Exhibit 10.41
LOAN AGREEMENT
BETWEEN
KOPIN CORPORATION
AND
THE SUMITOMO BANK, LIMITED
FEBRUARY 27, 1998
TABLE OF CONTENTS
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ARTICLE I.
DEFINITIONS 1
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SECTION 1.1 DEFINITIONAL PROVISIONS. 1
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ARTICLE II.
LOAN1
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SECTION 2.1 TERM NOTE. 1
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SECTION 2.2 USE OF PROCEEDS. 3
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SECTION 2.3 PAYMENTS. 3
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SECTION 2.4 PREPAYMENTS. 4
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SECTION 2.5 INDEMNIFICATION; INCREASED COSTS. 4
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SECTION 2.6 INVESTMENT ACCOUNT AND CUSTODIAN ACCOUNT. 5
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SECTION 2.7 CHANGE IN LEGALITY. 5
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES 6
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SECTION 3.1 ORGANIZATION 6
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SECTION 3.2 POWER, AUTHORITY, CONSENTS 6
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SECTION 3.3 NO VIOLATION OF LAW OR AGREEMENTS 7
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SECTION 3.4 DUE EXECUTION, VALIDITY, ENFORCEABILITY 7
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SECTION 3.5 JUDGMENTS, ACTIONS, PROCEEDINGS 7
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SECTION 3.6 NO DEFAULTS, COMPLIANCE WITH LAWS 7
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SECTION 3.7 NO MATERIALLY ADVERSE CONTRACTS, ETC. 7
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SECTION 3.8 FINANCIAL STATEMENTS. 7
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SECTION 3.9 TITLE TO PROPERTIES; LEASES 8
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SECTION 3.10 PRIORITY OF LIENS 8
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SECTION 3.11 PATENTS, COPYRIGHTS, LICENSES, ETC 8
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SECTION 3.12 TAX RETURNS 8
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SECTION 3.13 REGULATION U; MARGIN STOCK 8
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SECTION 3.14 FULL DISCLOSURE 9
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SECTION 3.15 ERISA 9
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SECTION 3.16 ENVIRONMENTAL COMPLIANCE 9
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SECTION 3.17 OTHER REGULATIONS 10
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SECTION 3.18 COMPLIANCE WITH SECURITIES LAWS 10
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SECTION 3.19 SOLVENCY 10
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SECTION 3.20 SUBSIDIARIES OR AFFILIATES. 10
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SECTION 3.21 PENDING LITIGATION 10
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SECTION 3.22 COMPLIANCE OF INVESTMENT POLICY 10
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ARTICLE IV.
CONDITIONS PRECEDENT 11
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SECTION 4.1 CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
AGREEMENT. 11
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ARTICLE V.
AFFIRMATIVE COVENANTS 12
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SECTION 5.1 BOOKS AND RECORDS 12
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SECTION 5.2 INSPECTIONS AND AUDITS 12
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SECTION 5.3 PERFORM OBLIGATIONS 13
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SECTION 5.4 FEES AND EXPENSES 13
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SECTION 5.5 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS 13
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SECTION 5.6 INSURANCE 13
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SECTION 5.7 CERTAIN TAXES 14
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SECTION 5.8 USE OF PROCEEDS 14
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SECTION 5.9 FURTHER ASSURANCES WITH RESPECT TO ACCOUNTS 14
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SECTION 5.10 FINANCIAL COVENANTS 14
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SECTION 5.11 DEPOSITS INTO CUSTODIAN ACCOUNT 14
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SECTION 5.12 INVESTMENT POLICY. 15
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ARTICLE VI.
DELIVERY OF FINANCIAL REPORTS,DOCUMENTS AND OTHER INFORMATION 15
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SECTION 6.1 ANNUAL FINANCIAL STATEMENTS 15
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SECTION 6.2 QUARTERLY FINANCIAL STATEMENTS 15
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SECTION 6.3 10Q AND 10K FILINGS 15
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SECTION 6.4 CASH AND COVENANT REPORTS 15
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SECTION 6.5 BUDGET; OTHER INFORMATION 16
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SECTION 6.6 NO DEFAULT CERTIFICATE 16
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SECTION 6.7 NOTICES. 16
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ARTICLE VII.
NEGATIVE COVENANTS 17
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SECTION 7.1 LIENS 17
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SECTION 7.2 CHANGES IN BUSINESS; MERGER OR CONSOLIDATION; DISPOSITION
OF ASSETS 18
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SECTION 7.3 CHANGE OF OFFICE ADDRESS 18
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SECTION 7.4 VIOLATION OF AGREEMENT. 18
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ARTICLE VIII.
EVENTS OF DEFAULT 18
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SECTION 8.1 EVENTS OF DEFAULT 18
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ARTICLE IX.
MISCELLANEOUS PROVISIONS 20
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SECTION 9.1 INDEMNITY; ADDITIONAL FEES 20
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SECTION 9.2 SURVIVAL OF AGREEMENTS AND REPRESENTATIONS 20
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SECTION 9.3 MODIFICATIONS, CONSENTS AND WAIVERS 20
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SECTION 9.4 ENTIRE AGREEMENT 20
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SECTION 9.5 REMEDIES CUMULATIVE 20
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SECTION 9.6 FURTHER ASSURANCES 21
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SECTION 9.7 NOTICES 21
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SECTION 9.8 CONSTRUCTION; GOVERNING LAW 22
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SECTION 9.9 WAIVER OF JURY TRIAL 22
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SECTION 9.10 JURISDICTION 22
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SECTION 9.11 RELATIONSHIP OF THE BORROWER AND THE BANK 22
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SECTION 9.12 CONFIDENTIALITY 23
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SECTION 9.13 SEVERABILITY 23
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SECTION 9.14 BINDING EFFECT; ASSIGNMENT 23
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SECTION 9.15 COUNTERPARTS. 24
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APPENDIX A TO LOAN AGREEMENT -- DEFINITIONS 1
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LOAN AGREEMENT
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THIS LOAN AGREEMENT (the "Agreement") is made as of February 27, 1998 by and
between KOPIN CORPORATION, a Delaware corporation ("Kopin" or the "Borrower"),
and THE SUMITOMO BANK, LIMITED, a Japanese banking corporation (the "Bank").
The Borrower and the Bank hereby agree as follows:
ARTICLE I.
DEFINITIONS
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SECTION 1.1 DEFINITIONAL PROVISIONS.
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(a) Capitalized terms used in this Agreement and defined in Appendix A hereto,
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which Appendix A is attached to this Agreement and by this reference made a
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part hereof, shall have the respective meanings specified in such Appendix
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A.
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(b) All terms defined in Appendix A shall have such defined meanings when used
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in any certificate or any other document made or delivered pursuant to this
Agreement unless otherwise defined in such other document or certificate.
(c) All accounting terms not specifically defined in this Agreement or in
Appendix A hereto shall be construed in accordance with generally accepted
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accounting principles as in effect in the United States of America on the
date of this Agreement.
ARTICLE II.
LOAN
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SECTION 2.1 TERM NOTE.
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(a) The Bank hereby agrees, on the terms and subject to the conditions of this
Agreement, to loan to the Borrower an aggregate principal amount of Five
Million Dollars ($5,000,000) (the "Loan"). The Bank will make an initial
Disbursement to the Borrower on the Closing Date in the amount of Five
Million Dollars ($5,000,000). The obligation of the Borrower to repay the
Loan and to pay interest and all other costs and charges payable hereunder
will be evidenced by a promissory note in the form of Exhibit 2.1 (the
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"Note") dated the Closing Date and payable to the order of the Bank in the
original principal amount of Five Million Dollars ($5,000,000).
(b) The Loan shall bear interest, and the Borrower shall pay interest on the
outstanding principal balance of the Loan from the date of the initial
Disbursement to the Borrower until the Maturity Date, at the following
rates per annum:
(i) with respect to any portion of such Loan which is a Eurodollar Rate
Loan Portion, interest at a rate per annum on such Eurodollar Rate
Loan Portion equal (at all times during each
applicable Interest Period) to the Reserve Adjusted Eurodollar Rate
for such applicable Interest Period plus the Applicable Margin; and
(ii) with respect to each portion of such Loan which is not a Eurodollar
Rate Loan Portion, interest at a rate per annum on each such Loan
Portion equal to the Prime Rate.
Except for any Disbursement to be made hereunder on the Closing Date, not
later than 12:00 noon (Chicago time) on the third Business Day prior to the
initial funding of the Loan, the Borrower shall provide written notice
("Eurodollar Notice") to the Bank of the dollar amount of the initial
Disbursement which will be a Eurodollar Rate Loan Portion for the initial
Interest Period. In the event that the Borrower fails to provide the
Eurodollar Notice in accordance with the preceding sentence or if an Event
of Default has occurred and is continuing, then the outstanding principal
balance of the Loan shall bear interest at the Prime Rate until such time
as Borrower has given an Election Notice in accordance with Section 2.1(c)
below. Computations of interest will be on the basis of a 360 day year, for
actual days elapsed with respect to interest accruing.
(c) The Borrower, upon written notice (the "Election Notice") given to the Bank
by not later than 12:00 noon (Chicago time) on the third Business Day prior
to the expiration of the Interest Period for any Eurodollar Rate Loan
Portion in the case of any continuation of a Eurodollar Rate Loan Portion
as such, and not later than 12:00 Noon (Chicago time) on the conversion
date in the case of any conversion into a Prime Rate Loan Portion, may
elect: (1) to continue such portion or any part thereof as a Eurodollar
Rate Loan Portion for the next succeeding Interest Period; or (2) to
convert such portion or any part thereof to a Prime Rate Loan Portion; or
(3) a combination thereof, effective the last day of such Interest Period.
At the end of each applicable Interest Period, in the absence of a timely
effective Election Notice to continue the applicable Loan Portion as a
Eurodollar Rate Loan Portion, such Loan Portion shall bear interest at the
Prime Rate. Notwithstanding anything herein to the contrary, if at the end
of an applicable Interest Period for a Eurodollar Rate Loan Portion, an
Event of Default has occurred and is continuing, then the Borrower shall
have no right to give an Election Notice, and the Bank may ignore any
attempt by the Borrower to give an Election Notice.
(d) An Election Notice with respect to any Eurodollar Rate Loan Portion shall
contain the following information:
(i) the dollar amount (if any) which is to be continued as a
Eurodollar Rate Loan Portion; and
(ii) with respect to the dollar amount to be continued as a Eurodollar
Rate Loan Portion, the new Interest Period.
Notwithstanding anything herein to the contrary, the outstanding
Loan balance may not at any time be comprised of more than five (5)
Eurodollar Rate Loan Portions at the same time without the Bank's
consent, which shall be in the Bank's sole and absolute discretion.
Once received by the Bank, any Election Notice will be irrevocable for
the applicable Eurodollar Rate Loan Portion for the applicable
Interest Period.
The Borrower hereby authorizes the Bank to record on schedule(s) annexed to
the Note (a) the date and amount of each Loan Portion; (b) the term of the
Interest Period for each Eurodollar Rate Loan Portion; (c) the interest
rate or rates for each Prime Rate Loan Portion and the effective date(s) of
all changes in such rates; and (d) the date and amount of each principal
and interest payment on each Loan Portion made by the Borrower, and the
Borrower agrees that all such notations shall constitute prima facie
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evidence of the
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matters noted absent manifest error, provided that the failure of the
Bank to record such information shall not reduce or affect the obligations
of the Borrower hereunder or under the Loan Agreement.
