^{"Frisby Technologieshas recieved a notice of default from 2 of its securied creditors.DAMAD Holdings AG & Bluwat AG have notified the company that isit in default of the tangible net worth covenant contained in itsrespective loan agreements with the lenders. The covenant requiresthe company to maintain a tangible net worth of not less than$1,250,000 as of the end of each fiscal quarter. A similar covenantis contained in the company loan agreements with its other securedlenders, MUSI Investments S.A. & Fin-part International S.A. Asof Sep 30, 2002, the company's tangible net worth, calculated asprovided in the respective loan agreements was a negative,-$663,402}

^{Under the terms of the DAMAD & Bluwat loanagreements, the company has until Dec 18 to cure the defaults orsuch longer period as it is diligently prosecuting a cure to thereasonable satisfaction of the lenders. The company does notcurrently expect that it will be able to cure the defaultwithin the prescribed cure period.}

^{If the default is not cured prioer to the end of thecure period, then (i) the entire unpaid balance owed to thelenders, $1.25million plus accrued interest, would become due &payables; (ii) the interest, to the extent permitted by law, couldbe interested by either or both lenders up to the maxiumum rateallowed by law, (iii) any accrued & unpaid interest, fees orcharges could be deemed by either or both lenders to be a part ofthe principal balance, with interest to accrue on a dailycompounded basis until the entire outstanding principal and accruedinterest is paid in full, (iv) either or both lenders couldforeclose on its security interest in substantially all of thecompany's assets; and (v) each lender would have all rightsavailable to it at law or in equity.}

^{In addition, repayment of the loans issecured by a limited gurantee by COB/CEO Gregory Frisby of up to1/3 of the total amount outstanding under theloans.}

^{The company has requested waiver of compliance ofthe tangible net worth covenant from each of the lenders, but nosuch waiver has been granted. The company will continue to pursue awaiver or otherwise to seek to negotiate a forbearance agreement orother satisfactory resolution with the lenders. If the company isunsuccessful, it may voluntarily seek protection from its creditorsunder federal bankruptcy laws, which would have a material adverseeffect on the firm's business, financial conditions &prospects."}

^{Excerpt: Default of Credit Agreement Adds toFrisby's Woes}

^{1. What is a min. tangible networth covenant, & what purpose does it serve in this company'sloan agreement?}

^{2. Why migh lenders be reluctantto wavie Frisby's covenant violation?}

^{3. Among the options available toFrisby's lenders is foreclosure:s shutting the company and sellingoff all assets. Why might lenders prefer to avoid thisaction?}