hereof, Debtor hereby grants to the Secured Party a first priority security interest in and lien on all of the property and assets of each Debtor (other than real estate), including, but not limited to the property of the types described below (hereinafter referred to collectively as the "Collateral"): (a) All equipment, including machinery, motor vehicles, office equipment, furniture, fixtures, along with all other parts, tools, trade- ins, repairs, accessories, accessions, modifications, and replacements, whether now owned or subsequently acquired, constructed, or attached or added to, or placed in, the foregoing (collectively, the "Equipment"); (b) All inventory, wherever located, including goods, merchandise and other personal property, held for sale or lease or furnished or to be furnished under a contract of service, or constituting raw materials, work in process or materials used or consumed in the Debtor's business, or consigned to others or held by others for return to the Debtor, whether now owned or subsequently acquired or manufactured and wherever located (collectively, the "Inventory"); (c) All accounts receivable, including, without limitation, accounts, contracts, contract rights, chattel paper, instruments, rents, deposits, general intangibles, and any other obligations of any kind whether now existing or hereafter arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights now or hereafter existing in and to all security agreements, notes, leases, licenses, franchises, supply agreements, and other contracts securing or otherwise relating to any such accounts, contracts, contract rights, chattel paper, instruments, rents, deposits, general intangibles, or obligations (any and all such accounts, contracts, contract rights, chattel paper, instruments, rents, deposits, general intangibles, and obligations being the "Receivables", and any and all such security agreements, notes, leases, licenses, franchises, supply agreements, and other contracts being the "Related Contracts"); (d) All general intangibles, including, but not limited to, corporate names, trade names, trademarks, trade secrets, books and records, customer lists, catalogs, blue prints and plans, computer programs, tapes and related electronic data, processing software, and all corporate ledgers; (e) Any and all additions, accessions, substitutions or replacements to or for any of the foregoing; (f) Any and all products and proceeds of any or all of the foregoing, including, without limitation, cash, cash equivalents, tax refunds and the proceeds of insurance policies providing coverage against the loss or destruction of or damage to any of the Collateral, or any indemnity, warranty, or guarantee payable by reason of loss or damage to or otherwise with respect to any of the Collateral (whether or not the Secured Party is the loss payee thereof); (g) All intercompany accounts, accounts receivable and promissory notes evidencing any intercompany indebtedness, including without limitation the promissory notes and obligations listed in Exhibit 1 --------- attached hereto; (h) All of the Debtor's after-acquired property of the kinds and types described in paragraphs (a) - (g) herein; (i) All records and data relating to any of the property described above, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of the Debtor's right, title, and interest in and to all computer software required to utilize, create, maintain and process any of such records or data or electronic media; and also in (1) all checks, money, securities, bank accounts, deposit accounts, and other accounts in the possession of or held by the Secured Party whether in the name of the Debtor or in the name of the Secured Party, and (2) all other property given by the Debtor to the Secured Party pursuant to this Agreement. 2. Secured Obligations. The security interest hereby granted shall secure ------------------- the following (the "Secured Obligations"): (a) The Debtor's repayment to the Secured Party of the Loan, together with interest, late charges, and any other applicable charges thereon or respecting thereto; (b) The Debtor's payment or performance of its obligations under the Loan Agreement and under the other Loan Documents (as defined, described and identified in the Loan Agreement, hereinafter the "Loan Documents"), as the same may be amended, modified, extended, renewed, replaced or restated; (c) The payment of all other sums with interest and charges thereon advanced in accordance herewith to protect the validity, security, and priority of this Agreement, the Loan Agreement, or the Loan Documents; and (d) Any and all other obligations of Debtor to Secured Party of every kind and description, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, including without limitation increases in any of such Secured Obligations. 