(e) In the event that on the date for determining the Reserve Adjusted
Eurodollar Rate to be paid by the Borrower in respect of any Interest
Period, the Bank determines in good faith (which determination will be
conclusive and binding on the Borrower) that by reason of circumstances
affecting the London Interbank Eurodollar market, either Eurodollar rates
are not offered in the London Interbank Eurodollar market or adequate and
fair means do not exist for ascertaining the Reserve Adjusted Eurodollar
Rate for such Interest Period, the Bank shall promptly give to the Borrower
telephonic notice (confirmed as soon as practicable in writing) of such
determination. During the existence of such circumstances, any existing
Eurodollar Rate Loan Portion in respect of which such circumstances exist
will convert to a Prime Rate Loan Portion at the end of the applicable
Interest Period.
SECTION 2.2 USE OF PROCEEDS. The proceeds of the Loan shall be used by
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the Borrower for the purpose of funding, or replenishing working capital
reserves, funding capital expenditures for expansion of manufacturing facilities
in Taunton and Westborough, Massachusetts, to repay existing secured debt
obligations to BankBoston, N.A., and for general corporate purposes.
SECTION 2.3 PAYMENTS.
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(a) The Borrower will repay the principal amount of the Loan in twenty (20)
equal consecutive quarterly installments of principal (each installment
being in an amount sufficient to amortize the outstanding principal balance
of the Loan over a period of twenty (20) quarters), together with interest
thereon commencing from the Closing Date, payable on the first Business Day
of each calendar quarter commencing with the first payment due on April 1,
1998 and continuing until the Maturity Date, on which date the Borrower
shall make a final payment in an amount equal to all the then unpaid
principal of the Loan and all unpaid interest thereon. Notwithstanding the
foregoing, repayment of the Loan and all accrued and unpaid interest
thereon may be accelerated upon the occurrence and continuance of an Event
of Default.
(b) The Borrower shall make all payments hereunder in U.S. Dollars and in
immediately available funds at the Bank's office at ▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (or at such other office as the Bank
may notify the Borrower in writing) via wire transfer to Sumitomo Bank,
Limited, Chicago Branch, ABA ▇▇▇▇▇▇▇▇▇, through the Federal Reserve Bank of
Chicago, Reference: Borrower. Payments not made prior to 12:00 noon
(Chicago time) on the date of payment will be deemed paid on the next
Business Day. Payments which fall due on a day which is not a Business Day
will be payable on the next Business Day, with interest to accrue to such
date of payment. All payments hereunder and under the Note shall be made
without set-off or counterclaim and in such amounts as may be necessary in
order that all such payments shall not be less than the amounts otherwise
specified to be paid under this Agreement or the Note, as the case may be.
(c) Any installment of interest only or of principal and interest paid more
than five (5) days late or any other amount payable hereunder which is not
paid when due, will bear (and the Borrower shall pay) interest (to the
extent permitted by law) from such due date until such unpaid amount has
been paid in full (whether before or after judgment) at a rate per annum
equal to three and one-half percent (3.5%) in excess of the rate then
applicable to each Loan Portion until the end of any Interest Period then
applicable to such Loan Portion and thereafter at a rate per annum equal to
three and one-half percent (3.5%) in excess of the Prime Rate ("Default
Rate").
(d) In partial consideration for the Bank making the Loan to the Borrower, the
Borrower shall pay to Bank a loan fee ("Loan Fee") in an amount equal to
one and one-and one-half percent (1.50%) of the
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total loan amount of $5,000,000. Said Loan Fee in the amount of Seventy-
Five Thousand Dollars ($75,000) shall be due and payable to the Bank on the
Closing Date. On the Closing Date, Borrower hereby authorizes Bank to
deduct and pay the Loan Fee, together with all other fees and expenses of
the Bank identified in Section 4.1(h) below, from the available proceeds of
the Loan.
SECTION 2.4 PREPAYMENTS. Subject to this Section 2.4, the Borrower may,
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upon five (5) Business Days' prior notice to the Bank, prepay the outstanding
amount of the Loan in whole or in part. In the event that the Borrower prepays
or is required to prepay any Eurodollar Rate Loan Portion by acceleration or
otherwise or fails to draw down or convert to a Eurodollar Rate Loan Portion
after giving notice thereof, the Borrower agrees to reimburse the Bank for its
expenses, funding losses and loss of anticipated profits due to such prepayment
or failure to draw. The Borrower and the Bank hereby agree that such expenses,
funding losses and loss of anticipated profits shall consist of the sum of:
(a) Principal amount of each such Eurodollar Rate Loan Portion times (([number
of days between the date of prepayment and the last day in the applicable
Interest Period] divided by 360), times the applicable Interest
Differential); plus
(b) All actual out-of-pocket expenses (other than those taken into account in
the calculation of the Interest Differential) incurred by the Bank
(excluding allocations of any expense internal to the Bank) and reasonably
attributable to such payment or prepayment.
Notwithstanding the foregoing, no prepayment fee shall be payable (and no credit
or rebate shall be required) if the product of the foregoing formula is not a
positive number. The Loan is not in a nature of a revolving loan; therefore,
amounts prepaid or repaid under the Note may not be reborrowed.
SECTION 2.5 INDEMNIFICATION; INCREASED COSTS. If after the date of this
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Agreement the Bank reasonably determines that any Regulatory Change, or
compliance by the Bank with any request or directive (whether or not having the
force of law) of any governmental authority, central bank or comparable agency
charged with the interpretation or administration of any applicable law, rule or
regulation which is effective or issued after the date hereof:
(a) Subjects the Bank to any tax, duty or other charge with respect to the Loan
or the Note, or changes the basis of taxation of payments to the Bank of
the principal of or interest on the Loan or any other amounts due under
this Agreement in respect of the Loan except for changes in the rate of tax
on the overall net income of the Bank or its lending office imposed by the
Commonwealth of Massachusetts or the jurisdictions in which the Bank's
principal executive office or applicable lending office is located) (such
non-excluded amounts, "Taxes"); or
(b) Imposes, modifies or deems applicable any reserve (including, without
limitation, any reserve imposed by the Board of Governors of the Federal
Reserve System), special deposit, liquidity, capital maintenance, capital
adequacy, capital ratio (including, but without limitation thereto, any
request by or requirement of any regulatory body or official which affects
the manner in which the Bank allocates capital resources to its obligations
hereunder), for the account of, or credit extended by, the Bank or imposes
on the Bank any other condition affecting the Loan, or the Note;
and the result of any of the foregoing is to (A) impose a cost on or increase
the cost to the Bank of making or maintaining the Loan, or (B) cause an increase
in any capital requirement arising out of the making or maintenance of the Loan
or any obligation to the Borrower hereunder or (C) reduce the amount of any sum
received or receivable by the Bank under this Agreement or under the Note, by an
amount deemed by the Bank to be material, then, within ten (10) days after
demand by the Bank, the Borrower shall pay for the account of the Bank such
additional amount or amounts as will compensate the Bank for such increased cost
or reduction as such cost or reduction is incurred by the Bank. If the Bank
makes any claim for compensation under this Section 2.5, the Borrower may
immediately elect by written
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notice (or telephonic notice confirmed as soon as practicable in writing) to the
Bank to prepay the Loan (but subject to payment of any other amounts due under
Section 2.4 and this Section 2.5, including any increased cost or reduction
incurred through the date of such prepayment or conversion). The Bank shall
promptly notify the Borrower of any event of which it has knowledge, occurring
after the date hereof, which will entitle the Bank to compensation pursuant to
this Section 2.5. The Bank shall provide to the Borrower a certificate claiming
compensation under this Section 2.5, setting forth the additional amount or
amounts to be paid to it hereunder and showing in reasonable detail the Bank's
calculation thereof which shall be presumed to be correct absent manifest error.
In determining such amount, the Bank may use any reasonable averaging and
attribution methods. The Bank shall exercise reasonable efforts to promptly
provide the Borrower with notice of the imposition, or overtly threatened
exercise of, any Regulatory Change set forth in this Section 2.5 of which the
Bank has actual knowledge, provided, however, that the failure by the Bank to so
provide such notice will not relieve the Borrower of any of its obligations
hereunder.
The Bank agrees that it will use reasonable efforts to reduce or eliminate any
claim for compensation pursuant to this Section 2.5, including designating a
different lending office for the Loans, if such designation will avoid the need
for or reduce the amount of any such compensation, provided that the Bank will
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not be obligated to take any actions that would, in the sole opinion of the
Bank, be disadvantageous to the Bank in any material respect (it being
understood that the incurrence of any unreimbursed cost or expense by the Bank
that would not have been incurred but for such action is material).
SECTION 2.6 INVESTMENT ACCOUNT AND CUSTODIAN ACCOUNT.
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(a) Prior to the occurrence of a Trigger Event, the Borrower shall hold at all
times Cash and Cash Equivalents, which are not subject to any Lien or claim
of any Person other than the Bank, in an amount not less than the Minimum
Amount, in a custodial account (the "Investment Account") with an
institution approved by the Bank (such institution being referred to herein
as the "Custodian"). The initial Custodian will be Sumitomo Bank of New
York Trust Company. The amounts held in the Investment Account shall be
subject to the investment control of the Borrower. The Custodian in respect
of the Investment Account cannot be changed or a new Investment Account
opened without the Bank's prior written approval, which approval shall not
be unreasonably withheld. The Borrower shall deliver to the Custodian the
Irrevocable Instructions and Power of Attorney in the form of Exhibit 2.6.B
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(the "Irrevocable Instructions and Power of Attorney).
(b) On or before the Closing Date, the Borrower, for the benefit and on behalf
of the Bank, shall establish and maintain or cause to be established and
maintained in the name of the Borrower an account (the "Custodian Account")
with Sumitomo Bank of New York Trust Company (the "Bailee") under the
Custodian Agreement and the Collateral Bailment Agreement. Pursuant to the
Restricted Account and Security Agreement by and between the Bank and the
Borrower, the Borrower has granted to the Bank a security interest in all
of its right, title and interest in the Custodian Account, all deposits or
investments held therein and all proceeds thereof to secure payment and
performance of the Borrower's obligations hereunder. On or before the
Closing Date, the Borrower shall cause to be deposited in the Custodian
Account the sum of One Thousand Dollars ($1,000). So long as the Borrower
is indebted to the Bank hereunder and until payment in full of the Note and
the Borrower's full and complete performance of its obligations hereunder,
the Custodian Account shall at all times have a Restricted Account Balance
of not less than One Thousand Dollars ($1,000). The terms and conditions
of the Restricted Account and Security Agreement, the Collateral Bailment
Agreement, and the Custodian Agreement are incorporated herein by
reference.
SECTION 2.7 CHANGE IN LEGALITY.
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(a) In the event that at any time the Bank shall have reasonably determined
(which determination shall be presumed to be correct until the contrary
shall have been established) that by reason of a change in any law or
regulation or in the interpretation thereof by any governmental authority
charged with the interpretation
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thereof affecting the Bank or the Eurodollar market and applicable to any
Eurodollar Rate Loan Portion, the making or continuation of a loan at the
applicable Reserve Adjusted Eurodollar Rate plus the Applicable Margin has
become unlawful, the Bank shall forthwith give written notice (or
telephonic notice, confirmed as soon as practicable in writing) to the
Borrower and the obligation of the Bank to make or maintain such Eurodollar
Rate Portion at the applicable Reserve Adjusted Eurodollar Rate plus the
Applicable Margin shall terminate and the Borrower shall forthwith upon
receipt of notice of such determination prepay such Eurodollar Rate Loan
Portion without premium or penalty (subject to Sections 2.4 and 2.5),
together with all interest accrued on the amount prepaid to the date of
prepayment. A certificate, setting forth (X) each event which the Bank
shall have determined makes the continuation of such Eurodollar Rate Loan
Portion unlawful and (Y) any additional amounts payable by the Borrower
under Sections 2.4 and 2.5 (and the basis therefor and the Bank's
computation thereof) upon prepayment of such Eurodollar Rate Loan Portion,
shall be furnished to the Borrower by the Bank and shall be presumed
correct absent manifest error.
