EXHIBIT 10.19
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT, dated as of November 15, 2004 is by and
between IPG PHOTONICS CORPORATION, a Delaware corporation with a principal place
of business at 50 Old Webster Road, Oxford, Massachusetts 01540 (the "Borrower")
and BANKNORTH, N.A., a national banking association with its principal office at
370 Main Street, Worcester, Massachusetts 01608 (the "Lender").
WITNESSETH:
BACKGROUND. The Borrower has requested the Lender to lend it up to the sum of
$3,000,000.00 on a revolving line of credit basis (the "Loan"), and the Lender
is willing to do so upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises herein contained, and each
intending to be legally bound hereby, the parties agree as follows:
ARTICLE 1.0 DEFINITIONS
As used herein:
"Accounts", "Chattel Paper", "Collateral", "Commercial Tort Claims",
"Contracts", "Deposit Accounts", "Documents", "Electronic Chattel Paper",
"Equipment", "Financial Assets", "Fixtures", "General Intangibles", "Goods",
"Instruments", "Inventory", "Investment Property", "Letter-of-Credit-Rights",
"Payment Intangibles", "Promissory Notes", "Supporting Obligations" and
"Tangible Chattel Paper" shall have the same respective meanings as are given to
those terms in the Uniform Commercial Code as presently in effect in The
Commonwealth of Massachusetts, if not otherwise defined in this Agreement.
"Affiliate" means, as to any Person, each other Person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
under common control with, such Person.
"Agreement" means this Loan and Security Agreement (together with any and all
schedules and exhibits attached from time to time hereto), as the same may from
time to time be amended, modified or supplemented.
"Blocked Account Deposit Agreement" means the Blocked Account Deposit Agreement
dated as of January 16, 2002 between the Borrower and the Lender with respect to
the Blocked Account, as amended by a First Amendment to and Ratification of
Blocked Account Deposit Agreement dated as of even date herewith in the form
attached hereto as Exhibit 1.01(A).
"Blocked Account" means Money Market Deposit Account No. 8720483150, IPG
PHOTONICS CORPORATION for the benefit of Banknorth, N.A., Blocked Account.
"Borrowing Base" means, at any time, the amount computed on the Borrowing Base
Certificate most recently delivered to, and accepted by, the Lender in
accordance with this Agreement and equal to the lesser of:
(A) $3,000,000.00; or
(B) Seventy-five percent (75%) of the Eligible Accounts of the Borrower.
"Borrowing Base Certificate" means a fully completed certificate in the form of
Exhibit 1.01(B) to this Agreement, and to include the worksheets, supporting
documentation and schedules as may be required by the Lender, certified by the
chief financial officer or chief accounting officer of the Borrower to be
correct and delivered to, and accepted by, the Lender pursuant to Section
3.01(Q) or Section 6.01(B)(7).
"Business Day" means a day other than a Saturday, a Sunday, or a day on which
commercial banks in Worcester, Massachusetts are authorized to close.
"Change in Control" means any circumstance by which forty-nine percent (49%) or
more of the aggregate voting power of the Borrower's voting stock is directly or
indirectly transferred from the current ownership of such voting power of the
voting stock of the Borrower.
"Closing" has the meaning given to such term in Section 3.01.
"Collateral" has the meaning given to such term in Section 4.01.
"Current Assets" means, at any time, all assets that, in accordance with GAAP,
should be classified as current assets on a balance sheet of the Borrower and
its Subsidiaries.
"Demand Note" means the Demand Note referred to in Section 2.03.
"Eligible Account" means, at any time, an Account that the Lender in its sole
discretion, determines is eligible for inclusion in the Borrowing Base and that
conforms and continues to conform to each of the following conditions:
(A) The Account arose from a bona fide outright sale of Goods by the
Borrower or from services performed by the Borrower, and such Goods have been
shipped to the appropriate account debtors or their designees (or the sale has
otherwise been consummated), or the services have been performed for the
appropriate account debtors;
(B) The Account is based upon an enforceable order or contract, written or
oral, for Goods shipped or held or for services performed, and the same were
shipped, held, or performed in accordance with such order or contract;
(C) The title of the Borrower to the Account and, except as to the account
debtor, to any Goods is absolute and is not subject to any prior assignment,
claim, lien, or security interest, except Permitted Liens;
(D) The amount shown on the books of the Borrower and on any invoice or
statement delivered to the Lender is owing to the Borrower, less any partial
payment that has been made thereon by anyone;
(E) The Account is not subject to any claim of reduction, counterclaim,
set-off, recoupment, or any claim for credits, allowances, or adjustments by the
account debtor because of returned, inferior, or damaged Goods or unsatisfactory
services, or for any other reason, except for customary discounts not to exceed
two percent (2%) allowed for prompt payment;
(F) The account debtor has not returned or refused to retain, or otherwise
notified the Borrower of any dispute concerning, or claimed nonconformity of,
any of the Goods or services from the sale of which the Account arose;
(G) The Account is due and payable not more than sixty (60) days from the
date of the invoice therefor;
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(H) The Account is not more than sixty (60) days past due nor outstanding
more than ninety (90) days from the date of the invoice therefor;
(I) The Account is not with an account debtor which has outstanding, at any
time, fifty percent (50%) or more of its accounts on an aggregate basis for a
period of ninety (90) days from the date of the invoice therefor;
(J) The Account does not arise out of a contract with, or order from, an
account debtor that, by its terms, forbids or makes void or unenforceable the
assignment by the Borrower to the Lender of the Account arising with respect
thereto;
(K) The Borrower has not received any note, trade acceptance, draft, or
other Instrument with respect to, or in payment of, the Account, nor any Chattel
Paper with respect to the Goods giving rise to the Account, unless, if any such
Instrument or Chattel Paper has been received, the Borrower immediately notifies
the Lender and, at the latter's request, endorses or assigns and delivers the
same to the Lender and the Lender accepts same;
(L) The Borrower has not received any notice of the death of the account
debtor or a partner thereof; nor of the dissolution, termination of existence,
insolvency, business failure, appointment of a receiver for any part of the
property of, assignment for the benefit of creditors by, or the filing of a
petition in bankruptcy or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against, the account debtor. Upon the
receipt by the Borrower of any such notice, it will immediately give the Lender
written advice thereof;
(M) The account debtor is not an officer, agent, employee, shareholder
(other than JDS Uniphase), director, Subsidiary or other Affiliate of, or a
sales representative for, the Borrower; and
(N) The Lender has not deemed such Account ineligible because of
uncertainty about the creditworthiness of the account debtor or because the
Lender determines, in the exercise of its business judgment, otherwise
reasonably considers the collateral value thereof to the Lender to be impaired
or its ability to realize such value to be insecure.
In addition to the foregoing, Eligible Account shall mean any amount
receivable by the Borrower under any insurance policy covering Goods which have,
within the preceding forty-five (45) days, been damaged or destroyed by fire or
other direct casualty loss, provided that a claim therefor has been made in
compliance with such insurance policy, to the extent that such claim has not
been in any way denied or contested by the insurer and provided that such
insurer, if such insurer were an account debtor of the Borrower, would be a
qualified account debtor under this Section.
The enumeration of the aforementioned conditions shall not in any way alter
the right of the Lender, in its sole discretion, to exclude any Account from
being an Eligible Account for any purposes hereunder.
In the event of any dispute under the foregoing criteria as to whether an
Account is or has ceased to be an Eligible Account, the decision of the Lender
shall control.
"Event of Default" has the meaning provided in Section 7.01.
"Financial Statements" means those financial statements presented to the Lender
by the Borrower in connection with the underwriting of the Loan as more
particularly described in Exhibit 1.01(C) attached hereto.
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"Financing Statements" means those certain Uniform Commercial Code Financing
Statements duly authorized and authenticated by the Borrower and duly filed or
recorded for the benefit of the Lender, as from time to time supplemented or
amended.
"Fixed Assets" means, at any time, all assets (other than Current Assets) that
should, in accordance with GAAP, be classified as assets on a balance sheet of
the Borrower and its Subsidiaries.
"GAAP" means generally accepted accounting principles applied consistently, with
such changes or modifications thereto as may be approved in writing by the
Lender.
"Guarantor" means Valentin P. Gapontsev.
"Guaranty" means with respect to the Guarantor, a duly authorized and executed
Limited Guaranty dated as of even date herewith in the form attached hereto as
Exhibit 1.01(D), as may be ratified or amended from time to time.
"Indebtedness" means, as to the Borrower or any Subsidiary, all items of
indebtedness, obligation or liability whether joint or several, matured or
unmatured, liquidated or unliquidated, direct or contingent, including without
limitation:
(A) All indebtedness guarantied, directly or indirectly, in any manner, or
endorsed (other than for collection or deposit in the ordinary course of
business) or discounted with recourse;
(B) All indebtedness in effect guarantied, directly or indirectly, through
agreements, contingent or otherwise: (1) to purchase such indebtedness; or (2)
to purchase, sell, or lease (as lessee or lessor) property, products, materials,
or supplies or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such indebtedness or to insure the owner
of the indebtedness against loss; or (3) to supply funds to, or in any other
manner invest in, the debtor;
(C) All indebtedness secured by (or for which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest, or other charge or
encumbrance upon property owned or acquired subject thereto, whether or not the
liabilities secured thereby have been assumed; and
(D) All indebtedness incurred as the lessee of goods or services under
leases that, in accordance with GAAP, should not be reflected on the lessee's
balance sheet.
"Intellectual Property" means trademarks, service marks, trade names, trade
styles, logos, goodwill, trade secrets, patents, applications, and licenses
acquired under any statutory, common law or registration process in any state or
nation at any time, or under any agreement executed with any person or entity at
any time. The term "license" refers not only to rights granted by agreement from
the owner of patents, trade marks, service marks and the like, but also to
rights granted by a franchisor under a franchise or similar agreement. The
foregoing enumeration is not intended as a limitation of the meaning of the word
"license".
"Intercreditor Agreement" means that certain Intercreditor Agreement dated as of
November 15, 2004 by and between the Lender and JDS Uniphase, as from time to
time amended.
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"IP Fibre Devices" means IP Fibre Devices (UK) Limited, a company registered in
England and Wales with Company Number 2989622, whose registered office is at
Stuart House, 59 Catherine Place, London.
"IP Fibre Devices Subordination Agreement" means that certain Subordination
Agreement by and between IP Fibre Devices and the Lender dated as of November
15, 2004, as from time to time amended.
"JDS Uniphase" means JDS Uniphase Corporation, a Delaware corporation.
"JDS Uniphase Subordination Agreement" means that certain Subordination
Agreement by and between JDS Uniphase and the Lender dated as of November 15,
2004, as from time to time amended.
"Laws" means all ordinances, statutes, rules, regulations, orders, injunctions,
writs, or decrees of any government or political subdivision or agency thereof,
or of any court or similar entity established by any thereof.
"Liabilities" means all Indebtedness that, in accordance with GAAP, should be
classified as liabilities on a balance sheet of the Borrower and its
Subsidiaries.
"Loan Documents" includes the Notes, the Guaranty, the Blocked Account Deposit
Agreement, the Mortgage and the documents, whether deliverable at or after the
Closing, required under Article 4.0.
"Mortgage" means that certain Mortgage and Security Agreement dated as of April
28, 2000 and recorded with the Worcester District Registry of Deeds (the
"Registry") in Book 22541, Page 78 as amended by First Amendment to Mortgage and
Security Agreement dated as of April 10, 2001 and recorded with the Registry in
Book 23885, Page 74, and by Second Amendment to Mortgage and Security Agreement
dated as of even date herewith, to be recorded with the Registry, in the form
attached hereto as Exhibit 1.01(E), as from time to time supplemented or
amended.
"Mortgage Note" means that certain Promissory Note dated April 10, 2001 in the
face amount of $8,560,000.00 issued by the Borrower to the Lender.
"Mortgaged Property" means the property owned by the Borrower and located on Old
Webster Road, Oxford, Massachusetts, as such term is defined in the Mortgage.
"Notes" means the Demand Note and the Mortgage Note, individually and
collectively.