3. Warranties and Representations of the Debtor. Debtor hereby makes the -------------------------------------------- following representations and warranties which shall survive the execution and delivery of this Agreement and shall be continuing representations and warranties as long as any Secured Obligation remains outstanding: (a) All representations and warranties made in the Loan Agreement and the Loan Documents relating to the Debtor and the Collateral are true, accurate and complete in all material respects; (b) The Debtor's principal place of business is located at the address first set forth above, except as such address may be changed upon prior written notice to the Secured Party; the Debtor's executive offices and the office where its books and records are kept and are to be kept concerning the Inventory, Receivables, Related Contracts and other Collateral are at the same address; and the Debtor has no other places of business except for manufacturing, sales and service facilities, and warehouses at the locations listed on Schedule I hereto; ---------- (c) No material authorization, approval or other action by, and no notice to or filing with, any governmental authority or other person is required either (i) for the grant by the Debtor of the security interests granted hereby or for the execution, delivery or performance of this Agreement by the Debtor, or (ii) for the perfection of or the exercise by the Secured Party of its respective rights and remedies hereunder, except the filing of financing statements; (d) The Debtor has good and marketable title to all of the Collateral pledged by it hereunder, free and clear of any liens, security interests, encumbrances or interests or claims of any other person or entity, except those set forth on Schedule II ----------- hereto (the "Permitted Encumbrances"), and there are no sums owed with respect to the Collateral other than as disclosed on the Debtor's financial statements delivered to the Secured Party and other than trade payables incurred in the ordinary course of business since the date of such financial statements; (e) Upon the filing of UCC-1 financing statements being delivered at or prior to the execution hereof, the Secured Party will have a valid, perfected first security interest in all of the Collateral which may be perfected by filing of financing statements, subject to the Permitted Encumbrances; (f) The Debtor has not performed any acts which might prevent the Secured Party from enforcing any of the material terms and conditions of this Agreement or which would limit any of them in any such enforcement; (g) Schedule III attached hereto sets forth the description and ------------ location of all Collateral not located at the Debtor's principal place of business, together with a list of the record owners of the real estate on which any Collateral constituting fixtures is located; and (h) No effective financing statements or other similar instrument in effect covering all or any part of the Collateral is on file in any recording office, except as may have been filed in favor of Secured Party relating to this Agreement and as filed to perfect the Permitted Encumbrances. 4. Affirmative Covenants of the Debtor. ----------------------------------- (a) The Debtor shall promptly notify and provide the Secured Party with a complete description of the opening of any new places of business, the closing of any existing places of business, the conduct of business under any names or through any entities other than those set forth herein, the relocation of any of the Collateral to any new place of business or any other act which would affect the financing statements filed by the Secured Party; (b) The Debtor shall continuously take all steps that are necessary or prudent to protect the security interests of the Secured Party in the Collateral; (c) The Debtor shall defend the Collateral against the claims and demands of all persons; (d) The Debtor shall deliver and pledge to the Secured Party, endorsed or accompanied by instruments of assignment or transfer satisfactory to the Secured Party, any instruments, documents, and chattel paper which the Secured Party may reasonably specify, including without limitation the promissory notes identified in Exhibit 1 attached hereto; --------- (e) The Debtor shall comply, in all material respects, with all governmental regulations applicable to the Collateral or any part thereof or to the operation of the Debtor's business; provided, however, that the Debtor may contest any governmental regulation in any reasonable manner which shall not in the reasonable opinion of the Secured Party adversely affect the Secured Party's rights or the first priority of its security interest in the Collateral; (f) The Debtor shall pay promptly when due, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of its income or profits therefrom, as well as all claims of any kind, except that no such charge need be paid if (i) the validity thereof is being contested in good faith by appropriate proceedings, (ii) such proceedings do not involve any danger of the sale, forfeiture or loss of any of the Collateral or any interest therein; and (iii) such charge is adequately reserved against in accordance with the generally accepted accounting principles; (g) The Debtor