(b) In the event that the Borrower is obligated to prepay a Eurodollar Rate
Loan Portion pursuant to clause (a) of this Section 2.7, the Borrower shall
have the right, upon written notice (or telephonic notice confirmed as soon
as practicable in writing) to the Bank, in lieu of such prepayment, to
elect to convert such Eurodollar Rate Portion to a Prime Rate Loan Portion,
effective on the date on which such prepayment would otherwise be required
to have been made, provided that on the effective date of conversion the
Borrower also shall pay all interest accrued on the amount converted to the
date of conversion and such additional amounts, if any, payable by the
Borrower under Section 2.4 and 2.5, as specified in the certificate
furnished the Borrower pursuant to said clause (a).
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
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The Borrower hereby represents and warrants to the Bank that:
SECTION 3.1 ORGANIZATION. Borrower is a corporation duly organized,
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validly existing and in good standing under the laws of the State of Delaware;
Borrower has the power to own its assets, to transact the business in which it
is presently engaged and in which it proposes to be engaged and is duly
qualified and in good standing in each jurisdiction in which the failure to
qualify to do business would materially adversely affect its financial condition
and business operations.
SECTION 3.2 POWER, AUTHORITY, CONSENTS.
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(a) Borrower has the power to execute, deliver and to perform its obligations
under the Loan Documents.
(b) Borrower has the power to borrow hereunder and has taken all necessary
action to authorize the borrowing hereunder on the terms and conditions of
this Agreement.
(c) Borrower has taken all necessary corporate action to authorize the
execution, delivery and performance of the Loan Documents.
(d) No consent or approval of any Person, no waiver of any Lien or right of
distraint or other similar right and no consent, license, approval,
authorization or declaration of any governmental authority, bureau or
agency is or will be required in connection with the execution and delivery
of the Loan Documents by Borrower, or the performance by Borrower of its
obligations thereunder or the validity, enforcement or
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priority of the Loan Documents, or any Lien created and granted thereunder,
except such consents as have been obtained and copies of which have been
delivered to the Bank.
SECTION 3.3 NO VIOLATION OF LAW OR AGREEMENTS. The execution and delivery
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of the Loan Documents and the performance by Borrower of its obligations
thereunder, will not violate any provision of law and will not conflict with or
result in a breach of any order, writ, injunction, ordinance, resolution,
decree, or other similar document or instrument of any court or governmental
authority, bureau or agency, domestic or foreign, Borrower's charter or bylaws
or create (with or without the giving of notice or lapse of time, or both) a
default under or breach of any agreement, bond, note or indenture to which
Borrower is a party, or by which it is bound or any of its properties or assets
is affected, or result in the imposition of any Lien of any nature whatsoever
upon any of the properties or assets owned by or used in connection with the
business of Borrower.
SECTION 3.4 DUE EXECUTION, VALIDITY, ENFORCEABILITY. This Agreement and
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each of the other Loan Documents has been, or upon the execution and delivery
thereof, will be, duly executed and delivered by Borrower, and each constitutes,
or, upon the execution and delivery thereof, will constitute, the valid and
legally binding obligation of Borrower, enforceable in accordance with its
terms, except to the extent that the enforcement thereof may be limited by
applicable bankruptcy, moratorium, insolvency, reorganization, or other similar
laws or equitable principles relating to the enforcement of creditors' rights
generally.
SECTION 3.5 JUDGMENTS, ACTIONS, PROCEEDINGS. Except as set forth in
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Schedule 3.5, there are no outstanding judgments, actions (including, without
limitation, derivative actions), suits or proceedings pending before any court
or governmental authority, bureau or agency, having a claim or amount in
controversy that exceeds $10,000 in any one instance or $50,000 in the aggregate
at any one time with respect to or, to the best of the Borrower's knowledge,
threatened against or affecting Borrower.
SECTION 3.6 NO DEFAULTS, COMPLIANCE WITH LAWS. Borrower is not in material
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default under any agreement, ordinance, resolution, decree, bond, note,
indenture, order or judgment to which it is a party or by which it is bound, or
its charter documents or bylaws, or any other agreement or other instrument by
which any of the properties or assets owned by it or used in the conduct of its
business is affected or evidencing, guaranteeing or relating to any outstanding
indebtedness, liability or obligation for borrowed money or lease obligations,
which default could have a material adverse effect on the business, operations,
financial condition or properties of Borrower, or on Borrower's ability to
perform its obligations under the Loan Documents. Borrower has complied and is
in compliance in all material respects with all applicable laws, ordinances and
regulations, including, without limitation, the regulations of the Food and Drug
Administration, the non-compliance with which could have a material adverse
effect on the business, operations, financial condition or properties of
Borrower, or on the ability of Borrower to perform its obligations under the
Loan Documents, and it has not received notice and has no knowledge of any
violations or alleged violations by the Borrower of any of the foregoing.
SECTION 3.7 NO MATERIALLY ADVERSE CONTRACTS, ETC. Borrower is not subject
-------------------------------------
to any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation that has, or is expected in the judgment of the
officers of the Borrower, to have a materially adverse effect on the business,
assets or financial condition of the Borrower. Borrower is not a party to any
contract or agreement that has or is expected, in the judgment of the officers
of the Borrower, to have any materially adverse effect on the business of the
Borrower.
SECTION 3.8 FINANCIAL STATEMENTS.
--------------------
(a) Borrower has furnished to the Bank its most recent audited Financial
Statements and all subsequent unaudited Financial Statements which are
available to the public. Each of the Financial Statements is correct and
complete in all material respects and presents fairly the financial
condition of the Borrower, at its
7
date or for the respective period, and has been prepared in accordance with
generally accepted accounting principles.
(b) The Borrower has no material obligation, liability or commitment, direct or
contingent, which is not reflected in the Financial Statements or in any
notes thereto in accordance with generally accepted accounting principles.
(c) There has been no material adverse change in the financial position or
operations of the Borrower since the date of the Financial Statement for
the fiscal quarter ended September 27, 1997.
(d) The Borrower's fiscal year is the twelve (12) month period ending on
December 31 in each year.
SECTION 3.9 TITLE TO PROPERTIES; LEASES. Except as disclosed in the
---------------------------
footnotes to the Financial Statements, Borrower owns all of the assets reflected
in the most recent balance sheet or acquired since that date (except property
and assets leased, sold or otherwise disposed of in the ordinary course of
business since that date), subject to no rights of others, including any
mortgages, ordinary or capital leases, conditional sales agreements, title
retention agreements, liens or other encumbrances.
SECTION 3.10 PRIORITY OF LIENS. The Liens which have been or will be
-----------------
created and granted by the Loan Documents upon the execution and delivery
thereof constitute, or will constitute upon such execution and delivery, valid
first priority Liens on the properties and assets covered by the Loan Documents,
subject to no other liens.
SECTION 3.11 PATENTS, COPYRIGHTS, LICENSES, ETC. Borrower owns or has a
----------------------------------
valid right to use all patents, copyrights, trademarks, trade names, licenses,
franchises, and rights in respect of the foregoing ("Intellectual Property
Rights"), adequate for the conduct of its business substantially as now
conducted without conflict with any rights of others, and there are no suits or
claims for infringement with respect to the Intellectual Property Rights except
as set forth in Schedule 3.11. Schedule 3.11 lists all pending suits or claims
for infringement with respect to Intellectual Property Rights.
SECTION 3.12 TAX RETURNS.
-----------
(a) The Borrower has filed all federal and state income tax returns and all
other tax returns, reports, and declarations required to be filed by it and
has not failed to pay any taxes, or interest and penalties relating
thereto, on or before the due dates thereof except for returns, taxes,
interest or penalties with respect to which it has duly filed extensions or
is contesting the validity thereof by appropriate legal proceedings
diligently conducted in good faith. No audits of the federal income tax
returns of the Borrower are pending.
(b) Except to the extent that reserves therefor are reflected in the Financial
Statements, (i) there are no material federal, state or local tax
liabilities of the Borrower due or to become due for any tax year ended on
or prior to the date of the most recent balance sheet included in the
Financial Statements, whether incurred in respect of or measured by the
income of such entity, which are not properly reflected in such balance
sheet, and (ii) there are no material claims pending or, to the knowledge
of the Borrower proposed or threatened against the Borrower for past
federal, state or local taxes.
SECTION 3.13 REGULATION U; MARGIN STOCK. No part of the proceeds received
--------------------------
by the Borrower from the Loan will be used directly or indirectly for the
purpose of purchasing or carrying, or for payment in full or in part of
indebtedness which was incurred for the purposes of purchasing or carrying, any
margin stock as such term is defined in Regulation U of the Board of Governors
of the Federal Reserve System, 12 C.F.R., Chapter II, Part 221. The Borrower
does not own margin stock which would, in the aggregate, constitute a
substantial part of the assets of the Borrower.
8
SECTION 3.14 FULL DISCLOSURE. Neither the Financial Statements nor any
---------------
certificate, opinion, or any other statement made or furnished in writing to
Bank by or on behalf of the Borrower in connection with this Agreement or the
transactions contemplated herein, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements
contained therein or herein, in light of the circumstances under which they were
made, not misleading.
SECTION 3.15 ERISA.
-----
(a) With the exceptions of Borrower's 401(K) plans and certain other employee
benefit plans, all as set forth in Schedule 3.15, none of the Borrower or
any of its Affiliates has pension or other employee benefit plans which are
subject to the provisions of Title IV of ERISA (any such plans which have
been or may hereafter be adopted or assumed by the Borrower are hereinafter
referred to individually as a "Plan" and, collectively, as the "Plans").
In connection with the Plans, Borrower does not have, or know of any likely
event which will give rise to, any direct or contingent material
liabilities of the Borrower to the Pension Benefit Guaranty Corporation
("PBGC"), the Department of Labor or the Internal Revenue Service ("IRS").
(b) None of the Borrower or any of its Affiliates is a participating employer
in any Plan under which more than one employer makes contributions as
described in Sections 4063 and 4064 of ERISA.
(c) None of the Borrower or any of its Affiliates is a participating employer
in a multiemployer plan as defined in Section 4001(a) of ERISA, which
participation could give rise to material withdrawal liability on the part
of the Borrower, as the case may be under Subtitle E of Title IV of ERISA.
For purposes of this Agreement, all references to "ERISA" shall be deemed to
refer to the Employee Retirement Income Security Act of 1974 (including any
sections of the Code) as heretofore amended and as it may hereafter be amended
or modified, and all regulations promulgated thereunder, and all references to
the Borrower in this Section 3.15, or in any other Section of this Agreement
relating to ERISA, shall be deemed to refer to the Borrower and all other
entities which are part of a Controlled Group with respect to the Borrower.
