<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 28, 1998
Commission file number 0-19882
KOPIN CORPORATION
-----------------
(Exact name of registrant as specified in its charter)
Delaware 04-2833935
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
695 Myles Standish Blvd., Taunton, MA 02780-1042
------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 824-6696
--------------
Not Applicable
--------------
Former name, former address, and former fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or l5(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of April 30, 1998
----- --------------------------------
Common Stock, par value $.01 12,147,863
<PAGE>
KOPIN CORPORATION
INDEX
-----
Page No.
-------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 28, 1998 and
December 31, 1997 3
Consolidated Statements of Operations for the
Three months ended March 28, 1998 and March 29, 1997 4
Consolidated Statements of Stockholders' Equity for the
Three months ended March 28, 1998 and March 29, 1997 5
Consolidated Statements of Cash Flows for the
Three months ended March 28, 1998 and March 29, 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
<PAGE>
KOPIN CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 28, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and equivalents $35,557,165 $ 14,425,400
Marketable securities 2,009,938 4,620,884
Accounts receivable, net of
allowance of $152,700 and
$152,700:
Billed 3,909,900 3,209,482
Unbilled 1,107,812 1,091,806
Inventory 2,784,485 2,720,843
Prepaid expenses and
other current assets 609,783 798,867
------------- -------------
Total current assets 45,979,083 26,867,282
Equipment and improvements:
Equipment 25,167,639 22,954,885
Leasehold improvements 815,095 772,717
Furniture and fixtures 335,326 331,955
Equipment under construction 224,871 1,904,198
------------- -------------
26,542,931 25,963,755
Accumulated depreciation
and amortization 15,775,020 14,869,251
------------- -------------
10,767,911 11,094,504
Other assets 5,889,501 3,372,692
Intangible assets 2,068,022 2,059,918
------------- -------------
Total assets $64,704,517 $ 43,394,396
============= =============
LIABILITIES AND STOCKHOLDERS'
- ----------------------------
EQUITY
- ------
Current liabilities:
Note payable $ - $ 450,000
Accounts payable 2,559,325 2,683,671
Accrued payroll and expenses 1,337,220 725,187
Current portion of
long-term obligations 2,508,288 1,542,818
------------- -------------
Total current liabilities 6,404,833 5,401,676
Deferred rent - 165,166
Long-term obligations,
less current portion 5,611,023 1,958,968
Stockholders' equity:
Preferred stock, par
value $.01 per share:
Authorized, 3,000 shares;
none issued and outstanding
Common stock, par value
$.01 per share:
Authorized, 20,000,000
shares; issued 12,146,660
shares in 1998 and 11,122,143
shares in 1997 121,467 111,221
Additional paid-in capital 107,915,551 90,514,233
Deferred compensation (215,230) (231,955)
Accumulated other
comprehensive loss (3,190) (6,001)
Accumulated deficit (55,129,937) (54,518,912)
------------- ------------
Total stockholders'
equity 52,688,661 35,868,586
------------- -------------
Total liabilities and
stockholders' equity $64,704,517 $ 43,394,396
============= =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
KOPIN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
March 28, March 29,
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Product revenues $ 4,660,684 $ 2,882,077
Research and development revenues 805,863 831,936
----------- -----------
5,466,547 3,714,013
Expenses:
Cost of product revenues 2,723,238 2,111,365
Research and development 2,550,005 2,803,978
General, administrative and selling 991,695 1,086,044
Other 91,899 75,612
----------- -----------
6,356,837 6,076,999
----------- -----------
Loss from operations (890,290) (2,362,986)
Other income and expense:
Interest and other income 379,235 314,897
Interest expense (99,970) (53,529)
----------- -----------
Net loss ($ 611,025) ($2,101,618)
=========== ===========
Net loss per share - basic and diluted ($ .05) ($ .19)
=========== ===========
Weighted average number of common shares
outstanding 11,660,684 10,940,988
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
KOPIN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 28, 1998 AND MARCH 29, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Accumulated
Common Stock Other
--------------- Paid-in Deferred Comprehensive
Shares Amount Capital Compensation Loss Deficit Total
--------- ------ ------- ------------ ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 10,931,408 $109,314 $ 88,605,451 ($227,706) $ 44,933 ($48,261,143) $40,270,849
Exercise of stock options 9,580 96 93,534 -- -- -- 93,630
Amortization of compensation
relating to grant of stock
options -- -- -- 18,180 -- -- 18,180
Net unrealized gain on marketable
securities -- -- -- -- 1,100 -- 1,100
Net loss for the three month
period ended March 29, 1997 -- -- -- -- -- (2,101,618) (2,101,618)
---------- -------- ------------ ---------- -------- ------------ -----------
Balance, March 29, 1997 10,940,988 $109,410 $ 88,698,985 ($ 209,526) $ 46,033 ($50,362,761) $38,282,141
========== ======== ============ ========== ======== ============ ===========
Balance, December 31, 1997 11,122,143 $111,221 $ 90,514,233 ($231,955) ($6,001) ($54,518,912) $35,868,586
Issuance of common stock, net of
issuance costs of $1,829,000 1,000,000 10,000 17,161,418 -- -- -- 17,171,418
Exercise of stock options 24,517 246 239,900 -- -- -- 240,146
Amortization of compensation
relating to grant of stock
options -- -- -- 16,725 -- -- 16,725
Net unrealized gain on marketable
securities -- -- -- -- 2,811 -- 2,811
Net loss for the three month
period ended March 28, 1998 -- -- -- -- -- (611,025) (611,025)
---------- -------- ------------ ---------- -------- ------------ -----------
Balance, March 28, 1998 12,146,660 $121,467 $107,915,551 ($ 215,230) ($ 3,190) ($55,129,937) $52,688,661
========== ======== ============ ========== ======== ============ ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
KOPIN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 28, March 29,
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 611,025) ($ 2,101,618)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 997,668 863,298
Amortization of compensation relating to grant
of stock options 16,725 18,180
Decrease in unearned revenue - (23,001)
Decrease in deferred rent (165,166) (54,000)
Changes in assets and liabilities:
Accounts receivable (716,424) 1,002,215
Inventory (63,642) 135,272
Prepaid expenses and other current assets 189,084 352,326
Intangible assets (100,003) (58,951)
Accounts payable and accrued expenses 487,687 (2,311,353)
----------- -------------
Net cash provided by (used in) operating activities 34,904 (2,177,632)
----------- -------------
Cash flows from investing activities:
Marketable securities 2,613,757 3,175,601
Other assets (2,516,809) (120,539)
Capital expenditures (579,176) (1,247,246)
----------- -------------
Net cash provided by (used in) investing activities (482,228) 1,807,816
----------- -------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 17,171,418 -
Principal payment on notes payable (450,000) -
Proceeds from long-term obligations 5,000,000 -
Principal payment on long-term obligations (382,475) (334,950)
Proceeds from exercise of stock options 240,146 93,630
----------- -------------
Net cash provided by (used in) financing activities 21,579,089 (241,320)
----------- -------------
Net increase (decrease) in cash and equivalents 21,131,765 (611,136)
Cash and equivalents, beginning of period 14,425,400 16,511,291
----------- -------------
Cash and equivalents, end of period $35,557,165 $ 15,900,155
=========== =============
Non-cash investing and financing transactions:
Marketable securities valuation $ 2,811 $ 1,100
Supplementary information -Interest paid in cash $ 68,277 $ 53,529
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
KOPIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The financial statements for the three month periods ended March 28, 1998 and
March 29, 1997 are unaudited and include all adjustments which, in the opinion
of management, are necessary to present fairly the results of operations for the
periods then ended. All such adjustments are of a normal recurring nature.
Certain reclassifications have been made to the March 29, 1997 amounts to
conform to the 1998 presentation including the presentation of interest income,
other income and interest expense shown as Other Income and Expense. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission (File No. 0-19882) for the year
ended December 31, 1997.
The results of the Company's operations for any interim period are not
necessarily indicative of the results of the Company's operations for any other
interim period or for a full fiscal year.
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority-owned subsidiaries. All intercompany transactions
and balances have been eliminated.
2. NET LOSS PER SHARE
------------------
Net loss per share is computed using the weighted average number of common
shares outstanding during the period. Common share equivalents have not been
included because the effect would be anti-dilutive. The Company has adopted
Statement of Financial Accounting Standards (SFAS) No.128, "Earnings Per Share,"
which became effective during the fourth quarter of 1997. The new
pronouncement's requirements had no impact on the Company's previously reported
loss per share.
3. LONG-TERM OBLIGATIONS
---------------------
In March 1998, the Company entered into a $5,000,000 term loan which requires
the Company to make quarterly principal payments of $250,000 plus interest at a
floating rate based upon LIBOR. This term loan is secured by the Company's
accounts receivable.
4. STOCKHOLDERS' EQUITY
--------------------
In February 1998, the Company completed a 2,000,000 share public offering of its
common stock at a price of $19.00 per share. Of the total shares sold, 1,000,000
shares were sold by Kopin and the other 1,000,000 shares were sold by Telecom
Holding Co., Ltd. of Thailand. Net proceeds to the Company totaled approximately
$17,171,000.
5. RECENT PRONOUNCEMENTS
---------------------
In January 1998, the Company adopted SFAS No.130, "Reporting Comprehensive
Income," which became effective during the quarter. SFAS No. 130 requires
reporting of comprehensive income, which in the case of the Company, is a
combination of reported net loss and the change in the marketable securities
valuation which is a component of stockholders' equity. SFAS No. 130 has no
impact on the Company's net loss. Comprehensive loss for the quarters ended
March 28, 1998 and March 29, 1997 was $608,214 and $2,100,518.
In January 1998, the Company adopted SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information," which will become reportable during the
fourth quarter. The impact of SFAS No. 131 on the Company has not yet been
determined.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Kopin is a leading developer and manufacturer of advanced semiconductor
materials and small form factor displays. The Company was incorporated in 1984
to further develop and commercialize certain semiconductor expertise developed
at MIT. Historically, the Company has derived most of its revenues from
research and development contracts with agencies of the United States
government. Beginning in 1995, the Company experienced a significant increase
in revenues from sales of its device wafers, and in 1996, revenues from such
sales for the first time exceeded revenues from research and development
contracts. More recently, the Company has commenced sales of CyberDisplay
products. The Company has been unprofitable since inception and, at March 28,
1998, the Company had an accumulated deficit of $55,129,937.
RESULTS OF OPERATIONS
REVENUES. The Company's total revenues were $5,466,547 for the three
months ended March 28, 1998 compared to $3,714,013 during the corresponding
period in 1997, an increase of $1,752,534. The Company's product revenues were
$4,660,684 for the three months ended March 28, 1998 compared to $2,882,077 in
1997, an increase of $1,778,607. Product revenues from sales of the Company's
device wafers were $4,386,000 in 1998 compared to $2,822,774 in 1997, an
increase of $1,563,226 or 55.4%. The increase in product revenues was due to an
increase in sales of HBT device wafers and display products over the
corresponding period in the prior year. The increase in sales of the Company's
device wafers was primarily due to the increased use of these wafers in various
wireless telecommunications products, particularly by the Company's major
customer, Rockwell International. Research and development revenues were
$805,863 for the three months ended March 28, 1998 compared to $831,936 during
the corresponding period in 1997, a decrease of $26,073 primarily attributable
to a decrease in contract revenues from agencies of the federal government. As a
result of the expirations of multi-year contracts with the federal government
and the Company's increased emphasis on product revenues, the Company believes
that research and development revenues will continue to decline as a percentage
of total revenues for the near future.
COST OF PRODUCT REVENUES. Cost of product revenues, which is comprised of
materials, labor and manufacturing overhead related to the Company's products,
was $2,723,238, or 58.4% of product revenues, for the three months ended March
28, 1998 compared to $2,111,365, or 73.3% of product revenues, for the three
months ended March 29, 1997. The improvement in cost of product revenues as a
percentage of product revenues in 1998 was primarily due to increased sales of
device wafers resulting in lower unit costs.
RESEARCH AND DEVELOPMENT. Research and development expenses include
expenses incurred in support of internal development programs and programs
funded by agencies of the federal government, including development programs for
display devices and products, device wafers, circuit design costs, staffing,
purchases of materials and laboratory supplies, and fabrication and packaging of
the Company's display products. Funded research and development expenses were
$1,056,134 for the three months ended March 28, 1998 compared to $923,860 for
the three months ended March 29, 1997, an increase of $132,274. Internal
research and development expenses were $1,493,871 for the three months ended
March 28, 1998 compared to $1,880,118 during the corresponding period in 1997, a
decrease of $396,247. The decrease in internal research and development expenses
was primarily a result of reduced development costs incurred for fabrication and
packaging of the Company's display products.
GENERAL, ADMINISTRATIVE AND SELLING. General, administrative and selling
expenses consist of the expenses incurred by the Company's business development
and sales personnel, marketing expenses, and administrative and general
corporate expenses. General, administrative and selling expenses were $991,695
for the three months ended March 28, 1998 compared to $1,086,044 during the
corresponding period in 1997, a decrease of $94,349. The decrease in general,
administrative and selling expenses in 1998 was primarily due to changes in
personnel and related expenses. In addition, general, administrative and selling
expenses include non-cash charges for compensation expense of $16,725 for the
three months ended March 28, 1998 compared to $18,180 in the for the three
months ended March 29, 1997 relating to the issuance of certain stock options.
OTHER. Other expenses were $91,899 for the three months ended March 28,
1998 compared to $75,612 during the corresponding period in 1997.
8
<PAGE>
OTHER INCOME, NET. Other income, net was $279,265 for the three months
ended March 28, 1998 compared to $261,368 during the corresponding period in
1997. The increase was primarily due to increased interest income of $379,235
during the three months ended March 28, 1998 compared to $314,897 for the
corresponding period in 1997, resulting from higher cash balances in 1998,
partially offset by increased interest expense of $99,970 in 1998 compared to
$53,529 in 1997 due to additional debt funding obtained by the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through public and
private placements of its equity securities, research and development contract
revenues, and sales of its device wafers and display devices and products. In
February 1998, the Company completed a 2,000,000 share public offering of its
common stock at a price of $19.00 per share. Of the total shares sold, 1,000,000
shares were sold by Kopin and the other 1,000,000 shares were sold by Telecom
Holding Co., Ltd. of Thailand. Net proceeds to the Company totaled approximately
$17,171,000.
As of March 28, 1998, the Company had cash and equivalents and
marketable securities of $37,567,103 and working capital of $39,574,250 compared
to $19,046,284 and $21,465,606 as of December 31, 1997. The increase in cash and
equivalents and marketable securities is primarily due to the public offering of
common stock resulting in net proceeds to the Company of $17,171,000 and the
receipt of a term loan facility of $5,000,000, offset by an increase in other
assets of $2,516,809, capital expenditures of $579,176, and principal payments
on notes payable and long-term obligations of $832,475. The Company also has
approximately $1,096,000 of marketable securities held in escrow as equipment
financing collateral which is shown in other assets.
The Company periodically enters into various long-term debt
arrangements to finance equipment purchases and other activities. As of March
28, 1998, long-term debt obligations totaled $8,119,311, of which $2,508,288 is
payable in 1998.
In March 1998, the Company entered into a $5,000,000 term loan which
requires the Company to make quarterly principal payments of $250,000 plus
interest at a floating rate based upon LIBOR. This term loan is secured by the
Company's accounts receivable.
In October 1993, the Company entered into a lease for a 74,000 square
foot manufacturing facility. This facility, which includes 10,000 square feet of
environmentally controlled clean rooms, is used primarily for the Company's
production of display devices. This facility is occupied under a lease that
expires in October 2000, with renewable options for up to four additional years
at the Company's election. The Company will make lease payments of approximately
$1.0 million per year over the remaining term of the lease.
The Company expects to expend approximately $5,000,000 on capital
expenditures over the next twelve months, primarily for the acquisition of
equipment relating to the manufacturing, packaging and testing of CyberDisplay
products and production of the Company's device wafers.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 1998, the Company adopted SFAS No.130, "Reporting Comprehensive
Income," which became effective during the quarter. SFAS No. 130 requires
reporting of comprehensive income, which in the case of the Company, is a
combination of reported net loss and the change in the marketable securities
valuation which is a component of stockholders' equity. SFAS No. 130 has no
impact on the Company's net loss. Comprehensive loss for the quarters ended
March 28, 1998 and March 29, 1997 was $608,214 and $2,100,518.
In January 1998, the Company adopted SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information," which will become reportable during the
fourth quarter. The impact of SFAS No. 131 on the Company has not yet been
determined.
9
<PAGE>
FUTURE OPERATING RESULTS
The Company is conducting a review of its computer systems to identify
those areas that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Company presently believes, with
modification to existing software and converting to new software, the Year 2000
problem will not pose significant operational problems and is not anticipated to
be material to its financial position or results of operations in any given
year.
Certain of the statements contained in this Form 10-Q, including
Management's Discussion and Analysis of Financial Condition and Results of
Operations, are forward-looking statements that involve risks and uncertainties.
In addition to the risks and uncertainties set forth in this Form 10-Q, other
factors that could cause actual results to differ materially include the
following: general economic and business conditions and growth in the flat panel
display industry and the gallium arsenide integrated circuit and materials
industries, the impact of competitive products and pricing, availability of
third party components, availability of integrated circuit fabrication
facilities, cost and yields associated with production of the Company's
CyberDisplay imaging devices and device wafers, loss of significant customers,
acceptance of the Company's products, continuation of strategic relationships,
and the risk factors and cautionary statements listed from time to time in the
Company's periodic reports and registration statements filed with the Securities
and Exchange Commission, including but not limited to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.
10
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.41 Loan Agreement, by and between the Company and The Sumitomo Bank,
Limited, dated February 27, 1998
10.42 Note Agreement, by and between the Company and The Sumitomo Bank,
Limited, dated February 27, 1998
10.43 Restricted Account and Security Agreement, by and between the Company
and The Sumitomo Bank, Limited, dated February 27, 1998
27 Financial Data Schedule
(b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KOPIN CORPORATION
(Registrant)
Date: May 8, 1998 By: /s/ John C.C. Fan
---------------------------------
John C.C. Fan
President, Chief Executive Officer
and Chairman of the Board of
Directors (Principal Executive
Officer)
Date: May 8, 1998 By: /s/ Paul J. Mitchell
---------------------------------
Paul J. Mitchell
Treasurer and Chief Financial
Officer (Principal Financial and
Accounting Officer)
12
<PAGE>
Exhibit 10.41
LOAN AGREEMENT
BETWEEN
KOPIN CORPORATION
AND
THE SUMITOMO BANK, LIMITED
FEBRUARY 27, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I.