shall cause the Equipment to be maintained and preserved in good working order, and shall make all repairs, replacements, additions, and other improvements necessary to maintain the Equipment in such condition; (h) The Debtor shall exercise its best efforts to preserve all beneficial Related Contracts; (i) The Debtor shall take all commercially reasonable steps necessary to collect the Receivables; (j) The Debtor shall use its best efforts to assure that (i) no Receivable is or shall be subject to any defense, offset, counterclaim, or discounts or allowances other than such as customarily arise in the ordinary course of Debtor's business, (ii) all statements made and all unpaid balances appearing in the invoices, documents, agreements relating to each Receivable are and shall be true, genuine, and correct in all respects, and (iv) no Receivable shall be converted to a note or other instrument in face amount of $20,000 US or more, or when aggregated with the unpaid balances of similar notes or instruments exceeds $100,000, unless the same shall be delivered to the possession of the Secured Party within ten (10) days of the date of execution of such note or instrument; (k) The Debtor shall, with respect to any Collateral which consists of trucks, automobiles, or other motor vehicles, or any other Collateral required to be titled, deliver all titles thereto to the Secured Party to be held by the Secured Party and Debtor shall make, execute, and deliver any and all applications, and take such other action to assure that the Secured Party is listed of record as the first priority and sole lienholder on all title certificates; (l) Debtor shall keep accurate and complete records listing and describing the Collateral. Secured Party shall have the right at any time to inspect the Collateral and to audit and make copies of any records or other writings which relate to the Collateral or the general financial condition of Debtor. Secured Party may remove such records and writings for the purpose of having copies made thereof; (m) The Debtor shall advise the Secured Party promptly, in reasonable detail, (i) of any lien, security interest, encumbrance, or claim made or asserted against any of the Collateral, (ii) of any material change, substantial loss or depreciation in the composition of the Collateral, and (iii) of the occurrence of any other material adverse effect on the aggregate value, enforceability or collectibility of the Collateral or on the security interests created hereunder; (n) The Debtor shall give, execute, deliver and file or record in the proper governmental offices, any instrument, paper or document, including, but not limited to, one or more financing statements under the Uniform Commercial Code, reasonably satisfactory to the Secured Party, or take any action which the Secured Party may deem necessary or desirable in order to create, preserve, perfect, extend, continue, modify, terminate or otherwise effect any security interest granted pursuant hereto, or to enable the Secured Party to exercise or enforce any of its rights hereunder; and (o) The Debtor shall keep, and stamp or otherwise mark, any of its documents, instruments and chattel paper and its books and records relating to any of the Collateral in such manner as the Secured Party may reasonably require. 5. Negative Covenants of the Debtor. Except as otherwise provided in the -------------------------------- Loan Agreement, including without limitation the provisions of Section VII(G) of the Loan Agreement respecting Permitted Divestitures, or in this Agreement, without the prior written consent of the Secured Party, the Debtor shall not: (a) Transfer, sell or assign any of the Collateral other than Inventory in the ordinary course of business and Equipment which has become obsolete or is surplus or is being replaced; (b) Allow or permit any other security interest or lien to attach to any of the Collateral; (c) File, authorize, or permit to be filed in any jurisdiction any financing statement relating to any of the Collateral unless the Secured Party is named as sole secured party; (d) Permit any of the Collateral to be levied upon under any legal process; (e) Permit anything to be done that may materially impair the value of any of the Collateral or the security therein intended to be afforded hereby; or (f) Use the Collateral in violation of any law or in any manner inconsistent with any policy of insurance thereon. 6. Fixtures. It is the intention of the parties hereto that none of the -------- Collateral shall become fixtures. Without limiting the generality of the foregoing, the Debtor will, if requested by the Secured Party, use reasonable efforts to obtain waivers of lien, in form satisfactory to the Secured Party, from each mortgagee or lessor of real property (other than the Secured Party) on which any fixtures included in the Collateral is or is to be located. 