SECTION 3.16 ENVIRONMENTAL COMPLIANCE. Except as set forth in Schedule
------------------------
3.16, the Borrower has taken all necessary steps to comply with Environmental
Laws (as hereinafter defined) and has determined that:
(a) Borrower is not in violation, or alleged violation, of any judgment,
decree, order, law, license, rule or regulation pertaining to environmental
matters, including without limitation, those arising under the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986 ("▇▇▇▇"), the Federal
Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control
Act, each as amended as of the date hereof, or any other federal, state or
local statute, regulation, ordinance, order or decree relating to health,
safety or the environment (hereinafter "Environmental Laws"), which
violation would have a material adverse effect on the environment or the
business, assets or financial condition of the Borrower;
(b) The Borrower has not received notice from any third party including,
without limitation, any federal, state or local governmental authority, (i)
that it has been identified by the United States Environmental Protection
Agency ("EPA") as a potentially responsible party under CERCLA with respect
to a site listed on the National Priorities List, 40 C.F.R. Part ▇▇▇
▇▇▇▇▇▇▇▇ ▇ (1986); (ii) that any hazardous waste, as defined by 42 U.S.C.
(S) 9601(5), any hazardous substances as defined by 42 U.S.C. (S) 9601(14),
any pollutant or contaminant as defined by 42 U.S.C. (S)9601(33) and any
toxic substances, oil or hazardous materials or other chemicals or
substances regulated by any Environmental Laws ("Hazardous Substances")
which it has generated, transported
9
or disposed of has been found at any site at which a federal, state or
local agency or other third party has conducted or has ordered that it
conduct a remedial investigation, removal or other response action pursuant
to any Environmental Law; or (iii) that it is or shall be a named party to
any claim, action, cause of action, complaint, or legal or administrative
proceeding (in each case, contingent or otherwise) arising out of any third
party's incurrence of costs, expenses, losses or damages of any kind
whatsoever in connection with the release of Hazardous Substances;
(c) (i) the properties on which the Borrower conducts its business have not
been used by the Borrower for the handling, processing, storage or Disposal
of Hazardous Substances except in accordance with applicable Environmental
Laws; (ii) in the course of any activities conducted by the Borrower, no
Hazardous Substances have been generated or are being used on property
leased by the Borrower on which the Borrower conducts its business except
in accordance with applicable Environmental Laws; (iii) there has been no
Release or threatened Release of Hazardous Substances by the Borrower on,
upon, into or from the properties on which the Borrower operates its
business, which Release would have a material adverse effect on the
Borrower's business; (iv) to the best of the Borrower's knowledge, there
have been no Releases on, upon, from or into any real property in the
vicinity of any of the properties on which the Borrower conducts its
business, through soil or groundwater contamination, which may have come to
be located on, and which would have a material adverse effect on the
Borrower's business; and (v) in addition, any Hazardous Substances that
have been generated by the Borrower on the properties on which the Borrower
conducts its business have been transported off-site only by carriers
having an identification number issued by the EPA, treated or Disposed of
only by treatment or disposal facilities maintaining valid permits as
required under applicable Environmental Laws, which transporters and
facilities have been and are, to the best of the Borrower's knowledge,
operating in compliance with such permits and applicable Environmental
Laws; and
(d) none of the properties on which the Borrower conducts its business is or is
expected to be in violation of any applicable environmental clean-up
responsibility law or regulation or environmental restrictive transfer law
or regulation, in regard to which failure to comply would have a material
adverse effect on the environment or the business, assets or financial
condition of the Borrower.
SECTION 3.17 OTHER REGULATIONS. The Borrower is not subject to regulation
-----------------
under the Investment Company Act of 1940, the Public Utility Holding Company Act
of 1935, the Federal Power Act, the Interstate Commerce Act, any state public
utilities code or any federal or state statute or regulations limiting its
ability to incur Indebtedness.
SECTION 3.18 COMPLIANCE WITH SECURITIES LAWS. All offers and sales of
-------------------------------
securities of the Borrower have been made in material compliance with all
applicable federal and state securities laws, including without limitation the
Securities Act of 1933 and the Securities Exchange Act of 1934, both as amended.
SECTION 3.19 SOLVENCY. The Borrower is solvent and is not the subject of
--------
bankruptcy or insolvency proceeding.
SECTION 3.20 SUBSIDIARIES OR AFFILIATES. The Borrower does not have any
--------------------------
Subsidiary or Affiliate (other than as set forth in Schedule 3.20).
SECTION 3.21 PENDING LITIGATION. There are no lawsuits or claims pending
------------------
against Borrower which could have a material adverse affect on the Borrower's
financial condition.
SECTION 3.22 COMPLIANCE WITH INVESTMENT POLICY. The Borrower is in
---------------------------------
compliance with its "Investment Policy" for investment of Cash and Cash
Equivalents (as mandated by the Borrower's Board of Directors and as adopted by
the Board of Directors in 1994). A true and correct copy of such Investment
Policy is attached as Schedule 8.1(j).
10
ARTICLE IV.
CONDITIONS PRECEDENT
--------------------
SECTION 4.1 CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT.
-----------------------------------------------------------
The effectiveness of this Agreement and the obligations of the Bank hereunder
shall be subject to the following conditions precedent:
(a) The Borrower will have executed and delivered to the Bank the Note, the
Collateral Bailment Agreement, the Restricted Account and Security
Agreement, the Irrevocable Instructions and Power of Attorney, the
Custodian Agreement, the Financing Statements and an original counterpart
of this Agreement.
(b) The Bailee will have executed and delivered the Collateral Bailment
Agreement, the Custodian Agreement and the Restricted Account and Security
Agreement;
(c) The initial Custodian will have executed and delivered its consent to the
Irrevocable Instructions and Power of Attorney to the Bank;
(d) The Borrower shall have deposited One Thousand Dollars ($1,000) into the
Custodian Account and established an investment account with the Bailee in
a minimum amount of Seven Million Five Hundred Thousand Dollars
($7,500,000);
(e) The Borrower will have otherwise fully complied with all of the terms and
conditions of the Loan Documents;
(f) The Borrower will have delivered to the Bank the following, in form and
substance acceptable to the Bank:
(i) a copy of the Certificate of Incorporation of Borrower certified by
the Secretary of State of Delaware;
(ii) a copy of the by-laws of the Borrower certified by its Secretary or
Assistant Secretary;
(iii) a copy of resolutions of the Board of Directors of the Borrower
authorizing the execution, delivery and performance by the Borrower of
this Agreement, the Note, the Loan Documents and all instruments and
documents provided for herein or therein, certified by the Secretary
or Assistant Secretary of the Borrower;
(iv) a good standing certificate for the Borrower, dated as of a date not
more than ten (10) days prior to the Closing Date from the Secretary
of State of the State of Delaware, and any state where Borrower is
qualified to transact business as a foreign corporation;
(v) an incumbency certificate with respect to the officers of the
Borrower, certified by its Secretary or Assistant Secretary;
(vi) a copy of the most recent management letter from the Borrower's
accountants; and
11
(vii) a copy of the most recent account statements with respect to
Borrower's investment accounts at ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and BankBoston.
(g) Counsel of the Borrower will have delivered to the Bank its favorable legal
opinion as to the due organization, existence, qualification to do
business, and good standing of the Borrower, the due authorization,
execution and enforceability of this Agreement and the other Loan
Documents, the perfection of the security interests granted under the Loan
Documents, the absence of pending and threatened litigation, the non-
contravention of other documents, instruments, laws, and regulations, and
such other matters as the Bank may require, in form and substance
reasonably satisfactory to the Bank;
(h) The Bank shall have received the Loan Fee and all other fees and expenses
(including, without limitation, Bank's legal fees and expenses incurred in
the negotiation and preparation of the Loan Documents and any other fees
and expenses of the Bank for UCC searches or filing fees) required to be
paid to Bank on or before the Closing Date;
(i) All representations and warranties of the Borrower contained herein are
true and correct as of the Closing Date and Borrower will have executed and
delivered to Bank such certificates with respect thereto as Bank may
require; and
(j) The Bank shall have received the results of UCC searches with respect to
the Borrower's assets indicating no liens other then Permitted Liens, or to
the extent such liens which are not Permitted Liens are of record, the Bank
shall have received termination of such liens in form and substance
appropriate for recording, including, without limitation, termination of
liens in favor of BankBoston;
(k) There shall have occurred no materially adverse change in the financial
condition, business or prospects of the Borrower between (i) the date of
the most recent Financial Statements provided to the Bank and (ii) the
Closing Date; and
(l) The Borrower shall have provided the Bank or has caused to be provided to
the Bank by the Custodian a current list of investments held in the
Custodian Account, and which is in form and substance satisfactory to the
Bank.
ARTICLE V.
AFFIRMATIVE COVENANTS
---------------------
So long as the Borrower is indebted to the Bank hereunder, and until payment
in full of the Note and full and complete performance of all of its other
obligations arising hereunder (except for the Borrower's obligations under
Section 5.7 or Section 9.1 to indemnify the Bank under certain circumstances
following the payment of the Note), the Borrower shall in all material respects:
SECTION 5.1 BOOKS AND RECORDS. Keep proper books of record and account in a
-----------------
manner reasonably satisfactory to the Bank in which full true and correct
entries shall be made of all dealings or transactions in relation to its
business and activities.
SECTION 5.2 INSPECTIONS AND AUDITS. Permit the Bank to make or cause to be
----------------------
made reasonable inspections and audits of any books, records and papers of the
Borrower and to make extracts therefrom and copies thereof at all such
reasonable times and as often as the Bank may reasonably require, provided,
however, that certain
12
areas of the Borrower's facilities may be restricted for reasons of health and
safety and the Bank will not be permitted access to such restricted areas.
SECTION 5.3 PERFORM OBLIGATIONS. Pay and discharge all of its obligations
-------------------
and liabilities including, without limitation, all taxes, assessments and
governmental charges upon its income and properties, when due, unless and to the
extent only that such obligations, liabilities, taxes, assessments and
governmental charges are contested in good faith and by appropriate proceedings
and that, to the extent required by generally accepted accounting principles
then in effect, proper and adequate book reserves relating thereto are
established by the Borrower, and provided that the Bank is reasonably satisfied
that the Accounts are not in danger of being the subject of a Lien (except to
the extent permitted by Section 7.1) or sold, forfeited or lost as a result
thereof and the Borrower has provided such security or other assurances as Bank
reasonably requests.
SECTION 5.4 FEES AND EXPENSES. Pay on demand: (i) all costs and expenses
-----------------
(including, without limitation, legal fees (not to exceed $12,500), filing fees
and UCC search fees) of the Bank in connection with the preparation, execution
and delivery of this Agreement, and the other Loan Documents; (ii) all costs and
expenses of the Bank in enforcing the Borrower's performance of and compliance
with all agreements and conditions contained in the Loan Documents on its part
to be performed or complied with or in connection with the negotiation,
preparation and execution and delivery of any amendment, modification or
supplement of or to, or any consent or waiver under, any such document (or any
such instrument which is proposed but not executed and delivered) or relating to
any claim or action threatened, made or brought against the Bank arising out of
or relating to any extent to the Loan Documents, or the transactions
contemplated hereby or thereby; (iii) all costs and expenses (including, without
limitation, reasonable fees and disbursements of counsel) suffered or incurred
by the Bank in connection with the enforcement or the payment of the Note or any
other sum due to it under any of the other Loan Documents or any of its other
rights hereunder or thereunder; and (iv) any and all costs and expenses incurred
by Bank in conducting lien searches, UCC searches or other due diligence
investigations which the Bank determines are necessary to monitor the Borrower's
performance hereunder and which are incurred after the Closing Date.
SECTION 5.5 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. Preserve and
---------------------------------------------
maintain its corporate existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business except
for transfers (including, without limitation, transfers in the form of paid-up
licenses) for reasonably equivalent value in the normal course of its business.