"Obligations" is intended to be used in its most comprehensive sense and means
the obligation of the Borrower to the Lender of whatever kind and description,
whether direct or indirect, absolute or contingent, primary or secondary, joint
or several, due or to become due, or held or to be held by, the Lender for its
own account or as agent for another or others, whether created directly or
acquired by assignment or otherwise and howsoever evidenced, whether now
existing or hereafter incurred or acquired and whether by way of loan, guaranty,
discount, letter of credit, lease or otherwise, including without limitation,
the following obligations:
(A) To pay the principal of, and interest on, the Notes in accordance with
the terms thereof and to satisfy all other liabilities to the Lender, whether
hereunder or otherwise, whether now existing or hereafter incurred, matured or
unmatured, direct or contingent, joint or several, including any extensions,
modifications, renewals thereof and substitutions therefor.
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(B) To repay to the Lender all amounts advanced by the Lender hereunder or
otherwise on behalf of the Borrower, including, but without limitation, advances
for principal or interest payments to prior secured parties, mortgagees, or
lienors, or for taxes, levies, insurance, rent, or repairs to, or maintenance or
storage of, any of the Collateral;
(C) To perform and observe all covenants, agreements and undertakings of
the Borrower pursuant to the terms and conditions of this Agreement, the Notes,
the Loan Documents or any other agreement or instrument now or hereafter
delivered to the Lender by the Borrower;
(D) All obligations under any interest rate swap agreement, foreign
exchange contract, any cap, floor or hedging agreement or other similar
agreement, or other financial agreement or arrangement designed to protect the
Borrower against fluctuations in any interest rate charged by the Lender under
the Notes or otherwise, including any obligations of the Borrower arising out of
or in connection with any Automated Clearing House ("ACH") Agreement relating to
the processing of ACH transactions, together with all fees, expenses, charges
and other amounts owing by or chargeable to the Borrower under any ACH
Agreement;
(E) All obligations to reimburse the Lender, on demand, in connection with
overdrafts and other amounts due to the Lender under any existing or future
agreements relating to cash management services; and
(F) All obligations to reimburse the Lender, on demand, for all of the
Lender's expenses and costs, including without limitation the reasonable fees
and expenses of its counsel, in connection with the preparation, administration,
amendment, modification, or enforcement of this Agreement and the documents
required hereunder or related hereto, including, without limitation, any
proceeding brought, or threatened, to enforce payment of any of the obligations
referred to in the foregoing Paragraphs (A) through (E).
"Perfection Certificate" means a duly authorized and executed Perfection
Certificate from the Borrower in the form of Exhibit 1.01(F) to this Agreement.
"Permitted Investments" means: (a) direct obligations of, or obligations the
principal of and interest on which are unconditionally guaranteed by, the United
States of America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America), in each
case maturing within one year from the date of acquisition thereof; (b) without
limiting the provisions of paragraph (d) below, investments in commercial paper
maturing within one year from the date of acquisition thereof and having, at
such date of acquisition, a rating of at least "A-2" or the equivalent thereof
from Standard & Poor's Corporation or of at least "P-2" or the equivalent
thereof from Moody's Investors Service, Inc.; (c) investments in certificates of
deposit, bankers' acceptances and time deposits (including Eurodollar time
deposits) maturing within one year from the date of acquisition thereof issued
or guaranteed by or placed with (i) the Lender or (ii) any domestic office of
any other commercial bank of recognized standing organized under the laws of the
United States of America or any State thereof that has a combined capital and
surplus and undivided profits of not less than $250,000,000 and is the principal
banking Subsidiary of a bank holding company having a long-term unsecured debt
rating of at least "A-2" or the equivalent thereof from Standard & Poor's
Corporation or at least "P-2" or the equivalent thereof from Moody's Investors
Service, Inc.; (d) investments in commercial paper maturing within one year from
the date of acquisition thereof and issued by (i) the holding company of the
Lender or (ii) the holding company of any other commercial bank of recognized
standing organized under the laws of the United States of America or any State
thereof that has
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(A) a combined capital and surplus in excess of $250,000,000 and (B) commercial
paper rated at least "A-2" or the equivalent thereof from Standard & Poor's
Corporation or of at least "P-2" or the equivalent thereof from Moody's
Investors Service, Inc.; (e) investments in repurchase obligations with a term
of not more than seven days for underlying securities of the types described in
clause (a) above entered into with any office of a bank or trust company meeting
the qualifications specified in clause (c) above; (f) investments in money
markets funds substantially all the assets of which are comprised of securities
of the types described in clauses (a) through (e) above.
"Permitted Liens" means:
(A) Liens for taxes, assessments, or similar charges, incurred in the
ordinary course of business, that are not yet due and payable;
(B) Pledges or deposits made in the ordinary course of business to secure
payment of worker's compensation, or to participate in any fund in connection
with worker's compensation, unemployment insurance, old-age pensions, or other
social security programs;
(C) Liens of mechanics, materialmen, repairmen, warehousemen, carriers, or
other like liens, securing obligations incurred in the ordinary course of
business that are not yet due and payable;
(D) Good faith pledges or deposits not exceeding an aggregate amount of
$150,000.00 made in the ordinary course of business to secure performance of
bids, tenders, contracts (other than for the repayment of borrowed money) or
leases, not in excess of thirty percent (30%) of the aggregate amount due
thereunder, or to secure statutory obligations, or surety, appeal, indemnity,
performance, or other similar bonds required in the ordinary course of business;
(E) Encumbrances consisting of zoning restrictions, easements, or other
restrictions on the use of real property, none of which materially impairs the
use of such property by the Borrower in the operation of its business, and none
of which is violated in any material respect by existing or proposed structures
or land use;
(F) Liens in favor of the Lender;
(G) Existing liens set forth or described on Exhibit 1.01(G), attached
hereto and made a part hereof;
(H) Purchase money security interests granted to secure not more than
seventy-five percent (75%) of the purchase price of assets, the purchase of
which does not violate this Agreement or any instrument required hereunder; and
(I) Liens securing Indebtedness permitted by Section 6.02(K) of this
Agreement;
(J) The following, if the validity or amount thereof is being contested in
good faith by appropriate and lawful proceedings, so long as levy and execution
thereon have been stayed and continue to be stayed and they do not, in the
aggregate, materially detract from the value of the property of the Borrower or
any Subsidiary, or materially impair the use thereof in the operation of its
business:
(1) Claims or liens for taxes, assessments, or charges due and payable
and subject to interest or penalty;
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(2) Claims, liens and encumbrances upon, and defects of title to, real
or personal property, including any attachment of personal or real property or
other legal process prior to adjudication of a dispute on the merits;
(3) Claims or liens of mechanics, materialmen, warehousemen, carriers,
or other like liens; and
(4) Adverse judgments on appeal.
"Person" means any individual, corporation, limited liability company,
partnership, association, joint-stock company, trust, unincorporated
organization, joint venture, court, or government or political subdivision or
agency thereof.
"Records" means correspondence, memoranda, tapes, discs, papers, books and other
documents, or transcribed information of any type, whether expressed in ordinary
or machine readable language.
"Stockholders' Equity" means, at any time the aggregate of Subordinated
Indebtedness, plus the sum of the following accounts set forth on a balance
sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP: (A)
the par or stated value of all outstanding capital stock; (B) capital surplus;
and (C) retained earnings.
"Subordinated Indebtedness" means all Indebtedness incurred at any time by the
Borrower or any Subsidiary, the repayment of which is subordinated to the Loan
in form and manner satisfactory to the Lender. All currently existing
Subordinated Indebtedness is so specified in Exhibit 1.01(H).
"Subordination Agreements" means each and every of the Intercreditor Agreement,
the JDS Uniphase Subordination Agreement and the IP Fibre Devices Subordination
Agreement.
"Subsidiary" means any Affiliate organized in any state or territory of the
United States of America that is directly, or indirectly through one or more
intermediaries, controlled by the Borrower or not less than 50% of the voting
interest of which is owned, directly or through one or more intermediaries, by
the Borrower.
1.02 Accounting.
Accounting terms used and not otherwise defined in this Agreement have the
meanings determined by, and all calculations with respect to accounting or
financial matters unless otherwise provided herein shall be computed in
accordance with, GAAP.
ARTICLE 2.0 THE LOAN
2.01 Disbursement of the Loan.
The Lender will credit the proceeds of the Loan to the Borrower's deposit
account with the Lender.
2.02 General Terms.
Subject to the terms hereof, the Lender will lend the Borrower, from time
to time until the earlier of the date the Lender makes demand on the Demand Note
or the occurrence of an Event of Default, such sums as the Borrower may request
by reasonable same day notice to the Lender, received by
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the Lender not later than 11:00 A.M. of such day, but which shall not exceed, in
the aggregate principal amount at any one time outstanding, the lesser of the
then existing Borrowing Base or $3,000,000.00 (the "Line of Credit Commitment").
The Borrower may borrow, repay without penalty or premium and reborrow
hereunder, from the date of this Agreement until the earlier the date the Lender
makes demand on the Demand Note or the occurrence of an Event of Default, the
lesser of the then existing Borrowing Base or the Line of Credit Commitment in
integral multiples of $50,000.00. It is the intention of the parties that the
outstanding principal amount of the Loan shall at no time exceed the amount of
the then existing Borrowing Base, and if, at any time, an excess shall for any
reason exist, the full amount of such excess, together with accrued and unpaid
interest thereon as herein provided, shall be immediately due and payable in
full.
2.03 The Demand Note.
The Line of Credit Commitment shall be evidenced by a note, payable on
demand, in the form attached hereto as Exhibit 2.03.
2.04 Interest Rate and Payments of Interest.
(A) Interest shall be paid as follows:
(1) Except as otherwise provided under Section 2.04(B), interest on
the principal balance of the Loan from time to time outstanding will be payable
at the rate(s) of interest and in the manner set forth in the Notes.
(2) Interest shall be calculated on the basis of a 360-day year,
counting the actual number of days elapsed, and shall be payable monthly in
arrears on the first day of each month and at maturity, whether by acceleration
or otherwise.
(B) All agreements between or among the Borrower, the Guarantor and the
Lender are hereby expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the indebtedness
evidenced by the Notes, this Agreement, or otherwise, shall the amount paid or
agreed to be paid to the Lender for the use or the forbearance of the
indebtedness evidenced by the Notes, this Agreement, or otherwise, exceed the
maximum permissible under applicable law. As used herein, the term "applicable
law" shall mean the law in effect as of the date hereof provided, however that
in the event there is a change in the law which results in a higher permissible
rate of interest, then the Notes shall be governed by such new law as of its
effective date. In this regard, it is expressly agreed that it is the intent of
the Borrower and the Lender in the execution, delivery and acceptance of the
Notes and this Agreement to contract in strict compliance with the laws of The
Commonwealth of Massachusetts from time to time in effect. If, under or from any
circumstances whatsoever, fulfillment of any provision hereof or of the Notes or
any of the Loan Documents or other financing instruments executed in connection
herewith at the time of performance of such provision shall be due, shall
involve transcending the limit of such validity prescribed by applicable law,
then the obligation to be fulfilled shall automatically be reduced to the limits
of such validity, and if under or from circumstances whatsoever the Lender
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced by the Notes and not to the payment
of interest.
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This provision shall control every other provision of all agreements between or
among the Borrower, the Guarantor and the Lender.
2.05 Payment to the Lender.
The Lender shall send the Borrower statements of all amounts due hereunder,
which statements shall be considered correct and conclusively binding on the
Borrower absent manifest error unless the Borrower notifies the Lender to the
contrary within thirty (30) days of its receipt of any statement that it deems
to be incorrect. Alternatively, at its sole discretion, the Lender may charge
against any deposit account of the Borrower all or any part of any amount due
hereunder.