7. Insurance. Debtor shall, at its own expense, maintain insurance --------- covering the Collateral against such risks, with such insurers, in such form, and in such amounts as acceptable to Secured Party, but in any event, in such amounts and with such coverage as is customary in Debtor's type of business. All insurance policies shall be written so as to be payable in the event of loss to Secured Party as lender loss payee and shall provide for thirty (30) days' written notice to Secured Party of cancellation or modification. At the request of Secured Party, all insurance policies shall be furnished to and held by Secured Party. Debtor hereby collaterally assigns to Secured Party return premiums, dividends and other amounts which may be or become due upon cancellation of any such policies for any reason whatsoever and directs the insurers to pay Secured Party any sums so due. Secured Party is hereby appointed as attorney irrevocable to collect return premiums, dividends and other amounts due on any insurance policy and the proceeds of such insurance, to settle any claims with the insurers in the event of loss or damage, to endorse settlement drafts, and to cancel, assign, or surrender any insurance policies, provided that Secured Party shall only exercise the foregoing powers upon the occurrence of an Event of Default (as defined hereinbelow). If, while any Secured Obligations are outstanding, and so long as no Event of Default exists, any return premiums, dividends, other amounts or proceeds are paid to Secured Party under such policies, Secured Party shall pay over such return premiums, dividends, other amounts and proceeds in whole or in part to Debtor for the purpose of repairing or replacing the Collateral destroyed or damaged, any return premiums, dividends, other amounts and proceeds so paid over by Secured Party to be secured by this Agreement. If an Event of Default exists, then the Secured Party may apply such return premiums, dividends, other amounts and proceeds in whole or in part to the payment or satisfaction of any of the Secured Obligations in whatever order Secured Party determines. 8. Receivables. After the occurrence of an Event of Default, Debtor agrees ----------- that Secured Party may a) communicate with account debtors in order to verify the existence, amount, and terms of any Receivables, and b) notify account debtors of the security interests established herein and require that payments on Receivables be made directly to Secured Party, and upon the request of Secured Party, Debtor shall notify account debtors and indicate on all billings that payments and returns are to be made directly to Secured Party. In furtherance of the foregoing, Debtor hereby appoints Secured Party attorney irrevocable with full power to collect, compromise, endorse, sell, or otherwise deal with the Receivables or proceeds thereof and to perform the terms of any contract in order to create Receivables in Secured Party's name or in the name of Debtor, provided that Secured Party shall only exercise such power following the occurrence of an Event of Default. This Agreement may be, but need not be, supplemented by separate assignments of Receivables and contract rights and, if such assignments are given, the rights and security interests given thereby shall be in addition to and not in limitation of the rights and security interests granted by this Agreement. 9. Events of Default. The following events shall be deemed "Events of ----------------- Default" hereunder: (a) The occurrence of an Event of Default under the Loan Agreement or any of the Loan Documents; (b) Debtor fails to observe or perform any covenant, warranty, or agreement required to be observed or performed by it under this Agreement which is not cured within thirty (30) days after notice from Secured Party; or (c) Uninsured loss, theft, damage, or destruction of any substantial portion of any of the Collateral which has a material adverse effect on the ability of the Debtor to make payments of its Secured Obligations or on the adequacy of the Collateral as security for the Secured Obligations. 10. Rights and Remedies of Secured Party on Default. Upon the occurrence ----------------------------------------------- of any Event of Default, Secured Party shall have, by way of example and not of limitation, the following rights and remedies: (a) Secured Party may declare the Secured Obligations, or any of them, to be immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; (b) In addition to all other rights and remedies contained in this Agreement, the Loan Agreement, and in the Loan Documents, Secured Party may exercise the rights and remedies accorded Secured Party by the Uniform Commercial Code or by any other applicable law, all of which rights and remedies shall be cumulative and non-exclusive to the extent permitted by law; (c) Secured Party shall have the right to enter and/or remain upon the Premises of Debtor, or any other place or places where any of the Collateral is located and kept, without any obligation to pay rent to Debtor or others, and remove Collateral therefrom to the premises of the Secured Party or any agent of Secured Party for such time as Secured Party may desire in order to