The Borrower shall comply in all material respects with all applicable laws,
rules, regulations, orders, writs, decrees and judgments and its charter and
bylaws, and with the material terms of all mortgages, indentures, leases,
contracts and other agreements and instruments binding upon the Borrower. The
Borrower will continue to engage in business of the same general type as now
conducted by the Borrower.
SECTION 5.6 INSURANCE. Maintain with financially sound and reputable
---------
insurers insurance with respect to its properties and business against such
liabilities, casualties and contingencies and of such types and in such amounts
as shall be customary for businesses engaged in similar activities in similar
geographic areas. Without limiting the foregoing, the Borrower will (i) keep
all of its physical property insured against fire and extended coverage risks in
amounts and with deductibles equal to those generally maintained by businesses
engaged in similar activities in similar geographic areas, (ii) maintain all
such workers' compensation or similar insurance as may be required by law, and
(iii) maintain, in amounts and with deductibles equal to those generally
maintained by businesses engaged in similar activities in similar geographic
areas, general public liability insurance against claims for bodily injury,
death or property damage occurring on, in or about the properties of the
Borrower, business interruption insurance and product liability insurance.
Schedule 5.6 lists insurance of the Borrower currently in effect. The Borrower
------------
shall furnish to the Bank, from time to time upon the Bank's request,
certificates or other evidence satisfactory to the Bank of compliance with the
foregoing.
13
SECTION 5.7 CERTAIN TAXES.
-------------
(a) If, under any law in effect on the date hereof, or under any law
subsequently enacted, it is determined that any U.S. federal, state or
local tax is payable in respect of the issuance of the Note, or in
connection with the filing or recording of any assignments, mortgages,
financing statements, or other documents (whether measured by the amount of
indebtedness secured or otherwise) as contemplated by this Agreement, then
the Borrower shall pay any such tax and all interest and penalties thereon,
if any, and shall indemnify the Bank against and save it harmless from any
loss or damage resulting from or arising out of the nonpayment or delay in
payment of any such tax.
(b) If any such tax or taxes shall be assessed or levied against the Bank or
any other holder of the Note, the Bank, or such other holder, as the case
may be, may notify the Borrower and make immediate payment thereof,
together with interest or penalties in connection therewith, and will
thereupon be entitled to and shall receive immediate reimbursement therefor
from the Borrower.
(c) Notwithstanding any other provision contained in this Agreement, the
covenants and agreements of the Borrower in this Section 5.7 will survive
for four years following the payment of the Note and the termination of
this Agreement.
SECTION 5.8 USE OF PROCEEDS. Use the proceeds of all Disbursements made by
---------------
the Bank hereunder only for the purpose specified in Section 2.2 -- "Use of
Proceeds." The Borrower will not use any of the proceeds of such Loans,
directly or indirectly, for the purpose of purchasing or carrying any margin
stock or for the purpose of purchasing or carrying or trading in any securities
under such circumstances as to involve the Borrower or the Bank in a violation
of Regulation G, T, U or X issued by the Federal Reserve Board.
SECTION 5.9 FURTHER ASSURANCES WITH RESPECT TO ACCOUNTS. Promptly supply
-------------------------------------------
the Bank with such information concerning the Investment Account as the Bank may
reasonably request from time to time hereafter, including, without limitation,
Account statements which shall be delivered not less frequently than quarterly
(or more frequently if required pursuant to Section 6.4), which Account
statements will summarize the value of deposits and investments in the Accounts.
SECTION 5.10 FINANCIAL COVENANTS. The Borrower on a consolidated basis shall
-------------------
at all times maintain:
(i) A maximum ratio of Total Debt to Net Worth, as calculated on a
quarterly basis, of 0.5:1;
(ii) A minimum Current Ratio, as calculated on a quarterly basis, of 1.5:1;
(iii) A minimum Net Cash Level equal to or in excess of the greater of (x)
Ten Million Dollars ($10,000,000) or (y) the projected Actual Cash
Burn for the twelve (12) months following the date of determination;
and
(iv) A minimum Net Worth of Twenty Million Dollars ($20,000,000).
The failure of the Borrower to maintain any of the covenants set forth in this
Section 5.10(i)-(iv) and/or the occurrence of an Event of Default under Section
8.1 of this Agreement shall be a "Trigger Event."
SECTION 5.11 DEPOSITS INTO CUSTODIAN ACCOUNT. Upon the occurrence of a
-------------------------------
Trigger Event, the Borrower will make, or, through the Custodian pursuant to the
Irrevocable Instructions and Power of Attorney cause to be made,
14
payments or deposits to the Custodian Account such that after giving effect to
such payments or deposits the Restricted Account Balance equals or exceeds the
Required Restricted Account Balance. At the time of each such payment, the
Borrower will submit to the Bank a statement setting forth the market values of
marketable securities and the Restricted Account Balance as of the date of
deposit (after giving effect to any deposits made on or before such day).
SECTION 5.12 INVESTMENT POLICY. Comply with its "Investment Policy" for
-----------------
investment of all Cash and Cash Equivalents (as mandated and adopted by the
Borrower's Board of Directors) in connection with the Investment Account and the
Borrower shall not make any material change to such investment policy in
connection with the Investment Account without the Bank's prior written
approval, which approval shall not be unreasonably withheld. A copy of the
Borrower's Investment Policy is attached hereto as Schedule 8.1.(j).
----------------
ARTICLE VI.
DELIVERY OF FINANCIAL REPORTS,
DOCUMENTS AND OTHER INFORMATION
-------------------------------
So long as the Borrower is indebted to the Bank hereunder and until payment in
full of the Note and full and complete performance of all of its other
obligations arising hereunder, the Borrower shall deliver to the Bank:
SECTION 6.1 ANNUAL FINANCIAL STATEMENTS. Annually, as soon as available,
---------------------------
but in any event within ninety (90) days after the last day of the fiscal year,
(i) the balance sheet of the Borrower as of such last day of the fiscal year and
statements of operations, stockholders' equity and cash flows, for such fiscal
year, on a consolidated basis, prepared in accordance with generally accepted
accounting principles consistently applied, in reasonable detail, audited and
opined on by Deloitte & Touche LLP or by another firm of independent public
accountants reasonably satisfactory to the Bank (which audit opinion shall
contain no qualification unsatisfactory to the Bank), to present fairly the
financial position and the results of operations of the Borrower as of the end
of such fiscal year and to have been prepared in accordance with generally
accepted accounting principles and (ii) calculations, certified by the chief
financial officer of the Borrower, demonstrating compliance with the financial
covenants set forth in Section 5.10.
SECTION 6.2 QUARTERLY FINANCIAL STATEMENTS. As soon as available, but in
------------------------------
any event within forty-five (45) days after the end of each fiscal quarter ended
on the last day of each March, June and September, balance sheets for the
Borrower as of the last day of each such quarter and statements of operations,
and cash flows, for such quarter, all in reasonable detail and on a consolidated
basis and calculations, certified by the chief financial officer of the
Borrower, demonstrating compliance with the financial covenants set forth in
Section 5.10. Each such statement shall be certified on behalf of the Borrower
by the Borrower's controller or chief financial officer as fairly presenting the
financial position and the results of operations of the Borrower as of the end
of such fiscal quarter and as having been prepared in accordance with generally
accepted accounting principles consistently applied (subject to normal
adjustments).
SECTION 6.3 10Q AND 10K FILINGS. At the time its Form 10-Q is released to
-------------------
the public (which in all events shall be within forty-five (45) days after the
end of the fiscal quarters ended March, June, and September or, if later, the
date of the filing of the Form 10-Q with the Securities and Exchange
Commission), a copy of each Form 10-Q; and, each year at the time its Form 10K
is released to the public (which in all events shall be within ninety (90) days
after the end of the Borrower's fiscal year), a copy of its Annual Report to
Stockholders along with its Form 10K.
SECTION 6.4 CASH AND COVENANT REPORTS. The following reports, statements or
-------------------------
certificates: (i) at the same time as it delivers the Financial Statements
required under the provisions of Sections 6.1 -- "Annual Financial Statements"
and 6.2 -- "Quarterly Financial Statements", a report as to the calculations
with respect to, and compliance with, the financial covenants set forth in
Section 5.10(i) through 5.10(iv); and (ii) within fifteen (15) days of the end
of
15
each calendar quarter, a compliance statement, certified by the chief
financial officer of the Borrower, listing (A) the Borrower's Net Cash Level at
the end of such calendar quarter and the domicile of such cash and investments
and (B) the cash balances and Cash Equivalent Balances of the Investment Account
as of the end of such calendar quarter, provided that during any period when the
Borrower's Net Cash Level is less than an amount equal to Fifteen Million
Dollars ($15,000,000), the Borrower shall submit to the Bank, within twenty (20)
days of the end of each calendar month, a compliance statement indicating the
Borrower's actual Net Cash Level and listing all of the Borrower's cash balances
and Cash Equivalent Balances as of month end wherever domiciled, accompanied by
confirming statements of the custodians of such cash balances and Cash
Equivalent Balances.
SECTION 6.5 BUDGET; OTHER INFORMATION. Within thirty (30) days prior to the
-------------------------
end of the Borrower's fiscal year, the Borrower shall provide the Bank with an
annual operating budget projected for the next fiscal year shown on at least a
quarterly basis and projecting the Net Cash Level for such periods, in form
consistent with the calculation described in Section 5.10(iii). Promptly after
a written request therefor, such other financial data or information evidencing
compliance with the requirements of this Agreement and the other Loan Documents
as the Bank may reasonably request from time to time.
SECTION 6.6 NO DEFAULT CERTIFICATE. At the same time as it delivers the
----------------------
Financial Statements required under the provisions of Sections 6.1 -- "Annual
Financial Statements" and 6.2 -- "Quarterly Financial Statements," a certificate
of the Borrower signed on its behalf by an Authorized Signatory or its
controller, to the effect that, to the best of the Borrower's knowledge, no
Trigger Event hereunder has occurred and is continuing or, if such cannot be so
certified, specifying in reasonable detail the exceptions, if any, to such
statement.
SECTION 6.7 NOTICES.
-------
(a) DEFAULTS. As soon as possible and in any event within seven (7) days after
--------
the Borrower has knowledge of the occurrence or existence of a Trigger
Event or any event which with the giving of notice or passage of time or
both, would constitute either an Event of Default or Trigger Event, the
statement of the Borrower setting forth details of such Trigger Event or
event and the action which the Borrower proposes to take with respect
thereto.
(b) LITIGATION AND JUDGMENTS. Promptly after obtaining knowledge thereof,
------------------------
written notification of any litigation or legal proceedings instituted
against the Borrower, regardless of the subject matter thereof, having
claims or amounts in controversy of more than $1,000,000 in any one
instance or $2,000,000 in the aggregate at any one time, or of one or more
judgment(s) not covered by insurance, final or otherwise, in an aggregate
amount of $2,000,000 or more.
(c) ENVIRONMENTAL EVENTS. Promptly after obtaining knowledge or receipt
--------------------
thereof, written notice of any of the following which has the potential to
materially adversely affect the assets, liabilities, financial condition or
operations of the Borrower: (i) any violation of any Environmental Laws
regarding the Borrower's operations; (ii) any potential or known Release,
or threat of Release, of any Hazardous Substances at, from or into the
Borrower's place of business which the Borrower reports in writing or is
reportable in writing (or for which any written report supplemental to any
oral report is made) to any federal, state, or local environmental agency;
(iii) any notice of violation of any Environmental Laws or of any release
or threatened release of Hazardous Substances, including a notice or claim
of liability or potential responsibility from any third party (including
without limitation any federal, state or local governmental officials) and
including notice of any formal inquiry, proceeding, demand, investigation
or other action with regard to the Borrower's business operation; or (iv)
any expense or loss that has been identified by such governmental authority
in connection with the assessment, containment, removal or remediation of
any Hazardous Substances with respect to which the Borrower may be liable.
