50063/12MN01!.DOC 7
Exhibit 4.2(a)
LOAN AGREEMENT
THIS LOAN AGREEMENT, made and entered into this 24th day of
June, 1996, by and between ABERDEEN DEVELOPMENT CORPORATION, a
South Dakota corporation with principal offices at 514.5 South
Main Street, PO Box 1179, Aberdeen, South Dakota 57402-1179,
hereinafter called "LENDER", and APA OPTICS, INC., a Minnesota
for profit corporation with principal offices at 2950 N.E. 84th
Lane, Blaine, Minnesota 55449, hereinafter called "BORROWER",
W I T N E S S E T H:
THAT IN CONSIDERATION OF THE COVENANTS AND CONDITIONS
HEREINAFTER CONTAINED IT IS HEREBY MUTUALLY AGREED AS FOLLOWS:
1. That LENDER agrees to loan to BORROWER and BORROWER
agrees to borrow funds from Aberdeen Development Corporation
pursuant to the terms and conditions of this Loan Agreement, the
sum of $700,000.00 which shall be evidenced by APA Optics, Inc.
signing a Promissory Note in favor of the Aberdeen Development
Corporation in the sum of $700,000.00 to be paid over twenty (20)
years with interest at the rate of 3% per annum. Interest shall
be calculated from January 1st to December 31st each year and
predicated on 365 days. Payments shall be applied first to
interest then to principal as payments are made and required
hereunder.
Payments in the amount of $3,882.18 to begin on or before
July 24, 1996 and a like amount thereafter due and payable on the
24th day of each month thereafter until June, 2002, when all
remaining principal and interest shall be paid.
The Borrower shall be entitled to a credit (the "Job
Credit") on all payments due under the Promissory Note to be
calculated as follows: The Job Credit shall be calculated based
on the full time employees employed by the Borrower at its
facility (the "Facility") in Aberdeen, South Dakota, at the end
of each year during the term of the Promissory Note. The basic
Job Credit each year shall be $7,500.00 times the increase in the
number of full time employees at the Facility at the end of that
year compared to the number of such employees at the end of the
immediately preceding year. The Borrower shall be entitled to an
additional Job Credit each year equal to 12.5% times the amount
by which (a) the annualized total payroll (including all fringe
benefits and bonuses) for all full time employees at the Facility
during December of that year exceeds (b) $20,000.00 times the
number of full time employees at the Facility at the end of that
year. The Job Credit shall be determined by the Borrower and the
Lender by January 31 of each year for the prior year. For
purposes of performing the calculation, "full time employee"means
any employee assigned to the Facility working more than an
average of 30 hours per week.
The Borrower may at its option apply the Job Credit
calculated in January of each year to (a) the monthly
installments due during that year or to (b) later installments or
the balloon payment.
In no event shall the aggregate Job Credit during the life
of the Promissory Note, together with the job credit allowed
under the $300,000.00 Promissory Note from the Borrower to the
Lender dated as of the date hereof exceed $750,000.00.
A job credits calculation is explained below:
Job Credits
Additi Addit Base Exces Base Exce Tota
Year onal ional Payro s Payro ss Tota l To
Employ Payro ll Payro ll Payr l Date
ees ll ll oll
1 20 600,0 400,0 200,0 150,0 25,0 175, 175,
00 00 00 00 00 000 000
2 20 650,0 400,0 250,0 150,0 31,2 181, 356,
00 00 00 00 50 250 250
3 40 1,400 800,0 600,0 300,0 75,0 375, 731,
,000 00 00 00 00 000 250
4 35 1,250 700,0 550,0 18,75 0 18,7 750,
,000 00 00 0 50 000
TOTA 115 3,900 2,300 1,600 618,7 131, 750,
L ,000 ,000 ,000 50 250 000
BORROWER shall issue warrants to LENDER in accordance with a
Warrant Agreement for purchase of common stock dated as of the
date hereof.
Payments shall be made by BORROWER to LENDER at LENDER'S
address hereinafter set forth.
Borrower may prepaid the obligation represented by this
agreement, both principal and interest, at any time without any
penalty whatsoever.
Borrower will establish a budget for construction of
facility and acquisition of equipment, etc. for that facility for
an amount of $3,200,000.00. Borrower further covenants and
agrees that for the first 24 months following execution of this
Agreement it will provide Lender with an accounting reflecting
expenditures made under budget from the proceeds provided by
Lender to Borrower under this Agreement.
2. Whenever and wherever time appears herein time shall be
considered of the essence.
3. For purpose of this agreement all notice or notices
given shall be sent as follows:
To LENDER:
Aberdeen Development Corporation
514.5 South Main Street
PO Box 1179
Aberdeen, SD 57402-1179
To BORROWER:
APA Optics, Inc.
2950 N.E. 84th Lane
Blaine, MN 55449
4. The Borrower agrees with Lender and represents as
follows:
A. Borrower shall carry key man life insurance on Dr. Anil
Jain, as principal officer, in an amount of
$2,000,000.00 and shall give proof of the carrying of
such coverage to Lender and, if requested, shall
provide a duplicate or specimen policy and, similarly,
Borrower shall give proof on an annual basis of the
payment of premiums on said life insurance policy so
long as this agreement and the debt represented thereby
is outstanding.
B. Borrower represents its current senior management are:
Jain, Khan, Olsen and Becker and that these individuals
are management and any change in management for
whatever reason shall result in Borrower being required
to give notice to the that effect to Lender.
C. Borrower covenants that as of the date of this
agreement the company is free from any union
representation and that as of the date of this
agreement there is not active organizational campaign
going on seeking representation for Borrower's
employees.