maintain, collect, sell and/or prepare the Collateral for sale, liquidation or collection; (d) Secured Party may require the Debtor at Debtor's cost to assemble the Collateral and make it available to Secured Party at a place designated by Secured Party; (e) Secured Party may take possession of and use and operate the Collateral in the manner and for the purposes as set forth in Section 11 hereinbelow; (f) Secured Party may sell, lease, or otherwise dispose of the Collateral as set forth in Section 12 hereinbelow; (g) Secured Party shall have the right to set-off, without notice to the Debtor, any and all deposits or other sums at any time or times credited or due from Secured Party to Debtor, whether in a special account or other account or represented by a certificate of deposit (whether or not matured); which deposit and other sums shall at all times constitute additional security for the Secured Obligations; (h) Secured Party may perform any warranty, covenant or agreement which Debtor has failed to perform under this Agreement; and (i) Secured Party may take any other action which Secured Party deems necessary or desirable to protect the Collateral or the security interests granted herein. 11. Rights of Secured Party to Use and Operate Collateral. Upon the ----------------------------------------------------- occurrence of any Event of Default, but subject to the provisions of the Uniform Commercial Code or other applicable law, the Secured Party shall have the right and power to take possession of all or any part of the Collateral, and to exclude the Debtor and all persons claiming under the Debtor wholly or partly therefrom, and thereafter to hold, store, and/or use, operate, manage and control the same. Upon any such taking of possession, the Secured Party may, from time to time, at the expense of the Debtor, make all such repairs, replacements, alterations, additions and improvements to and of the Collateral as the Secured Party may reasonably deem proper. In any such case, subject as aforesaid, the Secured Party shall have the right to manage and control the Collateral and to carry on the business and to exercise all rights and powers of the Debtor in respect thereto as the Secured Party shall deem best, including the right to enter into any and all such agreements with respect to the leasing and/or operation of the Collateral or any part thereof as the Secured Party may see fit; and the Secured Party shall be entitled to collect and receive all rents, issues, profits, fees, revenues and other income of the same and every part thereof. Such rents, issues, profits, fees, revenues and other income shall be applied to pay the expenses of holding and operating the Collateral and of conducting the business thereof, and of all maintenance, repairs, replacements, alterations, additions, and improvements, and to make all payments which the Secured Party may be required or may elect to make, if any, for taxes, assessments, insurance and other charges upon the Collateral or any part thereof, and all other payments which the Secured Party may be required or authorized to make under any provision of this Agreement (including reasonable legal costs and attorneys' fees). The remainder of such rents, issues, profits, fees, revenues and other income shall be applied to the payment of the Secured Obligations in such order of priority as the Secured Party may determine in its sole discretion and any surplus shall be returned to the Debtor. Without limiting the generality of the foregoing, the Secured Party shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken by the Secured Party to enforce its rights and remedies hereunder in order to manage, protect and preserve the Collateral and continue the operation of the business of the Debtor and to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership including the compensation of the receiver and to the payment of the Secured Obligations as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated. 12. Rights of Secured Party to Sell Collateral. Upon ten (10) days prior ------------------------------------------ written notice by registered or certified mail by Secured Party to Debtor at the address of the Debtor set forth above (or at such other address or addresses as the Debtor shall specify in writing by like notice to the Secured Party) of the time and place of any intended disposition of Collateral, and following the occurrence of an Event of Default, then Secured Party shall have the right and power to sell, assign, lease, or otherwise dispose of the Collateral from any business premises of the Debtor, either at public auction or private sale, by liquidation sale or other disposition, or as if the sale was being made in the ordinary course of Debtor's business, with or without notice to the public that the said sale or disposition is for the benefit of the Secured Party; provided, however, that if the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, then Secured Party shall have the right and power to dispose of the Collateral without prior notice to Debtor