16
ARTICLE VII.
NEGATIVE COVENANTS
------------------
So long as the Borrower is indebted to the Bank hereunder, and until payment
in full of the Note and full and complete performance of all of its other
obligations arising hereunder (except for the Borrower's obligations under
Sections 5.7 or Section 9.1 to indemnify the Bank under certain circumstances
following the payment of the Note), the Borrower shall not do, or permit to be
done, any of the following:
SECTION 7.1 LIENS. Without the Bank's consent, create or assume or permit
-----
to exist, any Lien upon or with respect to any of its assets, or assign or
otherwise convey any right to receive income except (each a "Permitted Lien"):
(a) Liens in favor of the Bank;
(b) Liens for taxes, assessments or governmental charges or levies on property
of the Borrower if the same shall not at the time be delinquent or
thereafter can be paid without interest or penalty or are being contested
in good faith and by appropriate proceedings which serve as a matter of law
to stay the enforcement thereof and as to which adequate reserves have been
made;
(c) Liens imposed by law, such as carrier's, warehousemen's and mechanic's
liens and other similar Liens arising in the ordinary course of business
for sums not yet due or which are being contested in good faith and by
appropriate proceedings which serve as a matter of law to stay the
enforcement thereof and as to which adequate reserves have been made;
(d) Liens arising out of pledgor deposits under workers' compensation laws,
unemployment insurance, social security, retirement benefits or similar
legislation;
(e) Permitted Purchase Money Liens (including, without limitation, Liens
arising in connection with equipment leases);
(f) Rights of other parties under technology licenses from the Borrower granted
in connection with the development, manufacture or marketing of products,
or otherwise in the ordinary course of business;
(g) Rights of the United States government in certain technology, the
development of which is or was funded in whole or in part by the United
States government;
(h) Liens with respect to Indebtedness assumed by the Borrower or for which the
Borrower otherwise becomes liable (whether contingent or absolute) in
connection with the purchase of the stock and/or assets of another Person
(i) which transaction is permitted under Section 7.2 hereof, (ii) after
giving effect to the consummation of such transaction, no Event of Default
exists hereunder (or would exist with the giving of notice or the passage
of time), (iii) which Liens were effective at the time of such transaction
and were not created in connection with such transaction, and (iv) which
Liens do not attach to or cover any Collateral (as defined in the
Restricted Account and Security Agreement); and
(i) Security deposits under leases of the Borrower's premises set forth on
Schedule 7.1 hereto.
------------
17
SECTION 7.2 CHANGES IN BUSINESS; MERGER OR CONSOLIDATION; DISPOSITION OF
------------------------------------------------------------
ASSETS. Without the Bank's consent:
------
(a) Consolidate with, merge into or convey or transfer its properties
substantially as an entirety to, any Person, except that the Borrower may
participate in any merger in which the Borrower is the surviving entity so
long as after giving effect to such merger the Borrower remains in
compliance with all covenants and conditions of this Agreement.
(b) Make any material change in the nature of its business, or in the nature of
its operations, or liquidate or dissolve itself (or suffer any liquidation
or dissolution).
(c) Effect any disposition of all or any material portion of its assets
(whether in one or more transactions) except that (i) the Borrower may
dispose of obsolete or worn out equipment, (ii) the Borrower may replace
equipment with upgraded equipment and may thereafter dispose of the
equipment so upgraded and replaced, (iii) the Borrower may engage in
research and development transactions (each, an "R&D Transaction")
involving the licensing of the Borrower's rights in certain technology to
other persons and the licensing back of such rights to the Borrower,
provided that after giving effect to each such R&D Transaction, the
Borrower remains in compliance with all covenants and conditions of this
Agreement; and (iv) dispose of other assets in the ordinary course of
Borrower's business provided that Borrower receives equivalent value on
such disposition of assets.
SECTION 7.3 CHANGE OF OFFICE ADDRESS. Except upon five (5) days' prior
------------------------
written notice to the Bank, change the address of its principal office or place
of business or the place where it maintains its records with respect to the
Accounts.
SECTION 7.4 VIOLATION OF AGREEMENT. Take any action the effect of which
----------------------
would constitute a breach or violation of any provision of this Agreement.
ARTICLE VIII.
EVENTS OF DEFAULT
-----------------
SECTION 8.1 EVENTS OF DEFAULT. If any one or more of the following events
-----------------
("Event of Default") shall occur and be continuing, the entire unpaid balance of
the principal of and interest on the Note and all other obligations and
Indebtedness of the Borrower to the Bank arising hereunder and under the other
Loan Documents will, in the case of any Event of Default of the types referred
to in subparagraph (e) hereinbelow, immediately become due and payable without
notice and in the case of any other Event of Default, will immediately become
due and payable upon written notice to that effect given to the Borrower by the
Bank, without presentment or demand for payment, notice of non- payment, protest
or further notice or demand of any kind, all of which are expressly waived by
the Borrower. Upon an Event of Default, the Bank shall have the rights and
remedies provided for herein and in the other Loan Documents and under
applicable law and in equity, and the rights and remedies provided for herein
shall be cumulative and in addition to the rights and remedies provided for
therein. Each of the following shall constitute an Event of Default:
(a) Failure by the Borrower to make any payment when due of any amount payable
under the Loan Documents, which failure is not cured within five (5) days
of the occurrence thereof.
(b) Failure by the Borrower to make any mandatory payments under any borrowing
agreement (other than the Loan Documents) to which the Borrower is a party
within any applicable grace period provided
18
in such agreement or any other default by the Borrower under any such
borrowing agreement and the failure of the Borrower to cure such default
within any applicable grace period, but in any event not later than thirty
(30) days after such default, provided that no Event of Default will be
deemed to have occurred under this paragraph (b) with respect to any
indebtedness under any borrowing agreement if payment of such indebtedness,
after notice thereof having been given to the Bank, is being contested by
the Borrower in good faith and by appropriate proceedings and such contest
operates to prevent the other party to such agreement from exercising its
remedies against the Borrower or any of its properties and the amount in
dispute is in the aggregate less than $100,000.
(c) Failure by the Borrower to perform or observe any material term, condition
or covenant of this Agreement or of any of the Loan Documents (other than
the financial covenants set forth in Section 5.10 which shall constitute a
Trigger Event instead) which failure (other than a failure which by its
nature is not capable of cure and other than a failure to perform or
observe any term, condition or covenant referred to or set forth in
Subparagraphs (a) and (b) hereinabove) is not cured within thirty (30) days
of the occurrence thereof.
(d) Any representation or warranty made in writing to the Bank in any of the
Loan Documents or in connection with the making of the Loan or a
certificate, statement or report made or delivered in compliance with this
Agreement, will have been false or misleading in any material respect when
made or delivered.
(e) The Borrower makes an assignment for the benefit of creditors, files a
petition for bankruptcy, petitions or applies to any tribunal for the
appointment of a receiver, custodian, or any trustee for it or a
substantial part of its assets, or commences any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, whether now or hereafter
in effect; or there will have been filed any such petition or application,
or any such proceeding has been commenced against it, which remains
undismissed for a period of sixty (60) days or more; or any order for
relief is entered in any such proceeding; or the Borrower by any act or
omission indicates its consent to, approval of or acquiescence in any such
petition, application or proceeding or the appointment of a custodian,
receiver or any trustee for it or any substantial part of any of its
properties; or the Borrower suffers any custodianship, receivership or
trusteeship to continue undischarged for a period of sixty (60) days or
more.
(f) Any single judgment of $1,000,000 or more or a combination of unsecured
judgments aggregating $2,000,000 or more against the Borrower not covered
by insurance or any attachment or levy of execution against any substantial
part of the Borrower's properties for any amount (not covered by insurance)
remains unpaid, unstayed on appeal, undischarged, unbonded or undismissed
for a period of thirty (30) days or more.
(g) Any Loan Document ceases to be in full force and effect in all material
respects for any reason (other than due to the payment in full of all
amounts secured or evidenced thereby or due to discharge in writing by the
Bank).
(h) After the occurrence of a Trigger Event under Section 5.10, the failure of
the Borrower and/or the Custodian to make the requisite transfer to the
Custodian Account as provided in Section 5.11 such that, not later than
5:00 P.M. in New York, New York on the first Business Day following the
occurrence of the Trigger Event, the Restricted Account Balance equals or
exceeds the Required Restricted Account Balance.
(i) After the occurrence of a Trigger Event under Section 5.10, the failure of
the Borrower to execute and deliver, or cause to be executed and delivered,
any additional documents requested by the Bank in connection with the
transfer by the Borrower and/or Custodian to the Custodian Account as
provided in Section 5.11 (including without limitation any additional
documents requested by the Bank in order to further
19
implement or perfect the pledge of assets held in the Custodian Account and
any additional opinion of the Borrower's counsel on such matters the Bank
may require, in a form and substance satisfactory to Bank).
(j) After the occurrence of a Trigger Event and the initial transfer to the
Custodian Account as provided in Section 5.11, the failure of the Borrower
and/or the Custodian to make, within one Business Day following the request
of the Bank, such additional transfers to the Custodian Account as may be
necessary, from time to time, to increase the Restricted Account Balance so
that it equals the Required Restricted Account Balance.
(k) The failure by the Borrower, at any time, to maintain a Net Cash Level
equal to Five Million Dollars ($5,000,000).
(l) After the Closing Date, a material adverse change in the business or
financial condition of the Borrower occurs.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
------------------------
SECTION 9.1 INDEMNITY; ADDITIONAL FEES. The Borrower shall indemnify Bank
--------------------------
against, and hold it harmless from, any loss, liabilities, damages, claims, and
reasonable costs and expenses (including attorneys' fees and disbursements)
suffered or incurred by the Bank arising out of, resulting from or in any manner
connected with, the Loan Documents, or any transaction related hereto or
thereto, except any such loss arising solely from the Bank's own gross
negligence or willful misconduct. The provisions of this Section 9.1 will
survive for a period of three (3) years following the repayment of the Note and
the termination of this Agreement.
SECTION 9.2 SURVIVAL OF AGREEMENTS AND REPRESENTATIONS. All agreements,
------------------------------------------
representations and warranties made herein will survive the delivery of the Loan
Documents and shall be in full force and effect during the term of this
Agreement.
SECTION 9.3 MODIFICATIONS, CONSENTS AND WAIVERS. No modification, amendment
-----------------------------------
or waiver of or with respect to any provision of the Loan Documents, nor consent
to any departure by a party from any of the terms or conditions thereof shall in
any event be effective unless it is in writing and signed by the party against
whom such modification, amendment, waiver or consent is sought to be enforced.
Any such waiver or consent will be effective only in the specific instance and
for the purpose for which given. No consent to or demand on the Borrower in any
case will, of itself, entitle it to any other or further notice or demand in
similar or other circumstances.
SECTION 9.4 ENTIRE AGREEMENT. This Agreement and the other Loan Documents
----------------
embody the entire agreement and understanding between the Bank and the Borrower
and supersede all prior agreements and understandings relating to the subject
matter hereof.
