January 9, 2006
Mr. David Slobotkin
Loan Officer
Susquehanna Patriot Bank
8000 Sagemore Drive, Suite 8101
Marlton, NJ 08053-3941
Dear David:
Thanks for providing the draft loan documents. I appreciate the
extra effort that went into getting the drafts together over the
holidays. However, as we have discussed and as I know you
understand, the fact that they are form documents means that some
of the terms and conditions just don't fit for our situation and
several are inconsistent with the commitment letter. Consequently,
here is a list of disclosures, clarifications, and up front
agreements that would become an attachment to the loan documents.
Please note that I have provided references to document locations
to make it easy to review this letter but the same changes will
apply to any similar provisions located other places in the
documents. If you and your colleagues are comfortable with an
amenable to what is set forth in this letter, please sign in the
place indicated below, whereupon this letter will constitute and
amendment to the loan documents. This letter applies to the loan
agreements dated 1-5-06 for the $462,378.40 principal amount first
mortgage loan and the $200,000 line of credit.
- In view of the existing loan made by Citizens Bank of
Massachusetts ("Citizens") to Optometrics Corporation, which is a
wholly-owned subsidiary of Dynasil, the statements made in the
first sentence under the heading "Miscellaneous Provisions --
Subsidiaries and Affiliates of Borrower" cannot be applied (see
page 4 of the Business Loan Agreement). For all purposes, the
Borrower (or the Grantor) under the loan documents must refer only
to Dynasil. In the same vein, the pledge of "all assets" of the
Borrower as collateral cannot be deemed to include the stock of
Optometrics. As per the commitment letter, the collateral for these
loans only includes the operating assets used in Dynasil's New
Jersey operations at its operation in West Berlin, NJ.
- Similarly, and as you are aware, Citizens currently has a
second lien position on the New Jersey operating assets excluding
the real estate. Although Citizens has agreed to subordinate that
lien position to your first position in the collateral securing the
mortgage loan, as per the commitment letter, Susquehanna Patriot
will have a first and third position in those assets, with Citizens
keeping its second position. The Citizens loans also include a
guarantee by Dynasil Corporation.
- - Clearly, as to the mortgage loan, the Loan Proceeds will be
used to repay the existing Premier Bank mortgage loan.
- - As to the items listed under "Affirmative Covenants --
Performance", we will comply to the extent that they are material
(See Business Loan agreement page 2)
- - We plan to comply with the covenant under "Affirmative
Covenants -- Operations" by furnishing you with copies of documents
or reports we file with the Securities and Exchange Commission
(quarterly 10-QSB reports, annual 10-KSB reports, and any special
filings that would be relevant to this provision). (See Business
Loan Agreement page 2).
- - Dynasil has a corporate seal and will bring it to the closing
to place a seal on the "Corporate Resolution to Borrow/ Grant
Collateral" documents.
- - As per the broad definition of "hazardous substances" in these
documents, Dynasil has in the past and currently uses "hazardous
substances" in its processes so we are unable to represent that we
have never used "hazardous substances" as stated in statement 1 of
the Hazardous Substances paragraph at the bottom of page 1 of the
Business Loan Agreements, on page 2 of the Mortgage Agreement, and
anywhere else where this disclosure may apply. In addition, please
reference the Phase 1 Environmental Site Assessment prepared for
Susquehanna Patriot Bank dated 10/14/05 for a summary of
disclosures of Dynasil's history and status regarding environmental
matters regarding environmental language in all loan documents.
Page 2 January 9, 2006
- - In regard to the Litigation and Claims representation at the
top of page two on the Business Loan Agreements, Dynasil was named
in a California lawsuit along with approximately 20 other companies
and we do not believe that an adverse outcome on this matter will
have any material adverse effect on the company. Please see item
3, page 3 of Dynasil's 10-KSB report for fiscal year 2005 for more
details. The entire contents of that 10-KSB should be considered
disclosures for the purpose of this letter.
- - On page 2 of the Business Loan Agreements, it requires that
annual statements be sent to the lender within 45 days and
quarterly statements within 30 days. Our current requirements with
the SEC are to file reports within 90 days and 45 days
respectively. We will provide the statements as soon as they are
available which should be within the SEC timing requirement but may
not meet the timing in the Business Loan Agreement.
- Under "Negative Covenants -- Continuity of Operations" in the
Business Loan Agreements, by this letter you are giving Dynasil
approval to continue to pay dividends (since we currently have
Preferred Stock where we are paying dividends) as long as the two
financial covenants are being met. Also under negative covenants,
it requires your approval for acquisitions and other activities
that are part of Dynasil's strategy to expand our company. We
recognize that these activities will require the approval of
Susquehanna Patriot Bank and we are agreeing that approval would
not be unreasonably withheld.
- - Please provide us a copy of the full amortization schedule for
the mortgage.
- - In the Commercial Security Agreements, under "Grantor's
Representations and Warranties With Respect to the Collateral --
Notices to Lender", we propose to provide copies of our documents
filed with the SEC. Further, and as you know, under that same
heading, the provisions under "Transactions Involving Collateral"
and "Title" are inconsistent with the Citizens loan to Optometrics.
- - Both loan packages include Assignment of Leases and Rents
documents and the Promissory Notes list Assignment of Leases and
Rents as collateral. We are disclosing here that there are no
leases and rents in New Jersey. This also relates to some
provisions in the Mortgages.
Sincerely,
/s/Craig T. Dunham
President and CEO
Susquehanna Patriot Bank acknowledges and agrees that the loan
documents referred to above will be deemed amended to the extent
inconsistent with the foregoing letter and also acknowledges the
disclosures and clarifications in this letter.
/s/ David Slobotkin January 5, 2006
David Slobotkin, Loan Officer Date