and Debtor expressly waives any rights to notice under such circumstances. The notices described above shall be deemed to meet any requirement hereunder or under any applicable law (including the Uniform Commercial Code) that reasonable notification be given of the time and place of such sale or other disposition. After deducting all costs and expenses of collection, storage, custody, sale or other disposition and delivery (including reasonable legal costs and attorneys' fees) and all other charges against the Collateral, the residue of the proceeds of any such sale or disposition shall be applied to the payment of the Secured Obligations in such order of priority as the Secured Party may determine in its sole discretion and any surplus shall be returned to the Debtor. In the event the proceeds of any sale, lease or other disposition of the Collateral hereunder are insufficient to pay all of the Secured Obligations in full, the Debtor will be liable for the deficiency, together with interest thereon at the maximum rate provided in the Loan Agreement and the cost and expenses of collection of such deficiency, including, without limitation, reasonable fees of attorneys, experts, and agents, expenses and disbursements. 13. Attorney-in-Fact. The Secured Party is hereby appointed the attorney- ---------------- in-fact, with full power of substitution, of the Debtor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instruments (including, without limitation, financing or continuation statements, conveyances, assignments, and transfers) which the Secured Party may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is coupled with an interest and is irrevocable, provided the Secured Party shall only exercise the power granted herein following the occurrence of an Event of Default. 14. Waiver, etc. The Debtor hereby waives presentment, demand, notice, ----------- protest and, except as is otherwise provided herein, all other demands and notices in connection with this Agreement or the enforcement of the Secured Party's rights hereunder or in connection with any Secured Obligations or any Collateral. The Debtor further consents to and waives notice of the granting of renewals, extensions of time for payment or other indulgences to the Debtor or to any account debtor in respect of any Receivable, substitution, release or surrender of any Collateral, addition or release of persons primarily or secondarily liable on any Secured Obligation or on any Receivable or other Collateral, or the acceptance of partial payments on any Secured Obligation or on any account receivable or other Collateral and/or the settlement or compromise thereof. No delay or omission on the part of the Secured Party in exercising any right hereunder shall operate as a waiver of such right or of any other right hereunder. Any waiver of any such right on any one occasion shall not be construed as a bar to or waiver of any such right on any such future occasion. 15. Termination; Assignments, etc. This Agreement and the security ------------------------------ interest in the Collateral created hereby shall terminate when all of the Secured Obligations have been paid, performed, and finally discharged in full. In the event of a sale or assignment by the Secured Party of all or any of the Secured Obligations held by it, such Secured Party may assign or transfer its rights and interests under this Agreement in whole or in part to the purchaser or purchasers of such Secured Obligations, whereupon such purchaser or purchasers shall become vested with all of the powers and rights of such Secured Party hereunder, and such Secured Party shall thereafter be forever released and fully discharged from any liability or responsibility hereunder, with respect to the rights and interests so assigned. 16. Notices. All notices, requests, demands and other communications ------- provided for hereunder shall be in writing (including telegraphic communication) and shall be either mailed by certified mail, return receipt requested, or delivered by overnight courier service, to the applicable party at the addresses first set forth above, or, as to each party, at such other address as shall be designated by such parties in a written notice to the other party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communication shall be effective on the date of first attempted delivery. 