ARTICLE 3.0 CONDITIONS PRECEDENT
The obligation of the Lender to make the Loan is subject to the following
conditions precedent:
3.01 Documents Required for the Closing.
The Borrower shall have delivered to the Lender, prior to the initial
disbursement of the Loan (the "Closing"), the following:
(A) The Demand Note duly executed by the Borrower, in the form attached
hereto as Exhibit 2.03;
(B) A duly executed Second Amendment to Mortgage and Security Agreement
from the Borrower in the form attached hereto as Exhibit 1.01(E);
(C) the duly executed Subordination Agreements;
(D) A duly executed Perfection Certificate from the Borrower in the form
attached hereto as Exhibit 1.01(F);
(E) The Guaranty duly executed by the Guarantor in the form attached hereto
as Exhibit 1.01(D);
(F) A First Amendment to and Ratification of Blocked Account Deposit
Agreement duly executed by the Borrower in the form attached hereto as Exhibit
1.01(A);
(G) The Financing Statements and other instruments required by Article 4.0;
(H) A copy, certified as of the date of the Closing, of resolutions of the
board of directors of the Borrower, authorizing the execution, delivery, and
performance of this Agreement, the Demand Note, the Loan Documents, and each
other document to be delivered pursuant hereto;
(I) A copy, certified as of the date of the Closing, of the bylaws of the
Borrower;
(J) A certificate (dated the date of the Closing) of the corporate
secretary or assistant secretary of the Borrower as to the incumbency and
signatures of the officers of the Borrower signing this Agreement, the Demand
Note, the Loan Documents, and each other document to be delivered pursuant
hereto;
(K) A copy, certified as of the most recent date practicable by the
Secretary of the State of Delaware, of the Articles of Incorporation of the
Borrower, and all amendments thereto, together with a certificate (dated the
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date of the Closing) of the corporate secretary or assistant secretary of the
Borrower to the effect that such Articles of Incorporation have not been further
amended since the date of the aforesaid certification of the Secretary of the
State of Delaware;
(L) Certificates of tax and corporate good standing dated as of the most
recent date practicable, issued by the Commissioner of the Department of Revenue
and the Secretary of State of the State of Delaware as to the tax good standing
and the legal existence and good legal standing, respectively, of the Borrower;
(M) Certificates, as of the most recent dates practicable, of the Secretary
of The Commonwealth of Massachusetts and of the secretary of state of each other
state in which the Borrower is qualified as a foreign corporation and, if
applicable, of the department of revenue or taxation of each of the foregoing
states, as to the good standing of the Borrower;
(N) A written opinion of legal counsel to the Borrower dated the date of
the Closing and addressed to the Lender, in form satisfactory to the Lender and
its counsel;
(O) A certificate, dated the date of the Closing, signed by the chief
executive officer, the president or a vice president of the Borrower and to the
effect that:
(1) The representations and warranties set forth in Section 5.01 are
true as of the date of the Closing; and
(2) No Event of Default hereunder, and no event which, with the giving
of notice or passage of time or both, would become such an Event of Default, has
occurred as of such date;
(P) Copies of all documents evidencing the terms and conditions of any debt
specified as Subordinated Indebtedness on Exhibit 1.01(H); and
(Q) A duly executed Borrowing Base Certificate as of a date not more than
one (1) day prior to the Closing, acceptable to the Lender and certifying a
Borrowing Base of not less than $3,057,559.62.
3.02 Documents Required for Subsequent Disbursements.
At the time of, and as a condition to, any disbursement of any part of the
Loan to be made by the Lender subsequent to the Closing, the Lender may require
the Borrower to deliver to the Lender a certificate, dated the date on which any
such disbursement is to be made, signed by the chief executive officer, the
president or a vice president of the Borrower, and to the effect that:
(A) As of the date thereof, no Event of Default has occurred and is
continuing, and no event has occurred and is continuing that, but for the giving
of notice or passage of time or both, would be an Event of Default;
(B) No material adverse change has occurred in the financial condition or
results of operations of the Borrower or any Subsidiary, considered as a whole,
since the date of the Financial Statements; and
(C) Each of the representations and warranties contained in Section 5.01 is
true and correct in all material respects as if made on and as of the date of
such disbursement (except for such representations and warranties made as of a
particular date).
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3.03 Certain Events.
At the time of, and as a condition to, the Closing and each disbursement of
any part of the Loan to be made by the Lender at or subsequent to the Closing:
(A) No Event of Default shall have occurred and be continuing, and no event
shall have occurred and be continuing that, with the giving of notice or passage
of time or both, would be an Event of Default;
(B) No material adverse change shall have occurred in the financial
condition or results of operations of the Borrower or any Subsidiary, considered
as a whole, since the dates of the Financial Statements; and
(C) All of the Loan Documents shall have remained in full force and effect.
3.04 Legal Matters.
At the time of the Closing and, at the discretion of the Lender, at the
time of each subsequent disbursement, all legal matters incidental thereto shall
be satisfactory to Bowditch & Dewey, LLP, legal counsel to the Lender.
ARTICLE 4.0 COLLATERAL SECURITY
4.01 Composition of the Collateral.
The property in which a security interest is granted pursuant to the
provisions of Sections 4.02 and 4.03 and pursuant to the Loan Documents is
herein collectively called the "Collateral". The Collateral, together with all
other property of the Borrower of any kind held by the Lender, shall stand as
one general, continuing collateral security for all Obligations and may be
retained by the Lender until all Obligations have been satisfied in full, but
subject to Section 4.07 hereof.
4.02 Rights in Property Held by the Lender.
As security for the prompt satisfaction of all Obligations, the Borrower
hereby assigns, transfers, and sets over to the Lender all of its right, title,
and interest in and to, and grants the Lender a lien on and a security interest
in, all amounts that may be owing, from time to time, by the Lender to the
Borrower in any capacity, including, but without limitation, any balance or
share belonging to the Borrower, or any deposit or other account with the
Lender, which lien and security interest shall be independent of, and in
addition to, any right of set-off that the Lender has under Section 8.06 or
otherwise. The Lender's security interest in the Blocked Account shall be
subject to the provisions of the Blocked Account Agreement.
4.03 Rights in Property Held Either by the Borrower or by the Lender.
As further security for the prompt satisfaction of all of the Obligations,
the Borrower hereby assigns to the Lender all of its right, title and interest
in and to, and grants the Lender a lien upon and a continuing security interest
in all assets of every type and description, wherever located, whether now owned
or hereafter acquired, together with all substitutions and replacements
therefor, accessions thereto, and proceeds (including, but without limitation,
insurance proceeds) and products thereof, including, without limitation, the
following:
(A) All Inventory;
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(B) All Accounts, Deposit Accounts, Contracts, accounts receivable,
contract rights, and Chattel Paper, regardless whether they constitute proceeds
of other Collateral;
(C) All Investment Property, securities entitlements and Financial Assets,
and all General Intangibles (including Payment Intangibles), regardless whether
they constitute proceeds of other Collateral, including, without limitation, all
the Borrower's rights (which the Lender may exercise or not as it in its sole
discretion may determine) to acquire or obtain Goods and/or services with
respect to the manufacture, processing, storage, sale, shipment, delivery or
installation of any of the Borrower's Inventory or other Collateral; all Payment
Intangibles; and including any and all right, title and interest of the Borrower
in, to or under any and all licenses, franchises, permits and approvals obtained
or required in connection with Borrower's business operations;
(D) All rights to payment of any insurance proceeds or awards for damages
in connection with any condemnations or takings of any interest in and to any
real or personal property, wherever located, or any conveyance in lieu thereof;
(E) All products of and accessions to any of the Collateral;
(F) All liens, guaranties, securities, rights, remedies and privileges
pertaining to any of the Collateral, including the right of stoppage in transit;
(G) All obligations owing to the Borrower of every kind and nature, and all
choses in action, all Commercial Tort Claims, all Letter-of-Credit Rights and
all Supporting Obligations;
(H) All tax refunds of every kind and nature to which the Borrower is now
or hereafter may become entitled no matter however arising, including, without
limitation, loss carry back refunds;
(I) All Intellectual Property, goodwill, trade secrets, computer programs,
source codes, licenses, customer lists, trade names, copyrights, trademarks and
patents, all domain names, internet web sites and other rights;
(J) All Chattel Paper (including Electronic Chattel Paper and Tangible
Chattel Paper), Documents and Instruments, including Promissory Notes (whether
negotiable or non-negotiable, and regardless of their being attached to Chattel
Paper) and all money, cash and coins;
(K) All Equipment, including without limitation machinery, furniture, motor
vehicles, Fixtures and all other goods used in the conduct of the business of
the Borrower;
(L) All insurance policies and all proceeds of Collateral of every kind and
nature and in whatever form, including without limitation both cash and non-cash
proceeds resulting or arising from the rendering of services by the Borrower or
the sale or other disposition by the Borrower of the Inventory or other
Collateral and including all insurance proceeds;
(M) All books and records, magnetic tapes, electronic data, computer
records and discs relating to the conduct of the Borrower's business including,
without in any way limiting the generality of the foregoing, those relating to
its Accounts;
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(N) All Deposit Accounts maintained by the Borrower with any bank, trust
company, credit union, investment firm or fund, or any similar institution or
organization; and
(O) All property of the Borrower in the possession of the Lender, including
without limitation, all sums in the Blocked Account.
4.04 Priority of Liens.
The foregoing liens shall be first and prior liens except for Permitted
Liens.
4.05 Financing Statements and Certificates of Title.
(A) The Borrower will:
(1) Execute or authenticate and deliver to the Lender any writings and
do all things necessary, effectual or reasonably requested by the Lender to
carry into effect the provisions and intent of this Agreement, or to vest more
fully in or assure to the Lender (including without limitation, all steps to
create and perfect) the security interest in the Collateral granted to the
Lender by this Agreement or to comply with applicable statute or law and to
facilitate the collection of the Collateral, including the furnishing at the
Borrower's cost and expense, at such intervals as the Lender may establish from
time to time, of reports, financial data and analyses satisfactory to the
Lender. The Borrower hereby authorizes the filing of any financing statements or
continuation statement, and amendments to financing statements, in any
jurisdiction and with any filing offices as are necessary or desirable to
perfect the security interests granted to the Lender pursuant to this Agreement,
and the Borrower hereby appoints the Lender as its attorney-in-fact (without
requiring the Lender to act as such) to perform all other acts that the Lender
deems appropriate to protect and preserve the Collateral;
(2) Pay, or reimburse the Lender for paying, all costs and taxes of
filing or recording the same in all offices and registries in which it is
necessary to file or record such financing statements so as to perfect the
Lender's security interest in and lien on all Collateral; and
(3) Take such other steps as the Lender, from time to time, may
direct, including the noting of the Lender's lien on the Collateral and, to the
extent a motor vehicle is not subject to a Permitted Lien, on any Certificates
of Title therefor, all to perfect to the satisfaction of the Lender the Lender's
interest in the Collateral.
(B) In addition to the foregoing, and not in limitation thereof, to the
extent lawful, the Borrower hereby appoints the Lender as its attorney-in-fact
(without requiring the Lender to act as such) (i) to execute, authenticate,
amend, file, record and/or register any financing statement in the name of the
Borrower, and to perform all other acts that the Lender deems appropriate to
perfect and continue its security interest in and lien on, and to protect or
preserve, the Collateral; (ii) to enter into a control agreement or other
agreement for the purpose of perfecting or maintaining the perfection of the
security interests in and liens upon the Collateral; and (iii) to take any other
action deemed necessary or prudent by the Lender, in the sole exercise of its
discretion, to effect, perfect, continue or maintain the security interests in
and liens upon any Collateral as contemplated by this Agreement or the Loan
Documents.
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4.06 Mortgagees', Landlords', and Warehousemen's Waivers.
The Borrower will, within thirty (30) days after any request of the Lender,
cause any mortgagee of real estate owned by the Borrower, any landlord of
premises leased by the Borrower, and any warehouseman or other bailee on whose
premises any of the Collateral with a value in excess of $100,000 may be located
to execute and deliver to the Lender instruments, in form and substance
satisfactory to the Lender, by which such mortgagee, landlord or warehouseman or
other bailee waives its rights, if any, in and to all Goods composing a part of
the Collateral.
4.07 Termination.
When all indebtedness under the Demand Note has been fully, finally and
indefeasibly paid and the Borrower acknowledges in writing that (a) Lender has
no further obligations to make advances thereunder and (b) the Borrower has no
claims, causes of action, demands or rights of setoff against the Lender under
this Agreement or the Notes, then, provided no Event of Default exists
hereunder, the Lender shall provide the Borrower with a written acknowledgment
that the security interests granted by the Borrower to the Lender under this
Article 4 have been terminated. In addition, upon receipt of a written
acknowledgement from each counterparty to the Subordination Agreements or from
the Guarantor, as applicable, that they have no claims, causes of action or
rights of setoff against the Lender arising out of the applicable Subordination
Agreement or the Guaranty, the Lender shall acknowledge that the Subordination
Agreements or the Guaranty, as applicable, have been terminated.