DEFINITIONS 1
-------------
SECTION 1.1 DEFINITIONAL PROVISIONS. 1
--------------------------
ARTICLE II.
LOAN1
- --------------------
SECTION 2.1 TERM NOTE. 1
------------
SECTION 2.2 USE OF PROCEEDS. 3
------------------
SECTION 2.3 PAYMENTS. 3
-----------
SECTION 2.4 PREPAYMENTS. 4
--------------
SECTION 2.5 INDEMNIFICATION; INCREASED COSTS. 4
-----------------------------------
SECTION 2.6 INVESTMENT ACCOUNT AND CUSTODIAN ACCOUNT. 5
-------------------------------------------
SECTION 2.7 CHANGE IN LEGALITY. 5
---------------------
ARTICLE III.
REPRESENTATIONS AND WARRANTIES 6
--------------------------------
SECTION 3.1 ORGANIZATION 6
--------------
SECTION 3.2 POWER, AUTHORITY, CONSENTS 6
----------------------------
SECTION 3.3 NO VIOLATION OF LAW OR AGREEMENTS 7
-----------------------------------
SECTION 3.4 DUE EXECUTION, VALIDITY, ENFORCEABILITY 7
-----------------------------------------
SECTION 3.5 JUDGMENTS, ACTIONS, PROCEEDINGS 7
---------------------------------
SECTION 3.6 NO DEFAULTS, COMPLIANCE WITH LAWS 7
-----------------------------------
SECTION 3.7 NO MATERIALLY ADVERSE CONTRACTS, ETC. 7
---------------------------------------
SECTION 3.8 FINANCIAL STATEMENTS. 7
-----------------------
SECTION 3.9 TITLE TO PROPERTIES; LEASES 8
-----------------------------
SECTION 3.10 PRIORITY OF LIENS 8
-------------------
SECTION 3.11 PATENTS, COPYRIGHTS, LICENSES, ETC 8
------------------------------------
SECTION 3.12 TAX RETURNS 8
-------------
SECTION 3.13 REGULATION U; MARGIN STOCK 8
----------------------------
SECTION 3.14 FULL DISCLOSURE 9
-----------------
SECTION 3.15 ERISA 9
-------
SECTION 3.16 ENVIRONMENTAL COMPLIANCE 9
--------------------------
SECTION 3.17 OTHER REGULATIONS 10
--------------------
SECTION 3.18 COMPLIANCE WITH SECURITIES LAWS 10
----------------------------------
SECTION 3.19 SOLVENCY 10
-----------
SECTION 3.20 SUBSIDIARIES OR AFFILIATES. 10
------------------------------
SECTION 3.21 PENDING LITIGATION 10
---------------------
SECTION 3.22 COMPLIANCE OF INVESTMENT POLICY 10
----------------------------------
ARTICLE IV.
CONDITIONS PRECEDENT 11
-----------------------
SECTION 4.1 CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
AGREEMENT. 11
-------------
ARTICLE V.
AFFIRMATIVE COVENANTS 12
------------------------
SECTION 5.1 BOOKS AND RECORDS 12
--------------------
SECTION 5.2 INSPECTIONS AND AUDITS 12
-------------------------
i
<PAGE>
SECTION 5.3 PERFORM OBLIGATIONS 13
----------------------
SECTION 5.4 FEES AND EXPENSES 13
--------------------
SECTION 5.5 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS 13
------------------------------------------------
SECTION 5.6 INSURANCE 13
------------
SECTION 5.7 CERTAIN TAXES 14
----------------
SECTION 5.8 USE OF PROCEEDS 14
------------------
SECTION 5.9 FURTHER ASSURANCES WITH RESPECT TO ACCOUNTS 14
----------------------------------------------
SECTION 5.10 FINANCIAL COVENANTS 14
----------------------
SECTION 5.11 DEPOSITS INTO CUSTODIAN ACCOUNT 14
----------------------------------
SECTION 5.12 INVESTMENT POLICY. 15
---------------------
ARTICLE VI.
DELIVERY OF FINANCIAL REPORTS,DOCUMENTS AND OTHER INFORMATION 15
----------------------------------------------------------------
SECTION 6.1 ANNUAL FINANCIAL STATEMENTS 15
------------------------------
SECTION 6.2 QUARTERLY FINANCIAL STATEMENTS 15
---------------------------------
SECTION 6.3 10Q AND 10K FILINGS 15
----------------------
SECTION 6.4 CASH AND COVENANT REPORTS 15
----------------------------
SECTION 6.5 BUDGET; OTHER INFORMATION 16
----------------------------
SECTION 6.6 NO DEFAULT CERTIFICATE 16
-------------------------
SECTION 6.7 NOTICES. 16
-----------
ARTICLE VII.
NEGATIVE COVENANTS 17
---------------------
SECTION 7.1 LIENS 17
--------
SECTION 7.2 CHANGES IN BUSINESS; MERGER OR CONSOLIDATION; DISPOSITION
OF ASSETS 18
------------
SECTION 7.3 CHANGE OF OFFICE ADDRESS 18
---------------------------
SECTION 7.4 VIOLATION OF AGREEMENT. 18
--------------------------
ARTICLE VIII.
EVENTS OF DEFAULT 18
--------------------
SECTION 8.1 EVENTS OF DEFAULT 18
--------------------
ARTICLE IX.
MISCELLANEOUS PROVISIONS 20
---------------------------
SECTION 9.1 INDEMNITY; ADDITIONAL FEES 20
-----------------------------
SECTION 9.2 SURVIVAL OF AGREEMENTS AND REPRESENTATIONS 20
---------------------------------------------
SECTION 9.3 MODIFICATIONS, CONSENTS AND WAIVERS 20
--------------------------------------
SECTION 9.4 ENTIRE AGREEMENT 20
-------------------
SECTION 9.5 REMEDIES CUMULATIVE 20
----------------------
SECTION 9.6 FURTHER ASSURANCES 21
---------------------
SECTION 9.7 NOTICES 21
----------
SECTION 9.8 CONSTRUCTION; GOVERNING LAW 22
------------------------------
SECTION 9.9 WAIVER OF JURY TRIAL 22
-----------------------
SECTION 9.10 JURISDICTION 22
---------------
SECTION 9.11 RELATIONSHIP OF THE BORROWER AND THE BANK 22
--------------------------------------------
SECTION 9.12 CONFIDENTIALITY 23
------------------
SECTION 9.13 SEVERABILITY 23
---------------
SECTION 9.14 BINDING EFFECT; ASSIGNMENT 23
-----------------------------
SECTION 9.15 COUNTERPARTS. 24
----------------
APPENDIX A TO LOAN AGREEMENT -- DEFINITIONS 1
---------------------------------------------
ii
<PAGE>
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT (the "Agreement") is made as of February 27, 1998 by and
between KOPIN CORPORATION, a Delaware corporation ("Kopin" or the "Borrower"),
and THE SUMITOMO BANK, LIMITED, a Japanese banking corporation (the "Bank").
The Borrower and the Bank hereby agree as follows:
ARTICLE I.
DEFINITIONS
-----------
SECTION 1.1 DEFINITIONAL PROVISIONS.
-----------------------
(a) Capitalized terms used in this Agreement and defined in Appendix A hereto,
----------
which Appendix A is attached to this Agreement and by this reference made a
----------
part hereof, shall have the respective meanings specified in such Appendix
--------
A.
-
(b) All terms defined in Appendix A shall have such defined meanings when used
----------
in any certificate or any other document made or delivered pursuant to this
Agreement unless otherwise defined in such other document or certificate.
(c) All accounting terms not specifically defined in this Agreement or in
Appendix A hereto shall be construed in accordance with generally accepted
----------
accounting principles as in effect in the United States of America on the
date of this Agreement.
ARTICLE II.
LOAN
----
SECTION 2.1 TERM NOTE.
---------
(a) The Bank hereby agrees, on the terms and subject to the conditions of this
Agreement, to loan to the Borrower an aggregate principal amount of Five
Million Dollars ($5,000,000) (the "Loan"). The Bank will make an initial
Disbursement to the Borrower on the Closing Date in the amount of Five
Million Dollars ($5,000,000). The obligation of the Borrower to repay the
Loan and to pay interest and all other costs and charges payable hereunder
will be evidenced by a promissory note in the form of Exhibit 2.1 (the
-----------
"Note") dated the Closing Date and payable to the order of the Bank in the
original principal amount of Five Million Dollars ($5,000,000).
(b) The Loan shall bear interest, and the Borrower shall pay interest on the
outstanding principal balance of the Loan from the date of the initial
Disbursement to the Borrower until the Maturity Date, at the following
rates per annum:
(i) with respect to any portion of such Loan which is a Eurodollar Rate
Loan Portion, interest at a rate per annum on such Eurodollar Rate
Loan Portion equal (at all times during each
<PAGE>
applicable Interest Period) to the Reserve Adjusted Eurodollar Rate
for such applicable Interest Period plus the Applicable Margin; and
(ii) with respect to each portion of such Loan which is not a Eurodollar
Rate Loan Portion, interest at a rate per annum on each such Loan
Portion equal to the Prime Rate.
Except for any Disbursement to be made hereunder on the Closing Date, not
later than 12:00 noon (Chicago time) on the third Business Day prior to the
initial funding of the Loan, the Borrower shall provide written notice
("Eurodollar Notice") to the Bank of the dollar amount of the initial
Disbursement which will be a Eurodollar Rate Loan Portion for the initial
Interest Period. In the event that the Borrower fails to provide the
Eurodollar Notice in accordance with the preceding sentence or if an Event
of Default has occurred and is continuing, then the outstanding principal
balance of the Loan shall bear interest at the Prime Rate until such time
as Borrower has given an Election Notice in accordance with Section 2.1(c)
below. Computations of interest will be on the basis of a 360 day year, for
actual days elapsed with respect to interest accruing.
(c) The Borrower, upon written notice (the "Election Notice") given to the Bank
by not later than 12:00 noon (Chicago time) on the third Business Day prior
to the expiration of the Interest Period for any Eurodollar Rate Loan
Portion in the case of any continuation of a Eurodollar Rate Loan Portion
as such, and not later than 12:00 Noon (Chicago time) on the conversion
date in the case of any conversion into a Prime Rate Loan Portion, may
elect: (1) to continue such portion or any part thereof as a Eurodollar
Rate Loan Portion for the next succeeding Interest Period; or (2) to
convert such portion or any part thereof to a Prime Rate Loan Portion; or
(3) a combination thereof, effective the last day of such Interest Period.
At the end of each applicable Interest Period, in the absence of a timely
effective Election Notice to continue the applicable Loan Portion as a
Eurodollar Rate Loan Portion, such Loan Portion shall bear interest at the
Prime Rate. Notwithstanding anything herein to the contrary, if at the end
of an applicable Interest Period for a Eurodollar Rate Loan Portion, an
Event of Default has occurred and is continuing, then the Borrower shall
have no right to give an Election Notice, and the Bank may ignore any
attempt by the Borrower to give an Election Notice.
(d) An Election Notice with respect to any Eurodollar Rate Loan Portion shall
contain the following information:
(i) the dollar amount (if any) which is to be continued as a
Eurodollar Rate Loan Portion; and
(ii) with respect to the dollar amount to be continued as a Eurodollar
Rate Loan Portion, the new Interest Period.
Notwithstanding anything herein to the contrary, the outstanding
Loan balance may not at any time be comprised of more than five (5)
Eurodollar Rate Loan Portions at the same time without the Bank's
consent, which shall be in the Bank's sole and absolute discretion.
Once received by the Bank, any Election Notice will be irrevocable for
the applicable Eurodollar Rate Loan Portion for the applicable
Interest Period.
The Borrower hereby authorizes the Bank to record on schedule(s) annexed to
the Note (a) the date and amount of each Loan Portion; (b) the term of the
Interest Period for each Eurodollar Rate Loan Portion; (c) the interest
rate or rates for each Prime Rate Loan Portion and the effective date(s) of
all changes in such rates; and (d) the date and amount of each principal
and interest payment on each Loan Portion made by the Borrower, and the
Borrower agrees that all such notations shall constitute prima facie
----- -----
evidence of the
2
<PAGE>
matters noted absent manifest error, provided that the failure of the
Bank to record such information shall not reduce or affect the obligations
of the Borrower hereunder or under the Loan Agreement.
(e) In the event that on the date for determining the Reserve Adjusted
Eurodollar Rate to be paid by the Borrower in respect of any Interest
Period, the Bank determines in good faith (which determination will be
conclusive and binding on the Borrower) that by reason of circumstances
affecting the London Interbank Eurodollar market, either Eurodollar rates
are not offered in the London Interbank Eurodollar market or adequate and
fair means do not exist for ascertaining the Reserve Adjusted Eurodollar
Rate for such Interest Period, the Bank shall promptly give to the Borrower
telephonic notice (confirmed as soon as practicable in writing) of such
determination. During the existence of such circumstances, any existing
Eurodollar Rate Loan Portion in respect of which such circumstances exist
will convert to a Prime Rate Loan Portion at the end of the applicable
Interest Period.
SECTION 2.2 USE OF PROCEEDS. The proceeds of the Loan shall be used by
---------------
the Borrower for the purpose of funding, or replenishing working capital
reserves, funding capital expenditures for expansion of manufacturing facilities
in Taunton and Westborough, Massachusetts, to repay existing secured debt
obligations to BankBoston, N.A., and for general corporate purposes.
SECTION 2.3 PAYMENTS.
--------
(a) The Borrower will repay the principal amount of the Loan in twenty (20)
equal consecutive quarterly installments of principal (each installment
being in an amount sufficient to amortize the outstanding principal balance
of the Loan over a period of twenty (20) quarters), together with interest
thereon commencing from the Closing Date, payable on the first Business Day
of each calendar quarter commencing with the first payment due on April 1,
1998 and continuing until the Maturity Date, on which date the Borrower
shall make a final payment in an amount equal to all the then unpaid
principal of the Loan and all unpaid interest thereon. Notwithstanding the
foregoing, repayment of the Loan and all accrued and unpaid interest
thereon may be accelerated upon the occurrence and continuance of an Event
of Default.
(b) The Borrower shall make all payments hereunder in U.S. Dollars and in
immediately available funds at the Bank's office at 233 S. Wacker Drive,
Suite 5400, Chicago, Illinois 60606 (or at such other office as the Bank
may notify the Borrower in writing) via wire transfer to Sumitomo Bank,
Limited, Chicago Branch, ABA 071001850, through the Federal Reserve Bank of
Chicago, Reference: Borrower. Payments not made prior to 12:00 noon
(Chicago time) on the date of payment will be deemed paid on the next
Business Day. Payments which fall due on a day which is not a Business Day
will be payable on the next Business Day, with interest to accrue to such
date of payment. All payments hereunder and under the Note shall be made
without set-off or counterclaim and in such amounts as may be necessary in
order that all such payments shall not be less than the amounts otherwise
specified to be paid under this Agreement or the Note, as the case may be.
(c) Any installment of interest only or of principal and interest paid more
than five (5) days late or any other amount payable hereunder which is not
paid when due, will bear (and the Borrower shall pay) interest (to the
extent permitted by law) from such due date until such unpaid amount has
been paid in full (whether before or after judgment) at a rate per annum
equal to three and one-half percent (3.5%) in excess of the rate then
applicable to each Loan Portion until the end of any Interest Period then
applicable to such Loan Portion and thereafter at a rate per annum equal to
three and one-half percent (3.5%) in excess of the Prime Rate ("Default
Rate").
(d) In partial consideration for the Bank making the Loan to the Borrower, the
Borrower shall pay to Bank a loan fee ("Loan Fee") in an amount equal to
one and one-and one-half percent (1.50%) of the
3
<PAGE>
total loan amount of $5,000,000. Said Loan Fee in the amount of Seventy-
Five Thousand Dollars ($75,000) shall be due and payable to the Bank on the
Closing Date. On the Closing Date, Borrower hereby authorizes Bank to
deduct and pay the Loan Fee, together with all other fees and expenses of
the Bank identified in Section 4.1(h) below, from the available proceeds of
the Loan.
SECTION 2.4 PREPAYMENTS. Subject to this Section 2.4, the Borrower may,
-----------
upon five (5) Business Days' prior notice to the Bank, prepay the outstanding
amount of the Loan in whole or in part. In the event that the Borrower prepays
or is required to prepay any Eurodollar Rate Loan Portion by acceleration or
otherwise or fails to draw down or convert to a Eurodollar Rate Loan Portion
after giving notice thereof, the Borrower agrees to reimburse the Bank for its
expenses, funding losses and loss of anticipated profits due to such prepayment
or failure to draw. The Borrower and the Bank hereby agree that such expenses,
funding losses and loss of anticipated profits shall consist of the sum of:
(a) Principal amount of each such Eurodollar Rate Loan Portion times (([number
of days between the date of prepayment and the last day in the applicable
Interest Period] divided by 360), times the applicable Interest
Differential); plus
(b) All actual out-of-pocket expenses (other than those taken into account in
the calculation of the Interest Differential) incurred by the Bank
(excluding allocations of any expense internal to the Bank) and reasonably
attributable to such payment or prepayment.
Notwithstanding the foregoing, no prepayment fee shall be payable (and no credit
or rebate shall be required) if the product of the foregoing formula is not a
positive number. The Loan is not in a nature of a revolving loan; therefore,
amounts prepaid or repaid under the Note may not be reborrowed.