D. Borrower covenants that as of the date of this
agreement the equipment both at its Blaine operation
and at Aberdeen, or to be acquired for Aberdeen, will
be provided by exhibit to this agreement and that
current equipment as represented has not changed as to
ownership or placement or location nor is any exhibited
equipment subject to any lease with Borrower being the
lessee thereof except for leases of equipment with an
aggregate book value not in excess of $100,000.00.
Borrower covenants further that if any or all of the
equipment from either the Blaine, Minnesota plant or
Aberdeen, South Dakota plant, at any time during the
term of this agreement while said loan is in place and
remains unpaid, is removed without the permission or
consent of Lender that this will constitute a condition
of default and Borrower may declare the full sum due
and owing payable immediately. Provided, however, that
Borrower may remove for resale or trade-in purposes
equipment having for that purpose a value of $15,000.00
per transaction with the further understanding that in
no event will Borrower remove property for resale or
trade or for surplus or obsolescence having annually a
total value of $75,000.00 while this Agreement is still
in full force and effect.
E. Borrower further covenants that as of the date of this
agreement all tax obligations and liabilities on
properties whether at Blaine, Minnesota or to be used
in the Aberdeen, South Dakota project are current and
paid and no deficiency or delinquency exists and that
Borrower covenants and agrees that it will continue to
keep all tax payments and liabilities, whether real
property or personal property, paid and current so that
the same are not in default and in the event of default
acknowledges that Lender may make those payments and
add any of those payments to the obligation under this
agreement, shall add interest thereto and it shall
become a continuing and ongoing obligation of Borrower
until paid.
F. Borrower covenants and agrees that it will maintain
life insurance as previously in this agreement
mentioned and will similarly carry general liability in
the amounts as set forth in Certificate of Insurance
exhibit attached to this agreement and as set forth as
follows:
General aggregate $1,000,000
Products-comp aggregate $1,000,000
Personal and ADY injury $1,000,000
Each occurrence $1,000,000
Fire damage (any one fire) $100,000
Medical expenses (any one person) $5,000
Automobile liability - combined single limit
$1,000,000
Excess liability (each occurrence). $3,000,000
Borrower covenants and agrees that it will furnish
proof of coverage and proof of payment so long as this
agreement shall remain in full force and effect.
G. Borrower covenants and agrees that it has a reporting
obligation to Lender so long as the obligation under
this agreement remains in effect to report as to the
business condition and in addition agrees that it will
provide to the observer, who will be an agreed party to
represent the interest of Lender, all financial data
and information reasonably sought by such observer and
further covenants and agrees that information shall be
prepared in accordance with accepted accounting
standards consistent with FASBE regulations and shall
no less frequently than quarterly provide a statement
of operations of the business of APA OPTICS, INC. at
both its Blaine, Minnesota and Aberdeen, South Dakota
operations.
H. Borrower covenants that so long as this agreement is
outstanding or any debt represented thereby is still
due and owing that it will indemnify and hold harmless
Lender from any cause of action, claim or proceeding
brought by any person, partnership, corporation or any
entity whatsoever against Lender for any claim or
demand arising out of the operation of APA OPTICS,
INC., Blaine, Minnesota or Aberdeen, South Dakota, and
further agrees to provide defense costs, including
reasonable attorney's fees to Lender, by reason of it
being involved in such litigation.
I. In addition to this agreement Borrower covenants and
agrees to execute appropriate security agreements
covering only its equipment in the Blaine, Minnesota
plant and its personal property in the ultimate
Aberdeen, South Dakota facility, provided, however,
that when Borrower's obligation to Lender for this
Agreement, and for any and all other financial
agreements cumulatively, has an unpaid balance of
$250,000.00 plus the remaining balance on the
$250,000.00 note from the Borrower to the Lender dated
as of the date hereof, then Lender covenants and agrees
to satisfy and cancel the security agreements then in
place and outstanding.
J. Borrower covenants and agrees that it will pay all
costs, expenses and fees in connection with this and
other loan agreements as relates to the Aberdeen, South
Dakota project, which includes but is not necessary
limited to recording fees, filing fees or other costs
incurred by any public entity by reason of
acknowledgment of any documentation or records
supporting this loan environment.
K. Borrower covenants and agrees that in the event of
default of any of the warranties, representatives,
conditions or covenants of Borrower that Lender at its
sole option and discretion shall have the right to
determine whether or not such default shall constitute
significant default for the purpose of declaring the
full sum due under this agreement immediately due and
payable or whether to allow or permit Borrower to
correct such default. Such action on the part of
Borrower in any case shall be no later than 30 days
from the date of the occurrence of such default.
5. This agreement shall be governed by the laws of the
state of South Dakota regardless of the residence, personal or
corporate, of any of the parties to this agreement.
6. This agreement may be executed in original and in one
or more counterparts but shall constitute one and in the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be executed the day and year first above written.
ABERDEEN DEVELOPMENT CORPORATION
By /s/ Rodney Fouberg
Its President
ATTEST: LENDER
/s/ James C. Barringer_________
Its Executive Vice President
WITNESS:
/s/ Cheryl A.Olson
APA OPTICS, INC.
By: /s/ Anil Jain
Dr. Anil Jain
Its President
ATTEST: BORROWER
/s/ Kenneth A. Olsen
Its Vice President
WITNESS:
/s/ Randal J. Becker
Prepared by:
MALONEY & MALONEY
PO Box 755
Aberdeen, SD 57402-0755
605/229-2752