ARTICLE 5.0 REPRESENTATIONS AND WARRANTIES
5.01 Original.
To induce the Lender to enter into this Agreement, the Borrower represents
and warrants to the Lender as follows:
(A) The Borrower is a corporation duly organized, validly existing, and in
good standing under the Laws of the State of Delaware; the Borrower has no
Subsidiaries other than the Subsidiaries named in Exhibit 5.01(A); each
Subsidiary is a corporation duly organized, validly existing, and in good
standing under the Laws of its state of incorporation, all as set forth in
Exhibit 5.01(A); the Borrower and Subsidiaries have the lawful power to own
their properties and to engage in the businesses they conduct, and each is duly
qualified and in good standing as a foreign corporation in Massachusetts and
such other jurisdictions wherein the nature of the business transacted by it or
property owned by it makes such qualification necessary; the states in which the
Borrower and each Subsidiary are qualified to do business are set forth in
Exhibit 5.01(A) or otherwise disclosed to the Lender in writing; the percentage
of the Borrower's ownership of the outstanding stock of each Subsidiary is as
listed in Exhibit 5.01(A); the identity of each shareholder of the Borrower and
the number of shares owned by each is as listed on Exhibit 5.01(A); the
addresses of all places of business of the Borrower and its Subsidiaries are as
set forth in Exhibit 5.01(A) or otherwise disclosed to the Lender in writing;
neither the Borrower nor any Subsidiary has changed its name, been the surviving
corporation in a merger, acquired any business, or changed its principal
executive office within five (5) years and one (1) month prior to the date
hereof except as set forth in Exhibit 5.01(A); and all of the authorized,
issued, and outstanding shares of capital stock of each Subsidiary are owned by
the Borrower;
(B) Neither the Borrower nor any Subsidiary is directly or indirectly
controlled by, or acting on behalf of, any Person which is an "Investment
15
Company", within the meaning of the Investment Company Act of 1940, as amended;
(C) Neither the Borrower nor any Subsidiary is in default with respect to
any of its existing Indebtedness beyond any applicable grace or cure period (or,
in the case of trade Indebtedness, is not more than ninety (90) days past due),
and the making and performance of this Agreement, the Notes, and the other Loan
Documents will not (immediately or with the passage of time, the giving of
notice, or both):
(1) Violate the charter or by-laws of the Borrower or any Subsidiary,
or violate any Laws or result in a default under any contract, agreement, or
instrument to which the Borrower or any Subsidiary is a party or by which the
Borrower or any Subsidiary or its property is bound; or
(2) Result in the creation or imposition of any security interest in,
or lien or encumbrance upon, any of the assets of the Borrower or any Subsidiary
except in favor of the Lender;
(D) The Borrower and the Guarantor, to the extent applicable to it or to
him, has the power and authority to enter into and perform this Agreement, the
Notes, and the other Loan Documents, and to incur the obligations herein and
therein provided for, and has taken all actions necessary to authorize the
execution, delivery, and performance of this Agreement, the Notes, and the other
Loan Documents;
(E) This Agreement, the Notes, and the other Loan Documents are, or when
delivered will be, valid, binding, and enforceable in accordance with their
respective terms;
(F) Except as disclosed in Exhibit 5.01(F) hereto, there is no pending
order, notice, claim, litigation, proceeding, or investigation known to the
Borrower against or affecting the Borrower or any Subsidiary, whether or not
covered by insurance, that would in the aggregate involve the payment of
$50,000.00 or more or would otherwise materially or adversely affect the
financial condition or business prospects of the Borrower or any Subsidiary,
considered as a whole, if adversely determined;
(G) The Borrower and its Subsidiaries have good and marketable title to all
of their assets, none of which is subject to any security interest, encumbrance
or lien, or claim of any third Person except for Permitted Liens;
(H) The Financial Statements, including any schedules and notes pertaining
thereto, have been prepared in accordance with GAAP, and fully and fairly
present the financial condition of the Borrower and its Subsidiaries at the
dates thereof and the results of operations for the periods covered thereby, and
there have been no material adverse changes in the financial condition or
business of the Borrower and its Subsidiaries, considered as a whole, from
December 31, 2003 to the date hereof;
(I) As of the date hereof, the Borrower and its Subsidiaries have no
material Indebtedness of any nature, including, but without limitation,
liabilities for taxes and any interest or penalties relating thereto except to
the extent reflected (in a footnote or otherwise) and reserved against in the
balance sheet dated December 31, 2003 included in the Financial Statements or as
disclosed in, or permitted by, this Agreement; and the Borrower does not know or
have reasonable ground to know of any basis for the assertion against it or any
Subsidiary of any such claim or litigation based upon such Indebtedness as of
the date of the Closing except as disclosed on Exhibit 5.01(F) or otherwise
disclosed to the Lender in writing;
16
(J) Except as otherwise permitted herein, the Borrower has filed all
federal, state, and local tax returns and other reports required by any
applicable Laws to have been filed prior to the date hereof, has paid or caused
to be paid all taxes, assessments, and other governmental charges that are due
and payable prior to the date hereof, and has made adequate provision for the
payment of such taxes, assessments, or other charges accruing but not yet
payable; the Borrower has no knowledge of any deficiency or additional
assessment in a materially important amount in connection with any taxes,
assessments, or charges not provided for on its books;
(K) Except to the extent that the failure to comply would not materially
interfere with the conduct of the business of the Borrower or any Subsidiary,
considered as a whole, the Borrower and its Subsidiaries have each complied with
all applicable Laws with respect to (1) any restrictions, specifications, or
other requirements pertaining to products that it manufactures or sells or to
the services it performs; (2) the conduct of its business; and (3) the use,
maintenance, and operation of the real and personal properties owned or leased
by it in the conduct of its business;
(L) No representation or warranty by or with respect to the Borrower or any
Subsidiary contained herein or in any certificate or other document furnished by
the Borrower or any Subsidiary pursuant hereto contains any untrue statement of
a material fact or omits to state a material fact necessary to make such
representation or warranty not misleading in light of the circumstances under
which it was made;
(M) Each consent, approval or authorization of, or filing, registration or
qualification with, any Person required to be obtained or effected by the
Borrower, any Subsidiary, or the Guarantor in connection with the execution and
delivery of this Agreement, the Demand Note, and the Loan Documents or the
undertaking or performance of any obligation hereunder or thereunder has been
duly obtained or effected;
(N) All existing Indebtedness of the Borrower or any Subsidiary: (1) for
money borrowed, or (2) under any security agreement, mortgage or agreement
covering the lease by the Borrower or any Subsidiary as lessee of real or
personal property is described in Exhibit 5.01(N);
(O) Except as described in Exhibit 5.01(O), attached hereto, or otherwise
disclosed to the Lender in writing, (a) neither the Borrower nor any Subsidiary
has any material leases, contracts, or commitments of any kind (including,
without limitation, employment agreements; collective bargaining agreements;
powers of attorney; distribution arrangements; licenses, patents or license
agreements; contracts for future purchase or delivery of goods or rendering of
services; bonuses, pension, and retirement plans; or accrued vacation pay,
insurance, and welfare agreements); (b) to the best of Borrower's knowledge, all
parties to all such material leases, contracts, and other commitments to which
the Borrower or any Subsidiary is a party have complied in all material respects
with the provisions of such leases, contracts, and other commitments; and (c) to
the best of Borrower's knowledge, no party is in default under any thereof and
no event has occurred which, but for the giving of notice or the passage of
time, or both, would constitute a default, which default might have a materially
adverse effect upon the business or financial condition of the Borrower or, as
applicable, any Subsidiary, considered as a whole;
(P) All registered patents, trademarks and copyrights of the Borrower or
any Subsidiary, all pending applications of the Borrower or any Subsidiary for
registration of any patents, trademarks or copyrights, and all licenses or
agreements in connection with any Intellectual Property of the Borrower or any
Subsidiary are described in Exhibit 5.01(P) attached hereto;
17
(Q) The Borrower has not made any agreement or taken any action which may
cause anyone to become entitled to a commission or finder's fee as a result of
or in connection with the making of the Loan;
(R) The Borrower's federal tax returns for all years of operation,
including the year ended December 31, 2003, have been filed with the Internal
Revenue Service and have not been challenged;
(S) Any Employee Pension Benefit Plans, as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), of the Borrower
and each Subsidiary meet, as of the date hereof, the minimum funding standards
of 29 U.S.C.A. 1082 (Section 302 of ERISA), and no Reportable Event or
Prohibited Transaction, as defined in ERISA, has occurred with respect to any
Employee Benefit Plans, as defined in ERISA, of the Borrower or any Subsidiary;
and
(T) The liens and security interests created pursuant to Sections 4.02 and
4.03 are in all cases first and prior liens except for Permitted Liens.
5.02 Survival.
All of the representations and warranties set forth in Section 5.01 shall
survive until there remain no outstanding commitments hereunder.
ARTICLE 6.0 COVENANTS OF THE BORROWER
6.01 Affirmative Covenants.
The Borrower does hereby covenant and agree with the Lender that, so long
as any of the Obligations remain unsatisfied or any commitments hereunder remain
outstanding, it will comply, or if appropriate cause its Subsidiaries to comply,
at all times with the following affirmative covenants:
(A) The Borrower will use the proceeds of the Loan only for the purposes
set forth in Exhibit 6.01(A), and will furnish the Lender such evidence as it
may reasonably require with respect to such use;
(B) The Borrower will furnish the Lender:
(1) As soon as available, but in any event within forty-five (45) days
after the close of each calendar month in each fiscal year: (a) a statement of
changes in cash flow of the Borrower and its Subsidiaries for such month; (b)
income statements of the Borrower and its Subsidiaries for such month; and (c)
balance sheets of the Borrower and its Subsidiaries as of the end of such
month-all prepared by management on a consolidated basis in reasonable detail,
subject to normal year-end audit adjustments and certified by the Borrower's
chief executive officer, president, chief financial officer or chief accounting
officer to have been prepared in accordance with GAAP;
(2) As soon as available, but in any event within one hundred twenty
(120) days after the close of each fiscal year: (a) a statement of stockholders'
equity and a statement of changes in cash flow of the Borrower and its
Subsidiaries for such fiscal year; (b) income statements of the Borrower and its
Subsidiaries for such fiscal year; and (c) balance sheets of the Borrower and
its Subsidiaries as of the end of such fiscal year-all such statements to be
prepared on a consolidated basis, together with other subsidiaries of the
Borrower, in reasonable detail, including all supporting schedules, comments,
footnotes and related management letters; the statements and balance sheets to
be audited by Deloitte & Touche or another independent certified public
accountant selected by Borrower and acceptable to the Lender,
18
and certified by such accountants to have been prepared in accordance with GAAP
and to present fairly the financial position and results of operations of the
Borrower and its Subsidiaries, together with other subsidiaries of the Borrower;
the Lender shall have the right, from time to time to discuss the affairs of the
Borrower directly with such independent certified public accountants after
notice to the Borrower and opportunity of the Borrower to be represented at any
such discussions.