SECTION 2.5 INDEMNIFICATION; INCREASED COSTS. If after the date of this
--------------------------------
Agreement the Bank reasonably determines that any Regulatory Change, or
compliance by the Bank with any request or directive (whether or not having the
force of law) of any governmental authority, central bank or comparable agency
charged with the interpretation or administration of any applicable law, rule or
regulation which is effective or issued after the date hereof:
(a) Subjects the Bank to any tax, duty or other charge with respect to the Loan
or the Note, or changes the basis of taxation of payments to the Bank of
the principal of or interest on the Loan or any other amounts due under
this Agreement in respect of the Loan except for changes in the rate of tax
on the overall net income of the Bank or its lending office imposed by the
Commonwealth of Massachusetts or the jurisdictions in which the Bank's
principal executive office or applicable lending office is located) (such
non-excluded amounts, "Taxes"); or
(b) Imposes, modifies or deems applicable any reserve (including, without
limitation, any reserve imposed by the Board of Governors of the Federal
Reserve System), special deposit, liquidity, capital maintenance, capital
adequacy, capital ratio (including, but without limitation thereto, any
request by or requirement of any regulatory body or official which affects
the manner in which the Bank allocates capital resources to its obligations
hereunder), for the account of, or credit extended by, the Bank or imposes
on the Bank any other condition affecting the Loan, or the Note;
and the result of any of the foregoing is to (A) impose a cost on or increase
the cost to the Bank of making or maintaining the Loan, or (B) cause an increase
in any capital requirement arising out of the making or maintenance of the Loan
or any obligation to the Borrower hereunder or (C) reduce the amount of any sum
received or receivable by the Bank under this Agreement or under the Note, by an
amount deemed by the Bank to be material, then, within ten (10) days after
demand by the Bank, the Borrower shall pay for the account of the Bank such
additional amount or amounts as will compensate the Bank for such increased cost
or reduction as such cost or reduction is incurred by the Bank. If the Bank
makes any claim for compensation under this Section 2.5, the Borrower may
immediately elect by written
4
<PAGE>
notice (or telephonic notice confirmed as soon as practicable in writing) to the
Bank to prepay the Loan (but subject to payment of any other amounts due under
Section 2.4 and this Section 2.5, including any increased cost or reduction
incurred through the date of such prepayment or conversion). The Bank shall
promptly notify the Borrower of any event of which it has knowledge, occurring
after the date hereof, which will entitle the Bank to compensation pursuant to
this Section 2.5. The Bank shall provide to the Borrower a certificate claiming
compensation under this Section 2.5, setting forth the additional amount or
amounts to be paid to it hereunder and showing in reasonable detail the Bank's
calculation thereof which shall be presumed to be correct absent manifest error.
In determining such amount, the Bank may use any reasonable averaging and
attribution methods. The Bank shall exercise reasonable efforts to promptly
provide the Borrower with notice of the imposition, or overtly threatened
exercise of, any Regulatory Change set forth in this Section 2.5 of which the
Bank has actual knowledge, provided, however, that the failure by the Bank to so
provide such notice will not relieve the Borrower of any of its obligations
hereunder.
The Bank agrees that it will use reasonable efforts to reduce or eliminate any
claim for compensation pursuant to this Section 2.5, including designating a
different lending office for the Loans, if such designation will avoid the need
for or reduce the amount of any such compensation, provided that the Bank will
--------
not be obligated to take any actions that would, in the sole opinion of the
Bank, be disadvantageous to the Bank in any material respect (it being
understood that the incurrence of any unreimbursed cost or expense by the Bank
that would not have been incurred but for such action is material).
SECTION 2.6 INVESTMENT ACCOUNT AND CUSTODIAN ACCOUNT.
----------------------------------------
(a) Prior to the occurrence of a Trigger Event, the Borrower shall hold at all
times Cash and Cash Equivalents, which are not subject to any Lien or claim
of any Person other than the Bank, in an amount not less than the Minimum
Amount, in a custodial account (the "Investment Account") with an
institution approved by the Bank (such institution being referred to herein
as the "Custodian"). The initial Custodian will be Sumitomo Bank of New
York Trust Company. The amounts held in the Investment Account shall be
subject to the investment control of the Borrower. The Custodian in respect
of the Investment Account cannot be changed or a new Investment Account
opened without the Bank's prior written approval, which approval shall not
be unreasonably withheld. The Borrower shall deliver to the Custodian the
Irrevocable Instructions and Power of Attorney in the form of Exhibit 2.6.B
-------------
(the "Irrevocable Instructions and Power of Attorney).
(b) On or before the Closing Date, the Borrower, for the benefit and on behalf
of the Bank, shall establish and maintain or cause to be established and
maintained in the name of the Borrower an account (the "Custodian Account")
with Sumitomo Bank of New York Trust Company (the "Bailee") under the
Custodian Agreement and the Collateral Bailment Agreement. Pursuant to the
Restricted Account and Security Agreement by and between the Bank and the
Borrower, the Borrower has granted to the Bank a security interest in all
of its right, title and interest in the Custodian Account, all deposits or
investments held therein and all proceeds thereof to secure payment and
performance of the Borrower's obligations hereunder. On or before the
Closing Date, the Borrower shall cause to be deposited in the Custodian
Account the sum of One Thousand Dollars ($1,000). So long as the Borrower
is indebted to the Bank hereunder and until payment in full of the Note and
the Borrower's full and complete performance of its obligations hereunder,
the Custodian Account shall at all times have a Restricted Account Balance
of not less than One Thousand Dollars ($1,000). The terms and conditions
of the Restricted Account and Security Agreement, the Collateral Bailment
Agreement, and the Custodian Agreement are incorporated herein by
reference.
SECTION 2.7 CHANGE IN LEGALITY.
------------------
(a) In the event that at any time the Bank shall have reasonably determined
(which determination shall be presumed to be correct until the contrary
shall have been established) that by reason of a change in any law or
regulation or in the interpretation thereof by any governmental authority
charged with the interpretation
5
<PAGE>
thereof affecting the Bank or the Eurodollar market and applicable to any
Eurodollar Rate Loan Portion, the making or continuation of a loan at the
applicable Reserve Adjusted Eurodollar Rate plus the Applicable Margin has
become unlawful, the Bank shall forthwith give written notice (or
telephonic notice, confirmed as soon as practicable in writing) to the
Borrower and the obligation of the Bank to make or maintain such Eurodollar
Rate Portion at the applicable Reserve Adjusted Eurodollar Rate plus the
Applicable Margin shall terminate and the Borrower shall forthwith upon
receipt of notice of such determination prepay such Eurodollar Rate Loan
Portion without premium or penalty (subject to Sections 2.4 and 2.5),
together with all interest accrued on the amount prepaid to the date of
prepayment. A certificate, setting forth (X) each event which the Bank
shall have determined makes the continuation of such Eurodollar Rate Loan
Portion unlawful and (Y) any additional amounts payable by the Borrower
under Sections 2.4 and 2.5 (and the basis therefor and the Bank's
computation thereof) upon prepayment of such Eurodollar Rate Loan Portion,
shall be furnished to the Borrower by the Bank and shall be presumed
correct absent manifest error.
(b) In the event that the Borrower is obligated to prepay a Eurodollar Rate
Loan Portion pursuant to clause (a) of this Section 2.7, the Borrower shall
have the right, upon written notice (or telephonic notice confirmed as soon
as practicable in writing) to the Bank, in lieu of such prepayment, to
elect to convert such Eurodollar Rate Portion to a Prime Rate Loan Portion,
effective on the date on which such prepayment would otherwise be required
to have been made, provided that on the effective date of conversion the
Borrower also shall pay all interest accrued on the amount converted to the
date of conversion and such additional amounts, if any, payable by the
Borrower under Section 2.4 and 2.5, as specified in the certificate
furnished the Borrower pursuant to said clause (a).
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower hereby represents and warrants to the Bank that:
SECTION 3.1 ORGANIZATION. Borrower is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware;
Borrower has the power to own its assets, to transact the business in which it
is presently engaged and in which it proposes to be engaged and is duly
qualified and in good standing in each jurisdiction in which the failure to
qualify to do business would materially adversely affect its financial condition
and business operations.
SECTION 3.2 POWER, AUTHORITY, CONSENTS.
--------------------------
(a) Borrower has the power to execute, deliver and to perform its obligations
under the Loan Documents.
(b) Borrower has the power to borrow hereunder and has taken all necessary
action to authorize the borrowing hereunder on the terms and conditions of
this Agreement.
(c) Borrower has taken all necessary corporate action to authorize the
execution, delivery and performance of the Loan Documents.
(d) No consent or approval of any Person, no waiver of any Lien or right of
distraint or other similar right and no consent, license, approval,
authorization or declaration of any governmental authority, bureau or
agency is or will be required in connection with the execution and delivery
of the Loan Documents by Borrower, or the performance by Borrower of its
obligations thereunder or the validity, enforcement or
6
<PAGE>
priority of the Loan Documents, or any Lien created and granted thereunder,
except such consents as have been obtained and copies of which have been
delivered to the Bank.
SECTION 3.3 NO VIOLATION OF LAW OR AGREEMENTS. The execution and delivery
---------------------------------
of the Loan Documents and the performance by Borrower of its obligations
thereunder, will not violate any provision of law and will not conflict with or
result in a breach of any order, writ, injunction, ordinance, resolution,
decree, or other similar document or instrument of any court or governmental
authority, bureau or agency, domestic or foreign, Borrower's charter or bylaws
or create (with or without the giving of notice or lapse of time, or both) a
default under or breach of any agreement, bond, note or indenture to which
Borrower is a party, or by which it is bound or any of its properties or assets
is affected, or result in the imposition of any Lien of any nature whatsoever
upon any of the properties or assets owned by or used in connection with the
business of Borrower.
SECTION 3.4 DUE EXECUTION, VALIDITY, ENFORCEABILITY. This Agreement and
---------------------------------------
each of the other Loan Documents has been, or upon the execution and delivery
thereof, will be, duly executed and delivered by Borrower, and each constitutes,
or, upon the execution and delivery thereof, will constitute, the valid and
legally binding obligation of Borrower, enforceable in accordance with its
terms, except to the extent that the enforcement thereof may be limited by
applicable bankruptcy, moratorium, insolvency, reorganization, or other similar
laws or equitable principles relating to the enforcement of creditors' rights
generally.
SECTION 3.5 JUDGMENTS, ACTIONS, PROCEEDINGS. Except as set forth in
-------------------------------
Schedule 3.5, there are no outstanding judgments, actions (including, without
limitation, derivative actions), suits or proceedings pending before any court
or governmental authority, bureau or agency, having a claim or amount in
controversy that exceeds $10,000 in any one instance or $50,000 in the aggregate
at any one time with respect to or, to the best of the Borrower's knowledge,
threatened against or affecting Borrower.
SECTION 3.6 NO DEFAULTS, COMPLIANCE WITH LAWS. Borrower is not in material
---------------------------------
default under any agreement, ordinance, resolution, decree, bond, note,
indenture, order or judgment to which it is a party or by which it is bound, or
its charter documents or bylaws, or any other agreement or other instrument by
which any of the properties or assets owned by it or used in the conduct of its
business is affected or evidencing, guaranteeing or relating to any outstanding
indebtedness, liability or obligation for borrowed money or lease obligations,
which default could have a material adverse effect on the business, operations,
financial condition or properties of Borrower, or on Borrower's ability to
perform its obligations under the Loan Documents. Borrower has complied and is
in compliance in all material respects with all applicable laws, ordinances and
regulations, including, without limitation, the regulations of the Food and Drug
Administration, the non-compliance with which could have a material adverse
effect on the business, operations, financial condition or properties of
Borrower, or on the ability of Borrower to perform its obligations under the
Loan Documents, and it has not received notice and has no knowledge of any
violations or alleged violations by the Borrower of any of the foregoing.
SECTION 3.7 NO MATERIALLY ADVERSE CONTRACTS, ETC. Borrower is not subject
-------------------------------------
to any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation that has, or is expected in the judgment of the
officers of the Borrower, to have a materially adverse effect on the business,
assets or financial condition of the Borrower. Borrower is not a party to any
contract or agreement that has or is expected, in the judgment of the officers
of the Borrower, to have any materially adverse effect on the business of the
Borrower.
SECTION 3.8 FINANCIAL STATEMENTS.
--------------------
(a) Borrower has furnished to the Bank its most recent audited Financial
Statements and all subsequent unaudited Financial Statements which are
available to the public. Each of the Financial Statements is correct and
complete in all material respects and presents fairly the financial
condition of the Borrower, at its
7
<PAGE>
date or for the respective period, and has been prepared in accordance with
generally accepted accounting principles.
(b) The Borrower has no material obligation, liability or commitment, direct or
contingent, which is not reflected in the Financial Statements or in any
notes thereto in accordance with generally accepted accounting principles.
(c) There has been no material adverse change in the financial position or
operations of the Borrower since the date of the Financial Statement for
the fiscal quarter ended September 27, 1997.
(d) The Borrower's fiscal year is the twelve (12) month period ending on
December 31 in each year.
SECTION 3.9 TITLE TO PROPERTIES; LEASES. Except as disclosed in the
---------------------------
footnotes to the Financial Statements, Borrower owns all of the assets reflected
in the most recent balance sheet or acquired since that date (except property
and assets leased, sold or otherwise disposed of in the ordinary course of
business since that date), subject to no rights of others, including any
mortgages, ordinary or capital leases, conditional sales agreements, title
retention agreements, liens or other encumbrances.
SECTION 3.10 PRIORITY OF LIENS. The Liens which have been or will be
-----------------
created and granted by the Loan Documents upon the execution and delivery
thereof constitute, or will constitute upon such execution and delivery, valid
first priority Liens on the properties and assets covered by the Loan Documents,
subject to no other liens.
SECTION 3.11 PATENTS, COPYRIGHTS, LICENSES, ETC. Borrower owns or has a
----------------------------------
valid right to use all patents, copyrights, trademarks, trade names, licenses,
franchises, and rights in respect of the foregoing ("Intellectual Property
Rights"), adequate for the conduct of its business substantially as now
conducted without conflict with any rights of others, and there are no suits or
claims for infringement with respect to the Intellectual Property Rights except
as set forth in Schedule 3.11. Schedule 3.11 lists all pending suits or claims
for infringement with respect to Intellectual Property Rights.
SECTION 3.12 TAX RETURNS.
-----------
(a) The Borrower has filed all federal and state income tax returns and all
other tax returns, reports, and declarations required to be filed by it and
has not failed to pay any taxes, or interest and penalties relating
thereto, on or before the due dates thereof except for returns, taxes,
interest or penalties with respect to which it has duly filed extensions or
is contesting the validity thereof by appropriate legal proceedings
diligently conducted in good faith. No audits of the federal income tax
returns of the Borrower are pending.
(b) Except to the extent that reserves therefor are reflected in the Financial
Statements, (i) there are no material federal, state or local tax
liabilities of the Borrower due or to become due for any tax year ended on
or prior to the date of the most recent balance sheet included in the
Financial Statements, whether incurred in respect of or measured by the
income of such entity, which are not properly reflected in such balance
sheet, and (ii) there are no material claims pending or, to the knowledge
of the Borrower proposed or threatened against the Borrower for past
federal, state or local taxes.
SECTION 3.13 REGULATION U; MARGIN STOCK. No part of the proceeds received
--------------------------
by the Borrower from the Loan will be used directly or indirectly for the
purpose of purchasing or carrying, or for payment in full or in part of
indebtedness which was incurred for the purposes of purchasing or carrying, any
margin stock as such term is defined in Regulation U of the Board of Governors
of the Federal Reserve System, 12 C.F.R., Chapter II, Part 221. The Borrower
does not own margin stock which would, in the aggregate, constitute a
substantial part of the assets of the Borrower.
8
<PAGE>
SECTION 3.14 FULL DISCLOSURE. Neither the Financial Statements nor any
---------------
certificate, opinion, or any other statement made or furnished in writing to
Bank by or on behalf of the Borrower in connection with this Agreement or the
transactions contemplated herein, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements
contained therein or herein, in light of the circumstances under which they were
made, not misleading.
SECTION 3.15 ERISA.
-----
(a) With the exceptions of Borrower's 401(K) plans and certain other employee
benefit plans, all as set forth in Schedule 3.15, none of the Borrower or
any of its Affiliates has pension or other employee benefit plans which are
subject to the provisions of Title IV of ERISA (any such plans which have
been or may hereafter be adopted or assumed by the Borrower are hereinafter
referred to individually as a "Plan" and, collectively, as the "Plans").
In connection with the Plans, Borrower does not have, or know of any likely
event which will give rise to, any direct or contingent material
liabilities of the Borrower to the Pension Benefit Guaranty Corporation
("PBGC"), the Department of Labor or the Internal Revenue Service ("IRS").
(b) None of the Borrower or any of its Affiliates is a participating employer
in any Plan under which more than one employer makes contributions as
described in Sections 4063 and 4064 of ERISA.
(c) None of the Borrower or any of its Affiliates is a participating employer
in a multiemployer plan as defined in Section 4001(a) of ERISA, which
participation could give rise to material withdrawal liability on the part
of the Borrower, as the case may be under Subtitle E of Title IV of ERISA.
For purposes of this Agreement, all references to "ERISA" shall be deemed to
refer to the Employee Retirement Income Security Act of 1974 (including any
sections of the Code) as heretofore amended and as it may hereafter be amended
or modified, and all regulations promulgated thereunder, and all references to
the Borrower in this Section 3.15, or in any other Section of this Agreement
relating to ERISA, shall be deemed to refer to the Borrower and all other
entities which are part of a Controlled Group with respect to the Borrower.
SECTION 3.16 ENVIRONMENTAL COMPLIANCE. Except as set forth in Schedule
------------------------
3.16, the Borrower has taken all necessary steps to comply with Environmental
Laws (as hereinafter defined) and has determined that:
(a) Borrower is not in violation, or alleged violation, of any judgment,
decree, order, law, license, rule or regulation pertaining to environmental
matters, including without limitation, those arising under the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal
Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control
Act, each as amended as of the date hereof, or any other federal, state or
local statute, regulation, ordinance, order or decree relating to health,
safety or the environment (hereinafter "Environmental Laws"), which
violation would have a material adverse effect on the environment or the
business, assets or financial condition of the Borrower;
(b) The Borrower has not received notice from any third party including,
without limitation, any federal, state or local governmental authority, (i)
that it has been identified by the United States Environmental Protection
Agency ("EPA") as a potentially responsible party under CERCLA with respect
to a site listed on the National Priorities List, 40 C.F.R. Part 300
Appendix B (1986); (ii) that any hazardous waste, as defined by 42 U.S.C.