SECTION 9.5 REMEDIES CUMULATIVE. Each and every right granted to the Bank
-------------------
hereunder or under any other document delivered hereunder or in connection
herewith, or allowed it by law or equity, is cumulative and may be exercised
from time to time. No failure on the part of the Bank or the holder of the Note
to exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor will any single or partial exercise of any right preclude any other
or future exercise thereof or the exercise of any other right.
20
SECTION 9.6 FURTHER ASSURANCES. At any time and from time to time, upon the
------------------
request of the Bank, the Borrower shall execute, deliver and acknowledge or
cause to be executed, delivered and acknowledged such further documents and
instruments and do such other acts and things as the Bank may reasonably request
to fully effect the purposes of the Loan Documents and any other agreements,
instruments and documents delivered pursuant hereto or in connection with the
Loan.
SECTION 9.7 NOTICES. All notices, requests, reports and other
-------
communications pursuant to this Agreement must be in writing, either by letter
(delivered by hand or commercial delivery service or sent by certified mail,
return receipt requested, except for routine reports which may be by ordinary
first class mail) or facsimile or telecopier, addressed as follows:
If to Borrower: Kopin Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇, Chief Financial Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Borrower's counsel: Chu, Ring & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Bank: The Sumitomo Bank, Limited
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Bank's Counsel: ▇▇▇▇ and ▇▇▇▇ LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any notice, request or communication hereunder will be deemed to have been given
(i) on the day on which it is delivered by hand to such party at its address
specified above, (ii) if sent by mail, on the third (3rd) Business Day following
the day it was deposited in the mail, postage prepaid, or (iii) if sent by
telecopy, when transmitted addressed as aforesaid on a Business Day during
normal business hours and receipt is confirmed, on such Business Day. Any party
may change the person or address to whom or which notices are to be given
hereunder, by notice duly given hereunder, provided, however, that any such
notice will be deemed to have been given hereunder only when actually received
by the party to which it is addressed.
21
SECTION 9.8 CONSTRUCTION; GOVERNING LAW.
---------------------------
(a) The headings used in this Agreement and the table of contents are for
convenience only and will not be deemed to constitute a part hereof. All
uses herein of the masculine gender or of singular or plural terms will be
deemed to include uses of the feminine or neuter gender or plural or
singular terms, as the context may require. All references herein
(including the definitions set out in Appendix A hereto) to any agreements
----------
shall be to such agreement as amended or modified to the date of reference.
All references to a particular entity shall include a reference to such
entity's successors and permitted assigns. The words "herein," "hereof"
and "hereunder" refer to this Agreement as a whole and not to any
particular section or subsection of this Agreement. "Including" means
"including, without limitation".
(b) THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT
REFERENCE TO ITS CONFLICT OF LAWS RULES.
SECTION 9.9 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE BANK HEREBY
--------------------
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, ANY LOAN DOCUMENT OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF
THE BORROWER OR THE BANK. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK
PROVIDING THE LOAN DESCRIBED HEREIN.
SECTION 9.10 JURISDICTION.
------------
(a) Each of the Borrower and the Bank hereby irrevocably and unconditionally
submits, for itself and its property, to service of process (directly or on
an agent) in Massachusetts to the nonexclusive jurisdiction of any
Massachusetts state court or Federal court of the United States of America
in each case sitting in Boston, and any appellate court handling an appeal
from any thereof, in any action or proceeding arising out of or relating to
this Agreement or any other Loan Agreement, or for recognition or
enforcement of any judgment, and the Borrower and the Bank hereby
irrevocably and unconditionally agree that all claims in respect of any
such action or proceeding may be heard and determined in such Massachusetts
state or, to the extent permitted by law, in such Federal court. Each of
the Borrower and the Bank agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law. Nothing in this Agreement shall affect any right that a party may
otherwise have to bring any action or proceeding relating to this Agreement
or any other Loan Agreement against any other party or its respective
properties in the court of any jurisdiction.
(b) Each of the Borrower and the Bank hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement in
any such Massachusetts state or Federal court. Each of the Borrower and
the Bank hereby irrevocably waives, to the fullest extent permitted by law,
the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
SECTION 9.11 RELATIONSHIP OF THE BORROWER AND THE BANK. The Borrower and
-----------------------------------------
the Bank agree that nothing contained in this Agreement or any other document
executed in connection with the Loan is intended or shall be construed to
establish the Borrower and the Bank as joint venturers or partners; and the
Borrower hereby indemnifies and agrees to hold the Bank, its officers,
directors, agents and employees harmless from any and all damages resulting
22
from such a construction of the relationship of the parties hereto, except any
such damage arising solely from the Bank's own gross negligence or willful
misconduct.
SECTION 9.12 CONFIDENTIALITY. The Bank agrees, on behalf of itself and each
---------------
of its affiliates, directors, officers, employees and representatives, to use
reasonable precautions to keep confidential, in accordance with their customary
procedures for handling confidential information of the same nature and in
accordance with safe and sound banking practices, any non-public information
supplied to it by the Borrower pursuant to this Agreement that is identified by
such person as being confidential at the time the same is delivered to the Bank,
provided that nothing herein shall limit the disclosure of any such information
--------
(a) after such information shall have become public other than through a
violation of this (S)9.12, (b) to the extent required by statute, rule,
regulation or judicial process, (c) to counsel for the Bank, (d) to bank
examiners or any other regulatory authority having jurisdiction over the Bank or
to auditors or accountants (e) in connection with any litigation to which the
Bank is a party, or in connection with the enforcement of rights or remedies
hereunder or under any other Loan Document, (f) to a subsidiary or affiliate of
the Bank, or (g) to any assignee (or prospective assignee) so long as such
assignee agrees to be bound by the provisions of this (S)9.12.
SECTION 9.13 SEVERABILITY. The provisions of this Agreement are severable,
------------
and if any clause or provision hereof shall be held invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or unenforceability
will affect only such clause or provision, or part thereof, in such jurisdiction
and will not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision in this Agreement in any
jurisdiction. Each of the covenants, agreements and conditions contained in this
Agreement is independent and compliance by the Borrower with any of them will
not excuse noncompliance by the Borrower with any other.
SECTION 9.14 BINDING EFFECT; ASSIGNMENT.
--------------------------
(a) This Agreement will be binding upon and inure to the benefit of the
Borrower and its successors and its assigns as permitted herein and to the
benefit of Bank and its successors and assigns.
(b) The rights and obligations of the Borrower under this Agreement may not be
assigned or delegated without the prior written consent of the Bank, and
any purported assignment or delegation without such consent shall be void.
(c) Bank, without the consent of the Borrower, may at any time assign or grant
participations to any other Person in all or part of its rights and
obligations under the Loan Documents; provided, however, that no such
-------- -------
assignment or participation may be made or shall be effective unless the
Bank shall have delivered prior notice thereof to the Borrower of the
proposed effective date and amount of such assignment or participation and
the identity of the proposed assignee or participant. The Bank shall be
the agent of all such assignees and participants for the purpose of the
receipt and delivery of funds and notices under the Loan Documents unless
the Borrower otherwise consents (which consent will not unreasonably be
withheld).
23
SECTION 9.15 COUNTERPARTS. This Agreement may be executed in
------------
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as an instrument under seal as of the date first above written.
KOPIN CORPORATION
By: /s/ ▇▇▇▇ ▇.▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------
Title: CFO
---
THE SUMITOMO BANK, LIMITED
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------
Title: Vice President & Manager
------------------------
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------
Title:Vice President
--------------
24
APPENDIX A TO LOAN AGREEMENT -- DEFINITIONS
-------------------------------------------
The following words shall have the meanings specified below in the Section of
the Agreement referred to below.
"ACCOUNTS" -- the Investment Account and the Custodian Account.
"ACTUAL CASH BURN" -- the amount of the actual reduction in the Borrower's
Cash and Cash Equivalents (including short-term and long-term investments) as
calculated as of the last day of each calendar quarter for the period commencing
with the first day of such quarter and ending on the last day of such calendar
quarter and as determined by the Bank, in its sole discretion, based upon the
financial reports delivered to Bank by Borrower pursuant to Article VI
(including without limitation the reports provided pursuant to Section 6.4).
"AFFILIATE" -- as to any Person, any other Person which directly or indirectly
controls, or is under common control with, or is controlled by, such Person. As
used in this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean possession directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise). The term "Affiliate" shall not
include any Person who controls another Person solely by virtue of such Person's
position as a corporate officer or director of such other Person.
"AGREEMENT" -- is defined in the Preamble.
"APPLICABLE MARGIN" -- for any Eurodollar Rate Loan portion shall be one and
one-half percent (1.50%).
"AUTHORIZED SIGNATORY" -- with respect to a corporation, any officer of such
corporation.
"BAILEE" -- is defined in Subsection 2.6(b).
"BANK" -- is defined in the Preamble.
"BORROWER" -- is defined in the Preamble.
"BUSINESS DAY" -- a day when commercial banks in both Boston, Massachusetts
and Chicago, Illinois and, in the case of setting the Reserve Adjusted
Eurodollar Rate, London, England, are open for business with respect to
transactions of the kind contemplated in this Agreement.
"CERCLA" -- is defined in Subsection 3.16(a).
"CASH AND CASH EQUIVALENTS" -- liquid investments, consisting of cash and cash
equivalents and other investments in investment grade securities, that are
classified on the Borrower's consolidated balance sheet as current, noncurrent,
long-term or restricted.
"CASH EQUIVALENT BALANCES" -- the aggregate amount of the lower of cost or
market value of Cash Equivalents, as reported in the Financial Statements.
"CLOSING DATE" -- February 27, 1998.
"CODE" -- the Internal Revenue Code of 1986, as amended.
25
"COLLATERAL BAILMENT AGREEMENT" -- the Collateral Bailment Agreement of even
date herewith by and between the Bank and Sumitomo Bank of New York Trust
Company.
"CONTROLLED GROUP" -- all members of a controlled group of corporations and
all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414(b), 414(c) or 414(m) of the Code and Section 4001(a)(2) of ERISA.
"CURRENT RATIO" -- the ratio of total current assets to total current
liabilities.
"CUSTODIAN ACCOUNT" -- is defined in Subsection 2.6(b).
"CUSTODIAN" -- is defined in Subsection 2.6(a).
"CUSTODIAN AGREEMENT" -- Custodian Agreement of even date herewith by and
between the Borrower and Sumitomo Bank of New York Trust Company.
"DEFAULT RATE" -- is defined in Subsection 2.3(c).
"DISBURSEMENT" -- a disbursement of available proceeds of the Loan.
"DISPOSAL," "DISPOSE(D)" -- as specified in RCRA and in the regulations
promulgated thereunder.
"ELECTION NOTICE" -- is defined in Subsection 2.1(c).
"EPA" -- is defined in Subsection 3.16(b).
"ENVIRONMENTAL LAWS" -- is defined in Subsection 3.16(b).
"ERISA" -- is defined in Section 3.15.
"EUROCURRENCY RESERVE PERCENTAGE" -- with respect to each Interest Period, a
percentage (expressed as a decimal) equal to the percentage (if any) in effect
two Business Days prior to the first day of such Interest Period, as prescribed
by the F.R.S. Board, for determining reserve requirements applicable to
"Eurocurrency liabilities" pursuant to Regulation D or any other then applicable
regulation of the F.R.S. Board which prescribes reserve requirements applicable
to "Eurocurrency liabilities," as presently defined in said Regulation D. For
purposes of this definition, Eurodollar Rate Loan Portions hereunder shall be
deemed to be "Eurocurrency liabilities" as defined in said Regulation D.