(3) Upon request by the Lender, for the most recent fiscal quarter of
IP Fibre Devices (a) an income statement of IP Fibre Devices for such fiscal
quarter; and (b) a balance sheet of IP Fibre Devices as of the end of such
fiscal quarter - all prepared in reasonable detail, subject to normal year-end
audit adjustments and certified as accurate and complete by the chief executive
officer, president or chief financial officer of IP Fibre Devices and acceptable
to Lender in accordance with generally accepted accounting principles applicable
in the United Kingdom and presented in United Kingdom pounds sterling, such
statements to present fairly the financial position and results of operations of
IP Fibre Devices (UK) Limited and to be stated in United Kingdom pounds
sterling;
(4) Contemporaneously with the monthly financial report in conjunction
with the end of each fiscal quarter and the year-end financial report required
by the foregoing paragraphs (1) and (2), a certificate of the chief executive
officer, president, chief financial officer or chief accounting officer of the
Borrower stating that he has individually reviewed the provisions of this
Agreement and that a review of the activities of the Borrower during such year
or monthly period, as the case may be, has been made by him or under his
supervision, with a view to determining whether the Borrower has fulfilled all
its obligations under this Agreement, and that, to the best of his knowledge,
the Borrower has observed and performed each undertaking contained in this
Agreement and is not in default in the observance or performance of any of the
provisions hereof in any material respect or, if the Borrower shall be so in
default, specifying all such defaults and events of which he may have knowledge;
(5) Promptly after the sending or making available or filing of the
same, copies of all reports, proxy statements, and financial statements that the
Borrower sends or makes available to its stockholders and all registration
statements and reports that the Borrower files with the Securities and Exchange
Commission or any successor Person;
(6) Within fifteen (15) days after the end of each calendar month, in
such form and detail as shall be satisfactory to the Lender, an aging, as of the
end of such month, of (a) the then Eligible Accounts, (b) all other Accounts of
the Borrower certified by the chief executive officer, president, chief
financial officer or chief accounting officer of the Borrower to be complete and
correct;
(7) Within fifteen (15) days after the end of each calendar month (and
at any additional time in the discretion of the Lender or if any material
deterioration in the Borrowing Base would be disclosed thereby) a Borrowing Base
Certificate as of the end of such month (or as of a date not more than three (3)
days prior to the date of any such additional Borrowing Base Certificate). Each
Borrowing Base Certificate shall be effective only as accepted by the Lender
(and with such revisions, if any, as the Lender may require as a condition to
such acceptance), such acceptance to be presumed after receipt of such Borrowing
Base Certificate unless the Lender otherwise
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notifies the Borrower, whether thereafter, theretofore, or contemporaneously
therewith; and
(8) Upon the Lender's request, from time to time, copies of any or all
agreements, contracts, or commitments referred to in Section 5.01(O) hereof;
(C) The Borrower will maintain its Inventory, Equipment, the Mortgaged
Property and its other real estate, and other properties in good condition and
repair (normal wear and tear excepted), and will pay and discharge or cause to
be paid and discharged, when due, the cost of repairs to, or maintenance of, the
same, and will pay or cause to be paid in a timely manner all rental or mortgage
payments due on such real estate. The Borrower hereby agrees that, in the event
it fails to pay or cause to be paid any such payment, it will promptly notify
the Lender thereof, and the Lender may, in its discretion, do so and on demand
be reimbursed therefor by the Borrower;
(D) The Borrower and its Subsidiaries will maintain, or cause to be
maintained, public liability insurance (subject to such deductibles for each
entity as are acceptable to the Lender in its discretion) and fire and extended
coverage insurance on all assets that are of a character usually insured by
businesses engaged in the same or similar operations, all in form and amount
sufficient to indemnify the Borrower or Subsidiary for 100% of the appraised
value of any such asset lost or damaged (subject to any deductible customary in
the Borrower's or Subsidiary's industry) or in an amount consistent with the
amount of insurance generally carried on comparable assets within the industry
and with such insurers as may be satisfactory to the Lender. The Borrower and
its Subsidiaries will cause all such insurance policies to contain a standard
mortgage clause and to be payable to the Lender as its interest may appear, to
cause the Lender to be named as an additional insured on all such liability
policies, to deliver the policies of insurance to the Lender, and, in the case
of all policies of insurance carried for the benefit of the Borrower or any
Subsidiary by any lessee, sublessee, subtenant, or other party having rights to
occupy or use the mortgaged property or any part thereof or interest therein
under any lease, sublease, or other agreement (whether oral, written, or
otherwise evidenced), to cause all such policies to be payable to the Lender as
its interest may appear. Such policies shall contain a provision whereby they
cannot be cancelled except after thirty (30) days' written notice to the Lender.
The Borrower will furnish to the Lender such evidence of insurance as the Lender
may reasonably require. The Borrower hereby agrees that, in the event it or any
Subsidiary fails to pay or cause to be paid the premium on any such insurance
when due, the Lender, in its discretion, may do so and be reimbursed by the
Borrower therefor. The Borrower and each Subsidiary hereby assign to the Lender
any returned or unearned premiums that may be due the Borrower or any Subsidiary
upon cancellation by the insurer of any such policy for any reason whatsoever
and direct any such insurer to pay the Lender any amounts so due. provided,
however, that the Lender will pay to the Borrower or the appropriate Subsidiary
any such returned or unearned premiums within five (5) days after the receipt
thereof if there has not occurred and be continuing an Event of Default
hereunder. The Lender is hereby appointed the attorney-in-fact of the Borrower
and each Subsidiary (without requiring the Lender to act as such), effective
after demand upon the Demand Note or during the continuance of an Event of
Default, to endorse any check which may be payable to the Borrower or any
Subsidiary to collect any premiums or the proceeds of such insurance (other than
proceeds of public liability insurance), and any amount so collected may be
applied by the Lender toward satisfaction of the Loan and any other Obligations.
If the Lender receives any proceeds from insurance in the absence of an Event of
Default, it shall remit such proceeds to the Borrower or such Subsidiary within
three (3) Business Days after the Lender's receipt of such proceeds, provided
that immediately prior to any such remittance the
20
Lender is provided with a Borrowing Base Certificate reflecting a current
Borrowing Base not less than the amount of the Loan then outstanding without
first providing the Lender with thirty (30) days advance written notice of its
intention to do so;
(E) The Borrower and its Subsidiaries will each pay or cause to be paid
when due, all taxes, assessments, and charges or levies imposed upon it or on
any of its property or which it is required to withhold and pay except where
contested in good faith by appropriate proceedings with adequate reserves
therefor having been set aside on its books; provided, however, that the
Borrower and each Subsidiary shall pay or cause to be paid all such taxes,
assessments, charges or levies forthwith whenever foreclosure on any lien that
may have attached (or security therefor) appears imminent;
(F) The Borrower will maintain a Borrowing Base such that the amount of the
Borrower's outstanding Loan will not, at any time, exceed its Borrowing Base;
(G) The Borrower and its Subsidiaries will each, when requested to do so,
make available for inspection by duly authorized representatives of the Lender
any of its books and records and will furnish the Lender any information
regarding its business affairs and financial condition within a reasonable time
after written request therefor;
(H) The Borrower and its Subsidiaries will each take all necessary steps to
preserve its corporate existence and franchises and comply in all material
respects with all present and future Laws applicable to it in the operation of
its business, and all material agreements to which it is subject;
(I) The Borrower and its Subsidiaries will each collect its Accounts and
sell its Inventory only in the ordinary course of business;
(J) The Borrower and its Subsidiaries will each keep accurate and complete
Records of its Accounts, Inventory, and Equipment consistent with sound business
practices;
(K) The Borrower and its Subsidiaries will each give immediate notice to
the Lender of (1) any litigation or proceeding in which it is a party if an
adverse decision therein would require it to pay more than $100,000.00 or
deliver assets the value of which exceeds such sum (except where the claim is
covered by insurance and the insurer has acknowledged coverage); and (2) the
institution of any other suit or proceeding involving it that might materially
and adversely affect its operations, financial condition or property of the
Borrower or its Subsidiaries, considered as a whole;
(L) At the Lender's request, the Borrower will furnish the Lender with
true, correct and complete copies of federal income tax returns filed by the
Borrower, together with all schedules thereto. The Borrower will cause the full
amount of each federal and other income tax refund (including any interest
component thereof) received by the Borrower to be applied as an immediate
repayment or partial repayment of the Loan, but such repayment shall not of
itself reduce the Line of Credit Commitment;
(M) The Borrower and its Subsidiaries will each pay when due (or within
applicable grace periods (or, in the case of trade indebtedness, no later than
ninety (90) days from the date incurred)) all of its other Indebtedness due
third Persons except when the amount thereof is being contested in good faith by
appropriate proceedings and with adequate reserves therefor being set aside on
its books; provided, however, that no payment shall be made in respect to
Subordinated Indebtedness except in strict compliance with all of the terms of
the Subordination Agreements or the terms
21
of such other applicable provisions of subordination theretofore approved in
writing by the Lender. If default be made by the Borrower or any Subsidiary in
the payment of any principal (or installment thereof) of, or interest on, any
such Indebtedness, the Lender shall have the right, in its discretion, to pay
such interest or principal for the account of the Borrower or such Subsidiary
and be reimbursed by the Borrower or such Subsidiary therefor;
(N) The Borrower and its Subsidiaries will each notify the Lender
immediately if it becomes aware of the occurrence of any Event of Default or of
any fact, condition, or event that only with the giving of notice or passage of
time or both, could become an Event of Default or if it becomes aware of any
material adverse change in the financial condition (including, without
limitation, proceedings in bankruptcy, insolvency, reorganization, or the
appointment of a receiver or trustee), or results of operations of the Borrower,
a Subsidiary, or the Guarantor or of the failure of the Borrower or any
Subsidiary to observe any of their respective undertakings hereunder or under
the Loan Documents;
(O) The Borrower and its Subsidiaries will each notify the Lender thirty
(30) days in advance of any change in the location of any of its places of
business or of the establishment of any new, or the discontinuance of any
existing, place of business;
(P) The Borrower and its Subsidiaries will each (1) fund any of its
Employee Pension Benefit Plans in accordance with no less than the minimum
funding standards of 29 U.S.C.A. 1082 (Section 302 of ERISA); (2) furnish the
Lender, promptly after a request for same by the Lender, with copies of any
reports or other statements filed with the United States Department of Labor or
the Internal Revenue Service with respect to any such Plan; and (3) promptly
advise the Lender of the occurrence of any Reportable Event or Prohibited
Transaction with respect to any Employee Benefit Plan;
(Q) The Borrower will permit the Lender to conduct field audits
periodically, and at least annually, at reasonable times on any premises
occupied by the Borrower or on which any Collateral is located. The Borrower
shall pay to the Lender the Lender's reasonable costs and expenses related to
one such field audit in any calendar year, provided, however, that the Borrower
shall pay to the Lender the Lender's reasonable costs and expenses related to
any field audit conducted during the occurrence of an Event of Default; and
(R) The Borrower will maintain the Blocked Account in accordance with the
provisions of the Blocked Account Agreement.