(S) 9601(5), any hazardous substances as defined by 42 U.S.C. (S) 9601(14),
any pollutant or contaminant as defined by 42 U.S.C. (S)9601(33) and any
toxic substances, oil or hazardous materials or other chemicals or
substances regulated by any Environmental Laws ("Hazardous Substances")
which it has generated, transported
9
<PAGE>
or disposed of has been found at any site at which a federal, state or
local agency or other third party has conducted or has ordered that it
conduct a remedial investigation, removal or other response action pursuant
to any Environmental Law; or (iii) that it is or shall be a named party to
any claim, action, cause of action, complaint, or legal or administrative
proceeding (in each case, contingent or otherwise) arising out of any third
party's incurrence of costs, expenses, losses or damages of any kind
whatsoever in connection with the release of Hazardous Substances;
(c) (i) the properties on which the Borrower conducts its business have not
been used by the Borrower for the handling, processing, storage or Disposal
of Hazardous Substances except in accordance with applicable Environmental
Laws; (ii) in the course of any activities conducted by the Borrower, no
Hazardous Substances have been generated or are being used on property
leased by the Borrower on which the Borrower conducts its business except
in accordance with applicable Environmental Laws; (iii) there has been no
Release or threatened Release of Hazardous Substances by the Borrower on,
upon, into or from the properties on which the Borrower operates its
business, which Release would have a material adverse effect on the
Borrower's business; (iv) to the best of the Borrower's knowledge, there
have been no Releases on, upon, from or into any real property in the
vicinity of any of the properties on which the Borrower conducts its
business, through soil or groundwater contamination, which may have come to
be located on, and which would have a material adverse effect on the
Borrower's business; and (v) in addition, any Hazardous Substances that
have been generated by the Borrower on the properties on which the Borrower
conducts its business have been transported off-site only by carriers
having an identification number issued by the EPA, treated or Disposed of
only by treatment or disposal facilities maintaining valid permits as
required under applicable Environmental Laws, which transporters and
facilities have been and are, to the best of the Borrower's knowledge,
operating in compliance with such permits and applicable Environmental
Laws; and
(d) none of the properties on which the Borrower conducts its business is or is
expected to be in violation of any applicable environmental clean-up
responsibility law or regulation or environmental restrictive transfer law
or regulation, in regard to which failure to comply would have a material
adverse effect on the environment or the business, assets or financial
condition of the Borrower.
SECTION 3.17 OTHER REGULATIONS. The Borrower is not subject to regulation
-----------------
under the Investment Company Act of 1940, the Public Utility Holding Company Act
of 1935, the Federal Power Act, the Interstate Commerce Act, any state public
utilities code or any federal or state statute or regulations limiting its
ability to incur Indebtedness.
SECTION 3.18 COMPLIANCE WITH SECURITIES LAWS. All offers and sales of
-------------------------------
securities of the Borrower have been made in material compliance with all
applicable federal and state securities laws, including without limitation the
Securities Act of 1933 and the Securities Exchange Act of 1934, both as amended.
SECTION 3.19 SOLVENCY. The Borrower is solvent and is not the subject of
--------
bankruptcy or insolvency proceeding.
SECTION 3.20 SUBSIDIARIES OR AFFILIATES. The Borrower does not have any
--------------------------
Subsidiary or Affiliate (other than as set forth in Schedule 3.20).
SECTION 3.21 PENDING LITIGATION. There are no lawsuits or claims pending
------------------
against Borrower which could have a material adverse affect on the Borrower's
financial condition.
SECTION 3.22 COMPLIANCE WITH INVESTMENT POLICY. The Borrower is in
---------------------------------
compliance with its "Investment Policy" for investment of Cash and Cash
Equivalents (as mandated by the Borrower's Board of Directors and as adopted by
the Board of Directors in 1994). A true and correct copy of such Investment
Policy is attached as Schedule 8.1(j).
10
<PAGE>
ARTICLE IV.
CONDITIONS PRECEDENT
--------------------
SECTION 4.1 CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT.
-----------------------------------------------------------
The effectiveness of this Agreement and the obligations of the Bank hereunder
shall be subject to the following conditions precedent:
(a) The Borrower will have executed and delivered to the Bank the Note, the
Collateral Bailment Agreement, the Restricted Account and Security
Agreement, the Irrevocable Instructions and Power of Attorney, the
Custodian Agreement, the Financing Statements and an original counterpart
of this Agreement.
(b) The Bailee will have executed and delivered the Collateral Bailment
Agreement, the Custodian Agreement and the Restricted Account and Security
Agreement;
(c) The initial Custodian will have executed and delivered its consent to the
Irrevocable Instructions and Power of Attorney to the Bank;
(d) The Borrower shall have deposited One Thousand Dollars ($1,000) into the
Custodian Account and established an investment account with the Bailee in
a minimum amount of Seven Million Five Hundred Thousand Dollars
($7,500,000);
(e) The Borrower will have otherwise fully complied with all of the terms and
conditions of the Loan Documents;
(f) The Borrower will have delivered to the Bank the following, in form and
substance acceptable to the Bank:
(i) a copy of the Certificate of Incorporation of Borrower certified by
the Secretary of State of Delaware;
(ii) a copy of the by-laws of the Borrower certified by its Secretary or
Assistant Secretary;
(iii) a copy of resolutions of the Board of Directors of the Borrower
authorizing the execution, delivery and performance by the Borrower of
this Agreement, the Note, the Loan Documents and all instruments and
documents provided for herein or therein, certified by the Secretary
or Assistant Secretary of the Borrower;
(iv) a good standing certificate for the Borrower, dated as of a date not
more than ten (10) days prior to the Closing Date from the Secretary
of State of the State of Delaware, and any state where Borrower is
qualified to transact business as a foreign corporation;
(v) an incumbency certificate with respect to the officers of the
Borrower, certified by its Secretary or Assistant Secretary;
(vi) a copy of the most recent management letter from the Borrower's
accountants; and
11
<PAGE>
(vii) a copy of the most recent account statements with respect to
Borrower's investment accounts at Morgan Stanley and BankBoston.
(g) Counsel of the Borrower will have delivered to the Bank its favorable legal
opinion as to the due organization, existence, qualification to do
business, and good standing of the Borrower, the due authorization,
execution and enforceability of this Agreement and the other Loan
Documents, the perfection of the security interests granted under the Loan
Documents, the absence of pending and threatened litigation, the non-
contravention of other documents, instruments, laws, and regulations, and
such other matters as the Bank may require, in form and substance
reasonably satisfactory to the Bank;
(h) The Bank shall have received the Loan Fee and all other fees and expenses
(including, without limitation, Bank's legal fees and expenses incurred in
the negotiation and preparation of the Loan Documents and any other fees
and expenses of the Bank for UCC searches or filing fees) required to be
paid to Bank on or before the Closing Date;
(i) All representations and warranties of the Borrower contained herein are
true and correct as of the Closing Date and Borrower will have executed and
delivered to Bank such certificates with respect thereto as Bank may
require; and
(j) The Bank shall have received the results of UCC searches with respect to
the Borrower's assets indicating no liens other then Permitted Liens, or to
the extent such liens which are not Permitted Liens are of record, the Bank
shall have received termination of such liens in form and substance
appropriate for recording, including, without limitation, termination of
liens in favor of BankBoston;
(k) There shall have occurred no materially adverse change in the financial
condition, business or prospects of the Borrower between (i) the date of
the most recent Financial Statements provided to the Bank and (ii) the
Closing Date; and
(l) The Borrower shall have provided the Bank or has caused to be provided to
the Bank by the Custodian a current list of investments held in the
Custodian Account, and which is in form and substance satisfactory to the
Bank.
ARTICLE V.
AFFIRMATIVE COVENANTS
---------------------
So long as the Borrower is indebted to the Bank hereunder, and until payment
in full of the Note and full and complete performance of all of its other
obligations arising hereunder (except for the Borrower's obligations under
Section 5.7 or Section 9.1 to indemnify the Bank under certain circumstances
following the payment of the Note), the Borrower shall in all material respects:
SECTION 5.1 BOOKS AND RECORDS. Keep proper books of record and account in a
-----------------
manner reasonably satisfactory to the Bank in which full true and correct
entries shall be made of all dealings or transactions in relation to its
business and activities.
SECTION 5.2 INSPECTIONS AND AUDITS. Permit the Bank to make or cause to be
----------------------
made reasonable inspections and audits of any books, records and papers of the
Borrower and to make extracts therefrom and copies thereof at all such
reasonable times and as often as the Bank may reasonably require, provided,
however, that certain
12
<PAGE>
areas of the Borrower's facilities may be restricted for reasons of health and
safety and the Bank will not be permitted access to such restricted areas.
SECTION 5.3 PERFORM OBLIGATIONS. Pay and discharge all of its obligations
-------------------
and liabilities including, without limitation, all taxes, assessments and
governmental charges upon its income and properties, when due, unless and to the
extent only that such obligations, liabilities, taxes, assessments and
governmental charges are contested in good faith and by appropriate proceedings
and that, to the extent required by generally accepted accounting principles
then in effect, proper and adequate book reserves relating thereto are
established by the Borrower, and provided that the Bank is reasonably satisfied
that the Accounts are not in danger of being the subject of a Lien (except to
the extent permitted by Section 7.1) or sold, forfeited or lost as a result
thereof and the Borrower has provided such security or other assurances as Bank
reasonably requests.
SECTION 5.4 FEES AND EXPENSES. Pay on demand: (i) all costs and expenses
-----------------
(including, without limitation, legal fees (not to exceed $12,500), filing fees
and UCC search fees) of the Bank in connection with the preparation, execution
and delivery of this Agreement, and the other Loan Documents; (ii) all costs and
expenses of the Bank in enforcing the Borrower's performance of and compliance
with all agreements and conditions contained in the Loan Documents on its part
to be performed or complied with or in connection with the negotiation,
preparation and execution and delivery of any amendment, modification or
supplement of or to, or any consent or waiver under, any such document (or any
such instrument which is proposed but not executed and delivered) or relating to
any claim or action threatened, made or brought against the Bank arising out of
or relating to any extent to the Loan Documents, or the transactions
contemplated hereby or thereby; (iii) all costs and expenses (including, without
limitation, reasonable fees and disbursements of counsel) suffered or incurred
by the Bank in connection with the enforcement or the payment of the Note or any
other sum due to it under any of the other Loan Documents or any of its other
rights hereunder or thereunder; and (iv) any and all costs and expenses incurred
by Bank in conducting lien searches, UCC searches or other due diligence
investigations which the Bank determines are necessary to monitor the Borrower's
performance hereunder and which are incurred after the Closing Date.
SECTION 5.5 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. Preserve and
---------------------------------------------
maintain its corporate existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business except
for transfers (including, without limitation, transfers in the form of paid-up
licenses) for reasonably equivalent value in the normal course of its business.
The Borrower shall comply in all material respects with all applicable laws,
rules, regulations, orders, writs, decrees and judgments and its charter and
bylaws, and with the material terms of all mortgages, indentures, leases,
contracts and other agreements and instruments binding upon the Borrower. The
Borrower will continue to engage in business of the same general type as now
conducted by the Borrower.
SECTION 5.6 INSURANCE. Maintain with financially sound and reputable
---------
insurers insurance with respect to its properties and business against such
liabilities, casualties and contingencies and of such types and in such amounts
as shall be customary for businesses engaged in similar activities in similar
geographic areas. Without limiting the foregoing, the Borrower will (i) keep
all of its physical property insured against fire and extended coverage risks in
amounts and with deductibles equal to those generally maintained by businesses
engaged in similar activities in similar geographic areas, (ii) maintain all
such workers' compensation or similar insurance as may be required by law, and
(iii) maintain, in amounts and with deductibles equal to those generally
maintained by businesses engaged in similar activities in similar geographic
areas, general public liability insurance against claims for bodily injury,
death or property damage occurring on, in or about the properties of the
Borrower, business interruption insurance and product liability insurance.
Schedule 5.6 lists insurance of the Borrower currently in effect. The Borrower
- ------------
shall furnish to the Bank, from time to time upon the Bank's request,
certificates or other evidence satisfactory to the Bank of compliance with the
foregoing.
13
<PAGE>
SECTION 5.7 CERTAIN TAXES.
-------------
(a) If, under any law in effect on the date hereof, or under any law
subsequently enacted, it is determined that any U.S. federal, state or
local tax is payable in respect of the issuance of the Note, or in
connection with the filing or recording of any assignments, mortgages,
financing statements, or other documents (whether measured by the amount of
indebtedness secured or otherwise) as contemplated by this Agreement, then
the Borrower shall pay any such tax and all interest and penalties thereon,
if any, and shall indemnify the Bank against and save it harmless from any
loss or damage resulting from or arising out of the nonpayment or delay in
payment of any such tax.
(b) If any such tax or taxes shall be assessed or levied against the Bank or
any other holder of the Note, the Bank, or such other holder, as the case
may be, may notify the Borrower and make immediate payment thereof,
together with interest or penalties in connection therewith, and will
thereupon be entitled to and shall receive immediate reimbursement therefor
from the Borrower.
(c) Notwithstanding any other provision contained in this Agreement, the
covenants and agreements of the Borrower in this Section 5.7 will survive
for four years following the payment of the Note and the termination of
this Agreement.
SECTION 5.8 USE OF PROCEEDS. Use the proceeds of all Disbursements made by
---------------
the Bank hereunder only for the purpose specified in Section 2.2 -- "Use of
Proceeds." The Borrower will not use any of the proceeds of such Loans,
directly or indirectly, for the purpose of purchasing or carrying any margin
stock or for the purpose of purchasing or carrying or trading in any securities
under such circumstances as to involve the Borrower or the Bank in a violation
of Regulation G, T, U or X issued by the Federal Reserve Board.
SECTION 5.9 FURTHER ASSURANCES WITH RESPECT TO ACCOUNTS. Promptly supply
-------------------------------------------
the Bank with such information concerning the Investment Account as the Bank may
reasonably request from time to time hereafter, including, without limitation,
Account statements which shall be delivered not less frequently than quarterly
(or more frequently if required pursuant to Section 6.4), which Account
statements will summarize the value of deposits and investments in the Accounts.
SECTION 5.10 FINANCIAL COVENANTS. The Borrower on a consolidated basis shall
-------------------
at all times maintain:
(i) A maximum ratio of Total Debt to Net Worth, as calculated on a
quarterly basis, of 0.5:1;
(ii) A minimum Current Ratio, as calculated on a quarterly basis, of 1.5:1;
(iii) A minimum Net Cash Level equal to or in excess of the greater of (x)
Ten Million Dollars ($10,000,000) or (y) the projected Actual Cash
Burn for the twelve (12) months following the date of determination;
and
(iv) A minimum Net Worth of Twenty Million Dollars ($20,000,000).
The failure of the Borrower to maintain any of the covenants set forth in this
Section 5.10(i)-(iv) and/or the occurrence of an Event of Default under Section
8.1 of this Agreement shall be a "Trigger Event."
SECTION 5.11 DEPOSITS INTO CUSTODIAN ACCOUNT. Upon the occurrence of a
-------------------------------
Trigger Event, the Borrower will make, or, through the Custodian pursuant to the
Irrevocable Instructions and Power of Attorney cause to be made,
14
<PAGE>
payments or deposits to the Custodian Account such that after giving effect to
such payments or deposits the Restricted Account Balance equals or exceeds the
Required Restricted Account Balance. At the time of each such payment, the
Borrower will submit to the Bank a statement setting forth the market values of
marketable securities and the Restricted Account Balance as of the date of
deposit (after giving effect to any deposits made on or before such day).
SECTION 5.12 INVESTMENT POLICY. Comply with its "Investment Policy" for
-----------------
investment of all Cash and Cash Equivalents (as mandated and adopted by the
Borrower's Board of Directors) in connection with the Investment Account and the
Borrower shall not make any material change to such investment policy in
connection with the Investment Account without the Bank's prior written
approval, which approval shall not be unreasonably withheld. A copy of the
Borrower's Investment Policy is attached hereto as Schedule 8.1.(j).
----------------
ARTICLE VI.
DELIVERY OF FINANCIAL REPORTS,
DOCUMENTS AND OTHER INFORMATION
-------------------------------
So long as the Borrower is indebted to the Bank hereunder and until payment in
full of the Note and full and complete performance of all of its other
obligations arising hereunder, the Borrower shall deliver to the Bank:
SECTION 6.1 ANNUAL FINANCIAL STATEMENTS. Annually, as soon as available,
---------------------------
but in any event within ninety (90) days after the last day of the fiscal year,
(i) the balance sheet of the Borrower as of such last day of the fiscal year and
statements of operations, stockholders' equity and cash flows, for such fiscal
year, on a consolidated basis, prepared in accordance with generally accepted
accounting principles consistently applied, in reasonable detail, audited and
opined on by Deloitte & Touche LLP or by another firm of independent public
accountants reasonably satisfactory to the Bank (which audit opinion shall
contain no qualification unsatisfactory to the Bank), to present fairly the
financial position and the results of operations of the Borrower as of the end
of such fiscal year and to have been prepared in accordance with generally
accepted accounting principles and (ii) calculations, certified by the chief
financial officer of the Borrower, demonstrating compliance with the financial
covenants set forth in Section 5.10.
SECTION 6.2 QUARTERLY FINANCIAL STATEMENTS. As soon as available, but in
------------------------------
any event within forty-five (45) days after the end of each fiscal quarter ended
on the last day of each March, June and September, balance sheets for the
Borrower as of the last day of each such quarter and statements of operations,
and cash flows, for such quarter, all in reasonable detail and on a consolidated
basis and calculations, certified by the chief financial officer of the
Borrower, demonstrating compliance with the financial covenants set forth in
Section 5.10. Each such statement shall be certified on behalf of the Borrower
by the Borrower's controller or chief financial officer as fairly presenting the
financial position and the results of operations of the Borrower as of the end
of such fiscal quarter and as having been prepared in accordance with generally
accepted accounting principles consistently applied (subject to normal
adjustments).
SECTION 6.3 10Q AND 10K FILINGS. At the time its Form 10-Q is released to
-------------------
the public (which in all events shall be within forty-five (45) days after the
end of the fiscal quarters ended March, June, and September or, if later, the
date of the filing of the Form 10-Q with the Securities and Exchange
Commission), a copy of each Form 10-Q; and, each year at the time its Form 10K
is released to the public (which in all events shall be within ninety (90) days
after the end of the Borrower's fiscal year), a copy of its Annual Report to
Stockholders along with its Form 10K.