17. Miscellaneous. ------------- (a) The powers conferred on the Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for monies actually received by it hereunder, the Secured Party shall not have any duty as to any Collateral or as to the taking of any necessary steps to preserve any right of it or of the Debtor against other parties pertaining to any Collateral; (b) No provision hereof shall be amended except by a writing signed by the Secured Party and the Debtor; (c) Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof; (d) This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the Secured Party and the Debtor; (e) No delay, failure to enforce, or single or partial exercise on the part of the Secured Party in connection with any of its rights hereunder shall constitute an estoppel or waiver thereof, or preclude other or further exercises or enforcement thereof and no waiver of any default hereunder shall be a waiver of any subsequent default; (f) This Agreement shall be governed as to its validity, interpretation and effect in accordance with the laws of the State of New Hampshire, except to the extent the laws of other states in which the Collateral may be located apply as to perfection of security interests in such Collateral and realization of the proceeds of such Collateral; (g) As used herein, the term "Uniform Commercial Code" shall mean the Uniform Commercial Code as adopted by the State of New Hampshire, except that with respect to issues of perfection of security interests in Collateral located in other jurisdictions and realization of the proceeds of such Collateral while located in such jurisdiction it shall mean the Uniform Commercial Code as adopted by the jurisdiction in which such Collateral is located; and (h) DEBTOR AND SECURED PARTY MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO ENTER INTO THIS AGREEMENT AND MAKE THE LOAN. IN WITNESS WHEREOF, the Debtor and the Secured Party have executed and delivered this Agreement as of the day and year first above written. DEBTOR ------ WPI GROUP, INC., WPI POWER SYSTEMS, INC., WPI MAGNETEC, INC., WPI ELECTRONICS, INC., WPI TERMIFLEX, INC., WPI MICRO PALM, INC., WPI MICRO PROCESSOR SYSTEMS, INC., WPI DECISIONKEY, INC., WPI UK HOLDING, INC., WPI UK HOLDING II, INC., WPI OYSTER TERMINALS, INC., and WPI HUSKY COMPUTERS, INC. /s/ Elizabeth M. Fogelgren By: /s/ John W. Powers - -------------------------- ----------------------------------------- Witness John W. Powers, for, on behalf of, and as Duly Authorized Officer or Agent of each of the above-named corporations SECURED PARTY ------------- FLEET BANK - N H /s/ Curtis W. Little, Jr. By: /s/ Elizabeth M. Fogelgren - ------------------------- ------------------------------- Witness Elizabeth M. Fogelgren Assistant Vice President SECURITY AGREEMENT SCHEDULE I ---------- List of Other Business Locations -------------------------------- SECURITY AGREEMENT SCHEDULE II ----------- List of Other Liens and Encumbrances, etc. ------------------------------------------ SECURITY AGREEMENT SCHEDULE III ------------ Other Collateral Location ------------------------- EX-10.5 6 NEGATIVE PLEDGE AGREEMENT DATED DEC. 26, 1997 Exhibit 10.5 NEGATIVE PLEDGE AGREEMENT ------------------------- NEGATIVE PLEDGE AGREEMENT (the "Agreement"), made as of this 26th day of December, 1997, by and between WPI GROUP, INC., WPI UK HOLDING, INC., WPI UK HOLDING II, INC., each a New Hampshire corporation with executive offices at 1155 Elm Street, Manchester, New Hampshire 03101 (individually and collectively, the "Pledgor"), and FLEET BANK - NH, a bank organized under the laws of the State of New Hampshire with a principal place of business at 1155 Elm Street, Manchester, New Hampshire 03101(the "Bank"). WITNESSETH: ---------- WHEREAS, pursuant to an Amended and Restated Commercial Loan Agreement of even date (the "Loan Agreement"), Bank has granted to Pledgor and its Domestic Subsidiaries (defined below) a revolving line of credit loan in the principal amount of up to Thirty Million Dollars ($30,000,000.00) and a term loan in the principal amount of Fifteen Million Dollars ($15,000,000.00) (collectively, the "Loan"), all as set forth and described in the Loan Agreement; and WHEREAS, the Pledgor owns all of the capital stock of WPI Group (U.K.), an unlimited company organized under the laws of the United Kingdom and Wales, which owns all of the capital stock of WPI Oyster-Termiflex Limited and WPI Husky Computers Limited, corporations organized under the laws of the United Kingdom (the foregoing entities are collectively referred to herein as the "Foreign Subsidiaries"); WHEREAS, pursuant to a Security Agreement of even date (the "Security Agreement"), Pledgor and the other subsidiaries of WPI Group, Inc., namely WPI Electronics, Inc., WPI Magnetec, Inc., WPI Micro Palm, Inc., WPI Power Systems, Inc., WPI Termiflex, Inc., WPI Micro Processor Systems, Inc., and WPI DecisionKey, Inc., and WPI Oyster Terminals, Inc., each a New Hampshire corporation, and WPI Husky Computers, Inc., a Florida corporation, (collectively, the "Domestic Subsidiaries") have granted to Bank a security interest in all of the assets and properties of the Pledgor and the Domestic Subsidiaries; and WHEREAS, the Bank has agreed that for the convenience of the Pledgor's business operations, the Bank shall not require that the Foreign Subsidiaries be co-borrower's or guarantors of the Loan, or grant a security interest in their assets, provided that the Pledgor shall execute and deliver this Agreement agreeing not to authorize or consent to the transfer or pledge of any of the assets of the Foreign Subsidiaries. Terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement. NOW, THEREFORE, in consideration of the willingness of the Bank