6.02 Negative Covenants.
The Borrower does hereby covenant and agree with the Lender that, so long
as any of the Obligations remain unsatisfied or any commitments hereunder remain
outstanding, it will comply, or if appropriate cause its Subsidiaries to comply,
at all times with the following negative covenants, unless the Lender shall
otherwise have agreed in writing:
(A) Neither the Borrower nor any Subsidiary will change its name, enter
into any merger or consolidation (other than with wholly owned subsidiaries
resulting in no change in the beneficial ownership of the Borrower);
(B) Neither the Borrower nor any Subsidiary nor IPG Laser GmbH will sell,
transfer, lease, or otherwise dispose of all or (except in the ordinary course
of business) any material part of its assets, excluding (i) obsolete inventory
or equipment sold at depreciated book value or (ii) up to
22
$100,000.00 in assets in any one transaction or series of related transaction,
provided the aggregate cumulative amount of such transactions shall not exceed
$1,000,000.00;
(C) Neither the Borrower nor any Subsidiary will sell, lease, transfer,
assign, or otherwise dispose of any of the Collateral except in the ordinary
course of business or in the case of obsolete Inventory or Equipment, in sales
for amounts equal to or exceeding depreciated book value;
(D) Neither the Borrower nor any Subsidiary will sell or otherwise dispose
of, or for any reason cease operating, any of its divisions, franchises, or
lines of business without first providing the Lender with thirty (30) days
advance written notice of its intention to do so;
(E) Neither the Borrower nor any Subsidiary will mortgage, pledge, grant,
or permit to exist a security interest in, or a lien upon, any of its assets of
any kind, now owned or hereafter acquired, except for Permitted Liens, liens of
the Loan Documents, and existing liens listed on Exhibit 1.01(G) to the extent
shown on such Exhibit 1.01(G) to be permitted to exist after the Closing;
(F) Neither the Borrower nor any Subsidiary will become liable, directly or
indirectly, as guarantor or otherwise for any obligation of any other Person
without notifying the Lender in writing in advance, except for (i) the
endorsement of commercial paper for deposit or collection in the ordinary course
of business, and (ii) unsecured guarantees of obligations of foreign
subsidiaries of the Borrower;
(G) Neither the Borrower nor any Subsidiary will incur, create, assume, or
permit to exist any Indebtedness except: (1) the Loan; (2) existing Indebtedness
listed on Exhibit 5.01(N); (3) trade indebtedness incurred in the ordinary
course of business, (4) contingent Indebtedness permitted by Section 6.02(F);
(5) operating lease obligations permitted by Section 6.02(M); (6) Indebtedness
secured by Permitted Liens; (7) Subordinated Indebtedness; and (8) capital
leases or purchase money Indebtedness permitted by Section 6.02(K);
(H) Neither the Borrower nor any Subsidiary (other than a wholly owned
Subsidiary of the Borrower) will declare or pay any dividends, or make any other
payment or distribution on account of its capital stock (other than shares of
stock of, or other instruments issued by, the Borrower convertible into stock of
the Borrower), nor make any assignment or transfer of Accounts, or, other than
in the ordinary course of business, of Inventory;
(I) Neither the Borrower nor any Subsidiary will form any subsidiary, make
any investment in (including any assignment of Inventory or other property), or
make any loan in the nature of an investment to, any Person, other than
investments of the Borrower in the Subsidiaries listed on Exhibit 5.01(A)
without first providing the Lender within thirty (30) days advance written
notice of its intention to do so;
(J) Neither the Borrower nor any Subsidiary will make any loan or advance
to any officer, shareholder, director, or employee of the Borrower or any
Subsidiary, except for (i) business travel, educational or relocation and
similar temporary advances in the ordinary course of business, or (ii) loans not
exceeding $100,000.00 to any one such individual up to $200,000.00 in the
aggregate at any one time outstanding;
(K) Neither the Borrower nor any Subsidiary will make payments on account
of the purchase or lease of Fixed Assets that, in the aggregate, in any fiscal
year (commencing with the current fiscal year) will exceed the
23
lesser of 15% of the revenues of the Borrower for such fiscal year or
$6,000,000; as used in this paragraph, the term "lease" means a lease reflected
on a balance sheet of the Borrower and its Subsidiaries or a lease that should
be so reflected under GAAP;
(L) INTENTIONALLY OMITTED;
(M) Neither the Borrower nor any Subsidiary will pay or commit to pay, in
an aggregate amount for any fiscal quarter (commencing with the current fiscal
quarter), lease obligations in excess of $210,000.00 without obtaining the
Lender's prior written consent (as used in this paragraph, the term "lease"
means a lease that is not capitalized in a balance sheet of the Borrower and
should not be so capitalized under GAAP);
(N) Neither the Borrower nor any Subsidiary will purchase or otherwise
invest in or hold securities, nonoperating real estate, or other nonoperating
assets except: (1) Permitted Investments; (2) the present investment in any such
assets held as of December 31, 2003 and reflected in the Financial Statements;
and (3) operating assets that hereafter become nonoperating assets;
(O) Neither the Borrower nor any Subsidiary will permit any change in the
active involvement of Valentin P. Gapontsev in the operations of the Borrower,
without the prior written consent of the Lender, which consent shall not be
unreasonably withheld or conditioned;
(P) Neither the Borrower nor any Subsidiary will prepay Indebtedness for
borrowed money except the Obligations, Indebtedness secured by any of its assets
(except the Obligations), or so-called "mandatory prepayments" of that
Indebtedness due to JDS Uniphase which is subject to the Intercreditor Agreement
(such prepayments to be in accordance with existing payment terms), or enter
into or modify any agreement as a result of which the terms of payment of any of
the foregoing Indebtedness are waived or modified;
(Q) Neither the Borrower nor any Subsidiary will enter into any
sale-leaseback transaction without first providing the Lender with thirty (30)
days advance written notice of its intention to do so;
(R) Neither the Borrower nor any Subsidiary will acquire or agree to
acquire any stock in, or all or substantially all of the assets of, any Person
without first providing the Lender with thirty (30) days advance written notice
of its intention to do so;
(S) Neither the Borrower nor any Subsidiary will furnish the Lender any
certificate or other document that will contain any untrue statement of material
fact or that will omit to state a material fact necessary to make it not
misleading in light of the circumstances under which it was furnished;
(T) Neither the Borrower nor any Subsidiary will directly or indirectly
apply any part of the proceeds of the Loan to the purchasing or carrying of any
"margin stock" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System, or any regulations, interpretations, or rulings
thereunder; and
(U) Neither the Borrower nor any Subsidiary will make distributions,
directly or indirectly, to IP Fibre Devices except that the Borrower may make a
distribution of up to US$150,000 to IP Fibre Devices in the fiscal quarter
ending December 31, 2004 to be used to pay tax liabilities or for working
capital requirements of IP Fibre Devices for such fiscal quarter and,
thereafter, with the Lender's prior written approval, the Borrower may be
24
permitted to make additional distributions to IP Fibre Devices on a quarterly
basis as may be necessary to pay tax liabilities or for working capital
requirements of IP Fibre Device due and payable within such quarterly period.
ARTICLE 7.0 DEFAULT
7.01 Events of Default.
The occurrence of any one or more of the following events shall constitute
an Event of Default hereunder:
(A) The Borrower or the Guarantor shall fail to pay when due any of its
Obligations to the Lender within ten (10) days of the date due;
(B) The Borrower or the Guarantor or any Subsidiary shall fail to observe
or perform any other obligation to be observed or performed by it hereunder or
under any of the Loan Documents, and such failure shall continue for fifteen
(15) days after (1) notice of such failure from the Lender; or (2) the Lender is
notified of such failure or should have been so notified pursuant to the
provisions of Section 6.01(N), whichever is earlier;
(C) The Borrower or any Subsidiary shall fail to pay Indebtedness exceeding
$50,000.00 due any third Person, and such failure shall continue beyond any
applicable grace period (or, with respect to trade Indebtedness which is not
subject to a grace period, within ninety (90) days of the date such trade
Indebtedness is incurred), or the Borrower or any Subsidiary shall suffer to
exist any other event of default under any agreement binding the Borrower or any
Subsidiary;
(D) Any financial statement, representation, warranty, or certificate made
or furnished by or with respect to the Borrower or the Guarantor or any
Subsidiary to the Lender in connection with this Agreement, or as inducement to
the Lender to enter into this Agreement, or in any separate statement or
document to be delivered to the Lender hereunder, shall be materially false or
incorrect when made;
(E) The Borrower or the Guarantor or any Subsidiary shall admit its
inability to pay its debts as they mature or shall make an assignment for the
benefit of itself or any of its creditors;
(F) Proceedings in bankruptcy, or for reorganization of the Borrower or any
Subsidiary, or for the readjustment of any of their respective debts under the
Bankruptcy Code, as amended, or any part thereof, or under any other Laws,
whether state or federal, for the relief of debtors, now or hereafter existing,
shall be commenced against or by the Borrower or the Guarantor or any Subsidiary
and, except with respect to any such proceedings instituted by the Borrower, the
Guarantor or a Subsidiary, shall not be discharged within sixty (60) days of
their commencement;
(G) A receiver or trustee shall be appointed for the Borrower or the
Guarantor or any Subsidiary or for any substantial part of their respective
assets, or any proceedings shall be instituted for the dissolution or the full
or partial liquidation of the Borrower or the Guarantor or any Subsidiary, and
except with respect to any such appointments requested or instituted by the
Borrower, the Guarantor or any Subsidiary, such receiver or trustee shall not be
discharged within sixty (60) days of his appointment, and except with respect to
any such proceedings instituted by the Borrower, the Guarantor or any
Subsidiary, such proceedings shall not be discharged within sixty (60) days of
their commencement, or the Borrower or the Guarantor or any Subsidiary shall
discontinue business or materially change the nature of its business, or the
Collateral becomes, in the reasonable judgment of the Lender, insufficient
25
in value to satisfy the Obligations, or the Lender otherwise reasonably finds
itself insecure as to the prompt and punctual payment and discharge of the
Obligations;
(H) The Borrower or the Guarantor or any Subsidiary shall suffer final
judgments (which are not covered by insurance where the insurer has acknowledged
coverage) for payment of money aggregating in excess of $100,000.00 and shall
not discharge the same within a period of thirty (30) days unless, pending
further proceedings, execution has not been commenced or, if commenced, has been
effectively stayed;
(I) A judgment creditor of the Borrower or the Guarantor or any Subsidiary
shall obtain possession of any of the Collateral by any means, including
(without implied limitation) levy, distraint, replevin, or self-help;
(J) An uninsured loss by fire or other casualty to any security for the
Loan exceeding $100,000.00 as determined by a public adjuster acceptable to the
Lender;
(K) Failure by the Borrower or the Guarantor to pay any amount of money or
to observe or perform any other covenant, condition or agreement which is the
obligation of the Borrower or the Guarantor to the Lender under any other
existing or future note, mortgage or other document or instrument;
(L) Any obligee of Subordinated Indebtedness shall fail to comply with the
subordination provisions of the instruments evidencing such Subordinated
Indebtedness; or
(M) The Guarantor shall fail to comply fully with the requirements of the
Guaranty, or give notice of or assert the termination, discontinuance,
invalidity or unenforceability of the Guaranty; or
(N) There occurs a Change in Control; or
(O) There is a change in the current ownership of more than twenty percent
(20%) of the voting power of the capital stock of the Borrower, whether such
change occurs by sale, transfer, redemption, retirement or alteration of the
voting rights of existing capital stock of the Borrower or by the Borrower's
issuance of additional capital stock.
Notwithstanding the enumeration of the foregoing Events of Default, the Borrower
acknowledges and agrees that the Loan is a demand Obligation that is payable on
demand regardless of the occurrence or non-occurrence of an Event of Default.
7.02 Acceleration.
At its option, and at any time, whether immediately or otherwise, the
Lender may, upon the occurrence of any Event of Default, declare all Obligations
immediately due and payable without further action of any kind including without
limitation, notice, demand or presentment.
ARTICLE 8.0 THE LENDER'S RIGHTS AND REMEDIES
8.01 Account Debtors
Upon demand on the Demand Note or the occurrence of an Event of Default and
at any time thereafter, the Lender, without presentment, demand, notice, protest
or advertisement of any kind, may notify account debtors, at the Borrower's
expense, that the Collateral has been assigned to the Lender and
26
that payments shall be made directly to the Lender. Upon request of the Lender,
the Borrower will notify such account debtors that their accounts must be paid
to the Lender. Upon demand on the Demand Note or the occurrence of an Event of
Default and at all times thereafter, the Borrower will hold all checks, drafts,
cash and other remittances in trust for the Lender and deliver them in kind to
the Lender. The Lender shall have full power to collect, compromise, endorse,
sell or otherwise deal with the Collateral or proceeds thereof in its own name
or in the name of the Borrower.
8.02 Possession and Foreclosure of Collateral
Upon demand on the Demand Note or the occurrence of an Event of Default and
at any time thereafter, to the extent that the Borrower could legally do so, the
Lender, without presentment, demand, notice, protest or advertisement of any
kind, may enter onto, occupy and use any premises owned by the Borrower or in
which the Borrower has any interest. The Lender may take possession of all
Collateral. In the Lender's sole discretion, the Lender may operate and use the
Borrower's equipment, complete work in process and sell inventory without being
liable to the Borrower on account of any losses, damage or depreciation that may
occur as a result thereof (so long as the Lender acts in good faith). The Lender
may lease or license the Collateral to any Person for such purposes. In any
event, the Lender may sell, lease, assign and deliver the whole or any part of
the Collateral, at public or private sale, for cash, upon credit or for future
delivery, at such prices and upon such terms as the Lender deems advisable. The
Lender may sell or lease Collateral alone or in conjunction with other property,
real or personal, and allocate the sale proceeds or leases among the items of
Collateral sold without the necessity of the Collateral being present at any
such sale, or in view of prospective purchasers thereof. If notice of sale is
legally required, the Borrower agrees that ten (10) days written notice shall be
deemed reasonable. Upon such sale, the Lender may become the purchaser of the
whole or any part of the Collateral sold, discharged from all claims and free
from any right of redemption. In case of any such sale by the Lender of all or
any of the Collateral on credit, or for future delivery, such Collateral so sold
may be retained by the Lender until the selling price is paid by the purchaser.
The Lender shall incur no liability in case of the failure of the purchaser to
take possession and pay for the Collateral so sold. In case of any such failure,
the said Collateral may be resold. Any Collateral remaining unsold after being
offered at public auction may be abandoned or disposed of for no consideration
in such manner as the Lender deems appropriate.