SECTION 6.4 CASH AND COVENANT REPORTS. The following reports, statements or
-------------------------
certificates: (i) at the same time as it delivers the Financial Statements
required under the provisions of Sections 6.1 -- "Annual Financial Statements"
and 6.2 -- "Quarterly Financial Statements", a report as to the calculations
with respect to, and compliance with, the financial covenants set forth in
Section 5.10(i) through 5.10(iv); and (ii) within fifteen (15) days of the end
of
15
<PAGE>
each calendar quarter, a compliance statement, certified by the chief
financial officer of the Borrower, listing (A) the Borrower's Net Cash Level at
the end of such calendar quarter and the domicile of such cash and investments
and (B) the cash balances and Cash Equivalent Balances of the Investment Account
as of the end of such calendar quarter, provided that during any period when the
Borrower's Net Cash Level is less than an amount equal to Fifteen Million
Dollars ($15,000,000), the Borrower shall submit to the Bank, within twenty (20)
days of the end of each calendar month, a compliance statement indicating the
Borrower's actual Net Cash Level and listing all of the Borrower's cash balances
and Cash Equivalent Balances as of month end wherever domiciled, accompanied by
confirming statements of the custodians of such cash balances and Cash
Equivalent Balances.
SECTION 6.5 BUDGET; OTHER INFORMATION. Within thirty (30) days prior to the
-------------------------
end of the Borrower's fiscal year, the Borrower shall provide the Bank with an
annual operating budget projected for the next fiscal year shown on at least a
quarterly basis and projecting the Net Cash Level for such periods, in form
consistent with the calculation described in Section 5.10(iii). Promptly after
a written request therefor, such other financial data or information evidencing
compliance with the requirements of this Agreement and the other Loan Documents
as the Bank may reasonably request from time to time.
SECTION 6.6 NO DEFAULT CERTIFICATE. At the same time as it delivers the
----------------------
Financial Statements required under the provisions of Sections 6.1 -- "Annual
Financial Statements" and 6.2 -- "Quarterly Financial Statements," a certificate
of the Borrower signed on its behalf by an Authorized Signatory or its
controller, to the effect that, to the best of the Borrower's knowledge, no
Trigger Event hereunder has occurred and is continuing or, if such cannot be so
certified, specifying in reasonable detail the exceptions, if any, to such
statement.
SECTION 6.7 NOTICES.
-------
(a) DEFAULTS. As soon as possible and in any event within seven (7) days after
--------
the Borrower has knowledge of the occurrence or existence of a Trigger
Event or any event which with the giving of notice or passage of time or
both, would constitute either an Event of Default or Trigger Event, the
statement of the Borrower setting forth details of such Trigger Event or
event and the action which the Borrower proposes to take with respect
thereto.
(b) LITIGATION AND JUDGMENTS. Promptly after obtaining knowledge thereof,
------------------------
written notification of any litigation or legal proceedings instituted
against the Borrower, regardless of the subject matter thereof, having
claims or amounts in controversy of more than $1,000,000 in any one
instance or $2,000,000 in the aggregate at any one time, or of one or more
judgment(s) not covered by insurance, final or otherwise, in an aggregate
amount of $2,000,000 or more.
(c) ENVIRONMENTAL EVENTS. Promptly after obtaining knowledge or receipt
--------------------
thereof, written notice of any of the following which has the potential to
materially adversely affect the assets, liabilities, financial condition or
operations of the Borrower: (i) any violation of any Environmental Laws
regarding the Borrower's operations; (ii) any potential or known Release,
or threat of Release, of any Hazardous Substances at, from or into the
Borrower's place of business which the Borrower reports in writing or is
reportable in writing (or for which any written report supplemental to any
oral report is made) to any federal, state, or local environmental agency;
(iii) any notice of violation of any Environmental Laws or of any release
or threatened release of Hazardous Substances, including a notice or claim
of liability or potential responsibility from any third party (including
without limitation any federal, state or local governmental officials) and
including notice of any formal inquiry, proceeding, demand, investigation
or other action with regard to the Borrower's business operation; or (iv)
any expense or loss that has been identified by such governmental authority
in connection with the assessment, containment, removal or remediation of
any Hazardous Substances with respect to which the Borrower may be liable.
16
<PAGE>
ARTICLE VII.
NEGATIVE COVENANTS
------------------
So long as the Borrower is indebted to the Bank hereunder, and until payment
in full of the Note and full and complete performance of all of its other
obligations arising hereunder (except for the Borrower's obligations under
Sections 5.7 or Section 9.1 to indemnify the Bank under certain circumstances
following the payment of the Note), the Borrower shall not do, or permit to be
done, any of the following:
SECTION 7.1 LIENS. Without the Bank's consent, create or assume or permit
-----
to exist, any Lien upon or with respect to any of its assets, or assign or
otherwise convey any right to receive income except (each a "Permitted Lien"):
(a) Liens in favor of the Bank;
(b) Liens for taxes, assessments or governmental charges or levies on property
of the Borrower if the same shall not at the time be delinquent or
thereafter can be paid without interest or penalty or are being contested
in good faith and by appropriate proceedings which serve as a matter of law
to stay the enforcement thereof and as to which adequate reserves have been
made;
(c) Liens imposed by law, such as carrier's, warehousemen's and mechanic's
liens and other similar Liens arising in the ordinary course of business
for sums not yet due or which are being contested in good faith and by
appropriate proceedings which serve as a matter of law to stay the
enforcement thereof and as to which adequate reserves have been made;
(d) Liens arising out of pledgor deposits under workers' compensation laws,
unemployment insurance, social security, retirement benefits or similar
legislation;
(e) Permitted Purchase Money Liens (including, without limitation, Liens
arising in connection with equipment leases);
(f) Rights of other parties under technology licenses from the Borrower granted
in connection with the development, manufacture or marketing of products,
or otherwise in the ordinary course of business;
(g) Rights of the United States government in certain technology, the
development of which is or was funded in whole or in part by the United
States government;
(h) Liens with respect to Indebtedness assumed by the Borrower or for which the
Borrower otherwise becomes liable (whether contingent or absolute) in
connection with the purchase of the stock and/or assets of another Person
(i) which transaction is permitted under Section 7.2 hereof, (ii) after
giving effect to the consummation of such transaction, no Event of Default
exists hereunder (or would exist with the giving of notice or the passage
of time), (iii) which Liens were effective at the time of such transaction
and were not created in connection with such transaction, and (iv) which
Liens do not attach to or cover any Collateral (as defined in the
Restricted Account and Security Agreement); and
(i) Security deposits under leases of the Borrower's premises set forth on
Schedule 7.1 hereto.
------------
17
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SECTION 7.2 CHANGES IN BUSINESS; MERGER OR CONSOLIDATION; DISPOSITION OF
------------------------------------------------------------
ASSETS. Without the Bank's consent:
------
(a) Consolidate with, merge into or convey or transfer its properties
substantially as an entirety to, any Person, except that the Borrower may
participate in any merger in which the Borrower is the surviving entity so
long as after giving effect to such merger the Borrower remains in
compliance with all covenants and conditions of this Agreement.
(b) Make any material change in the nature of its business, or in the nature of
its operations, or liquidate or dissolve itself (or suffer any liquidation
or dissolution).
(c) Effect any disposition of all or any material portion of its assets
(whether in one or more transactions) except that (i) the Borrower may
dispose of obsolete or worn out equipment, (ii) the Borrower may replace
equipment with upgraded equipment and may thereafter dispose of the
equipment so upgraded and replaced, (iii) the Borrower may engage in
research and development transactions (each, an "R&D Transaction")
involving the licensing of the Borrower's rights in certain technology to
other persons and the licensing back of such rights to the Borrower,
provided that after giving effect to each such R&D Transaction, the
Borrower remains in compliance with all covenants and conditions of this
Agreement; and (iv) dispose of other assets in the ordinary course of
Borrower's business provided that Borrower receives equivalent value on
such disposition of assets.
SECTION 7.3 CHANGE OF OFFICE ADDRESS. Except upon five (5) days' prior
------------------------
written notice to the Bank, change the address of its principal office or place
of business or the place where it maintains its records with respect to the
Accounts.
SECTION 7.4 VIOLATION OF AGREEMENT. Take any action the effect of which
----------------------
would constitute a breach or violation of any provision of this Agreement.
ARTICLE VIII.
EVENTS OF DEFAULT
-----------------
SECTION 8.1 EVENTS OF DEFAULT. If any one or more of the following events
-----------------
("Event of Default") shall occur and be continuing, the entire unpaid balance of
the principal of and interest on the Note and all other obligations and
Indebtedness of the Borrower to the Bank arising hereunder and under the other
Loan Documents will, in the case of any Event of Default of the types referred
to in subparagraph (e) hereinbelow, immediately become due and payable without
notice and in the case of any other Event of Default, will immediately become
due and payable upon written notice to that effect given to the Borrower by the
Bank, without presentment or demand for payment, notice of non- payment, protest
or further notice or demand of any kind, all of which are expressly waived by
the Borrower. Upon an Event of Default, the Bank shall have the rights and
remedies provided for herein and in the other Loan Documents and under
applicable law and in equity, and the rights and remedies provided for herein
shall be cumulative and in addition to the rights and remedies provided for
therein. Each of the following shall constitute an Event of Default:
(a) Failure by the Borrower to make any payment when due of any amount payable
under the Loan Documents, which failure is not cured within five (5) days
of the occurrence thereof.
(b) Failure by the Borrower to make any mandatory payments under any borrowing
agreement (other than the Loan Documents) to which the Borrower is a party
within any applicable grace period provided
18
<PAGE>
in such agreement or any other default by the Borrower under any such
borrowing agreement and the failure of the Borrower to cure such default
within any applicable grace period, but in any event not later than thirty
(30) days after such default, provided that no Event of Default will be
deemed to have occurred under this paragraph (b) with respect to any
indebtedness under any borrowing agreement if payment of such indebtedness,
after notice thereof having been given to the Bank, is being contested by
the Borrower in good faith and by appropriate proceedings and such contest
operates to prevent the other party to such agreement from exercising its
remedies against the Borrower or any of its properties and the amount in
dispute is in the aggregate less than $100,000.
(c) Failure by the Borrower to perform or observe any material term, condition
or covenant of this Agreement or of any of the Loan Documents (other than
the financial covenants set forth in Section 5.10 which shall constitute a
Trigger Event instead) which failure (other than a failure which by its
nature is not capable of cure and other than a failure to perform or
observe any term, condition or covenant referred to or set forth in
Subparagraphs (a) and (b) hereinabove) is not cured within thirty (30) days
of the occurrence thereof.
(d) Any representation or warranty made in writing to the Bank in any of the
Loan Documents or in connection with the making of the Loan or a
certificate, statement or report made or delivered in compliance with this
Agreement, will have been false or misleading in any material respect when
made or delivered.
(e) The Borrower makes an assignment for the benefit of creditors, files a
petition for bankruptcy, petitions or applies to any tribunal for the
appointment of a receiver, custodian, or any trustee for it or a
substantial part of its assets, or commences any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, whether now or hereafter
in effect; or there will have been filed any such petition or application,
or any such proceeding has been commenced against it, which remains
undismissed for a period of sixty (60) days or more; or any order for
relief is entered in any such proceeding; or the Borrower by any act or
omission indicates its consent to, approval of or acquiescence in any such
petition, application or proceeding or the appointment of a custodian,
receiver or any trustee for it or any substantial part of any of its
properties; or the Borrower suffers any custodianship, receivership or
trusteeship to continue undischarged for a period of sixty (60) days or
more.
(f) Any single judgment of $1,000,000 or more or a combination of unsecured
judgments aggregating $2,000,000 or more against the Borrower not covered
by insurance or any attachment or levy of execution against any substantial
part of the Borrower's properties for any amount (not covered by insurance)
remains unpaid, unstayed on appeal, undischarged, unbonded or undismissed
for a period of thirty (30) days or more.
(g) Any Loan Document ceases to be in full force and effect in all material
respects for any reason (other than due to the payment in full of all
amounts secured or evidenced thereby or due to discharge in writing by the
Bank).
(h) After the occurrence of a Trigger Event under Section 5.10, the failure of
the Borrower and/or the Custodian to make the requisite transfer to the
Custodian Account as provided in Section 5.11 such that, not later than
5:00 P.M. in New York, New York on the first Business Day following the
occurrence of the Trigger Event, the Restricted Account Balance equals or
exceeds the Required Restricted Account Balance.
(i) After the occurrence of a Trigger Event under Section 5.10, the failure of
the Borrower to execute and deliver, or cause to be executed and delivered,
any additional documents requested by the Bank in connection with the
transfer by the Borrower and/or Custodian to the Custodian Account as
provided in Section 5.11 (including without limitation any additional
documents requested by the Bank in order to further
19
<PAGE>
implement or perfect the pledge of assets held in the Custodian Account and
any additional opinion of the Borrower's counsel on such matters the Bank
may require, in a form and substance satisfactory to Bank).
(j) After the occurrence of a Trigger Event and the initial transfer to the
Custodian Account as provided in Section 5.11, the failure of the Borrower
and/or the Custodian to make, within one Business Day following the request
of the Bank, such additional transfers to the Custodian Account as may be
necessary, from time to time, to increase the Restricted Account Balance so
that it equals the Required Restricted Account Balance.
(k) The failure by the Borrower, at any time, to maintain a Net Cash Level
equal to Five Million Dollars ($5,000,000).
(l) After the Closing Date, a material adverse change in the business or
financial condition of the Borrower occurs.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
------------------------
SECTION 9.1 INDEMNITY; ADDITIONAL FEES. The Borrower shall indemnify Bank
--------------------------
against, and hold it harmless from, any loss, liabilities, damages, claims, and
reasonable costs and expenses (including attorneys' fees and disbursements)
suffered or incurred by the Bank arising out of, resulting from or in any manner
connected with, the Loan Documents, or any transaction related hereto or
thereto, except any such loss arising solely from the Bank's own gross
negligence or willful misconduct. The provisions of this Section 9.1 will
survive for a period of three (3) years following the repayment of the Note and
the termination of this Agreement.
SECTION 9.2 SURVIVAL OF AGREEMENTS AND REPRESENTATIONS. All agreements,
------------------------------------------
representations and warranties made herein will survive the delivery of the Loan
Documents and shall be in full force and effect during the term of this
Agreement.
SECTION 9.3 MODIFICATIONS, CONSENTS AND WAIVERS. No modification, amendment
-----------------------------------
or waiver of or with respect to any provision of the Loan Documents, nor consent
to any departure by a party from any of the terms or conditions thereof shall in
any event be effective unless it is in writing and signed by the party against
whom such modification, amendment, waiver or consent is sought to be enforced.
Any such waiver or consent will be effective only in the specific instance and
for the purpose for which given. No consent to or demand on the Borrower in any
case will, of itself, entitle it to any other or further notice or demand in
similar or other circumstances.
SECTION 9.4 ENTIRE AGREEMENT. This Agreement and the other Loan Documents
----------------
embody the entire agreement and understanding between the Bank and the Borrower
and supersede all prior agreements and understandings relating to the subject
matter hereof.
SECTION 9.5 REMEDIES CUMULATIVE. Each and every right granted to the Bank
-------------------
hereunder or under any other document delivered hereunder or in connection
herewith, or allowed it by law or equity, is cumulative and may be exercised
from time to time. No failure on the part of the Bank or the holder of the Note
to exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor will any single or partial exercise of any right preclude any other
or future exercise thereof or the exercise of any other right.
20
<PAGE>
SECTION 9.6 FURTHER ASSURANCES. At any time and from time to time, upon the
------------------
request of the Bank, the Borrower shall execute, deliver and acknowledge or
cause to be executed, delivered and acknowledged such further documents and
instruments and do such other acts and things as the Bank may reasonably request
to fully effect the purposes of the Loan Documents and any other agreements,
instruments and documents delivered pursuant hereto or in connection with the
Loan.
SECTION 9.7 NOTICES. All notices, requests, reports and other
-------
communications pursuant to this Agreement must be in writing, either by letter
(delivered by hand or commercial delivery service or sent by certified mail,
return receipt requested, except for routine reports which may be by ordinary
first class mail) or facsimile or telecopier, addressed as follows:
If to Borrower: Kopin Corporation
695 Myles Standish Blvd.
Taunton, Massachusetts
Attn: Mr. Paul Mitchell, Chief Financial Officer
Telephone: (508) 824-6696
Facsimile: (508) 822-1381
If to Borrower's counsel: Chu, Ring & Hazel
253 Summer Street
Boston, Massachusetts 02210
Attn: John Chu, Esq.
Telephone: (617) 443-9800
Facsimile: (617) 443-9840
If to Bank: The Sumitomo Bank, Limited
One Post Office Square
Suite 3820
Boston, Massachusetts 02109
Attn: Daniel G. Eastman, Vice President
Telephone: (617) 451-3200
Facsimile: (617) 423-4884
If to Bank's Counsel: Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attn: Paul P. Daley, Esq.
Telephone: (617) 526-6000
Facsimile: (617) 526-5000
Any notice, request or communication hereunder will be deemed to have been given
(i) on the day on which it is delivered by hand to such party at its address
specified above, (ii) if sent by mail, on the third (3rd) Business Day following
the day it was deposited in the mail, postage prepaid, or (iii) if sent by
telecopy, when transmitted addressed as aforesaid on a Business Day during
normal business hours and receipt is confirmed, on such Business Day. Any party
may change the person or address to whom or which notices are to be given
hereunder, by notice duly given hereunder, provided, however, that any such
notice will be deemed to have been given hereunder only when actually received
by the party to which it is addressed.
21
<PAGE>
SECTION 9.8 CONSTRUCTION; GOVERNING LAW.
---------------------------
(a) The headings used in this Agreement and the table of contents are for
convenience only and will not be deemed to constitute a part hereof. All
uses herein of the masculine gender or of singular or plural terms will be
deemed to include uses of the feminine or neuter gender or plural or
singular terms, as the context may require. All references herein
(including the definitions set out in Appendix A hereto) to any agreements
----------
shall be to such agreement as amended or modified to the date of reference.
All references to a particular entity shall include a reference to such
entity's successors and permitted assigns. The words "herein," "hereof"
and "hereunder" refer to this Agreement as a whole and not to any
particular section or subsection of this Agreement. "Including" means
"including, without limitation".
(b) THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT
REFERENCE TO ITS CONFLICT OF LAWS RULES.
SECTION 9.9 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE BANK HEREBY
--------------------
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, ANY LOAN DOCUMENT OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF
THE BORROWER OR THE BANK. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE BANK
PROVIDING THE LOAN DESCRIBED HEREIN.
SECTION 9.10 JURISDICTION.