"EURODOLLAR RATE LOAN PORTION -- any portion of the Loan, which the Borrower
has notified the Bank (in accordance with the provisions of Section 2.1) is to
bear interest at the Reserve Adjusted Eurodollar Rate plus the Applicable Margin
for the applicable Interest Period.
"EURODOLLAR RATE" -- for any Eurodollar Rate Loan Portion, with respect to the
applicable Interest Period relating to such Eurodollar Rate Loan Portion, the
rate per annum (rounded up to the next whole multiple of 1/16 of 1%) equal to
the rate at which United States dollar deposits are offered to the Bank in the
London interbank Eurodollar market as of approximately 11:00 a.m., London,
England time, on the second Business Day prior to the first day of such Interest
Period for delivery in immediately available funds on the first day of such
Interest Period for the number of days in such Interest Period and in an amount
equal to the amount of the Eurodollar Rate Loan Portion.
"EVENT OF DEFAULT" -- is defined in Section 8.1.
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"FINANCIAL STATEMENTS"
(a) the audited consolidated balance sheet and consolidated statements of
operations, shareholders' equity and cash flows of Borrower for the fiscal
year then ended, together with the unqualified opinion of the independent
public accountants preparing such statements; and
(b) the quarterly unaudited consolidated balance sheet and unaudited
consolidated statements of operations, and cash flows for Borrower for the
fiscal quarters ended June, September and December, certified as to
accuracy by the chief financial officer or controller of Borrower,
provided, however, that such quarterly unaudited financial statements may
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
"FINANCING STATEMENT" -- a financing statement or statements on form UCC-1,
signed by the Borrower and describing the property in which the Bank has a
security interest under the Restricted Account and Security Agreement, all in
form and substance suitable for filing as a financing statement under Article 9
of the Uniform Commercial Code as enacted in Massachusetts and/or New York.
"HAZARDOUS SUBSTANCES" -- is defined in Subsection 3.16(b).
"INDEBTEDNESS" -- with respect to any Person:
(a) all indebtedness, liabilities or other obligations of such Person for
borrowed money or for the deferred purchase price of property or services
(excluding trade accounts payable and accrued obligations incurred in the
ordinary course of business) and any other liabilities, which in accordance
with generally accepted accounting principles would be included in
determining total liabilities as shown on the liability side of a balance
sheet of such Person at the date as of which such Indebtedness is to be
determined, excluding all operating lease obligations, as determined in
accordance with generally accepted accounting principles consistently
applied and any other contingent liabilities of such Person;
(b) all indebtedness, liabilities or obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or
businesses;
(c) all reimbursement and other obligations of such Person in respect of
letters of credit and bankers acceptance and all net obligations in respect
of interest rate swaps, caps, floors and collars, currency swaps, and other
similar financial products;
(d) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person;
(e) all obligations under leases which shall have been or should be, in
accordance with GAAP, recorded as capital leases; and
(f) all indebtedness of another Person of the types referred to in clauses (a)
through (e) guaranteed directly or indirectly in any manner by the Person
for whom Indebtedness is being determined, or in effect guaranteed directly
or indirectly by such Person through an agreement to purchase or acquire
such indebtedness, to advance or supply funds for the payment or purchase
of such indebtedness or otherwise assure a creditor against loss, or
secured by any Lien upon or
27
in property owned by the Person for whom Indebtedness is being determined,
whether or not such Person has assumed or become liable for the payment of
such indebtedness of such other Person.
"INTELLECTUAL PROPERTY RIGHTS" -- is defined in Section 3.11.
"INTEREST DIFFERENTIAL" -- with respect to any prepayment of a Eurodollar Rate
Loan Portion on a day other than an Interest Payment Date falling at the end of
the applicable Interest Period, the sum of: (a) the per annum interest rate
payable with respect to such Eurodollar Rate Loan Portion as the date of the
prepayment minus (b) what the Reserve Adjusted Eurodollar Rate plus the
-----
Applicable Margin would have been on, or as near as practicable to, the date of
the prepayment for a Eurodollar Rate Loan Portion for a period commencing on
such date and ending on the last day of the applicable Interest Period. The
determination of the Interest Differential by the Bank shall be conclusive in
the absence of manifest error.
"INTEREST PAYMENT DATE" -- with respect to any Loan Portion, the earlier to
occur of (a) the last Business Day of each calendar month occurring within an
Interest Period; or (b) the last day of each applicable Interest Period; or (c)
the date that the Loan Portion is due by either the occurrence of Maturity Date
or an Event of Default having occurred and the maturity of the Loan having been
accelerated pursuant to the terms of the Loan Documents.
"INTEREST PERIOD" -- as to any Eurodollar Rate Loan Portion, the period
commencing on the date of the initial funding of such Eurodollar Rate Loan
Portion or the last day of the immediately preceding Interest Period for any
Eurodollar Rate Loan Portion that is to be continued as a Eurodollar Rate Loan
Portion and ending, with respect to such Eurodollar Rate Loan Portion, on the
numerically corresponding day (or if there is no numerically corresponding day,
on the last day), in the calendar month that is one, two, three, six or, if
available, twelve months thereafter, in each case as the Borrower may elect in
the Election Notice; provided however, that (a) no Interest Period with respect
to any Eurodollar Rate Loan Portion shall end later than the Maturity Date, (b)
if an Interest Period would end on a day that it is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless
such next succeeding day would fall in the next calendar month, in which case,
such Interest Period shall end on the immediately preceding Business Day, and
(c) interest shall accrue from and including the first day of an Interest Period
to but excluding the last Business Day of such Interest Period.
"INTEREST RESERVE" -- on any date of determination means an amount equal to
the interest that would accrue in three months on an amount equal to the
principal balance of the Loan outstanding on such date of determination.
"INVESTMENT ACCOUNT" -- is defined in Subsection 2.6(a).
"IRREVOCABLE INSTRUCTIONS AND POWER OF ATTORNEY" -- is defined in Subsection
2.6(b).
"IRS" -- is defined in Subsection 3.15(a).
"LIEN" -- any mortgage, deed of trust, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement and any lease
in the nature of a security interest or lien).
"LOAN" -- is defined in Section 2.1.
"LOAN DOCUMENTS" -- this Agreement, the Note, the Restricted Account and
Security Agreement, the Collateral Bailment Agreement, the Irrevocable
Instructions and Power of Attorney, the Custodian Agreement, and all other
documents executed and delivered in connection herewith or therewith, including
all amendments, modifications and supplements of or all such documents.
28
"LOAN FEE" -- is defined in Subsection 2.3(d).
"LOAN PORTION" -- as the circumstances or context warrants, the portion of the
Loan which is a Eurodollar Rate Loan Portion, or Prime Rate Loan Portion.
"MATURITY DATE" -- December 31, 2002.
"MINIMUM AMOUNT" -- the sum of all Cash and Cash Equivalents equal to the
amounts and during the periods set forth in the chart below:
--------------------------------------------------------------------------------
For The Period: Minimum Amount
--------------------------------------------------------------------------------
From the Closing Date through and including January 31, 1999 $7,500,000
--------------------------------------------------------------------------------
February 1, 1999 through and including January 31, 2000 $6,000,000
--------------------------------------------------------------------------------
February 1, 2000 through and including January 31, 2001 $4,500,000
--------------------------------------------------------------------------------
February 1, 2001 through and including January 31, 2002 $3,000,000
--------------------------------------------------------------------------------
February 1, 2002 and thereafter $1,500,000
--------------------------------------------------------------------------------
"NET CASH LEVEL" -- the aggregate amount of the market value of Cash and Cash
Equivalents less otherwise restricted cash and amounts which may be restricted
in the future pursuant to existing or future agreements between the Borrower and
third parties, including, without limitation, pursuant to this Agreement.
"NET WORTH" -- an amount equal to the Total Assets minus Total Debt.
"NOTE" -- is defined in Section 2.1.
"PBGC" -- is defined in Subsection 3.15(a).
"PERMITTED LIEN" -- is defined in Section 7.1.
"PERMITTED PURCHASE MONEY LIENS" -- purchase money security interests in
personal property acquired after the date hereof to secure purchase money
Indebtedness, to the extent that the amount of money borrowed does not exceed
the value of the personal property purchased, and the security interest granted
does not extend beyond the personal property purchased.
"PERSON" -- an individual, a corporation, a partnership, a joint venture, a
trust or unincorporated organization, a joint stock company or other similar
organization, a government or any political subdivision thereof, a court, or any
other legal entity, whether acting in an individual, fiduciary or other
capacity.
"PLAN(S)" -- is defined in Subsection 3.15(a) hereof.
"PRIME RATE" -- the higher of (i) interest rate which the Bank announces from
time to time as its floating prime rate in the United States and (ii) the
federal funds rate announced from time to time plus one-half percent (0.50%).
29
"PRIME RATE LOAN PORTION" -- any portion of the Loan which bears interest at
the Prime Rate as provided in Section 2.1 or 2.7.
"RCRA" -- is defined in Subsection 3.16(a).
"R&D TRANSACTION" -- is defined in Subsection 7.2(c).
"REGULATORY CHANGE" -- any change after the date of this Agreement in United
States federal, state or local laws or regulations or the adoption or making
after such date of any interpretations, directives or requests applying to a
class of banks including the Bank of or under any United States federal, state,
or local laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"RELEASE" -- as specified in CERCLA.
"REPORTING PERIOD" -- a fiscal quarter of the Borrower.
"REQUIRED RESTRICTED ACCOUNT BALANCE" -- on and after a Trigger Event has
occurred, the sum of the Borrower's then outstanding principal balance of the
Loan plus the Interest Reserve.
----
"RESERVE ADJUSTED EURODOLLAR RATE" -- with respect to any Eurodollar Rate Loan
Portion for any Interest Period, a rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined pursuant to the following
formula:
Reserve Adjusted = Eurodollar Rate
--------------------------------------------
Eurodollar Rate 1 - Eurocurrency Reserve Percentage
"RESTRICTED ACCOUNT AND SECURITY AGREEMENT" -- the Restricted Account and
Security Agreement of even date herewith by and between the Bank, the Bailee and
the Borrower.
"RESTRICTED ACCOUNT BALANCE" -- the sum of all Cash and Cash Equivalents and
any other investments on deposit in the Custodian Account, the amount of such
Cash Equivalents or investments to be calculated at the lower of cost or market
value.
"▇▇▇▇" -- is defined in Subsection 3.16(a).
"SUBSIDIARY" -- any person of which the Borrower owns directly or indirectly:
(i) sufficient capital stock to enable it to elect at least a majority of the
board of directors or similar managing body of such person, or (ii) capital
stock with rights under the charter documents of such Person to elect a director
or similar managing official with the power to veto material business decisions
and organizational changes.
"TAXES" -- is defined in Subsection 2.5(a).
"TOTAL ASSETS" -- total assets as determined in accordance with generally
accepted accounting principles, consistently applied; provided, however, that
Total Assets shall be reduced by the amount (if any) of intangible assets (other
than intangible assets consisting of patent and trademark costs as shown on the
Company's Financial Statements and determined in accordance with, and consistent
with, both generally accepted accounting principals consistently applied and the
Company's accounting practices prior to the date hereof).
30
"TOTAL DEBT" -- the aggregate amount of the Borrower's Indebtedness,
including, without limitation all loans owing by the Borrower (including loans
hereunder) and all capital lease obligations of the Borrower.
"TRIGGER EVENT" -- is defined in Section 5.10.
"UCC" -- the Uniform Commercial Code in effect from time to time in the
relevant jurisdiction.
31