In any event, at any time and from time to time the Lender may abandon the
Collateral or any part thereof. The Borrower agrees immediately upon demand to
take possession of any and all abandoned Collateral and to remove it from any
location in the possession of or under the control of the Lender.
8.03 INTENTIONALLY OMITTED;
8.04 Notification of Default to Third Parties
The Lender may notify account debtors of the Borrowers to pay over to the
Lender for application against the Obligations any sums due from such account
debtors to the Borrowers. In addition, upon demand on the Demand Note or the
occurrence of an Event of Default and at any time thereafter, the Lender,
without presentment, demand, notice, protest or advertisement of any kind, may
notify the Borrowers' suppliers and other third parties of the default and of
any and all decisions made and actions taken by the Lender with respect to this
Agreement, the Obligations or the Collateral, without liability of any kind.
27
8.05 Assembly of Collateral
Upon demand on the Demand Note or the occurrence of an Event of Default and
at any time thereafter, the Lender, without presentment, demand, notice, protest
or advertisement of any kind, may require the Borrower to assemble the
Collateral in a single location at a place to be designated by the Lender and
make the Collateral at all times secure and available to the Lender.
8.06 Right of Set-Off.
The Lender may, and is hereby authorized by the Borrower, at any time and
from time to time, to the fullest extent permitted by applicable Laws, without
advance notice to the Borrower (any such notice being expressly waived by the
Borrower), set-off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and any other indebtedness at any
time owing by the Lender to, or for the credit or the account of, the Borrower
against any or all of the Obligations of the Borrower or the Guarantor, now or
hereafter existing, whether or not such Obligations have matured and
irrespective of whether the Lender has exercised any other rights that it has or
may have with respect to such Obligations, including without limitation any
acceleration rights. The Lender agrees promptly to notify the Borrower after any
such set-off and application, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of the
Lender under this Section 8.06 are in addition to the other rights and remedies
(including, without limitation, other rights of set-off) which the Lender may
have.
8.07 Exercise of Other Remedies
Upon demand on the Demand Note or the occurrence of any Event of Default
and at any time thereafter, the Lender, without presentment, demand, notice,
protest or advertisement of any kind, may exercise the remedies of a secured
party afforded by the Uniform Commercial Code and other applicable law or by the
terms of any agreement between the Borrower and the Lender.
8.08 Cumulative Rights and Remedies
All rights and remedies of the Lender, whether provided for herein or in
other agreements, instruments or documents or conferred by law, are cumulative
and may be exercised alone or simultaneously.
8.09 Additional Rights and Remedies
(A) Upon demand on the Demand Note or the occurrence of an Event of
Default, all obligations on the part of the Lender to make advances on the
Demand Note, if the Lender so elects, shall cease and terminate, and, at the
option of the Lender, the Demand Note shall become immediately due and payable,
and the Lender shall thereupon be authorized and empowered to exercise any
rights of foreclosure or as otherwise provided for the realization of any
security for the Notes covered by any of the Loan Documents; but the Lender may,
at its sole discretion, make any advances or portions of advances, after demand
or the occurrence of any such Event of Default, without thereby waiving its
right to demand payment of the Borrower's indebtedness evidenced by the Notes
and secured by the Loan Documents, and without becoming liable to make any other
or further advances as hereinabove contemplated by this Agreement.
(B) Upon demand on the Demand Note or the occurrence of any Event of
Default, the rights, powers, and privileges provided in this Section 8.09 and
all other remedies available to the Lender under this Agreement or at law or in
equity may be exercised by the Lender at any time and from time to time,
28
whether or not the indebtedness evidenced and secured by the Notes and the Loan
Documents shall be due and payable, and whether or not the Lender shall have
instituted any foreclosure proceedings or other action for the enforcement of
its rights under the Notes or any of the Loan Documents.
ARTICLE 9.0 ATTORNEY-IN-FACT
9.01 Attorney-In-Fact
The Borrower hereby irrevocably appoints the Lender, or its designee, as
the Borrower's true and lawful attorney-in-fact, effective upon demand upon the
Demand Note or during the continuance of an Event of Default, with full power as
follows: (A) to endorse the name of the Borrower on any assignments, notes,
checks, drafts, money orders, or other instruments of payment for Collateral;
(B) to sign or endorse the name of the Borrower on any negotiable instrument,
invoice, freight or express bill, bill of lading, storage or warehouse receipts,
drafts, assignments, verifications and notices in connection with accounts; (C)
to obtain, adjust, settle and cancel, in the Borrower's name, insurance policies
as required by Section 6.01(D) and to sign the Borrower's name on settlement
checks or drafts; (D) in the Borrower's name, to do any act which this Agreement
requires Borrower to do, and, (E) to give notice to the United States Post
Office to effect changes of address so that mail addressed to the Borrower may
be delivered directly to the Lender. In exercising this power-of-attorney, the
Lender shall not be liable to the extent that it acts in good faith.
ARTICLE 10.0 MISCELLANEOUS
10.01 Construction.
The provisions of this Agreement shall be in addition to those of any
guaranty, pledge or security agreement, note, or other evidence of liability now
or hereafter held by the Lender, all of which shall be construed as
complementary to each other. Nothing herein contained shall prevent the Lender
from enforcing any or all other guaranty, pledge or security agreements, notes,
or other evidences of liability in accordance with their respective terms.
10.02 Further Assurance.
From time to time, the Borrower will execute and deliver to the Lender such
additional documents and will provide such additional information as the Lender
may reasonably require to carry out the terms of this Agreement and be informed
of the status and affairs of the Borrower.
10.03 Enforcement and Waiver by the Lender.
The Lender shall have the right at all times to enforce the provisions of
this Agreement and the Loan Documents in strict accordance with the terms hereof
and thereof, notwithstanding any conduct or custom on the part of the Lender in
refraining from so doing at any time or times. The failure of the Lender at any
time or times to enforce its rights under such provisions, strictly in
accordance with the same, shall not be construed as having created a custom in
any way or manner contrary to specific provisions of this Agreement or as having
in any way or manner modified or waived the same. All rights and remedies of the
Lender are cumulative and concurrent and the exercise of one right or remedy
shall not be deemed a waiver or release of any other right or remedy.
29
10.04 Expenses of the Lender.
The Borrower will, on demand, reimburse the Lender for all expenses,
including the reasonable fees and expenses of legal counsel for the Lender,
incurred by the Lender in connection with the preparation, administration,
amendment, modification, or enforcement of this Agreement and the Loan Documents
and the collection or attempted collection of any of the Obligations including
without limitation by reason of enumeration, all reasonable expenses and fees of
legal counsel for the Lender incurred in connection with any bankruptcy or
insolvency action of the Borrower or the Guarantor or any Subsidiary.
10.05 Notices.
Any notices or consents required or permitted by this Agreement shall be in
writing and shall be deemed delivered if delivered in person or if sent by
certified mail, postage prepaid, return receipt requested, facsimile
transmission, as follows, unless such address is changed by written notice
hereunder:
(A) If to the Borrower: IPG Photonics Corporation
50 Old Webster Road
Oxford, MA 01540
Attention: Its Chief Executive Officer
With a copy to: IPG Photonics Corporation
50 Old Webster Road
Oxford, MA 01540
Attention: Chief Financial Officer and General
Counsel
(B) If to the Lender: Banknorth, N.A.
370 Main Street
Worcester, Massachusetts 01608
Attention: Senior Commercial Loan Officer
With a copy to: George W. Tetler III, Esquire
Bowditch & Dewey, LLP
P.O. Box 15156
311 Main Street
Worcester, MA 01615-015
Any party may change the address to which notices are to be sent to it by giving
written notice of such change of address to the other party in the manner herein
provided for giving notice. Any such notice, demand, request, or other
communication shall be deemed given when mailed as aforesaid.
10.06 Waiver and Indemnification by the Borrower.
To the maximum extent permitted by applicable Laws, the Borrower:
(A) Waives (1) protest of all commercial paper at any time held by the
Lender on which the Borrower is in any way liable; (2) except as the same may
herein be specifically granted, notice of acceleration and of intention to
accelerate; and (3) notice and opportunity to be heard, after acceleration in
the manner provided in Section 7.02, before exercise by the Lender of the
remedies of self-help, set-off, or of other summary procedures permitted by any
applicable Laws or by any agreement with the Borrower, and, except where
required hereby or by any applicable Laws, notice of any other action taken by
the Lender; and
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(B) Defends, indemnifies and holds harmless the Lender and its officers,
attorneys, agents, and employees from all claims for loss or damage caused by
any act or omission on the part of any of them in connection with the
transactions contemplated by this Agreement or related to the banking
relationship between or among the Borrower, the Guarantor and the Lender,
excepting only the Lender's willful misconduct or gross negligence.
10.07 Participation/Pledge.
Notwithstanding any other provision of this Agreement, the Borrower
understands that the Lender may at any time enter into participation agreements
with one or more participating banks whereby the Lender will allocate certain
percentages of its commitment to them. The Borrower acknowledges that, for the
convenience of all parties, this Agreement is being entered into with the Lender
only and that its obligations under this Agreement are undertaken for the
benefit of, and as an inducement to, any such participating bank as well as the
Lender, and the Borrower hereby grants to each such participating bank, to the
extent of its participation in the Loan, the right to set off deposit accounts
maintained by the Borrower with such bank. Notwithstanding the foregoing
provisions of this Section, any Lender may at any time pledge or assign all or
any portion of such Lender's rights under this Agreement, the Demand Note and
the Loan Documents to a Federal Reserve bank; provided, however, that no such
pledge or assignment shall release such Lender from such Lender's obligations
hereunder or under the Demand Note or any of the Loan Documents.
10.08 WAIVER OF JURY TRIAL.
EACH OF THE LENDER AND THE BORROWER WAIVES ITS RIGHTS TO A TRIAL BY JURY
WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM,
BROUGHT OR INSTITUTED BY ANY PARTY TO THIS AGREEMENT OR ANY OF THEIR SUCCESSORS
AND ASSIGNS, WHICH RELATES DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE LOAN,
THE LOAN DOCUMENTS OR THE RELATIONSHIP BETWEEN THE LENDER AND THE BORROWER.
10.09 Applicable Law.
This Agreement is entered into and performable in The Commonwealth of
Massachusetts and shall be subject to and construed and enforced in accordance
with the laws of The Commonwealth of Massachusetts.
10.10 Binding Effect, Assignment, and Entire Agreement.
This Agreement shall inure to the benefit of, and shall be binding upon,
the respective successors and permitted assigns of the parties hereto. The
Borrower has no right to assign any of its rights or obligations hereunder
without the prior written consent of the Lender. This Agreement, including the
Exhibits hereto, all of which are hereby incorporated herein by reference, and
the documents executed and delivered pursuant hereto, constitute the entire
agreement between the parties and may be amended only by a writing signed on
behalf of each party.
10.11 Severability.
If any provision of this Agreement shall be held invalid under any
applicable Laws, such invalidity shall not affect any other provision of this
Agreement that can be given effect without the invalid provision, and, to this
end, the provisions hereof are severable.
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10.12 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
but one and the same instrument.
10.13 Integration Clause
This Agreement is intended by the parties as the final, complete and
exclusive statement of the transactions evidenced by this Agreement. All prior
or contemporaneous promises, agreements and understandings, whether oral or
written, are deemed to be superceded by this Agreement, and no party is relying
on any promise, agreement or understanding not set forth in this Agreement. This
Agreement may not be amended or modified except by written instrument describing
such amendment or modification executed by the Borrower and the Lender.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as a
sealed instrument as of the day and year first above written.
IPG PHOTONICS CORPORATION
By: /s/ Valentin P. Gapontsev
- ------------------------------------- ------------------------------------
Witness Valentin P. Gapontsev,
Chief Executive Officer
BANKNORTH, N.A.
By: /s/ Douglas J.G. MacLean
- ------------------------------------- ------------------------------------
Witness Douglas J.G. MacLean,
Its Senior Vice President
32
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of August
9, 2006 (the "First Amendment") is by and between IPG PHOTONICS CORPORATION, a
Delaware corporation with a principal place of business at 50 Old Webster Road,
Oxford, Massachusetts 01540 (the "Borrower") and TD BANKNORTH, N.A., a national
banking association with its principal office at 370 Main Street, Worcester,
Massachusetts 01608 (the "Lender"), formerly known as Banknorth, N.A.