------------
(a) Each of the Borrower and the Bank hereby irrevocably and unconditionally
submits, for itself and its property, to service of process (directly or on
an agent) in Massachusetts to the nonexclusive jurisdiction of any
Massachusetts state court or Federal court of the United States of America
in each case sitting in Boston, and any appellate court handling an appeal
from any thereof, in any action or proceeding arising out of or relating to
this Agreement or any other Loan Agreement, or for recognition or
enforcement of any judgment, and the Borrower and the Bank hereby
irrevocably and unconditionally agree that all claims in respect of any
such action or proceeding may be heard and determined in such Massachusetts
state or, to the extent permitted by law, in such Federal court. Each of
the Borrower and the Bank agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law. Nothing in this Agreement shall affect any right that a party may
otherwise have to bring any action or proceeding relating to this Agreement
or any other Loan Agreement against any other party or its respective
properties in the court of any jurisdiction.
(b) Each of the Borrower and the Bank hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement in
any such Massachusetts state or Federal court. Each of the Borrower and
the Bank hereby irrevocably waives, to the fullest extent permitted by law,
the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
SECTION 9.11 RELATIONSHIP OF THE BORROWER AND THE BANK. The Borrower and
-----------------------------------------
the Bank agree that nothing contained in this Agreement or any other document
executed in connection with the Loan is intended or shall be construed to
establish the Borrower and the Bank as joint venturers or partners; and the
Borrower hereby indemnifies and agrees to hold the Bank, its officers,
directors, agents and employees harmless from any and all damages resulting
22
<PAGE>
from such a construction of the relationship of the parties hereto, except any
such damage arising solely from the Bank's own gross negligence or willful
misconduct.
SECTION 9.12 CONFIDENTIALITY. The Bank agrees, on behalf of itself and each
---------------
of its affiliates, directors, officers, employees and representatives, to use
reasonable precautions to keep confidential, in accordance with their customary
procedures for handling confidential information of the same nature and in
accordance with safe and sound banking practices, any non-public information
supplied to it by the Borrower pursuant to this Agreement that is identified by
such person as being confidential at the time the same is delivered to the Bank,
provided that nothing herein shall limit the disclosure of any such information
- --------
(a) after such information shall have become public other than through a
violation of this (S)9.12, (b) to the extent required by statute, rule,
regulation or judicial process, (c) to counsel for the Bank, (d) to bank
examiners or any other regulatory authority having jurisdiction over the Bank or
to auditors or accountants (e) in connection with any litigation to which the
Bank is a party, or in connection with the enforcement of rights or remedies
hereunder or under any other Loan Document, (f) to a subsidiary or affiliate of
the Bank, or (g) to any assignee (or prospective assignee) so long as such
assignee agrees to be bound by the provisions of this (S)9.12.
SECTION 9.13 SEVERABILITY. The provisions of this Agreement are severable,
------------
and if any clause or provision hereof shall be held invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or unenforceability
will affect only such clause or provision, or part thereof, in such jurisdiction
and will not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision in this Agreement in any
jurisdiction. Each of the covenants, agreements and conditions contained in this
Agreement is independent and compliance by the Borrower with any of them will
not excuse noncompliance by the Borrower with any other.
SECTION 9.14 BINDING EFFECT; ASSIGNMENT.
--------------------------
(a) This Agreement will be binding upon and inure to the benefit of the
Borrower and its successors and its assigns as permitted herein and to the
benefit of Bank and its successors and assigns.
(b) The rights and obligations of the Borrower under this Agreement may not be
assigned or delegated without the prior written consent of the Bank, and
any purported assignment or delegation without such consent shall be void.
(c) Bank, without the consent of the Borrower, may at any time assign or grant
participations to any other Person in all or part of its rights and
obligations under the Loan Documents; provided, however, that no such
-------- -------
assignment or participation may be made or shall be effective unless the
Bank shall have delivered prior notice thereof to the Borrower of the
proposed effective date and amount of such assignment or participation and
the identity of the proposed assignee or participant. The Bank shall be
the agent of all such assignees and participants for the purpose of the
receipt and delivery of funds and notices under the Loan Documents unless
the Borrower otherwise consents (which consent will not unreasonably be
withheld).
23
<PAGE>
SECTION 9.15 COUNTERPARTS. This Agreement may be executed in
------------
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as an instrument under seal as of the date first above written.
KOPIN CORPORATION
By: /s/ Paul J.Mitchell
---------------------------------
Name: Paul J. Mitchell
-----------------
Title: CFO
---
THE SUMITOMO BANK, LIMITED
By: /s/ Daniel G. Eastman
---------------------------------
Name: Daniel G. Eastman
------------------
Title: Vice President & Manager
------------------------
By: /s/ Alfred DeGemmis
---------------------------------
Name: Alfred DeGemmis
---------------
Title:Vice President
--------------
24
<PAGE>
APPENDIX A TO LOAN AGREEMENT -- DEFINITIONS
-------------------------------------------
The following words shall have the meanings specified below in the Section of
the Agreement referred to below.
"ACCOUNTS" -- the Investment Account and the Custodian Account.
"ACTUAL CASH BURN" -- the amount of the actual reduction in the Borrower's
Cash and Cash Equivalents (including short-term and long-term investments) as
calculated as of the last day of each calendar quarter for the period commencing
with the first day of such quarter and ending on the last day of such calendar
quarter and as determined by the Bank, in its sole discretion, based upon the
financial reports delivered to Bank by Borrower pursuant to Article VI
(including without limitation the reports provided pursuant to Section 6.4).
"AFFILIATE" -- as to any Person, any other Person which directly or indirectly
controls, or is under common control with, or is controlled by, such Person. As
used in this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean possession directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise). The term "Affiliate" shall not
include any Person who controls another Person solely by virtue of such Person's
position as a corporate officer or director of such other Person.
"AGREEMENT" -- is defined in the Preamble.
"APPLICABLE MARGIN" -- for any Eurodollar Rate Loan portion shall be one and
one-half percent (1.50%).
"AUTHORIZED SIGNATORY" -- with respect to a corporation, any officer of such
corporation.
"BAILEE" -- is defined in Subsection 2.6(b).
"BANK" -- is defined in the Preamble.
"BORROWER" -- is defined in the Preamble.
"BUSINESS DAY" -- a day when commercial banks in both Boston, Massachusetts
and Chicago, Illinois and, in the case of setting the Reserve Adjusted
Eurodollar Rate, London, England, are open for business with respect to
transactions of the kind contemplated in this Agreement.
"CERCLA" -- is defined in Subsection 3.16(a).
"CASH AND CASH EQUIVALENTS" -- liquid investments, consisting of cash and cash
equivalents and other investments in investment grade securities, that are
classified on the Borrower's consolidated balance sheet as current, noncurrent,
long-term or restricted.
"CASH EQUIVALENT BALANCES" -- the aggregate amount of the lower of cost or
market value of Cash Equivalents, as reported in the Financial Statements.
"CLOSING DATE" -- February 27, 1998.
"CODE" -- the Internal Revenue Code of 1986, as amended.
25
<PAGE>
"COLLATERAL BAILMENT AGREEMENT" -- the Collateral Bailment Agreement of even
date herewith by and between the Bank and Sumitomo Bank of New York Trust
Company.
"CONTROLLED GROUP" -- all members of a controlled group of corporations and
all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414(b), 414(c) or 414(m) of the Code and Section 4001(a)(2) of ERISA.
"CURRENT RATIO" -- the ratio of total current assets to total current
liabilities.
"CUSTODIAN ACCOUNT" -- is defined in Subsection 2.6(b).
"CUSTODIAN" -- is defined in Subsection 2.6(a).
"CUSTODIAN AGREEMENT" -- Custodian Agreement of even date herewith by and
between the Borrower and Sumitomo Bank of New York Trust Company.
"DEFAULT RATE" -- is defined in Subsection 2.3(c).
"DISBURSEMENT" -- a disbursement of available proceeds of the Loan.
"DISPOSAL," "DISPOSE(D)" -- as specified in RCRA and in the regulations
promulgated thereunder.
"ELECTION NOTICE" -- is defined in Subsection 2.1(c).
"EPA" -- is defined in Subsection 3.16(b).
"ENVIRONMENTAL LAWS" -- is defined in Subsection 3.16(b).
"ERISA" -- is defined in Section 3.15.
"EUROCURRENCY RESERVE PERCENTAGE" -- with respect to each Interest Period, a
percentage (expressed as a decimal) equal to the percentage (if any) in effect
two Business Days prior to the first day of such Interest Period, as prescribed
by the F.R.S. Board, for determining reserve requirements applicable to
"Eurocurrency liabilities" pursuant to Regulation D or any other then applicable
regulation of the F.R.S. Board which prescribes reserve requirements applicable
to "Eurocurrency liabilities," as presently defined in said Regulation D. For
purposes of this definition, Eurodollar Rate Loan Portions hereunder shall be
deemed to be "Eurocurrency liabilities" as defined in said Regulation D.
"EURODOLLAR RATE LOAN PORTION -- any portion of the Loan, which the Borrower
has notified the Bank (in accordance with the provisions of Section 2.1) is to
bear interest at the Reserve Adjusted Eurodollar Rate plus the Applicable Margin
for the applicable Interest Period.
"EURODOLLAR RATE" -- for any Eurodollar Rate Loan Portion, with respect to the
applicable Interest Period relating to such Eurodollar Rate Loan Portion, the
rate per annum (rounded up to the next whole multiple of 1/16 of 1%) equal to
the rate at which United States dollar deposits are offered to the Bank in the
London interbank Eurodollar market as of approximately 11:00 a.m., London,
England time, on the second Business Day prior to the first day of such Interest
Period for delivery in immediately available funds on the first day of such
Interest Period for the number of days in such Interest Period and in an amount
equal to the amount of the Eurodollar Rate Loan Portion.
"EVENT OF DEFAULT" -- is defined in Section 8.1.
26
<PAGE>
"FINANCIAL STATEMENTS"
(a) the audited consolidated balance sheet and consolidated statements of
operations, shareholders' equity and cash flows of Borrower for the fiscal
year then ended, together with the unqualified opinion of the independent
public accountants preparing such statements; and
(b) the quarterly unaudited consolidated balance sheet and unaudited
consolidated statements of operations, and cash flows for Borrower for the
fiscal quarters ended June, September and December, certified as to
accuracy by the chief financial officer or controller of Borrower,
provided, however, that such quarterly unaudited financial statements may
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
"FINANCING STATEMENT" -- a financing statement or statements on form UCC-1,
signed by the Borrower and describing the property in which the Bank has a
security interest under the Restricted Account and Security Agreement, all in
form and substance suitable for filing as a financing statement under Article 9
of the Uniform Commercial Code as enacted in Massachusetts and/or New York.
"HAZARDOUS SUBSTANCES" -- is defined in Subsection 3.16(b).
"INDEBTEDNESS" -- with respect to any Person:
(a) all indebtedness, liabilities or other obligations of such Person for
borrowed money or for the deferred purchase price of property or services
(excluding trade accounts payable and accrued obligations incurred in the
ordinary course of business) and any other liabilities, which in accordance
with generally accepted accounting principles would be included in
determining total liabilities as shown on the liability side of a balance
sheet of such Person at the date as of which such Indebtedness is to be
determined, excluding all operating lease obligations, as determined in
accordance with generally accepted accounting principles consistently
applied and any other contingent liabilities of such Person;
(b) all indebtedness, liabilities or obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or
businesses;
(c) all reimbursement and other obligations of such Person in respect of
letters of credit and bankers acceptance and all net obligations in respect
of interest rate swaps, caps, floors and collars, currency swaps, and other
similar financial products;
(d) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person;
(e) all obligations under leases which shall have been or should be, in
accordance with GAAP, recorded as capital leases; and
(f) all indebtedness of another Person of the types referred to in clauses (a)
through (e) guaranteed directly or indirectly in any manner by the Person
for whom Indebtedness is being determined, or in effect guaranteed directly
or indirectly by such Person through an agreement to purchase or acquire
such indebtedness, to advance or supply funds for the payment or purchase
of such indebtedness or otherwise assure a creditor against loss, or
secured by any Lien upon or
27
<PAGE>
in property owned by the Person for whom Indebtedness is being determined,
whether or not such Person has assumed or become liable for the payment of
such indebtedness of such other Person.
"INTELLECTUAL PROPERTY RIGHTS" -- is defined in Section 3.11.
"INTEREST DIFFERENTIAL" -- with respect to any prepayment of a Eurodollar Rate
Loan Portion on a day other than an Interest Payment Date falling at the end of
the applicable Interest Period, the sum of: (a) the per annum interest rate
payable with respect to such Eurodollar Rate Loan Portion as the date of the
prepayment minus (b) what the Reserve Adjusted Eurodollar Rate plus the
-----
Applicable Margin would have been on, or as near as practicable to, the date of
the prepayment for a Eurodollar Rate Loan Portion for a period commencing on
such date and ending on the last day of the applicable Interest Period. The
determination of the Interest Differential by the Bank shall be conclusive in
the absence of manifest error.
"INTEREST PAYMENT DATE" -- with respect to any Loan Portion, the earlier to
occur of (a) the last Business Day of each calendar month occurring within an
Interest Period; or (b) the last day of each applicable Interest Period; or (c)
the date that the Loan Portion is due by either the occurrence of Maturity Date
or an Event of Default having occurred and the maturity of the Loan having been
accelerated pursuant to the terms of the Loan Documents.
"INTEREST PERIOD" -- as to any Eurodollar Rate Loan Portion, the period
commencing on the date of the initial funding of such Eurodollar Rate Loan
Portion or the last day of the immediately preceding Interest Period for any
Eurodollar Rate Loan Portion that is to be continued as a Eurodollar Rate Loan
Portion and ending, with respect to such Eurodollar Rate Loan Portion, on the
numerically corresponding day (or if there is no numerically corresponding day,
on the last day), in the calendar month that is one, two, three, six or, if
available, twelve months thereafter, in each case as the Borrower may elect in
the Election Notice; provided however, that (a) no Interest Period with respect
to any Eurodollar Rate Loan Portion shall end later than the Maturity Date, (b)
if an Interest Period would end on a day that it is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless
such next succeeding day would fall in the next calendar month, in which case,
such Interest Period shall end on the immediately preceding Business Day, and
(c) interest shall accrue from and including the first day of an Interest Period
to but excluding the last Business Day of such Interest Period.
"INTEREST RESERVE" -- on any date of determination means an amount equal to
the interest that would accrue in three months on an amount equal to the
principal balance of the Loan outstanding on such date of determination.
"INVESTMENT ACCOUNT" -- is defined in Subsection 2.6(a).
"IRREVOCABLE INSTRUCTIONS AND POWER OF ATTORNEY" -- is defined in Subsection
2.6(b).
"IRS" -- is defined in Subsection 3.15(a).
"LIEN" -- any mortgage, deed of trust, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement and any lease
in the nature of a security interest or lien).
"LOAN" -- is defined in Section 2.1.
"LOAN DOCUMENTS" -- this Agreement, the Note, the Restricted Account and
Security Agreement, the Collateral Bailment Agreement, the Irrevocable
Instructions and Power of Attorney, the Custodian Agreement, and all other
documents executed and delivered in connection herewith or therewith, including
all amendments, modifications and supplements of or all such documents.
28
<PAGE>
"LOAN FEE" -- is defined in Subsection 2.3(d).
"LOAN PORTION" -- as the circumstances or context warrants, the portion of the
Loan which is a Eurodollar Rate Loan Portion, or Prime Rate Loan Portion.
"MATURITY DATE" -- December 31, 2002.
"MINIMUM AMOUNT" -- the sum of all Cash and Cash Equivalents equal to the
amounts and during the periods set forth in the chart below:
- --------------------------------------------------------------------------------
For The Period: Minimum Amount
- --------------------------------------------------------------------------------
From the Closing Date through and including January 31, 1999 $7,500,000
- --------------------------------------------------------------------------------
February 1, 1999 through and including January 31, 2000 $6,000,000
- --------------------------------------------------------------------------------
February 1, 2000 through and including January 31, 2001 $4,500,000
- --------------------------------------------------------------------------------
February 1, 2001 through and including January 31, 2002 $3,000,000
- --------------------------------------------------------------------------------
February 1, 2002 and thereafter $1,500,000
- --------------------------------------------------------------------------------
"NET CASH LEVEL" -- the aggregate amount of the market value of Cash and Cash
Equivalents less otherwise restricted cash and amounts which may be restricted
in the future pursuant to existing or future agreements between the Borrower and
third parties, including, without limitation, pursuant to this Agreement.
"NET WORTH" -- an amount equal to the Total Assets minus Total Debt.
"NOTE" -- is defined in Section 2.1.
"PBGC" -- is defined in Subsection 3.15(a).
"PERMITTED LIEN" -- is defined in Section 7.1.
"PERMITTED PURCHASE MONEY LIENS" -- purchase money security interests in
personal property acquired after the date hereof to secure purchase money
Indebtedness, to the extent that the amount of money borrowed does not exceed
the value of the personal property purchased, and the security interest granted
does not extend beyond the personal property purchased.
"PERSON" -- an individual, a corporation, a partnership, a joint venture, a
trust or unincorporated organization, a joint stock company or other similar
organization, a government or any political subdivision thereof, a court, or any
other legal entity, whether acting in an individual, fiduciary or other
capacity.
"PLAN(S)" -- is defined in Subsection 3.15(a) hereof.
"PRIME RATE" -- the higher of (i) interest rate which the Bank announces from
time to time as its floating prime rate in the United States and (ii) the
federal funds rate announced from time to time plus one-half percent (0.50%).
29
<PAGE>
"PRIME RATE LOAN PORTION" -- any portion of the Loan which bears interest at
the Prime Rate as provided in Section 2.1 or 2.7.
"RCRA" -- is defined in Subsection 3.16(a).
"R&D TRANSACTION" -- is defined in Subsection 7.2(c).
"REGULATORY CHANGE" -- any change after the date of this Agreement in United
States federal, state or local laws or regulations or the adoption or making
after such date of any interpretations, directives or requests applying to a
class of banks including the Bank of or under any United States federal, state,
or local laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"RELEASE" -- as specified in CERCLA.
"REPORTING PERIOD" -- a fiscal quarter of the Borrower.
"REQUIRED RESTRICTED ACCOUNT BALANCE" -- on and after a Trigger Event has
occurred, the sum of the Borrower's then outstanding principal balance of the
Loan plus the Interest Reserve.