to make the Loan to Pledgor and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Warranties and Representations of the Pledgor. Pledgor hereby makes --------------------------------------------- the following representations and warranties which shall survive the execution and delivery of this Agreement and shall be continuing representations and warranties: (a) The Foreign Subsidiaries are wholly-owned subsidiaries of Pledgor; (b) The Foreign Subsidiaries own their assets free and clear of any leases, liens, security interests, encumbrances or interests or claims of any other person or entity, except as set forth on the attached Schedule A; ---------- (c) To the best of Pledgor's knowledge, after due inquiry, the Pledgor has not performed any acts which might prevent the Bank from enforcing any of the material terms and conditions of this Agreement or which would limit the enforceability of this Agreement; and (d) Each of the Foreign Subsidiaries is duly organized, validly existing, and in good standing under the laws of the jurisdiction it was incorporated or otherwise formed; has the power to own its properties and to carry on its business as now being conducted; and has the power to own its properties and to carry on its business as now being conducted. 2. Covenants of the Pledgor. ------------------------ (a) Subject to the provisions of Section VII(G) of the Loan Agreement respecting Permitted Divestitures, the Pledgor shall not without the Bank's prior written consent, which may be granted or withheld in the Bank's sole discretion, directly or indirectly authorize, consent to or permit the transfer, sale, assignment, pledge, encumbrance or other conveyance of any of the assets or other property interests of the Foreign Subsidiaries, or the granting of a security interest in any such assets other than sales in the ordinary course of business or sales of equipment in any fiscal year not having an aggregate value in excess of 100,000 English pounds sterling, it being understood that any such consent or authorization by any officer or director of the Pledgor who serves as a director or officer of a Foreign Subsidiary shall constitute the consent or authorization of Pledgor for purposes of the covenants contained in this Section 2; (b) The Pledgor shall not permit any of the assets of the Foreign Subsidiaries to be levied upon, attached or otherwise encumbered through legal process, and if so levied upon, attached or otherwise encumbered shall cause such levy, attachment or other encumbrance to be removed within thirty (30) days of levy, attachment or other encumbrance; and (c) The Pledgor shall not directly or indirectly authorize, consent to or permit any of the Foreign Subsidiaries to provide any covenant to, or enter into any agreement with, any third party identical to, substantially similar to, or of the general nature of the covenant provided by the BORROWER to the BANK in subsection (a) above. 3. Miscellaneous. ------------- (a) No provision hereof shall be amended except by a writing signed by the Bank and the Pledgor; (b) Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof; (c) This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the Bank and the Pledgor; (d) No delay, failure to enforce, or single or partial exercise on the part of the Bank in connection with any of its rights hereunder shall constitute an estoppel or waiver thereof, or preclude other or further exercises or enforcement thereof and no waiver of any default hereunder shall be a waiver of any subsequent default; (e) This Agreement shall be governed as to its validity, interpretation and effect in accordance with the laws of the State of New Hampshire; and (f) PLEDGOR AND BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO ENTER INTO THIS AGREEMENT AND MAKE THE LOAN. IN WITNESS WHEREOF, the Pledgor and the Bank have executed and delivered this Agreement all as of the day and year first above written. PLEDGOR ------- WPI GROUP, INC. WPI UK HOLDING, INC., WPI UK HOLDING II, INC., /s/ Elizabeth M. Fogelgren /s/ Michael Tule By: /s/ John W. Powers - ------------------------------ --------------------------------- Witness John W. Powers, for, on behalf of, and as Duly Authorized Officer or Agent of each of the above-named corporations BANK ---- FLEET BANK N-H /s/ Curtis W. Little, Jr. By: /s/ Elizabeth M. Fogelgren - ------------------------------ --------------------------------- Witness Elizabeth M. Fogelgren Assistant Vice President NEGATIVE PLEDGE AGREEMENT SCHEDULE A ---------- List of Permitted Encumbrances ------------------------------ EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS OF WPI GROUP, INC., FOR THE THREE MONTHS ENDED DECEMBER 28, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS SEP-27-1998 SEP-29-1997 DEC-28-1997 53,032 0 17,523,375 1,215,000 9,915,653 30,226,446 18,995,511 3,347,936 80,664,506 10,819,002 0 0 0 60,108 23,191,915 80,664,506 21,843,614 21,843,614 13,044,671 13,044,671 6,601,077 0 857,220 1,340,646 429,000 911,646 0 0 0 911,646 .15 .15
-----END PRIVACY-ENHANCED MESSAGE-----