W I T N E S S E T H:
WHEREAS, the Borrower and Banknorth, N.A. entered into a Loan and
Security Agreement dated as of November 15, 2004 (the "Agreement"); and
WHEREAS, the Borrower has requested an increase in its borrowing
availability and certain other modifications to the Agreement; and
WHEREAS, the Lender is agreeable to such modifications, subject to the
terms and conditions set forth in this First Amendment.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other valuable consideration, the parties do hereby agree as follows:
A. The Borrower acknowledges that TD Banknorth, N.A. is the holder of
the Agreement and that all references to the Lender and Banknorth, N.A. in the
Agreement shall henceforth mean and refer to TD Banknorth, N.A., with notices to
be sent to TD Banknorth, N.A. at 370 Main Street, Worcester, Massachusetts
01608, Attention: Senior Commercial Loan Officer.
B. Amendments to the Agreement.
1. All references to the "Loan" and the "Line of Credit
Commitment" in the Agreement, including without limitation the
definition of "Line of Credit Commitment" in Section 2.02 of
the Agreement, shall henceforth mean a revolving line of
credit facility up to $7,000,000.00 to be furnished by the
Lender to the Borrower.
2. Definitions.
a. The definition of "Demand Note" is hereby deleted
from Article 1.0 of the Agreement and a definition of
"Revolving Credit Note" substituted therefor to read as
follows:
""Revolving Credit Note" means the Revolving Credit
Note referred to in Section 2.03."
b. The definitions of "Borrowing Base", "Guarantor",
"Guaranty" and "Notes" set forth in Article 1.0 of the
Agreement are hereby amended and restated to read as follows:
""Borrowing Base" means, at any time, the amount
computed on the Borrowing Base Certificate most
recently delivered to, and accepted by, the Lender in
accordance with this Agreement and equal to the
lesser of:
(A) $7,000,000.00; or
(B) Eighty percent (80%) of the Eligible Accounts of
the Borrower."
""Guarantor" or "Guarantors" means each and both of
Valentin P. Gapontsev and IP Fibre Devices (UK)
Limited.
"Guaranty" or "Guaranties" means (A) with respect to
Valentin P. Gapontsev, a duly executed Limited
Guaranty in the form attached hereto as Exhibit
1.01(D)-1, as may be ratified or amended from time to
time and (B) with respect to IP Fibre Devices (UK)
Limited, a duly authorized and executed Unlimited
Guaranty dated as of May 3, 2005 in the form attached
hereto as Exhibit 1.01(D-2), as may be ratified or
amended from time to time."
""Notes" means the Revolving Credit Note and the
Mortgage Note, individually and collectively."
c. Definitions of "Current Liabilities", "Current
Ratio", "Debt Service Coverage Ratio", "IPO", "Leverage
Ratio", "Life Insurance Assignment", "Tangible Net Worth" and
"Total Liabilities" are added to Article 1.0 of the Agreement,
to read as follows:
""Current Liabilities" means at any time all
Liabilities that, in accordance with GAAP, should be
classified as current liabilities on a balance sheet
of the Borrower and its Subsidiaries.
"Current Ratio" means the ratio of (A) Current Assets
to (B) Current Liabilities.
"Debt Service Coverage Ratio" means at any time the
ratio of (A) the Borrower's cash available for debt
service to (B) the Borrower's debt service
requirements, such ratio to be calculated in
accordance with the sample Covenant Compliance
Calculation attached hereto as Exhibit 1.01(I).
"IPO" means an initial public offering by the
Borrower of its common stock pursuant to which at
least $100,000,000.00 of equity funding is raised by
the Borrower.
"Leverage Ratio" means at any time the ratio of (A)
Total Liabilities to (B) Tangible Net Worth.
"Life Insurance Assignment" means a Collateral
Assignment of Life Insurance Policy dated July 27,
2001 with respect to life insurance policy number
AUACOO1242 owned by the Borrower and issued by Valley
Forge Life Insurance Company on the life of Valentin
P. Gapontsev in the minimum amount of $3,000,000.00,
acknowledged by Valley Forge Life Insurance Company
on September 10, 2001.
"Tangible Net Worth" means, at any time,
Stockholders' Equity, less the sum of:
(A) Any surplus resulting from any write-up
of assets subsequent to December 31, 2005;
(B) Goodwill, including any amounts, however
designated on a balance sheet of the Borrower and its
2
Subsidiaries, representing the excess of the purchase
price paid for assets or stock acquired over the
value assigned thereto on the books of the Borrower;
(C) Patents, trademarks, trade names,
copyrights and licenses;
(D) Any amount at which shares of capital
stock of the Borrower appear as an asset on the
Borrower's balance sheet;
(E) Loans and advances to stockholders,
directors, officers, or employees and any loans,
advances or payables owing to any Affiliate;
(F) Deferred expenses; and
(G) Any other amount in respect of an
intangible that should be classified as an asset on a
balance sheet of the Borrower in accordance with
GAAP.
"Total Liabilities" means all Indebtedness that, in
accordance with GAAP, should be classified as
liabilities on a balance sheet of the Borrower and
any Subsidiaries."
3. General Terms.
a. Section 2.02 of the Agreement is restated in its
entirety to read as follows:
"2.02 General Terms.
Subject to the terms hereof, the Lender will
lend the Borrower, from time to time until the
earlier of June 30, 2008 (the "Line of Credit
Termination Date") or the occurrence of an Event of
Default, such sums as the Borrower may request by
reasonable same day notice to the Lender, received by
the Lender not later than 11:00 A.M. of such day, but
which shall not exceed, in the aggregate principal
amount at any one time outstanding, the lesser of the
then existing Borrowing Base or $7,000,000.00 (the
"Line of Credit Commitment"). The Borrower may
borrow, repay without penalty or premium and reborrow
hereunder, from the date of this Agreement until the
occurrence of an Event of Default, the lesser of the
then existing Borrowing Base or the Line of Credit
Commitment in integral multiples of $50,000.00. It is
the intention of the parties that the outstanding
principal amount of the Loan shall at no time exceed
the amount of the then existing Borrowing Base, and
if, at any time, an excess shall for any reason
exist, the full amount of such excess, together with
accrued and unpaid interest thereon as herein
provided, shall be immediately due and payable in
full."
b. Section 2.03 of the Agreement is restated in its
entirety to read as follows:
"2.03 The Revolving Credit Note.
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The Line of Credit Commitment shall be
evidenced by a revolving credit note in the form
attached hereto as Exhibit 2.03."
c. A new Section 2.06 is added to the Agreement to
read as follows:
"2.06 The Commitment Fee.
The Borrower shall pay a commitment fee of
one-quarter of one percent (0.25%) per annum on the
average daily undisbursed amount of the Line of
Credit Commitment during each quarterly period or
portion thereof. This commitment fee shall be payable
quarterly in arrears, on the last day of each June,
September, December and March of each year,
commencing September 30, 2006."
4. Affirmative Covenants. Section 6.01 of the Agreement is
amended by adding Sections 6.01(S) and 6.01(T) as follows:
"(S) The Borrower shall maintain (1) a Debt
Service Coverage Ratio at all times equal to or
greater than 1.20:1.00, to be tested on a rolling
four fiscal quarter basis at the close of each fiscal
quarter beginning with the fiscal quarter ending on
September 30, 2006;
(T) Upon successful completion of the IPO,
the Borrower shall maintain at all times:
(1) a Current Ratio equal to or
greater than 2.50:1.00, tested quarterly as
of the end of each fiscal quarter, and
(2) a Leverage Ratio equal to or
less than 2.01:1.00, tested quarterly as of
the end of each fiscal quarter."
5. Negative Covenants.
a. Section 6.02(K) of the Agreement is hereby
intentionally deleted.
b. Section 6.02(M) of the Agreement is hereby amended
by striking "$210,000.00" and inserting "$500,000.00" in its
place.
6. Events of Default. The last non-lettered paragraph is
deleted from the end of Section 7.01 of the Agreement.
7. Certain Additional Amendments. The phrase "after demand
upon the Demand Note or" is deleted from Section 6.01(D) of the
Agreement, the phrase "demand on the Demand Note or" is deleted from
each of Sections 8.01, 8.02, 8.05, 8.07, 8.09 and 9.01 of the Agreement
and the phrase "demand upon the Demand Note or" is deleted from Section
9.01 of the Agreement.
8. Exhibits. Exhibit 1.01(B), Exhibit 1.01(D-1), Exhibit
1.01(D-2), Exhibit 1.01(I) and Exhibit 2.03, as attached to this First
Amendment, are hereby added to the Agreement.
C. Representations and Warranties. The Borrower hereby represents and
warrants that:
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1. no Event of Default pursuant to the Agreement has occurred
and is continuing, and no event has occurred and is continuing that,
but for the giving of notice or the passage of time or both, would
constitute an Event of Default; and
2. except as set forth on Exhibit C.2. attached hereto, each
of the representations and warranties contained in Section 5.01 of the
Agreement is true and correct in all material respects as if made on
and as of the date hereof except to the extent any such representation
and warranty pertains to a specific date other than the date hereof.
D. Ratification of Obligations. All Obligations of the Borrower to the
Lender are hereby ratified and confirmed.
E. Bringdown. The Borrower hereby certifies to the Lender that:
1. since November 15, 2004 (the "Date of Closing") to and
including the date hereof, there have been no amendments to or changes
in the Articles of Organization or By-Laws of the Borrower as delivered
to the Lender as of the Date of Closing;
2. nothing has occurred which would lead the Secretary of
State of the State of Delaware to refuse to issue a Certificate of
Legal Existence and Good Corporate and Tax Standing as of the date of
this First Amendment or which would lead the Secretary of State of the
Commonwealth of Massachusetts to refuse to issue a Certificate of Legal
Existence and Good Standing as of the date of this First Amendment;
3. all taxes required to be paid or withheld and deposited by
the Borrower as of the date of this First Amendment have been paid or
withheld;
4. except as set forth on Exhibit E.4. attached hereto, there
has been no change in the officers, directors or shareholders (or their
holdings) of the Borrower since the Date of Closing to and including
the date of this First Amendment; and
5. the resolutions adopted by the Borrower and attached to a
Certificate dated as of and delivered to the Lender on or about the
Date of Closing have not been rescinded or amended and remain in full
force and effect.
F. Acknowledgements. The Borrower hereby acknowledges and agrees that
it has no claim, cause of action, defense, right of setoff of recoupment or
counterclaim against the Lender with respect to the Agreement, the Obligations,
or any related loan documents as of the date hereof.
G. Commitment Fee. In consideration of the increase by the Lender to
the Borrower's borrowing availability, the Borrower agrees to pay the Lender,
contemporaneously with the execution of this First Amendment, a non-refundable
fee in the amount of $10,000.00.
H. Capitalized Terms. All capitalized terms not otherwise defined
herein shall have the same meanings set forth in the Agreement.
I. Entire Agreement. The Agreement, as hereby amended, shall remain in
full force and effect pursuant to its terms and provisions as set forth herein.
5
IN WITNESS WHEREOF, the parties hereto have duly executed this First
Amendment to Loan and Security Agreement as a sealed instrument as of the day
and year first above written.
IPG PHOTONICS CORPORATION
/s/ Dallas Moody By: /s/ Timothy P.V. Mammen
- ------------------------------ ----------------------------
Witness Timothy P.V. Mammen,
Chief Financial Officer
TD BANKNORTH, N.A.
/s/ George W. Tetler By: /s/ Mark D. Fellion
- ------------------------------ ----------------------------
Witness Mark D. Fellion,
Its Vice President
THE COMMONWEALTH OF MASSACHUSETTS
Worcester, ss.
On this 9th day of August, 2006, before me, the undersigned notary
public, personally appeared Timothy P.V. Mammen, Chief Financial Officer of IPG
Photonics Corporation, proved to me through satisfactory evidence of
identification, which was / / photographic identification with signature issued
by a federal or state governmental agency, / / oath or affirmation of a credible
witness, / / personal knowledge of the undersigned, to be the person whose name
is signed on the preceding document, and acknowledged to me that he signed it
voluntarily for its stated purpose as Chief Financial Officer of IPG Photonics
Corporation.
/s/ Angelo P. Lopresti
------------------------------------------
Notary Public, Angelo P. Lopresti
My Commission Expires: November 13, 2009
6