----
"RESERVE ADJUSTED EURODOLLAR RATE" -- with respect to any Eurodollar Rate Loan
Portion for any Interest Period, a rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined pursuant to the following
formula:
Reserve Adjusted = Eurodollar Rate
--------------------------------------------
Eurodollar Rate 1 - Eurocurrency Reserve Percentage
"RESTRICTED ACCOUNT AND SECURITY AGREEMENT" -- the Restricted Account and
Security Agreement of even date herewith by and between the Bank, the Bailee and
the Borrower.
"RESTRICTED ACCOUNT BALANCE" -- the sum of all Cash and Cash Equivalents and
any other investments on deposit in the Custodian Account, the amount of such
Cash Equivalents or investments to be calculated at the lower of cost or market
value.
"SARA" -- is defined in Subsection 3.16(a).
"SUBSIDIARY" -- any person of which the Borrower owns directly or indirectly:
(i) sufficient capital stock to enable it to elect at least a majority of the
board of directors or similar managing body of such person, or (ii) capital
stock with rights under the charter documents of such Person to elect a director
or similar managing official with the power to veto material business decisions
and organizational changes.
"TAXES" -- is defined in Subsection 2.5(a).
"TOTAL ASSETS" -- total assets as determined in accordance with generally
accepted accounting principles, consistently applied; provided, however, that
Total Assets shall be reduced by the amount (if any) of intangible assets (other
than intangible assets consisting of patent and trademark costs as shown on the
Company's Financial Statements and determined in accordance with, and consistent
with, both generally accepted accounting principals consistently applied and the
Company's accounting practices prior to the date hereof).
30
<PAGE>
"TOTAL DEBT" -- the aggregate amount of the Borrower's Indebtedness,
including, without limitation all loans owing by the Borrower (including loans
hereunder) and all capital lease obligations of the Borrower.
"TRIGGER EVENT" -- is defined in Section 5.10.
"UCC" -- the Uniform Commercial Code in effect from time to time in the
relevant jurisdiction.
31
<PAGE>
EXHIBIT 10.42
NOTE
$5,000,000.00 Boston, Massachusetts
February 27, 1998
FOR VALUE RECEIVED, KOPIN CORPORATION, a Delaware corporation ("Borrower"),
hereby promises to pay to the order of The Sumitomo Bank, Limited, a Japanese
banking corporation ("Bank"), without counterclaim, offset or deduction, the
principal sum of FIVE MILLION DOLLARS ($5,000,000) or, if less, the aggregate
unpaid principal amount of all Disbursements (as defined in the Loan Agreement
referred to below), in accordance with the terms of the Loan Agreement and to
pay interest on the outstanding principal balance at the interest rates and at
such times provided in the Loan Agreement and elected by Borrower and calculated
in accordance with the terms of Loan Agreement. This Note is the Note referred
to in the Loan Agreement, of even date herewith, between Borrower and Bank, and
is subject to all of the terms and conditions of the Loan Agreement (which are
incorporated herein by reference), including the rights of prepayment and the
rights of acceleration of maturity. Terms used herein have the meanings
assigned to those terms in the Loan Agreement, unless otherwise defined herein.
The unpaid principal balance hereunder shall be paid in twenty (20) equal
consecutive quarterly installments of principal (each installment being in an
amount sufficient to amortize the outstanding principal balance of the Loan over
a period of twenty (20) quarters, together with interest on the unpaid principal
balance commencing from the Closing Date, payable on the first Business Day of
each calendar quarter commencing with the first payment due on April 1, 1998 and
continuing until December 31, 2002 (the "Maturity Date"), on which date Borrower
shall make a final payment in an amount equal to all of the then unpaid
principal of the Loan and all unpaid interest thereon, provided, however, that
repayment of any or all of the outstanding principal balance hereunder and all
accrued and unpaid interest thereon may be accelerated by Bank as hereinafter
provided upon the occurrence of any failure to make any payment required under
this Note and/or any Event of Default under the Loan Agreement. Any installment
of interest only or of principal and interest paid more than five (5) days late
or any other amount payable hereunder which is not paid when due will bear (and
Borrower shall pay) interest (to the extent permitted by law) from such due date
until such unpaid amount has been paid in full (whether before or after
judgment) at a rate per annum equal to the Default Rate.
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<PAGE>
Borrower hereby authorizes Bank to record on schedule(s) annexed to this Note
(a) the date and amount of each portion of the Loan which constitutes a
Eurodollar Rate Loan Portion or Prime Rate Loan Portion; (b) the term of the
Interest Period for the Eurodollar Rate Loan Portion; (c) the interest rate or
rates for each Eurodollar Rate Loan Portion or Prime Rate Loan Portion and the
effective date(s) of all changes in such rates; (d) the date and amount of each
interest only payment on each Eurodollar Rate Loan Portion or Prime Rate Loan
Portion; and (e) the date and amount of each principal and interest payment on
each Eurodollar Rate Loan Portion or Prime Rate Loan Portion and of each
prepayment of principal made by Borrower, and Borrower agrees that all such
notations shall constitute prima facie evidence of the matters noted. Bank's
----- -----
failure to record such information shall not reduce or affect the obligations of
Borrower hereunder or under the Loan Agreement.
Upon the occurrence of any failure to make a payment required under this Note
and/or any Event of Default under the Loan Agreement, Bank, at its option and
without further notice, demand, or presentment for payment to Borrower, may
declare immediately due and payable the unpaid principal balance and interest
accrued thereon together with all other sums owed by Borrower under this Note
and the Loan Documents (including, but not limited to attorneys' fees as
provided below), anything in this Note and the Loan Documents to the contrary
notwithstanding. Notwithstanding the foregoing, under certain circumstances as
provided in the Loan Agreement or under applicable law, the unpaid principal
balance and interest accrued thereon together with all other sums owed by
Borrower under this Note and the Loan Documents (including, but not limited to,
attorneys fees as provided below) shall automatically become due and payable.
Payment of such sums may be enforced and recovered in whole or in part at any
time by one or more of the remedies provided to Bank in this Note or the Loan
Documents. All amounts so accelerated under this Note or the Loan Documents, or
all such amounts that become due and payable on the Maturity Date but remain
unpaid, shall in each case (without need for further notice) bear interest from
the date of such acceleration or the Maturity Date, as applicable, until the
date such amounts are paid in full at a rate per annum equal to the Default
Rate.
Borrower shall make all payments hereunder in lawful money of the United
States and in immediately available funds to Bank's account by means of a wire
transfer addressed as follows: The Sumitomo Bank, Limited, Chicago Bank, ABA
071001850, through the
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<PAGE>
Federal Reserve Bank of Chicago, Reference: Kopin Corporation. The computation
of interest hereunder shall be on the basis of a 360 day year, for actual days
elapsed.
All agreements between Borrower and Bank, whether now existing or hereafter
arising, are hereby limited so that in no event shall the interest charged
hereunder or under the Loan Agreement or any other charges hereunder or under
the Loan Agreement which may at any time be deemed to be interest or agreed to
be paid to Bank exceed the maximum amount permissible under applicable law.
Bank shall be entitled to amortize, prorate and spread throughout the full term
of this Note all interest paid or payable so that the interest paid does not
exceed the maximum amount permitted by law. In the event that the total
liability for payments of interest and payments in the nature of interest,
including without limitation, all charges, fees or other sums which may at any
time be deemed to be interest, shall for any reason whatsoever, result in an
effective rate of interest that for any interest payment period exceeds the
amount which Bank may lawfully collect, then the interest rate shall
automatically be reduced to the maximum rate permitted by law and all sums in
excess of those lawfully collectible as interest for the period in question
shall, without further notice to any party hereto, be applied as a premium-free
reduction of the principal balance, provided, however, that Bank may, at any
time, and from time to time, elect, by notice in writing to Borrower, to waive,
reduce or limit the collection of any sums (or refund to Borrower any sums
collected) in excess of those lawfully collectible as interest rather than
accept such sums as prepayment of the principal balance.
Borrower shall pay all reasonable fees, costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the preparation and negotiation
of this Note and the Loan Documents and in the enforcement or attempt to enforce
any of Borrower's obligations hereunder not performed when due, whether or not
any legal action is actually filed, litigated or prosecuted to judgment of
award. This Note shall be governed by, construed and interpreted in accordance
with the laws of the Commonwealth of Massachusetts.
Time is of the essence in the performance of the obligations evidenced by this
Note. In the event that Borrower defaults under this Note, or an Event of
Default occurs under the Loan Agreement, Bank shall have all of the rights and
remedies provided for in any of the Loan Documents or at law or in equity. The
remedies of Bank shall be cumulative and may be exercised from time to time. No
failure on the part of Bank or the holder of the Note to exercise, and no delay
in exercising, any right
3
<PAGE>
shall operate as a waiver thereof, nor will any single or partial exercise of
any right preclude any other or future exercise thereof or the exercise of any
other right. Borrower hereby waives diligence, presentment for payment, demand,
notice of demand, notice of non-payment or dishonor, protest and notice of
protest of this Note, and all other notices in connection with the delivery,
acceptance, performance, default or enforcement of the payment of this Note,
except such notices as are required under the terms of any of the Loan
Documents.
If this Note is destroyed, lost or stolen, Borrower shall deliver a new note
to Bank on the same terms and conditions as this Note, with all appropriate
schedules annexed thereto, in substitution of the prior Note. Bank shall
furnish to Borrower reasonable evidence that the Note was destroyed, lost or
stolen, and any security or indemnity that may be reasonably required by
Borrower in connection with the replacement of the Note.
Executed as an instrument under seal as of the day and date referred to above.
KOPIN CORPORATION
By: /s/ Paul J. Mitchell
Name: Paul J. Mitchell
Title: CFO
4
<PAGE>
Exhibit 10.43
RESTRICTED ACCOUNT AND SECURITY AGREEMENT
This RESTRICTED ACCOUNT AND SECURITY AGREEMENT (the "Agreement") is made as of
February 27, 1998, by and among KOPIN CORPORATION, a Delaware corporation (the
"Borrower"), THE SUMITOMO BANK, LIMITED, a Japanese banking corporation (the
"Bank"), and SUMITOMO BANK OF NEW YORK TRUST COMPANY (the "Bailee").
BACKGROUND
----------
The Borrower and the Bank have entered into a Loan Agreement of even date
herewith (the "Loan Agreement"). Prior to the date of the Loan Agreement, the
Borrower established a custodial and investment account, Account No. 1080410345
(the "Investment Account"), with Sumitomo Bank of New York Trust Company
("Account Holder") in which the Borrower holds cash and marketable securities.
Pursuant to Section 2.6 of the Loan Agreement and a certain Custodian
Agreement between the Borrower and the Bailee (the "Custodian Agreement"), the
Borrower will concurrently establish a restricted account (the "Custodian
Account") for the benefit of the Bank with the Bailee, a wholly owned subsidiary
of the Bank, on the terms and conditions set forth in the Collateral Bailment
Agreement of even date herewith by and among the Bank, the Borrower and the
Bailee (the "Collateral Bailment Agreement"). Pursuant to certain Irrevocable
Instructions and Power of Attorney of even date herewith addressed to Account
Holder, Account Holder shall upon certain events transfer cash and securities
from the Investment Account and transfer or deposit such cash and securities
into the Custodian Account for use and disposition as set forth herein and in
the Collateral Bailment Agreement.
NOW THEREFORE, in consideration of the premises set forth herein, the Borrower
and the Bank agree as follows:
1. DEFINITIONS.
------------
1.1 DEFINITIONS. Capitalized terms used but not defined in this Agreement
------------
shall have the meanings specified in the Loan Agreement.
2. ESTABLISHMENT AND MANAGEMENT OF CUSTODIAN ACCOUNT.
--------------------------------------------------
2.1 EXECUTION AND DELIVERY OF COLLATERAL BAILMENT AGREEMENT.
--------------------------------------------------------
Concurrently with the execution and delivery of this Agreement, the
Borrower, the Bank and the Bailee shall execute and deliver the Collateral
Bailment Agreement in substantially the form of Exhibit 2.1 to this Agreement.
-----------
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<PAGE>
2.2 ESTABLISHMENT OF CUSTODIAN ACCOUNT. Pursuant to the Collateral
----------------------------------
Bailment Agreement, Section 2.6 of the Loan Agreement, and the Custodian
Agreement, the Borrower shall establish the Custodian Account at the Bailee,
which Custodian Account shall be administered in accordance with the terms and
conditions of this Agreement, the Collateral Bailment Agreement, the Custodian
Agreement, and the Loan Agreement. In the event of any inconsistency between
this Agreement and the Collateral Bailment Agreement and/or the Custodian
Agreement, the Collateral Bailment Agreement shall be controlling.
2.3 BANK'S SECURITY INTEREST. The Borrower hereby pledges, transfers
------------------------
and assigns to the Bank, and grants to the Bank a first priority security
interest in and lien upon (i) the Custodian Account and all of the Borrower's
right, title and interest in all tangible and intangible property in the
Custodian Account, including, without limitation, all of the Borrower's rights
now or hereafter existing against the Bailee with respect to the collateral
described on Exhibit 2.3 hereof and maintained from time to time in
-----------
the Custodian Account and (ii) all accounts, including, without limitation, all
accounts, all rights of the Borrower to payment for and obligations owing to the
Borrower for goods sold or leased or for services rendered (whether or not
evidenced by a writing, an instrument or chattel paper), all accounts receivable
of the Borrower, all rights of the Borrower to payment under a contract not yet
earned by performance, all obligations owing to the Borrower of any kind or
nature, including all writings, if any, evidencing the same, including all
instruments, drafts, acceptances and chattel paper, all of the foregoing whether
now owned or hereafter acquired and any and all products and proceeds of the
foregoing, including, without limitation, any insurance proceeds (collectively,
the "Collateral"), as security for the payment or performance of all obligations
of the Borrower to the Bank relating to the Loan and the Loan Documents
(collectively, the "Obligations").
2.4 POSSESSION OF COLLATERAL. Until released by the Bank in writing, the
------------------------
Bailee shall possess all right, title and interest in all funds on deposit and
all Collateral from time to time in the Custodian Account and in all proceeds
thereof, and the Collateral shall be under the sole dominion and control of
Sumitomo Bank of New York Trust Company as bailee and third party pledgeholder
(and not as agent for Borrower) for the purpose of the perfection of the Bank's
security interest in the Collateral, subject to the Borrower's right to invest
the Collateral pursuant to Section 2.6 hereof and the Borrower's right to
withdraw amounts in excess of the Required Restricted Account Balance
2
<PAGE>
("Excess Amounts") from the Custodian Account under Section 2.7(a) hereof. The
Bailee shall comply with all orders with respect to the Collateral originated by
the Bank without further consent by the Borrower. The Bailee shall maintain in
trust for the benefit of the Bank possession of certificated Collateral from the
time of purchase thereof until the time of sale or maturity. The Bank agrees to
instruct Bailee to release the Collateral within ten (10) Business Days of
Borrower's full and final satisfaction of Borrower's obligations under the Loan
Agreement.
2.5 UNCERTIFICATED SECURITIES. As to Collateral which consists of
-------------------------
uncertificated securities or federal book entry securities, the Borrower shall
execute and deliver all such instructions and instruments determined by the
Bank, in its sole discretion, to be reasonably necessary (i) with respect to
uncertificated securities, to register the pledge of the Collateral to the
Bailee on behalf of the Bank upon the books and records of the issuer, a
clearing corporation, or such other entity which maintains the registrations of
such pledges, or (ii) with respect to federal book entry collateral, to
accomplish a book entry transfer of such collateral to an account maintained by
the Bailee at the Federal Reserve Bank of New York, and the name of the Bailee
shall appear as the owner of all such federal book entry collateral on the books
and records of said Federal Reserve Bank of New York.
2.6 INVESTMENT OF COLLATERAL. So long as the Bank has not given the
------------------------
Bailee notice that an Event of Default under the Loan Agreement has occurred and
is continuing (a "Default Notice"), the Borrower shall have the right, and the
Bank hereby grants the Borrower a license, either directly or through a person
designated by the Borrower, provided that written notice of the identity of such
designee has been given to the Bank and the Bailee, to invest, reinvest,
withdraw and substitute all cash, securities, proceeds and other Collateral
maintained from time to time in the Custodian Account, provided, however, that
except as otherwise permitted by Section 2.7(a), the right to withdraw cash or
securities may be exercised only in connection with the withdrawal of Excess
Amounts under Section 2.7(a) or the purchase and sale of securities and the
substitution of such sold securities with cash or other purchased securities of
equal value that are to be maintained in such Custodian Account. Upon the
Bailee's receipt of the Default Notice, the right and license granted to the
Borrower hereunder shall be automatically revoked without further notice and the
Bailee shall accept and act upon the instructions of only the Bank for the
purpose of investing, reinvesting, withdrawing and substituting the Collateral
and the Bank shall have sole and absolute discretion with respect to such
investing and reinvesting.
3
<PAGE>
2.7 WITHDRAWALS FROM CUSTODIAN ACCOUNT.
----------------------------------
(a) The Borrower shall not cause the transfer, release, distribution,
or withdrawal of any Collateral (other than in connection with the reinvestment
thereof and the concurrent substitution of Collateral of equal value) without
the Bank's prior written approval; provided that, prior to an Event of Default,
the Borrower may withdraw from the Custodian Account, fifty-one days after the
end of each fiscal quarter, any amount by which the Custodian Account Balance
exceeds the Required Restricted Account Balance. Following the occurrence of an
Event of Default, the Borrower shall have no right to withdraw Collateral from
the Custodian Account.
(b) The Bank will deliver a copy of any Default Notice to the Borrower
simultaneously with any delivery thereof to the Bailee. It is understood and
agreed that the Bailee shall be and hereby is irrevocably authorized and
directed by the Borrower and the Bank to take any course of action which the
Bank, pursuant to the authority granted under the Loan Documents, instructs the
Bailee to follow, including, without limitation, making immediate payment or
transfer of all Collateral solely and directly to the Bank whether or not such
action will cause investment income to be lost or fees to be incurred in
connection with the investment of the Collateral, upon the occurrence of an
Event of Default, without offset or deduction of any kind for any obligations or
indebtedness of the Borrower to the Bailee. The Borrower agrees that the Bailee
is hereby instructed and authorized to disregard any instructions which are
provided by Borrower to the Bailee that are contrary to or inconsistent with
instructions provided by the Bank to the Bailee after a Default Notice has been
given by the Bank.
3. BORROWER'S COVENANTS.
--------------------
3.1 BORROWER'S COVENANTS. The Borrower agrees and covenants that:
--------------------
(a) In no event shall it do or permit to be done, or omit to do or
permit the omission of, any act or thing, the doing or omission of which would
impair the security created by this Agreement;
(b) It shall, except for the lien and security interest created hereby
and the assignment to the Bank as collateral security provided for herein and as
permitted under the Loan Agreement, keep the Collateral free and clear from any
and all liens, claims, encumbrances, obligations, indebtedness or other similar
interests and that it will not assign any accounts or other Collateral to any
person other than the Bank;
4
<PAGE>
(c) It shall not (i) create, incur, assume, or permit to exist any
security agreements, security interests or any legal or beneficial ownership, or
other rights in the Collateral, or (ii) sell, transfer or assign the Collateral
or the Custodian Account or any collateral or deposits therein, except pursuant
to this Agreement or as permitted under the Loan Agreement;
(d) It shall not take or permit to be taken any other action which
would adversely affect the lien created hereby on the Collateral or the rights,
benefits and remedies available to the Bank hereunder or under the Collateral
Bailment Agreement;
(e) It shall pay and discharge, before they become delinquent, all
taxes, levies and other charges upon it and upon the Collateral and the Accounts
and the investments and deposits therein subject to its right to contest, by
appropriate legal proceedings diligently conducted and in good faith, any such
tax, levy or other charges and provided that such contest shall not impair the
security interest granted to the Bank hereunder; and
(f) It shall at its own expense, execute, and/or deliver, or cause to
be executed and delivered, to the Bank such notices, instruments, agreements,
financing statements, continuation statements, security agreements, assignments,
affidavits, opinions of Borrower's counsel and other documents, and take such
further actions relating to the Collateral, as the Bank in its sole and absolute
discretion deems necessary or reasonably appropriate or advisable to perfect,
preserve or protect the Bank's perfected first priority lien and security
interest granted hereby or to enable the Bank to exercise and enforce its rights
and remedies hereunder with respect to any Collateral; and it shall execute and
deliver such additional documents as the Bank may reasonably require or deem
advisable to carry into effect the purpose of this Agreement or to maintain the
Bank's interest hereunder.
(g) It shall not change, modify, terminate or amend its irrevocable
instructions delivered to Account Holder (the "Irrevocable Instructions")
pursuant to Section 2.6 of the Loan Agreement without written consent of the
Bank.
3.2 POWER OF ATTORNEY. The Borrower hereby irrevocably constitutes
-----------------
and appoints the Bank and any officer or agent thereof, with full power to
substitute other officers and agents for such officers and agents, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of the Borrower without notice to or assent thereof, and in
5
<PAGE>
the name of the Borrower or in its own name, from time to time, but only upon
(i) the occurrence and continuation of a Trigger Event, or (ii) the failure by
the Borrower to perform any obligation under the Loan Documents or the
occurrence of any event if such failure or event would, in the Bank's reasonable
judgment, materially and adversely affect the Collateral, to take any and all
appropriate action, in the Bank's reasonable discretion, to execute any and all
documents and instruments relating to the Collateral which may be reasonably
necessary or desirable in the judgment of the Bank to protect or preserve the
Bank's interest in the Collateral and to perform any of the Borrower's
obligations hereunder relating to the Custodian Account, in the Borrower's name
or otherwise, provided, however, that unless a Trigger Event shall have occurred
and be continuing, the Bank shall not be entitled to deliver the Demand (as
defined in the Irrevocable Instructions) to Account Holder.
The Borrower hereby ratifies all that said attorneys lawfully do or cause to
be done by virtue hereof. This power of attorney is a power coupled with an
interest and is irrevocable for the term of this Agreement. The powers
conferred on the Bank hereunder are solely to protect its interests in the
Custodian Account and will not impose any duty upon the Bank to exercise any
such powers and the Bank will incur no liability to the Borrower or any third
party for failure to exercise any such powers. The Bank will be accountable
only for amounts that it actually receives as a result of the exercise of such
powers and in no event will the Bank or any of its officers, directors,
employees or agents be responsible to the Borrower for any act or failure to
act, except for gross negligence or willful misconduct, unless a higher standard
is imposed by law. The Borrower agrees to reimburse the Bank upon demand for any
costs and expenses including, without limitation, reasonable attorneys' fees the
Bank may incur while acting as the Borrower's attorney-in-fact hereunder, with
interest thereon at the rate set forth in the Note or the Loan Agreement. All
of such costs, expenses and interest are included in the Obligations secured by
the Collateral.
3.3 PRINCIPAL EXECUTIVE OFFICE. The Borrower represents and warrants
--------------------------
that its major executive office in the United States and its records concerning
its accounts is located at 695 Myles Standish Boulevard, Taunton, Massachusetts
02780. The Borrower will deliver notice of any relocation of its principal
executive office in the United States not later than five (5) days prior to the
date of such relocation.
3.4 GOVERNMENT ACCOUNTS. The Borrower will immediately notify the Bank
-------------------
if any of the Borrower's accounts arise out of contracts with the United States
of America, any state or
6
<PAGE>
municipality, or any department, agency or instrumentality thereof, and will
execute any instruments and take any and all actions required by the Bank in
order to protect the Bank's interests therein so that all monies due and to
become due under such contracts shall be duly assigned to the Bank.
3.5 CONTINUING REPRESENTATIONS. The Borrower further represents and
--------------------------
warrants that each of the representations and warranties made by the Borrower
herein is true and correct as of the date hereof, and are continuing
representations and warranties. In the event that any representation or warranty
set forth herein is no longer true or correct, the Borrower will immediately
notify the Bank in writing.
4. BANK'S RIGHTS AND REMEDIES.
---------------------------
4.1 RIGHTS OF BANK.
---------------
(a) The Bank may:
(i) At any time following the occurrence of an Event of Default,
instruct the Bailee to liquidate the collateral and pay the
proceeds of such liquidation to the Bank; and
(ii) Do any other act the Bank, at its discretion, may deem
proper, provided such action is commercially reasonable and
made in the best business judgment of the Bank.
(b) During the term of this Agreement, except upon the occurrence and
continuance of an Event of Default, the Borrower is hereby granted a license to
exercise all rights and privileges to vote the Collateral, and any other rights
appurtenant to ownership provided that all dividends of Collateral shall be
treated as Collateral. The Borrower agrees to execute and deliver to the Bank on
demand any statement, indorsement (stock or bond power), instruction, or other
document that the Bank in its sole discretion requests as being necessary to
create, preserve, validate, or enforce its security interest in the Collateral.
4.2 REMEDIES. Upon, and at any time following, the occurrence of an
---------
Event of Default, the Bank may, at the Bank's option:
(a) exercise with respect to the Collateral all of the remedies of a
secured party under Article 9 of the Uniform Commercial Code in the applicable
jurisdiction;
7
<PAGE>
(b) exercise any and all remedies available under law or in equity; and
(c) recover from the Borrower all costs and expenses, including
reasonable attorneys' fees, incurred by the Bank in exercising any right or
remedy provided for hereunder, or under any of the Loan Documents, or by law, or
in equity, which costs and expenses are included in the Obligations secured by
the Collateral.
Without limiting the foregoing, following the occurrence of an Event of
Default, the Bank shall have the right to sell, assign, deliver, encumber, or
otherwise dispose of any or all of the Collateral or instruct the Bailee to do
so. If any of the Collateral is of a type customarily sold in a recognized
market, it shall be commercially reasonable for the Bank to dispose of such
Collateral in such market within (i) a reasonable period of time after acquiring
possession thereof without further notice to the Borrower or (ii) a reasonable
period of time after receipt of written demand from the Borrower, and Bank shall
not be responsible for the value recognized in such disposition in a recognized
market. In all other events the Bank shall give the Borrower notice of the time
and place of the public sale of the Collateral or of the time after which any
private sale or other intended disposition is to be made by sending a notice of
such sale at least 10 days before the sale or disposition, which the Borrower
agrees shall be reasonable notice. In the event the Collateral is sold or
otherwise disposed of, the resale price or return shall be applied in the first
instance to the reasonable expenses of retaking, holding, preparing for sale or
lease, selling, leasing, and the like. The proceeds of the disposition of
Collateral may also be applied to the payment of the Bank's attorneys' fees and
legal expenses. Thereafter, the proceeds of the disposition of Collateral shall
be applied by the Bank to the payment of Borrower's Obligations. The Bank shall
have sole discretion as to the manner of allocating such proceeds of the
disposition of Collateral to the payment of Borrower's Obligations, including
without limitation the allocation to payment of accrued interest, outstanding
principal and/or other amounts due by Borrower under the Loan or Loan Documents.
Only after full payment of all of the Borrower's Obligations under the Loan and
the Loan Documents and any other payments the Borrower may be required to make
need the Bank account for, and pay to the Borrower, any surplus.
The Borrower recognizes that the Bank may be unable to effect a public sale of
the Collateral by reason of certain prohibitions contained in the Securities Act
of 1933, as amended, but may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers who will be obligated to agree,
among other things, to acquire such securities for
8
<PAGE>
their own account, for investment and not with a view to the distribution or
resale thereof. The Borrower agrees that any such private sales may be at prices
and on other terms less favorable to the seller than if sold at public sales and
that such private sales shall not be deemed to have been made in a commercially
unreasonable manner on account of their private character.
No delay or omission to exercise any right or remedy of the Bank upon a
default by the Borrower will waive any right or remedy of the Bank or be
construed as a waiver of any similar default which occurs later. The Borrower
waives any right to require the Bank to proceed against any other person or to
exhaust any Collateral or to pursue any other remedy in the Bank's power.
4.3 BANK'S DETERMINATION CONCLUSIVE. The Bank's determination as to
-------------------------------
when an Event of Default or Trigger Event has occurred and what course of action
to take upon the occurrence of any of the foregoing events shall be conclusive
and binding upon the Bailee and the Borrower, insofar as the Bailee's
performance of its duties hereunder, and the Bailee shall have no duty or right
to inquire as to whether the Bank is entitled to give any instruction permitted
to be given under this Agreement. Notwithstanding anything to the contrary
contained herein, the Borrower agrees to indemnify and hold the Bailee harmless
against any and all losses, liabilities, expenses (including, without
limitation, attorneys' fees, costs and expenses), claims, actions or demands
arising out of, relating to or in connection with the Bailee's compliance with
the Bank's instructions, except to the extent any such losses, liabilities,
expenses, claims, actions or demands are the result of the gross negligence or
willful misconduct of the Bailee. The foregoing indemnities in this Section 4.3
shall survive the termination of this Agreement.
4.4 INDEMNIFICATION. The Borrower hereby agrees to indemnify and hold
---------------
the Bank and Bailee harmless from any and all liability, loss, damage or expense
(including, without limitation, reasonable attorney's fees and disbursements)
incurred hereunder, in the enforcement by the Bank of any of its rights or
remedies hereunder, in any action taken by the Bank hereunder, and/or by reason
or in defense of any and all claims and demands whatsoever that may be asserted
against the Bank arising out of the Collateral or otherwise arising in respect
of the Bank acting in accordance with this Agreement (excluding, however, any
such liability, loss, damage or expense incurred by reason of the willful
misconduct or gross negligence of the Bank); and should the Bank incur any such
liability, loss, damage or expense, the amount thereof shall be payable by the
Borrower, following demand therefor, together with interest which shall
9
<PAGE>
accrue thereon at the interest rate applicable to the Loan in effect at that
time as provided for in the Loan Documents from the date of such demand, and
shall be secured by this Agreement.
4.5 BANK EXCULPATIONS. The Bank shall not be responsible for or have any
-----------------
liability for the form, legal sufficiency, genuineness, or legal effect of any
signature, description, guaranty, instruction, or document related to the
Collateral not provided by the Bank or its representatives. The Borrower agrees
that the Bank will not in any way or manner be liable or responsible for any
diminution in the value of the Collateral resulting from the release, sale or
other disposition of the Collateral at the Borrower's request, or from the
failure of the Bank to sell or consent to the sale, liquidation, reinvestment or
other disposition of the Collateral (provided that if such failure to consent
occurred prior to an Event of Default, the Bank's action or consent was not
unreasonably withheld), or for any act or default by the Bailee, any bailee,
forwarding agency, transfer agent or any person whomsoever, in connection with
the Collateral, except that for any release, sale or disposition of the
Collateral not made at the Borrower's request, the Bank may be liable for the
Bank's own gross negligence or willful misconduct.
4.6 BAILEE EXCULPATIONS The Bailee will not be responsible for or have
-------------------
any liability for the form, legal sufficiency, genuineness, or legal effect of
any signature, description, guaranty, instruction, or document related to the
Collateral not provided by the Bailee or its representatives. The Borrower
agrees that the Bailee will not in any way or manner be liable or responsible
for any diminution in the value of the Collateral resulting from the release,
sale or other disposition of the Collateral at the Borrower's request, or from
the failure of the Bailee to sell or consent to the sale, liquidation,
reinvestment or other disposition of the Collateral (provided that if such
failure to consent occurred prior to an Event of Default, the Bailee's action or
consent was not unreasonably withheld), or for any acts taken by Bailee in its
capacity as bailee hereunder or as bailee under the Collateral Bailment
Agreement, except that for any release, sale or disposition of the Collateral
not made at the Borrower's request, the Bailee may be liable for the Bailee's
own gross negligence or willful misconduct.
5. MISCELLANEOUS.
-------------
5.1 AMENDMENT. This Agreement may be amended only by a writing signed by the
----------
parties hereto. Any notice or document required by these instructions may be
signed by the heirs or successors of the Bank and the Borrower.
10
<PAGE>
5.2 GOVERNING LAW. This Agreement, and the rights of the parties
-------------
hereunder, shall be governed by the laws of the State of New York.
5.3 JURISDICTION.
------------
(a) Each of the Borrower, the Bailee and the Bank hereby irrevocably
and unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any Massachusetts state court or Federal court of the United
States of America in each case sitting in Boston, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
Borrower, the Bailee and the Bank hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such Massachusetts state or, to the extent permitted by law, in
such Federal court. Each of the Borrower and the Bank agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that a party
may otherwise have to bring any action or proceeding relating to this Agreement
against any other party or its respective properties in the court of any
jurisdiction.
(b) Each of the Borrower, the Bailee and the Bank hereby irrevocably
and unconditionally waives, to the fullest extent it may legally and effectively
do so, any objection which it may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this Agreement
in any such Massachusetts state or Federal court. Each of the Borrower, the
Bailee and the Bank hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.
(c) EACH OF THE BORROWER, THE BAILEE AND THE BANK HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE BAILEE, THE BORROWER OR
THE BANK.
5.4 COUNTERPARTS. This Agreement, and any other documents required to
------------
be signed by the parties hereunder, may be signed in counterparts, each of which
will constitute one and the same instrument.
11
<PAGE>
5.5 NOTICES. Any notices required or permitted to be given hereunder
-------
shall be delivered in the manner and shall take effect at the times specified in
the Loan Agreement. Notices to the Bank or the Borrower may be sent to the
addresses set forth in the Loan Agreement and notices to the Bailee may be sent
to the address set forth in the Collateral Bailment Agreement.
5.6 ENTIRE AGREEMENT. This Agreement, the Collateral Bailment Agreement,
----------------
the Loan Agreement, the Note, the Custodian Agreement, the Irrevocable
Instructions and Power of Attorney and the other Loan Documents embody the
entire agreement and understanding between the Bank and the Borrower and
supersede all prior agreements and understandings relating to the subject matter
hereof.
5.7 SECTION HEADINGS. Section headings are for reference only, and shall
----------------
not affect the interpretation or meaning of any provision of this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year first above written.
KOPIN CORPORATION,
a Delaware corporation
By: /s/ Paul J.Mitchell
---------------------------------
Name: Paul J. Mitchell
Title: CFO
THE SUMITOMO BANK, LIMITED
By: /s/ Daniel G. Eastman
---------------------------------
Name: Daniel G. Eastman
Title: Vice President
By: /s/ Alfred DeGemmis
---------------------------------
Name: Alfred DeGemmis
Title: Vice President
SUMITOMO BANK OF NEW YORK TRUST COMPANY
By: /s/ Shinichi Ito
---------------------------------
Name: Shinichi Ito
Title: President
13
<PAGE>
EXHIBIT 2.1
-----------
Form of Collateral Bailment Agreement
See attached
14
<PAGE>
EXHIBIT 2.3
-----------
Description of Collateral
- -------------------------
(a) All accounts, money, deposit accounts, certificated securities,
uncertificated securities, chattel paper, documents, instruments, general
intangibles and all other investment property or other property of any sort
held, maintained or administered or to be held, maintained or administered for
the Borrower by the Bailee under the Custodian Agreement by and between the
Borrower and the Bailee, together with any stock or conversion rights, rights to
subscribe, liquidation dividends or preferences, stock dividends, dividends,
rights to interest, interest payments, dividends paid in stock, distributions
thereon, new securities or other property which the Borrower is or may hereafter
become entitled to receive on account of such property.
(b) All property now owned or hereafter acquired by or for the Borrower of the
type or class described in any schedule supplementary hereto or in any financing
statement filed by the Bank and the Borrower pursuant to the Custodian
Agreement.
(c) All proceeds (including without limitation insurance proceeds from the
Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance
Corporation or the Securities Investor Protection Corporation or any other
insurance company), increase and products of any of the foregoing or
replacements thereof or substitutions therefor.
(d) All items listed in the attachments hereto, if any, and all replacements
thereof or other items purchased with any of said items or their proceeds.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-28-1998
<CASH> 35,557,165
<SECURITIES> 2,009,938
<RECEIVABLES> 5,017,712
<ALLOWANCES> 0
<INVENTORY> 2,784,485
<CURRENT-ASSETS> 45,979,083
<PP&E> 26,542,931
<DEPRECIATION> 15,775,020
<TOTAL-ASSETS> 64,704,517
<CURRENT-LIABILITIES> 6,404,833
<BONDS> 5,611,023
0
0
<COMMON> 121,467
<OTHER-SE> 52,567,194
<TOTAL-LIABILITY-AND-EQUITY> 64,704,517
<SALES> 4,660,684
<TOTAL-REVENUES> 5,466,547
<CGS> 2,723,238
<TOTAL-COSTS> 5,273,243
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,970
<INCOME-PRETAX> (611,025)
<INCOME-TAX> 0
<INCOME-CONTINUING> (611,025)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (611,025)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
